Question

Below is the balance sheet for BestCare Hospital for December 31, 2011. You've been asked to forecast what the balance sheet will look like in 2012. Everything should look the same except the changes described below. After accounting for all the changes described below the balance sheet will balance (as it must always!) but some questions will only affect one account. Fill in the blanks. Use commas in your answer. For instance, please type 30,000 instead of 30000. • The company decides to purchase a new building for $200. It finances the purchase by issuing $200 of new debt. Assume none of the new debt is due within a year and accumulated depreciation is the same in 2012 as it was in 2011. • The hospital has more self-pay patients in 2012 and it takes: a long time to collect from these individuals. As a result: o The account related to services that have been provided but not paid (you identify which one it is) increases by $300. o With the flow of new cash coming in slowed by longer collection period, the hospital reduces its cash balance by $100. The CFO takes another step to deal with impending liquidity problems. She takes out a short-term loan of $30. (Note- I'm only telling you that the CFO took out a loan, not whether it was held as cash, used to pay suppliers or used to by PP&E so you can only record a change in the account associated with short-term loans) o The CFO also increases the hospital's use of trade credit and the associated balance sheet account increases by $80. (Note-trade credit refers to credit extended by a firm's suppliers. In other words, situations where a supplier will send the hospital supplies and allow the hospital to pay up to, say, 30 days after receiving the supplies.)

1. What was the total increase in assets between 2011 and 2012?

2. What was the hospital's 2012 net income (assume the hospital is NFP and as such does not pay out dividends? Also assume that the hospital had no charitable donations during 2012).

3. What kinds of debt and equity are used to fund the hospital's increase in assets?

4. It's great that the hospital has positive net income and that it's growing its asset base. What concerns do you have about the hospital's performance?

Answer 1

PARTICULARS	2011	2012
ASSETS
Current Assets
Cash	2,737	2,637
Net account receivables	821	1,121
Supply inventory	387	387
Total Current Assets	3,945	4145
PPE (gross)	8,458	8,658
Accumulated dep.	-2,534	-2,534
Net PPE	5,924	6,124
TOTAL ASSETS	9,869	10,269
LIABILITIES & NET ASSETS
Account payables	2,145	2,225
Accrued expenses	929	929
notes payable	382	412
Total Current laibilities	3,456	3566
Long-term Debt	4,295	4,295
Debt for building	0	200
Total Liabilities	7,751	8,061
Net Assets (unrestricted)	2,118	2,118
Total liabilities & net assets	9,869	10,179

The difference of $90 can't be accounted for in known terms as the question specifies not to adjust any other account except those asked.

ANSWERS:

(1) Increase in assets = $400

(2) Net Income of 2012 can be evaluated as SURPLUS of income & expenditures of 2012.

(3) Debt of $200 led to increase in assets in 2012.

(4) CONCERNS ABOUT ITS PERFORMANCE:

• Slow debt collection period can lead to a cash-crunch in near future as a huge stock of liabilities is unpaid.
• Liabilities (short as well as long) are growing in amounts. Accounts payable must be cleared from time-to-time in order to maintain good solvency position.