On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,480,000. During 2021, costs of $2,160,000 were incurred with estimated costs of $4,160,000 yet to be incurred. Billings of $2,660,000 were sent, and cash collected was $2,410,000.

In 2022, costs incurred were $2,660,000 with remaining costs estimated to be $3,840,000. 2022 billings were $2,910,000 and $2,635,000 cash was collected. The project was completed in 2023 after additional costs of $3,960,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method.
2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred).
2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts" for construction costs incurred).
3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022.

For this assessment, you should assume you are on the internal audit staff of a publicly traded company. Chosen company is AMAZON. You will be required to obtain the last two years’ worth of financial statements and a recent audit report. The internal audit group at the company is tasked with preparing for an upcoming revenue audit and analyzing the business risk internally to mitigate audit findings. You will conduct an internal audit of the company using the information gathered and create a report. Then, you will prepare appropriate memos analyzing the audit report you have prepared, while offering feedback and recommendations.

A. Describe how you would conduct the audit process, incorporating the analytical procedures you would use to investigate selected business transactions.

1. What steps will you take to review the company’s business transactions?

2. What would your plan be to utilize these procedures?

B. Explain the appropriate field work needed to review high-risk business transactions for cash and revenue.

1. What would you need to do in the field to investigate these?

2. Could you convey this information through charts or other supporting documentation?

C. Create a test to assess appropriate assertions for designated high-risk business transactions.

The following transactions apply to Jova Company for Year 1, the first year of operation:

Issued $15,500 of common stock for cash.

Recognized $64,500 of service revenue earned on account.

Collected $57,600 from accounts receivable.

Paid operating expenses of $36,000.

Adjusted accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 2 percent of sales on account.

The following transactions apply to Jova for Year 2:

Recognized $72,000 of service revenue on account.

Collected $65,600 from accounts receivable.

Determined that $890 of the accounts receivable were uncollectible and wrote them off.

Collected $300 of an account that had previously been written off.

Paid $48,400 cash for operating expenses.

Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1 percent of sales on account.

Required Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2. d-1.

Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.

Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

• Founder — 85 percent.

• Senior advisor — 10 percent.

• Other employees (four in total) — 5 percent.

  The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:

  • Cash = $1 million.

  • Shares = 100,000 shares in G (worth $3.3 million).

  • Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

Copyright 2019 Deloitte Development LLC All Rights Reserved.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

•  First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.

•  Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

•  Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

• Company P meets the definition of a business under ASC 805.

• Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.

• The Shareholders have at-will employment agreements with G.

• If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.

• The fair value of P was determined to be $24 million.

• The Earnout Consideration is not being treated as compensation expense for tax purposes.

Copyright 2019 Deloitte Development LLC All Rights Reserved.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 3

Required:

If there was a change to the case facts, and the Shareholders were no longer entitled to the Earnout Consideration if they were not employees of G at the time the revenue targets were met, should the Earnout Consideration to the Shareholders be accounted for as purchase consideration in exchange for the Acquisition or as compensation for postcombination services?

Flint Ltd., a private company following ASPE, is a merchant and operates in the province of Ontario, where the HST rate is 13%. Flint uses a perpetual inventory system. Transactions for the business for the month of March and April are as follows:

QUESTIONS:

A) Prepare the journal entries to record these transactions on the books of Flint Ltd

(To record sales on account)

(To record cost of goods sold)

B) Assume instead that Flint operates in the province of Alberta, where PST is not applicable. GST is charged at the rate of 5%. Prepare the journal entries to record these transactions on the books of Flint.

(To record sales on account)

(To record cost of goods sold)

C) Assume instead that Flint operates in a province where 10% PST is also charged on the 5% GST. Prepare the journal entries to record these transactions on the books of Flint. Rental payments and inventory purchased for resale are PST-exempt.

