The question is answered from the case posted below.

1. The Financial Statements provided by Jackson and Associates and the Financial Statements provided by PMI use different accounting methods (cash vs. accrual) and are therefore, not compatible.

a. Recompute the Income Statement and Balance Sheet provided by PMI on December 31, 2011 to make the two years comparable.

b. Recalculate the Statement of Cash Flows provided by PMI for December 31, 2011 using the recalculated Income Statement and Balance Sheet as well as the correct beginning

account balances.

c.Discuss the differences between the Statement of Cash Flows provided by PMI and the Statement of Cash Flows prepared by you.

Sunset Medical is based on a real situation occurring at an Orthopedic Medical practice in Colorado. While attending a trade show Dr. Jones, the managing partner at Sunset Medical, was approached by a medical consulting firm, Physicians Medical Inc. (PMI), to provide the practice billing and administrative services. Dr. Jones decided to hire PMI and signed a contract in February of 2011. Based on the interim financial statements that were released in June of 2011, Dr. Jones gave PMI control of the overall day to day operations of the practice. PMI immediately relieved the office manager of her duties and took over all operations of the practice. In early 2012, the 2011 financial statements were released and were not as impressive as the mid-year results. Dr. Jones is now worried that the increased power given to PMI may have been a mistake and has asked you to give a full assessment of the situation.

International Research Journal of Applied Finance ISSN 2229-689l Case Study Series May, 2012 Exhibit 8 Income Statement for Year Ended December 31, 2011 (Prepared by PMD Sunset Medical PC Income Statements For Year Ended December 31, 2011 Revenues s Medical Revenues 1,601,050.52 Expenses *k Direct Expenses 719.880.70 s General Expenses 567,372.88 16,690.68 Interest Expense s 34.147.56 Depreciation Expense s 1,338,091.82 Total Expenses s Net Operating Income 262,958.70 s Other Income 4,261.93 Other Expense (36,050.84) s (31188.91 Total Other Income (Expense) s Net Income 231.16919 International Research Journal of Applied Finance ISSN 2229-689l Case Study Series May, 2012 Exhibit 8 Income Statement for Year Ended December 31, 2011 (Prepared by PMD Sunset Medical PC Income Statements For Year Ended December 31, 2011 Revenues s Medical Revenues 1,601,050.52 Expenses *k Direct Expenses 719.880.70 s General Expenses 567,372.88 16,690.68 Interest Expense s 34.147.56 Depreciation Expense s 1,338,091.82 Total Expenses s Net Operating Income 262,958.70 s Other Income 4,261.93 Other Expense (36,050.84) s (31188.91 Total Other Income (Expense) s Net Income 231.16919