Chapter 18 Handout Assignment Question 1 The income statements for the first three years of operations of Carol's Music Ltd. are provided below: 2022 2021 2020 Revenue........ $ 143,750 $ 115,000 $ 100,000 Cost of goods sold. 68.350 53,820 46,000 Gross profit. 75,400 61,180 54,000 Expenses Salaries........... 19,000 15,080 13,000 Depreciation expense........ 22,000 15,000 4,000 Other operating expenses..... 27,360 22,800 20,000 Total operating expenses..... 68.360 52.880 37,000 Profit from operations ...... 7,040 8,300 17,000 Interest expense...... (5,000) (3,000) (1,000) Income tax expense (600) (980) (2.000) Profit........ $ 1.440 $ 4.320 $ 14,000 Instructions a) Is Carol's gross profit improving over the three years or not? Use horizontal analysis, with 2020 as the base year, to support your answer. b) Provide one explanation for the decline in income from operations other than changes in gross profit. Support your answer using vertical analysis. c) Although profit is decreasing, Carol has not been concerned because her cash flows have increased from year to year. Using the information available in the income statements, explain why this is so