# Horizontal analysis of income statement For 20Y2, Macklin Inc. reported a significant increase in net income. At the end of the year, John Mayer, the president, is presented with the following condensed comparative income statement: Macklin Inc. Comparative Income Statement For the Years Ended December 31,20Y2 and 20Y1 20Y2 20Y1 Sales..................... $910,000$700,000 Cost of goods sold......... 441,000 350,000 Gross profit............... $469,000$350,000 Selling expenses.......... $139,150$115,000 Administrative expenses............... 99,450 85,000 Total operating expenses............... $238,600$200,000 Income from operations .., $230,400$150,000 Other revenue............ 65,000 50,000 Income before income tax............... $295,400$200,000 Income tax expense....... 65,000 50,000 Net income............... $230,400$150,000 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).

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 17, Problem 17.1BPR
Textbook Problem

## Horizontal analysis of income statementFor 20Y2, Macklin Inc. reported a significant increase in net income. At the end of the year, John Mayer, the president, is presented with the following condensed comparative income statement: Macklin Inc. Comparative Income Statement For the Years Ended December 31,20Y2 and 20Y1     20Y2 20Y1 Sales.....................   $910,000$700,000 Cost of goods sold.........   441,000 350,000 Gross profit...............   $469,000$350,000 Selling expenses..........   $139,150$115,000 Administrative expenses...............   99,450 85,000 Total operating expenses...............   $238,600$200,000 Income from operations ..,   $230,400$150,000 Other revenue............   65,000 50,000 Income before income tax...............   $295,400$200,000 Income tax expense.......   65,000 50,000 Net income...............   $230,400$150,000 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

2.

To determine

To comment: Significant relationships revealed by the horizontal analysis.

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