Drs. Smith and Brown
Statement of Net Income for the Three Months
Ended March 31, 20__
Revenue
Net patient revenue
Other revenue
Total Operating Revenue
180,000
0
180,000
Expenses
Nursing/PA salaries
16,650
Clerical salaries
10,150
Payroll taxes/employee benefits
4,800
Medical supplies and drugs
15,000
Professional fees
3,000
Dues and publications
2,400
Janitorial service
1,200
Office supplies
1,500
Repairs and maintenance
1,200
Utilities and telephone
6,000
Depreciation
30,000
Interest
3,100
Other
5,000
Total Expense
100,000
Income from Operations
80,000
Nonoperating Gains (Losses)
0
Nonoperating Gains (Net)
0
Net Income
80,000
Drs. Smith and Brown
Balance Sheet
March 31, 20__
Assets
Current Assets
Cash and Cash Equivalents
25,000
Patient accounts receivable
40,000
Inventoriessupplies and drugs
5,000
Total Current Assets
70,000
Property, Plant, and Equipment
Buildings and Improvements
500,000
Equipment
800,000
Total
1,300,000
Less Accumulated Depreciation
(480,000)
Net Depreciable Assets
820,000
Land
100,000
Property, Plant, and Equipment, Net
920,000
Other Assets
10,000
Total Assets
1,000,000
Liabilities and Capital
Current Liabilities
Current maturities of long-term debt
10,000
Accounts payable and accrued expenses 20,000
Total Current Liabilities
30,000
Long-term Debt
180,000
Less Current Portion of Long-Term Debt
(10,000)
Net Long-Term Debt
170,000
Total Liabilities
200,000
Capital
300,000
Total Liabilities and Capital
1,000,000
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HCA 312 – WEEK 3 ASSIGNMENT
Enter your name:
INVENTORY CONCEPT & DEPRECIATION METHODS
INSTRUCTIONS: You should review Chapter 9 before completing the template. Refer to the Week 3
Assignment directions within the course to understand what is expected in each row of the table below.
Detail for each section is required. If you include enough detail for each section, the template document will
be at least eight pages in length, which meets the paper length requirements. Include APA citations within
the Response Column where appropriate. List your references in APA format on the last row of this
template. All citations and references must be in APA style according to the Writing Center guidelines.
Once you complete the template, upload the document to the Week 3 Assignment section of the course.
PART I: INVENTORY CONCEPTS AND CALCULATIONS
Answer the following questions.
1. In your own words, discuss the inventory concept.
2. List an example of a hospital inventory item. Describe how this item moves from inventory to COGS
(Cost of Goods Sold).
3. INVENTORY CALCULATION STORY PROBLEM:
ABC Pharmacy began the year with 300 units of Product A in inventory with a unit cost of $40. The
following additional purchases of the product were made:
April 1, 200 units @ $50 each
July 1, 300 units @ $55 each
Sept.15, 350 units @ $60 each
Nov. 20, 200 units @ $65 each
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At end of year, ABC Pharmacy had 400 units of its product unsold. Your task is to calculate cost of ending
inventory as well as cost of goods sold by (a) FIFO, (b) LIFO, and (c) Weighted-Average.
Use the information in the table below to assist you in calculating the three different
inventory methods shown under Inventory Methods.
Month
Units
January 1 Begin
Cost per Unit
Amount
300
$40
$12,000
April 1
200
$50
$10,000
July 1
300
$55
$16,500
September 15
350
$60
$21,000
November 20
200
$65
$13,000
Inventory
Totals
1350
$72,500
Make sure to show your work below for FIFO, LIFO, and Weighted-Average.
INVENTORY METHODS
Complete the FIFO calculations in the table: 400 Units in left in Inventory.
FIFO: 400 Units left in Inventory
Units
Cost per Unit
Amount
$
$
COGAFS
$
$
$
Cost of End. Inventory
$
Cost of Ending Inventory
$
COGS using FIFO
$
Complete the LIFO calculations in the table: 400 Units in left in Inventory.
LIFO: 400 Units left in Inventory
Units
Cost per Unit
Amount
$
$
COGAFS
$
$
$
Cost of End. Inventory
$
Cost of Ending Inventory
$
COGS using LIFO
$
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Complete the Weighted-Average calculations in the table: 400 Units in left in Inventory.
