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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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 $2,280,000 $2,000,000
Cost of goods sold 1,960,000 1,750,000
Gross profit $ 320,000 $ 250,000
Selling expenses $ 156,500 $ 125,000
Administrative expenses 122,000 100.000
Total operating expenses $ 278,500 $ 225,000
Income before income tax $ 41,500 S 25,000
Income tax expense 16,600 10,000
Net income $ 24,900 $ 15,000

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

b. What conclusions can be drawn from the horizontal analysis?

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 W.

Given info: Income statement for current year and previous year.

Explanation

Following formula is used for computing the change in dollar amount of items in the balance sheet for current year and previous year, and the percentage change for the respective items.

Change in amount = Amount in current year-Amou

2.

To determine

To provide: Conclusion from the horizontal analysis. 

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