Question

PROBLEM 19-2 Various Funds—Hospital
On January 1, 2015, a new Board of Directors was elected for Bradley Hospital. The new board switched to a
different accountant. After reviewing the hospital’s books, the accountant decided that the accounts should be
adjusted. Effective January 1, 2015, the board decided that
1. Separate funds should be established for the General Fund, the Bradley Endowment Fund, and the Plant
Replacement and Expansion Fund (the old balances will be reversed to eliminate them).
2. The accounts should be maintained in accordance with fund accounting principles. The balances in the
general ledger at January 1, 2015, are presented here:
Cash $ 50,000
Investment in U.S. treasury bills 105,000
Investment in common stock 417,000
Interest receivable 4,000
Accounts receivable 40,000
Inventory 25,000
Land 407,000
Building 245,000
Equipment 283,000
Allowance for depreciation $ 376,000
Accounts payable 70,000
Bank loan 150,000
Endowment fund balance 119,500
Other fund balances 860,500
Total $1,576,000 $1,576,000
The following additional information is available:
1. Under the terms of the will of J. Ethington, founder of the hospital, “The principal of the bequest is to be fully
invested in trust forevermore in mortgages secured by productive real estate in Central City and/or in U.S.
Government securities . . . and the income therefrom is to be used to defray current expenses.”
2. The Endowment Fund consists of the following:
Cash received in 1898 by bequest from Ethington $ 81,500
Net gains realized from 1956 through 1989 from the sale of real estate
acquired in mortgage foreclosures 23,500
Income received from 1990 through 2014 from 90-day U.S. treasury
bill investments 14,500
Balance per general ledger on January 1, 2015 $119,500
3. The land account balance is composed of
1900 appraisal of land at $10,000 and building at $5,000, received by
donation at that time. The building was demolished in 1934. $ 15,000
Appraisal increase based on insured value in land title policies
issued in 1954. 380,000
Landscaping costs for trees planted. 12,000
Balance per general ledger on January 1, 2015 $407,000
4. The building balance is composed of
Cost of present hospital building completed in January 1974, when the
hospital commenced operations $ 300,000
Adjustment to record appraised value of building in 1984. (100,000)
Cost of elevator installed in hospital building in January 2000. 45,000
Balance per general ledger on January 1, 2015 $ 245,000
The estimated useful lives of the hospital building and the elevator when new were 50 years and 20 years,
respectively.
5. The hospital’s equipment was inventoried on January 1, 2015. The costs shown in the inventory agreed with
the equipment account balance in the general ledger. The allowance for depreciation account at January 1,
2015, included $158,250 applicable to equipment, and that amount was determined to be accurate. All depreciation
is computed on a straight-line basis.
6. A bank loan was obtained to finance the cost of new operating room equipment purchased in 2011. Interest
was paid to December 31, 2014.
7. Common stock with a market value of $417,000 was donated to Bradley Hospital with the stipulation that the
proceeds from the sale of the stock must be used for facilities expansion. The hospital plans to undertake
expansion of its facilities next year and to sell these securities at that time.
Required:
Using the workpaper form below, prepare the entries necessary to establish the correct balances as of January 1,
2015
Plant
Endowment Replacement
Trial Balance Adjustments General Fund Fund Fund
Account
Description Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
(AICPA adapted)

Answer 1

	Trial Balance		Adjustments		General Fund		Endowment Fund		Plant Replacement Fund
Account Description	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$        50,000.00				$      50,000.00
Investment in U.S. Treasury Bills	$      105,000.00						$ 105,000.00
Investment in Common Stock	$      417,000.00								$ 417,000.00
Interest Receivable	$          4,000.00				$         4,000.00
Accounts Receivable	$        40,000.00				$      40,000.00
Inventory	$        25,000.00				$      25,000.00
Land	$      407,000.00			(2)$385,000	$      22,000.00
Building	$      245,000.00		(3)$100,000		$    345,000.00
Equipment	$      283,000.00				$    283,000.00
Allowance for Depreciation		$      376,000.00		(4)$62000		$ 438,000.00
Accounts Payable		$        70,000.00				$    70,000.00
Bank Loan		$      150,000.00				$ 150,000.00
Endowment Fund Balances		$      119,500.00	(1)14500					$ 105,000.00
Other Fund Balances		$      860,500.00	(2)385000	(1)14500
			(4)$62000	(3)$100,000
			(5)$528000
Plant Replacement Fund Balances				(5)$417000						$ 417,000.00
General Fund Balance				(5)$111000		$ 111,000.00
Total	$ 1,576,000.00	$ 1,576,000.00	$ 1,089,500.00	$ 1,089,500.00	$    769,000.00	$ 769,000.00	$ 105,000.00	$ 105,000.00	$ 417,000.00	$ 417,000.00

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Sno	Journals	Debit	Credit
1	Endowment Fund Balance	14,500.00
	Other Fund Balances		14,500.00
	To eliminate from the Endowment Fund Balance the investment income earned on U.S. Treasury Bills
2	Other Fund Balance	385,000.00
	Land		385,000.00
	To eliminate from the land account the $380,000 appraisal increase and the $5,000 cost of the old building which was demolished
3	Building	100,000.00
	Other Fund Balance		100,000.00
	To eliminate the appraisal decrease and restate the hospital building at its actual cost
4	Other Fund Balances (Refer computation)	62000**
	Allowance for Depreciation (Refer computation)		62000**
5	Other Fund Balances	528,000.00
	Plant Replacement Fund		417,000.00
	General Fund		111,000.00
	To close out Other Fund Balances and to allocate its balance to the General Fund and the Plant Replacement Fund

---------Computation for allowance of Depreciation

Computation :	Amt
Building - $300,000 at 2% times 41 years	246,000.00
Elevator - $45,000 at 5% times 15 years	33,750.00
Equipment – ascertained to be accurate	158,250.00
Total accumulated depreciation, as computed	438,000.00
Less accumulated depreciation per books	376,000.00
Understatement of accumulated depreciation	62000**