7-44 Cash Budgeting for a Hospital
Highline Hospital provides a wide range of health services in its community. Highline’s 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.
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