Question 1

An accountant has encountered a perplexing financial reporting issue related to the hospital for which she is preparing financial statements.The issue is not specifically addressed by FASB statements.To which of the following sources would the accountant probably look for industry-specific guidance?

Accepted Answer

The accountant would most likely look to the AICPA accounting and auditing guide, Health Care Organizations, for industry-specific guidance related to healthcare organizations such as hospitals. This guide provides guidance on accounting and financial reporting issues specific to healthcare organizations that are not addressed by FASB statements.

Question 2

During the current year, Jones University received a $50,000 gift from an alumnae who specified that it must be used to pay travel costs for faculty to attend health care conferences in foreign countries.During the year the university spent $8,000 to support travel to a health care conference in Italy.The $8,000 disbursement will cause a NET decrease in which class of net assets?

Accepted Answer

A

Question 3

Temporarily restricted funds related to plant and equipment generally account only for resources restricted to their purchase or construction, not for the plant and equipment itself, which are typically reported in the general operating fund.

Accepted Answer

Temporarily restricted funds related to plant and equipment only refer to the resources that are restricted for the purchase or construction of plant and equipment, not the plant and equipment itself. The plant and equipment are usually reported in the general operating fund.

Question 4

In prior years, a not-for-profit hospital received funds from a donor who restricted the use of those funds to providing nursing scholarships.During the current year $8,000 of scholarships were awarded.These scholarships should be reported

Accepted Answer

The answer of In prior years, a not-for-profit hospital received...

Question 5

Not-for-profit health care organizations must use exactly three funds to account for the three categories of restrictiveness.

Accepted Answer

Not-for-profit health care organizations can use more than three funds to account for various categories of restrictiveness. The number of funds depends on the organization's specific needs and circumstances.

Question 6

The amount of restricted revenue that should be recognized by Kale in the year of the gift is

Accepted Answer

The amount of restricted revenue that should be recognized by Kale in the year of the gift is the fair value of the donated building, which is $736,000. The contribution is unrestricted in perpetuity, indicating that there are no restrictions on how it can be utilized. As a result, it must be reported as unrestricted revenue in the year of the donation.

Question 7

Intermountain Hospital, a not-for-profit health care provider, issued $70 million in term bonds to finance construction of a new wing at its main hospital.Terms of the bond issue require that $5 million of the proceeds of the bond issue be invested in U.S.government securities.The $5 million must be held until maturity of the bonds.The $5 million will increase which class of net assets?

Accepted Answer

The $5 million must be held until maturity of the bonds, which means that it cannot be used for any other purpose until then. This falls under temporarily restricted net assets, which are funds that are restricted by donors or by law for a specific purpose or time frame. Once the bonds mature, the $5 million will be released and can then be classified as unrestricted net assets, which are funds that are free of donor-imposed restrictions and can be used for any purpose.

Question 8

The statement of activities of a not-for-profit health care organization should classify the revenues as unrestricted, temporarily restricted, or permanently restricted, but should report expenses only as decreases in unrestricted resources.

Accepted Answer

The statement of activities for a not-for-profit health care organization classifies revenues based on donor restrictions, but expenses are reported as decreases in unrestricted resources, reflecting the use of resources to carry out the organization's mission.

Question 9

Private not-for-profit colleges and universities are subject to the same FASB standards as other not-for-profit entities.

Accepted Answer

Private not-for-profit colleges and universities are subject to the same Financial Accounting Standards Board (FASB) standards as other not-for-profit entities.

Question 10

For a not-for-profit hospital, which of the following financial statements is NOT required?

Accepted Answer

The Statement of Functional Expenses is specifically required for not-for-profit organizations that follow the Financial Accounting Standards Board (FASB) standards, particularly those that are voluntary health and welfare organizations. However, for a not-for-profit hospital, the required financial statements typically include the Statement of Financial Position, Statement of Activities, and Statement of Cash Flows, but not necessarily the Statement of Functional Expenses.

Question 11

For a not-for-profit college or university, which of the following categories of net assets is NOT appropriate in its external financial statements?

Accepted Answer

The answer of For a not-for-profit college or university, which...

Question 12

Government hospitals are subject to the same FASB standards as private not-for-profit health care organizations.

Accepted Answer

Government hospitals follow different accounting standards set by the Governmental Accounting Standards Board (GASB), not the Financial Accounting Standards Board (FASB) that private not-for-profit health care organizations follow.

Question 13

In classifying expenses in the statement of activities of a not-for-profit health care organization, all expenses are reported exclusively within the temporarily restricted category.

Accepted Answer

Expenses in a not-for-profit health care organization are categorized as either unrestricted, temporarily restricted, or permanently restricted. Expenses that do not have any donor restrictions are reported within the unrestricted category, while expenses with donor restrictions that will be satisfied in the current fiscal year are reported within the temporarily restricted category. Expenses with donor restrictions that will be satisfied in future fiscal years are reported within the permanently restricted category. Therefore, not all expenses are reported exclusively within the temporarily restricted category.

Question 14

The Hill-Burton Act stipulates that hospitals receiving federal construction funds must provide a certain amount of charity care.

Accepted Answer

The Hill-Burton Act, officially known as the Public Health Service Act of 1946, requires hospitals receiving federal construction funds to provide a reasonable amount of uncompensated services to those unable to pay. This includes charity care as well as other services such as discounted fees for low-income patients.

Question 15

The amount of unrestricted revenue that should be recognized by Kale in the year of the gift is

Accepted Answer

The answer of The amount of unrestricted revenue that should...

Question 16

According to the AICPA audit guide, Health Care Organizations, revenue must be recorded using the patient discharge method.

Accepted Answer

The AICPA audit guide, Health Care Organizations, states that healthcare organizations may use various revenue recognition methods based on the nature of their operations and the type of services they provide. The patient discharge method is one of the options, but it is not mandatory. Other acceptable methods include the percentage-of-completion method, the cost-recovery method, and the installment method. The choice of the method depends on the circumstances of each individual case.

Question 17

Unlike businesses, not-for-profit health care providers often serve patients who they know will be unable to pay the amounts billed.

Accepted Answer

Not-for-profit health care providers often have a mission to serve all members of the community, regardless of their ability to pay for services. This means they may provide free or discounted care to patients in need. Businesses, on the other hand, are typically motivated by profits and may not prioritize serving individuals who cannot pay for their services.

Question 18

Which of the following entities should recognize depreciation expense on its operating statement?

Accepted Answer

All of the entities listed, including not-for-profit organizations, should recognize depreciation expense on their operating statements as they all use long-lived assets that depreciate over time.

Question 19

The statement of financial position of a not-for-profit health care organization should distinguish among unrestricted, temporarily restricted, and permanently restricted net assets.

Accepted Answer

This is correct as per generally accepted accounting principles (GAAP) for not-for-profit organizations, which require the presentation of these three categories of net assets on the statement of financial position. Unrestricted net assets are available for use in any way the organization chooses, temporarily restricted net assets are restricted for a specific purpose and time period, and permanently restricted net assets are permanently restricted for a specific purpose (such as an endowment).

Question 20

New College, a private college, received a $1 million donation.The donor specified that the principal of her gift could not be used for program activities but the earnings on the principal must be used to provide scholarships to academically qualified students in the business school.The $1 million gift would increase which of the following categories of net assets?

Accepted Answer

The $1 million donation is a permanently restricted net asset because the principal cannot be used, only the earnings from it can be used for scholarships.

Quiz 13: Special Issues for Not-For-Profit Health Care Providers and Institutions of Higher Education