Section I: Multiple Choice
Mark one box only to indicate the answer you consider correct for each question
1. Which of the following is the goal of the U.S. health care system?
a. Access
b. Cost
c. Quality
d. All of the above
2. All of the following factors contribute to the rising cost of health care except:
a. Aging population
b. New and returning consumers in the marketplace
c. Chronic Disease
d. Providers embracing lean Six Sigma and other techniques to deliver better care with less resources
3. All of the following factors could contribute to a decrease in health care costs except:
a. Pharmaceuticals going off patent
b. Providers using health information technology in robust ways
c. Medical technology continuing to develop new systems
d. Hospitals overriding physician preference in supplies
4. Balance Sheet for a non-profit contains all of the following except:
a. Organization's assets
b. Organizations liabilities
c. Stockholders' equity
d. Cash flow
5. A Balance Sheet summarizes the organization's total assets, liabilities and net assets in what time period?
a. Last day of the accounting period
b. At a point of time
c. Last quarter
d. Annually
6. Which one of these is not a source of revenue:
a. Salary and wages
b. Appropriations and grants
c. Income from investments
d. Revenue from contributions
7. Cash flows from investing activities includes:
a. Purchase of plant property and equipment
b. Accounts payable
c. Accrued pension
d. Estimated third party payer settlements
8. A complete record of financial transactions is called:
a. Journal
b. Ledger
c. Balance
d. Asset
9. Rules for recording transactions do not include:
a. Increase in revenues, gains or other support account when earnings are received.
b. After each transaction, the fundamental account equation must be in balance.
c. An accounting method when cash was received or expended.
d. Increase an expense account when an asset is used.
10. Statement of Operations includes:
a. Operating Expenses
b. Increase in unrestricted net assets
c. a & b
d. None of the above
11. In the accrual accounting method:
a. Revenues are recognized when cash is received
b. Expenses are recognized when cash is paid out
c. Revenues are recognized when revenues are earned
d. All of the above
12. Analyzing financial statements helps a health care organization to:
a. Determine if profitable
b. Determine the effectiveness in collecting receivables
c. a & b
d. None of the above
13. Approaches to analyze financial statements do not include:
a. Ratio analysis
b. Collateral analysis
c. Vertical analysis
d. Horizontal analysis
14. Operating margin ratio measures:
a. How dependent the organization is on patient related income
b. Profits earned from the organization's main line of business
c. How much profit is earned for each dollar invested in assets
d. Total operating expenses incurred from providing patient care services
15. An asset mix strategy includes:
a. How an organization chooses to finance its working capital needs
b. The amount of working capital an organization keeps on hand relative to its working capital obligations
c. Risk of greater return to lower liquidity
d. Coin and currency
16. Which of the following is not a major reason to hold cash:
a. Hedge against inflation
b. For daily operation purposes
c. Precautionary purposes
d. Speculative purposes
17. Revenue Cycle Maintenance can be hindered by:
a. Patients giving correct demographic information
b. Lack of clarity about who is responsible for the bill
c. Current health care insurance information
d. An accurate/clean final bill
18. Methods to monitor accounts receivable:
a. Net accounts receivable
b. Treasury bills
c. Aging Schedule
d. a & c
19. Which of the following is not a point to consider when using and interpreting ratios?
a. No one ratio is necessarily better than any other ratio
b. With benchmarking, it is not necessary to make sure the same formula is used
c. A ratio can best be interpreted relative to a benchmark
d. Ensuring reliability of data
20. The "book" refers to transactions
a. Only done by computer entry
b. Journal recorded chronologically
c. Current balance in each account
d. Current ratio
Section II: True/False
Read the statement completely and determine if the statement is true or false. In the blank provided, write "True" for a true statement and "False" for a false statement.
1. ACOs are voluntary groups of health care providers who coordinate care to a patient population. True or False?
Answer:
2. Current Liabilities are financial obligations due within a year. True or False? Answer:
3. Contra-asset is an asset that when increased, decreases the value of a related asset on the books.
Answer:
4. Capital structure ratios address how an organization's assets are financed and able to take on new debt. True or False?
Answer:
5. Statement of cash flows discloses key noncash investing and financial transactions. True or False?
Answer: True or False? Answer:
Section III: Financial Analysis
1. Multiple Statements: The following are account balances (in thousands) at October 30, 2014, for Apapa Hospital. Prepare (a) a balance sheet
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Givens (in '000s):
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Administrative expense
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$35,000
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Depreciation expense
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$33,000
|
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Cash
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$42,000
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General expense
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$85,000
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Patient revenues (net of contractuals )
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$555,000
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Transfer to parent corporation
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$7,000
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Gross accounts receivable
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$53,000
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Beginning balance, unrestricted net assets
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$155,600
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Ending balance, temporarily restricted net assets
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$5,000
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Accounts payable
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$24,000
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Wages payable
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$14,000
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Beginning balance, temporarily restricted net assets
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$13,000
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Prepaid expenses
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$8,000
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Provision for bad debt expense
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$6,500
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Long-term debt
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$482,300
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Labor expense
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$144,000
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Supply expense
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$61,000
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Accumulated depreciation
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$100,000
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Gross plant, property, and equipment
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$660,000
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Ending / beginning balance, permanently restricted net assets
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$11,000
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Net assets released from restriction for operations
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$8,000
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Ending balance, unrestricted net assets
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$356,300
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Uncollectibles in accounts receivable
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$5,000
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Accrued expense
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$4,100
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Inventory
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$9,000
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Temporary investments
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$9,200
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Premium revenues
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$6,200
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Other revenues
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$3,000
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Long-term investments, unrestricted
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$222,000
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Current portion of long-term debt
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$1,500
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2. You are the CFO of a company considering an acquisition of a Hospital. Perform Ratio Analysis. Compare its liquidity, revenue, expense, and profitability; activity, and capital structure ratios to national industry benchmarks for all hospitals, using the data from Exhibit 4.16a.
