P12-52A. (Learning Objectives 3, 4: 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:

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) gross profit margin (b)
operating profit margin, and

(c) net profit margin. 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,

(b) quick ratio, and

(c) debt ratio. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry?

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1 A1 McDonough Products, Inc. Income Statement Compared with Industry Average Year Ended December 31, 20X6 2 3 Net sales 4 Cost of goods sold 5 Gross profit 6 Operating expenses 7 Operating income 8 Other expenses 9 10 Net income McDonough Industry Average $ 720,000 100.0% 504,000 57.3 216,000 42.7 180,000 29.4 36,000 13.3 7,200 2.5 $ 28,800 10.8%