Discuss the differences in the Financial Statements and the effect that these differences have on the Revenues and Receivables.

Abstract

Sunset Medical is based on a real situation occurring at an Orthopedic Medical practice in Colorado. While attending a trade show Dr. Jones, the managing partner at Sunset Medical, was approached by a medical consulting firm, Physicians Medical Inc. (PMI), to provide the practice billing and administrative services. Dr. Jones decided to hire PMI and signed a contract in February of 2011. Based on the interim financial statements that were released in June of 2011, Dr. Jones gave PMI control of the overall day to day operations of the practice. PMI immediately relieved the office manager of her duties and took over all operations of the practice. In early 2012, the 2011 financial statements were released and were not as impressive as the mid-year results. Dr. Jones is now worried that the increased power given to PMI may have been a mistake and has asked you to give a full assessment of the situation.

The case is suitable for an introductory Financial or Managerial Accounting class at the M.B.A. level once the students have a working knowledge of the financial statements. The students must critically evaluate contract language and financial statements to examine ethical dilemmas that face businesses..

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International Research Journal of Applied Finance ISSN 2229 - 6891 May, 2012 Case Study Series Exhibit 1 - Sunset Medical, P.C. Income Statement For Years Ended 2008, 2009, 2010 (Provided by Jackson and Associates, CPA) Sunset Medical, P.C. Income Statements For Years Ended, December 31, Revenues Medical Revenues * Expenses Direct Expenses General Expenses Interest Expense Depreciation Expense Total Expenses Net Operating Income Other Income Other Expense Total Other Income (Expense) Net Income * Medical Revenues are listed net of Bad Debt 2010 $1,167,041.88 $758,738.98 $393,330.15 $5,804.66 $14,385.00 $1,172,258.79 ($5,216.91) $203.40 ($228.04) ($24.64) ($5,241.55) 2009 $1,057,322.77 $667,645.64 $358,141.19 $3,133.93 $14,832.92 $1,043,753.68 $13,569.09 $615.25 ($554.67) $60.58 $13,629.67 2008 $802,864.47 $465,250.49 $331,243.98 $5,289.70 $14,222.00 $816,006.17 ($13,141.70) $589.10 ($1,780.02) ($1,190.92) ($14,332.62) International Research Journal of Applied Finance ISSN 2229 - 6891 May, 2012 Case Study Series Exhibit 2 - Sunset Medical, P.C. Balance Sheet For December 31, 2008, 2009, 2010 (Provided by Jackson and Associates, CPA) Sunset Medical, P.C. Balance Sheet December 31, Assets Cash Accounts Receivable Less: Allowance for Bad Debts Accounts Receivable, Net Accounts Receivable, Other Prepaid Expenses Notes Receivable - Employee Notes Receivable - Dr. Jones Property & Equipment Less: Accumulated Depreciation Property & Equipment, Net Total Assets Liabilities. Accounts Payable FICA Withholding Payable Federal Withholding Payable State Withholding Payable State Tax Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities + Stockholders' Equity 2010 $1,719.87 $450,797.12 ($450,797.12) $ $ $ $81,946.82 $4,283.70 $57,904.35 $132,623.19 ($121,876.00) $10,747.19 $156.601.93 $1,666.69 $24,835.27 $2,486.00 $9.76 $125,470.71 $154,468,43 $25,000.00 ($22,866.50) $2,133.50 $156.601.93 $1,304.84 $568,221.88 ($568,221.88) S $ S $ 2009 $5,753.70 $58,483.69 $127,641.97 ($107,491.00) $20,150.97 $85.693.20 S $3,653.57 $64,544.28 $10,110.00 $10.30 $78,318.15 $25,000.00 ($17,624.95) $7,375.05 $85.693.20 2008 $6,472.12 $335,879.95 ($335,879.95) $ $25,000.00 $1,282.96 $6,853.70 $58,483.69 $123,303.75 ($92,658.00) $30,645.75 $128.738.22 $ $753.13 $10,113.58 $3,231.00 $11.06 $120,884.07 $134,992.84 $25,000.00 ($31,254.62) ($6,254.62) $128.738.22 International Research Journal of Applied Finance ISSN 2229-6891 May, 2012 Case Study Series Exhibit 5-Income Statement for Six Months Ended June 30, 2011 (Prepared by PMI) Sunset Medical, P.C. Income Statements For Six Months Ended, June 30, 2011 Revenues Medical Revenues Expenses Direct Expenses General Expenses Interest Expense Depreciation Expense Total Expenses Net Operating Income Other Income Other Expense Total Other Income (Expense) Net Income $363,102.36 $ 247,513.39 $ 5,287.74 12,655.31 $ $ 3,416.38 $ (15,890.77) $ 961,039.73 $ 628,558.80 $ 332,480.93 $ (12,474.39) $ 320.006.54 International Research Journal of Applied Finance ISSN 2229 - 6891 May, 2012 Case Study Series Exhibit 6-Balance Sheet as of June 30, 2011 (Prepared by PMI) Sunset Medical, P.C. Balance Sheet June 30, 2011 Assets Cash Accounts Receivable Less: Allowance for Bad Debts