Understanding Financial Accounting 3rd Canadian Edition by Christopher D. Burnley test bank

 
 

 
EXERCISES
 
88. Algoma District Hospital (ADH) has over 100 employees and has the capacity to service up to 220 patients at any given time. ADH is a non-profit organization that receives most of its funding from the provincial government and various donations made by individuals and companies. Although there are no shareholders, ADH does have outstanding loans from its local bank. ADH has an active board of directors that assists with governance activities.
 
Instructions
Describe the various users of Algoma District Hospital financial information, including what information they would find useful. Also, indicate which of these users are considered internal or external.
 
Solution (15 min.)
 
The key users of ADH can be summarized as follows. Note: additional users beyond this list may be relevant.
 
User
Internal/External
Useful Information

Staff/Workers
Internal
Staff/workers would care about how well their organization is operating. The statement of operations/income statement would be of most interest to this group of users.

Local bank
External
The bank would care about certain key ratios such as interest coverage ratio and debt ratio, and whether it will recover its investment. Operating income and cash flow management would be of interest to the bank.

Provincial government
External
The provincial government would be interested in how its funding was spent and how ADH is managing its operations and cash flows. The statement of operations/income statement would identify the revenues and expenses, and the statement of cash flows would assist this group of users in assessing cash management.

ADH management
Internal
Management is concerned managing its financial assets and liabilities, in addition to keeping the organization out of a deficit position.

Board of directors
Internal
The board of directors would be interested in assessing the performance of management by examining key liquidity ratios such as current ratio and debt ratio. This group of users would also be interested in the statement of operations/income statement to assess the performance of the organization's various programs and overall performance.

Suppliers
External
Suppliers would be interested in the amount of ADH’s accounts payable and liquidity ratios such as current ratio and debt ratio to assess its ability to pay supplier invoices.

 
Note: As a non-profit organization, ADH would not be subject to income taxes. Therefore, stating the taxing authority as a key user may not be accurate. The organization may still have to comply with sales tax regulations, making the taxing authority a relevant user.
 
Bloomcode: Analysis
Difficulty: Hard
Learning Objective: Identify the main users of financial accounting information and explain how they use this information.
CPA: Financial Reporting
AACSB: Analytic
 
 
89. The following data was taken from the books of Jeepers Creepers Inc. as of December 31:
         Cost of goods sold                   $ 15,300         Selling & administrative expense           $3,500
         Income tax expense                     6,120         Accounts payable                                         12,000
         Cash                                                   3,500         Common shares, (3,250 shares)             20,000
         Retained earnings (Jan 1)          8,000         Dividends                                                          6,000