Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
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Question
Chapter 9, Problem 9.5E
To determine
Concept Introduction:
Horizontal Analysis:
Horizontal Analysis is used to analyze the trend of an item. Horizontal Analysis is done in different periods for example analysis of trend of sales for several years is done using the horizontal analysis.
Requirement-a:
To Prepare:
The Comparative Income Statement using horizontal analysis.
Expert Solution
Answer to Problem 9.5E
The Comparative Income Statement using horizontal analysis
| Horizontal Analysis of Comparative Income Statement | ||||
| Year | Percentage | |||
| Sales | 9.8% | |||
| Cost of Goods Sold | 30.0% | |||
| Gross Profit | -25.6% | |||
| Selling expenses | 10.0% | |||
| Administrative expenses | 8.0% | |||
| Total Operating expenses | 9.2% | |||
| Income from operations | -35.9% | |||
| Other Revenue | 15.0% | |||
| Income before income tax | -35.5% | |||
| Income Tax Expense | -35.0% | |||
| Net Income | -35.5% | |||
Explanation of Solution
The Comparative Income Statement using horizontal analysis is prepared as follows:
| Horizontal Analysis of Comparative Income Statement | ||||
| Increase (Decrease) | ||||
| Year | 20Y5 | 20Y4 | 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 | 10.0% |
| Administrative expenses | $ 27,000 | $ 25,000 | $ 2,000 | 8.0% |
| Total Operating expenses | $ 71,000 | $ 65,000 | $ 6,000 | 9.2% |
| Income from operations | $ 141,000 | $ 220,000 | $ (79,000) | -35.9% |
| Other Revenue | $ 2,300 | $ 2,000 | $ 300 | 15.0% |
| Income before income tax | $ 143,300 | $ 222,000 | $ (78,700) | -35.5% |
| Income Tax Expense | $ 13,000 | $ 20,000 | $ (7,000) | -35.0% |
| Net Income | $ 130,300 | $ 202,000 | $ (71,700) | -35.5% |
To determine
Concept Introduction:
Horizontal Analysis:
Horizontal Analysis is used to analyze the trend of a particular item. Horizontal Analysis is done for items for different periods for example sale trends for several years are found using horizontal analysis.
Requirement-a:
To Indicate:
The results from horizontal analysis.
Expert Solution
Answer to Problem 9.5E
The significant results from horizontal analysis are as follows:
- Cost of goods sold has increased more as compared with sales, which has resulted in decrease in gross profit.
- Income from operation has decreased mainly due to decrease in gross profit.
Explanation of Solution
The Comparative Income Statement using horizontal analysis is prepared as follows:
| Horizontal Analysis of Comparative Income Statement | ||||
| Increase (Decrease) | ||||
| Year | 20Y5 | 20Y4 | 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 | 10.0% |
| Administrative expenses | $ 27,000 | $ 25,000 | $ 2,000 | 8.0% |
| Total Operating expenses | $ 71,000 | $ 65,000 | $ 6,000 | 9.2% |
| Income from operations | $ 141,000 | $ 220,000 | $ (79,000) | -35.9% |
| Other Revenue | $ 2,300 | $ 2,000 | $ 300 | 15.0% |
| Income before income tax | $ 143,300 | $ 222,000 | $ (78,700) | -35.5% |
| Income Tax Expense | $ 13,000 | $ 20,000 | $ (7,000) | -35.0% |
| Net Income | $ 130,300 | $ 202,000 | $ (71,700) | -35.5% |
The significant findings from the horizontal analysis are as follows:
- Cost of goods sold has increased more as compared to sales, which has resulted in decrease in gross profit.
- Income from operation has decreased mainly due to decrease in gross profit.
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Students have asked these similar questions
Income statements for Campbell Company for Year 3 and Year 4 follow:
CAMPBELL COMPANY
Income Statements
Year 4
Year 3
$180,800
120,400
19,900
14,500
Sales
$200,800
Cost of goods sold
Selling expenses
Administrative expenses
Interest expense
Total expenses
142,400
21,900
12,500
3,900
$180,700
5,900
$160,700
20,100
3,700
Income before taxes
20,100
Income taxes expense
6,500
Net income
$ 13,600
$ 16,400
Required
a. Perform a horizontal analysis, showing the percentage change in each income statement component between Year 3 and Year 4.
b. Perform a vertical analysis, showing each income statement component as a percentage of sales for each year.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Perform a horizontal analysis, showing the percentage change in each income statement component between Year 3 and Year
4. (Negative answers should be indicated by a minus sign. Round your percentage answers to 1 decimal place. (i.e., 0.234
should be entered…
A. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.
B. What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.
a. Prepare a comparative income statement with horizontal analysis, indicating the increase
(decrease) for the current year when compared with the previous year. If required, round to
one decimal place.
Chapter 9 Solutions
Survey of Accounting (Accounting I)
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