Health Care Financial Environment
Congratulations! You were selected as the new assistant to the
Chief Financial Officer of Pearland Medical Center, a 1,000-bed academic
medical center in the suburbs of a city with a population of over 4
million.
Pearland Medical Center purchased a Zoll R Series defibrillator,
automatic cardiopulmonary resuscitation (CPR) support machine for its
emergency department, for $20,000 and placed it in service in 2015.
Pearland Medical Center paid $400 to ship the machine. No installation
fees were required. Assume that the chest compression system falls into
the Modified Accelerated Cost Recovery System (MACRS) 5-year class.
- Calculate the Lucas chest compression system depreciation expense
for tax purposes according to MACRS and its tax book value for each
year. - Discuss the relationship between depreciation and taxes for a taxable organization.
Length: 3–4 pages, excluding title page and references.
SLP Assignment Expectations
The following guidance appears only in Module 1, but it applies to the assignments throughout the course:
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Presenting consumer sources such as e-magazines, newspapers, Wikipedia,
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Scholarly writing: Use an academic paper format, not an essay based
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Synthesize what you learned from the sources you read; write papers in
your own words; and cite sources within the text, as well as include a
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content.
Required Reading
Accounting Capital. (2014). What are accounting principles? Retrieved from
Laying the groundwork for value-based payment. Healthcare Financial Management, 67(2), 1-4.
Speizman, R. A. (2009). Tax-exempt status for hospitals: Where have we been – and where are we going? Healthcare Financial Management, 63(2), 62-66.
Tolbert, S. H., Moore, G. D., & Wood, C. P. (2010).
Not-for-profit organizations and for-profit businesses: Perceptions and
reality. Journal of Business & Economics Research, 8(5), 141-153.
Optional Reading
Internal Revenue Service. (2016). New requirements for 501(c)(3) hospitals under the Affordable Care Act.
Retrieved from
Expert Solution Preview
Introduction:
As a medical professor, it is essential to teach students about health care financial environment. One of the best ways to do so is by designing college assignments and providing answers to them. In this assignment, we will discuss the relationship between depreciation and taxes for a taxable organization.
Answer:
Depreciation is a tax-deductible expense that refers to the decline in the value of assets over time due to wear and tear, obsolescence, and other factors. The tax code allows businesses to deduct the cost of depreciation from their taxable income, reducing their tax liability.
The Modified Accelerated Cost Recovery System (MACRS) is a tax depreciation system that allows businesses to recover their costs of tangible property, including equipment, over a specified period. The system divides the cost of an asset into classes based on their useful life, after which the asset is considered fully depreciated.
In the Pearland Medical Center scenario, the Zoll R Series defibrillator falls into the MACRS 5-year class. Therefore, the depreciation expense for each year will be 20% of the asset’s cost. Here is the calculation for each year:
Year 1: Depreciation expense = $20,000 x 20% = $4,000; Tax book value = $16,000 ($20,000 – $4,000)
Year 2: Depreciation expense = $16,000 x 20% = $3,200; Tax book value = $12,800 ($16,000 – $3,200)
Year 3: Depreciation expense = $12,800 x 20% = $2,560; Tax book value = $10,240 ($12,800 – $2,560)
Year 4: Depreciation expense = $10,240 x 20% = $2,048; Tax book value = $8,192 ($10,240 – $2,048)
Year 5: Depreciation expense = $8,192 x 20% = $1,638; Tax book value = $6,554 ($8,192 – $1,638)
As we can see, the depreciation expense decreases over time as the asset’s value declines. The tax book value also decreases, which means that the amount of the asset that is subject to taxation decreases over time.
The relationship between depreciation and taxes is an essential concept for a taxable organization. By deducting depreciation expenses from taxable income, a business can reduce its tax burden. However, it is important to note that depreciation is a non-cash expense, which means that it does not affect a business’s cash flow directly. Therefore, the tax benefits of depreciation must be weighed against the cash costs of purchasing and maintaining assets.
In summary, depreciation is a crucial concept in the health care financial environment. The MACRS system allows businesses to recover the cost of their assets over time, reducing their tax liability. However, the tax benefits of depreciation must be balanced against the costs of owning and maintaining assets.