Weighted -Average
$72,500
1350 $54
Average
Cost per
Unit
400 Units left in Inventory
Units
Cost per Unit
Amount
COGAFS
$
$
$
Cost of End. Inventory
$
COGS using Weighted
$
Cost of Ending Inventory
Average
PART 2: DEFINE THE FIVE (5) METHODS FOR COMPUTING BOOK DEPRECIATION.
As the Practice Manager, you are tasked with explaining the depreciation methods to Dr. Smith and Dr.
Brown. Write an explanation of each method in your own words.
1. Straight Line Depreciation: Include what is meant by salvage value.
2. Accelerated Book Depreciation: Sum of Years Digits Method.
3. Accelerated Book Depreciation: Double Declining Balance Method
4. Accelerated Book Depreciation: 150% Declining Balance Method.
PART 3: CALCULATING DEPRECIATION
As the manager of Dr. Smith and Dr. Browns practice, you need to decide whether to purchase new
equipment. Use the following information for the depreciation method calculations. You must show your
work in the blank cells provided.
1. Example of Straight-Line Depreciation Method
Use the following information to calculate the Straight Line
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Fixed asset cost: $20,000
Useful life: five years
Residual value: $2,000
Table for question 1, fill in the blanks for rows 4, 5, 6, 7, and 8.
Depreciation
Method
Calculation
Cost
Residual Value
Straight-Line
Cost Residual
Value/Useful Life
$20,000
$2,000
End of Year
Cost of Equipment
Yearly
Depreciation
Expense
Accumulated
Depreciation,
End of Year
Useful Life
5
Depreciation
Amount
$3,600
Book Value,
End of Year
(Cost
Accumulation
Depreciation)
1
2
3
4
5
Ending Residual
Value
2. Example of Accelerated Book Depreciation: SYD (Sum of Years Digits) Method
Use the following information to calculate the SYD:
Fixed asset cost: $20,000
Useful life: five years
Residual value: $2,000
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Table for question 2. Fill in the blanks in rows 4, 5, 6, 7, and 8.
Depreciation
Method
Cost
Residual
Value
Sum of
Years Digits
$20,000
$2,000
End of Year
(Cost Minus
Residual)
Fraction
for Year
Useful Life
$18,000
5
=
Yearly
Depreciation
Expenses
Accumulation
Depreciation
End of Year
Book Value,
End of Year
(Cost
Accumulation
Depreciation)
1
2
3
4
5
Ending
Residual
Value
3. Example of Accelerated Book Depreciation: DDB (Double Declining Balance) Method
Fixed asset cost: $72,340
Useful life: five years
Salvage value: $10,000
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Table with data for question 3 part 1
Depreciation
Calculation:
Method
Cost to be
Salvage
Depreciated
Value
Useful Life
Straight-Line
Double
Factor
Declining
Factor
Cost Residual
DDB
$72, 340
$10,000
5
0.2
0.4
Value/Useful
Life
Table for question 3 part 2. Fill in the blanks for columns 2, 4, 5 and 6.
Years of
Initial cost
Double-
Annual
Accumulated
Net Remaining
Useful Life and then
Declining
Depreciation
Depreciation
Underpreciated
Factor
Expense
(Reserve for
(Net Book
Depreciation)
Value)
the Carry
Forward
Book Value
1
$72,340
0.4
$
$
$
2
0.4
$
$
$
3
0.4
$
$
$
*4
0.2
$
$
$
*5
0.2
$
$
$
Salvage
Value
*DDB is used for the first three years, then the SL method is used for the last two years. Therefore, the DoubleDeclining factor is shown for 3 years and the Straight-Line factor is shown for year 4 and 5.
PART 4: ANALYSIS OF DEPRECIATION METHODS
No matter which type of health care organization, as a manager, you need to be able to choose the best
depreciation method for that type of organization based on the fixed asset being purchased. With that
said, complete the following:
1. Choose one of the depreciation methods that you feel would be more feasible for a hospital to use.
Explain your rationale.
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2. Choose one of the depreciation methods that you feel would be more feasible for a physician practice to
use. Explain your rationale.
3. Explain why it is important for a health care organization or a physician practice to use a depreciation
method.
PART 5: RECOMMENDATION
1. What depreciation method do you recommend Dr. Smith and Dr. Brown use to purchase a fixed asset?
Explain the rationale for your choice.
REFERENCES
List your References in APA Format as outlined in the assignment directions.
HCA312 06/04/2022
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