Brandywine Clinic, a not-for-profit business, had revenues of $12 million in 2016.
Expenses other than depreciation totaled 75 percent of revenues, and depreciation
expense was $1.5 million. All revenues were collected in cash during the year, and
all expenses other than depreciation were paid in cash.
a. Construct Brandywine's 2016 income statement.
b. What were Brandywine's net income, total profit margin, and cash flow?
c. Now, suppose the company changed its depreciation calculation procedures
(still within GAAP) such that its depreciation expense doubled. How would this
change affect Brandywine's net income, total profit margin, and cash flow?
d. Suppose the change had halved, rather than doubled, the firm's depreciation
expense. Now, what would be the impact on net income, total profit margin,
and cash flow?
e. Explain the reason for the similarities or differences in your answers to parts b,
c, and d.
6 Assume that Harkers Healthcare, a for-profit corporation, also experiences the situ-
ation reported in problem 11.5. However, Harkers must pay taxes at a rate of 40 per-
cent of pretax income. Assuming that the same revenues and expenses reported for
financial accounting purposes would be reported for tax purposes, redo problem
11.5 for Harkers. Compare your answers to problem 11.5 and interpret and explain
the results.