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Ratio
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2015
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2014
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Liquidity ratios
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|
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Current ratio
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1.70
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1.85
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Acid test ratio
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0.15
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0.19
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Days in accounts receivable
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65.00
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53
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Days cash on hand
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60.00
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75
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Average payment period (days)
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65.00
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50
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|
|
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Revenue, expense and profitability ratios
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|
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Operating revenue per adjusted discharge
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$ 6,800.00
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$ 6,800.00
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Operating expense per adjusted discharge
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$ 6,500.00
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$ 6,700.00
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Salary and benefit expense as a percentage of total operating expense
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44%
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47%
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Operating margin
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0.04
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0.03
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Return on total assets
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0.06
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0.05
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|
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|
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Activity ratios
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|
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Total asset turnover ratio
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1.00
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0.99
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Fixed asset turnover ratio
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1.90
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1.8
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Age of plant
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8.34
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10.89
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Capital structure ratios
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Long-term debt to equity
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0.20
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0.35
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Equity to total assets
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0.60
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0.50
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Debt service coverage ratio
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3.80
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3.40
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3. Horizontal, vertical and ratio analyses. Exhibits 4.27a and 4.27b show the statement of operations and balance sheet for the 310-bed Lagos Island Community Hospital for 20X0 and 20X1.
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Lagos Island Community Hospital
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Balance Sheet (Horizontal and Vertical Analyses) (in '000)
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For the Years Ended 12/31/20X1 and 12/31/20X0
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20X1
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20X0
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Current Assets
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|
|
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Cash and Cash Equivalents
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$40,500
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$35,500
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Net Patient Accounts Receivables
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39,500
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36,400
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Inventories
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3,800
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4,000
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Other Current Assets
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6,500
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5,200
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Total Current Assets
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90,300
|
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81,100
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Plant, Property, & Equipment
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|
|
|
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Gross Plant, Property, & Equipment
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215,000
|
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175,500
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(less Accumulated Depreciation)
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(65,000)
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(107,000)
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Net Property, Plant and Equipment
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150,000
|
|
68,500
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Board Designated Funds
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|
|
|
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Short-Term & Long-term Investments
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185,000
|
|
110,000
|
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Total Assets
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$425,300
|
|
$259,600
|
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Current Liabilities
|
|
|
|
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Accounts Payable
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$14,500
|
|
$8,500
|
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Salaries Payable
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4,500
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3,500
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Notes Payable
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4,300
|
|
4,500
|
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Total Current Liabilities
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23,300
|
|
16,500
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Long-Term Liabilities
|
|
|
|
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Bonds Payable
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60,000
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27,500
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Total Long-Term Liabilities
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60,000
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27,500
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Net Assets
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342,000
|
|
215,600
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Total Liabilities and Net Assets
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$425,300
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|
$259,600
|
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Lagos Island Community Hospital
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|
Statement of Operations (Horizontal and Vertical Analyses) (in '000)
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|
For the Years Ended 12/31/20X1 and 12/31/20X0
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|
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20X1
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20X0
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Revenues
|
|
|
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Net Patient Service Revenue
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$225,000
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$210,000
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Other Operating Revenue
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6,400
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|
5,700
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Total Operating Revenues
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231,400
|
|
215,700
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Operating Expenses
|
|
|
|
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Salaries and benefits
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124,173
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|
110,167
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Supplies and other expenses
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85,000
|
|
61,000
|
|
Depreciation
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12,000
|
|
11,300
|
|
Interest
|
4,500
|
|
2,500
|
|
Total Operating Expenses
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225,673
|
|
184,967
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Income from Operations
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5,727
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|
30,733
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Non-Operating Income
|
|
|
|
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Investment Income / Contributions
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7,500
|
|
8,500
|
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Excess of Revenues over Expenses
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13,227
|
|
39,233
|
|
Net Income
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$13,227
|
|
$39,233
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a. Perform a horizontal analysis on both statements
b. Perform a vertical analysis on both statements relative to 20XO
Using these financial performance measures, evaluate the financial state of Lagos Island Community Hospital.
4. Trade credit discount. Compute the approximate annual interest cost of not taking a discount, using each of the following scenarios. What conclusion can be drawn from the calculations?
a. 2/10 net 20 b. 2/10 net 30 c. 2/10 net 40
5. If a nurse deposits $24,000 today in a mutual fund that is expected to grow at an annual rate of 8 percent, what will be the value of this investment:
a. Three years from now?
b. Six years from now?
c. Nine years from now?
d. Twelve years from now?