(To record sales on account)

(To record cost of goods sold)

Here is a list of accounts that you can use to create the journal entries:

Accounts Payable
Accounts Receivable
Accretion Expense
Accumulated Depletion - Mineral Resources
Accumulated Depreciation - Drilling Platform
Accumulated Depreciation - Oil Tanker Depot
Asset Retirement Obligation
Bonus Expense
Bonus Payable
Cash
Container Sales Revenue
Cost of Goods Sold
CPP Contributions Payable
Current Tax Expense
Depreciation Expense
Dividends Payable
Drilling Platform
EI Premiums Payable
Employee Benefit Expense
Employee Income Tax Deductions Payable
Estimated Inventory Returns
Estimated Liability for Premiums
Equipment
Freight in
Furniture
Gain on Settlement of ARO
GST Payable
GST Receivable
HST Payable
HST Receivable
Income Tax Expense
Income Tax Payable
Income Tax Receivable
Interest Expense
Interest Payable
Inventory
Inventory of Premiums
Land Improvements
Liability for Guarantee
Litigation Expense
Litigation Liability
Loss Due to Environmental Clean-up
Loss on Expropriation
Loss on Guarantee
Loss on Settlement of ARO
Materials, Cash, Payables
Mineral Resources
No Entry
Notes Payable
Notes Receivable
Oil Tanker Depot
Parental Leave Benefits Payable
Payroll Tax Expense
Premium Expense
Premium Liability
Property Tax Expense
Property Tax Payable
PST Payable
Purchase Discounts
Purchase Discounts Lost
Purchase Returns and Allowances
Purchases
Refund Liability
Rent Expense
Rent Payable
Rent Revenue
Retained Earnings
Returned Inventory
Salaries and Wages Expense
Salaries and Wages Payable
Sales Returns and Allowances
Sales Revenue
Sales Tax Payable
Service Revenue
Sick Pay Wages Payable
Trucks
Unearned Revenue
Union Dues Payable
Vacation Wages Payable
Warranty Expense
Warranty Liability
Warranty Revenue

Transactions; Financial Statements

Bev’s Dry Cleaners is owned and operated by Beverly Zahn. A building and equipment are currently being rented, pending expansion to new facilities. The

actual work of dry cleaning is done by another company for a fee. The assets and the liabilities of the business on November 1, 2019, are as follows: Cash,

$14,280; Accounts Receivable, $29,240; Supplies, $2,720; Land, $34,000; Accounts payable, $12,240. Business transactions during November are

summarized as follows:

a. Beverly Zahn invested additional cash in the business with a deposit of $27,000 in the business bank account.

b. Purchased land adjacent to land currently owned by Bev’s Dry Cleaners to use in the future as a parking lot, paying cash of $13,400.

c. Paid rent for the month, $16,320.

d. Charged customers for dry cleaning revenue on account, $4,900.

e. Paid creditors on account, $2,280.

f. Purchased supplies on account, $12,080.

g. Received cash from cash customers for dry cleaning revenue, $26,110.

h. Received cash from customers on account, $32,640.

i. Received monthly invoice for dry cleaning expense for November (to be paid on December 10), $13,060.

j. Paid the following: wages expense, $7,180; truck expense, $2,610; utilities expense, $2,770; miscellaneous expense, $1,240.

k. Determined that the cost of supplies on hand was $1,800; therefore, the cost of supplies used during the month was $3,200.

l. Withdrew $7,500 cash for personal use; Financial Statements

Bev’s Dry Cleaners is owned and operated by Beverly Zahn. A building and equipment are currently being rented, pending expansion to new facilities. The

actual work of dry cleaning is done by another company for a fee. The assets and the liabilities of the business on November 1, 2019, are as follows: Cash,

$14,280; Accounts Receivable, $29,240; Supplies, $2,720; Land, $34,000; Accounts payable, $12,240. Business transactions during November are

summarized as follows:

a. Beverly Zahn invested additional cash in the business with a deposit of $27,000 in the business bank account.

