Income statement data for Winthrop Company for two recent years ended December 3
ID: 2516206 • Letter: I
Question
Income statement data for Winthrop Company for two recent years ended December 31 are as follows:
Question not attempted.
1
Current Year
Previous Year
2
Sales
$1,836,800.00
$1,640,000.00
3
Cost of goods sold
1,556,442.00
1,402,200.00
4
Gross profit
$280,358.00
$237,800.00
5
Selling expenses
$79,800.00
$70,000.00
6
Administrative expenses
48,840.00
44,000.00
7
Total operating expenses
$128,640.00
$114,000.00
8
Income before income tax
$151,718.00
$123,800.00
9
Income tax expense
12,300.00
8,200.00
10
Net income
$139,418.00
$115,600.00
What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.
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
$1,836,800.00
$1,640,000.00
?
?
4
Cost of goods sold
1,556,442.00
1,402,200.00
?
?
5
Gross profit
$280,358.00
$237,800.00
?
6
Selling expenses
$79,800.00
$70,000.00
?
?
7
Administrative expenses
48,840.00
44,000.00
?
?
8
Total operating expenses
$128,640.00
$114,000.00
?
9
Income before income tax
$151,718.00
$123,800.00
?
10
Income tax expense
12,300.00
8,200.00
?
?
11
Net income
$139,418.00
$115,600.00
?
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
$1,836,800.00
$1,640,000.00
4
Cost of goods sold
1,556,442.00
1,402,200.00
5
Gross profit
$280,358.00
$237,800.00
6
Selling expenses
$79,800.00
$70,000.00
7
Administrative expenses
48,840.00
44,000.00
8
Total operating expenses
$128,640.00
$114,000.00
9
Income before income tax
$151,718.00
$123,800.00
10
Income tax expense
12,300.00
8,200.00
11
Net income
$139,418.00
$115,600.00
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 increase in sales of ____% and lower percentage increase in cost of goods sold.
The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.
1
Current Year
Previous Year
2
Sales
$1,836,800.00
$1,640,000.00
3
Cost of goods sold
1,556,442.00
1,402,200.00
4
Gross profit
$280,358.00
$237,800.00
5
Selling expenses
$79,800.00
$70,000.00
6
Administrative expenses
48,840.00
44,000.00
7
Total operating expenses
$128,640.00
$114,000.00
8
Income before income tax
$151,718.00
$123,800.00
9
Income tax expense
12,300.00
8,200.00
10
Net income
$139,418.00
$115,600.00
Explanation / Answer
Answer:
1
Current Year
Previous Year
Increase
(Decrease)
Increase (Decrease)
Amount
%
Sales
1836800
1640000
196800
12.00%
Cost of goods sold
1556442
1402200
154242
11.00%
Gross profit
280358
237800
42558
17.90%
Selling expenses
79800
70000
9800
14.00%
Administrative expenses
48840
44000
4840
11.00%
Total operating expenses
128640
114000
14640
12.84%
Income before income tax
151718
123800
27918
22.55%
Income tax expense
12300
8200
4100
50.00%
Net income
139418
115600
23818
20.60%
2
The net income for Winthrop Company increased by approximately 20.60% this year. This increase was the combined result of an increase in sales of _12% and lower percentage increase in cost of goods sold.
The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.
Current Year
Previous Year
Increase
(Decrease)
Increase (Decrease)
Amount
%
Sales
1836800
1640000
196800
12.00%
Cost of goods sold
1556442
1402200
154242
11.00%
Gross profit
280358
237800
42558
17.90%
Selling expenses
79800
70000
9800
14.00%
Administrative expenses
48840
44000
4840
11.00%
Total operating expenses
128640
114000
14640
12.84%
Income before income tax
151718
123800
27918
22.55%
Income tax expense
12300
8200
4100
50.00%
Net income
139418
115600
23818
20.60%