
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.

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% |
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.

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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Chapter 9 Solutions
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