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1. (10 Points) Eiffel Payne Hospital, a for profit hospital, wants to issue bonds for a major expansion. An investor, Terry Noirs, is in the 40% tax bracket and would be interested in the bonds. Tax Exempt hospital bonds of the same risk pay 6% interest. What is the minimum rate Eiffel Payne can set for Terry to invest in the bonds?
2. (30 Points) Intensive Care Urology Practice (ICUP), a not-for-profit business, had revenues in 2014 of $96,000. Expenses other than depreciation were 75% of revenues and Depreciation was $10,000. All revenues were collected in cash, and all expenses, excluding depreciation, were paid in cash during the year. No other assets were purchased, and no money was borrowed.
A. Construct ICUP’s Income Statement.
B. What was ICUP’s Cash Flow for the year?
C. If (under GAAP) PU changed its depreciation method so that the Depreciation Expense doubled, what would be the new Net Income?
D. Again, if (under GAAP) ICUP changed its depreciation method so that the Depreciation Expense tripled, what would be the Cash Flow?
E. Comment on the results.
3. (20 Points) The following are account balances on December 31, 2014 for Intensive Care Urology Practice (ICUP), (in alphabetical order):
Accounts Payable $45,000
Accounts Receivable, $60,000
Cash $24,000
Equity (January 1, 2014) $176,000
Expenses (includes taxes) $82,000
Inventory $91,000
Long-term Debt $105,000
Long-term Investments $30,000
Net Property & Equipment $135,000
Revenues $96,000
Create I.C. Optometry’s Balance Sheet (Hint: Not all of the accounts above are balance sheet accounts – you may need to calculate I.C.’s income!)

A+ Answers

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While all industries have some individual characteristics, the health services industry is truly unique. The two primary sources of uniqueness are:
a. the significant financial losses and the third-party payment system.
b. the large amount of government intervention and the significant financial losses.
c. the large number of not-for-profit organizations and the significant financial
losses.
d. the large amount of government intervention and the third-party payment system.
e. the large number of not-for-profit organizations and the third-party payment system.
2. Finance activities do not include;
a. making decisions on production activity,
b. inventory management,
c. financial risk management,
d. working capital management,
e. new financing decisions,
3. The healthcare sector is composed of a wide variety of industries, except
a. medical equipment and supplies industries,
b. the health services industry,
c. life insurance industry,
d. managed care industry,
e. all of the above are part of the healthcare sector.
4. In the health services industry, the role of regulation is to protect all of the following except;
a. the health of the public,
b. the safety of the public,
c. the welfare of the public,
d. providers of health services,
e. regulation protects all of the above.
5. Health services industry regulation include;
a. licensure,
b. rate setting,
c. review programs,
d. certificate of need,
e. all of the above.
6. Which of the following is not a limitation of Proprietorships?
a. Limited liability,
b. Impermanence of the business,
c. Difficulty in transferring ownership,
d. Difficulty in attracting substantial amounts of capital,
e. All of the above are limitations.
7. Which of the following is not a limitation of partnerships?
Unlimited liability,
B .Permanence of the business,
c. Difficulty in transferring ownership,
d. Difficulty in attracting substantial amounts of capital,
e. All of the above are limitations.
8. Which of the following is a main advantage of corporation?
a. Lower taxes
b. Limited life
c. Limited liability
d. Difficulty in transferring ownership
e. Separation & specialization of duties
9. Which of the following is not an important tax benefit to not-for-profit corporations:
the usable earnings of a not-for-profit corporation are greater than those of a similar for-profit entity,
b. not-for-profit corporations can issue municipal bonds, and hence pay lower interest rates on their debt financing,
c. not-for-profit businesses have access to contribution capital, because contributions to such organizations are tax deductible to the donor,
d. Income earned by investors is taxed at a lower rate,
e. all of the above are advantages.
10. Which of the following is an advantage of PPOs over HMOs?
a. PPOs require beneficiaries to use preselected gatekeeper physicians who serve as the initial contact and authorize all services received.
b. PPOs are more likely than HMOs to provide preventive services.
c. PPOs assume responsibility for quality assurance, because the enrollees are constrained to use only the PPO panel of providers.
d. PPOs do not mandate that beneficiaries use specific providers
e. All of the above are advantages.
11.Tricare is a part of which third party payer category?
a. Medicare Medicaid
b. Medicare
c. Public Insurers
d. Commercial health insurance
e. Blue Cross/Blue Shield organizations
12.Which of the following are not stakeholders in a not-for-profit business;
a. patients,
b. creditors,
c. suppliers,
d. managers,
e. employees,
f. staff physicians,
g. the community at large,
h. all of the above are stakeholders.
