Question

Dr. Roger Jones is a successful dentist but is experiencing recurring financial difficulties. For example, Jones owns his office building, which he leased to the professional corporation that housed his dental practice (he owns all shares in the corporation). After the corporation’s failure to pay payroll taxes for the past six months, however, the Internal Revenue Service is threatening to impound the business and sell its assets. Also, the corporation has had difficulty paying its suppliers, owing one of them over $ 200,000 plus interest. In the past, Jones had borrowed money on the equity in either his personal residence or his office building, but he has grown weary of these recurring problems and has hired a local consultant for advice. According to the consultant, the financial difficulties facing Jones have been caused by the absence of proper planning and control. Budgetary control is sorely needed. The following financial information is available for a typical month:

Required:
1. Prepare a monthly cash budget for Dr. Jones. Does Jones have a significant cash flow problem? How would you use the budget to show Jones why he is having financial difficulties?
2. Using the cash budget prepared in Requirement 1 and the information given in the case, recommend actions to solve Dr. Jones’s financial problems. Prepare a cash budget that reflects these recommendations and demonstrates to Jones that the problems can be corrected. Do you think that Jones will accept your recommendations? Do any of the behavioral principles discussed in the chapter have a role in this type of setting? Explain.


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  • CreatedSeptember 22, 2015
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