Better Care Hospitals, Inc. operates a chain of hospitals throughout the United States. The company has been expanding by acquiring local hospitals. Its largest acquisition, that of Statewide Medical, was made in 2001 under the pooling of interests method. Better Care complies with US GAAP. Better Care is currently forming a 50/50 joint venture with Supreme Healthcare under which the companies will share control of several hospitals. Better Care plans to use the equity method to account for the joint venture. Supreme Healthcare complies with IFRS and will use the proportionate consolidation method to account for the joint venture. Erik Ohalin is an equity analyst who covers both companies. He has estimated the joint venture’s financial information for 2010 in order to prepare his estimates of each company’s earnings and financial performance. Th is information is presented in Exhibit 1.
Supreme Healthcare recently announced it had formed a special purpose entity through which it plans to sell up to $100 million of its accounts receivable. Supreme Healthcare has no voting interest in the SPE, but it is expected to absorb any losses that it may incur. Ohalin wants to estimate the impact this will have on Supreme Healthcare’s consolidated financial statements.
If Supreme Healthcare sells its receivables to the SPE, its consolidated financial results will
most likely show:
A. a higher revenue for 2010.
B. the same cash balance at 31 December 2010.
C. the same accounts receivable balance at 31 December 2010.