b. Purchased land adjacent to land currently owned by Bev’s Dry Cleaners to use in the future as a parking lot, paying cash of $13,400.

c. Paid rent for the month, $16,320.

d. Charged customers for dry cleaning revenue on account, $4,900.

e. Paid creditors on account, $2,280.

f. Purchased supplies on account, $12,080.

g. Received cash from cash customers for dry cleaning revenue, $26,110.

h. Received cash from customers on account, $32,640.

i. Received monthly invoice for dry cleaning expense for November (to be paid on December 10), $13,060.

j. Paid the following: wages expense, $7,180; truck expense, $2,610; utilities expense, $2,770; miscellaneous expense, $1,240.

k. Determined that the cost of supplies on hand was $1,800; therefore, the cost of supplies used during the month was $3,200.

l. Withdrew $7,500 cash for personal use; Financial Statements

Bev’s Dry Cleaners is owned and operated by Beverly Zahn. A building and equipment are currently being rented, pending expansion to new facilities. The

actual work of dry cleaning is done by another company for a fee. The assets and the liabilities of the business on November 1, 2019, are as follows: Cash,

$14,280; Accounts Receivable, $29,240; Supplies, $2,720; Land, $34,000; Accounts payable, $12,240. Business transactions during November are

summarized as follows:

a. Beverly Zahn invested additional cash in the business with a deposit of $27,000 in the business bank account.

b. Purchased land adjacent to land currently owned by Bev’s Dry Cleaners to use in the future as a parking lot, paying cash of $13,400.

c. Paid rent for the month, $16,320.

d. Charged customers for dry cleaning revenue on account, $4,900.

e. Paid creditors on account, $2,280.

f. Purchased supplies on account, $12,080.

g. Received cash from cash customers for dry cleaning revenue, $26,110.

h. Received cash from customers on account, $32,640.

i. Received monthly invoice for dry cleaning expense for November (to be paid on December 10), $13,060.

j. Paid the following: wages expense, $7,180; truck expense, $2,610; utilities expense, $2,770; miscellaneous expense, $1,240.

k. Determined that the cost of supplies on hand was $1,800; therefore, the cost of supplies used during the month was $3,200.

l. Withdrew $7,500 cash for personal use

Watson Co. is a specialty fabrics manufacturer and retailer who operates mainly in the Carolinas. A partial trial balance showing Watson’s equity, revenue and expense balances as of its December 31, 2019 year-end follows:

    Debits              Credits

Dividends                                                                     $   321,960

Retained earnings (1/1/19)                                                                     $   859,265

Unrealized holding loss – ECM bonds (1/1/19)                      53,710

Interest revenue                                                                                         17,805

Sales revenue                                                                                        9,147,540

Advertising expense                                                           116,385

Cost of goods sold                                                         5,947,660

Depreciation expense                                                         241,195

Interest expense                                                                 108,470

Salaries and wages expense                                           1,859,255

Utilities expense                                                                212,090

In addition, the following information is available for the company for 2019. Unless indicated otherwise, this information has not yet been reflected in the company’s accounts. All of the dollar amounts are stated on a before-tax basis.

1. In early January 2016, Watson purchased certain equipment at a price of $81,750. Watson began depreciating the equipment using the straight-line method and estimates of 10 years for useful life and $16,350 for salvage value. Watson depreciated the equipment on this basis through 2018 (actually 2019 – see the Note below). In early January 2019, the company determined that its initial estimates needed to be revised. Watson increased the useful life from 10 to 15 years and decreased the salvage value from $16,390 to $5,250.

Note – Watson mistakenly computed depreciation on this equipment for 2019 using the original estimates (10 years and $16,350). The depreciation expense of $241,195 shown in the partial trial balance above reflects use of the original estimates for this equipment.

2. In March 2019, Watson extinguished bonds payable having a book value of $429,350. Watson paid the investors $392,675 to retire these bonds.

