ACCT 212_Course_McDonough_Project

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:
McDonough Products, Inc. Income Statement Compared with Industry Average Year Ended December 31, 2010                                                                         McDonough “IndustryAverage” 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”IndustryAverage” 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%  Industry Average Current Ratio 1.53 Industry Average Total Debt to Total Assets 0.68 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?