FINANCIAL ACCOUNTING – Eighth Edition Solutions Manual ACCT 212


Question Description:

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Hi there, I need help with the following. I have attached the excel sheet which include the 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? 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 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 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

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