3. In November 2019, Watson discovered that it understated the sales revenue reported in its 2018 financial statements. As a result, the company’s 2018 sales revenue was understated by $74,290. Watson plans to record the correcting entry before year-end 2019 and report the correction as required by GAAP in its 2019 financial statements.

Note – The discovery and correction of the 2018 error will not change the sales revenue for 2019. The $9,147,540 figure in the partial trial balance above is correct.

4. In preparing its 2019 financial statements, Watson has determined that it must write down certain inventory items by a total of $46,310.

5. In 2015, Watson purchased bonds issued by ECM Co., which it continues to hold as an available-for-sale investment. The fair value of Watson’s investment increased in 2019, from $283,415 to $369,185.

Note – The $53,710 Unrealized holding loss – ECM bonds (1/1/19) in the partial trial balance above relates to this item and, of course, is stated net of income taxes.

6. In September 2019, the government of South Africa expropriated a manufacturing facility that Watson owned in the country. The South African government informed Watson that it does not intend to compensate the company for this action. Watson’s accounts show a book value for the manufacturing plant at the time of expropriation of $239,850. This event satisfies the conditions of unusual and infrequent.

7. At year-end 2019, Watson decided to change its inventory cost flow method from First-in, First-out (FIFO) to Average Cost. The effect of the change on 2019 and prior years is as follows:

     2019            Prior Years

Cost of goods sold – FIFO                                 $5,947,660        $14,732,000

Cost of goods sold – Average Cost                     6,081,390           15,316,000

Note – The cost of goods sold figure in Watson’s partial trial balance above reflects use of the old method (FIFO) for 2019.

8. In April 2019, Watson shifted its business strategy, resulting in the August 2019 sale of a component of the company considered a separate major line of business. The sale produced a loss on disposal of $71,920. The operations of the component, prior to the sale in August, produced an income of $22,070.

Assume the above amounts are material. Also, assume the income tax rate applicable to all years and all income items is 30%. Finally, note that Watson uses the multiple-step format for the reporting of income items and the two-income statement approach for the display of other comprehensive income items.

– Instructions –

Prepare the financial statements for the year ended December 31, 2019 to show the proper reporting of Watson’s:

Prepare an Income statement and retained earnings statement from the informantion above.

Prepare these statements in good form, according to GAAP requirements.

please answer a,b,c,d..some quetions have more than 1 answer

103)Which of the following items would not appear in an income statement? A)Cash. B)Service revenue. C)Salaries expense. D)Advertising expense.

108)ABC opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What was the balance in ABC's Prepaid Insurance account as of December 31, 2018? A)$48,000. B)$30,000. C)$18,000. D)$9,000.

109)For a journal entry with only two lines, the following entry is valid: Decrease in an asset, Increase in a liability. A) True B) False

140)Which of the following is not a possible journal entry? A)Debit assets; Debit stockholders' equity. B)Credit revenues; Debit assets. C)Debit expenses; Credit liabilities. D)Credit assets; Debit expenses.

141)For a journal entry with only two lines, the following entry is valid: Increase in one Liability, Increase in a second second liability. A) True B) False

142)Consider the following transactions: Issued common stock for cash. Purchased equipment by signing a note payable. Paid rent for the current month. Collected cash from customers on account. How many of these four transactions increased the given company's total assets? A)One. B)Four. C)Two. D)Three.

