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## Sales \$587,944   \$532,000 Cost of goods sold 414,800   340,000 Gross profit \$173,144   \$192,000 Selling expenses \$57,380   \$45,000 Administrative expenses 33,540   28,000 Total operating expenses \$90,920   \$73,000 Income from operations \$82,224   \$119,000 Other revenue 2,644   2,200 Income before income tax \$84,868   \$121,200 Income tax expense 23,800   36,400 Net income \$61,068   \$84,800 Required: 1.  Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. Use the minus sign to indicate a decrease in the “Increase (Decrease)” columns. McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1   20Y2 20Y1 Difference – Amount Difference – Percent Sales \$587,944 \$532,000 \$fill in the blank 888e2a06df83fef_1 fill in the blank 888e2a06df83fef_2% Cost of goods sold 414,800 340,000 fill in the blank 888e2a06df83fef_3 fill in the blank 888e2a06df83fef_4% Gross profit \$173,144 \$192,000 \$fill in the blank 888e2a06df83fef_5 fill in the blank 888e2a06df83fef_6% Selling expenses \$57,380 \$45,000 \$fill in the blank 888e2a06df83fef_7 fill in the blank 888e2a06df83fef_8% Administrative expenses 33,540 28,000 fill in the blank 888e2a06df83fef_9 fill in the blank 888e2a06df83fef_10% Total operating expenses \$90,920 \$73,000 \$fill in the blank 888e2a06df83fef_11 fill in the blank 888e2a06df83fef_12% Income from operations \$82,224 \$119,000 \$fill in the blank 888e2a06df83fef_13 fill in the blank 888e2a06df83fef_14% Other revenue 2,644 2,200 fill in the blank 888e2a06df83fef_15 fill in the blank 888e2a06df83fef_16% Income before income tax \$84,868 \$121,200 \$fill in the blank 888e2a06df83fef_17 fill in the blank 888e2a06df83fef_18% Income tax expense 23,800 36,400 fill in the blank 888e2a06df83fef_19 fill in the blank 888e2a06df83fef_20% Net income \$61,068 \$84,800 \$fill in the blank 888e2a06df83fef_21 fill in the blank 888e2a06df83fef_22%                     2.  Net income has   from 20Y1 to 20Y2. Sales have  ; however, the cost of goods sold has  , causing the gross profit to  .

Horizontal Analysis of Income Statement

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:

 McDade CompanyComparative Income StatementFor the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Sales \$587,944 \$532,000 Cost of goods sold 414,800 340,000 Gross profit \$173,144 \$192,000 Selling expenses \$57,380 \$45,000 Administrative expenses 33,540 28,000 Total operating expenses \$90,920 \$73,000 Income from operations \$82,224 \$119,000 Other revenue 2,644 2,200 Income before income tax \$84,868 \$121,200 Income tax expense 23,800 36,400 Net income \$61,068 \$84,800

Required:

1.  Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. Use the minus sign to indicate a decrease in the “Increase (Decrease)” columns.

 McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 20Y1 Difference – Amount Difference – Percent Sales \$587,944 \$532,000 \$fill in the blank 888e2a06df83fef_1 fill in the blank 888e2a06df83fef_2% Cost of goods sold 414,800 340,000 fill in the blank 888e2a06df83fef_3 fill in the blank 888e2a06df83fef_4% Gross profit \$173,144 \$192,000 \$fill in the blank 888e2a06df83fef_5 fill in the blank 888e2a06df83fef_6% Selling expenses \$57,380 \$45,000 \$fill in the blank 888e2a06df83fef_7 fill in the blank 888e2a06df83fef_8% Administrative expenses 33,540 28,000 fill in the blank 888e2a06df83fef_9 fill in the blank 888e2a06df83fef_10% Total operating expenses \$90,920 \$73,000 \$fill in the blank 888e2a06df83fef_11 fill in the blank 888e2a06df83fef_12% Income from operations \$82,224 \$119,000 \$fill in the blank 888e2a06df83fef_13 fill in the blank 888e2a06df83fef_14% Other revenue 2,644 2,200 fill in the blank 888e2a06df83fef_15 fill in the blank 888e2a06df83fef_16% Income before income tax \$84,868 \$121,200 \$fill in the blank 888e2a06df83fef_17 fill in the blank 888e2a06df83fef_18% Income tax expense 23,800 36,400 fill in the blank 888e2a06df83fef_19 fill in the blank 888e2a06df83fef_20% Net income \$61,068 \$84,800 \$fill in the blank 888e2a06df83fef_21 fill in the blank 888e2a06df83fef_22%

2.  Net income has   from 20Y1 to 20Y2. Sales have  ; however, the cost of goods sold has  , causing the gross profit to  .

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