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Compute the annual approximate interest cost of not taking a discount using the following scenarios:
a. 1/10 net 20
b. 1/10 net 30
c. 1/10 net 40
d. 1/10 net 50
e. 1/10 net 60
Compute the annual approximate interest cost of not taking a discount using the following scenarios:
a. 1/15 net 30
b. 2/15 net 30
c. 3/15 net 30
d. 4/15 net 30
Given the information below, compute the days in accounts receivable, aging schedule, and accounts receivable as a percentage of net patient revenues for Quarter 1 and Quarter 2, 20X1. Compare the two quarters to determine if the organization's collection procedure is improving. (Note: For simplicity, assume that each month is 30 days. Dollar figures are expressed in thousands.)
Givens (in '000)
Quarter 1, 20X1
1
Time
Sep
Aug
Jul
Quarter
2
Days outstanding
1-30
31-60
61-90
1-90
3
Net accounts receivable
$6,000
$2,000
$12,000
$20,000
4
Net patient revenue
$6,000
$20,000
$38,000
$12,000
Givens (in '000)
Quarter 2, 20X1
5
Time
Dec
Nov
Oct
Quarter
6
Days outstanding
1-30
31-60
61-90
1-90
7
Net accounts receivable
$12,000
$2,000
$6,000
$20,000
8
Net patient revenue
$20,000
$6,000
$12,000
$38,000
Quarter 1, 20X1
1. Aging Schedule. One answer for each month (Order answers July, August, September).
2. Days in accounts receivable. One answer for quarter.
3. Accounts receivable as a percentage of net patient revenues ( Order answers July, August, September). One answer for each month.
Quarter 2, 20X1
1. Aging Schedule. One answer for each month (Order answers October, November, December)
2. Days in accounts receivable. One answer for quarter
3. Accounts receivable as a percentage of net patient revenues. One answer for each month (Order answers October, November, December)
4. Compare the two quarters to determine if the organization's collection procedure is improving.
Lawrence Hospital wishes to establish a line of credit with a bank. The first bank's terms call for a $600,000 maximum loan with an interest rate of 5% and a $2,000 fee. The second bank for the same line of credit charges an interest rate of 6% but no fee. The compensating balance requirement is 5% of the total line of credit for either bank.
a. What is the effective interest rate for Lawrence Hospital from the first bank if 50% of the total amount were used during the year?
b. What is the effective interest rate for Lawrence Hospital from the first bank if 25% of the total amount were used during the year?
c. What is the effective interest rate for Lawrence Hospital from the second bank if 50% of the total amount were used during the year?
d. What is the effective interest rate for Lawrence Hospital from the second bank if 25% of the total amount were used during the year?
e. Which bank would be the better choice for Lawrence Hospital if they were to borrow a lot of money? Enter FIRST or SECOND as your answer
Stacie Zeeman Clinic provided the financial information below. Prepare a cash budget for the quarter ending March 20X1.
Exhibit 5-16 Stacie Zeeman Clinic
Revenues:
Estimated Patient
Patient Revenues, 20X0
Patient Revenues, 20X0
Revenues, 20X1
July
$35,00,000
October
$34,20,000
January
$36,00,000
August
$33,50,000
November
$32,10,000
February
$33,50,000
September
$35,30,000
December
$38,00,000
March
$32,20,000
Receipt of Payment
Other Revenues, 20X1
for Patient Services / Revenues
January
$88,000
Current month of service
45%
February
$1,10,000
1st month of prior service
25%
March
$1,15,000
2nd month of prior service
10%
3-6 months of prior service
5%
Expenses a:
Estimated Supplies
Other Estimated Expenses, 20X1a
Supplies Purchases, 20X0
Purchases, 20X1
Nursing
Admin.
Other
October
$8,00,000
January
$10,00,000
January
$17,00,000
$70,000
$2,45,000
November
$10,00,000
February
$12,00,000
February
$17,50,000
$70,000
$3,35,000
December
$16,00,000
March
$14,00,000
March
$17,00,000
$70,000
$2,75,000
April
$10,00,000
April
$14,50,000
$70,000
$2,05,000
Timing of Cash Payment for
Supplies Purchases
Ending Cash Balances
0%
Month purchased
December, 20X0
$8,00,000
60%
+1 Month
b
50%
35%
+2 Months
5%
+3 Months
a All estimated expenses are cash outflows for the given month.
b The ending balance for each month as a percentage of the estimated cash outflows for the next month.
