Deck 18: Accounting for Health Care Entities

Question 1

Hospital operating revenues include all of the following except

A) Investment income
B) Patient service revenue
C) Premium fees
D) Cafeteria sales

Answer 1

A

Question 2

Premium fee revenues should be recognized as

A) Revenue in the period the premium was received.
B) Revenue in the period covered by the premium.
C) Deferred revenue until the services are actually provided.
D) Revenue only if services with standard charges equal to or greater than the premium for the period are provided in the period.

Answer 2

B

Question 3

Hospital equipment that originally cost $150,000 was sold for $60,000. The net book value of the equipment at the date of sale was $75,000. The hospital should report

A) An operating loss of $15,000.
B) A nonoperating loss of $15,000.
C) Expenses of $75,000.
D) Other financing sources of $60,000.

Answer 3

B

Question 4

Welby County Hospital entered into a capital lease to purchase a new MRI machine. The capitalizable cost of the equipment was $400,000 and the hospital made a $40,000 down payment. The entry required when the asset was acquired was $\begin{array}{llr}&& \text {Debit}& \text {Credit}\\ \text {A.}& \text { Equipment}&\$400,000\\& \text {Other Financing Sources - Capital Lease}&&\$360,000\\& \text {Cash}&&40,000\\\\ \text {B. }& \text {Expenditures.}&\$400,000\\& \text {Other Financing Sources - Capital Lease}&&\$360,000\\& \text {Cash}&&40,000\\\\ \text {C.}& \text { Equipment}&\$360,000\\& \text {Expenditures}&40,000\\& \text {Lease Payable}&&\$360,000\\& \text {Cash}&&40,000\\\\ \text {D.}& \text {Equipment}&\$400,000\\& \text {Lease Payable}&&\$360,000\\& \text {Cash}&&40,000\end{array}$

Question 5

County General Hospital estimates uncollectible accounts to be $112,000 and contractual adjustments to be $79,000. The entry needed to record these estimates would be $\begin{array}{llcc}&&\text { Debit}&\text { Credit }\\\text {A.}&\text { Expenses}& \$ 191,000 \\&\text { Allowance for Doubtful Accounts } && \$ 191,000 \\\\\text {B.}& \text { Expenses. } & \$ 112,000 \\&\text { Revenue Deductions - Contractual Adjustments } & 79,000 \\& \text { Allowance for Doubtful Accounts } & &\$112,000\\& \text { Allowance for Contractual Adjustments. } &&79,000 \\\\\text {C.}& \text {Revenue Deductions - Uncollectible Accounts. }&\$112,000\\& \text {Expenses.}&79,000\\& \text {Allowance for Doubtful Accounts}&&\$112,000\\& \text {Allowance for Contractual Adjustments}&&79,000\\\\\text {D.}& \text {Revenue Deductions - Uncollectible Accounts}&\$112,000\\& \text {Revenue Deductions - Contractual Adjustments}&79,000\\& \text {Allowance for Doubtful Accounts}&&\$112,000\\& \text {Allowance for Contractual Adjustments}&79,000\end{array}$

Question 6

The following selected information is taken from the accounting records of the Jackson County Hospital for fiscal year 20X0. All accounts have a normal balance and are listed in alphabetical order. Also, all amounts are in thousands of dollars.

- $\begin{array}{llr} \text {Administrative expenses}&\$440\\ \text { Cafeteria sales. }&440\\ \text {Charity services (at gross amounts) }&500\\ \text {Contractual adjustments. }&1,100\\ \text {Depreciation expense-Building}&1,4000\\ \text {Depreciation expense-Other.}&2,740\\ \text {Estimated uncollectible accounts}&710\\ \text {Federal grant restricted for heart research (all eligibility requirements met)}&1,300\\ \text {Fiscal service expenses}&300\\ \text {Gain on sale of capital assets}&75\\ \text {General services expenses.}&1,100\\ \text {Gross patient service charges.}&18,000\\ \text {Income from investments of endowment-donor restricted to heart research}&870\\ \text {Other professional services expense.}&890\\ \text {Net investment in capital assets, January 1}&15,000\\ \text {Nursing services expenses}&8,000\\ \text {Proceeds from bond issue for building addition.}&22,000\\ \text {Restricted net position, January 1}&3,200\\ \text {State appropriations-capital.}&700\\ \text {State appropriations-operating}&500\\ \text {Unrestricted contributions}&350\\ \text {Unrestricted net position, January 1}&9,000\end{array}$

Question 7

Listed below are selected transactions from the City of Watertown Hospital. All amounts are in thousands of dollars.

