Question 1

In accordance with the FASB Codification, an expense for diabetes research that was financed by restricted contributions would be recorded as a decrease in net assets without donor restrictions by a not-for-profit health care organization.

Accepted Answer

The FASB Codification requires that expenses related to restricted contributions be recorded as a decrease in net assets with donor restrictions, not without donor restrictions. Therefore, the statement in the question is false.

Question 2

Financial reporting standards for all hospitals are established by the FASB.

Accepted Answer

Financial reporting standards for hospitals are established by the Governmental Accounting Standards Board (GASB) and the Healthcare Financial Management Association (HFMA). The Financial Accounting Standards Board (FASB) establishes financial reporting standards for private sector entities.

Question 3

A nongovernmental not-for-profit health care entity would report the net asset categories unrestricted, restricted, and net investment in capital assets.

Accepted Answer

A nongovernmental not-for-profit health care entity reports net assets in three categories: unrestricted, temporarily restricted, and permanently restricted, not "net investment in capital assets."

Question 4

Health care is provided by organizations that may be for-profit, not-for-profit, or governmental; although over half of all nonfederal health care is provided by not-for-profit entities.

Accepted Answer

This statement is true. Over half of all nonfederal health care is provided by not-for-profit entities.

Question 5

Under GAAP, both governmental and nongovernmental not-for-profit health care entities are required to identify operating and nonoperating activity on their operating statements.

Accepted Answer

Under GAAP, only nongovernmental not-for-profit health care entities are required to distinguish between operating and nonoperating activities on their statements of operations. Governmental health care entities, which follow GASB standards, do not have this requirement.

Question 6

The GASB and the FASB provide the same criteria for recognizing and reporting services donated to a health care entity.

Accepted Answer

The GASB (Governmental Accounting Standards Board) and the FASB (Financial Accounting Standards Board) have different criteria and standards for recognizing and reporting donated services. GASB sets standards for state and local governments, while FASB sets standards for private sector organizations, including non-profit health care entities.

Question 7

Continuing care retirement communities (CCRC) provide residential care in a facility, along with some level of long-term medical care that is less intensive that hospital care.

Accepted Answer

Continuing care retirement communities typically offer a range of care options, from independent living to assisted living to skilled nursing care, providing residents with a continuum of care as their needs change over time.

Question 8

A contractual adjustment is recorded as a contra-revenue account.

Accepted Answer

A contractual adjustment is a reduction in the amount the healthcare provider is reimbursed for services rendered to a patient. This reduction is recorded as a contra-revenue account to offset the original revenue recognized for the services provided.

Question 9

Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use."

Accepted Answer

Assets set aside for a specific purpose, such as the construction of a hospital addition, should be recorded as "assets limited as to use" to ensure that they are not used for any other purpose. This helps to ensure the accuracy and reliability of the organization's financial statements.

Question 10

Under the FASB GAAP hierarchy the AICPA Audit and Accounting Guide Health Care Entities would be category (b) authoritative guidance.

Accepted Answer

The AICPA Audit and Accounting Guide Health Care Entities is considered non-authoritative guidance under the FASB GAAP hierarchy.

Question 11

FASB standards require that not-for-profit health care entities prepare a statement of changes in net assets.

Accepted Answer

FASB standards do require that not-for-profit health care entities prepare a statement of changes in net assets. This statement shows the changes in the organization's net assets over a specified period of time, such as a fiscal year. It includes information on revenues, expenses, gains, losses, and other transactions that affect the organization's financial position. The purpose of the statement is to provide stakeholders with a clear picture of how the organization's resources are being used and how its financial health is changing over time.

Question 12

Patient service revenues and related receivables exclude charges for charity care services.

Accepted Answer

Charity care services are not revenue-generating activities, therefore they are excluded from patient service revenues and related receivables.

Question 13

The goal of financial and operational analysis of a health care entity is to determine if the entity is profitable.

Accepted Answer

The goal of financial and operational analysis of a health care entity is not just to determine profitability but also to evaluate the efficiency, effectiveness, and sustainability of the entity. Other factors such as patient care quality, staff satisfaction, and compliance with regulations are also important considerations in healthcare analysis.

Question 14

Similar to other not-for-profit entities, health care entities are required under FASB standards to report program and support functional expenses.

Accepted Answer

Health care entities, being not-for-profit entities, are required to report program and support functional expenses as per FASB standards.

Question 15

The "equity" section (assets minus liabilities) of a health care entity's balance sheet or statement of net position will indicate whether the health care organization is for-profit, not-for-profit, or governmental.

Accepted Answer

The equity section of a health care entity's balance sheet or statement of net position indicates whether the organization is for-profit, not-for-profit, or governmental because it reflects the ownership interest in the organization. For-profit organizations have shareholders who own the organization and receive profits, while not-for-profit organizations do not have shareholders and any profits are reinvested in the organization. Governmental organizations are owned by the government and do not have shareholders or profits.

Question 16

In accounting for health care entities, the account Provision for Bad Debts should be reported as a contra-revenue, rather than as an expense.

Accepted Answer

The Provision for Bad Debts is used to reduce the reported revenue to reflect the amount of revenue that may not be collected. Therefore, it is reported as a contra-revenue account, not as an expense.

Question 17

All health care organizations report investments at fair value and report unrealized gains or losses on the statement of operations.

Accepted Answer

Not all health care organizations report investments at fair value or report unrealized gains or losses on the statement of operations. The reporting depends on the accounting standards they follow (e.g., GAAP, IFRS) and the specific type of investment.

Question 18

Unlike other not-for-profit entities, the FASB requires health care entities to prepare a statement of changes in net assets.

Accepted Answer

The FASB does require health care entities to prepare a statement of changes in net assets. This is due to the unique nature of the health care industry and the importance of tracking changes in assets and liabilities.

Question 19

Similar to for-profit entities, under FASB standards, not-for-profit health care entities are required to classify investments in debt securities into trading, available-for-sale, and held to maturity for reporting purposes.

Accepted Answer

Not-for-profit health care entities under FASB standards are not required to classify investments in debt securities into trading, available-for-sale, and held to maturity; this classification is specific to for-profit entities.

Question 20

The purpose of a performance indicator is to provide an operating measure for not-for-profit health care organizations that is equivalent to income from continuing operations of for-profit health care organizations.

Accepted Answer

Performance indicators, such as patient satisfaction ratings, readmission rates, and clinical outcomes, provide a way for not-for-profit health care organizations to measure their operational success and effectiveness, in a similar way that income from continuing operations does for for-profit organizations.

Quiz 16: Accounting for Health Care Organizations