Question

Exercise 13-06 a-b Here are the comparative income statements of Sarasota Corp.. SARASOTA CORP. Comparative Income Statement For the Years Ended December 31 2020 2019 Net sales $588,000 $490,000 Cost of goods sold 449,820 402,780 Gross Profit 138,180 87,220 Operating expenses 85,260 46,550 Net income $ 52,920 $ 40,670 (a) Prepare a horizontal analysis of the income statement data for Sarasota Corp., using 2019 as a base

Answer 1

Horizontal Analysis of the Income Statement

For the Year Ended December 31, 2020:

Percentage

Increase

Net sales $588,000 20%

Cost of goods sold 449,820 11.68%

Gross Profit 138,180 58.43%

Operating expenses 85,260 83.16%

Net income $ 52,920 30.12%

Step-by-step explanation:

a) Data and Calculations:

SARASOTA CORP.

Comparative Income Statement

For the Years Ended December 31

2020 2019 Increase

Net sales $588,000 $490,000 $98,000

Cost of goods sold 449,820 402,780 47,040

Gross Profit 138,180 87,220 50,960

Operating expenses 85,260 46,550 38,710

Net income $ 52,920 $ 40,670 12,250

Net Sales increase = $98,000/$490,000 * 100 = 20%

Cost of goods sold = $47,040/$402,780 * 100 = 11.68%

Gross profit = $50,960/$87,220 * 100 = 58.43%

Operating expenses = $38,710/$46,550 * 100 = 83.16%

Net Income = $12,250/$40,670 * 100 = 30.12%

b) Horizontal Analysis (%) = [(Amount in 2020 – Amount in 2019) / Amount in 2019] * 100. The analysis records the growth trend between the elements of the base year and the comparison year.