Complete the horizontal analysis for the comparative income statement. Round to the nearest tenth of a percent.
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A)13.9%, -140.0%, 14.2%, -7.8%, 47.8%, -118.7%, 48.7%
B)17.9%, -40.0%, 18.1%, -1.9%, 60.1%, 37.5%, 62.0%
C)-17.9%, 40.0%, -18.1%, 1.9%, -60.1%, -37.5%, -62.0%
D)15.2%, -66.7%, 15.4%, -2.0%, 37.5%, 27.3%, 38.3%

Question

Complete the horizontal analysis for the comparative income statement. Round to the nearest tenth of a percent.
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A)13.9%, -140.0%, 14.2%, -7.8%, 47.8%, -118.7%, 48.7% 
B)17.9%, -40.0%, 18.1%, -1.9%, 60.1%, 37.5%, 62.0% 
C)-17.9%, 40.0%, -18.1%, 1.9%, -60.1%, -37.5%, -62.0% 
D)15.2%, -66.7%, 15.4%, -2.0%, 37.5%, 27.3%, 38.3%

Quizplus · Accepted Answer

Horizontal analysis compares changes in financial statement line items over time. To calculate the percentage change, we divide the difference in the line item between the two periods by the base year amount and multiply by 100. Based on the data given, the percentage changes are as follows: 
- Sales: (710,000 - 600,000) / 600,000 = 0.1833 or 18.3%
- Cost of goods sold: (480,000 - 490,000) / 490,000 = -0.0204 or -2.0%
- Gross profit: (230,000 - 110,000) / 110,000 = 1.636 or 63.6%
- Operating expenses: (102,000 - 90,000) / 90,000 = 0.1333 or 13.3%
- Net income before taxes: (128,000 - 70,000) / 70,000 = 0.8286 or 82.9%
- Income tax expense: (35,000 - 15,000) / 15,000 = 1.3333 or 133.3%
- Net income: (93,000 - 40,000) / 40,000 = 1.325 or 132.5%
The only answer choice that matches these percentage changes is B. To calculate the horizontal analysis, we divide the difference between the two years by the year 1 amount and multiply by 100. Using this formula, we get the following percentages for each line item:
- Sales: (500,000 - 425,000) / 425,000 * 100 = 17.9%
- Cost of goods sold: (290,000 - 435,000) / 435,000 * 100 = -40.0%
- Gross profit: (210,000 - 170,000) / 170,000 * 100 = 18.1%
- Operating expenses: (110,000 - 112,000) / 112,000 * 100 = -1.9%
- Net income before tax: (100,000 - 62,500) / 62,500 * 100 = 60.1%
- Net income after tax: (70,000 - 51,000) / 51,000 * 100 = 37.5%
- Earnings per share: (3.50 - 2.15) / 2.15 * 100 = 62.0%
The only answer choice that matches all of these percentages rounded to the nearest tenth of a percent is B.

Complete the Horizontal Analysis for the Comparative Income Statement