Shown on the next page are comparative income statements for McDonald's for 2002, 2003, and 2004.

1. There are two kinds of McDonald's restaurants'restaurants that McDonald's itself owns and restaurants owned by McDonald's franchisees. For each of the three years, prepare a mini income statement for McDonald's containing the following items:

Sales by company-operated restaurants

Less: Food and paper

Less: Payroll and employee benefits

Less: Occupancy and other operating expenses

= Operating income from company-operated restaurants

2. From the mini income statements prepared in (1), prepare common-size income statements for McDonald's company-operated restaurants for the three years 2002–2004.

3. Comment on the common-size income statements prepared in (2).

4. Where does McDonald's get more of its total operating income'from company-owned restaurants or from franchiseoperations?

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McDonald's Consolidated Statement of Income Year Ended December 31, (In millions, except per share data) 2003 2002 Revenues $14,223.8 $12,795.4 $11499.6 3,906.1 Revenues from franchised and affiliated restaurants....-..... 4,840.9 4,345.1 9,064.7 7,140.5 15.405.7 Food and paper Payroll and emplayee benefits Occupancy and other operating expenses 3,9174 3,4114 3,078.2 2.911.0 4,852.7 4,314.8 3,726.3 1,003.2 441.2 3.520.8 3,279.8 937.7 840.1 7128 833.3 15,524.2 14,308.3 3.292.8 2.112.9 Selling, general & administrative expenses 1,980.0 833.0 531.6 Operating income Interest expense-net of capitalized interest 3,540.5 2,832.2 388.0 97.8 of $4.1. $7.8 and $14.3 358.4 (20.3) 374.I 76.7 Income before provision for income taxes and cumulative effect of accounting changes Provision for income taxes Income before cumulative effect of accounting changes Cumulative effect of accounting changes, 3,202.4 923.9 2.278.5 2,346.4 838.2 1,508.2 4 1.662. 670.0 992.I 8) (98.6) 2,278.5$14714 893.5 net of tax benefits of $9.4 and $17.6.. (36.8)