Question

The following is the preadjusted trial balance of Grandtown Hospital at December 31, 20X1, the end of the hospital’s current fiscal year:

Acct.

101 Cash $ 37,500

102 Temporary investments 30,000

103 Accrued interest receivable -0-

104 Accounts receivable 120,000

105 Allowance for uncollectible accounts $ -0-

106 Inventory 14,000

107 Prepaid insurance 3,600

120 Land 25,000

130 Buildings 250,000

131 Accumulated depreciation—buildings -0-

140 Equipment 140,000

141 Accumulated depreciation—equipment -0-

201 Accounts payable 37,400

203 Accrued interest payable -0-

204 Accrued salaries and wages payable -0-

205 Deferred rental income 2,700

250 Bonds payable 150,000

301 Hospital net assets 395,700

302 Revenue and expense summary -0-

401 Routine services revenue 171,200

402 Ancillary services revenue 110,300

403 Interest income -0-

404 Rental income -0-

406 Other operating revenues 23,500

501 Contractual adjustments 22,700

502 Charity care adjustments 31,100

601 Salaries and wages expense 155,600

602 Supplies expense 33,100

603 Utilities expense 14,900

604 Insurance expense -0-

605 Repairs expense 6,400

607 Depreciation expense -0-

608 Interest expense 4,500

609 Bad debt expense -0-

610 Other expenses 2,400

Totals $890,800

The following additional information is available:

1. The temporary investment consists of $30,000 (face value) of 8 percent bonds acquired by the hospital on November 1, 20X1. These bonds pay interest annually on November 1, commencing on November 1, 20X2.

2. Of the December 31, 20X1, accounts receivable, it is estimated that 14 percent will eventually prove uncollectible by reason of (1) charity care, 7 percent; (2) contractual adjustments, 4 percent; and (3) bad debts, 3 percent.

3. A two-year insurance premium of $3,600 was paid in advance by the hospital on January 1, 20X1.

4. The hospital building, which was acquired on January 1, 20X1, has an estimated useful life of 50 years and a 20 percent salvage value.

5. The equipment, which was acquired on January 1, 20X1, has an estimated useful life of 12 years and a $20,000 salvage value. 6. On January 1, 20X1, the hospital issued $150,000 of 20-year, 6 percent bonds at face value. These bonds pay interest semiannually on January 1 and July 1, commencing July 1, 20X1.

7. Unpaid salaries and wages at December 31, 20X1, amounted to $12,300.

8. The hospital received one year’s rent of $2,700 in advance on June 1, 20X1.

Required: (1) Prepare a worksheet to develop financial statements in the manner illustrated in Figure 8.3. (2) Prepare, in good form, a complete set of financial statements for 20X1. (3) Prepare, in general journal form, the necessary adjusting entries at December 31, 20X1, for the year then ended. (4) Prepare, in general journal form, the necessary closing entries on December 31, 20X1, for the year then ended.

Answer 1

Pre-adjusted Trial Balance
Account	Amount
Cash	37,500.0
Temporary investments	30,000.0
Accrued interest receivable	-
Accounts receivable	120,000.0
Allowance for uncollectible accounts	-
Inventory	14,000.0
Prepaid Insurance	3,600.0
Land	25,000.0
Building	250,000.0
Accumulated Dep - Building	-
Euipment	140,000.0
Accumulated Dep - Equipment	-
Accounts Payable	(37,400.0)
Accrued interest payable	-
Accrued salaries and wages payable	-
Deferred rental Income	(2,700.0)
Bonds Payable	(150,000.0)
Equity	(395,700.0)
Routine Service revenue	(171,200.0)
Ancillary services revenue	(110,300.0)
Interest Income	-
Rental Income	-
Other operating revenues	(23,500.0)
Contractual adjustments	22,700.0
Charity care adjustments	31,100.0
Salaries and wages expense	155,600.0
Supplies expenses	33,100.0
Utilities expense	14,900.0
Insurance expenses	-
Repairs expense	6,400.0
Depreciation expenses
Interest expense	4,500.0
Bad debt expense	-
Other expenses	2,400.0
Total	-

