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, 2011, 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. 

1. Billings, made in the month of service, for the first half of 2011, are 

Month     Actual Amount 

January     $5,300,000 

February    5,300,000 

March        5,400,000 

April           5,400,000 

May            6,000,000 

June            6,000,000 

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 2011 are listed next. Todd expects the same billing and collection patterns that have been experienced during the first six months of 2011 to continue during the last six months of the year. 

Month    Estimated Amount

 July              $5,400,000 

August           6,000,000 

September   6,600,000 

October        6,800,000 

November   7,000,000 

December    6,600,000 

2. 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 2011. 

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. 

3. Salaries for each month during the remainder of 2011 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. 

4. Grace’s monthly depreciation charges are $150,000. 

5. Grace incurs interest expense of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter. 

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

7. Grace has a cash balance of $350,000 on July 1, 2011, and has a policy of maintaining a minimum end-of-month cash balance of 10 percent of the current month’s purchases. 

8. Grace Hospital employs a calendar-year reporting period. 

1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 2011. 

2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 2011. 

3. Determine the amount of borrowing, if any, necessary on October 1, 2011, to acquire the capital items totalling $3,900,000.

Transcribed Image Text:

Interaortic balloon pump $1,300,000 CT scanner 850,000 X-ray equipment Laboratory equipment 550,000 1,200,000 $3,900,000 Direct Patient Third-Party Billings Billings Month of service Month following service Second month following service 10% 40 20% 50 20 40 Uncollectible 10 10