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

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?

A)GASB Statements.
B)AICPA accounting and auditing guide, Not-for-Profit Organizations.
C)AICPA accounting and auditing guide, Health Care Organizations.
D)Pronouncements of the HFMA or AHA.

Answer 1

C

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?

A)Unrestricted net assets.
B)Temporarily restricted net assets.
C)Permanently restricted net assets.
D)Cannot be determined. Use the following information to answer #6 and #7.
Kale Hospital, a not-for-profit entity, received a pledge from a donor in support of a fund raising effort by the Hospital to finance construction of a new facility for cancer treatment.The donor promised to pay $1 million in equal annual installments of $100,000 over the next 10 years.The present value of the gift at the risk-free interest rate is $736,000.

Answer 2

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.

Answer 3

True

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

A)As expenses in the unrestricted fund.
B)As reductions in the revenue section in the unrestricted fund.
C)As expenses in the temporarily restricted fund.
D)As expenses in the permanently restricted fund.

Question 5

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

Question 6

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

A)$1 million.
B)$736,000.
C)$100,000.
D)$0.

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?

A)Unrestricted net assets.
B)Temporarily restricted net assets.
C)Permanently restricted net assets.
D)Either (b)or (c).

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.

Question 9

Private not-for-profit colleges and universities are subject to the same 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?

A)Statement of financial position.
B)Statement of activities.
C)Statement of cash flows.
D)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?

A)Unrestricted net assets.
B)Temporarily restricted net assets.
C)Permanently restricted net assets.
D)None.All of the above are appropriate.

Question 12

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

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.

Question 14

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

Question 15

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

A)$1 million.
B)$736,000.
C)$100,000.
D)$0.

Question 16

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

Question 17

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

Question 18

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

A)Not-for-profit University.
B)Not-for-profit Foundation.
C)Not-for-profit Hospital.
D)All of the above.

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.

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?

A)Unrestricted net assets.
B)Temporarily restricted net assets.
C)Permanently restricted net assets.
D)Either (b)and (c).

Question 21

A consortium of physicians agree to provide services to the employees of a large County government.The agreement calls for monthly payments from the County to the consortium in the amount of $100,000 per month.County employees are not billed for services rendered by the consortium.All County employees are required to use the consortium under their health care program (any services rendered to County employees by other physicians are not covered under the health plan).During the period the consortium performed services for County employees for which it would have billed $85,000.The consortium referred patients to other health care providers for services they could not perform.The consortium estimates that it will be billed $5,000 for those services.The amount of revenue that should be recognized by the consortium is

A)$100,000.
B)$95,000.
C)$85,000.
D)$80,000.

Question 22

For financial reporting purposes, government hospitals are within the jurisdiction of the

A)FASB.
B)GASB.
C)AICPA.
D)Hill-Burton Act.

Question 23

A hospital estimates, based on past experience, that it will incur $5 million in malpractice claims as a result of services rendered in the current period.The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause.The amount that should appear on its year-end financial statement as Claims Expense (Loss)should be

A)$0.
B)$2 million.
C)$3 million.
D)$5 million.

Question 24

For financial reporting purposes, private not-for-profit health care providers are within the jurisdiction of the

A)FASB.
B)GASB.
C)AICPA.
D)Hill-Burton Act.

Question 25

For financial reporting purposes, state supported colleges and universities are within the jurisdiction of the

A)FASB.
B)GASB.
C)AICPA.
D)NACUBO.

Question 26

An accountant has encountered a perplexing financial reporting issue related to the private college for which he is preparing financial statements.The issue is not specifically addressed by FASB Statements.To what standards would the accountant now look for guidance?

A)GASB Statements.
B)AICPA accounting and auditing guide, Not-for-Profit Organizations.
C)AICPA accounting and auditing guide, Audits of Colleges and Universities and/or AICPA SOP 74-8, Financial Accounting and Financial Reporting by Colleges and Universities.
D)College textbooks.

Question 27

A hospital carried a 2-year malpractice insurance policy that allows for retroactive premium adjustments based on experience (claims actually incurred).The basic premium is $150,000 for the 2-year policy payable in advance.At the end of the first year the hospital estimates that it will have to pay an additional $40,000 in premiums as a result of claims filed in the current year and it estimates that it will incur additional premiums in the second year of $50,000 as a result of claims filed in the second year.The amount of insurance expense that should appear on the financial statements at the end of the first year should be

A)$75,000.
B)$115,000.
C)$150,000.
D)$240,000.

Question 28

A private not-for-profit college would include which of the following financial statements in is Basic Financial Statements?

A)Statement of Financial Position and Statement of Activities.
B)Statement of Financial Position, Statement of Activities, and Cash Flow Statement.
C)Statement of Financial Position, Statement of Activities, Cash Flow Statement, and a Statement of Functional Expenses.
D)Statement of Financial Position, Statement of Activities, and a Statement of Functional Expenses.

Question 29

During the current year, St.Mary's Hospital (a not-for-profit entity)earned, based on its normal billings rate, $1 million in patient service revenues.Many of these patients belong to a health plan that has an established pay schedule.Based on the specific services rendered to members of the plan, the hospital estimates that $.05 million will not be collectible from the plan or the patient.Some of the patients are Hospital employees.These employees are given a 50% discount on the services rendered.Employee discounts for the current year total $.01 million.Some of the patients are uninsured and the hospital estimates, that of the amount billed to the uninsured patients, $.2 million will not be collectible (bad debts).The amount of net patient service revenues for St.Mary's Hospital for the current year is

A)$1 million.
B)$)94 million.
C)$)87 million.
D)$)74 million.