Part 1:
An ambulatory clinic, structured as a physicians’ partnership, has 7 responsibility centres: Administration, Administrational Support, Facilities Management, Environmental Support, Imaging, Clinical Services, and Surgical/Invasive Services. Last year’s balance sheet and income statement are shown below. Being structured as a for profit partnership, there are some minor differences in the financial statements from the corporate formats used in class. For example, the equity section of the balance sheet is comprised primarily of 2 accounts: the capital and current accounts. Typically, each partner has their contributed capital listed in the capital account and their share of the company’s accumulated profits (retained earnings) listed in their current accounts.
AMBULATORY CLINIC PARTNERSHIP
BALANCE SHEET, December 31, 2013
ASSETS
Cash and equivalents $ 220,000
Net accounts receivables 320,000
Supplies 180,000
Pre paid expenses 190,000
Other 250,000
Total Current Assets $ 1,160,000
PP&E $ 2,140,000
Accumulated depreciation 550,000
Net Fixed Assets $ 1,590,000
Goodwill 260,000
Other Intangibles 50,000
TOTAL ASSETS $ 3,060,000
LIABILITIES
Accounts payable $ 180,000
Salaries payable 160,000
Taxes payable 50,000
Current portion of L T debt 100,000
Notes payable 70,000
Unearned revenues 40,000
Total Current Liabilities $ 600,000
Debentures, less current portion 380,000
Mortgages, less current portion 380,000
Total Long term Liabilities $ 760,000
EQUITY
Capital account (total) 900,000
Current account (total) 800,000
Total Equity $ 1,700,000
TOTAL LIABILITIES & EQUITY $ 3,060,000
AMBULATORY CLINIC PARTNERSHIP
INCOME STATEMENT, Year Ended December 31, 2013
Gross Patient Revenue $4,500,000
Deductions & Bad debt 850,000
Net Patient Revenue $3,650,000
Interest Revenue 150,000
Total Net Revenues $3,800,000
Operating Expenses
Salaries/wages expense $2,050,000
Lease expense 500,000
Supplies expense 400,000
Utilities expense 300,000
Miscellaneous 150,000
Total Operating Expenses $3,400,000
Earnings before interest,
depreciation, & amortization 400,000
Depreciation expense 153,000
Earnings before interest 247,000
Interest expense 50,000
Net Income $ 197,000
The clinic is trying to plan for next year’s operations. They are assuming that their sales activity will increase by 20%. They are interested in determining what, if any, will be their future additional funds needs. Currently, the fixed assets are operating at 90% capacity, meaning they have excess capacity in fixed assets. When using the percentage of sales method for forecasting funding needs, make sure you only take into consideration that accounts that would be expected to increase with sales. Some accounts will not be increasing just because sales are expected to increase. Those accounts affected by sales changes tend to be related to daily operations.
Exceptions to the spontaneous assets and liabilities criteria are the relevant funding accounts, specifically: short term debt, long term debt, and equity accounts. The following are specific conditions of these accounts for this practice:
1) Current portion of long term debt is not considered short term debt. It represents the portion of long term debt due this year. Any changes you make to funding accounts will not affect this account, even if you were to change long term debt accounts.
2) Notes Payable is a type of short term debt that can be used to allocate funding needs. Interest rates on short term debt will run at 5% per year.
3) Debentures, less current portion, represent a type of long term debt that is sometimes referred to as line of credit. It is essentially just a bank loan. The amount listed is the amount remaining to be paid after this period.
Mortgages, less current portion, are similar to Debentures except they are obligations tied to specific assets. Both accounts can be increased or decreased and will not affect the total current portion of long term debt until the following year.
Total long term debt is decreased the following year by the previous year’s current portion of long term debt.
Interest rates on all long term debt will run at 4.27% per year.
4) In partnership organizations, Capital Accounts represent the total of each individual partner’s investment in the firm. It is similar to common stock plus paid in capital for a corporation. Typically, each partner’s capital account is designated but here it is totaled for you.
The Current Accounts is similar to the retained earnings of a corporation, but it keeps track of the amount of profit due to each partner and their total investment.
When performing you pro forma statements, keep in mind the following requirements of the firm:
1) The partners wish to maintain a current ratio of at least 1.8527
2) The long term debt ratio should not exceed .61
3) An ROE of at least 0.11 is desired
4) Next year, the partners will be withdrawing $145,000 in distributions (similar to dividends)
5) Annual dividends are held at a constant rate. If any new capital investments are acquired, then additional dividends would be calculated using the same rate.
Attachments:
modified fina….docx