$\underline{\text{ Transactions: }}$
1. The hospital provided patient services during the year that had standard charges of $12,500. Contractual adjustments awarded to patients under contracts with insurance companies and under government programs totaled $2,000. Uncollectible accounts are expected to be approximately $800.
2. Nursing and other professional salaries paid during the year totaled $2,300.
3. Depreciation for the year was $500 for the building and $900 for equipment.
4. Medical supplies costing $2,600 were purchased during the year. The inventory of supplies increased from $200 at the beginning of the year to $300 at year end.
5. The hospital received a $4,000 to be used for the purchase of specialized diagnostic equipment.
6. The hospital received a $500 gift to be used for providing specialized coronary care services to patients.
7. The hospital purchased $2,000 of diagnostic equipment with the donation received for that purpose.
8. The hospital incurred $400 of operating expenses for the care of coronary patients consistent with the purposes of that donation.
9. The hospital issued $5,000 of 20-year, 8% bonds at par at mid-year to finance a new addition for the hospital.
10. The hospital estimates that malpractice claims against the hospital of $400 ultimately will result in liabilities of $100 that will have to be paid-but probably will not have to be paid during the next fiscal year.

$\underline{\text{ Requirement: }}$ Prepare the journal entries required of a government hospital for these transactions.

Question 8

Patient service revenues of a government hospital should be reported in the statement of revenues, expenses, and changes in net position

A) At the standard rates charged for the service regardless of bad debts, contractual adjustments, policy discounts, etc.
B) Net of bad debts, contractual adjustments, policy discounts, and charity services.
C) Net of contractual adjustments, policy discounts, charity services, but not net of bad debts.
D) Net of bad debts, contractual adjustments, policy discounts, etc., but not net of charity services.

Question 9

For external financial reporting purposes, charity services are reported as

A) Expenses.
B) Revenues.
C) Deductions from revenues.
D) Nonoperating gains and losses.

Question 10

If a government hospital receives unrestricted donations that are not a part of the hospital's major ongoing operations, those donations are classified on the statement of revenues, expenses, and changes in net position as

A) An operating revenue.
B) An operating gain.
C) An other financing source.
D) A nonoperating gain.

Question 11

A government hospital would not report which category of net position:

A) Specific purpose net position.
B) Unrestricted net position.
C) Restricted net position.
D) Net investment in capital assets.

Question 12

County Medical Center received unrestricted contributions of $22,000. The hospital used the contributions to support general services. These contributions would be reported on the statement of cash flows as

A) Operating activities.
B) Noncapital financing activities.
C) Capital and related financing activities.
D) Investing activities.

Question 13

A county hospital's patient services charges for the year were $3,000,000. Of this amount, 25% is deemed to be uncollectible, 5% is considered to be charity services after the services were provided, and 10% will be reduced by contractual adjustments with third-party providers. How much related to these items will be reported as expense in the external financial statements?

A) $0.
B) $300,000.
C) $750,000.
D) $1,200,000.

Question 14

Which of the following statements about services contributed to a government hospital is true?

A) Government hospitals may report contributed services as operating revenues.
B) Government hospitals are permitted, but not required, to recognize contributed services regardless of the value of the services.
C) Government hospitals are required to report contributed services at their fair market value.
D) Government hospitals are required to report contributed services as gains.

Question 15

The fair market value of a government hospital's investments that are restricted for future capital needs increased by $7,000. As of the end of the fiscal year,

A) Nonoperating gains will increase by $7,000.
B) General revenue will increase by $7,000.
C) This change in market value will not be reported unless the assets are sold.
D) Other financing sources will increase by $7,000.

Question 16

A government hospital board of directors voted to set aside $3,000,000 of investments for future hospital expansion. In the hospital balance sheet, these resources should be reported.

A) Unrestricted net position.
B) Restricted net position.
C) Net investment in capital asset.
D) Permanently restricted net position.

