For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement: McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Sales $ 16,800,000 $ 15,000,000 Cost of goods sold (11,500,000) (10,000,000) Gross profit $ 5,300,000 $ 5,000,000 Selling expenses $ (1,770,000) $ (1,500,000) Administrative expenses (1,220,000) (1,000,000) Total operating expenses $ (2,990,000) $ (2,500,000) Operating income $ 2,310,000 $ 2,500,000 Other revenue 256,950 225,000 Income before income tax expense $ 2,566,950 $ 2,725,000 Income tax expense (1,413,000) (1,500,000) Net income $ 1,153,950 $ 1,225,000 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. For those boxes in which you must enter subtracted or negative numbers use a minus sign. McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 Increase/(Decrease) 20Y2 20Y1 Amount Percent Sales $fill in the blank 13c617f4b05a06d_1 $fill in the blank 13c617f4b05a06d_2 $fill in the blank 13c617f4b05a06d_3 fill in the blank 13c617f4b05a06d_4% Cost of goods sold fill in the blank 13c617f4b05a06d_5 fill in the blank 13c617f4b05a06d_6 fill in the blank 13c617f4b05a06d_7 fill in the blank 13c617f4b05a06d_8% Gross profit $fill in the blank 13c617f4b05a06d_9 $fill in the blank 13c617f4b05a06d_10 $fill in the blank 13c617f4b05a06d_11 fill in the blank 13c617f4b05a06d_12% Selling expenses $fill in the blank 13c617f4b05a06d_13 $fill in the blank 13c617f4b05a06d_14 $fill in the blank 13c617f4b05a06d_15 fill in the blank 13c617f4b05a06d_16% Administrative expenses fill in the blank 13c617f4b05a06d_17 fill in the blank 13c617f4b05a06d_18 fill in the blank 13c617f4b05a06d_19 fill in the blank 13c617f4b05a06d_20% Total operating expenses $fill in the blank 13c617f4b05a06d_21 $fill in the blank 13c617f4b05a06d_22 $fill in the blank 13c617f4b05a06d_23 fill in the blank 13c617f4b05a06d_24% Operating income $fill in the blank 13c617f4b05a06d_25 $fill in the blank 13c617f4b05a06d_26 $fill in the blank 13c617f4b05a06d_27 fill in the blank 13c617f4b05a06d_28% Other revenue fill in the blank 13c617f4b05a06d_29 fill in the blank 13c617f4b05a06d_30 fill in the blank 13c617f4b05a06d_31 fill in the blank 13c617f4b05a06d_32 Income before income tax expense $fill in the blank 13c617f4b05a06d_33 $fill in the blank 13c617f4b05a06d_34 $fill in the blank 13c617f4b05a06d_35 fill in the blank 13c617f4b05a06d_36% Income tax expense fill in the blank 13c617f4b05a06d_37 fill in the blank 13c617f4b05a06d_38 fill in the blank 13c617f4b05a06d_39 fill in the blank 13c617f4b05a06d_40% Net income $fill in the blank 13c617f4b05a06d_41 $fill in the blank 13c617f4b05a06d_42 $fill in the blank 13c617f4b05a06d_43 fill in the blank 13c617f4b05a06d_44% 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1). Net income has declined from 20Y1 to 20Y2. Sales have increased ; however, the cost of goods sold has increased , causing the gross profit to increase at a slower pace than sales. In addition, total operating expenses have increased at a faster rate than sales. Increases in costs and expenses that are higher than the increase in sales have caused the net income to decline .

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement: McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Sales $ 16,800,000 $ 15,000,000 Cost of goods sold (11,500,000) (10,000,000) Gross profit $ 5,300,000 $ 5,000,000 Selling expenses $ (1,770,000) $ (1,500,000) Administrative expenses (1,220,000) (1,000,000) Total operating expenses $ (2,990,000) $ (2,500,000) Operating income $ 2,310,000 $ 2,500,000 Other revenue 256,950 225,000 Income before income tax expense $ 2,566,950 $ 2,725,000 Income tax expense (1,413,000) (1,500,000) Net income $ 1,153,950 $ 1,225,000 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. For those boxes in which you must enter subtracted or negative numbers use a minus sign. McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 Increase/(Decrease) 20Y2 20Y1 Amount Percent Sales $fill in the blank 13c617f4b05a06d_1 $fill in the blank 13c617f4b05a06d_2 $fill in the blank 13c617f4b05a06d_3 fill in the blank 13c617f4b05a06d_4% Cost of goods sold fill in the blank 13c617f4b05a06d_5 fill in the blank 13c617f4b05a06d_6 fill in the blank 13c617f4b05a06d_7 fill in the blank 13c617f4b05a06d_8% Gross profit $fill in the blank 13c617f4b05a06d_9 $fill in the blank 13c617f4b05a06d_10 $fill in the blank 13c617f4b05a06d_11 fill in the blank 13c617f4b05a06d_12% Selling expenses $fill in the blank 13c617f4b05a06d_13 $fill in the blank 13c617f4b05a06d_14 $fill in the blank 13c617f4b05a06d_15 fill in the blank 13c617f4b05a06d_16% Administrative expenses fill in the blank 13c617f4b05a06d_17 fill in the blank 13c617f4b05a06d_18 fill in the blank 13c617f4b05a06d_19 fill in the blank 13c617f4b05a06d_20% Total operating expenses $fill in the blank 13c617f4b05a06d_21 $fill in the blank 13c617f4b05a06d_22 $fill in the blank 13c617f4b05a06d_23 fill in the blank 13c617f4b05a06d_24% Operating income $fill in the blank 13c617f4b05a06d_25 $fill in the blank 13c617f4b05a06d_26 $fill in the blank 13c617f4b05a06d_27 fill in the blank 13c617f4b05a06d_28% Other revenue fill in the blank 13c617f4b05a06d_29 fill in the blank 13c617f4b05a06d_30 fill in the blank 13c617f4b05a06d_31 fill in the blank 13c617f4b05a06d_32 Income before income tax expense $fill in the blank 13c617f4b05a06d_33 $fill in the blank 13c617f4b05a06d_34 $fill in the blank 13c617f4b05a06d_35 fill in the blank 13c617f4b05a06d_36% Income tax expense fill in the blank 13c617f4b05a06d_37 fill in the blank 13c617f4b05a06d_38 fill in the blank 13c617f4b05a06d_39 fill in the blank 13c617f4b05a06d_40% Net income $fill in the blank 13c617f4b05a06d_41 $fill in the blank 13c617f4b05a06d_42 $fill in the blank 13c617f4b05a06d_43 fill in the blank 13c617f4b05a06d_44% 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1). Net income has declined from 20Y1 to 20Y2. Sales have increased ; however, the cost of goods sold has increased , causing the gross profit to increase at a slower pace than sales. In addition, total operating expenses have increased at a faster rate than sales. Increases in costs and expenses that are higher than the increase in sales have caused the net income to decline .

