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FINANCIAL ACCOUNTING - Eighth Edition Solutions Manual ACCT 212 : Course Project 2 Learning Objectives : Preparing commonsize statements; analyzing...

ACCT 212 :Course Project 2 McDonough Products

FINANCIAL ACCOUNTING - Eighth Edition Solutions Manual Chapter 13: Financial Statement Analysis Page 1 of 3 ACCT 212 : Course Project 2 McDonough Products, Inc. Income Statement Compared with Industry Average Year Ended December 31, 2010 McDonough Net sales. ..............................................................................  $700,000   100.0%  Cost of goods sold. .............................................................  490,000   57.3     Gross profit. .........................................................................  210,000   42.7     Operating expenses . ..........................................................  175,000   29.4     Operating income. ...............................................................  35,000   13.3     Other expenses. ...................................................................  7,000   2.5     Net income . .........................................................................  $28,000   10.8%  McDonough Products, Inc. Balance Sheet Compared with Industry Average December 31, 2010 McDonough Current assets. .....................................................................  $471,200   72.1%  Fixed assets, net . ................................................................  114,700   19.0     Intangible assets, net . .........................................................  21,080   4.8     Other assets. ........................................................................  13,020   4.1     Total . ....................................................................................  620,000  100.0% Current liabilities . ................................................................  240,560  47.2% Long-term liabilities . ...........................................................  135,160   21.0     Stockholders’ equity. ...........................................................  244,280   31.8     Total . ....................................................................................  $620,000   100.0%  Industry Average Current Ratio 1.53 Industry Average Total Debt to Total Assets 0.68 See red triangle for helpful hints. Requirements 1. 2. 3. Learning Objectives : Preparing common-size statements; analyzing profitability; making comparisons with the industry Top managers of McDonough Products, Inc., have asked for your help in  comparing  the  company’s profit performance and financial position with the average for the industry. The  accountant has given you the company’s income statement and balance sheet and also the  following data for the industry.  The problem is that McDonough is in dollars and the Industry  Average is in percentages.  To complete the analysis you will need to convert McDonoughs  Industry Average Industry Average Prepare a common-size income statement and balance sheet for McDonough Products.  The first column of each statement should present McDonough Products’ common-size  statement, and the second column should show the industry averages. For the profitability analysis, compute McDonough Products’ (a) ratio of gross profit to net  sales (b) ratio of operating income to net sales, and (c) ratio of net income to net sales.  Compare these figures with the industry averages. Is McDonough Products’ profit  performance better or worse than the average for the industry? For the analysis of financial position, compute McDonough Products’ (a) Current ratio and  (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Products’  financial position better or worse than the average for the industry?
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Requirement #1 McDonough Products, Inc. Common-Size Income Statement Compared to Industry Average Year Ended December 31, 2010 Net sales…………………………………………………… Cost of goods sold………………………………………. . Gross profit…………………………….…………………. . Operating expenses………………………………………. Operating income…………………………………………. Other expenses……………………………………………. Net income………………………………………………… McDonough Products, Inc. Common-Size Balance Sheet Compared to Industry Average Year Ended December 31, 2010 Current assets……………………………………………. . Fixed assets, net…………………………………………. . Intangible assets, net……………………………………… Other assets………………………………………………. Total assets………………………………………………. . Current liabilities………………………….………………. . Long-term liabilities………………………………………. . Stockholders’ equity………………………………………. Total liabilities and stockholders’ equity………………… Requirement #2 Requirement #3 McDonough  Products Industry  Average McDonough  Products Industry  Average
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