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

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.