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FINANCIAL ACCOUNTING - Eighth Edition Solutions Manual
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
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.
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 Products, Inc.
ACCT 212 : Course Project 2
Balance Sheet Compared with Industry Average
December 31, 2010
Chapter 13: Financial Statement Analysis Page 1 of 3
FINANCIAL ACCOUNTING - Eighth Edition Solutions Manual
1.
2.
3.
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?
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?
Requirements
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.
Chapter 13: Financial Statement Analysis Page 2 of 3
FINANCIAL ACCOUNTING - Eighth Edition Solutions Manual
Chapter 13: Financial Statement Analysis Page 3 of 3
