Deck 7: The Income Statement

Question 1

A dental practice has fiscal year revenues of $850,000 and expenses of $520,000. The practice's net income for that fiscal year is $330,000.

Answer 1

True

Question 2

Which of the following can be used to legally reduce the amount of federal income tax withheld from an employee's pay?

A) group disability insurance
B) group life insurance
C) direct deposits to a healthcare insurance account
D) direct deposits to pay for health club membership

Answer 2

direct deposits to a healthcare insurance account

Question 3

Income statements must be prepared ____.

A) annually
B) quarterly
C) monthly
D) by a certified public accountant

Answer 3

annually

Question 4

A medical laboratory supervisor has been spending 20 hours per week working in the lab as a technologist because of a staffing shortage. If she work more than 40 hours per week, the laboratory ____.

A) pays no overtime because she is an exempt employee
B) pays overtime only if she puts in more than 40 hours of technologist work
C) pays overtime of 1.5 times her supervisor salary
D) pays overtime of 1.5 times a technologist's salary

Question 5

A medical partnership has been owned by the same four physicians since it began. They took out a loan when the practice opened but have not needed any other loans. Which pattern of Liquidity Ratios, Solvency Ratios, and Profit Level Ratios would indicate continual financial improvement of the partnership?

A) decreasing; decreasing; decreasing
B) decreasing; increasing;, increasing
C) increasing; decreasing; increasing
D) increasing; increasing; increasing

Question 6

Two physical therapists own a partnership and receive draws each month for the medical services they provided. The draws should be recorded as business expenses.

Question 7

Which of the following is a non-exempt employee?

A) factory foreman
B) computer programmer
C) waitress
D) salesperson

Question 8

A physical therapist has a standard charge of $100 for a back therapy session. A patient makes a co-payment of $20 at the time of service. His insurer sends a payment of $50. Which accounting entry for that payment is correct?

A) Accounts Receivable $80 credit
B) Accounts Receivable $50 credit
C) Medical Services Revenue $50 debit
D) Medical Services Revenue $20 debit

Question 9

The largest expense category for most healthcare organizations is ____.

A) debt repayment
B) employee salaries and benefits
C) supplies
D) computer hardware and software

Question 10

Bad debt expense is ____.

A) the cost of sending repeat bills to a non-paying customer
B) the cost of hiring a collection agency
C) the amount of revenue due that is written off as uncollectible
D) the penalties paid for making late payments on loans or bills

Question 11

The full charge for a medical service is $180. The group healthcare insurer pays $100 for that service. Which of the following is a correct way to record the $80 difference?

A) Accounts Receivable $80 debit
B) Medical Services Revenue $80 credit
C) Medical Services Revenue $80 debit
D) Cash Account $80 debit

Question 12

Employees have the legal option to have less federal income taxes withheld than the amount calculated on their W-4 forms.

Question 13

A group practice comprised of four physicians hires a part-time custodian to clean the facility after each work day. The wages paid should be listed under Contract Services.

Question 14

In 2011 a healthcare business paid an office manager $80,000. How much Social Security tax was paid by the company and how much was withheld from the employee?

A) $0 and $3,360
B) $4,960 and $3,360
C) $1,160 and $1,160
D) $3,360 and $3,360

Question 15

The income statement reports on revenues, cash, and short-term investments.

Question 16

A physician's practice is a sole proprietorship professional corporation. Most patients are covered by group healthcare insurance provided by their employers (or their spouses' employers). Who is responsible for making sure that the insurance companies and patients have paid the proper amounts?

A) the patients
B) the insurance companies
C) the employee benefits offices
D) the physician practice

Question 17

A liquidity ratio of 9 indicates that a business ____.

A) will run out of money in 9 days
B) has liquid assets equivalent to the costs of 9 days of operation
C) has 9 times as much assets as debts
D) is 9 times more likely to fail than average

Question 18

A physician decides to radically change her practice. She now only provides services to patients who will pay her full charges at the time of service. She was able to lower her full charges because the new practice ____,

A) has fewer patients
B) needs no billing staff
C) needs no computer support
D) has lower benefits costs per employee

Question 19

The federal government regulates base pay and overtime through the ____.

A) Minimum Wage Act of 1994
B) Fair Labor Standards Act of 1938
C) Non-exempt Employee Protection Act of 1965
D) Wage and Employment Growth Act of 1999

Question 20

Return on equity is a type of ____.

A) intangible asset
B) profit level ratio
C) solvency ratio
D) liquidity ratio

Question 21

The amount of money a medical service provider would receive if all services were paid at the full price charged is termed ____________________.

Question 22

Why do employers provide benefits such as healthcare insurance, dental insurance, and retirement plans instead of higher wages and salaries?

Question 23

An medical facility employee's weekly gross salary is $1000. Her benefit deductions are $100 for a retirement account and $40 for a healthcare savings account. Social Security and Medicare withholdings total $56.50. Her federal income tax witholding is based on taxable earnings of ______.

A) $900
B) $860
C) $803.50
D) $1,000

Question 24

A hospital employs computer programmers to customize its database programs. The programmers are paid $20 per hour. One of the programmers regularly works 50 hours per week. His weekly pay ____.

A) does not change because he is exempt
B) goes up by $300 for the overtime
C) goes up by $200 for the overtime
D) does not change because he is a professional

Question 25

Describe the use of a contractual adjustments account in a healthcare facility.

Question 26

Insurance coverages and retirement plans that a workplace offers to employees are referred to as ____________________.

Question 27

Patient Stan Lee has PPO healthcare insurance. He goes to a preferred provider dermatologist for removal of a small skin lesion. The insurer has agreed to pay its preferred providers $90 for this service. (The dermatologist's full charge for the service is $120.) The insurer pays only $20 because the policy requires a $20 patient co-payment and a $100 annual deductible. Prior to this service, Stan Lee had paid $50 of the deductible. Why can the dermatologist not bill Mr. Lee $100?

Question 28

A small medical facility sells some old equipment and receives $10,000 in salvage costs. What will happen to its liquidity ratio after that money is posted to the account?

A) Nothing will happen.
B) It would increase.
C) It would decrease.
D) We cannot predict.

Question 29

The operating margin ratio is net income divided by ____________________.

Question 30

What happens when a not-for-profit corporation has a positive net income?

A) It must invest the net income in the business.
B) It must reduce its fees.
C) It must donate the net income to a charity.
D) It must report net income to the governing board.

Question 31

Describe the process of balance billing and give an example of where it is used in healthcare.

Question 32

Efficiency of a healthcare business operation is assessed by the operating margin ratio that divides net income by total revenues. Explain why total revenues are used instead of gross medical service revenues.

Question 33

Net pay is gross wages or salary minus (costs of benefits + retirement contributions + ____________________).

Question 34

A medical office purchases a stapler for $15. It is expected to last for at least two years. The will typically be listed under the ____________________ accounting category.