Deck 12: Accounting for Hospitals and Other Health Care Providers

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Both commercial and no-for-profit hospitals in the private sector follow FASB standards.

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

With respect to health care organizations private sector not-for-profits health care entities must disclose expenses by functional classifications.

Question 14

With respect to health care organizations, assets that have limited use are temporarily restricted on the balance sheet.

Question 15

Differences between actual and estimated contractual adjustments require restatement of prior periods.

Question 16

Government owned hospitals follow FASB Statements 116 and 117.

Question 17

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

Question 18

Governmental owned health care providers use the accrual basis of accounting and the economic resources measurement focus.

Question 19

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

Question 20

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

Question 21

According to The Audit and Accounting Guide, Transfers among affiliated organizations should not be included in the determination of a performance indicator for a health care organization?

Question 22

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

Question 23

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 Activities
C) Income Statement
D) Statement of Operations

Question 24

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 25

Which of the following is true regarding the financial statements of a private sector nonprofit hospital?

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

Question 26

The AICPA Audits of Health Care Organizations applies to:

A) Private sector, not-for-profit hospitals
B) Private sector, for-profit hospitals
C) Both of the above
D) Neither of the above

Question 27

Health care organizations require a "performance indicator" in the statement displaying revenues and expenses. Which of the following must be reported below that performance indicator?

A) Transfers-in from affiliated organizations
B) Investment returns restricted by donors or by law
C) Both of the above
D) Neither of the above

Question 28

The level of charity care should be disclosed in the notes to financial statements.

Question 29

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 30

According to The Audit and Accounting Guide, Transfers among affiliated organizations should be included in the determination of a performance indicator for a health care organization?

Question 31

Private sector not-for-profits health care entities must disclose expenses by functional classifications.

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

The AICPA Health Care Guide does not specifically exclude which of the following from the determination of the performance indicator in the Statement of Operations?

A) Transfers among affiliated organizations
B) Items identified by FASB standards as elements of other comprehensive income
C) Transactions with owners in exchange for services
D) Receipt of temporarily or permanently restricted contributions

Question 34

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

Question 35

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 Not-for-Profit Guide.

Question 36

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 37

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

Question 38

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

Question 39

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

A) Patient service revenue is reported net of contractual adjustments
B) Patient service revenue includes an imputed charge for charity care
C) Both of the above
D) Neither of the above

Question 40

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 of the above
D) Neither of the above

Question 41

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 unrestricted net assets.
C) Both of the above.
D) Neither of the above.

Question 42

Which of the following health care organizations have level "A" GAAP established by the Governmental Accounting Standards Board?

A) Government owed hospitals
B) Private not-for-profit hospitals
C) Both of the above
D) Neither of the above

Question 43

Which of the following health care organizations have level "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) Both of the above
D) Neither of the above

Question 44

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) Reserved, Unreserved and Undesignated
C) Invested in Capital Assets Net of Related Debt, Restricted and Unrestricted
D) Permanently Restricted, Temporarily Restricted and Unrestricted

Question 45

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

A) Unrealized gains and losses on other than trading securities must be reported below the performance indicator
B) Expenses must be reported by function in the Statement of Operations or disclosed in the footnotes
C) Both of the above
D) Neither of the above

Question 46

A private sector, not-for-profit hospital received a pledge of $100,000 in 2008, with no purpose restriction. The pledge card indicated that the funds were to be used in 2009. Cash was turned over to the hospital in 2009. The not-for-profit hospital would recognize contribution revenue in:

A) 2008
B) 2009
C) 2008
D) Either 2008 or 2009, depending on the policy of the hospital

Question 47

The AICPA Health Care Guide 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) None of the above. All of the above must follow the guide

Question 48

A donor pledged $500,000 to a not-for-profit hospital in 2008 to conduct medical research, conditional on the hospital raising $500,000 from other donors. The other donors met the condition in 2009. The donor transferred the funds to the hospital in 2009. In which year would the revenue be recognized?

