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Assignment: MCM Industries
The following information was obtained from the records of MCM Industries:
December 31, 2012
December 31, 2011
Accounts Payable
$ 79,000
$ 69,200
Accounts Receivable
325,000
332,200
Building, Furniture and fixtures, net
1,161,000
Cash
$ 165,000
$ 188,000
Common stock
1,140,332
1,248,000
Cost of goods sold
13,823,440
12,533,300
General and Adm. expense
2,682,000
2,314,000
Income tax expense
994,000
1,337,000
Interest expense
29,000
38,000
Inventory
1,095,000
1,064,000
Long-term debt
211,000
256,000
Long Term Notes Payable
85,000
110,000
Other current assets
162,000
165,000
Other accrued payables
18,000
16,000
Retained earnings
1,374,668
1,211,000
Sales
$ 20,632,000
$ 19,282,000
Selling expense
640,000
578,000
Required:
1. Prepare an Income Statement and a Balance Sheet for MCM Corporation for 2011 and 2012.
2. Prepare a vertical analysis of the Balance Sheet and Income Statement for 2011 and 2012. Note any areas of concern and suggested actions management may need to take to address the areas of concern.
3. Compute the following ratios for both years:
• Current ratio• Quick ratio• Inventory Turnover ratio• Debt to equity ratio• Times interest earned• Return on equity• Gross margin percentage
4. Industry Comparison - Compare the performance of MCM Industries to the 2012 industry ratios below and identify differences between the ratios of MCM and the industry averages. Include any explanation on why a ratio may be higher or lower than the industry average. You should also include any actions management needs to take to bring the ratios of MCM more in line with the industry averages.
Industry average ratios:
Current ratio
5.8 to 1
Quick (Acid) ratio
4.0 to 1
Inventory turnover
6.2 times
Debt to equity ratio
.68 to 1
Time Interest Earned
70.4 times
Return on Equity
68%
Gross Margin Percentage
45%
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