Horizontal Analysis for Income Statement For 20Y3, Greyhound Technology Company reported its most significant decline in net income in years. At the end of the year, Duane Vogel, the president, is presented with the following condensed comparative income statement. Based on the horizontal analysis prepared in which of the following statements is correct?
A. Net income declined from 20Y2 to 20Y3.
B. Sales increased, but the cost of goods also increased causing gross profit to decline.
C. Other revenues decreased slightly and income tax expense increased.
D. Over all there is decline in net income.

Explanation:For 20Y3, Greyhound Technology Company reported its most significant decline in net income in years. At the end of the year, Duane Vogel, the president, is presented with the following condensed comparative income statement:

20Y3 20Y2 Increase (Decrease)

Amount Amount Amount Percent

Sales $880,000 $800,000 $80,000 10.0%

Sales returns and allowances 18,000 15,000 3,000 20.0%

Net sales $862,000 $785,000 $77,000 9.8%

Cost of goods sold 650,000 500,000 150,000 30.0%

Gross profit $212,000 $285,000

Selling expenses $44,000 $40,000

Administrative expenses 27,000 25,000

Total operating expenses $71,000 $65,000

Income from operations $141,000 $220,000

Other income 2,300 2,000

Income before income tax $143,300 $222,000

Income tax expense 13,000 20,000

Net income $130,300 $202,000

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y2 as the base year. Round to one decimal places.

B-Sales increased but the costs of goods sold increased causing gross profit to reduce

Explanation:

From the ratios above, it is clear that net income declined but that does not capture the true reflection of performance because it only considers the outcome that net income declined,whereas the option i chose looked at both revenue and cost implications