Working Papers, Chapters 1-17 for Warren/Reeve/Duchac’s Accounting, 27th and Financial Accounting, 15th
27th Edition
ISBN: 9781337272155
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 17, Problem 17.1APR
1.
To determine
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.
To Prepare: The horizontal analysis of the comparative income statement of Company M for the year 20Y2.
Given info: Income statement for 20Y2 and 20Y1.
To determine
2.
To comment: Significant relationships revealed by the horizontal analysis.
Expert Solution & Answer
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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 CompanyComparative Income StatementFor 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
Income from operations........
$ 2,310,000
$ 2,500,000
Other revenue.................
256,950
225,000
Income before income tax......
$ 2,566,950
$ 2,725,000
Income tax expense............
1,413,000
1,500,000
Net income....................
$ 1,153,950
$ 1,225,0000
Instructions1. Prepare a comparative income statement with horizontal analysis for the…
Horizontal Analysis of Income Statement
For 20Y2, Macklin Inc. reported a significant decrease in net income. At the end of the year, John Mayer, the
president, is presented with the following condensed comparative income statement:
Macklin Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2
20Y1
Sales
$794,884 $722,000
i ne si st
Cost of goods sold
(561,200) (460,000)
Gross profit
$233,684 $262,000
Selling expenses
$(77,780) $(61,000)
Administrative expenses
(45,520)
(38,000)
$(123,300) $(99,000)
Total operating expenses
Operating income
$110,384 $163,000
Other revenue
3,846
Income before income tax expense $114,230 $166,000
Income tax expense
(32,000)
(49,800)
$82,230 $116,200
Net income
Required:
1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base
year. Use the minus sign to indicate a decrease in the "Increase/(Decrease)" columns. If required, round percentages
to one decimal place.…
Compute common-size percents for the following comparative income statements (round percents to one decimal). Using the common-size percents, which item is most responsible for the decline in net income?
Chapter 17 Solutions
Working Papers, Chapters 1-17 for Warren/Reeve/Duchac’s Accounting, 27th and Financial Accounting, 15th
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