Problem:
Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It has two major third-party payers, and some of its patients are self-payers. The hospital's patient accounts manager estimates that 10 percent of the hospital's billings are paid (received by the hospital) on Day 30; 60 percent are paid on Day 60; and 30 percent are paid on Day 90. (Five percent of total billings end up as bad debt losses, but that figure is not relevant to this problem.)
Required:
Question 1: What is Fargo's average collection period? (Assume 360 days per year throughout this problem.)
Question 2: What is the hospital's current receivable balance?
Question 3: What would be the hospital's new receivables balance if a newly proposed electronic claims system resulted in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90 days?
Explain in detail and please provide all calculation.