Prepare a corrected comparative income statement for the years 2020 and 2019 of Company T.
Explanation of Solution
Horizontal analysis of financial statements: In horizontal analysis of financial statement, the amount of each item of the current period’s financial statement is compared with the previous period’s financial statement. The amount of each item increased or decreased in the current financial statement, and its respective percentage can be computed by taking the previous period statement as the base. This analysis is also known as trend analysis. The horizontal analysis percentage is calculated by using the given formula:
Prepare a corrected comparative income statement for the years 2020 and 2019 of Company T.
Company T | ||
Comparative Income Statement | ||
For the Year Ended December 31 | ||
Particulars | 2020 | 2019 |
Amount ($) | Amount ($) | |
Sales | (1) $2,900,000 | (2) $3,900,000 |
Cost of goods sold | (3) ($980,000) | (4) ($2,310,000) |
Gross profit | $1,920,000 | $1,590,000 |
Operating expenses | (5) ($1,020,000) | (6) ($1,390,000) |
Operating income | $900,000 | $200,000 |
Other item: | ||
Loss from obsolescence inventory | ($150,000) | $0 |
Unusual loss | $0 | ($60,000) |
Unusual gain | $250,000 | |
Miscellaneous | (7) ($50,000) | (8) ($90,000) |
Pretax income from continuing operation | $700,000 | $300,000 |
Less: Income tax expense | ($210,000) | ($90,000) |
Result from discontinuing operations: | ||
Income (loss) from operations of discontinued division | (9) ($210,000) | (10) $210,000 |
Loss on write-down of held-for-sale backscratcher | (11) ($112,000) | $0 |
Net income | $168,000 | $420,000 |
Table (1)
Working note (1):
Calculate the amount of sales for 2020:
Working note (2):
Calculate the amount of sales for 2019:
Working note (3):
Calculate the amount of cost of goods sold for 2020:
Working note (4):
Calculate the amount of cost of goods sold for 2019:
Working note (5):
Calculate the amount of operating expenses for 2020:
Working note (6):
Calculate the amount of operating expenses for 2019:
Working note (7):
Calculate the amount of miscellaneous expenses for 2020:
Working note (8):
Calculate the amount of miscellaneous expenses for 2019:
Working note (9):
Calculate income/loss from operations of discontinued division for 2020:
Working note (10):
Calculate income/loss from operations of discontinued division for 2019:
Working note (11):
Calculate loss on write-down of held-for-sale backscratcher:
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