Read the scenario below and answer the following 3 questions (be sure to scroll down). You will also need to complete the Budget on the "Income Statement & Budget" tab. Scenario: South Shore Medical Clinic is expanding its operations. As you will notice from Year 3 to Year 4, they have increased their revenue and encounted additional expenses. In addition, they have rented a new office at the end of the year so their rent expense is going to increase (they will now have two offices). In addition, they have added 2 additional staff members to payroll. Using the Income Statement, prepare a budget that takes these changes into account for the upcoming year.

1. Using the Balance Sheet, calculate the current ratio. Comment on whether or not the ratio shows financial strength.

2. Using the Income Statement, calculate the operating margin ratio for Year 4. How well does the company measure in terms of operating efficiency?

3. Explain your budget suggestions. Do you think Revenue will increase or decrease? Do you think Expenses will increase or decrease?

Task #1: South Shore Medical Clinic is expanding its operations. As you will notice from Year 3 to Year 4, they have increased their revenue and encounted additional expenses. In addition, they have rented a new office at the end of the year so their rent expense is going to increase (they will now have two offices). In addition, they have added 2 additional staff members to payroll. Using the Income Statement below, prepare a budget that takes these changes into account for the upcoming year. Suggest the budget amounts for Year 5 in the column below.

South Shore Medical Clinic

Income Statement

For the year ending December 31, 20X4

Revenues:

Service Fee Revenue 160,000 actual Total Revenues

Expenses:

Advertising Expense

$ 20,000

Shipping Expense

$ 12,000

Salaries Expense

$ 80,000

Rent Expense

$ 32,000

Utilities Expense

$ 5,200

Total Expenses

Income:

Net Income

$ 10,800

Balance sheet

ASSETS			LIABILITIES & NET WORTH
Current Assets			Current Liabilities
Cash	$ 30,000		Accounts Payable	$ 32,200
Accounts Receivable	$ 60,000		Current Portion - Long Term Debt	$ 65,000
Supplies	$ 10,000		Total Current Liabilities	$ 97,200
Inventory	$ 45,000
Total Current Assets	$ 145,000		Non-current Liabilities
			Long Term Debt, net of Current Portion	$ 210,000
Non-current Assets			Total Non-Current Liabilities	$ 210,000
Equipment	$ 193,000
Building	$ 200,000		NET WORTH
Total Non-current Assets	$ 393,000		Owner's Equity	$ 230,800
TOTAL ASSETS	$ 538,000		TOTAL LIABILITIES & NET WORTH	$ 538,000
Current Ratio: