ACCT 212 : Course Project 2

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Requirements

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
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
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.

Bruce: On the "Your Solution" worksheet see the red triangles.		 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?

&"Arial,Bold"&12FINANCIAL ACCOUNTING - Eighth Edition &"Arial,Bold"&12Solutions Manual

&"Arial,Bold"Chapter 13: Financial Statement Analysis &"Arial,Bold"Page &P of &N

Your Solution

Requirement #1
McDonough Products, Inc.
Common-Size Income Statement Compared to Industry Average
Year Ended December 31, 2010
McDonough Products Industry Average
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 Industry Average
Current assets……………………………………………..
Fixed assets, net…………………………………………..
Intangible assets, net………………………………………
Other assets……………………………………………….
Total assets………………………………………………..
Current liabilities………………………….………………..
Long-term liabilities………………………………………..
Stockholders’ equity……………………………………….
Total liabilities and stockholders’ equity…………………

DeVry: Total Liabilities and Stockholders' Equity must total 100%
DeVry: Check Figure - Net Income is 4%
DeVry: To compute follow the example on page 780 of your textbook titled "STOP & THINK."
DeVry: Total Assets must total 100%
Bruce: This is one of the most important requirements of this project. Make sure to show your computations and explain in detail your analysis. It is suggested that you review the Working Capital ratio on pages 785 and 786 of your textbook. We could use this as an example of how your answer should look for Requirements #2 and #3 although you are not calculating the Working Capital ratio. First show the ratio: Working capital = Current assets - Current liabilities. Then show it with the numbers like it does for the Jones Company. $50,000 = $100,000 - $50,000 Now that you have completed the computation compare your results to the Industry Average. In this example we will compare to the Smith Company. "Both companies have working capital of $50,000, but Jones' working capital is as large as its current liabilities. Smith's working capital is only one-third as large as current liabilities. Jones is in better position because its working capital is a higher percentage of current liabilities."`
Bruce: Copy/paste Industry Average percentages from the Requirements' page to this column.		 Requirement #2
Requirement #3

Grading Rubric

Project 2 Grading Rubric
Criteria Excellent Good Poor Very Poor Points awarded
Common Size Analysis: (50 pts poss)
Completeness - 25pts poss All requirements are completed in accordance with the directions, labeled and organized well in worksheet. All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet. Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized. Many requirements are not completed and/or the directions were generally not followed, missing labels and unorganized.
25 pts 22-24 pts 19-21 pts 0-18 pts
Accuracy - 25pts poss All ratios are calculated with accurate results and appropriate terms of expression. 80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. 60-79% of ratios are calculated with accurate results and some appropriate terms of expression. Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.
25 pts 22-24 pts 19-21 pts 0-18 pts
Profitability Ratios: (50 pts poss)
Completeness - 25pts poss All requirements are completed in accordance with the directions, labeled and organized well in worksheet. All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet. Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized. Many requirements are not completed and/or the directions were generally not followed, missing labels and unorganized.
25 pts 22-24 pts 19-21 pts 0-18 pts
Accuracy -25 pts poss All ratios are calculated with accurate results and appropriate terms of expression. 80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. 60-79% of ratios are calculated with accurate results and some appropriate terms of expression. Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.
25 pts 22-24 pts 19-21 pts 0-18 pts
Analysis of Financial Position:(50 pts poss)
Completeness - 25pts poss All requirements are completed in accordance with the directions, labeled and organized well in worksheet. All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet. Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized. Many requirements are not completed and/or the directions were generally not followed, missing labels and unorganized.
25 pts 22-24 pts 19-21 pts 0-18 pts
Accuracy - 25 pts poss All ratios are calculated with accurate results and appropriate terms of expression. 80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. 60-79% of ratios are calculated with accurate results and some appropriate terms of expression. Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.
25 pts 22-24 pts 19-21 pts 0-18 pts
Total Points Earned 0
Out of 150 pts