Bundle: Financial & Managerial Accounting, 13th + CengageNOWv2, 2 terms (12 months) Printed Access Card
13th Edition
ISBN: 9781305618909
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 15, Problem 15.1APR
Horizontal analysis of income statement
For 2016, Clapton Company reported a decline in net income. At the end of the year, S. Hand, the president, is presented with the following condensed comparative income statement:
| Indigo Company Comparative Income Statement For the Years Ended December 31, 2016 and 2015 |
||
| 2016 | 2015 | |
| Sales..................... | $6,750,000 | $6,000,000 |
| Cost of goods sold......... | 2,480,000 | 2,000,000 |
| Gross profit............... | $ 4,270,400 | $4,000,000 |
| Selling expenses.......... | $1,260,000 | $1,000,000 |
| Administrative expenses…. | 625,000 | 500,000 |
| Total operating expenses…. | $1,885,000 | $1,500,000 |
| Income from operators.... | $2,385,000 | $2,500,000 |
| Other income............ | 110,000 | 100,000 |
| Income before income tax…. | $2,495,000 | $2,600,000 |
| Income tax expense....... | 60,000 | 50,000 |
| Net income............... | $2,435,000 | $2,550,000 |
Instructions
- 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2015 as the base year. Round to one decimal place.
- 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1).
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A. The following items were taken from the
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year period: Using the horizontal analysis and
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favorable or unfavorable for each item.
Item
2018
Net Sales
825,000
Cost of Goods Sold
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195,000
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2017
P
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580,000
160,000
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Vertical analysis (common-size) percentages for Baker Company’s sales revenue, cost of goods sold, and expenses are as follows. Did Baker’s net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for your answer.
Vertical Analysis
2018
2017
2016
Sales revenue
100.0%
100.0%
100.0%
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60.0
63.9
65.0
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26.0
26.6
27.5
In its year-end financial statements, Pillar Inc. reported the following (in millions):
2016
2015
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$38,152
$46,541
Cost of goods sold
$28,309
$33,211
As a percentage of sales, did Pillar's gross profit increase or decrease during the year?
Select one:
a. Gross profit decreased from 28.6% to 25.8%
b. Gross profit increased from 71.4% to 74.2%
c. Gross profit decreased from 74.2% to 71.4%
d. There is not enough information to answer the question.
e. Gross profit increased from 25.8% to 28.6%
Chapter 15 Solutions
Bundle: Financial & Managerial Accounting, 13th + CengageNOWv2, 2 terms (12 months) Printed Access Card
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