Highline Hospital provides a wide range of health services in its community. Highlines board of directors has

Question:

Highline Hospital provides a wide range of health services in its community. Highline’s board of directors has authorized the following capital expenditures:

Intra-aortic balloon pump ………….. $1,400,000

Computed tomography scanner ………. 850,000

X-ray equipment ……………………… 550,000

Laboratory equipment ………………. 1,200,000

Total ……………………………….. $4,000,000

The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows.

Billings, made in the month of service, for 20X7 are shown next, with actual amounts for

January–June and estimated amounts for July–December:

Month ………………………………. Amount Billed

January ……………………………… $5,300,000

February ……………………………… 5,300,000

March ………………………………… 5,400,000

April ………………………………….. 5,400,000

May …………………………………… 5,700,000

June …………………………………… 6,000,000

July (estimated) ……………………….. 5,800,000

August (estimated) ……………………. 6,200,000

September (estimated) ………………… 6,600,000

October (estimated) …………………… 6,800,000

November (estimated) ………………… 7,000,000

December (estimated) …………………. 6,600,000

Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state governments, and private insurance companies. The remaining 10% of the billings are made directly to patients. Historical patterns of billing collections are as follows:

Singer expects the same billing and collection patterns that have been experienced during the first 6 months of 20X7 to continue during the last 6 months of the year. The following schedule presents the purchases that have been made during the past 3 months and the planned purchases for the last 6 months of 20X7.

Month ……………………………….. Amount

April ………………………… $1,300,000

May …………………………… 1,450,000

June …………………………… 1,450,000

July ……………………………. 1,500,000

August ………………………… 1,800,000

September …………………….. 2,200,000

October ……………………….. 2,350,000

November …………………….. 2,700,000

December ……………………… 2,100,000

All purchases are made on account, and accounts payable are remitted in the month following the purchase.

● Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per month plus 20% of that month’s billings. Salaries are paid in the month of service.

● Highline’s monthly depreciation charges are $150,000.

● Highline incurs interest expenses of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter.

● Endowment fund income is expected to continue to total $210,000 per month.

● Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a minimum end-of-month cash balance of 10% of the current month’s purchases.

● Highline Hospital employs a calendar-year reporting period.

1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.

2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.

3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling $4,000,000.

Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...