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      

Explanation:

a) Federer Sports Apparel can use horizontal analysis as an analysis 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).