143)For a journal entry with only two lines, the following entry is valid: Decrease in an asset, Increase in a Owners' Equity. A) True B) False

144)For which of the following must Debits equal Credits (This question may have multiple answers) A)Transaction Entries B)Closing Entries C)Adjusting Entries

145)For a journal entry with only two lines, the following entry is valid: Increase in a Liability, Increase in Revenue. A) False B) True

146)For a journal entry with only two lines, the following entry is valid: Decrease in Owners' Equity, Increase in Revenue. A) False B) True

147)When writing formal journal entries A)There is no required ordering of Debits and Credits B)Credits are on top, Debits are on the bottom C)Debits are on top, Credits are on the bottom

148)Which of the following accounts would normally have a debit balance? A)Accounts Payable, Service Revenue, Common Stock. B)Income Tax Payable, Service Revenue, Dividends. C)Salaries Payable, Deferred Revenue, Utilities Expense. D)Cash, Delivery expense, Dividends.
20

149)Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are: A)Debit Rent Expense, credit Cash. B)Debit Prepaid Rent, credit Rent Expense. C)Debit Cash, credit Prepaid Rent. D)Debit Prepaid Rent, credit Cash.

150)On January 1, ABC started the year with a $492,000 balance in Retained Earnings and a $605,000 balance in Common Stock. During the year, the company reported net income of $92,000, paid a dividend of $15,200, and issued more common stock for $27,500. What is total stockholders' equity at the end of the year? A)$1,201,300. B)$1,588,300. C)$1,097,000. D)$1,231,700.

151)For a journal entry with only two lines, the following entry is valid: Increase in an asset, Decrease in a liability. A) True B) False

152)Which of the following has the single greatest impact on stock prices? A)Total dividends. B)Net income. C)Total revenues. D)Total assets.

153)At the beginning of December, ABC had $2,000 in supplies on hand. During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800. What is the appropriate month-end adjusting entry? A)Debit Supplies $4,200, credit Supplies Expense $4,200. B)Debit Cash $800, credit Supplies $800. C)Debit Supplies Expense $4,200, credit Supplies $4,200. D)Debit Cash $4,200, credit Supplies $4,200.

154)Receiving a utility bill for costs in the current period but delaying payment until the following period is an example of a(n): A)Deferred revenue. B)Prepaid expense. C)Accrued revenue. D)Accrued expense.

161)Separation of duties occurs when two or more people act in coordination to circumvent internal controls. A) False B) True

162)The Trueblood Criterion is used by A)Managers when reporting to the public B)Internal Management reports (Managerial Accounting) C)Accountants D)Managers when reporting to the IRS

163)The ending Retained Earnings balance of ABC decreased by $1.0 million from the beginning of the year. The company declared a dividend of $5.4 million during the year. What was the net income for the year? A)$6.4 million. B)$4.4 million. C)$7.5 million. D)$1.0 million.

169)After the 1st step in the Operating Cycle, the firm has? A)Inventory B)Receivable C)Cash

171)The second step in the Operating Cycle is called? A)Purchase B)Collection C)Manufacture D)Sale

173)If a company records cash received for services to be provided in the future with a debit to Cash and a credit to Service Revenue, how will this error affect total assets for the current period? A)Not possible to determine. B)Total assets will be correct. C)Total assets will be too low. D)Total assets will be too high.

175)Following are transactions of ABC, a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries.
How many of these transactions decreased ABC's total assets? A)Four. B)One. C)Two. D)Three.

177)Prior to year-end adjusting entries, what would explain the Allowance for Uncollectible Accounts having a debit balance? A)The amount of cash collections from customers in the current year was less the amount of cash collections from customers in the prior year. B)The amount of credit sales in the current year was greater than the amount of credit sales made in the prior year. C)The amount of actual uncollectible accounts in the current year was greater than the estimate of uncollectible accounts made at the end of the prior year. D)The amount of actual uncollectible accounts in the current year was less than the estimate of uncollectible accounts made at the end of the prior year.

St. John’s Healthcare was established in 1917 by a group of philanthropists and concerned citizens with two goals in mind: To make healthcare services readily available to all people, regardless of race, color or creed, or their ability to pay, and to create a hospital where physicians would be allowed to practice medicine without fear of discrimination. More than 100 years later, it remained a not-forprofit hospital that provides vital health care services to all citizens. Through the years, they have steadily gained the expertise, resources and facilities necessary to serve an ever-expanding population of people in need.

