Patients are expected to be treated and discharged throughout the year as follows:

$\backslash$begin$\{$tabular$\}\{|$l$|$l$|$l$|$l$|$l$|\}$

$\backslash$hline $\backslash (\backslash$begin$\{$array$\}\{$l$\}\backslash$text $\{$ Quarter $1\}\backslash \backslash$

$\backslash$text $\{$ January$-$March $\}\backslash$end$\{$array$\}\backslash )$ & $\backslash (\backslash$beg

Historically, Denison has found that private insurance pays in the quarter after patient discharge. Medicare$/$Medicaid pays half in the quarter after discharge and half in the following quarter. Twenty$-$five percent of all self$-$pay revenue is collected each quarter for three quarters following discharge. Twenty$-$five percent is never collected. Also, charity care is never collected.

For simplicity, assume that the current year$$s patient flow, payment rates, staffing, and supplies purchased are the same as those projected in the budget for the coming year.

Supplies are expected to be purchased in the following months:

$\backslash$begin$\{$tabular$\}\{|$l$|$l$|$l$|$l$|$l$|\}$

$\backslash$hline $\backslash (\backslash$begin$\{$array$\}\{$l$\}\backslash$text $\{$ Quarter $1\}\backslash \backslash$

$\backslash$text $\{$ January$-$March $\}\backslash$end$\{$array$\}\backslash )$ & $\backslash (\backslash$beg

The supplies are paid for in the quarter after purchase.

Assume that all interest and dividends on endowment investments are received on the first day of the seventh month of the year. Assume that gift shop revenue is received equally each quarter. $($This may be an unrealistic assumption.$)$ Assume that salaries are paid equally each quarter.

Denison plans to start next year with $$50,000$ of cash and likes to end every quarter with at least $$50,000$ in its each account. If necessary, it will borrow from the bank at a rate of $12$ percent per year. Each quarter it must pay interest on any outstanding bank loan. If it has extra cash beyond that, it simply leaves it in its non$-$interest$-$bearing cash account.

Denison prepares its operating budget $($revenues and expenses$)$ on an accrual basis. The hospital expects to buy the oncology equipment as described in Part I of the case.

Section D requirements:

prepare a cash budget for the coming year. It will help if you prepare it in the following order:

a$.$ determine patient revenue by quarter by type of payer for the coming year. That is$,$ determine private insurance revenues for each quarter, Medicare$/$Medicaid revenues by quarter, and so on

b$.$ Determine patient revenues by quarter for the current year. Since many payers pay with a lag, some of the coming year$$s cash receipts come from current year$$s revenues.

c$.$ Determine patient cash collections by quarter for the coming year, using revenue information from parts a and b$,$ and payment lag information provided in the narrative of the problem.

d$.$ Develop the cash budget by quarter.

Hint for Cash Budget:

Start with the beginning cash, add cash receipts shown by source $($e$.$g$.,$ patient revenue by payer, endowment$).$ Calculate the available cash. $($Note that it will be necessary to determine other cash receipts and payments by quarter. For example, determine how much is received from endowment each quarter and how much is paid for supplies.$)$

Deduct cash payments by line$-$item $($e$.$g$.,$ salaries$).$ Be sure to include interest payments. Assume Denison does not owe any money at the beginning of the year. Subtract cash payments $($called disbursements$)$ from available amount to get a subtotal.

Based on the subtotal, calculate the amount to be borrowed or repaid. Combine the amount borrowed or repaid with the subtotal to get ending cash balance for quarter.

Show loan payable amount on cash budget below the ending cash balance.

It is easier to develop a correct cash budget if you work one quarter at a time.

Based on your cash budget, prepare a revised operating budget. That is$,$ take the operating budget Part I, section B$,$ number $3,$ and incorporate the interest expense from the cash budget.

As an advisor to the Denison Hospital, you are certain of one thing: the Board of Trustees of the hospital will not approve a budget that projects an operating deficit. If the operating budget projects a deficit, what do you suggest that Denison do about it$?$