ACCT 212 : Course Project 2-McDonough Products, Inc.

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Description

ACCT
212 : Course Project 2

“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 dollar
amounts to percentages.

McDonough
Products, Inc.

Income
Statement Compared with Industry Average

Year
Ended December 31, 2010

McDonough “Industry

Average”

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 “Industry

Average”

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. 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.

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?

Requirement
#1

McDonough
Products, Inc.

Common-Size
Income Statement Compared to Industry Average

Year
Ended December 31, 2010

McDonough
Products Industry 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 Industry Average

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

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ACCT 212 : Course Project 2 -McDonough Products, Inc.,

$21.00

Description

FINANCIAL ACCOUNTING – Eighth Edition

Solutions Manual

ACCT 212 : Course Project 2

“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 dollar amounts to percentages.

McDonough Products, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
McDonough “Industry
Average”
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 “Industry
Average”
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. 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.
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?

Reviews

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Be the first to review “ACCT 212 : Course Project 2 -McDonough Products, Inc.,”

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