St John’s includes 10 acute care and specialty (heart, children’s, orthopedic and rehab) hospitals, more than 200 physician practices and outpatient facilities, 10,000 co-workers and more than 500 Clinic physicians in Kansa Kansas, Missouri and Louisiana.

St. John’s Virtual Care Center is dedicated to care outside its own walls, monitoring patients 24/7/365 across the country, using high-speed data and video connections and medically intervening when and where patients need it with a comprehensive team approach.

St. John’s Healthcare’s ten outpatient diagnostic centers provide convenient access to some of the most common outpatient services. Offering advanced technology for same-day screening and diagnosis.

Much has been written about the impact that healthcare industry reform is having on hospitals and health systems. And with the challenge of reduced reimbursements looming, Finance teams understand that realizing the bottom-line benefits of cost containment and process improvement initiatives is becoming a business imperative. However, as organizations critically evaluate their financial management capabilities, many realize they have ineffective approaches designed around antiquated tools that aren’t up to the task.

In addition, hospitals have seen their prices growing at a slower rate than inflation. Revenues from private insurance have not fully offset the reductions in Medicare payments stemming from the Affordable Care Act and federal budget sequestration initiated in 2012. Many hospitals and health systems strove to gain market share at the expense of competitors by deeply discounting their rates for new “narrow network” health plans targeted at public and private health exchanges, enrollments from which have far underperformed expectations.

Mr. John Smith, CFO of the St. John’s Healthcare system is concerned about the future of St. John’s financial stability with all the recent changes including ACA and sequestration cut in 2012. Although financially System is doing well but they have fallen short of budgeted results. The main cause of the variance has been organizations’ lack of discipline in managing the size of their workforces, which account for roughly half of all hospital expenses. While budget variance inherently looks at past performance, the insights gathered provide guidance for future decisions.

He knows when done effectively, variance reporting can provide each Manager visibility and reasons for the variance between actual and budgeted performance. Budget variance is the difference between budgeted and actual expenses and revenue. Budget variance provides a quick picture of how an entity or a department is performing in comparison to your budget. For example, when actual revenue is higher than budgeted, it’s on a positive trend. When your actual expenses are more than what budgeted, it’s a clear indicator that there is a need to reduce spending unless it helped, or it will help to generate more revenue.

Mr. Smith has recently hired you as a Budget Manager and would like to develop ‘Department Budget variance Report’ to manage the financials better in the future. You have decided to use one of their Outpatient Diagnostic Center report for the last year and develop Budget-Variance report for that department. Your plan is that if CFO approves the new budget variance report then you will roll out that to all the departments in the System.

Contractual Allowance is the difference between what hospitals bill and what they receive in payment from third party payers, including government programs; also known as contractual adjustment. St. John’s Healthcare offers Financial Assistance (Charity care) program that allows persons to receive medically necessary care at no charge or at a reduced charge when they meet financial eligibility requirements. This program provides financial relief to patients who qualify based on a comparison of their financial resources and/or income to the Federal Poverty Guidelines. 4 | P a g e Under existing GAAP, a healthcare service provider records revenue using the amount it bills for a service, even if it does not expect to collect that amount; the difference is recorded on the income statement as a provision for bad debt expense and helps calculate net revenue.

1. Using the information given above, develop a budget variance report for the FY 2017 for the Outpatient Diagnostic center.

2. Using the units of Service, calculate the revenue and expense for per unit of service for both actual and budget. Also, show the variance between actual and budget.

3. An FTE is the hours worked by one employee on a full-time basis. The concept is used to convert the hours worked by several part-time employees into the hours worked by full-time employees. On an annual basis, an FTE is considered to be 2,080 hours, which is calculated as: 8 hours per day. x 5 work days per week. Using this information, how many Technician FTEs were budgeted and worked in FY 2017?

