Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 4

Private health care, journal entries, revenue and cash flow. Transactions (a) through (e) took place in Stoney Heights Private Hospital during the year ending December 31, 2011.
a. Gross revenues of $5,000,000 were earned for service toMedicare patients.
b. Expected contractual adjustments with Medicare, a third-party payor, are $2,500,000; and an allowance for contractual adjustments account is used by Stoney Heights.
c. Medicare cleared charges of $5,000,000 with payments of $2,160,000 and total contractual allowances of $2,840,000 ($2,500,000 þ $340,000).
d. Interim payments received from Medicare amounted to $250,000.
e. The hospital made a lump-sum payment back to Medicare of $100,000.
1. Record the transactions in the general journal.
2. Calculate the amount of net patient service revenues.
3. What is the net cash flow from transactions with Medicare?
4. What adjustments must be made at year-end to settle up with Medicare and properly report the net patient service revenues after this settlement?