# Horizontal analysis of income statement For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income Statement: McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Sales.......................... $16,800,000$15,000,000 Cost of goods sold.............. 11,500,000 10,000,000 Gross profit.................... $5,300,000$ 5,000,000 Selling expenses............... $1,770,000$ 1,500,000 Administrative expenses........ 1,220,000 $1,000,000 Total operating expenses.......$ 2,990,000 $2,500,000 Income from operations........$ 2,310,000 $2,500,000 Other revenue................. 256,950 225,000 Income before income tax......$ 2,566,950 $2,725,000 Income tax expense............ 1,413,000 1,500,000 Net income....................$ 1,153,950 $1,225,0000 Instructions 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1). BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 #### Solutions Chapter Section Chapter 17, Problem 17.1APR Textbook Problem ## Horizontal analysis of income statementFor 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income Statement: McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Sales..........................$16,800,000 $15,000,000 Cost of goods sold.............. 11,500,000 10,000,000 Gross profit....................$ 5,300,000 $5,000,000 Selling expenses...............$ 1,770,000 $1,500,000 Administrative expenses........ 1,220,000$ 1,000,000 Total operating expenses....... $2,990,000$ 2,500,000 Income from operations........ $2,310,000$ 2,500,000 Other revenue................. 256,950 225,000 Income before income tax...... $2,566,950$ 2,725,000 Income tax expense............ 1,413,000 1,500,000 Net income.................... $1,153,950$ 1,225,0000 Instructions1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place.2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1).

Expert Solution

1.

To determine

Horizontal Analysis

Horizontal analysis refers to the measurement of percentage change in the comparative financial statements. It compares the items from the financial statements from one to the other years, and indicates the trends.

To Prepare: The horizontal analysis of the comparative income statement of Company M for the year 20Y2.

Given info: Income statement for 20Y2 and 20Y1.

### Explanation of Solution

Following formula is used for computing the change in dollar amount of items in the income statement of 20Y1 and 20Y2, and the percentage change for the respective items.

ChangeÂ inÂ amountÂ =Â AmountÂ inÂ 20Y2-Amou

Expert Solution
To determine

2.

To comment: Significant relationships revealed by the horizontal analysis.

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