Seminar of Finance Case Study

1. Examine the 2011 financial statements provided by PMI and the 2010 financial statements provided by Jackson and Associates to answer the following.

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

Jackson and Associates and PMI use a different accounting professional judgment to prepare the financial statement. Jackson and Associates think that Sunset should make allowance for bad debts and revenue should be reduced by allowance for bad debts. That means net Accounts Receivable is zero, but PMI thinks no bad debts here.

Because of these differences, both revenues and Receivables will be inflated in PMI’s financial statements.

b. Discuss the ethical dilemma facing PMI in terms of preparing the Financial Statements.

According to the contract, Sunset agreed to pay a monthly management fee equal to four percent of monthly net revenue and pay a billing and collection fee equal to five percent of company’s monthly net receivables to PMI. To gain more fees from Sunset, PMI can use its accounting professional judgment to improve net revenue and net receivables as possible as it can.

2. Examine the contract and discuss how the contract language may be altered to reduce the ethical dilemma facing PMI. Additionally, how may the contract language be altered to provide incentives for PMI to perform in a manner that is more in line with desires of Sunset Medical?

First of all, the goal of Sunset business should be added into the agreement to make sure that PMI should struggle for maximizing the value of the company and it should be estimated directly by the data of ROA, ROE, EVA or SSCM, etc.

Further more, a reasonable contract should be equal between right and liability. PMI is authorized with rights to conduct, supervise, and manage the day-to-day operations of the practice as manager, as a account of the company. Then PMI should be responsible for all kinds of...