Deck 12: Accounting for Hospitals and Other Health Care Providers

Question 1

Like charities and private colleges,private not-for-profit health care organizations follow FASB standards.

Answer 1

True

Question 2

Both governmental owned and private health care providers use the modified accrual basis of accounting and the economic resources measurement focus.

Answer 2

False

Question 3

Government hospitals are typically considered special purpose entities engaged in business-type activities under GASB Statement 34.

Answer 3

True

Question 4

The AICPA Health Care Guide provides additional guidance regarding accounting and reporting requirements for voluntary health and welfare organizations.

Question 5

The AICPA Health Care Guide applies to investor-owned,private not-for-profit,and government-owned hospitals.

Question 6

Private-sector health care organizations use the three-category FASB format for the Statement of Cash flows,while public sector organizations use the four-category GASB format

Question 7

Government-owned health care organizations do not report depreciation expense.

Question 8

Government owned hospitals follow FASB Statements 116 and 117.

Question 9

Both commercial and not-for-profit hospitals in the private sector follow FASB standards.

Question 10

Because they are engaged in business-type activities,governmental health care organizations typically use the accrual basis and economic resources measurement focus.

Question 11

Private health care organizations,both not-for-profit and for-profit,follow GASB standards while government healthcare organizations follow FASB.

Question 12

For accounting purposes,health care organizations include HMOs and individual medical practitioners,as well as hospitals.

Question 13

Both commercial and private sector not-for-profit hospitals and health care providers follow FASB Statements 116 and 117.

Question 14

Not-for-profit business-oriented organizations use accrual accounting.

Question 15

Both public and private sector health care organizations measure transactions and events similarly,but use different equity accounts.

Question 16

The AICPA Audit and Accounting Guide:
Health Care Organizations applies equally to private not-for-profit,investor-owned,and governmentally owned health care organizations.

Question 17

If a health care organization is owned or controlled by a government,it is typically considered a special-purpose entity engaged only in business-type activities and would use proprietary fund accounting.

Question 18

Private for-profit health care organizations follow FASB standards excluding those written specifically for not-for-profits.

Question 19

As both the FASB and the GASB approved the AICPA Health Care Guide,its requirements constitute Category B GAAP and must be followed by all health care organizations.

Question 20

The AICPA Health Care Guide provides accounting and reporting requirements that override GASB and FASB standards,but apply only to health care providers.

Question 21

Health care organizations that are privately owned and operated to provide a return to investors follow GASB standards.

Question 22

According to The AICPA Health Care Guide,transfers among affiliated organizations should not be included in the determination of a performance indicator for a health care organization.

Question 23

The AICPA Health Care Guide prescribes a separate Statement of Operations and Statement of Changes in Net Assets rather than a Statement of Activities.

Question 24

Charity care is reported as both revenue and expense (bad debt)in the Statement of Operations.

Question 25

Patient Service Revenue of hospitals is to be presented net of contractual adjustments in the Statement of Operations.

Question 26

Voluntary health and welfare organizations raise a significant amount or nearly all of their resources from contributions and grants,and are subject to the rules of the AICPA Not-for-Profit Guide.

Question 27

For hospitals,contractual adjustments to 3^rd party payers,such as insurance companies,are recorded with a debit to Contractual Adjustment expense and a credit to Accounts Receivable.

Question 28

With respect to health care organizations,expenses must be reported using their natural classifications.

Question 29

The level of charity care is included in revenue and should be disclosed in the notes to financial statements.

Question 30

Contractual adjustments from insurance companies are reported as expenses in the Statement of Operations.

Question 31

Differences between actual and estimated contractual adjustments are treated as changes in accounting estimates.

Question 32

The AICPA Audit and Accounting Guide:
Health Care Organizations applies equally to private not-for-profit,governmentally owned,and investor-owned health care organizations.

Question 33

Health care organizations that are privately owned and operated to provide a return to investors follow FASB standards excluding those standards specifically for not-for-profits.

Question 34

According to The AICPA Health Care Guide,transfers among affiliated organizations should be included in the determination of a performance indicator for a health care organization.

Question 35

The cash flow statements of private health care organizations,both not-for-profit and for-profit,may use only the indirect method.

Question 36

The AICPA Health Care Guide does not require a performance indicator in the financial statements of private sector not-for-profit health care providers.

Question 37

For hospitals,contractual adjustments to 3^rd party payers,such as insurance companies,are recorded with a debit to Contractual Adjustments (a contra-revenue account)and a credit to an allowance for contractual adjustments.

Question 38

Private sector not-for-profit health care entities must disclose expenses by functional classifications,if not provided in the Statement of Operations.

Question 39

Patient service revenue for a hospital does not include charges for charity care.

