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

The expenditures are planned for October 1, 2008, and the board wants to
know how much, if anything, the hospital has to borrow. Jill Todd, hospital controller,
has gathered the following information to be used to prepare an analysis
of future cash flows.
a. Billings, made in the month of service, for the first half of 2008 are

Ninety percent of the billings are made to third parties such as Blue Cross,
provincial governments, and private insurance companies. The remaining
10 percent of the billings are made directly to patients. Historical patterns of
billing collections are

Estimated billings for the last six months of 2008 are listed next. Todd
expects:the same billing and collection patterns that have been experienced
during the first six months of 2008 to continue during the last six
months of the year.

b. The following schedule presents the purchases that have been made
during the past three months and the planned purchases for the last six
months of 2008.

All purchases are made on account, and accounts payable are remitted
in the month following the purchase.
c. Salaries for each month during the remainder of 2008 are expected to
be $1,800,000 per month plus 20 percent of that month’s billings.
Salaries are paid in the month of service.
d. Grace’s monthly amortization charges are $150,000.
e. Grace incurs interest expense of $180,000 per month and makes interest
payments of $540,000 on the last day of each calendar quarter.
f. Endowment fund income is expected to continue to total $210,000
per month.
g. Grace has a cash balance of $350,000 on July 1, 2008, and has a policy
of maintaining a minimum end-of-month cash balance of 10 percent
of the current month’s purchases.
h. Grace Hospital employs a calendar-year reporting period.
1. Prepare a schedule of budgeted cash receipts by month for the third
quarter of 2008.
2. Prepare a schedule of budgeted cash disbursements by month for the
third quarter of 2008.
3. Determine the amount of borrowing, if any, necessary on October 1,
2008, to acquire the capital items totalling $3,900,000.

Transcribed Image Text:

Interaortic balloon pump CT scanner X-ray equipment Laboratory equipment $1,300,000 850,000 550,000 1,200,000 $3,900,000