Deck 5: Accounting and the Financial Management Process

Question 1

A hospital buys a SuperScanner that costs $10,000,000. The hospital accountant was told that the SuperScanner is expected to last for 12 years. One year later, the accountant learns that the SuperScanner life expectancy was incorrect, and that it will last only six years. The accountant should not change the depreciation schedule or amend the previous year's financial reports.

Answer 1

False

Question 2

Risk management departments in large healthcare corporations always reports to the chief financial officer.

Answer 2

False

Question 3

A large radiology group wants to offer a SuperScanner service. The SuperScanner has an expected life of six years. Based on the expected volume of 400 scans per year, the group's accountant determines that the breakeven point is 7.2 years. What should the group do?

A) Depreciate the SuperScanner over eight years.
B) Increase the charge for a SuperScanner exam.
C) Add more radiologists to the group to bring in more patients.
D) Give up the SuperScanner plan at this time.

Answer 3

Give up the SuperScanner plan at this time.

Question 4

For a going concern, obligations are typically paid for purchased items ____.

A) when the order is placed
B) when the items are received
C) when the bill is received
D) prior to the due date of the bill

Question 5

A hospital accountant performs a trial balance and notes a discrepancy of over $600,000 due to payments to FlyByNight Suppliers. The accountant tries to talk with the purchasing clerk who approved the payments, but she has been absent from work for eight days. The accountant should ____.

A) call the FBI
B) call the local district attorney
C) recommend a forensic audit
D) immediately inform the governing board

Question 6

A wealthy individual provides all the funds for a not-for-profit counseling center that provides free assistance. Which of the following is a stakeholder?

A) stockholders
B) employees
C) government
D) taxpayers

Question 7

A full review of all financial transactions of a business is called a forensic audit. In that context, what does forensic mean?

A) detailed
B) manual
C) suitable for legal use
D) rhetorical

Question 8

Which of the following is a financial accounting product?

A) breakeven analysis
B) monthly budget report
C) profitability forecast
D) report to Medicare

Question 9

A creditor of a medical facility is an entity that ____.

A) has not been paid for goods or services it provided
B) loaned money to the facility
C) confirms patients' abilities to pay bills
D) evaluates eligibility for state and federal tax credits

Question 10

A not-for-profit hospital must prepare a stockholder report annually.

Question 11

A healthcare business that uses accrual accounting issues employee paychecks on January 10, 2012 that cover the 14-day work period December 25, 2011 through January 7, 2012. For federal income tax purposes, the employees should ____.

A) report half that paycheck as 2012 income
B) report all of that paycheck as 2012 income
C) report all of that paycheck as 2011 income
D) deduct the pay for the two federal holidays in that pay period

Question 12

Modern accounting software makes it relatively easy to correct a transaction error. Minor errors discovered after the annual financial report is prepared are not corrected. Why not?

A) Bookkeepers do not know how to fix the errors.
B) Retracting an annual report is not appropriate for minor errors.
C) Current year budgets would have to be changed.
D) Accounting errors should be corrected only after a forensic audit.

Question 13

Which of the following is a requirement for a publicly held healthcare corporation but not for a proprietorship?

A) Annual financial report audited by an outside accountant
B) Reports to Medicare and Medicaid
C) Filing a corporate tax return
D) Publishing a list of stockholders

Question 14

Which of the following is a common liability for a healthcare facility?

A) wages owed to employees
B) unreceived payments from patients
C) unpaid bills for supplies
D) depreciation of the building

Question 15

Most clinicians with a solo practice employ a full-time accountant.

Question 16

A large, for-profit hospital has been losing millions of dollars each year on emergency department services. It stops providing emergency services. Which of the following stakeholders will be most adversely affected by this action?

A) the governing board
B) stockholders
C) creditors
D) customers

Question 17

A medical laboratory bought a courier vehicle in 2008 and used a six-year depreciation schedule. The next year, the lab bought a similar vehicle and used a five-year depreciation schedule. This violates the accounting principle of ____.

A) accuracy
B) consistency
C) materiality
D) subsequent events

Question 18

A medical practice that uses accrual accounting and straight-line depreciation of durable equipment bought an examination table for $2000 that will be depreciated over ten years. At the end of its second year, the posting for the annual operating expense related to the examination table will be ____.

A) $200
B) $400
C) $1400
D) $1600

Question 19

Materiality is the accounting principle that requires all material purchases to be recorded as consumables or as capital assets.

Question 20

The quarterly budget-to-actual expense report for the Emergency Department of a large hospital shows expenses 20% higher than budgeted. Which of the following would be an acceptable reason for the cost overrun?

A) A hospital 20 blocks away closed its emergency department.
B) The unit costs of supplies increased an average of 12%.
C) A scheduled pay raise for orderlies and aides went into effect.
D) IV solution prices were going to rise, so the ED doubled its order.

Question 21

A physician's office practice buys exam room supplies that cost $900. If the practice failed and the supplies were sold at auction, they would bring in only $600. The accountant correctly values the supplies at $900 because of the ____________________ concept.

Question 22

Why is the federal government a stakeholder in a privately owned facility that provides medical services to elderly patients?

Question 23

A medical practice that posts revenues on the day the service was performed and posts expenses when supplies are delivered is using ____________________ accounting.

Question 24

What are the advantages of cash accounting for a small business?

Question 25

A small drug company is researching a promising new drug that, if approved, will generate annual sales of approximately ten million dollars. During animal testing, one-third of the mice died. This information must be published in the company's annual report based on the principle of ____________________.

Question 26

A for-profit hospital recently issued its annual financial report. Which of the following needs to be disclosed as a subsequent event?

A) Discovery of mold in a transplant unit resulting in a temporary closure
B) A three-month delay in the replacement of an MRI scanner
C) The unionization of janitorial staff
D) A Centers for Disease Control and Prevention prediction of many flu cases

Question 27

A city government-run mental health clinic is so badly managed that all the clinicians and nurses quit. The city was forced to close the clinic. Which of the following stakeholders bears the greatest loss?

A) creditors
B) governing board members
C) government
D) taxpayers

Question 28

What is the downside of classifying drug research costs as capital investments (as in Case Study 5-1)?

Question 29

Which of the following reports would be of most interest to someone who is considering purchasing a large number of shares in a publicly held healthcare corporation?

A) Monthly budgets for each operating unit
B) Profitability forecast
C) Reports to Medicare and Medicaid
D) Cash flow reports for all patient services

Question 30

The head of the financial and accounting activities of a large corporation is commonly known as the ____________________.

Question 31

A community hospital lost money during its most recent fiscal year because it admitted a greater number of patients who had no healthcare coverage. A few weeks after the end of the fiscal year, the city approved an additional $500,000 subsidy for that care. How should the hospital accountants handle that transaction?

Question 32

Generally Accepted Accounting Principles are developed and codified by the ____________________.

Question 33

Explain the difference between a stockholder and a bondholder of a large, publicly owned, for-profit medical facility?

Question 34

The outside auditor of a publicly held, for-profit pharmaceutical corporation believes that the corporate accountants should have handled research expenses differently. The most likely outcome is that ____.

A) the auditor requires a forensic audit
B) the corporate accountants change the books based on the auditor's method
C) the auditor notifies the Internal Revenue Service
D) the auditor is fired and the corporation hires a different one