Fianance

Sunset Medical – A Statement of Cash Flows

Taken from IRJAF Case Study Series ISSN 2229-6891 May 2012 by Wandler& Watson

Abstract

SunsetMedicalisbasedonarealsituationoccurringatanOrthopedicMedicalpracticeinColorado.WhileattendingatradeshowDr.Jones,themanagingpartneratSunsetMedical,wasapproachedbyamedicalconsultingfirm,PhysiciansMedicalInc.(PMI),toprovidethepracticebillingandadministrativeservices.Dr.JonesdecidedtohirePMIandsignedacontractinFebruaryof2011.Basedon theinterimfinancialstatementsthatwerereleasedinJuneof2011,Dr.JonesgavePMIcontroloftheoveralldaytodayoperationsofthepractice.PMIimmediatelyrelievedtheofficemanagerofherdutiesandtookoveralloperationsofthepractice.Inearly2012,the2011financialstatementswerereleasedandwerenotasimpressiveasthemid-yearresults.Dr. Jonesisnowworriedthattheincreasedpowergivento PMImayhavebeenamistakeandhasaskedyoutogiveafullassessmentofthesituation.

Introduction

Dr.SallyJones ,a practicing Orthopedic Surgeon, is the managing partner at Sunset Medical,

a professionalcorporationlocatedinColorado.Sunset,whichhasbeeninbusinessforapproximately10years,isasmallmedicalpracticewith2010revenuesofjustover$1,000,000.Thepracticeemploys asupportstaffthatincludesanofficemanager,billingsecretary,nurse,andradiologytechnician.Inadditionto thestaff,Sunsetretains JacksonandAssociates,aCPAfirm,toprovidefinancialstatementsandtaxdocuments.Asasmall,privatelyheldcorporation,SunsetisonlyrequiredtosubmitanIncomeStatementandBalanceSheetusingcashbasisaccounting,whichJacksonandAssociatesprepares.MostofthestaffandtheCPAfirmhavebeenwithSunsetMedicalforalltenyearsofSunset’soperation.Exhibits1and2showtheIncomeStatementsandBalanceSheetsprovidedbyJacksonandAssociatesfortheyears2008,2009,and2010....