Question 1

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

Accepted Answer

The insurance expense for the first year should include the basic premium for the first year ($150,000, which is half of the $300,000 for two years) plus the estimated additional premium for the first year ($80,000), totaling $230,000.

Question 2

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

Accepted Answer

The answer of In prior years, a not-for-profit hospital received...

Question 3

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

Accepted Answer

Proceeds from sales of meals in a hospital cafeteria are typically classified as "Other revenues" because they are not directly related to patient care services but are additional sources of income for the hospital.

Question 4

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

Accepted Answer

The correct amount of revenue to be recognized by the consortium for the month is $200,000. This is because the agreement specifies a fixed monthly payment of $200,000 from the county to the consortium, regardless of the actual value of services rendered or referred to other providers.

Question 5

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

Accepted Answer

Sponsors of not-for-profit health care organizations can include a wide range of entities such as universities, community organizations, and religious organizations. These organizations often support not-for-profit health care entities because of their aligned missions to serve the community, provide education, or fulfill religious or charitable objectives.

Question 6

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?

Accepted Answer

The hospital should record patient service revenue net of charity care and contractual allowances. Therefore, $5,100,000 - $600,000 (charity care) - $450,000 (contractual allowances) = $4,050,000.

Question 7

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

Accepted Answer

Capitation revenue is recognized evenly over the period of the contract because it is a fixed prepayment for services to be provided over a specific period, regardless of the actual services rendered. The contract spans a year, so for the six months ending December 31, 2017, half of the $9 million, or $4.5 million, should be recognized as revenue.

Question 8

Hospital revenue usually includes which of the following? 
A)
B)
C)
D)

Accepted Answer

The answer of Hospital revenue usually includes which of the...

Question 9

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

Accepted Answer

A health care organization is required to present a statement of activities or operations as part of its general purpose external financial reporting to show its financial performance over a period.

Question 10

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

Accepted Answer

The answer of During the current year, St. Louise's Hospital...

Question 11

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?

Accepted Answer

The AICPA accounting and auditing guide, Health Care Organizations, is the most relevant and specific source for guidance in this scenario, as it directly pertains to the healthcare industry, which includes hospitals like Pelican Hospital.

Question 12

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:

Accepted Answer

The answer of A specialized health care facility normally purchases...

Question 13

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 nonrestricted net assets that the organization should report?

Accepted Answer

The answer of The LRF Healthcare Foundation donated 1,800,000 as...

Question 14

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?

Accepted Answer

The answer of The Medical Arts Clinic, a well-established health...

Question 15

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:

Accepted Answer

The $750,000 principal is held in an independent trust and not directly controlled by the hospital, so it should be disclosed in the notes to the financial statements rather than reported as an asset or revenue.

Question 16

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

Accepted Answer

The hospital is responsible for the deductible amount of $2 million, and the remaining $3 million is the estimated claims expense that should be recorded as a loss.

Question 17

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

Accepted Answer

Both recovery room fees for surgical patients and room and board fees from patients are considered ongoing or central transactions for a not-for-profit hospital, as they are directly related to the primary healthcare services provided by the hospital.

Question 18

During the current year, a voluntary health and welfare organization receives $800,000 in nonrestricted 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 nonrestricted pledges are expected to be uncollectible, what amount of nonrestricted support should the organizations recognize in its current-year financial statements?

Accepted Answer

The organization should recognize $400,000 as nonrestricted support in the current year. This is calculated by taking the total nonrestricted pledges ($800,000) and subtracting the amount designated for next year ($300,000), resulting in $500,000. Then, accounting for the 20% expected to be uncollectible, $500,000 x 80% = $400,000.

Question 19

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?

Accepted Answer

The answer of Daniel, an auditor, is performing a routine...

Question 20

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

Accepted Answer

Restricted net assets in health care organizations are those whose use is limited by donor, grantor, or other external sources, specifying how the funds can be used.

Quiz 14: Health-Care Providers