Question

Income statement data for Boone Company for two recent years ended December 31, are as follows:

Current Year Previous Year
Sales $396,000 $330,000
Cost of goods sold 330,400 280,000
Gross profit $65,600 $50,000
Selling expenses $17,600 $16,000
Administrative expenses 16,520 14,000
Total operating expenses $34,120 $30,000
Income before income tax $31,480 $20,000
Income tax expenses 12,600 8,000
Net income $18,880 $12,000
a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.

Boone Company
Comparative Income Statement
For the Years Ended December 31
Current year Amount Previous year Amount Increase (Decrease) Amount Increase (Decrease) Percent
Sales $396,000 $330,000 $ %
Cost of goods sold 330,400 280,000 %
Gross profit $65,600 $50,000 $ %
Selling expenses 17,600 16,000 %
Administrative expenses 16,520 14,000 %
Total operating expenses $34,120 $30,000 $ %
Income before income tax $31,480 $20,000 $ %
Income tax expense 12,600 8,000 %
Net income $18,880 $12,000 $ %
b. The net income for Boone Company increased by 57.3% between years. This increase was the combined result of an in sales of 20% and percentage in cost of goods sold. The cost of goods sold increased at a rate than the increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales.

Answer 1

a. Boone Company

Statement showing comparative income statement

Particulars Current (A) Previous(B) CHANGE PERCENT

Year Year (C=A-B) (C/B*100)

Sales $396,000 $330,000 $66,000 20%

Cost of goods $330,400 $280,000 $50,400 18%

sold

Gross profit $65,600 $50,000 $15,600 31.2%

Selling $17,600 $16,000 $1,600 10%

expenses

Administrative $16,520 $14,000 $2,520 18%

expenses

Total operating $34,120 $30,000 $4,120 13.73%

expenses

Income before $31,480 $20,000 $11,480 57.4%

income tax

Income tax $12,600 $8,000 $4,600 57.5%

expenses

Net income $18,880 $12,000 $6,880 57.3%

b. The cost of goods sold increased at a rate LOWER than the increase in sales, thus causing the percentage increase in gross profit to be GREATER than the percentage increase in sales.