Question 40

Health care organizations that are privately owned and operated to provide a return to investors report the same net asset classifications as private not-for-profit health care organizations.

Question 41

Which of the following is true regarding revenue recognition for health care organizations?

A) Patient service revenue includes an imputed charge for charity care.
B) Patient service revenue is reported net of contractual adjustments.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 42

The cash flow statements of health care organizations,both private and government-owned,may use the direct or indirect method.

Question 43

A private sector not-for-profit hospital received a gift of $250,000 cash on the first day of 2015 with a donor restriction that the resources be used to purchase certain equipment. The equipment was purchased on the same day and is expected to last five years with no salvage value. The Statement of Financial Position as of December 31,2015 would reflect as net assets of:

A) $200,000 unrestricted and $0 temporarily restricted.
B) $0 unrestricted and $200,000 temporarily restricted.
C) Either (a) or (b), depending on the policy of the hospital.
D) None of the above.

Question 44

The statement reflecting revenues,expenses,and other changes in unrestricted net assets for a private sector,not-for-profit hospital is called the:

A) Statement of Changes in Unrestricted Net Assets.
B) Statement of Operations.
C) Statement of Activities.
D) Income Statement.

Question 45

Private sector,not-for-profit health care organizations have a category of assets called "Assets Whose Use is Limited." That category refers to:

A) Assets that have been restricted by donor action.
B) Unrestricted assets that have been limited by individuals or entities other than contributors (such as by bond covenants).
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 46

Which of the following is true regarding the financial statements of a private sector not-for-profit hospital?

A) Revenues are measured using the accrual basis of accounting.
B) Changes in net assets must be shown by net asset classification.
C) The Statement of Cash Flows uses a three-category format.
D) All of the above are true.

Question 47

St.David's is a not-for-profit business-oriented hospital. What is the journal entry for the following transaction: During the month,gross patient service revenue amounted to $93,000 of which $82,000 was received in cash. Contractual adjustments to third-party payers amounted to $10,000 (actual,not estimated).

A) Cash 82,000 Patient Accounts Receivable 11,000
Operating Revenues - Unrestricted - Patient Service Revenue 93,000
Contractual Adjustments - Unrestricted 10,000
Patient Accounts receivable 10,000
B) Cash 82,000 Patient Accounts Receivable 11,000
Operating Revenues - Patient Service Revenue, Restricted 93,000
Bad Debts Expense - Restricted 10,000
Patient Accounts receivable 10,000
C) Cash 82,000 Patient Accounts Receivable 11,000
Operating Revenues - Unrestricted - Patient Service Revenue 93,000
Operating Revenues-Unrestricted patient Service Revenue 10,000
Patient Accounts receivable 10,000
D) Cash 82,000 Patient Accounts Receivable 1,000
Operating Revenues - Unrestricted - Patient Service Revenue 83,000

Question 48

The AICPA Audit and Accounting Guide: Health Care Organizations provides reporting requirements for all of the following organizations except:

A) The University of Virginia Hospital, a government-owned hospital.
B) A psychiatrist operating as a limited liability corporation.
C) A nursing home operated by the Lutheran Church.
D) Voluntary health and welfare organizations

Question 49

The AICPA Audit and Accounting Guide: Health Care Organizations applies to:

A) Private not-for-profit health care organizations.
B) Governmentally owned health care organizations.
C) Investor-owned health care organizations.
D) All of the above.

Question 50

Which of the following is not a required statement of a private not-for-profit hospital?

A) Statement of Functional Expense.
B) Statement of Financial Position.
C) Statement of Cash Flows.
D) Statement of Operations.

Question 51

Which of the following is correct with respect to the recording of charity care for health care organizations?

A) Revenues are not recorded for the value of charity care services provided, but related expenses are included with other expenses on the Statement of Operations
B) Charity care is recorded as revenue and an adjustment is recorded for the difference between the value of the revenue and expenses incurred in providing health care services.
C) The value of foregone charity care revenue is deducted as a charitable contribution expense in the Statement of Operations
D) Management's policy for providing charity care and the level of charity care provided is an optional disclosure

Question 52

Which of the following is not correct with respect to reporting of patient service revenue for health care organizations?

A) Patient service revenue must be reported net of estimated adjustments for contractual adjustments.
B) Patient service revenue does not include amounts representing charity care.
C) Changes to estimates of contractual adjustments related to prior periods must be reported as a prior period adjustment if material.
D) Unrestricted bequests and investment income for current unrestricted purposes may be reported as either operating or nonoperating revenue, depending on the policy of the entity.

Question 53

The equity section of governmentally-owned hospitals includes net investment in capital assets,restricted,and unrestricted.

