5 Part Answer

Drs. Smith and Brown

Statement of Net Income for the Three Months

Ended March 31, 20__

Revenue

Net patient revenue 180,000

Other revenue 0

Total Operating Revenue 180,000

Expenses

Nursing/PA salaries 16,650

Clerical salaries 10,150

Payroll taxes/employee benefits 4,800

Medical supplies and drugs 15,000

Professional fees 3,000

Dues and publications 2,400

Janitorial service 1,200

Office supplies 1,500

Repairs and maintenance 1,200

Utilities and telephone 6,000

Depreciation 30,000

Interest 3,100

Other 5,000

Total Expense 100,000

Income from Operations 80,000

Nonoperating Gains (Losses) 0

Nonoperating Gains (Net) 0

Net Income 80,000

Drs. Smith and Brown

Balance Sheet

March 31, 20__

Assets

Current Assets

Cash and Cash Equivalents 25,000

Patient accounts receivable 40,000

Inventories—supplies and drugs 5,000

Total Current Assets 70,000

Property, Plant, and Equipment

Buildings and Improvements 500,000

Equipment 800,000

Total 1,300,000

Less Accumulated Depreciation (480,000)

Net Depreciable Assets 820,000

Land 100,000

Property, Plant, and Equipment, Net 920,000

Other Assets 10,000

Total Assets 1,000,000

Liabilities and Capital

Current Liabilities

Current maturities of long-term debt 10,000

Accounts payable and accrued expenses 20,000

Total Current Liabilities 30,000

Long-term Debt 180,000

Less Current Portion of Long-Term Debt (10,000)

Net Long-Term Debt 170,000

Total Liabilities 200,000

Capital 300,000

Total Liabilities and Capital 1,000,000

Scenario:

As a Practice Manager for Dr. Smith and Dr. Brown, you are tasked with preparing a report that illustrates your knowledge of computing inventory and depreciation methods. After analyzing  Dr. Smith and Dr. Brown’s Financial Statements Download Dr. Smith and Dr. Brown’s Financial Statements, and performing the necessary calculations, you will decide on the feasibility of purchasing the equipment based on your computations and analysis of the financial statements. In addition, you will explain the rationale for your choice and make a recommendation for the practice.

Download and complete the  Inventory Concept and Depreciation Methods Template  Download Inventory Concept and Depreciation Methods Template . You will need to ensure that your responses are thorough and written in your own words; give examples as required and list references in APA format in the space provided within the template. When completed, the document will be at least eight pages in length. With that said, the items below illustrate the required components to be completed. NOTE: Information to calculate inventory and depreciation is included in the  Inventory Concept and Depreciation Methods Template  Download Inventory Concept and Depreciation Methods Template .

Part 1:  Inventory Concept and Calculations

· Discuss the inventory concept

· List an example of an inventory item and discuss how the item moves from inventory to COGS (Costs of Goods Sold). Include information on the meaning of COGS.

· Calculate the cost of ending inventory and COGS using the information provided within the template.

· FIFO

· LIFO

· WEIGHTED-AVERAGE

Part 2: Define the Five Methods for Computing Book Depreciation

· Define each of the following methods for computing book depreciation:

· Straight Line Depreciation Method

· Accelerated Book Depreciation: Sum of Years’ Digits (SYD) Method

· Accelerated Book Deprecation: Double Declining Balance (DDB) Method

· Accelerated Book Deprecation: 150% Declining Balance Method

Part 3: Calculating Depreciation

· Calculate depreciation for three of the depreciation methods identified in the template.

· Example of Straight Line Depreciation Method

· Example of Accelerated Book Depreciation: SYD Method

· Example of Accelerated Book Deprecation: DDB Method

Part 4: Analysis of Depreciation Methods

· Explain which method would be more feasible for healthcare organizations to use

· Hospital

· Physician practice

· Explain why it is important for a healthcare organization or physician practice to use a depreciation method.

Part 5:  Recommendation

· What is the depreciation method you would recommend to Dr. Smith and Dr. Brown to purchase the fixed asset? Explain the rationale for your choice.