Question

The Edwards Lake Community Hospital balance sheet as of December 31, 2019, follows.

EDWARDS LAKE COMMUNITY HOSPITAL
Balance Sheet
As of December 31, 2019
Assets
Current assets:
Cash and Cash Equivalents						$	445,500
Accounts and notes receivable (net of uncollectible accounts of $17,200)							27,900
Inventory							93,400
Total current assets							566,800
Assets limited as to use:
Cash		$	18,540
Investments			236,220
Total assets limited as to use							254,760
Property, plant, and equipment:
Land			217,100
Buildings (net of accumulated depreciation of $1,624,400)			2,900,000
Equipment (net of accumulated depreciation of $1,025,900)			1,861,600
Total property, plant, and equipment							4,978,700
Total assets						$	5,800,260
Liabilities and Net Assets
Current liabilities:
Accounts payable						$	20,600
Accrued payroll							47,800
Current portion of mortgage payable							570,000
Total current liabilities							638,400
Long-term debt—mortgage payable							2,640,000
Total liabilities							3,278,400
Net assets:
Without donor restrictions
Undesignated			2,089,760
Designated for plant			253,360
With donor restrictions			178,740				2,521,860
Total liabilities and net assets						$	5,800,260

The following are the transactions of Edwards Lake Community Hospital during the fiscal year ended December 31, 2020.

(1) Information related to accrual of revenues and gains is as follows:

Patient services revenue, gross	$	3,502,300
Charity care		218,260
Contractual adjustments to patient service revenues		1,534,000
Other operating revenues		1,001,550

(2) Cash received includes

Interest on investments in Assets Limited as to Use		8,750
Collections of receivables		2,967,600

(3) Expenses of $898,000 were recorded in accounts payable and $1,462,790 in accrued payroll. Because some of the nursing expenses met a net asset restriction, $101,000 was released from restrictions.

Administration expenses		453,480
General services expenses		527,860
Nursing services expenses		1,033,200
Other professional services expenses		346,250

(4) Cash paid includes:

Interest expense (allocated half to nursing services and half to general services)	$	294,000
Payment on mortgage principal		570,000
Accounts payable for purchases		839,600
Accrued payroll		1,286,500

(5) Interest of $1,880 accrued on investments in Assets Limited as to Use.
(6) Depreciation charges for the year amounted to $124,000 for the buildings and $135,500 for equipment. Depreciation was allocated 45 percent to nursing services, 15 percent to other professional services and 20 percent to each administrative and general services.
(7) Other information:
      (a) Provision for uncollectible receivables was determined to be adequate.
      (b) Supplies inventory balances:

	12/31/2019					12/31/2020
Administration		$	12,200				$	10,100
General services			12,900					16,000
Nursing services			24,000					19,600
Other professional services			44,300					54,000
Totals		$	93,400				$	99,700

     (c) Portion of mortgage payable due within one year, $570,000.

(8) A $691 unrealized loss on investments occurred.
(9) Nominal accounts were closed. Necessary adjustments were made to increase the Net Assets—Without Donor Restrictions, Designated for Plant.

Required

a-1. Prepare journal entry for the preceding transactions during the fiscal year ended December 31, 2020, assuming that Edwards Lake Community Hospital is a not-for-profit hospital.

a-2. Prepare closing entries for the fiscal year ended December 31, 2020, assuming that Edwards Lake Community Hospital is a not-for-profit hospital.

b. Prepare a balance sheet as of December 31, 2020.

c-1. Prepare a statement of operations for the year ended December 31, 2020.

c-2. Prepare a statement of changes in net assets for the year ended December 31, 2020.

d. Prepare a statement of cash flows for the year ended December 31, 2020.

Answer 1

Answer
In the books of Edwards Lake Community Hospital (Not-for-profit hospital)
a-1	Journal entry for the preceding transactions during the fiscal year ended December 31, 2020
	Sl No	Particulars	Debit	Credit
	1	Accounts Receivable A/c	6256110
		To Patient Service Revenue A/c		3502300
		To Charity Care A/c		218260
		To Contractual Adjustment to patient service revenue A/c		1534000
		To Other Revenue		1001550
		(Being revenue accrual entry passed in books of account)
	2	Cash A/c	8750
		To Investments (Assets Limited to use)		8750
		(Being interest received on investments)
	3	Cash A/c	2967600
		To Accounts Receivable		2967600
		(Being cash received from customers)
	4	Administration Expenses A/c	453480
		General Service Expenses A/c	527860
		Nursing Service Expenses A/c	1033200
		Other Professional Service Expenses A/c	346250
		To Accounts Payable A/c		898000
		To Accrued Payroll A/c		1462790
		(Being entry passed to account for various expenses incurred during the fiscal year)
	5	Interest Expenses A/c	294000
		Mortgage payable	570000
		Accounts Payable	839600
		Accrued Payroll	1286500
		To Cash A/c		2990100
		(Being cash paid to settle various outstanding payables)
a-2	Journal entry for the closing transactions during the fiscal year ended December 31, 2020
	Sl No	Particulars	Debit	Credit
	1	Investments A/c Dr	1880
		To Accrued Interest A/c		1880
		(Being interest Accrual entry passed)
	2	Depreciation on Buildings A/c Dr	124000
		Depreciation on Equipment A/c Dr	135500
		To Accumulated Depreciation A/c		259500
		(Being depreciation entry for the fiscal year ended 2020 passed)
	3	Current Portion of mortgage payable a/c	570000
		To Long term mortgage payables		570000
		(Being current portion of mortgage payable is being re-classified)
	4	Loss on Investments A/c	691
		To Investments A/c		691
		(Being loss on investments recognized)

b	Balancesheet as of December 31, 2020
	I. Assets
	Current Assets:		USD ($)	USD ($)
		Cash & Cash Equivalents (# WN 3)	431750
		Accounts and notes receivable (net of uncollectible accounts of $17,200) (# WN 1)	3318210
		Inventory (Given in question)	99700
		Total Current Assets		3849660
	Assets Limited as to use:
		Cash	18540
		Investments ((# WN 4)	228659
		Total of Assets Limited as to use:		247199
	Property, Plant & Equipment:
		Land	217100
		Building	2776000
		Equipment	1726100
		Total Property, Plant & Equipment		4719200
		Total Assets		8816059
	II. Liabilities and Net Assets
	Current Liabilities
		Accounts Payable ((# WN 2)	79000
		Accrued Payroll	224090
		Current portion of mortgage payable	570000
		Total current liabilities		873090
		Long term mortgage payable		2070000
		Total liabilities		2943090
		Net Assets:
		A. Without donor restrictions
		Undesignated	2089760
		Designated for plant
		-Opening balance	253360
		-Fiscal year 2020 excess of income over expenses	3351109
		B. Without donor restrictions	178740
				5872969
		Total liabilities and net assets		8816059

c-1	Statement of operations for the fiscal year December 31, 2020
	Expenditures	USD ($)	Income	USD ($)
	Administration Expenses A/c	453480	Patient Service Revenue	3502300
	General Service Expenses A/c	527860	Charity Care	218260
	Nursing Service Expenses A/c	1033200	Contractual Adjustment to patient service revenue	1534000
	Other Professional Service Expenses A/c	346250	Other Revenue	1001550
	Depreciation on Buildings A/c Dr	124000	Accrued Interest	1880
	Depreciation on Equipment A/c Dr	135500	Interest received	8750
	Loss on Investments A/c	691
	Interest expense	294000
	Other expenses	650
	Excess of income over expenditure	3351109
	(Transfer to net assets)
	Total	2915631	Total	6266740