Question 54

Which of the following is not true regarding financial reporting of health care entities?

A) It is important to distinguish operating revenues and expenses from nonoperating.
B) It is important to distinguish between current and noncurrent assets and liabilities.
C) Private sector organizations use a three-category format for the Statement of Cash Flows, and public sector organizations us a four-category format.
D) Private sector organizations use accrual accounting, while public sector organizations use modified accrual.

Question 55

The equity section of the Statement of Net Position of a government-owned hospital may contain which of the following descriptions?

A) Fiduciary, Proprietary, and General.
B) Nonspendable, Committed, Restricted and Assigned.
C) Permanently Restricted, Temporarily Restricted, and Unrestricted.
D) Net Investment in Capital Assets, Restricted, and Unrestricted Net Position.

Question 56

Health care organizations that are privately owned and operated to provide a return to investors follow which standards:

A) GASB.
B) FASB, including standards specifically for not-for-profits.
C) FASB, excluding standards specifically for not-for-profits.
D) None of the above.

Question 57

The AICPA Audit and Accounting Guide: Health Care Organizations applies to:

A) Private sector, not-for-profit hospitals.
B) Public sector, government-owned hospitals.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 58

The equity section of the Statement of Net Assets of a private not-for-profit hospital may contain which of the following descriptions?

A) Fiduciary, Proprietary, and General.
B) Nonspendable, Committed, Restricted and Assigned.
C) Permanently Restricted, Temporarily Restricted, and Unrestricted.
D) Net Investment in Capital Assets, Restricted, and Unrestricted Net Position.

Question 59

Private not-for-profit health care organizations follow standards set by:

A) GASB.
B) FASB.
C) SEC.
D) All of the above.

Question 60

St.David's is a not-for-profit business-oriented hospital. What is the journal entry for the following transaction: Cash was received for pledges made in the prior year in the amount of $85,000. That amount has been recorded as temporarily restricted net assets,based on time restrictions.

A) Cash 85,000 Contributions receivable 85,000
Reclassification from Temporarily Restricted Net Assets-
Expiration of Time Restrictions 85,000
Reclassification to Unrestricted Net Assets - Expiration
Of Time restrictions 85,000
B) Cash 85,000 Contributions receivable 85,000
Reclassification to Unrestricted Net Assets - Expiration
Of Time Restrictions 85,000
Reclassification from Temporarily Restricted Net Assets
- Expiration of Time restrictions 85,000
C) Contributions Receivable-Unrestricted 85,000 Contributions Receivable - Restricted 85,000
Cash 85,000
Contributions receivable-Unrestricted 85,000
D) Cash 85,000 Contribution Revenue - Unrestricted 85,000

Question 61

A donor pledged $500,000 to a not-for-profit hospital in 2014 to conduct medical research,conditional on the hospital raising $500,000 from other donors. The other donors met the condition in 2015. The donor transferred the funds to the hospital in 2015. In which year would the revenue be recognized?

A) 2014.
B) 2015.
C) Half in 2014 and half in 2015.
D) None of the above; the hospital would only recognize revenue when the amounts had been expended according to the donor's wishes.

Question 62

Private not-for-profit health care organizations include what categories in the equity section of the Statement of Net Assets?

A) Paid in capital and retained earnings.
B) Unrestricted, temporarily restricted, and permanently restricted.
C) Net investment in capital assets, restricted, and unrestricted.
D) Operating, investing, financing.

Question 63

Which of the following is not true regarding accounting and financial reporting for private not-for-profit hospitals?

A) Expenses may be unrestricted or temporarily restricted depending on donor intent.
B) Fund accounting is not required.
C) The Statement of Cash Flows may use either the direct or indirect method.
D) Net assets are classified as Unrestricted, Temporarily Restricted or Permanently Restricted.

Question 64

A hospital reported the following uncollectible amounts:
$ 10,000 for services rendered to homeless individuals with no intention of collection.
$ 30,000 for services rendered with the expectation of collection,but which proved to be uncollectible.
What amount should be reported in revenues and provision for bad debt for these items?

A) Revenues: $ 40,000; Provision for Bad Debt: 40,000.
B) Revenues: $ 40,000; Provision for Bad Debt: 30,000.
C) Revenues: $ 30,000; Provision for Bad Debt: 30,000.
D) Revenues: $ 0; Provision for Bad Debt: 0.

Question 65

The difference between the financial statements of private not-for-profit hospitals and private not-for-profit voluntary health and welfare organizations is:

A) Voluntary health and welfare organizations do not have to prepare a Statement of Cash Flows.
B) Hospitals do not have to prepare a Statement of Functional Expense.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 66

Which of the following is a required statement for a governmental hospital?

