BUS 242 Finacial & Mangerial Accounting Instructions Income StatementFinal Quest
ID: 2596445 • Letter: B
Question
BUS 242 Finacial & Mangerial Accounting
Instructions Income StatementFinal Question For 2016, Clapton Company reported a decline in net income. At the end of the year, S. Hand, the president, is presented with the following condensed comparative income statement: Clapton Company Comparative Income Statement For the Years Ended December 31, 2016 and 2015 2016 2015 2 Sales $6,787,200.00 $6,060,000.00 2,444,200.00 2020,000.00 $4,343,000.00 $4040,000.00 1,125,000.00 $900,000.00 560,000.00 $1,836,200.00 $1460,000.00 $2,506,800.00 $2,580,000.00 150,000.00 $2,671,800.00 $2,730,000.00 50,000.00 $2,611,800.00 $2680,000.00 3 Cost of goods sold 4 Gross profit Selling expenses Administrative expenses 711,200.00 7 Total operating expenses Income from operations 9 Other income 10 Income before income tax 11 Income tax expense 12 Net income 60,000.00 Required: 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2015 as the base year. Use the minus sign to indicate an amount or percent decrease. If required, round percentages to one decimal place 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis.Explanation / Answer
1. The horizontal analysis:
2016 2015 Net Percentage Change
Sales 6787200 6060000 12
Costs of goods sold 2444200 2020000 21
Gross profit 4343000 4040000 7.5
Selling Expenses 1125000 900000 25
Admin Expenses 711200 560000 27
Total Operating Expenses 1836200 1460000 25.76712329
Income from operations 2506800 2580000 -2.837209302
Other Income 165000 150000 10
Income before Tax 2671800 2730000 -2.131868132
Tax Expense 60000 50000 20
Net Income 2611800 2680000 -2.544776119
2. Even though the gross profit increased by 7%, the operating expenses increased by more than 25% which means the net operating income decreased by 2.5% and so the total income.
Even though the company did the increased sales, but because of its increased operating expenses, the income declined for the company.
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