PR 17-1B Horizontal analysis of income statement OBJ. 2 For 20Y2, Macklin Inc. r
ID: 2524713 • Letter: P
Question
PR 17-1B Horizontal analysis of income statement OBJ. 2 For 20Y2, Macklin Inc. reported a significant increase 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 Sales................................................................. Costofgoodssold..................................................... Grossprofit........................................................... Sellingexpenses...................................................... Administrativeexpenses............................................... Totaloperatingexpenses .............................................. Incomefromoperations............................................... Otherrevenue........................................................ Incomebeforeincometax ............................................. Incometaxexpense................................................... Netincome........................................................... Instructions 20Y2 $910,000 441,000 $469,000 $ 139,150 99,450 $238,600 $230,400 65,000 $295,400 65,000 $230,400 20Y1 $700,000 350,000 $350,000 $115,000 85,000 $200,000 $150,000 50,000 $200,000 50,000 $150,000 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. 2. To the extent the data permit, comment on the significant relationships re- vealed by the horizontal analysis prepared in (1
Explanation / Answer
Horizontal Analysis
From the above statement, we see that the net income has increased by more than 50%. This is due to an increase in sale by 30% and also an increase in other revenue by 30%. The corresponding expenses have not increased in the sale proportion, like COGS has increased by only 26% and pther expenses also increased by less than 20%. Thus leading to an incresase in net income.
20Y2 20Y1 % change Sales $9,10,000 $7,00,000 30.0% COGS $4,41,000 $3,50,000 26.0% Gross profit $4,69,000 $3,50,000 34.0% selling expenses $1,39,150 $1,15,000 21.0% administrative expenses $99,450 $85,000 17.0% total operating expenses $2,38,600 $2,00,000 19.3% Income from continuing operations $2,30,400 $1,50,000 53.6% other revenue $65,000 $50,000 30.0% income before tax $2,95,400 $2,00,000 47.7% income tax expense $65,000 $50,000 30.0% net income $2,30,400 $1,50,000 53.6%Related Questions
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