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Brandywine Homecare, a non-profit organization, made $12 million in revenue in 2011. Expenses other than depreciation accounted for 75% of revenues, with depreciation expense totaling $1.5 million. During the fiscal year, all revenues were collected in cash, and all expenses, with the exception of depreciation, were paid in cash.

a) Create Brandywine’s income statement for 2011.

b) What was Brandywine’s net income, profit margin, and cash flow?

c) Assume the company changed its depreciation calculation procedures (while remaining within GAAP), causing its depreciation expense to double. What effect would this modification have on Brandywine’s net income, total profit margin, and cash flow?

d) Assume the change reduced the firm’s depreciation expense by half rather than doubling it. What effect would this have on net income, total profit margin, and cash flow?

Problem 4.5 from the list below;

Take a look at the following balance sheet:

HMO BestCare

The Balance Sheet

30 June 2011

(in hundreds of thousands)

Assets

Current assets include:

$2,737 cash

821 in net premiums receivable

387

$3,945 in total current assets

Property and equipment net $5,924

$9,869 in total assets

Net Assets and Liability

Medical services – Accounts payable $2,145.00

929 dollars in accrued expenses

payable notes 382

$3,456 is the total amount of current liabilities.

$4, 295 in long-term debt

$7,751 in total liabilities

$2,118 in unrestricted equity

Total liabilities and net assets are $9,869, respectively.

a) How does this balance sheet differ from Sunnyvale’s one percent in exhibit 4.1?

b) What is BestCare’s 2011 net working capital?

c) What is BestCare’s debt-to-equity ratio? How does it compare to Sunnyvale’s debt-to-income ratio?

Problem 4.6 from the list below;

Please review the attached balance sheet for Green Valley Nursing Home, Inc. and answer the question below.

a) How is this balance sheet different from the ones in Exhibit 4.1 and Problem 4.5?

b) What is Green Valley’s 2011 net working capital?

c) What is Green Valley’s debt-to-equity ratio? How does it compare to Sunnyvale’s and BestCare’s debt ratios?


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