4. What are some of the reasons for the budget variance for variable salaries and supplies?

On July 1, 2018, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The following transactions occur from August 1 through December 31. Also, the balances are provided for the month ended July 31.
  
The articles of incorporation state that the corporation will sell 21,000 shares of common stock for $1 each. Each share of stock represents a unit of ownership. Tony and Suzie will act as co-presidents of the company. The following business activities occur during July for Great Adventures.
  
Jul. 1 Sell $10,500 of common stock to Suzie.
Jul. 1 Sell $10,500 of common stock to Tony.
Jul. 1 Purchase a one-year insurance policy for $5,640 ($470 per month) to cover injuries to participants during outdoor clinics.
Jul. 2 Pay legal fees of $1,100 associated with incorporation.
Jul. 4 Purchase office supplies of $1,900 on account.
Jul. 7 Pay for advertising of $220 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $30 the day of the clinic.
Jul. 8 Purchase 10 mountain bikes, paying $11,100 cash.
Jul. 15 On the day of the clinic, Great Adventures receives cash of $1,200 from 40 bikers. Tony conducts the mountain biking clinic.
Jul. 22 Because of the success of the first mountain biking clinic, Tony holds another mountain biking clinic and the company receives $1,600.
Jul. 24 Pay for advertising of $790 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $120 in advance or $170 on the day of the clinic.
Jul. 30 Great Adventures receives cash of $7,200 in advance from 60 kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $49,000 low-interest loan for the company from the city council, which has recently passed an initiative encouraging business development related to outdoor activities. The loan is due in three years, and 6% annual interest is due each year on July 31.
Aug. 4 The company purchases 14 kayaks, paying $18,200 cash.
Aug. 10 Twenty additional kayakers pay $3,400 ($170 each), in addition to the $7,200 that was paid in advance on July 30, on the day of the clinic. Tony conducts the first kayak clinic.
Aug. 17 Tony conducts a second kayak clinic, and the company receives $11,500 cash.
Aug. 24 Office supplies of $1,900 purchased on July 4 are paid in full.
Sep. 1 To provide better storage of mountain bikes and kayaks when not in use, the company rents a storage shed, purchasing a one-year rental policy for $3,360 ($280 per month).
Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,800 cash.
Oct. 17 Tony conducts an orienteering clinic. Participants practice how to understand a topographical map, read an altimeter, use a compass, and orient through heavily wooded areas. The company receives $18,500 cash.
Dec. 1 Tony decides to hold the company’s first adventure race on December 15. Four-person teams will race from checkpoint to checkpoint using a combination of mountain biking, kayaking, orienteering, trail running, and rock-climbing skills. The first team in each category to complete all checkpoints in order wins. The entry fee for each team is $600.Dec. 5 To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $50 in salary for each team that competes in the race. His salary will be paid after the race.Dec. 8 The company pays $1,900 to purchase a permit from a state park where the race will be held. The amount is recorded as a miscellaneous expense.Dec. 12 The company purchases racing supplies for $2,600 on account due in 30 days. Supplies include trophies for the top-finishing teams in each category, promotional shirts, snack foods and drinks for participants, and field markers to prepare the racecourse.Dec. 15 The company receives $24,000 cash from a total of forty teams, and the race is held.Dec. 16 The company pays Victor’s salary of $2,000.
Dec. 31 The company pays a dividend of $4,900 ($2,450 to Tony and $2,450 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $5,100. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married!

The following information relates to year-end adjusting entries as of December 31, 2018.
  
a. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,400.
b. Six months’ worth of insurance has expired.
c. Four months’ worth of rent has expired.
d. Of the $1,900 of office supplies purchased on July 4, $350 remains.
e. Interest expense on the $49,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,600 of racing supplies purchased on December 12, $260 remains.
g. Suzie calculates that the company owes $14,200 in income taxes.
  
Assume the following ending balances for the month of July.