Question 1

Long-term debt related to a construction project in a public hospital that follows business-type accounting should be reported as other financing sources.

Accepted Answer

Public health care organizations would report long-term debt as a liability of the entity as a whole in the statement of net assets.

Question 2

A gift to a hospital with the restriction that the principal be maintained intact for ten years and then it may be expended would be an example of a term endowment.

Accepted Answer

This is an example of a term endowment not a permanent or pure endowment in which the principal is to be maintained intact in perpetuity.

Question 3

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

Accepted Answer

Illustration 17-1 in the text outlines the sponsorship or legal structure of health care organizations as well as the types of services provided.

Question 4

When a governmental hospital purchases capital assets from resources restricted by donors for that purpose,the net assets account Net Assets-Invested in Capital Assets,Net of Related Debt is increased.

Accepted Answer

Public hospitals follow GASB standards which require capital assets to be capitalized and reported in the statement of net assets as Net Assets-Invested in Capital Assets, Net of Related Debt.

Question 5

Equipment purchased from the restricted resources of a private hospital should be depreciated.

Accepted Answer

Capital assets in any health care organization (public, private, or for-profit) must be depreciated, following the accrual basis of accounting.

Question 6

All health care entities recognize all revenues and expenses on the accrual basis of accounting.

Accepted Answer

Some governmental health care entities that are either captive parts of general purpose governments or that are directly supported by taxes follow either governmental fund/governmental activities accounting or both governmental/business-type accounting. The audit guide is only applicable to public health care entities that follow business-type accounting.

Question 7

Contingencies that are unique to health care providers arise from malpractice claims,risk contracting,and payor payment programs,obligations to provide uncompensated care,and contractual agreements with physicians.

Accepted Answer

These are commitments and contingencies that are likely to be found in health care organizations.

Question 8

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

Accepted Answer

For-profit, not-for-profit, and governmental health care organizations each has unique net assets or equity structure. A for-profit organization will have capital stock and retained earnings in its equity section of the balance sheet; a not-for-profit organization will report net assets classified as unrestricted, temporarily restricted or permanently restricted; and a governmental health care organization (according to GASBS 34) will report net assets-invested in capital assets, net of related debt; restricted, or unrestricted.

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

This is one example of assets limited as to use. Another is when assets must be set aside by the terms of an agreement with an external party, such as a fiscal agent for bond repayment, other than a donor or grantor.

Question 10

In accounting for health care entities,the provision for bad debt should always be recorded as a revenue deduction,rather than as an expense.

Accepted Answer

The AICPA Audit and Accounting Guide Health Care Organizations makes clear that the provision for bad debts or bad debt expense be reported as an expense and not as a deduction from gross revenue in arriving at net patient revenue; however, public health care entities that follow business-type accounting practices follow GASB standards applicable to proprietary funds. Those standards require that the provision for bad debt be netted against revenues, rather than reported as an expense.

Question 11

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

Accepted Answer

The goal of financial and operational analysis depends on the decision maker doing the analysis. For example, a bondholder will want to assess the organization's liquidity or ability to repay debt, the third party payor may be interested in pricing strategies, management may evaluate productivity and efficiency, and patients are more likely to be interested in the quality of care.

Question 12

Health care organizations often collaborate and combine with related entities in providing health care services.

Accepted Answer

For a variety of reasons, health care organizations will form partnerships and working relationships with other entities. Examples include, separate fund-raising and medical research foundations, and obligated groups (e.g., to obtain financing).

Question 13

An expense for diabetes research that was financed by temporarily restricted contributions would be recorded as a decrease of unrestricted net assets by a not-for-profit health care organization.

Accepted Answer

All expenses of nongovernmental, not-for-profit organizations, including health care organizations, are reported, as decreases in unrestricted net assets.

Question 14

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

Accepted Answer

The AICPA Audit and Accounting Guide Health Care Organizations specifically requires that charity care services not be included in patient service revenues and related receivables because there is no intention to collect.

Question 15

Financial reporting standards for all government owned and operated hospitals are established by the GASB.

Accepted Answer

Public hospitals owned and operated by governments follow GASB standards as well as the AICPA Audit and Accounting Guide Health Care Organizations. Public hospitals are usually considered legally separate special purpose governments engaged in business-type activities, although some may be accounted for as enterprise funds of a primary government. Some others may be accounted for as a part of a health service function in governmental funds and governmental activities at the government-wide level.

Question 16

The required financial statements for a not-for-profit hospital are a balance sheet,statement of revenues and expenses of the General Fund,a statement of changes in fund balances,and a statement of cash flows of the General Fund.

Accepted Answer

Not-for-profit health care organizations are required to present a balance sheet, statement of operations, statement of changes in equity, and a statement of cash flows, as well as notes to the financial statements for the entity as a whole. A not-for-profit organization would not have a General Fund.

Question 17

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

Several acceptable components of performance indicators are described in the AICPA Audit and Accounting Guide Health Care Organizations. These include such items revenues and gains over expenses and losses, earned income, and performance earnings.

Question 18

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

Accepted Answer

The first part of this statement is generally true; however, which securities are marked to fair value and where the unrealized gains and losses are reported depends on whether the organization is a for-profit (see SFAS No. 115), a governmental (see GASBS 31), or not-for-profit health care entity (see SFAS No. 124).

Question 19

Endowment income expended by a not-for-profit health care organization for purposes specified by the donor should be recorded as a decrease in temporarily restricted net assets using the account Net Assets Released from Restrictions.

Accepted Answer

A private hospital would show a decrease in temporarily restricted net assets (net assets released from restrictions) and an increase in unrestricted net assets for the amount of the expense with the related expense as a decrease in unrestricted net assets.

Question 20

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

This is the definition of CCRCs provided in Chapter 17.

Quiz 17: Accounting and Reporting for the Federal Government