Assume that Queensway Carleton Hospital’s accounting records included the following journal entries:

Question
ACCT 245 Assignment 1

This assignment has a total of 100 marks and contributes 20% to your final grade. State any assumptions that you have made and remember to show all of your work as partial marks may be awarded.

Question 1 (20 marks)

Assume that Queensway Carleton Hospital’s accounting records included the following journal entries:

a) DR Receivable from governments 5,000,000
CR Funding from governments 5,000,000

b) DR Inventories 100,000
CR Accounts payable and accrued liabilities 100,000

c) DR Salaries and benefits 125,000
CR Cash 125,000

d) DR Amortization of major equipment 6,237,000
CR Accumulated amortization 6,237,000

e) DR Accounts receivable 2,800
CR Preferred accommodations revenue 2,800

f) DR Long-term debt 250,000
CR Cash 250,000

g) DR Cash 2,500,000
CR Receivable from governments 2,500,000

h) DR Medical and surgical supplies expense 160,000
CR Inventories 160,000

i) DR Accounts payable and accrued liabilities 80,000
CR Cash 80,000

j) DR Prepaid expenses 10,000
CR Cash 10,000

Required:

Explain the transaction represented by each of the above journal entries. Do not just say that the account was increased or decreased—explain the nature of the transaction.
(2 marks each)

Question 2 (55 marks)

For this question, use the 2015 financial statements of Queensway Carleton Hospital found at.qch.on.ca/NewsroomFiles/Audited%20Satements%203-31-15.pdf”>http://www.qch.on.ca/NewsroomFiles/Audited%20Satements%203-31-15.pdf

a) Calculate the following ratios for 2015 and 2014 for Queensway:

Current ratio
Quick ratio
Debt-to-total assets
Total assets turnover

Be sure to show all your work. (8 marks)

b) Based on these ratios, has Queensway’s performance improved? Fully explain your answer. (4 marks)

c) Assume that the average ratios for hospitals are as follows:

2015 2014

Current ratio 1.45 1.25

Quick ratio 1.39 1.15
Debt-to-total asset .68 .73
Total assets turnover .50 .55

How has Queensway performed compared to the industry? Fully explain your answer. (4 marks)

d) Why does Queensway’s current ratio only differ slightly from its quick ratio? (1 mark)

e) Why is it not appropriate to calculate an average collection period for Queensway? (1 mark)

f) Why is it not appropriate to calculate profitability and market-value ratios for Queensway? (2 marks)

g) Perform a vertical analysis on Queensway’s statement of financial position and statement of operations for 2015 and 2014. You may find it easier to do this on an Excel spreadsheet. (10 marks)

h) Perform a horizontal analysis on Queensway’s statement of financial position and statement of operations for 2015 and 2014. You may find it easier to do this on an Excel spreadsheet. (10 marks)

i) Based on the ratios calculated, the vertical analysis, and the horizontal analysis, what can you tell about Queensway’s performance comparing 2015 to 2014? (8 marks)

j) Overall, did Queensway increase or decrease its cash flow for 2015? How do you know? (1 mark)

k) For 2015, what was Queensway’s largest source of cash inflow? (1 mark)

l) For 2015, on what did Queensway spend the largest amount of cash? (1 mark)

m) Queensway’s Statement of Cash Flow for 2015 shows a decrease in cash held for capital purposes. What is the nature of this account? How was the amount of the decrease calculated? (2 marks)

n) What other information would you require to do a deeper analysis of Queensway? (2 marks)

Question 3 (15 marks)

Senior Wishes (SW) is a not-for-profit organization that raises funds to grant wishes to seniors in nursing homes. One of its current fundraising projects is selling gourmet snacks. The project has been underway for six months. SW has been quite successful in selling the snacks to corporations. For the past six months, SW has had sales of $50,000, but they have only collected $35,000 in cash. For these sales, SW has paid its supplier $25,000. The other costs incurred for this project are as follows:

marketing $3,300
utilities 1,200

supplies 1,600

storage 2,400

delivery 1,800

miscellaneous unpaid bills 2,700

All expenses have been paid except for the miscellaneous unpaid bills, which will be paid in the next month.

SW has provided an initial investment of $25,000 for this project. SW is treating this investment as an interest-free loan to the project. $5,000 is to be repaid every six months. No repayments have yet been made. A separate bank account was established for this project.

Required:

a) Calculate the balance of the project bank account. (2 marks)

b) Prepare a statement of income for this project. (3 marks)

c) $15,000 of the sales have yet to be collected. Explain why this is an issue and what they can do about it, going forward. (2 marks)

d) The project manager said that she expected the project to be self-financing; i.e., that it would generate sufficient cash flow to allow them to buy more snacks to sell. Are they able to do this? Explain. (1 mark)

e) The project manager expects that sales will increase dramatically in the next six months. Some of their regular customers have already indicated that they will double or triple their orders for the upcoming holiday season. Given the project’s current financial situation, can it handle the additional demand? Explain. (3 marks)

f) What suggestions can you make to help improve the outcome of this project, or do you think that the project should be terminated? Fully explain your answer.
(4 marks)

Question 4 (10 marks)

The Breakfast Club (BC) is a not-for-profit organization that provides hot breakfasts to school children. To finance its efforts, it has a number of on-going fundraisers. One of them is the lunch package that is sold by volunteers at the local colleges and university. The package contains a sandwich, a dessert, and a bottle of water. The package is sold for $7 and costs BC $5.25 to prepare them. BC’s annual fixed costs for this fundraiser are $36,000.

This year, BC is selling key chains at some sports events in a separate fundraiser. The key chains cost BC $3.75 and are sold for $7.50. The sports arena requires BC to rent a table to sell the key chains. The rental charge is $200 per event. BC has agreed to sell at 75 events for the year.

Required:

a) What are the contribution margins for the lunch packages and key chains?
(2 marks)

b) How many lunch packages must BC sell to breakeven? (1 mark)

c) BC currently sells 25,000 lunch packages. It believes that if it drops the price by $.25, sales will increase by 15%. Should it do this? Why or why not? (2 marks)

d) How many key chains must BC sell to break even? (1 mark)

e) One of BC’s volunteer board members thinks that the price of the key chains is too low. He suggests that the price be increased to $10. At this price, how many key chains must be sold to break even? (2 marks)

f) BC is thinking of hiring someone to walk around with a sandwich board sign at each event to advertise the key chains. It would cost BC $75 at each event. BC believes that this might lead to a 20% increase in sales. Assume that BC will continue to sell the key chains for $7.50 and that it currently sells 2,500 key chains per year. Should BC hire someone to walk around with a sandwich board sign? Fully explain your answer. (2 marks)