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Horizontal analysis of income statement

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1
Sales	$ 16,800,000	$ 15,000,000
Cost of goods sold	(11,500,000)	(10,000,000)
Gross profit	$ 5,300,000	$ 5,000,000
Selling expenses	$ (1,770,000)	$ (1,500,000)
Administrative expenses	(1,220,000)	(1,000,000)
Total operating expenses	$ (2,990,000)	$ (2,500,000)
Operating income	$ 2,310,000	$ 2,500,000
Other revenue	256,950	225,000
Income before income tax expense	$ 2,566,950	$ 2,725,000
Income tax expense	(1,413,000)	(1,500,000)
Net income	$ 1,153,950	$ 1,225,000

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. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
			Increase/(Decrease)
	20Y2	20Y1	Amount	Percent
Sales	$fill in the blank 13c617f4b05a06d_1	$fill in the blank 13c617f4b05a06d_2	$fill in the blank 13c617f4b05a06d_3	fill in the blank 13c617f4b05a06d_4%
Cost of goods sold	fill in the blank 13c617f4b05a06d_5	fill in the blank 13c617f4b05a06d_6	fill in the blank 13c617f4b05a06d_7	fill in the blank 13c617f4b05a06d_8%
Gross profit	$fill in the blank 13c617f4b05a06d_9	$fill in the blank 13c617f4b05a06d_10	$fill in the blank 13c617f4b05a06d_11	fill in the blank 13c617f4b05a06d_12%
Selling expenses	$fill in the blank 13c617f4b05a06d_13	$fill in the blank 13c617f4b05a06d_14	$fill in the blank 13c617f4b05a06d_15	fill in the blank 13c617f4b05a06d_16%
Administrative expenses	fill in the blank 13c617f4b05a06d_17	fill in the blank 13c617f4b05a06d_18	fill in the blank 13c617f4b05a06d_19	fill in the blank 13c617f4b05a06d_20%
Total operating expenses	$fill in the blank 13c617f4b05a06d_21	$fill in the blank 13c617f4b05a06d_22	$fill in the blank 13c617f4b05a06d_23	fill in the blank 13c617f4b05a06d_24%
Operating income	$fill in the blank 13c617f4b05a06d_25	$fill in the blank 13c617f4b05a06d_26	$fill in the blank 13c617f4b05a06d_27	fill in the blank 13c617f4b05a06d_28%
Other revenue	fill in the blank 13c617f4b05a06d_29	fill in the blank 13c617f4b05a06d_30	fill in the blank 13c617f4b05a06d_31	fill in the blank 13c617f4b05a06d_32
Income before income tax expense	$fill in the blank 13c617f4b05a06d_33	$fill in the blank 13c617f4b05a06d_34	$fill in the blank 13c617f4b05a06d_35	fill in the blank 13c617f4b05a06d_36%
Income tax expense	fill in the blank 13c617f4b05a06d_37	fill in the blank 13c617f4b05a06d_38	fill in the blank 13c617f4b05a06d_39	fill in the blank 13c617f4b05a06d_40%
Net income	$fill in the blank 13c617f4b05a06d_41	$fill in the blank 13c617f4b05a06d_42	$fill in the blank 13c617f4b05a06d_43	fill in the blank 13c617f4b05a06d_44%

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

Net income has declined from 20Y1 to 20Y2. Sales have increased ; however, the cost of goods sold has increased , causing the gross profit to increase at a slower pace than sales. In addition, total operating expenses have increased at a faster rate than sales. Increases in costs and expenses that are higher than the increase in sales have caused the net income to decline .

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