Question

2. The following transactions occurred during the year. Record these transactions.

a. HHL took out a long-term loan for $3 million.

b. HHL purchased $1 million in inventory with cash.

c. HHL purchased equipment that cost $150,000 on account. The equipment is expected to last 15 years and has no salvage value.

d. $540,865,000 (net of allowances and charity care) was billed for patient services. The hospital estimates that 5% of these bills will be bad debt.

e. $875,000 of inventory was used.

f. Donations of $400,000 were received in cash.

g. HHL pays in cash for a 2-year malpractice insurance premium at a cost of $5 million. One-half of the premium is for next year, and the other is for the following year.

h. HHL pays $12,560,000 in accounts payable.

i. HHL workers earned $259,000,000 in wages for the year. The hospital paid out $282,000,000 in cash. It also paid out $60 million in benefits, all in cash.

j. The equipment purchased in transaction c was paid for in cash.

k. $370,500,000 from bills sent to patients was received in cash.

l. HHL collected $25 million in outstanding patient bills in cash.

m. The board is concerned that too much debt outstanding is bad for the organization. The board chooses to accelerate their debt payments for the year. HHL paid out $51 million in long-term debt principal and $3 million of interest in cash.

n. Depreciation for the year was recorded—$23 million for existing fixed assets. Also, calculate the new depreciation necessary for the new equipment purchased this year, assuming straight-line depreciation.

o. The contract with the IT company chosen is signed. The initial contract cost is paid, as well as the first year payment.

Answer 1

Transactions in the books of HHL:

Amount In $

a. Cash/ Bank A/c –Dr   3 Million

To long term loan a/c 3 Million

(Being Loan amount taken)

b. Inventory A/c –Dr 1 Million

            To Cash A/c- 1Million

(Being Inventory purchased)

c. Equipment A/c Dr- 150,000

To Equipment payable A/c-150,000

(BeingHHL purchased equipment that cost $150,000 on account)

    Depreciation A/c Dr-10,000

            To Equipment A/c -10,000

(Being Dep Provided on equipment)

(150,000/15)

d. Patient service Receivable A/c Dr-540,865,000

To Patient service. -540,865,000

(Being amount received from patient services.)

  Bad debts A/c Dr-27043250

            To Patient service receivable A/c-27043250

(Being bad debts provided 540865000*5%)

e.Patient service a/C Dr-875,000

To Inventory A/c -875,000

(Being inventory was used.)

f. Cash A/c Dr- 400000

            To Donation A/c-400000

(Being donations received).

g. Insurance premium A/c Dr-2.5 Million

    Prepaid Insurance Premium A/c Dr-2.5 Million

            To Cash A/c – 5 Million

(Being Insurance premium paid for 2 years)

h. Accounts payable a/c Dr- 12,560,000

To Cash A/c- 12,560,000

Being accounts payable paid.)

i.wages A/c Dr-259,000,0000

Wages Payable A/c-21,000,000

To Cash A/c-282,000,000

(Being wages paid to employess,current and last year)

Employee benefit a/c Dr-60 Million

            To Cash A/c -60 Million

(Being employee benefits paid to employees)

j. Equipment Payable A/c Dr- 150,000

To Cash A/c-150,000

(Being cash paid for purchased of equipment)

k. cash A/c Dr-370,500,000

Patient service Receivable A/c -370,500,000

(Being amount received from patients)

l. cash A/c Dr-25 Million

Patient service Receivable A/c -25 Million

(Being amount received from patients)

m. Long term loan A/c Dr- 51 Million

     Interest on Loan A/c Dr-3 Million

To Cash A/c -54 Million

(Being long-term debt principal and interest paid in cash.)