Question

3.      General Hospital provides a wide range of health services in its community. The board of directors has authorized the following capital expenditures:
     Intra-aortic balloon pump                                          $1,400,000
        Computed tomographic scanner                                   850,000
        X-ray equipment                                                                550,000
        Laboratory equipment                                                   1,200,000
        Total                                                                                 $4,000,000
The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of
borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows. Billings, made in the month of service, for 20X7 are shown below, with actual amounts for January through June and estimated amounts for July through December:

        Month                                                                             Actual Amount
        January                                                                            $5,300,000
        February                                                                           5,300,000
        March                                                                                5,400,000
        April                                                                                   5,400,000
        May                                                                                    6,000,000
        June                                                                                   6,000,000
        July (estimated)                                                              5,800,000
        August (estimated)                                                        6,000,000
        September (estimated)                                                6,600,000
        October (estimated)                                                      6,800,000
        November (estimated)                                                  7,000,000
        December (estimated)                                                  6,600,000
Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state
governments, and private insurance companies. The remaining 10% of the billings are made directly
to patients. Historical patterns of billing collections are:
                                                   Third-Party Billings                        Direct-Patient Billings
Month of service                                    20%                                                    10%
Month following service                      50                                                       40
Second month following service        20                                                       40
Uncollectible                                           10                                                       10
Singer expects the same billing and collection patterns that have been experienced during the first six months of 20X7 to continue during the last six months of the year. The following schedule presents the purchases that have been made during the past three months and the planned purchases for the last six months of 20X7.
                                     Month                                                  Amount
                                      April                                                   $1,300,000
                                      May                                                      1,450,000
                                    June                                                     1,450,000
                                      July                                                       1,500,000
                                      August                                                 1,800,000
                                      September                                         2,200,000
                                      October                                               2,350,000
                                      November                                          2,700,000
                                      December                                           2,100,000
All purchases are made on account, and accounts payable are remitted in the month following the
purchase.
• Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per
month plus 20% of that month’s billings. Salaries are paid in the month of service.
• Highline’s monthly depreciation charges are $150,000.
• Highline incurs interest expenses of $180,000 per month and makes interest payments of
$540,000 on the last day of each calendar quarter.
• Endowment fund income is expected to continue to total $210,000 per month.
• Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a
minimum end-of-month cash balance of 10% of the current month’s purchases.
• Highline Hospital employs a calendar-year reporting period.
1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.
2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.
3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling $4,000,000.

Answer 1