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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 athttp://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)