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Net income, Total profit margin, Cash flow,

Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. 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.

1. What were Brandywine's 2007 net income, total profit margin, and cash flow?

2. 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?

3. Explain the difference between cash and accrual accounting. Be sure to include a discussion of the revenue recognition and matching principles.

4. Explain the difference between equity section of a not-for-profit business and an investor-owned business.

Solution Preview

Question 1
Net income = 12M *(1 - 75%) - 1.5M = $1.5 million
Total profit margin = $1.5M/12M = 12.5%
Cash flow = 1.5M + 1.5M = $3 million

Question 2
Net income = 12M *(1 - 75%) - 3M = $0 million => a decrease of $1.5 million
Total profit margin ...

Solution Summary

The difference between equity section of a not-for-profit business and an investor-owned business is indicated.

$2.19