Horizontal Analysis of the Income Statement
Income statement data for Winthrop Company for two recent yearsended December 31, are as follows:
| CurrentYear | | PreviousYear |
| Sales | $736,600 | | | $580,000 | |
| Cost of goods sold | 607,600 | | | 490,000 | |
| Gross profit | $129,000 | | | $90,000 | |
| Selling expenses | $37,440 | | | $32,000 | |
| Administrative expenses | 33,750 | | | 27,000 | |
| Total operating expenses | $71,190 | | | $59,000 | |
| Income before income tax | $57,810 | | | $31,000 | |
| Income tax expenses | 23,100 | | | 12,400 | |
| Net income | $34,710 | | | $18,600 | |
a. Prepare a comparative income statement withhorizontal analysis, indicating the increase (decrease) for thecurrent year when compared with the previous year. If required,round to one decimal place.
| Winthrop Company |
| Comparative Income Statement |
| For the Years Ended December 31 |
| Current
year
Amount | Previous
year
Amount | Increase
(Decrease)
Amount | Increase
(Decrease)
Percent |
| Sales | $736,600 | $580,000 | $ | % |
| Cost of goods sold | 607,600 | 490,000 | | % |
| Gross profit | $129,000 | $90,000 | $ | % |
| Selling expenses | $37,440 | $32,000 | $ | % |
| Administrative expenses | 33,750 | 27,000 | | % |
| Total operating expenses | $71,190 | $59,000 | $ | % |
| Income before income tax | $57,810 | $31,000 | $ | % |
| Income tax expense | 23,100 | 12,400 | | % |
| Net income | $34,710 | $18,600 | $ | % |
b. The net income for Winthrop Companyincreased between years. This increase was the combined result ofan ___ in sales and percentage ____ in cost of goodssold. The cost of goods sold increased at a ___ rate than theincrease in sales, thus causing the percentage increase in grossprofit to be than the percentage increase insales.
