Deck 14: Health Care Providers

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Charity care provided by a health care organization would be recorded in a contra-revenue account.

Answer 3

False

Question 4

Not-for-profit hospitals are accounted for similarly to businesses but must adhere to the FASB's standards for not-for-profit entities.

Question 5

In a not-for-profit health care organization, the cost of malpractice must be accrued if it is either probable that impairment has occurred or if the amount of loss can be reasonably estimated.

Question 6

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

A)$2 million.
B)$1,472,000.
C)$200,000.
D)$0.

Question 7

In 2016 St.Martin's Hospital received a $50,000 cash gift to be used to buy supplies and other items for the pediatric department of the hospital.In 2017, St.Martin's purchased puppets and other items to be used in explaining medical procedures to young children.The acquisition of the items causes a NET decrease in which class(es)of net assets?

A)Unrestricted net assets only.
B)Temporarily restricted net assets.
C)Both unrestricted and temporarily net assets.
D)Neither unrestricted nor temporarily restricted net assets.
Use the following information to answer Questions 4 and 5.
Pelican 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 $2 million in equal annual installments of $200,000 over the next 10 years.The present value of the gift at the risk-free interest rate is $1,472,000.

Question 8

Health care organizations provide uncompensated patient care as a matter of policy but not law.

Question 9

Capitation fees paid by HMOs to hospitals, physicians, and other medical groups generally are based on the number of persons covered and expected costs to be incurred rather than on actual services provided.

Question 10

The services of Health Maintenance Organizations are prepaid and fixed.

Question 11

The statement of activities must indicate net assets released from restriction and any transfers between funds.

Question 12

Prepaid health care plans that earn revenue from agreements to provide services record revenue when services are rendered.

Question 13

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

A)$2 million.
B)$1,472,000.
C)$200,000.
D)$0.

Question 14

The services of Preferred Provider Organizations are prepaid and fixed.

Question 15

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 16

In the long run, the health of a hospital depends mainly on the demand for its services and the ability to meet that demand at a reasonable cost.

Question 17

Restricted funds of a not-for-profit nursing home are not available for current use; however, the income earned on the funds is available.

Question 18

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 19

Not-for-profit health care entities must provide information on the three categories of net asset donor restrictiveness.

Question 20

Medicaid is a federally sponsored and managed health care program for retirees.

Question 21

A specialized health care facility normally purchases its medicines.However, this month a wealthy philanthropist donates the medicines.The donated medicines should be recorded at fair market value and should be credited to:

A)Deferred revenue
B)Unrestricted net assets
C)Non-operating gains
D)Other revenues

Question 22

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 23

During the current year, St.Louise's Hospital (a not-for-profit entity)earned, based on its normal billing 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 $0.05 million will not be collectible from the plan or the patient.Some of the patients are hospital employees.These employees are given a 50 percent discount on the services rendered.Employee discounts for the current year total $0.01 million.Some of the patients are uninsured and the hospital estimates that, of the amount billed to the uninsured patients, $0.2 million will not be collectible (bad debts).The amount of net patient service revenues for St.Louise's Hospital for the current year is

A)$1 million.
B)$0.94 million.
C)$0.87 million.
D)$0.74 million.

Question 24

A not-for-profit hospital signs a contract with an insurance company in which the company agrees to pay the hospital $9 million in capitation fees for the year July 1, 2017, through June 30, 2018.Between July 1, 2017 and December 31, 2017, the hospital provides services that, at its standard rates, would bill at $5.1 million.Between January 1, 2017, and June 30, 2018, it provides services that it would bill at $4.2 million.For the year ending December 31, 2017, the hospital should recognize capitation revenue of

A)$0
B)$4.5 million
C)$5.1 million
D)$9 million

Question 25

The LRF Healthcare Foundation donated 1,800,000 as a permanent endowment to a senior citizen health and welfare organization during the year.The foundation stipulated that the income and investment appreciation be used to maintain its preventive care center for the elderly.The endowment principal had an investment appreciation of $120,000 and investment income of $160,000.The organization spent $140,000 to maintain its preventive care center during the year.What is the amount of change in temporarily restricted net assets that the organization should report?

A)$140,000
B)$160,000
C)$280,000
D)$1,940,000

Question 26

Based upon St.Thomas Hospital's established billing rate structure, the hospital would have earned patient service revenue of $5,100,000 for the year.However, the hospital does not expect to collect this amount because of charity care provided in the amount of $600,000 and contractual allowances to third-party payers of $450,000.How much should the hospital record as patient service revenue for the year?

A)$5,100,000
B)$4,650,000
C)$4,500,000
D)$4,050,000

Question 27

Daniel, an auditor, is performing a routine review of a not-for-profit hospital and notes the following account balances in the statement of activities for the fiscal year ending September 30, 2017: What amount should the hospital report as net patient service revenue in its statement of activities for the fiscal year ending September 30, 2017?

A)$4,080,000
B)$4,140,000
C)$4,030,000
D)$4,410,000

Question 28

During the current year, a voluntary health and welfare organization receives $800,000 in unrestricted pledges.Of this amount, $300,000 has been designated by donors for use next year to support operations in the pharmacy.If 20 percent of the unrestricted pledges are expected to be uncollectible, what amount of unrestricted support should the organizations recognize in its current-year financial statements?

