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

The expenditures are planned for 1 October 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital accountant, 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:

Ninety per cent of Evergreen billings are made to private insurance companies as third-party billings. The remaining 10 per cent 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 followingschedule presents the purchases that have been made during the past 3 months and the planned purchases for the last 6 months of 20X7.

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 per cent of that month’s billings. Salaries are paid in the month of service.

● Evergreen’s monthly depreciation charges are €150,000.

● Evergreen 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.

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

● Evergreen 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 1 October 20X7, to acquire the capital items totalling €4,000,000.

Transcribed Image Text:

Intra-aortic balloon pump Computed tomographic scanner X-ray equipment Laboratory equipment Total €1,400,000 850,000 550,000 1,200,000 €4,000,000