For 20Y2, McDade Company reported a decline in net income. At the end of the yea
ID: 2544489 • Letter: F
Question
For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:
Question not attempted.
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1
20Y2
20Y1
2
Sales
$16,800,000.00
$15,000,000.00
3
Cost of goods sold
11,500,000.00
10,000,000.00
4
Gross profit
$5,300,000.00
$5,000,000.00
5
Selling expenses
$1,770,000.00
$1,500,000.00
6
Administrative expenses
1,220,000.00
1,000,000.00
7
Total operating expenses
$2,990,000.00
$2,500,000.00
8
Income from operations
$2,310,000.00
$2,500,000.00
9
Other income
256,950.00
225,000.00
10
Income before income tax
$2,566,950.00
$2,725,000.00
11
Income tax expense
1,413,000.00
1,500,000.00
12
Net income
$1,153,950.00
$1,225,000.00
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
Explanation / Answer
Answer:
1
20Y2
20Y1
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Sales
16800000
15000000
1800000
12.0%
Cost of goods sold
11500000
10000000
1500000
15.0%
Gross profit
5300000
5000000
300000
6.0%
Selling expenses
1770000
1500000
270000
18.0%
Administrative expenses
1220000
1000000
220000
22.0%
Total operating expenses
2990000
2500000
490000
19.6%
Income from operations
2310000
2500000
-190000
-7.6%
Other income
256950
225000
31950
14.2%
Income before income tax
2566950
2725000
-158050
-5.8%
Income tax expense
1413000
1500000
-87000
-5.8%
Net income
1153950
1225000
-71050
-5.8%
Part-2
As we can see that sales for year 20y2 increased by 12% yet there is decrease in net income by 5.8% negative
The reason behind decreased in the net income of the company for the year 20y2 is as under
20Y2
20Y1
Increase
(Decrease)
Amount
Increase
(Decrease)
Percentage
Sales
16800000
15000000
1800000
12.0%
Cost of goods sold
11500000
10000000
1500000
15.0%
Gross profit
5300000
5000000
300000
6.0%
Selling expenses
1770000
1500000
270000
18.0%
Administrative expenses
1220000
1000000
220000
22.0%
Total operating expenses
2990000
2500000
490000
19.6%
Income from operations
2310000
2500000
-190000
-7.6%
Other income
256950
225000
31950
14.2%
Income before income tax
2566950
2725000
-158050
-5.8%
Income tax expense
1413000
1500000
-87000
-5.8%
Net income
1153950
1225000
-71050
-5.8%
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