Income statement data for Winthrop Company for two recent years ended December 3
ID: 2535476 • Letter: I
Question
Income statement data for Winthrop Company for two recent years ended December 31 are as follows:
1
Current Year
Previous Year
2
Sales
$2,280,000.00
$2,000,000.00
3
Cost of goods sold
1,960,000.00
1,750,000.00
4
Gross profit
$320,000.00
$250,000.00
5
Selling expenses
$156,500.00
$125,000.00
6
Administrative expenses
122,000.00
100,000.00
7
Total operating expenses
$278,500.00
$225,000.00
8
Income before income tax
$41,500.00
$25,000.00
9
Income tax expense
16,600.00
10,000.00
10
Net income
$24,900.00
$15,000.00
1
Current Year
Previous Year
2
Sales
$2,280,000.00
$2,000,000.00
3
Cost of goods sold
1,960,000.00
1,750,000.00
4
Gross profit
$320,000.00
$250,000.00
5
Selling expenses
$156,500.00
$125,000.00
6
Administrative expenses
122,000.00
100,000.00
7
Total operating expenses
$278,500.00
$225,000.00
8
Income before income tax
$41,500.00
$25,000.00
9
Income tax expense
16,600.00
10,000.00
10
Net income
$24,900.00
$15,000.00
Explanation / Answer
Solution A:
S.No.
Particulars
Current Year ($)
Previous Year ($)
Increase or (Decrease)
1
*Amount ($)
**Percentage (%)
2
Sales
$2,280,000.00
$2,000,000.00
$ 280,000.00
14.0
3
Cost of goods sold
1,960,000.00
1,750,000.00
210,000.00
12.0
4
Gross profit
$320,000.00
$250,000.00
70,000.00
28.0
5
Selling expenses
$156,500.00
$125,000.00
31,500.00
25.2
6
Administrative expenses
122,000.00
100,000.00
22,000.00
22.0
7
Total operating expenses
$278,500.00
$225,000.00
53,500.00
23.7
8
Income before income tax
$41,500.00
$25,000.00
16,500.00
66.0
9
Income tax expense
16,600.00
10,000.00
6,600.00
66.0
10
Net income
$24,900.00
$15,000.00
9,900.00
66.0
*Amount of change or increase or decrease
= Current year amount – Previous year amount
**Percentage of change or increase or decrease
= Amount of change / Previous year amount X 100
Answer B.
The net income for Winthrop Company increased by 66 % this year. This increase was the combined result of an increase in sales of 14% and lower percentage increase (12%) in cost of goods sold.
The cost of goods sold increased at a slower rate than the increase in sales, thus causing the 28 percentage increase in gross profit which is greater than the percentage increase in sales that is 14%.
S.No.
Particulars
Current Year ($)
Previous Year ($)
Increase or (Decrease)
1
*Amount ($)
**Percentage (%)
2
Sales
$2,280,000.00
$2,000,000.00
$ 280,000.00
14.0
3
Cost of goods sold
1,960,000.00
1,750,000.00
210,000.00
12.0
4
Gross profit
$320,000.00
$250,000.00
70,000.00
28.0
5
Selling expenses
$156,500.00
$125,000.00
31,500.00
25.2
6
Administrative expenses
122,000.00
100,000.00
22,000.00
22.0
7
Total operating expenses
$278,500.00
$225,000.00
53,500.00
23.7
8
Income before income tax
$41,500.00
$25,000.00
16,500.00
66.0
9
Income tax expense
16,600.00
10,000.00
6,600.00
66.0
10
Net income
$24,900.00
$15,000.00
9,900.00
66.0