For 2010, Wiglaf Technology Company reported its most significant decline in net

Question

For 2010, Wiglaf Technology Company reported its most significant decline in net
income in years. At the end of the year, C. S. Lewis, the president, is presented with the
following condensed comparative income statement:

Wiglaf Technology Company
Comparative Income Statement
For the Years Ended December 31, 2010 and 2009
2010 2009
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $560,000 $500,000
Sales returns and allowances . . . . . . . . . . . . $37,500 $25,000
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $522,500 $475,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . $372,000 $300,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . $150,500 $175,000
Selling expenses . . . . . . . . . . . . . . . . . . . . . $ 52,000 $ 40,000
Administrative expenses . . . . . . . . . . . . . . . . $30,500 $25,000
Total operating expenses . . . . . . . . . . . . . . . $82,500 $65,000
Income from operations . . . . . . . . . . . . . . . . $ 68,000 $110,000
Other income . . . . . . . . . . . . . . . . . . . . . . . .$3,000 $2,000
Income before income tax . . . . . . . . . . . . . . $ 71,000 $112,000
Income tax expense . . . . . . . . . . . . . . . . . . . $5,500 $5,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $65,500 $107,000

Instructions

#1. Prepare a comparative income statement with horizontal analysis for the two-year
period, using 2009 as the base year. Round to one decimal place.
#2. To the extent the data permit, comment on the significant relationships
revealed by the horizontal analysis prepared in (1).

Explanation / Answer

The companys net income in the year 2010 has gone down by almost 39%, despite a increase in net sales of 10%, because the increase in cost of goods sold and operating expenses was at faster rate than the sales increase. It was 24%m, 30% and 22% in cost of goods sold, selling and admin expenses respectively.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.