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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Complete the following comparative income statement with horizontal analysis for Timely Watch Company. Inc.

Timely Watch Company, Inc.

Comparative Income Statement

2016 2015 Increase (Decrease) Amount Percent
Revenue
Gross Sales $1,223,000 $996,500
Less: Sales Returns and Allowances 121,340 99,600
Sales Discounts 63,120 51,237
Net Sales
Cost of Goods Sold
Merchandise Inventory. Jan. 1 311,200 331,000
Purchases 603,290 271,128
Freight In 18,640 13,400
Goods Available for Sale
Less: Merchandise Inventory. Dec. 31 585,400 311,200
Cost of Goods Sold
Gross Margin
2016 2015 Increase (Decrease) Amount Percent
Operating Expenses
Salaries and Benefits 215,200 121,800
Rent and Utilities 124,650 124,650
Depreciation 43,500 41,230
Insurance 24,970 23,800
Administrative Store Expenses 58,200 33,900
Warehouse Expenses 42,380 45,450
Total Operating Expenses
Income before Taxes
Income Tax 66,280 41,670
Net Income

To determine

To calculate: The comparative income sheet with horizontal analysis if comparative income statement of Timely Watch Company, Inc. for the year 2015 and 2016 is:

Timely Watch Company, Inc. Comparative Income Statement Increase (Decrease)
Revenue 2016($) 2015($) Amount ($) Percent (%)
Gross Sales 1,223,000 996,500
Less: Sales Returns and Allowances 121,340 99,600
Sales Discounts 63,120 51,237
Net Sales
Cost of goods sold
Merchandise Inventory Jan. 1 311,200 331,000
Purchases 603,290 271,128
Freight in 18,640 13,400
Goods available for sale
Less: Merchandise Inventory, Dec. 31 585,400 311,200
Cost of goods sold
Gross Margin
Operating Expenses
Salaries and benefits 215,200 121,800
Rents and Utilities 124,650 124,650
Depreciation 43,500 41,230
Insurance 24,970 23,800
Administrative Expenses 58,200 33,900
Warehouse Expenses 42,380 45,450
Total Operating Expenses
Income before Taxes
Income tax 66,280 41,670
Net-Income
Explanation

Given Information:

The comparative income statement of Timely Watch Company, Inc. for the year 2015 and 2016 with horizontal analysis is:

Timely Watch Company, Inc. Comparative Income Statement Increase (Decrease)
Revenue 2016($) 2015($) Amount($) Percent (%)
Gross Sales 1,223,000 996,500
Less: Sales Returns and Allowances 121,340 99,600
Sales Discounts 63,120 51,237
Net Sales
Cost of goods sold
Merchandise Inventory Jan. 1 311,200 331,000
Purchases 603,290 271,128
Freight in 18,640 13,400
Goods available for sale
Less: Merchandise Inventory, Dec. 31 585,400 311,200
Cost of goods sold
Gross Margin
Operating Expenses
Salaries and benefits 215,200 121,800
Rents and Utilities 124,650 124,650
Depreciation 43,500 41,230
Insurance 24,970 23,800
Administrative Expenses 58,200 33,900
Warehouse Expenses 42,380 45,450
Total Operating Expenses
Income before Taxes
Income tax 66,280 41,670
Net-Income

Formula used:

Follow the steps to prepare a horizontal analysis of an income statement:

Step 1: Prepare a comparative income statement with the current period listed first and the previous period listed next.

Step 2: Name the next two columns as:

Increase(Decrease)Amount     Percent

Step 3: Compute the dollar difference between the current and previous periods and note in the amount column. Enter all decreases in the parentheses.

Step 4: Compute the percent change using the percentage formula:

Percent change(rate)=Amount of change, Step3(portion)Previous period amount(base)

Step 5: Note the percent change in the percent column. Again, enter all decreases in the parentheses.

