Question

Income statements for Solomon Company for 2018 and 2019 follow: SOLOMON COMPANY Income Statements 2019 2018 Sales $ 200,600 $ 180,600 Cost of goods sold 143,900 121,900 Selling expenses 21,500 19,500 Administrative expenses 12,300 14,300 Interest expense 3,800 5,800 Total expenses $ 181,500 $ 161,500 Income before taxes 19,100 19,100 Income taxes expense 6,200 3,100 Net income $ 12,900 $ 16,000 Required Perform a horizontal analysis, showing the percentage change in each income statement component between 2018 and 2019. Perform a vertical analysis, showing each income statement component as a percentage of sales for each year.

Answer 1

Step-by-step explanation:

In vertical analysis , each item of the income statement is shown as a percentage of sales , while in horizontal analysis , the percentage growth in each item of the income statement from 2018 -2019 is calculated.

Horizontal Analysis

Particulars 2018 2019 % Change

Sales 180,600 200,600 11.07

Cost of goods 121,900 143,900 18.04

Gross profit 58,700 56,700 (3.4)

Selling Exp 19,500 21,500 10.26

Admin Exp 14,300 12,300 (13.97)

Int. Exp 5800 3,800 (34.48)

Total Exp. 161,500 181,500 12.38

PBT 19,100 19,100 0

Income tax 3,100 6,200 100

Net Income 16,000 12,900 (19.38)

Vertical Analysis.

Particulars 2019 % 2018 %

Sales 200,600 100 180,600 100

Cost of Goods 143,900 71.74 121,900 67.50

Gross profit 56,700 28.27 58,700 32.50

Selling Exp. 21,500 10.72 19,500 10.80

Admin Exp. 12,300 6.13 14,300 7.92

Interest Exp 3,800 1.89 5,800 3.21

Total Exp 181,500 90.48 161,500 89.42

PBT 19,100 9.52 19,100 10.58

Income tax 6,200 3.09 3,100 1.71

Net Income 12,900 6.43 16,000 8.86