Question

The income statements for Federer Sports Apparel for 2019 and 2018 are presented below Required Prepare a horizontal analysis for 2019 using 2018 as the base year. (Decreases should be indicated with a minus sign. Round your percentage answers to 1 decimal place.)
FEDERER SPORTS APPAR
Income Statement
For the Years Ended December 31
Increase Decrease Year
2019 2018
Amount % Net sales 18,800,000 15,500,000
goods 13,200,000 7,000,000
Gross prof 5,600,000 8,500,000
1,600,000 1,200,000
1,000,000 1,000,000 0
Loss (litigation 1,500,000 300,000
Cost of sold Operating expenses Depreciation expense Inventory 200,000

Answer 1

Answer:

FEDERER SPORTS APPAREL  

Income Statement  For the Years Ended December 31

                                                   Years                        Increase /(Decrease)

                                         2019            2018                    Amount      %

Net sales                      18,800,000    15,500,000      3,300,000    21.29%  

Cost of goods sold      13,200,000     7,000,000      6,200,000    88.57%

Gross profit                   5,600,000     8,500,000     (2,900,000)   -34.12%

Operating expenses     1,600,000      1,200,000         400,000     33.33%

Depreciation expense  1,000,000      1,000,000       0                   0

Inventory write-down     200,000       0                      200,000      100%

Loss (litigation)             1,500,000         300,000       1,200,000    400%

Net Income                $1,300,000    $6,000,000      (4,700,000)     78.33%

Explanation:

a) Federer Sports Apparel can use horizontal analysis as a technique for analyzing the financial statement changes over a period of time.  It is a useful tool for Federer to evaluate its trend situations, using the financial statements of two years with the earlier year serving as the base year (or independent variable) while the latter year is the dependent variable.