The income statements for the first three years of operations of Carol's Music Ltd. are provided below: Instructions
a) Is Carol's gross profit improving over the three years or not? Use horizontal analysis, with 2020 as the base year, to support your answer.
b) Provide one explanation for the decline in income from operations other than changes in gross profit. Support your answer using vertical analysis.
c) Although profit is decreasing, Carol has not been concerned because her cash flows have increased from year to year. Using the information available in the income statements, explain why this is so.

Question

The income statements for the first three years of operations of Carol's Music Ltd. are provided below:  Instructions 
a) Is Carol's gross profit improving over the three years or not? Use horizontal analysis, with 2020 as the base year, to support your answer.
b) Provide one explanation for the decline in income from operations other than changes in gross profit. Support your answer using vertical analysis.
c) Although profit is decreasing, Carol has not been concerned because her cash flows have increased from year to year. Using the information available in the income statements, explain why this is so.

Quizplus · Accepted Answer

The Answer of The income statements for the first three years of operations of Carol's Music Ltd. are provided below:  Instructions 
a) Is Carol's gross profit improving over the three years or not? Use horizontal analysis, with 2020 as the base year, to support your answer.
b) Provide one explanation for the decline in income from operations other than changes in gross profit. Support your answer using vertical analysis.
c) Although profit is decreasing, Carol has not been concerned because her cash flows have increased from year to year. Using the information available in the income statements, explain why this is so.

The Income Statements for the First Three Years of Operations