Horizontal Analysis of the Income StatementIncome statement data for Winthrop Company for two recent years ended December 31, are as follows: Current Year Previous YearSales$537,600 $420,000 Cost of goods sold462,500 370,000 Gross profit$75,100 $50,000 Selling expenses$22,420 $19,000 Administrative expenses20,160 16,000 Total operating expenses$42,580 $35,000 Income before income tax$32,520 $15,000 Income tax expenses13,000 6,000 Net income$19,520 $9,000 a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.Winthrop CompanyComparative Income StatementFor the Years Ended December 31 CurrentyearAmountPreviousyearAmountIncrease(Decrease)AmountIncrease(Decrease)PercentSales$537,600$420,000$fill in the blank 0c8da5019fd7011_1fill in the blank 0c8da5019fd7011_2%Cost of goods sold462,500370,000fill in the blank 0c8da5019fd7011_3fill in the blank 0c8da5019fd7011_4%Gross profit$75,100$50,000$fill in the blank 0c8da5019fd7011_5fill in the blank 0c8da5019fd7011_6%Selling expenses$22,420$19,000$fill in the blank 0c8da5019fd7011_7fill in the blank 0c8da5019fd7011_8%Administrative expenses20,16016,000fill in the blank 0c8da5019fd7011_9fill in the blank 0c8da5019fd7011_10%Total operating expenses$42,580$35,000$fill in the blank 0c8da5019fd7011_11fill in the blank 0c8da5019fd7011_12%Income before income tax$32,520$15,000$fill in the blank 0c8da5019fd7011_13fill in the blank 0c8da5019fd7011_14%Income tax expense13,0006,000fill in the blank 0c8da5019fd7011_15fill in the blank 0c8da5019fd7011_16%Net income$19,520$9,000$fill in the blank 0c8da5019fd7011_17fill in the blank 0c8da5019fd7011_18%b. The net income for Winthrop Company increased between years. This increase was the combined result of an (INCREASE OR DECREASE) in sales and (HIGHER OR LOWER) percentage (INCREASE OR DECREASE) in cost of goods sold. The cost of goods sold increased at a (SLOWER OR FASTER) rate than the increase in sales, thus causing the percentage increase in gross profit to be GREATER OR LESS than the percentage increase in sales.

Current Year Previous Year Difference Sales $537,600 $420,000 17600 Cost of goods…

Answered: Horizontal Analysis of the Income…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 2PB

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Horizontal Analysis of the Income Statement

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

	Current Year	Previous Year
Sales	$537,600		$420,000
Cost of goods sold	462,500		370,000
Gross profit	$75,100		$50,000
Selling expenses	$22,420		$19,000
Administrative expenses	20,160		16,000
Total operating expenses	$42,580		$35,000
Income before income tax	$32,520		$15,000
Income tax expenses	13,000		6,000
Net income	$19,520		$9,000

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

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$537,600	$420,000	$fill in the blank 0c8da5019fd7011_1	fill in the blank 0c8da5019fd7011_2%
Cost of goods sold	462,500	370,000	fill in the blank 0c8da5019fd7011_3	fill in the blank 0c8da5019fd7011_4%
Gross profit	$75,100	$50,000	$fill in the blank 0c8da5019fd7011_5	fill in the blank 0c8da5019fd7011_6%
Selling expenses	$22,420	$19,000	$fill in the blank 0c8da5019fd7011_7	fill in the blank 0c8da5019fd7011_8%
Administrative expenses	20,160	16,000	fill in the blank 0c8da5019fd7011_9	fill in the blank 0c8da5019fd7011_10%
Total operating expenses	$42,580	$35,000	$fill in the blank 0c8da5019fd7011_11	fill in the blank 0c8da5019fd7011_12%
Income before income tax	$32,520	$15,000	$fill in the blank 0c8da5019fd7011_13	fill in the blank 0c8da5019fd7011_14%
Income tax expense	13,000	6,000	fill in the blank 0c8da5019fd7011_15	fill in the blank 0c8da5019fd7011_16%
Net income	$19,520	$9,000	$fill in the blank 0c8da5019fd7011_17	fill in the blank 0c8da5019fd7011_18%

b. The net income for Winthrop Company increased between years. This increase was the combined result of an (INCREASE OR DECREASE) in sales and (HIGHER OR LOWER) percentage (INCREASE OR DECREASE) in cost of goods sold. The cost of goods sold increased at a (SLOWER OR FASTER) rate than the increase in sales, thus causing the percentage increase in gross profit to be GREATER OR LESS than the percentage increase in sales.

Expert Solution

Step 1 Calculation

	Current Year	Previous Year	Difference
Sales	$537,600	$420,000	17600
Cost of goods sold	462,500	370,000	92500
Gross profit	$75,100	$50,000	25100
Selling expenses	$22,420	$19,000	3420
Administrative expenses	20,160	16,000	4160
Total operating expenses	$42,580	$35,000	7580
Income before income tax	$32,520	$15,000	17520
Income tax expenses	13,000	6,000	7000
Net income	$19,520	$9,000	10520

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