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

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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
companyâ€™s profit performance and financial position with the average for the
industry. The accountant has given you the companyâ€™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

Stockholdersâ€™
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

Requirements

1. Prepare a common-size income
statement and balance sheet for McDonough Products. The first column of each
statement should present McDonough Productsâ€™ common-size statement, and the
second column should show the industry averages.

2. For the profitability analysis,
compute McDonough Productsâ€™ (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 Productsâ€™ profit
performance better or worse than the average for the industry?

3. For the analysis of financial
position, compute McDonough Productsâ€™ (a) Current ratio and (b) Debt ratio.
Compare these ratios with the industry averages. Is McDonough Productsâ€™ 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
salesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦

Cost of
goods soldâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..

Gross
profitâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.â€¦â€¦â€¦â€¦â€¦â€¦â€¦..

Operating
expensesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.

Operating
incomeâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.

Other
expensesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.

Net
incomeâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦

McDonough
Products, Inc.

Common-Size
Balance Sheet Compared to Industry Average

Year
Ended December 31, 2010

McDonough
Products Industry Average

Current
assetsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..

Fixed
assets, netâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..

Intangible
assets, netâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦

Other
assetsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.

Total
assetsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..

Current
liabilitiesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.â€¦â€¦â€¦â€¦â€¦â€¦..

Long-term
liabilitiesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..

Stockholdersâ€™
equityâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.

Total
liabilities and stockholdersâ€™ equityâ€¦â€¦â€¦â€¦â€¦â€¦â€¦

Requirement
#2

Requirement
#3

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

\$21.00

Category:

## 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 companyâ€™s profit performance and financial position with the average for the industry. The accountant has given you the companyâ€™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
Stockholdersâ€™ 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 Productsâ€™ common-size statement, and the second column should show the industry averages.
2. For the profitability analysis, compute McDonough Productsâ€™ (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 Productsâ€™ profit performance better or worse than the average for the industry?
3. For the analysis of financial position, compute McDonough Productsâ€™ (a) Current ratio and (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Productsâ€™ financial position better or worse than the average for the industry?

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