Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 15, Problem 15.1APR
Horizontal analysis of income statement
For 2016, Clapton Company reported a decline in net income. At the end of the year, S. Hand, the president, is presented with the following condensed comparative income statement:
| Indigo Company Comparative Income Statement For the Years Ended December 31, 2016 and 2015 |
||
| 2016 | 2015 | |
| Sales..................... | $6,750,000 | $6,000,000 |
| Cost of goods sold......... | 2,480,000 | 2,000,000 |
| Gross profit............... | $ 4,270,400 | $4,000,000 |
| Selling expenses.......... | $1,260,000 | $1,000,000 |
| Administrative expenses…. | 625,000 | 500,000 |
| Total operating expenses…. | $1,885,000 | $1,500,000 |
| Income from operators.... | $2,385,000 | $2,500,000 |
| Other income............ | 110,000 | 100,000 |
| Income before income tax…. | $2,495,000 | $2,600,000 |
| Income tax expense....... | 60,000 | 50,000 |
| Net income............... | $2,435,000 | $2,550,000 |
Instructions
- 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2015 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).
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Students have asked these similar questions
A. The following items were taken from the
financial statements of Salley, Inc. over a three
year period: Using the horizontal analysis and
2016 as the base year, compute the change in
percentages for net sales, cost of goods sold,
gross profit, operating expenses and net
income. Explain whether the trends are
favorable or unfavorable for each item.
Item
2018
Net Sales
825,000
Cost of Goods Sold
630,000
Gross Profit
195,000
Operating Expenses
100,000
Net Income
P 95,000
2017
P
740,000
580,000
160,000
80,000
P
80,000
2016
675,000
535,000
140,000
75,000
P
65,000
Vertical analysis (common-size) percentages for Baker Company’s sales revenue, cost of goods sold, and expenses are as follows. Did Baker’s net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for your answer.
Vertical Analysis
2018
2017
2016
Sales revenue
100.0%
100.0%
100.0%
Cost of goods sold
60.0
63.9
65.0
Expenses
26.0
26.6
27.5
Use the following tables to answer the question:
LOGIC COMPANY Income Statement For years ended December 31, 2016 and 2017
(values in $) 2016 2017
Gross sales 19,800 15,600
Sales returns and allowances 900 100
Net sales 18,900 15,500
COGS 11,800 8,800
Gross profit 7,100 6,700
Depreciation 780 640
Selling and administrative expenses 2,800 2,400
Research 630 540
Miscellaneous 440 340
Total operating expenses 4,650 3,920
Income before interest and taxes 2,450 2,780
Interest expense 640 540
Income before taxes 1,810 2,240
Provision for taxes 724 896
LOGIC COMPANY Balance Sheet For years ended December 31, 2016 and 2017
(values in $) 2016 2017
Current assets 12,300 9,400
Accounts receivable 16,900 12,900
Merchandise inventory 8,900 14,400
Prepaid expenses 24,400 10,400
Total current assets 62,500 47,100
Building (net) 14,900 11,400
Land 13,900 9,400
Total plant and equipment 28,800 20,800
Total assets 91,300 67,900
Accounts payable 13,400 7,400
Salaries payable 7,500 5,400
Total current…
Chapter 15 Solutions
Financial & Managerial Accounting
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