Buaijedn

1. Group 3:

2. By virtually all measures, Dr. Roger Jones was a successful
dentist. Annual revenues from his practice of more than
$750,000 provided him with a salary of $150,000.
Additionally, years ago, he had invested in a very popular
local Mexican food restaurant, Texas Rex, Inc., of which he
had become sole owner. Because of its reputation and
appeal, Texas Rex had developed a line of clothing with the
dinosaur logo. The income from the restaurant and its
clothing line was much more than what his professional
practice was providing

3. In fact, Dr. Jones’s dental practice was constantly receiving
infusions of money fromhis Texas Rex income. For example,
the practice often struggled to meet payroll taxes and pay its
suppliers from its own internally generated funds. Recently,
Texas Rex funds were used to pay one supplier more than
$200,000. Weary of the constant demands of his practice on
the Texas Rex funds, Dr. Jones was determined to get to the
root of his practice’s financial difficulties. He called Lawson,
Johnson, and Smith, a local CPA firm, and requested help to
determine the cause of his recurring financial difficulties.
John Smith, a partner in the CPA firm, spent a week
examining the records of the practice and extensively
interviewing Dr. Jones.

4. He delivered the following report:
Dear Dr. Jones:
The cause of your current financial difficulties is the absence of proper planning
and control. Currently, many spending decisions are made arbitrarily and without
considering affordability. Because of this, resources are often committed beyond
the capabilities of the practice.
The following examples illustrate some of the decisions that have contributed to
your financial troubles:
1. Salary increases. You have granted 5 percent increases each year whether or not
the business could successfully absorb these increases.
2. Cash withdrawals. For the past five years, you have withdrawn approximately
$1,000 in cash per month. These withdrawals have been treated as a loan from the

5. corporation to you, the president of the corporation.
3. Equipment purchases. During the past five years, the corporation has
acquired a van, a video recorder, a refrigerator, a microwave, and an in-
house stereo system. Some items were purchased for cash, and some are
still being paid for in installments. None of them was essential to the
mission of your corporation.
These decisions, and others like them, have adversely affected the
financial status of your dental practice. To solve your practice’s financial
problems, I recommend the
installation of a formal budgetary system. A comprehensive financial plan
is needed so that you know where you are going and what you are
capable of doing.
Sincerely, John Smith, CPA

8. •
•
•

9. •
•
•