Income statement data for Winthrop Company for two recent years ended December 31 are as follows:

1		Current Year	Previous Year
2	Sales	$1,596,000.00	$1,400,000.00
3	Cost of goods sold	1,316,700.00	1,197,000.00
4	Gross profit	$279,300.00	$203,000.00
5	Selling expenses	$76,950.00	$67,500.00
6	Administrative expenses	55,000.00	50,000.00
7	Total operating expenses	$131,950.00	$117,500.00
8	Income before income tax	$147,350.00	$85,500.00
9	Income tax expense	11,060.00	7,000.00
10	Net income	$136,290.00	$78,500.00

A.	Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.
B.	What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.

Income Statement

Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.

Winthrop Company

Comparative Income Statement

For the Years Ended December 31

1				Increase (Decrease)	Increase (Decrease)
2		Current Year	Previous Year	Amount	Percent
3	Sales	$1,596,000.00	$1,400,000.00
4	Cost of goods sold	1,316,700.00	1,197,000.00
5	Gross profit	$279,300.00	$203,000.00
6	Selling expenses	$76,950.00	$67,500.00
7	Administrative expenses	55,000.00	50,000.00
8	Total operating expenses	$131,950.00	$117,500.00
9	Income before income tax	$147,350.00	$85,500.00
10	Income tax expense	11,060.00	7,000.00
11	Net income	$136,290.00	$78,500.00

Solution

Winthrop Company

Comparative Income Statement

For the Years Ended December 31

1				Increase (Decrease)	Increase (Decrease)
2		Current Year	Previous Year	Amount	Percent
3	Sales	$1,596,000.00	$1,400,000.00
4	Cost of goods sold	1,316,700.00	1,197,000.00
5	Gross profit	$279,300.00	$203,000.00
6	Selling expenses	$76,950.00	$67,500.00
7	Administrative expenses	55,000.00	50,000.00
8	Total operating expenses	$131,950.00	$117,500.00
9	Income before income tax	$147,350.00	$85,500.00
10	Income tax expense	11,060.00	7,000.00
11	Net income	$136,290.00	$78,500.00

Final Question

What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.

The net income for Winthrop Company increased by approximately% this year. This increase was the combined result of an selector 1

decrease

increase

in sales of% and selector 2

lower

higher

percentage selector 3

increase

decrease

in cost of goods sold.

Points:

The cost of goods sold increased at a selector 1

faster

slower

rate than the increase in sales, thus causing the percentage increase in gross profit to be selector 2

less

greater

than the percentage increase in sales.