The Income Statements for the First Three Years of Operations

question 89

Essay

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.

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Definitions:

Nausea

A feeling of discomfort in the stomach, often accompanied by an urge to vomit.

Acute Mania

A phase of bipolar disorder characterized by an excessively elevated or irritable mood, hyperactivity, and impulsive behavior.

Limit Setting

The process of establishing and enforcing boundaries to manage behaviors and promote a safe and orderly environment.

Lithium Level

The concentration of lithium in the blood, which is monitored to ensure effective treatment of bipolar disorder while minimizing side effects.