A)$800,000
B)$700,000
C)$500,000
D)$400,000

Question 29

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 first 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.

Question 30

A hospital estimates that, based on past experience, 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 31

In the process of general purpose external financial reporting, a health care organization is required to present

A)A separate statement of changes in equity, net assets, or fund balances
B)A statement of activities or operations
C)Performance indicators (required only of for-profit entities)
D)Fund group information (required only of not-for-profit organizations)

Question 32

In accounting for health care organizations, restricted net assets are:

A)Not available for current operating use; however, the income generated is available for current operating use.
B)Not available unless the directors remove the restrictions.
C)Restricted as to use only for board-designated purposes.
D)Restricted as to use by the donor, grantor, or other source of the resources.

Question 33

Sponsors of not-for-profit health care organizations generally include:

A)Universities
B)Community Organizations
C)Religious Organizations
D)Any of the above

Question 34

Hospital revenue usually includes which of the following?

Question 35

The Medical Arts Clinic, a well-established health care organization, received a $1,500,000 pledge in fiscal year 2018 that was restricted to cover operating expenses.The gift was received over two years; $600,000 in the first year and $900,000 in the second year.The following table reflects the funds received as well as the amounts spent on operating the clinic. What should the clinic report as Net Assets Released from Restrictions on the statement of activities for the fiscal year ended June 30, 2019?

A)$900,000
B)$960,000
C)$1,020,000
D)$1,500,000

Question 36

The community hospital of Briarwood normally includes proceeds from sales of meals in its cafeteria as

A)Ancillary service revenues
B)Other revenues
C)Deductions from dietary meal service expenses
D)Patient service revenues

Question 37

Which of the following would normally be considered ongoing or central transactions for a not-for-profit hospital?

A)Recovery room fees for surgical patients
B)Room and board fees from patients
C)Both of the above
D)Neither of the above

Question 38

The Gulf Coast bank is holding a $750,000 donation in an independent permanent trust with the investment income dedicated for use by Coastal Hospital for operating purposes. The $750,000 principal should be:

A)Disclosed in notes to the financial statements of the hospital
B)Reported as a permanently restricted net asset of the hospital
C)Reported as non-operating revenue of the hospital
D)Reported as an asset limited as to use by the hospital

Question 39

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 $300,000, payable in advance.At the end of the first year the hospital estimates that it will have to pay an additional $80,000 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 $100,000 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)$150,000.
B)$230,000.
C)$300,000.
D)$480,000.

Question 40

A consortium of physicians agrees 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 $200,000 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 month the consortium performed services for county employees for which it would have billed $170,000.The consortium referred patients to other health care providers for services they could not perform.The consortium estimates that patients will be billed $10,000 for those services.The amount of revenue that should be recognized for the month by the consortium is

A)$200,000.
B)$190,000.
C)$170,000.
D)$160,000.

Question 41

Moore Art Association, a not-for-profit entity, received a cash gift of $10 million.The association trustees decided to use the gift to establish a permanent endowment for the association.The income from the endowment would be used to provide grants to promising sculptors and students of the history of sculpture.The association should report the gift as an increase in

A)Permanently restricted net assets.
B)Temporarily restricted net assets.
C)Unrestricted net assets.
D)Board restricted net assets.

Question 42

A "term endowment" is a gift with donor specifications whereby

A)The principal is available for expenditure after a specific period of time.
B)The principal must be returned to the donor after a specific period of time.
C)The income generated must be added to the principal after a specific period of time.
D)The income generated must be expended within a specified period of time.

Question 43

Gamma Hospital is a recipient of Hill-Burton funds and must provide some hospital care for which it will not be compensated.During the current year, the hospital provided $1 million in charity care.Discuss the following questions.
a.What is the current financial reporting requirement for charity care?
b.Do you agree or disagree with the current financial reporting requirement? Why or why not?
c.If you do not agree with the current financial reporting requirement, how do you think charity care should be reported?
d.Alternatively, if you do agree with the current standards, what alternative reporting requirements do you believe would be proposed by those who do not agree with the current standards?

Question 44

During a particular year, a not-for-profit hospital provides services that at standard rates would be billed at $400 million.This amount includes $20 million of charity care.Of the remaining $380 million, the hospital estimates that $240 million will be billed to third-party providers which, per contractual agreements, will pay only 75 percent of the standard rate (i.e., $180 million).Of the $140 million to be billed to individuals, the hospital estimates that $80 million will have to be written off as bad debts.The hospital should recognized net patient care revenue of

A)$240 million
B)$320 million
C)$380 million
D)$400 million

Question 45

How do the three major financial statements of a private not-for-profit hospital differ from those of a government hospital?

Question 46

As the comptroller of a hospital, you were just informed that one of the surgeons failed to remove an instrument from a patient's innards.The hospital is certain to be sued.How, if at all, should this information affect the hospital's financial statements?

Question 47

"Variance power" refers to the ability

A)Of a not-for-profit organization to use property for commercial purposes, even though it was zoned for residential purposes.
B)Of a not-for-profit organization to alter the terms of any purpose restrictions associated with a contribution that it has received.
C)Of a donor to change the beneficiary of a gift from the beneficiary initially specified.
D)Of a charitable organization to unilaterally decide to direct the use of donated assets to a beneficiary other than that specified by the donor.