	Journal entries
1	Accrued interest receivable	Dr	400
	Interest Income	Cr	400
	(Being Interest accrued on 8% bonds (2 months - Nov & Dec))
2	Charity care adjustments	Dr	8,400.0
	Contractual adjustments	Dr	4,800.0
	Accounts receivable	Cr	13,200.0
	(Provided for uncollectible receivable)
	Bad debt expense	Dr	3,600.0
	Allowance for uncollectible accounts	Cr	3,600.0
3	Insurance expenses	Dr	1,800.0
	Prepaid Insurance	Cr	1,800.0
	(Deferred expenditure - Insurance)
4	Depreciation expenses	Dr	4,000
	Accumulated Dep - Building	Cr	4,000
	(Being buidling depreciated)
5	Depreciation expenses	Dr	10,000
	Accumulated Dep - Equipment	Cr	10,000
	(Being equipment depreciated)
6	Interest expense	Dr	4500
	Accrued interest payable	Cr	4500
	(Being interest exp accrued on 6% Bond)
7	Salaries and wages expense	Dr	12,300
	Accrued salaries and wages payable	Cr	12,300
	(Unpaid salaries and wages accounted)
8	Deferred rental Income	Dr	1,575
	Rental Income	Cr	1,575
	(Recognized rental income for 7 months (Jun to Dec)

Adjusted Trial Balance
Account	Amount
Cash	37,500.0
Temporary investments	30,000.0
Accrued interest receivable	400.0
Accounts receivable	106,800.0
Allowance for uncollectible accounts	(3,600.0)
Inventory	14,000.0
Prepaid Insurance	1,800.0
Land	25,000.0
Building	250,000.0
Accumulated Dep - Building	(4,000.0)
Euipment	140,000.0
Accumulated Dep - Equipment	(10,000.0)
Accounts Payable	(37,400.0)
Accrued interest payable	(4,500.0)
Accrued salaries and wages payable	(12,300.0)
Deferred rental Income	(1,125.0)
Bonds Payable	(150,000.0)
Equity	(395,700.0)
Routine Service revenue	(171,200.0)
Ancillary services revenue	(110,300.0)
Interest Income	(400.0)
Rental Income	(1,575.0)
Other operating revenues	(23,500.0)
Contractual adjustments	27,500.0
Charity care adjustments	39,500.0
Salaries and wages expense	167,900.0
Supplies expenses	33,100.0
Utilities expense	14,900.0
Insurance expenses	1,800.0
Repairs expense	6,400.0
Depreciation expenses	14,000.0
Interest expense	9,000.0
Bad debt expense	3,600.0
Other expenses	2,400.0
Total	-

P&L account for the year ending December 31, 20X1
P&L Account	For 20X1
Revenue
Routine Service revenue	171,200.0
Ancillary services revenue	110,300.0
Other operating revenues	23,500.0
Total revenue	305,000.0
Contractual adjustments	(27,500.0)
Charity care adjustments	(39,500.0)
Salaries and wages expense	(167,900.0)
Supplies expenses	(33,100.0)
Utilities expense	(14,900.0)
Insurance expenses	(1,800.0)
Repairs expense	(6,400.0)
Depreciation expenses	(14,000.0)
Interest expense	(9,000.0)
Bad debt expense	(3,600.0)
Other expenses	(2,400.0)
Total expenses	(320,100.0)
Interest Income	400.0
Rental Income	1,575.0
Other Income	1,975.0
Loss for the period	(13,125.0)

Balance sheet as on 31 Dec 20X1
Assets
Fixed Assets
Land	25,000.0
Building	246,000.0
Euipment	130,000.0
Current Assets
Cash	37,500.0
Temporary investments	30,000.0
Accrued interest receivable	400.0
Accounts receivable	103,200.0
Inventory	14,000.0
Prepaid Insurance	1,800.0
Total Assets	587,900.0
Liabilities
Equity	395,700.0
Reserves	(13,125.0)
Long term Liabilities
Bonds Payable	150,000.0
Current Liabilities
Accounts Payable	37,400.0
Accrued interest payable	4,500.0
Accrued salaries and wages payable	12,300.0
Deferred rental Income	1,125.0
Total Liabilities	587,900.0