7111AFE_Solution_Topic07_new

# 7111AFE_Solution_Topic07_new - 7111AFE Tutorial Solution...

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7111AFE Tutorial Solution: Topic 7 (10-15 min.) E 19-2 Newsletter E-Mail Ltd Horizontal Analysis of Comparative Income Statement For the Years Ended 31 December 20X8 and 20X7 INCREASE (DECREASE) 20X8 20X7 AMOUNT PERCENT Total revenues………. . \$430,000 \$373,000 \$57,000 15.3% Expenses: Cost of goods sold. \$202,000 \$188,000 \$14,000 7.4 Selling and general expenses………. . 98,000 93,000 5,000 5.4 Interest expense…. 7,000 4,000 3,000 75.0 Income tax expense.………… 42,000 37,000 5,000 13.5 Total expenses…… 349,000 322,000 27,000 8.4 Net profit……………. \$ 81,000 \$ 51,000 \$30,000 58.8 Net profit increased by a much higher percentage than total revenues during 20X8 because revenues increased at a higher rate (15.3%) than did total expenses (8.4%). (10-15 min.) E 19-5 Newsletter E-Mail Ltd Comparative Common-Size Income Statement For the Years Ended 31 December 20X8 and 20X7 20X8 20X7 Total revenues…………………………………. .. 100 .0 % 100 .0 % Expenses: Cost of goods sold…………………………. . 47.0 50.4 Selling and general expenses……………. . 22.8 24.9 Interest expense……………………………. . 1.6 1.1 Income tax expense………………………… 9 .8 9 .9 Total expense………………………………. .. 81 .2 86 .3 Net profit………………………………………. . 18 .8 % 13 .7 %

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An investor would be pleased with 20X8 in comparison with 20X7. Total revenues and net profit are both up significantly from 20X7. Cost of goods sold and selling expenses — the two largest expenses — consumed smaller percentages of total revenues in 20X8, and net profit represents a higher percentage of revenues. Overall,
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## This note was uploaded on 10/10/2010 for the course ECON 7300 at University of Sydney.

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7111AFE_Solution_Topic07_new - 7111AFE Tutorial Solution...

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