Accounts Receivable, Net Accounts Receivable, Other Prepaid Expenses Notes Receivable - Employee Notes Receivable - Dr. Jones Property & Equipment Less: Accumulated Depreciation Property & Equipment, Net Total Assets Liabilities Accounts Payable FICA Withholding Payable Federal Withholding Payable State Withholding Payable State Tax Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities + Stockholders' Equity $ 313,627.76 $ $ 303,768.48 $(134,531.31) $ 77,086.48 $ $ $ $ $ 224,445.51 $ 25,000.00 $ 297,140.04 $ 53,614.43 $ 313,627.76 $ $ 24,868.15 S $ 62,324.50 $ 169,237.17 S 623.672.01 $ 301,531.99 $ 322,140.04 S 623,672.03 International Research Journal of Applied Finance ISSN 2229 - 6891 May, 2012 Case Study Series Exhibit 1 - Sunset Medical, P.C. Income Statement For Years Ended 2008, 2009, 2010 (Provided by Jackson and Associates, CPA) Sunset Medical, P.C. Income Statements For Years Ended, December 31, Revenues Medical Revenues * Expenses Direct Expenses General Expenses Interest Expense Depreciation Expense Total Expenses Net Operating Income Other Income Other Expense Total Other Income (Expense) Net Income * Medical Revenues are listed net of Bad Debt 2010 $1,167,041.88 $758,738.98 $393,330.15 $5,804.66 $14,385.00 $1,172,258.79 ($5,216.91) $203.40 ($228.04) ($24.64) ($5,241.55) 2009 $1,057,322.77 $667,645.64 $358,141.19 $3,133.93 $14,832.92 $1,043,753.68 $13,569.09 $615.25 ($554.67) $60.58 $13,629.67 2008 $802,864.47 $465,250.49 $331,243.98 $5,289.70 $14,222.00 $816,006.17 ($13,141.70) $589.10 ($1,780.02) ($1,190.92) ($14,332.62) International Research Journal of Applied Finance ISSN 2229 - 6891 May, 2012 Case Study Series Exhibit 2 - Sunset Medical, P.C. Balance Sheet For December 31, 2008, 2009, 2010 (Provided by Jackson and Associates, CPA) Sunset Medical, P.C. Balance Sheet December 31, Assets Cash Accounts Receivable Less: Allowance for Bad Debts Accounts Receivable, Net Accounts Receivable, Other Prepaid Expenses Notes Receivable - Employee Notes Receivable - Dr. Jones Property & Equipment Less: Accumulated Depreciation Property & Equipment, Net Total Assets Liabilities. Accounts Payable FICA Withholding Payable Federal Withholding Payable State Withholding Payable State Tax Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities + Stockholders' Equity 2010 $1,719.87 $450,797.12 ($450,797.12) $ $ $ $81,946.82 $4,283.70 $57,904.35 $132,623.19 ($121,876.00) $10,747.19 $156.601.93 $1,666.69 $24,835.27 $2,486.00 $9.76 $125,470.71 $154,468,43 $25,000.00 ($22,866.50) $2,133.50 $156.601.93 $1,304.84 $568,221.88 ($568,221.88) S $ S $ 2009 $5,753.70 $58,483.69 $127,641.97 ($107,491.00) $20,150.97 $85.693.20 S $3,653.57 $64,544.28 $10,110.00 $10.30 $78,318.15 $25,000.00 ($17,624.95) $7,375.05 $85.693.20 2008 $6,472.12 $335,879.95 ($335,879.95) $ $25,000.00 $1,282.96 $6,853.70 $58,483.69 $123,303.75 ($92,658.00) $30,645.75 $128.738.22 $ $753.13 $10,113.58 $3,231.00 $11.06 $120,884.07 $134,992.84 $25,000.00 ($31,254.62) ($6,254.62) $128.738.22 International Research Journal of Applied Finance ISSN 2229-6891 May, 2012 Case Study Series Exhibit 5-Income Statement for Six Months Ended June 30, 2011 (Prepared by PMI) Sunset Medical, P.C. Income Statements For Six Months Ended, June 30, 2011 Revenues Medical Revenues Expenses Direct Expenses General Expenses Interest Expense Depreciation Expense Total Expenses Net Operating Income Other Income Other Expense Total Other Income (Expense) Net Income $363,102.36 $ 247,513.39 $ 5,287.74 12,655.31 $ $ 3,416.38 $ (15,890.77) $ 961,039.73 $ 628,558.80 $ 332,480.93 $ (12,474.39) $ 320.006.54 International Research Journal of Applied Finance ISSN 2229 - 6891 May, 2012 Case Study Series Exhibit 6-Balance Sheet as of June 30, 2011 (Prepared by PMI) Sunset Medical, P.C. Balance Sheet June 30, 2011 Assets Cash Accounts Receivable Less: Allowance for Bad Debts Accounts Receivable, Net Accounts Receivable, Other Prepaid Expenses Notes Receivable - Employee Notes Receivable - Dr. Jones Property & Equipment Less: Accumulated Depreciation Property & Equipment, Net Total Assets Liabilities Accounts Payable FICA Withholding Payable Federal Withholding Payable State Withholding Payable State Tax Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities + Stockholders' Equity $ 313,627.76 $ $ 303,768.48 $(134,531.31) $ 77,086.48 $ $ $ $ $ 224,445.51 $ 25,000.00 $ 297,140.04 $ 53,614.43 $ 313,627.76 $ $ 24,868.15 S $ 62,324.50 $ 169,237.17 S 623.672.01 $ 301,531.99 $ 322,140.04 S 623,672.03

Answer rating: 100% (QA)

Under Dr Jones Management Revenue was increasing continuously under Drjones management ie Top Line o... View the full answer