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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Horizontal analysis for income statement
For 20Y3. Greyhound Technology Company reported its most significant decline in net income in years. At the end of the year, Duane Vogel, the president, is presented with the following condensed comparative income statement:


Instructions

Comment on the significant relationships revealed by ihe horizontal analysis prepared in (1).

To determine

Concept Introduction:

Horizontal Analysis:

Horizontal Analysis is used to analyze the trend of a particular item. Horizontal Analysis is done for particular items for different periods, for example, an analysis of the trend of sales for several years is done using the horizontal analysis.

To Indicate:

The significant findings from the horizontal analysis.

Explanation

A comparative income statement using horizontal analysis is prepared as follows:

    Horizontal Analysis of Comparative Income Statement
    Increase (Decrease)
    Year 20Y3 20Y2 Amount Percentage
    A B C = (A-B) C/B
    Sales $ 862,000 $ 785,000 $ 77,000 9.8%
    Cost of Goods Sold $ 650,000 $ 500,000 $ 150,000 30.0%
    Gross Profit $ 212,000 $ 285,000 $ (73,000)-25.6%
    Selling expenses $ 44,000 $ 40,000 $ 4,000 10...

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