Acct212 course project 2 by hedongchenchen

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									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
                                                                                                                 Industry
                                                                                                   McDonough     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
                                                                                                                 Industry
                                                                                                   McDonough     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        0.5
     Long-term liabilities ............................................................                135,160       21.0
     Stockholders’ equity............................................................                  244,280       31.8
     Total .....................................................................................   $   620,000      100.0%




Chapter 13: Financial Statement Analysis                                                                          Page 1 of 10
FINANCIAL ACCOUNTING - Eighth Edition                     Solutions Manual

     Industry Average Current Ratio                1.53

     Industry Average Total Debt to Total Assets   0.68

     See red triangle for helpful hints.




Chapter 13: Financial Statement Analysis                        Page 2 of 10
FINANCIAL ACCOUNTING - Eighth Edition                                         Solutions Manual


     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?




Chapter 13: Financial Statement Analysis                                              Page 3 of 10
FINANCIAL ACCOUNTING - Eighth Edition      Solutions Manual




Chapter 13: Financial Statement Analysis         Page 4 of 10
Requirement #1
                           McDonough Products, Inc.
           Common-Size Income Statement Compared to Industry Average
                         Year Ended December 31, 2010
                                                      McDonough
                                                       Products
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………………………….………………..
Long-term liabilities………………………………………..
Stockholders’ equity……………………………………….
Total liabilities and stockholders’ equity…………………


Requirement #2




Requirement #3
y Average

            Industry
            Average




verage

            Industry
            Average
Project 2 Grading Rubric
           Criteria                        Excellent                Good
Common Size Analysis: (50 pts
poss)
    Completeness - 25pts poss         All requirements are   All requirements are
                                      completed in           completed and
                                      accordance with        mostly follow the
                                      the directions,        directions, labeled
                                      labeled and            and fairly organized
                                      organized well in      in worksheet.
                                      worksheet.



                                             25 pts               22-24 pts
    Accuracy - 25pts poss             All ratios are         80% plus of ratios
                                      calculated with        are calculated with
                                      accurate results       accurate results
                                      and appropriate        and mostly
                                      terms of expression.   appropriate terms
                                                             of expression.


                                             25 pts               22-24 pts


Profitability Ratios: (50 pts poss)
    Completeness - 25pts poss         All requirements are   All requirements are
                                      completed in           completed and
                                      accordance with        mostly follow the
                                      the directions,        directions, labeled
                                      labeled and            and fairly organized
                                      organized well in      in worksheet.
                                      worksheet.




                                               25 pts             22-24 pts
    Accuracy -25 pts poss             All ratios are         80% plus of ratios
                                      calculated with        are calculated with
                                      accurate results       accurate results
                                      and appropriate        and mostly
                                      terms of expression.   appropriate terms
                                                             of expression.


                                             25 pts               22-24 pts
Analysis of Financial Position:(50
pts poss)
    Completeness - 25pts poss        All requirements are   All requirements are
                                     completed in           completed and
                                     accordance with        mostly follow the
                                     the directions,        directions, labeled
                                     labeled and            and fairly organized
                                     organized well in      in worksheet.
                                     worksheet.




                                            25 pts               22-24 pts
    Accuracy - 25 pts poss           All ratios are         80% plus of ratios
                                     calculated with        are calculated with
                                     accurate results       accurate results
                                     and appropriate        and mostly
                                     terms of expression.   appropriate terms
                                                            of expression.


                                            25 pts               22-24 pts
        Poor                Very Poor
                                            Points
                                           awarded
Most requirements      Many requirements
are completed that     are not completed
mostly follow the      and/or the
directions, missing    directions were
some labels and        generally not
only somewhat          followed, missing
organized.             labels and
                       unorganized.


      19-21 pts             0-18 pts
60-79% of ratios are   Less than 60% of
calculated with        ratios are
accurate results       calculated with
and some               accurate results
appropriate terms      and some
of expression.         appropriate terms
                       of expression.

      19-21 pts             0-18 pts



Most requirements      Many requirements
are completed that     are not completed
mostly follow the      and/or the
directions, missing    directions were
some labels and        generally not
only somewhat          followed, missing
organized.             labels and
                       unorganized.


      19-21 pts             0-18 pts
60-79% of ratios are   Less than 60% of
calculated with        ratios are
accurate results       calculated with
and some               accurate results
appropriate terms      and some
of expression.         appropriate terms
                       of expression.

      19-21 pts             0-18 pts
Most requirements      Many requirements
are completed that     are not completed
mostly follow the      and/or the
directions, missing    directions were
some labels and        generally not
only somewhat          followed, missing
organized.             labels and
                       unorganized.


      19-21 pts             0-18 pts
60-79% of ratios are   Less than 60% of
calculated with        ratios are
accurate results       calculated with
and some               accurate results
appropriate terms      and some
of expression.         appropriate terms
                       of expression.

      19-21 pts             0-18 pts



                        Total Points Earned    0
                                    Out of 150 pts

								
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