Horizontal analysis of income statement OBJ. 2 For 20Y2, Macklin Inc. reported a significant increase in net income. At the end of the year, John Mayer, the president, is presented with the following condensed comparative income statement:Macklin Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1SalesCost of goods soldGross profitSelling expensesAdministrative expensesTotal operating expenses Income from operationsOther 20Y2 $910,000 441,000 $469,000 $ 139,150 99,450 $238,600 $230,400 65,000 $295,400 65,000 $230,400 20Y1 $700,000 350,000 $350,000 $115,000 85,000 $200,000 $150,000 50,000 $200,000 50,000 $150,0001. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place.2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1

1. See the the explanation below and the attached xlsx file.

2. From (1), the following can be observed from the attached xlsx file:

a. Net income has increased by $80,400 (equivalent to 53.6%) from 20Y1 to 20Y2.

b. Sales increased by $210,000 (equivalent to 30.0%) from 20Y1 to 20Y2.

c. The cost of goods sold has increased by $91,000 (equivalent to 26.0%) from 20Y1 to 20Y2 which is at a lower rate than sales making the gross profit to increase by $119,000 (equivalent to 34.0%) from 20Y1 to 20Y2.

Explanation:

Note: The data in this question are merged together. They are therefore sorted before answering the question. See the attached pdf file for the complete question with the sorted data.

The explanation of the answer is now provided as follows:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place.

Note: See the attached xlsx file for the required comparative income statement with horizontal analysis for the two-year period.

Since 20Y1 is required to be used as the base year, the following formula are are used in the xlsx file:

Increase (decrease) Amount = 20Y2 Amount - 20Y1 Amount

Increase (decrease) Percent = (Increase (decrease) Amount / 20Y1 Amount) * 100

2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1).

From the attached xlsx file, the following can be observed:

a. Net income has increased by $80,400 (equivalent to 53.6%) from 20Y1 to 20Y2.

b. Sales increased by $210,000 (equivalent to 30.0%) from 20Y1 to 20Y2.

c. The cost of goods sold has increased by $91,000 (equivalent to 26.0%) from 20Y1 to 20Y2 which is at a lower rate than sales making the gross profit to increase by $119,000 (equivalent to 34.0%) from 20Y1 to 20Y2.

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