ncome statement data for Winthrop Company for two recent years ended December 31 are as follows: Current Year Previous Year

Sales $2,280,000 $2,000,000

Cost of goods sold 1,960,000 1,750,000

Gross profit $320,000 $250,000

Selling expenses $156,500 $125,000

Administrative expenses 122,000 100,000

Total operating expenses $278,500 $225,000

Income before income tax $41,500 $25,000

Income tax expense 16,600 10,000

Net income $24,900 $15,000

Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. (Round percentages to one decimal place.)
What conclusions can be drawn from the horizontal analysis?

Sales have increased by 280,000 in the current year which shows a difference of 14%, this seems to be result of increased no of units sold or selling price increase.

The Cost of Goods sold is increased by 210,000 which makes 12% difference. This is 2% less than rise in sales which means the increase in sales is due to selling price increase.

As a result of this Gross Profit has also increased by 70,000 which is 28% rise.

Selling expense increased by 25% which is due to increased marketing of the product which increased sales.

Admin expense increased by 22%, might be due to increase in salary expense of the staff.

Income before Income tax is increased by 66%, Income tax is increased by 66% and also Net Income increased by 66%.