Question

Recording & Reporting Financial transactionsDuring fiscal year 2018, Happy Hospital (HH) decides to outsource its information technology services to another company. By doing this outsourcing, HH will be downsizing certain services and staff that cost the hospital $175,000 annually. There is an upfront cost to undertaking this venture, because the company must setup servers, backup systems, and e-mail accounts for HHL. Additionally, there are annual contract payments that HH must make with the IT Company. The Board of Directors has agreed to a 4-year contract. The Management contract with the IT Company requires a $250,000 payment for the initial conversion, and $100,000 per year afterwards. The following transactions occurred during the year. Record these transactions as journal entries and on a general ledger:1. HH took out a long-term loan for $3 million.2. HH purchased $1 million in inventory with cash.3. HH purchased equipment that cost $150,000 on account. The equipment is expected to last 15 years and has no salvage value.4. $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.5. $875,000 of inventory was used.6. Donations of $400,000 were received in cash.7. HH pays in cash for a 2-year malpractice insurance premium at a cost of $5 million. Half of the premium is for next year, and the other is for the following year.8. HH pays $12,560,000 in accounts payable.9. HH 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.10. The equipment purchased in question (3) above was paid for in cash.11. $370,500,000 from bills sent to patients was received in cash.12. HH collected $25 million in outstanding patient bills in cash.13. The Board is concerned that too much debt outstanding is bad for the organization. So they choose 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.14. 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.15. The contract with the IT Company is signed. The initial contract cost is paid, as well as the year 1 payment.Using these transactions, create a Balance Sheet and Income Statement for HH for 2018.

Answer 1

Since there are multiple questions in this, I have answered the first question i.e passing of journal entries

Please find the journal entries below:

	Happy Hospital
	Journal entries for the fiscal year ended 2018
Sr.No	Particulars	Debit ($)	Credit($)
1	Cash	30,00,000
	Loan		30,00,000
	(Long term loan taken)
2	Inventory	10,00,000
	Cash		10,00,000
	(Inventory purchased for cash)
3	Equipment	1,50,000
	Cash		1,50,000
	(Equipment purchased for cash)
4	Depreciation expense	10,000
	Equipment		10,000
	(Depreciation on equipment purchased)
	(Cost of asset - salvage life)/ useful life of asset
	(1,50,000/15)
5	Accounts receivable	54,08,65,000
	Sales		54,08,65,000
	(Sales made)
6	Bad debts	2,70,43,250
			2,70,43,250
	(54,08,65,000*5%)
	(Bad debts at 5%)
7	Cost of goods sold	8,75,000
	To inventory		8,75,000
	(Inventory consumed during the year)
8	Cash	4,00,000
	Donations		4,00,000
	(Donations received during the year)
9	Prepaid Insurance	50,00,000
	Cash		50,00,000
	(Insurance paid for the next 2 years in cash)
10	Accounts payable	1,25,60,000
	Cash		1,25,60,000
	(Payment made to suppliers)
11	Wages	25,90,00,000
	Prepaid wages	2,30,00,000
	To cash		28,20,00,000
	(Salary paid)
12	Employee benefit	6,00,00,000
	Cash		6,00,00,000
	(Salary paid)
13	Cash	37,05,00,000
	Account receivable		37,05,00,000
	(Realisation of accounts receivable)
14	Cash	2,50,00,000
	Account receivable		2,50,00,000
	(Realisation of accounts receivable)
15	Long term debt	5,10,00,000
	Interest expense	30,00,000
	Cash		5,40,00,000
	(Debt repaid in cash)
16	Depreciation A/c	2,30,00,000
	To Equipment		2,30,00,000
	(Depreciation for the year on old equipments)
17	IT Company	2,50,000
	Cash		2,50,000
	(Management fees paid to IT Company)
18	Prepaid Management fees	1,00,000
	Cash		1,00,000
	(Management fees paid in advance)