Note : The market price of BabyCakes Int’l, Inc. common stock was $20 on Decembe

Question

Note: The market price of BabyCakes Int’l, Inc. common stock was $20 on December 31, 2008.

Complete a horizontal analysis for the Income Statement, and explain your findings.

Retained Earnings December 31

$421,000

$375,000

Baby Cakes International Inc Statement of Retained Earnings for the Years ended December 31, 2008 and 2007 December 31, 2008 December 31, 2007 Retained Earnings, January 1 $375,000 $327,000 Net income for year 68,000 67,000 Total $443,000 $394,000 Dividends Paid          Preferred Stock $15,000 $12,000          Common Stock 7,000 7,000                     Total Dividends Paid $22,000 $19,000

Retained Earnings December 31

$421,000

$375,000

Explanation / Answer

Details 2,008 2,007 Increase 2008 % increase(Decrease) Net Sales 10,50,000 9,60,000 90,000 9% Cost of Goods Sold 4,00,000 3,90,000 10,000 3% Gross Profit 6,50,000 5,70,000 80,000 14% 0 Selling Expenses 2,70,000 2,75,000 -5,000 -2% Administrative Expenses 1,95,000 1,65,000 30,000 18% Total operating expenses 4,65,000 4,40,000 25,000 6% 0 Income from Operations 1,85,000 1,30,000 55,000 42% 0 Other income 20,000 15,000 5,000 33% Other expense 96,000 48,000 48,000 100% 0 Income before Tax 1,09,000 97,000 12,000 12% 0 Income Tax Expense 41,000 30,000 11,000 37% NET INCOME 68,000 67,000 1,000 1% Findings 1.Gross Profits showing an increase in growth primarily due to increase in growth in sales as compared to Cost of goods sold. 2. Income from Operation has shown a greater increase in growth mainly due to operating leverage in cost structure.

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