A) Statement of Changes in Fund Balance.
B) Statement of Revenues and Expenditures.
C) Statement of Functional Expense.
D) Statement of Cash Flows.

Question 67

A private sector,not-for-profit hospital received a pledge of $100,000 in 2014,with no purpose restriction. The pledge card indicated that the funds were to be used in 2015. Cash was turned over to the hospital in 2015.The not-for-profit hospital would recognize contribution revenue in:

A) When the funds are expended.
B) 2014.
C) 2015.
D) Either 2014 or 2015, depending on the policy of the hospital.

Question 68

A "performance indicator" is required in the Statement of Operations for health care entities. Which of the following must be reported below that performance indicator?

A) Other revenue, such as parking lot or cafeteria revenue.
B) Net assets released from restrictions for operating purposes.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 69

Which of the following is true regarding revenue recognition for health care organizations?

A) Patient service revenues are reported net of contractual adjustments.
B) Revenues do not include charity care.
C) Revenues may include fees for parking, cafeteria sales, and gift shops.
D) All of the above are true.

Question 70

A private sector,not-for-profit hospital received a pledge of $150,000 in 2014 to be used for a building to be constructed in 2015 but contingent on the hospital being able to raise an equivalent amount from other donors.As of the end of 2014,half the amount had been raised from other donors. In 2015,the hospital raised the amount from other donors. The donor gave the $150,000 to the hospital in 2015 and the building was completed in 2016. In which year should the hospital recognize the $150,000 from the pledge?

A) 2014.
B) 2015.
C) 2016.
D) $75,000 should be recognized in 2014 and $75,000 in 2015.

Question 71

Which of the following is true regarding accounting and financial reporting for not-for-profit health care organizations?

A) Charity care is reported as operating revenue at the normal and customary rate and bad debt expense is reported for an equal amount.
B) Contractual adjustments with insurance companies are reported as a reduction in patient service revenue.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 72

Which of the following health care organizations have "Category B" GAAP established by the AICPA's Audit and Accounting Guide: Health Care Organizations?

A) Cook County Hospital, a department of Cook County.
B) Kishwaukee Hospital, a nongovernmental, not-for-profit hospital.
C) Open Door Urgent Care, a privately owned for-profit organization.
D) All of the above.

Question 73

Not-for-profit health care entities are distinguished from voluntary health and welfare organizations in the following manner:

A) Health care organizations provide health care services while voluntary health and welfare organizations do not.
B) Health care organizations use accrual accounting whereas voluntary health and welfare organizations do not.
C) Health care organizations are considered to be primarily business-oriented whereas voluntary health and welfare organizations raise a significant portion of their money from voluntary contributions.
D) Health care organizations do not provide services to individuals who are unable to pay.

Question 74

Private health care organizations follow _____ standards while governmentally owned health care organizations follow _____ standards.

A) GASB; FASB.
B) FASB; GASB.
C) FASB; FASAB.
D) GASB; FASAB.

Question 75

A private not-for-profit entity estimated its Allowance for Contractual Adjustment. During the next year,the hospital found that the actual total of contractual adjustments applied to receivables on hand at the end of the previous year was $ 5,000 higher than the estimate. How should the difference be reported?

A) The hospital should reduce current period net patient service revenues for the $5,000.
B) The hospital should make a prior period adjustment to retained earnings for $5,000.
C) The hospital should record a current period expense for the $5,000.
D) The hospital should record a "cumulative effect of a change in accounting principle" for the $5,000.

Question 76

The difference between accounting for private not-for-profit hospitals and government- owned hospitals is:

A) Government owned hospitals do not have to prepare a Statement of Cash Flows.
B) Government owned hospitals do not have to record depreciation.
C) The equity accounts have different titles and definitions.
D) All of the above.

Question 77

Which of the following could be recognized as contributed services revenue by a not-for-profit hospital?

A) A high school student class volunteered to answer the telephone during the Friday night midnight shift.
B) An architect developed building plans for a new outpatient clinic.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 78

A donor contributed $1,000,000 to a not-for-profit hospital with the restriction that the funds be invested indefinitely and the income be used for cancer research. Which of the following would be true?

A) The gift would be recorded as an increase in permanently restricted net assets.
B) The income from the endowment would be recorded as an increase in temporarily restricted net assets.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 79

Which of the following health care organizations must follow standards established by the Governmental Accounting Standards Board?

A) Private not-for-profit hospitals.
B) Government owed hospitals.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Question 80

Which of the following is true regarding the reporting of expenses by private sector,not-for-profit hospitals?

A) All expenses are considered reductions in unrestricted net assets.
B) Expenses must be reported by natural (i.e. salaries, supplies, etc.) classification in the statements.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.