13.The incentive to perform only those procedures that are truly medically necessary describes which reimbursement method?
a. global pricing
b. per diem reimbursement
c. capitation reimbursement
d. cost-based reimbursement
e. per diagnosis reimbursement
f. charge-based reimbursement
g. prospective payment reimbursement
14. The incentive to have lavish and conveniently located facilities describes which reimbursement method?
a. global pricing
b. per diem reimbursement
c. capitation reimbursement
d. cost-based reimbursement
e. per diagnosis reimbursement
f. charge-based reimbursement
g. prospective payment reimbursement
15. The incentive to perform procedures that have the highest profit potential describes which reimbursement method?
a. global pricing
b. per diem reimbursement
c. capitation reimbursement
d. cost-based reimbursement
e. per diagnosis reimbursement
f. charge-based reimbursement
g. prospective payment reimbursement
16. The incentive to increase length of hospital stay would occur with which reimbursement method?
a. global pricing
b. per diem reimbursement
c. capitation reimbursement
d. cost-based reimbursement
e. per diagnosis reimbursement
f. charge-based reimbursement
g. prospective payment reimbursement
17. Which of the following is true about Generally accepted accounting principles (GAAP):
a. GAAP can be thought of as a set of government regulations that have evolved through the years to guide the preparation and presentation of financial statements.
b. GAAP were designed to provide the information needed by stockholders, creditors, and other interested parties to make the best-informed decisions, primarily investment decisions.
c. The Securities and Exchange Commission (SEC) creates GAAP standards.
d. The Financial Accounting Standards Board (FASB) reviews businesses’ Financial records for compliance to GAAP.
e. All of the above are false.
18.In a Health Services corporation, who would directly be responsible for correct accounting of the firm’s activities:
treasurer
comptroller
c.chief financial officer
d.vice president–finance
e.none of the above
19.In the following except: healthcare finance framework agency problems can exist between all of the
a. managers and staff,
b. suppliers and customers,
c. stock holders and managers,
d. debt holders and stockholders,
e. all of the above.
20.Which accounting concept allows a business to make a onetime change in how they expense an item.
a. accounting period
b. accounting entity
c. going concern
d. objectivity
e. full disclosure
f. conservatism
g. consistency
h. materiality
21.Which accounting concept requires preparers to base their data on event documentation such as invoices and contracts?
a. accounting period
b. accounting entity
c. going concern
d. objectivity
e. full disclosure
f. conservatism
g. consistency
h. materiality
22.Which accounting concept deals with the expense of a Doctor’s commute to the hospital?
a. accounting period
b. accounting entity
c. going concern
d. objectivity
e. full disclosure
f. conservatism
g. consistency
h. materiality
23.Which accounting concept would allow organizations to write-off patient accounts that are not likely to be collected
a. accounting period
b. accounting entity
c. going concern
d. objectivity
24.Which accounting concept allows the purchase of small tools, which may be used for several years, to be expensed in one year?
a. accounting period
b. accounting entity
c. going concern
d. objectivity
e. full disclosure
f. conservatism
g. consistency
h. materiality
i. consistency
25.Which of the following is part of accrual accounting?
a. Net income and cash flow will always be equal,
b. Revenues are recognized when paid,
c. Expenses are recognized when paid
d. Revenue is recognized when a service is rendered, rather than when the payment is actually received,
e. All of the above are part of Accrual Accounting.
26.Which of the following is not a main purpose of Depreciation expense?
a. Lower net income to save taxes,
b. Recoup the cost of large assets that were purchased,
c. To lower the value of the asset to its true market value,
d. To match the expense of the assets over the periods it was paid for.
e. None of the above are the main purpose of depreciation.
27.Which of the following would be accounted for at the same amount on the Income Statement and the Statement of Cash Flows?
a. The cash purchase of supplies,
b. The cash purchase of inventory,
c. The purchase of large equipment,
d. The issuance of bonds for a major expansion,
e. Medical services performed that are billed to a third party payer.
28.Which of the following Stakeholders would be most concerned with the Balance Sheet?
a. Donors
b. Patients
c. Creditors
d. Third party payers
e. Government regulators
29.Which of the following is true about the Balance Sheet?
a.The balance sheet balances Revenues and expenses,
b.It expresses the accounting identity: Assets = Liabilities + Equity,
c.The balance sheet shows the current value of the organization,
d.The balance sheet reports assets, liabilities and income of the business as of a single point in time,
e.All of the above are true
30.What is a unique feature of many not-for-profit healthcare balance sheets?
a. The balance sheet is influenced each year by the amount of net income reported
on the income statement,
b. The three major categories of assets are current assets, long-term investments,
and property and equipment (fixed assets),
c. They classify certain asset and equity accounts as being restricted,
d. Assets may be tangible, such as plant and equipment, or they may be
intangible, such as patents or the value of a brand name,
e. All of the above are unique features.

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1. The formula for computing additional paid-in capital in excess of par is shares of stock times
A. selling price per share of stock.
B. selling price per share minus par value per share.
C. par value per share of stock.
D.selling price per share plus par value per share.
2. For the years 2012, 2013, and 2014, the sales of Red Line, Inc. are $40,000, $60,000 and $80,000, respectively. If 2012 is the base year, the trend percentage for 2013 was
A. 200%.
B. 0%.
C. 150%.
D. 133%.
3. Motor Works, Inc. has declared a $20,000 cash dividend to shareholders. The company has 5,000 shares of $15-par, 10% preferred stock and 10,000 shares of $20-par common stock. The preferred stock is cumulative. How much will be distributed to the preferred and common stockholders on the date of payment if the preferred stock is $8,000 in arrears?
