Budgets for a Service Firm Triple-F Health Club (Family, Fitness, and Fun) is a not-for-profit,family-oriented health club. The club’s board of directors is developing plans to acquire more equipment and expand club facilities. The board plans to purchase about $25,000 of new equipment eachyear and wants to establish a fund to purchase the adjoining property in four or five years. Theadjoining property has a market value of about $300,000.The club manager, Jane Crowe, is concerned that the board has unrealistic goals in light of theclub’s recent financial performance. She has sought the help of a club member with an accountingbackground to assist her in preparing a report to the board supporting her concerns.The member reviewed the club’s records, including this cash-basis income statement:[LO 10-6]TRIPLE-F HEALTH CLUBIncome Statement (Cash Basis)For Years Ended October 31 (in thousands)2020 2019Cash revenues:Annual membership fees $355.0 $300.0Lesson and class fees 234.0 180.0Miscellaneous 2.0 1.5Total cash revenues $591.0 $481.5Cash expenses:Manager’s salary and benefits $ 36.0 $ 36.0Regular employees’ wages and benefits 190.0 190.0Lesson and class employees’ wages and benefits 195.0 150.0Towels and supplies 16.0 15.5Utilities (heat and light) 22.0 15.0Mortgage interest 35.1 37.8Miscellaneous 2.0 1.5Total cash expenditures $496.1 $445.8Increase in cash $ 94.9 $ 35.7Final PDF to printerblo17029_ch10_355-410.indd 406 02/19/18 09:08 AM406 Part Two Planning and Decision Making∙ Other financial information as of October 31, 2020:∙ Cash in checking account, $7,000.∙ Petty cash, $300.∙ Outstanding mortgage balance, $360,000.∙ Accounts payable arising from invoices for supplies and utilities that are unpaid as of October 31,2020, and due in November 2020, $2,500.∙ No other unpaid bills existed on October 31, 2020.∙ The club purchased $25,000 worth of exercise equipment during the current fiscal year. Cash of $10,000was paid on delivery, with the balance due on October 1. This amount had not been paid as of October31, 2020. An additional $25,000 (cash) of equipment purchases is planned for the coming year.∙ The club began operations in 2016 in rental quarters. In October 2016, it purchased its current property(land and building) for $600,000, paying $120,000 down and agreeing to pay $30,000 plus 9% interestannually on the unpaid loan balance each November 1, starting November 1, 2017.∙ Membership rose 3% in 2020. The club has experienced approximately this same annual growth ratesince it opened and this rate is expected to continue in the future.∙ Membership fees increased by 15% in 2020. The board has tentative plans to increase these fees by 10%in 2021.∙ Lesson and class fees have not been increased for 3 years. The board policy is to encourage classes andlessons by keeping the fees low. The members have taken advantage of this policy, and the number ofclasses and lessons has increased significantly each year. The club expects the percentage growth experienced in 2020 to be repeated in 2021.∙ Miscellaneous revenues are expected to grow at the same rate as in 2020.∙ Operating expenses expected to increase:∙ Hourly wage rates and the manager’s salary: 15%.∙ Towels and supplies, utilities, and miscellaneous expenses: 25%.Required1. Prepare a cash budget for 2021 for the Triple-F Health Club.2. Identify any operating problems that this budget discloses for the Triple-F Health Club. Explain youranswer.3. Is Jane Crowe’s concern that the board’s goals are unrealistic justified? Explain your answer.
Budgets for a Service Firm Triple-F Health Club (Family, Fitness, and Fun) is a not-for-profit,
family-oriented health club. The club’s board of directors is developing plans to acquire more equipment and expand club facilities. The board plans to purchase about $25,000 of new equipment each
year and wants to establish a fund to purchase the adjoining property in four or five years. The
adjoining property has a market value of about $300,000.
The club manager, Jane Crowe, is concerned that the board has unrealistic goals in light of the
club’s recent financial performance. She has sought the help of a club member with an accounting
background to assist her in preparing a report to the board supporting her concerns.
The member reviewed the club’s records, including this cash-basis income statement:
[LO 10-6]
TRIPLE-F HEALTH CLUB
Income Statement (Cash Basis)
For Years Ended October 31 (in thousands)
2020 2019
Cash revenues:
Annual membership fees $355.0 $300.0
Lesson and class fees 234.0 180.0
Miscellaneous 2.0 1.5
Total cash revenues $591.0 $481.5
Cash expenses:
Manager’s salary and benefits $ 36.0 $ 36.0
Regular employees’ wages and benefits 190.0 190.0
Lesson and class employees’ wages and benefits 195.0 150.0
Towels and supplies 16.0 15.5
Utilities (heat and light) 22.0 15.0
Mortgage interest 35.1 37.8
Miscellaneous 2.0 1.5
Total cash expenditures $496.1 $445.8
Increase in cash $ 94.9 $ 35.7
Final PDF to printer
blo17029_ch10_355-410.indd 406 02/19/18 09:08 AM
406 Part Two Planning and Decision Making
∙ Other financial information as of October 31, 2020:
∙ Cash in checking account, $7,000.
∙ Petty cash, $300.
∙ Outstanding mortgage balance, $360,000.
∙ Accounts payable arising from invoices for supplies and utilities that are unpaid as of October 31,
2020, and due in November 2020, $2,500.
∙ No other unpaid bills existed on October 31, 2020.
∙ The club purchased $25,000 worth of exercise equipment during the current fiscal year. Cash of $10,000
was paid on delivery, with the balance due on October 1. This amount had not been paid as of October
31, 2020. An additional $25,000 (cash) of equipment purchases is planned for the coming year.
∙ The club began operations in 2016 in rental quarters. In October 2016, it purchased its current property
(land and building) for $600,000, paying $120,000 down and agreeing to pay $30,000 plus 9% interest
annually on the unpaid loan balance each November 1, starting November 1, 2017.
∙ Membership rose 3% in 2020. The club has experienced approximately this same annual growth rate
since it opened and this rate is expected to continue in the future.
∙ Membership fees increased by 15% in 2020. The board has tentative plans to increase these fees by 10%
in 2021.
∙ Lesson and class fees have not been increased for 3 years. The board policy is to encourage classes and
lessons by keeping the fees low. The members have taken advantage of this policy, and the number of
classes and lessons has increased significantly each year. The club expects the percentage growth experienced in 2020 to be repeated in 2021.
∙ Miscellaneous revenues are expected to grow at the same rate as in 2020.
∙ Operating expenses expected to increase:
∙ Hourly wage rates and the manager’s salary: 15%.
∙ Towels and supplies, utilities, and miscellaneous expenses: 25%.
Required
1. Prepare a
2. Identify any operating problems that this budget discloses for the Triple-F Health Club. Explain your
answer.
3. Is Jane Crowe’s concern that the board’s goals are unrealistic justified? Explain your answer.
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