Final answer:
To perform a horizontal analysis of Ayayai Corporation's income statement, each income statement item from 2022 should be compared to the corresponding item from 2021 to calculate both the dollar and percentage changes. Positive or negative changes indicate an increase or decrease, respectively, providing an understanding of the financial trends within the company.
Step-by-step explanation:
A horizontal analysis of income statement data involves calculating the changes in each item of an income statement over a period of years. This type of analysis provides insight into trends and can help in making business decisions. To perform a horizontal analysis of Ayayai Corporation's income statement using 2021 as a base year, you would compare each item on the 2022 statement to the corresponding item on the 2021 statement. You calculate the dollar change by subtracting the 2021 figure from the 2022 figure. Then, divide that change by the base year (2021) figure to get the percentage change. These changes are given as positive numbers if there is an increase or negative if there is a decrease. For example, if revenue in 2021 was $100,000 and in 2022 it was $120,000, the dollar change would be $120,000 - $100,000 = $20,000. The percentage change would be ($20,000 / $100,000) * 100 = 20%. This indicates a 20% increase in revenue from 2021 to 2022. You should apply this approach to all income statement items such as costs, expenses, taxes, and net income to complete your analysis. If no actual income statement figures are provided, this general method would still be the procedure used to perform a horizontal analysis.