Part 2 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………………… Requirement #2 Requirement #3 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. B.

1. Part 2
Requirement #1
McDonough Products, Inc.
Common-Size Income Statement Compared to Industry Average

2. Year Ended December 31, 2010
McDonough Products
Industry Average
Net sales……………………………………………………
Cost of goods sold………………………………………..
Gross profit…………………………….…………………..
Operating expenses……………………………………….
Operating income………………………………………….
Other expenses…………………………………………….

3. 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…………………………………………..

4. Intangible assets, net………………………………………
Other assets……………………………………………….
Total assets………………………………………………..
Current liabilities………………………….………………..
Long-term liabilities………………………………………..
Stockholders’ equity……………………………………….
Total liabilities and stockholders’ equity…………………

5. Requirement #2

6. Requirement #3

10. 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

11. 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

12. 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%

13. 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

14. 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%

15. Industry Average Current Ratio
1.53
Industry Average Total Debt to Total Assets
0.68

16. See red triangle for helpful hints.
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.

17. 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?
McDonough
Products
Industry
Average
Net sales…………………………………………………… 100.00%
100.0%
Cost of goods sold……………………………………….. 70.00%
Gross profit…………………………….………………….. 30.00%
Operating expenses………………………………………. 25.00%
Operating income…………………………………………. 5.00%
Other expenses……………………………………………. 1.00%
Net income………………………………………………… 4.00%
McDonough

18. 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…………………
a
Requirement #1
Requirement #2
Requirement #3
McDonough Products, Inc.
Common-Size Income Statement Compared to Industry Average
Year Ended December 31, 2010
McDonough Products, Inc.
Common-Size Balance Sheet Compared to Industry Average
Year Ended December 31, 2010

19. FINANCIAL ACCOUNTING - Eighth Edition
Solution
s 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 ...........................................................

20. 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

21. 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.

22. 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

23. 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