Triple-F Health Club (Family, Fitness, and Fun) is a not-for-profit, family-oriented health club. The club's board of directors is developing plans to acquire more equipment and expand club facilities. The board plans to purchase about $26,200 of new equipment each year and wants to establish a fund to purchase the adjoining property in four or five years. The adjoining property has a market value of about $301,200.

The club manager, Jane Crowe, is concerned that the board has unrealistic goals in light of the club's recent financial performance. She has sought the help of a club member with an accounting background to assist her in preparing a report to the board supporting her concerns.

The member reviewed the club's records, including this cash-basis income statement:

TRIPLE-F HEALTH CLUB Income Statement (Cash Basis)For Years Ended October 31 (in thousands)20202019Cash revenues:Annual membership fees$355.00$311.05Lesson and class fees238.68183.60Miscellaneous2.001.50Total cash revenues$595.68$496.15Cash expenses:Manager's salary and benefits$36.24$36.24Regular employees' wages and benefits191.20191.20Lesson and class employees' wages and benefits196.56151.20Towels and supplies16.0015.50Utilities (heat and light)22.0015.00Mortgage interest35.1037.80Miscellaneous2.001.50Total cash expenditures$499.10$448.44Increase in cash$96.58$47.71

• Other financial information as of October 31, 2020:
• Cash in checking account, $8,200.
• Petty cash, $540.
• Outstanding mortgage balance, $350,400.
• Accounts payable arising from invoices for supplies and utilities that are unpaid as of October 31, 2020, and due in November 2020, $2,740.
• No other unpaid bills existed on October 31, 2020.
• The club purchased $26,200 worth of exercise equipment during the current fiscal year. Cash of $12,400 was paid on delivery, with the balance due on October 1. This amount had not been paid as of October 31, 2020. An additional $26,200 (cash) of equipment purchases is planned for the coming year.
• The club began operations in 2016 in rental quarters. In October 2016, it purchased its current property (land and building) for $600,000, paying $120,000 down and agreeing to pay $32,400 plus 9% interest annually on the unpaid loan balance each November 1, starting November 1, 2017.
• Membership rose 3% in 2020. The club has experienced approximately this same annual growth rate since it opened and this rate is expected to continue in the future.
• Membership fees increased by 15% in 2020. The board has tentative plans to increase these fees by 10% in 2021.
• Lesson and class fees have not been increased for 3 years. The board policy is to encourage classes and lessons by keeping the fees low. The members have taken advantage of this policy, and the number of classes and lessons has increased significantly each year. The club expects the percentage growth experienced in 2020 to be repeated in 2021.
• Miscellaneous revenues are expected to grow at the same rate as in 2020.
• Operating expenses expected to increase:
• Hourly wage rates and the manager's salary: 15%.
• Towels and supplies, utilities, and miscellaneous expenses: 25%.