Question

The following is a summary of information presented on the financial statements of a company on December​ 31, 2019. Account 2019 2018 Net Sales Revenue ​$600,000 ​$504,000 Cost of Goods Sold ​456,000 ​405,000 Gross Profit ​$144,000 ​$99,000 Selling Expenses ​51,000 ​54,000 Net Income Before Income Tax Expense ​$93,000 ​$45,000 Income Tax Expense ​39,000 ​23,000 Net Income ​$54,000 ​$22,000 With respect to net​ income, a horizontal analysis reveals​

A. a 145.45% decrease in net income
B. a $22,000 increase in net income
C. that net income is 14.55% of net sales revenue
D. a 145.45% increase in net income

Answer 1

Option (D) is correct.

Step-by-step explanation:

Horizontal analysis is a technique used to find a trend in the corresponding figures of the financial year for one or more than one years.

In this question base year will be 2018.

Therefore,

Percentage change:

= [(Net income of 2019 - Net income of 2018) ÷ Net income of 2018] × 100

= [($54,000 - $22,000) ÷ 22,000] × 100

= 1.4545 × 100

= 145.45% increase

In Horizontal analysis a year is taken as base year on the basis of which complete analysis will be done.

It is done by calculating percentage change .