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ACCT 212 :Course Project 2 McDonough Pro...
ACCT 212 :Course Project 2 McDonough Products
3 pages ACCT212_CourseProject2_Template_03062012.xlsx

FINANCIAL ACCOUNTING - Eighth Edition

Solutions Manual

ACCT 212 : Course Project 2

Learning Objectives : Preparing commonsize statements; analyzing
profitability; making comparisons with the industry

Top managers of McDonough Products, Inc., have asked for your help in comparing the
companys profit performance and financial position with the average for the industry. The
accountant has given you the companys 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
dollar amounts to percentages.

McDonough Products, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
McDonough
Net sales...............................................................................
Cost of goods sold..............................................................
Gross profit..........................................................................
Operating expenses ...........................................................
Operating income................................................................
Other expenses....................................................................
Net income ..........................................................................

$700,000
490,000
210,000
175,000
35,000
7,000
$28,000

Industry
Average
100.0%
57.3
42.7
29.4
13.3
2.5
10.8%

McDonough Products, Inc.
Balance Sheet Compared with Industry Average
December 31, 2010
Industry
McDonough

Average

Current assets......................................................................
Fixed assets, net .................................................................
Intangible assets, net ..........................................................
Other assets.........................................................................
Total .....................................................................................

$471,200
114,700
21,080
13,020
620,000

72.1%
19.0
4.8
4.1
100.0%

Current liabilities .................................................................
Longterm liabilities ............................................................
Stockholders equity............................................................
Total .....................................................................................

240,560
135,160
244,280
$620,000

47.2%
21.0
31.8
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.

Prepare a commonsize income statement and balance sheet for McDonough Products.
The first column of each statement should present McDonough Products commonsize
statement, and the second column should show the industry averages.

2.

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?

3.

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?

Chapter 13: Financial Statement Analysis

Page 1 of 3

Requirement #1
McDonough Products, Inc.
Common-Size Income Statement Compared to Industry Average
Year Ended December 31, 2010
McDonough

Industry

Products

Average

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
McDonough
Products
Current assets..
Fixed assets, net..
Intangible assets, net
Other assets.
Total assets..
Current liabilities...
Longterm liabilities..
Stockholders equity.
Total liabilities and stockholders equity

Requirement #2

Requirement #3

Industry
Average

Project 2 Grading Rubric

Criteria
Common Size Analysis: (50 pts

Excellent

Good

Poor

Very Poor

poss)

awarded

Completeness 25pts poss All requirements are
completed in
accordance with the

All requirements are

Most requirements are Many requirements

completed and mostly completed that mostly are not completed
follow the directions, follow the directions, and/or the directions

directions, labeled and labeled and fairly
organized well in
organized in

missing some labels
and only somewhat

were generally not
followed, missing

worksheet.

organized.

labels and
unorganized.

25 pts
Accuracy 25pts poss

Points

All ratios are

worksheet.
2224 pts

1921 pts

80% plus of ratios are 6079% of ratios are

018 pts
Less than 60% of

calculated with
calculated with
accurate results and accurate results and

calculated with
accurate results and

ratios are calculated
with accurate results

appropriate terms of
expression.

some appropriate
terms of expression.

and some appropriate
terms of expression.

25 pts

mostly appropriate
terms of expression.
2224 pts

1921 pts

018 pts

Profitability Ratios: (50 pts poss)
Completeness 25pts poss All requirements are
completed in
accordance with the

All requirements are

Most requirements are Many requirements

completed and mostly completed that mostly are not completed
follow the directions, follow the directions, and/or the directions

directions, labeled and labeled and fairly
organized well in
organized in

missing some labels
and only somewhat

were generally not
followed, missing

worksheet.

organized.

labels and
unorganized.

25 pts
Accuracy 25 pts poss

All ratios are

worksheet.
2224 pts

1921 pts

80% plus of ratios are 6079% of ratios are

018 pts
Less than 60% of

calculated with
calculated with
accurate results and accurate results and

calculated with
accurate results and

ratios are calculated
with accurate results

appropriate terms of
expression.

some appropriate
terms of expression.

and some appropriate
terms of expression.

25 pts

mostly appropriate
terms of expression.
2224 pts

1921 pts

018 pts

Analysis of Financial Position:(50
pts poss)
Completeness 25pts poss All requirements are
completed in
accordance with the

All requirements are

Most requirements are Many requirements

completed and mostly completed that mostly are not completed
follow the directions, follow the directions, and/or the directions

directions, labeled and labeled and fairly
organized well in
organized in

missing some labels
and only somewhat

were generally not
followed, missing

worksheet.

organized.

labels and
unorganized.

25 pts
Accuracy 25 pts poss

All ratios are

worksheet.
2224 pts

1921 pts

80% plus of ratios are 6079% of ratios are

018 pts
Less than 60% of

calculated with
calculated with
accurate results and accurate results and

calculated with
accurate results and

ratios are calculated
with accurate results

appropriate terms of
expression.

some appropriate
terms of expression.

and some appropriate
terms of expression.

25 pts

mostly appropriate
terms of expression.
2224 pts

1921 pts

018 pts
Total Points Earned
0
Out of 150 pts

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