# 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
Criteria                        Excellent                Good
Common Size Analysis: (50 pts
poss)
Completeness - 25pts poss         All requirements are   All requirements are
completed in           completed and
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
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
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
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
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
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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