A. $20,000 preferred, $0 common
B. $15,500 preferred, $4,500 common
C. $8,000 preferred, $12,000 common
D. $7,500 preferred, $12,500 common
4. The statement of cash flows reports the sources and uses of cash from financing, investing, and _______ activities.
A. operating
B. liquidation
C. credit
D. managerial
5.The following information applied to Advanced Industries, Inc. for 2014:
Earnings/share $17.68
Market price per share of common stock $52
What is the dividend yield for Advanced Industries, Inc. (to the nearest tenth of a percent)?
Number of shares of common stock outstanding
52,000
Net income
$48,000
Dividends/share
$7.14
A. 34.0%
B. 92.3%
C. 13.7%
D. 40.4%
6. On the _______ of a cash dividend, no journal entry is required.
A. preferred date
B. payment date
C. declaration date
D. date of record
7. Other than depreciation, a company’s operating expenses for the year were $335,000. Prepaid expenses
decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statement
using the direct method are
A.
$335,000.
B.
$328,000.
C.
$7,000.
D.
$342,000.
8. A purchase of new equipment on a note payable under the direct method is reported
A. in the investing section of the cash flow statement.
B. in the operating section of the cash flow statement.
C. as a separate disclosure as a non-cash transaction.
D. in the financing section of the cash flow statement.
9.
The following information is available for Allsport Company:
What amount was paid for merchandise during 2014?
Cost of goods sold                                          $545,000
Merchandise inventory, 12/31/13                  $105,000
Merchandise inventory, 12/31/14                  $112,000
Accounts payable, 12/31/13                           $98,500
Accounts payable, 12/31/14                           $101,300
A.        $540,800
B.        $554,800
C.        $545,000
D.        $549,200
10. Operating activities are transactions and events associated with selling a product or providing a service related to the
A. net income reported on the statement of retained earnings.
B. revenues and expenses reported on the income statement.
C. retained earnings reported on the balance sheet.
D. assets and liabilities reported on the balance sheet.
11.An example of a cash outflow from investing activities is
A. paying cash dividends.
B. making a loan to another company.
C. the purchase of treasury stock.
D. issuance of a note payable.
12. Hallett Industries, Inc. reported net sales of $306,000, cost of goods sold of $192,600, operating expenses of $58,900, and income tax expense of 12,300. What is Hallett Industries’ net income percentage?
A. 37.06
B. 13.79
C. 17.81
D. 62.94
13. Which of the following is not a part of financing activities?
A. Buying land
B. Paying off loans
C. Issuing stock
D. Paying dividends
14.
The stockholders’ right of _______ means that stockholders will receive a proportionate share of any assets left after a company goes out of business.
A. preemption
B. dividends
C. liquidation
D. voting
15. Of the following, which is not classified as an investing activity on the statement of cash flows?
A. Collecting the principal on loans
B. Sale of equipment for cash
C. Selling goods and services
D. Purchasing land
16. Eagle Ridge, Inc. issued 40 shares of $20 par value stock to its accountant in full payment for her $900 fee for assisting in setting up the new company. The entry for the issuance of the stock is a
A. debit to Common Stock for $800.
B. credit to Common Stock for $800.
C. credit to Common Stock for $900.
D. debit to Paid-in Capital in Excess of Par–Common for $100.
17. Fine Furniture Company had a net income of $50,000. Accounts receivable increased by $30,000; inventory decreased by $20,000; amounts payable increased by $4,000; and salaries payable decreased by $1,000. The amount of cash flow from continuing operating activities under the indirect method is
A. $55,000.
B. $37,000.
C. $65,000.
D. $43,000.
18. Which is not included in paid-in capital?
A. Preferred Stock
B. Cash
C. Common Stock
D. Additional Paid-in Capital
19.On the income statement, extraordinary items are reported
A. before the operating income section.
B. net of income tax or net of income tax savings.
C. immediately before the discontinued operations section.
D. immediately after the continuing operations section.
20. The 2013 and 2014 balance sheets for Newport Industrial showed Cash of $8,000 and $9,500, respectively; Accounts Receivable of $14, 000 and $16,000, respectively; Inventory of $11,000 and $8,000, respectively; and Accounts Payable of $5,000 and $7,000, respectively. Its 2014 income statement showed Net Sales of $108,000, Cost of Goods Sold of $62,000, and Net Income of $27,000.
The cash conversion cycle for 2014 (round calculations to two decimal places) is _______ days.
A. 30.08
B. 71.30
C. 141.94
D. 40.56

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The preferred stock of Gator Industries sells for $34.65 and pays $2.79 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 515,000 more preferred shares just like the ones it currently has outstanding, it could sell them for $34.65 a share but would incur flotation costs of $2.89 per share. What are the floatation costs for issuing the preferred shares and how should this cost be incorporated into the NPV of the project being financed?