1. 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
|
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 Page 1 of 2 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%