Question

Moreno Company Comparative Income Statement For the Years Ended December 31, 20-- 1 Current Year Previous Year

2Sales $1,120,000.00 $1,000,000.00

3 Cost of goods sold 971,250.00 875,000.00

4 Gross profit $148,750.00 $125,000.00

5 Selling expenses $71,250.00 $62,500.00

6 Administrative expenses 56,000.00 50,000.00

7 Total operating expenses $127,250.00 $112,500.00

8 Income before income tax $21,500.00 $12,500.00

9 Income tax expense 8,000.00 5,000.00

10 Net income $13,500.00 $7,500.00

Required: A. Prepare a comparative income statement with horizontal analysis for the two-year period, indicating the increase (decrease) for the current year when compared with the previous year. Use the minus sign to indicate an amount or percent decrease. If required, round percentages to one decimal place. B. What conclusions can be drawn from the horizontal analysis?

Answer 1

Answer:

Moreno Company

Comparative Income Statement

For the Years Ended December 31, 20-- 1

                                                                                     Amount     %

                         Current Year   Previous Year Increase Increase

                                                                  (Decrease)   (Decrease)

                     (1)                     (2)                      3= (1-2)          3/2*100

Sales            $1,120,000          $1,000,000        120,000         12%

Cost of goods sold 971,250             875,000            96,250   11%

Gross profit        $148,750            $125,000           23,750     19%

Selling expenses  $71,250            $62,500           8750        14  %

Administrative expenses56,000           50,000           6000   12%

Total operating expenses$127,250         $112,500      14,750           13.11%

Income before income tax   $21,500         $12,500        9000            72%

Income tax expense             8,000          5,000              3000            60%

Net income              $13,500           $7,500          6000           80%

The sales have increased 12 and so has the gross profit by 19% which shows a good advance.

Net income has increased by 80% which is good progress.

The operating expenses have increased more than sales which should be controlled.