Chapter 15, Problem 15.1APR

Horizontal analysis of income statement

For 2016, Clapton Company reported a decline in net income. At the end of the year, S. Hand, the president, is presented with the following condensed comparative income statement:

Indigo Company Comparative Income Statement For the Years Ended December 31, 2016 and 2015
	2016	2015
Sales.....................	$6,750,000	$6,000,000
Cost of goods sold.........	2,480,000	2,000,000
Gross profit...............	$ 4,270,400	$4,000,000
Selling expenses..........	$1,260,000	$1,000,000
Administrative expenses….	625,000	500,000
Total operating expenses….	$1,885,000	$1,500,000
Income from operators....	$2,385,000	$2,500,000
Other income............	110,000	100,000
Income before income tax….	$2,495,000	$2,600,000
Income tax expense.......	60,000	50,000
Net income...............	$2,435,000	$2,550,000

Instructions

1. 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2015 as the base year. Round 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).