Horizontal Analysis of the Income Statement
Income statement data for Winthrop Company for two recent years ended December 31, are as follows:
Current Year Previous Year
Sales $624,000 $480,000
Cost of goods sold 512,000 400,000
Gross profit $112,000 $80,000
Selling expenses $33,600 $28,000
Administrative expenses 30,720 24,000
Total operating expenses $64,320 $52,000
Income before income tax $47,680 $28,000
Income tax expenses 19,100 11,200
Net income $28,580 $16,800
a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.
Winthrop Company
Comparative Income Statement
For the Years Ended December 31
Current
year
Amount Previous
year
Amount Increase
(Decrease)
Amount Increase
(Decrease)
Percent
Sales $624,000 $480,000 $ %
Cost of goods sold 512,000 400,000 %
Gross profit $112,000 $80,000 $ %
Selling expenses $33,600 $28,000 $ %
Administrative expenses 30,720 24,000 %
Total operating expenses $64,320 $52,000 $ %
Income before income tax $47,680 $28,000 $ %
Income tax expense 19,100 11,200 %
Net income $28,580 $16,800 $ %
b. The net income for Winthrop Company increased between years. This increase was the combined result of an in sales and percentage in cost of goods sold. The cost of goods sold increased at a rate than the increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales.
Audit Reports
Comp r ehensive Material Series Audit R eports 1) Explain why auditors’ reports are important to users of financial statements and why it is desirable to have standard wording. : Auditor's r eports a r e important to users of financial statements because they info r m users of the auditor's opinion as to whether or not the statements a r e fairly stated or whether no conclusion can be made with r ega r d to the fai r ness of their p r esentation . User s especiall y loo k fo r an y deviatio n f r o m th e wo r din g o f the standa r d unqualified r eport and the r easons and implications of such deviations. Having standa r d wo r ding imp r oves communications for the benefit of users of the auditor’s r eport. When the r e a r e departu r es f r om the standa r d wo r ding, users a r e mo r e li k e...
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