Question 17

Hospitals disclose the level of charity services provided by disclosing

A) The amount of revenues foregone in providing the services
B) The direct costs of providing charity services
C) Both the direct and indirect costs of providing charity services
D) The quantities and types of charity services provided

Question 18

The measurement focus used by governmental hospitals is the

A) Cash measurement focus.
B) Current financial resources measurement focus.
C) Economic resources measurement focus.
D) Accrual measurement focus.

Question 19

Briefly answer the following questions on hospital reporting:

1. Identify the financial statements that must be presented for a government hospital.
2. How are the financial statements for a government hospital different from the financial statements for a not-for-profit hospital?
 

Question 20

Restricted assets of a nongovernment hospital are used to account for resources

A) Restricted by donors or grantors.
B) Restricted by bond and other contracts.
C) Restricted by the hospital board of directors.
D) Restricted by management.

Question 21

In the statement of revenues, expenses and changes in net position, expenses of government hospitals should be reported by

A) Natural classifications.
B) Department.
C) Function.
D) Either by natural classification or by function.

Question 22

Government hospitals and nongovernment not-for-profit hospitals report all of the following in the same manner except

A) Patient service revenues
B) Rent revenues
C) Provision for bad debts
D) Charity services

Question 23

Nongovernment not-for-profit hospitals report assets limited as to use for

A) Assets limited to a specific use by donors, by contracts, or by the hospital board.
B) Assets limited to a specific use by contracts or by the hospital board.
C) Assets limited to a specific use by contracts only.
D) Assets limited to a specific use by the hospital board only.

Question 24

Which of the following statements of a government hospital is not required?

A) Statement of cash flows.
B) Statement of net position.
C) Statement of revenues, expenses and changes in net position.
D) Statement of changes in fund balances.

Question 25

Which of the following are reported by both government and nongovernment, not-for-profit hospitals?

A) Bad debt expense.
B) Restricted net position.
C) Investment income.
D) Unrestricted net position.

Question 26

Sources of generally accepted accounting principles for government hospitals include

A) AICPA Audit and Accounting Guide, Health Care Entities.
B) FASAB standards.
C) FASB not-for-profit standards.
D) GAO Yellow Book.

Question 27

A nongovernment not-for-profit hospital presents all of the following financial statements, except

A) A balance sheet.
B) A statement of operations.
C) A statement of activities.
D) A statement of cash flows.

Question 28

Which item is reported significantly differently by government hospitals than by nongovernment, not-for-profit hospitals?

A) Patient service revenues.
B) Net position.
C) Assets limited as to use.
D) Charity services.

Question 29

Dublin State Hospital would have earned $3,000,000 of patient service revenue under its established rate structure for the year. However, it does not expect to collect this amount due to charity allowances of $75,000, discounts to third-party payers of $200,000, and an estimated uncollectible amount of $50,000. For the year, how much should Dublin State Hospital report as patient service revenue?

A) $3,000,000.
B) $2,800,000.
C) $2,725,000.
D) $2,675,000.

Question 30

A government hospital received a cash donation restricted for construction of a new wing to the hospital. How should the donation be reported be reported in the statement of cash flows?

A) Cash inflows from operating activities.
B) Cash inflows from noncapital financing activities.
C) Cash inflows from capital and related financing activities.
D) Cash inflows from investing activities.

Question 31

Which of the following items are not reported in much the same manner by government hospitals and nongovernment not-for-profit hospitals?

A) Patient service revenues.
B) Donated professional services.
C) Premium fee revenues.
D) Cafeteria sales.

Question 32

The standard charges for all services provided by a government hospital during the year were $5,000,000. The charges included charges for charity services valued at $100,000. They were reduced by contractual adjustments related to insurance contracts of $400,000. Uncollectible amounts related to these services are estimated at $150,000. The hospital must report net patient services revenues and expenses, respectively, of

A) $4,900,000 and $550,000
B) $4,500,000 and $150,000
C) $4,750,000 and $400,000
D) $4,350,000 and $0

Question 33

A nongovernment not-for-profit hospital presents the following categories on its statement of cash flows, except

A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from noncapital financing activities.
D) Cash flows from financing activities.

Question 34

Which of the following are reported for government hospitals but not for nongovernment, not-for-profit hospitals?

A) Capital leases.
B) Deferred inflows of resources.
C) Net patient service revenues.
D) Premium fees.