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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
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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:

Chapter 17, Problem 1PB, Horizontal analysis of income statement For 20Y2, Macklin Inc. reported a significant increase in

Instructions

  1. 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. 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1).

1.

To determine

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

Explanation

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.

Prepare the horizontal analysis of the comparative income statement of Company M in the table presented as below:

Company M

Comparative Income Statement

For the Year Ended December 31, 20Y2 and 20Y1

Particulars

20Y220Y1Increase (Decrease)              
AmountPercentage
 ($)($)($)%
Sales910,000700,000210,00030.0%
Cost of goods sold441,000350,00091,00026.0%
Gross profit469,000350,000119,00034.0%
Selling expenses139,150115,00024,15021...

2.

To determine

Comment on the significant relationships revealed by the horizontal analysis.

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