Calculation:

Compute the amount increase or decrease in the cash balance:

For gross sales;

2016amount2015amount=$1,223,000$996,500=$226,500

For Less: Sales Returns and Allowances;

2016amount2015amount=$121,340$99,600=$21,740

Similarly, find the amount of other items;

Compute the percent increase or decrease in the income statement;

For gross sales;

Percent change=Amount of changePrevious period amount=$226,500$996,500=22.7%

For Less: Sales Returns and Allowances;

Percent change=Amount of changePrevious period amount=$21,740$99,600=21.8%

Similarly, find the percent change of other items;

Calculation for the year 2016:

Compute the net sales by substituting sales returns and allowances, sales discount and gross sales:

Net sales=Gross salesSales returns and allowancessales discounts=1,223,000121,34063,120=$1,038,540

Compute cost of goods sold by substituting merchandise inventory, purchases and freight in, then subtract merchandise inventory for Dec.31,2016:

Costs of goods sold=311,200+603,290+18,640585,400=933,130585,400=$347,730

Compute gross margin by substituting net sales and cost of goods sale:

Gross Margin=Net SalesCost of goods sold=1,038,540347,730=$690,810

Compute Total Operating Expenses by substituting salaries, rent and utilities, depreciation, insurance, administrative expense, and warehouse expenses:

Total Operating Expenses=Salaries+Rent andUtilities+Depreciation+Insurance+Administrative Expenses+Warehouse expenses=215,200+124,650+43,500+58,200+24,970+42,380=$508,900

Compute income before taxes by substituting total operating expenses and gross margin:

Income before taxes=Gross MarginTotal operating income=690,810508,900=$181,910

Compute net income by substituting income before taxes and income tax:

Net income=Income before taxesIncome tax=181,91066,280=$115,630

Calculation for the year 2015:

Compute the net sales by substituting sales returns and allowances, sales discount and gross sales:

Net sales=Gross salesSales returns and allowancessales discounts=996,50099,60051,237=$845,663

Compute cost of goods sold by substituting merchandise inventory, purchases and freight in, then subtracting merchandise inventory for Dec

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Sect-15.I P-8RESect-15.I P-9RESect-15.I P-10RESect-15.I P-11RESect-15.I P-12RESect-15.I P-13RESect-15.I P-14RESect-15.I P-15RESect-15.I P-16RESect-15.I P-17RESect-15.I P-18RESect-15.I P-19RESect-15.I P-20RESect-15.I P-21RESect-15.I P-22RESect-15.I P-23RESect-15.I P-24RESect-15.I P-25RESect-15.I P-26RESect-15.I P-27RESect-15.I P-28RESect-15.I P-29RESect-15.I P-30RESect-15.I P-31RESect-15.I P-32RESect-15.I P-33RESect-15.I P-34RESect-15.I P-35RESect-15.II P-4TIESect-15.II P-5TIESect-15.II P-6TIESect-15.II P-1RESect-15.II P-2RESect-15.II P-3RESect-15.II P-4RESect-15.II P-5RESect-15.II P-6RESect-15.II P-7RESect-15.II P-8RESect-15.II P-9RESect-15.II P-10RESect-15.II P-11RESect-15.II P-12RESect-15.II P-13RESect-15.II P-14RESect-15.II P-15RESect-15.III P-7TIESect-15.III P-8TIESect-15.III P-1RESect-15.III P-2RESect-15.III P-3RESect-15.III P-4RESect-15.III P-5RESect-15.III P-6RESect-15.III P-7RESect-15.III P-8RESect-15.III P-9RESect-15.III P-10RESect-15.III P-11RESect-15.III P-12RESect-15.III P-13RESect-15.III P-14RESect-15.III P-15RESect-15.III P-16RESect-15.III P-17RESect-15.III P-18RESect-15.III P-19RESect-15.III P-20RESect-15.III P-21RESect-15.III P-22RESect-15.III P-23RESect-15.III P-24RESect-15.III P-25RESect-15.III P-26RESect-15.III P-27RESect-15.III P-28RESect-15.III P-29RESect-15.III P-30RESect-15.III P-31RESect-15.III P-32RESect-15.III P-33RECh-15 P-1CRCh-15 P-2CRCh-15 P-3CRCh-15 P-4CRCh-15 P-5CRCh-15 P-6CRCh-15 P-7CRCh-15 P-8CRCh-15 P-9CRCh-15 P-10CRCh-15 P-11CRCh-15 P-12CRCh-15 P-13CRCh-15 P-14CRCh-15 P-1ATCh-15 P-2ATCh-15 P-3ATCh-15 P-4ATCh-15 P-5ATCh-15 P-6ATCh-15 P-7ATCh-15 P-8ATCh-15 P-9ATCh-15 P-10ATCh-15 P-11ATCh-15 P-12ATCh-15 P-13ATCh-15 P-14ATCh-15 P-15ATCh-15 P-16ATCh-15 P-17ATCh-15 P-18ATCh-15 P-19ATCh-15 P-20ATCh-15 P-21ATCh-15 P-22ATCh-15 P-23ATCh-15 P-24AT

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