How would the cash budget for Stacie Zeeman Clinic change if new credit and collection policies were implemented such that collections resulted as follows:
30%: current month of patient revenues20% each: past 1-2 months of patient revenues10% each: past 3-4 months of patient revenues5% each: past 5-6 months of patient revenuesHere are the givens for Stacie Zeeman Clinic:
Exhibit 5-16 Stacie Zeeman Clinic
Revenues:
Estimated Patient
Patient Revenues, 20X0
Patient Revenues, 20X0
Revenues, 20X1
July
$35,00,000
October
$34,20,000
January
$36,00,000
August
$33,50,000
November
$32,10,000
February
$33,50,000
September
$35,30,000
December
$38,00,000
March
$32,20,000
Receipt of Payment
Other Revenues, 20X1
for Patient Services / Revenues
January
$88,000
Current month of service
45%
February
$1,10,000
1st month of prior service
25%
March
$1,15,000
2nd month of prior service
10%
3-6 months of prior service
5%
Expenses a:
Estimated Supplies
Other Estimated Expenses, 20X1a
Supplies Purchases, 20X0
Purchases, 20X1
Nursing
Admin.
Other
October
$8,00,000
January
$10,00,000
January
$17,00,000
$70,000
$2,45,000
November
$10,00,000
February
$12,00,000
February
$17,50,000
$70,000
$3,35,000
December
$16,00,000
March
$14,00,000
March
$17,00,000
$70,000
$2,75,000
April
$10,00,000
April
$14,50,000
$70,000
$2,05,000
Timing of Cash Payment for
Supplies Purchases
Ending Cash Balances
0%
Month purchased
December, 20X0
$8,00,000
60%
+1 Month
b
50%
35%
+2 Months
5%
+3 Months
a All estimated expenses are cash outflows for the given month.
b The ending balance for each month as a percentage of the estimated cash outflows for the next month.
Stacie Zeeman Clinic is going to take better advantage of credit terms offered by suppliers. The Clinic has negotiated a 3% discount for all supplies purchased beginning in 20X1, if paid in full during the month of service with the following credit terms for supplies listed below. How does this change the cash budget created followingthe implementation of new credit and collection policies?
55%: month purchased 30%: first prior month 10%: second prior month 5%: third prior month Here are the givens for Stacie Zeeman Clinic:
Revenues:
Estimated Patient
Patient Revenues, 20X0
Patient Revenues, 20X0
Revenues, 20X1
July
$35,00,000
October
$34,20,000
January
$36,00,000
August
$33,50,000
November
$32,10,000
February
$33,50,000
September
$35,30,000
December
$38,00,000
March
$32,20,000
Receipt of Payment
Other Revenues, 20X1
for Patient Services / Revenues
January
$88,000
Current month of service
45%
February
$1,10,000
1st month of prior service
25%
March
$1,15,000
2nd month of prior service
10%
3-6 months of prior service
5%
Expenses a:
Estimated Supplies
Other Estimated Expenses, 20X1a
Supplies Purchases, 20X0
Purchases, 20X1
Nursing
Admin.
Other
October
$8,00,000
January
$10,00,000
January
$17,00,000
$70,000
$2,45,000
November
$10,00,000
February
$12,00,000
February
$17,50,000
$70,000
$3,35,000
December
$16,00,000
March
$14,00,000
March
$17,00,000
$70,000
$2,75,000
April
$10,00,000
April
$14,50,000
$70,000
$2,05,000
Timing of Cash Payment for
Supplies Purchases
Ending Cash Balances
0%
Month purchased
December, 20X0
$8,00,000
60%
+1 Month
b
50%
35%
+2 Months
5%
+3 Months
a All estimated expenses are cash outflows for the given month.
b The ending balance for each month as a percentage of the estimated cash outflows for the next month.
Interboro Hospital generated net patient revenues of $125 million for 20X1, and its cash collections were $110 million. The revenue cycle management costs to collect these revenues were $4 million.
1. Compute Interboro's cost to collect for the year and provide an assessment of how it compares with the hospital industry benchmark of 3%. Compute Interboro's cost to collect for the year if 35% of the cash collections during the year required human intervention and its EDI costs were $400,0
2. Provide an assessment of how it compares with the hospital industry benchmark of 4%.