A) 2008
B) 2009
C) Half in 2008 and half in 2009
D) None of the above; the hospital would only recognize revenue when the amounts had been expended according to the donor's wishes

Question 49

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 statement
C) Both of the above
D) Neither of the above

Question 50

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

A) An architect developed building plans for a new outpatient clinic
B) A high school student class volunteered to answer the telephone during the midnight shift, once per week
C) Both of the above
D) Neither of the above

Question 51

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) None of the above, all are true

Question 52

Private sector, not-for-profit hospital received a gift of $1,000,000 from a donor who indicated that the gift was to be "split" between the hospital and the donor's beneficiary. Specifically, this gift instrument provided that the hospital is to receive $50,000 per year for the next ten years, with the remainder going to the beneficiary. The gift is known as a charitable lead trust, from the point of view of the hospital. The gift was received in 2009, with the first payment to the hospital due in 2010. In 2009, the hospital would record revenue in the amount of:

A) $0
B) $50,000
C) $1,000,000
D) The present value of the future receipts (the present value of $50,000 per year for the next ten years.

Question 53

A private sector, not-for-profit hospital received a pledge of $100,000 in 2008 to be used for a building to be constructed in 2009 but contingent on the hospital being able to raise an equivalent amount from other donors. As of the end of 2008, the amount had not been raised from other donors. In 2009, the hospital raised the amount from other donors. The donor gave the $100,000 to the hospital in 2009 and the building was completed in 2009. In which year should the hospital recognize the $100,000 from the pledge?

A) 2008
B) 2009
C) 2010
D) 2011

Question 54

A private sector not-for-profit hospital received a gift of $100,000 cash on the first day of 2009 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, 2009 would reflect as net assets of:

A) $80,000 unrestricted and $0 temporarily restricted
B) $0 unrestricted and $80,000 temporarily restricted
C) Either (a) or (b), depending on the policy of the hospital
D) None of the above

Question 55

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 56

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 57

Sam Smith died, leaving a will that provided that $1,000,000 be transferred to a not-for-profit hospital. The hospital is to invest the funds for 10 years and give $40,000 each year to the granddaughter. At the end of the 10 years, the $1,000,000 can be used for any purpose desired by the hospital. Which of the following is true?

A) The hospital would record revenue in the amount of $1,000,000, increasing temporarily restricted net assets
B) The hospital would record revenue in an amount equal to the present value of the 10 payments to the granddaughter
C) The hospital would record revenue in an amount equal to the $1,000,000 less the present value of the 10 payments to the granddaughter
D) The hospital would not record revenue for 10 years; then a revenue would be recorded, increasing unrestricted net assets

Question 58

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 of the above
D) Neither of the above

Question 59

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

A) Fiduciary, Proprietary and General
B) Reserved, Unreserved and Undesignated
C) Invested in Capital Assets Net of Related Debt, Restricted and Unrestricted
D) Permanently Restricted, Temporarily Restricted and Unrestricted

Question 60

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
B) Contractual adjustments with insurance companies are reported as an operating expense
C) Both of the above
D) Neither of the above

Question 61

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

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

Question 62

Which of the following are true with respect to health care organizations?

A) Expenses must be reported using their natural classifications
B) Assets that have limited use are temporarily restricted on the balance sheet.
C) Private sector not-for-profits health care entities must disclose expenses by functional classifications
D) All of the above are true

Question 63

According to The Audit and Accounting Guide which of the following should NOT be include in the determination of a performance indicator for a health care organization?

A) Transfers among affiliated organizations
B) Receipt of temporarily or permanently restricted contributions
C) Both A and B should NOT be included
D) None of the above

Question 64

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

A) Unrestricted, temporarily restricted and permanently restricted
B) Paid in capital and retained earnings.
C) Invested in capital net of related debt, restricted and unrestricted
D) Operating, investing, financing

Question 65

When accounting for health care organizations, services provided for charity care are:

A) Not recorded as revenues but the costs are expensed as normal
B) Recorded as revenues and the costs are expensed as normal
C) Not recorded as revenues and the costs are not expensed
D) None of the above

Question 66

nOrganizations that are legally nonprofit and raise a significant amount of resources from voluntary contributions or grants are ___________.

A) Health care organizations
B) Voluntary health and welfare organizations
C) Subject to the Not-for-Profit Guide
D) Both B and C

Question 67

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 68

Which of the following is false regarding revenues of health care organizations:

A) Patient service revenues are to be reported net of estimated adjustments for contractual and other adjustments in the operating statemen
B) Operating Revenues are often classified as net patient service revenue and other revenue
C) Patient service revenue includes charge for charity care
D) All of the statements are true

Question 69

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 depreciatio
C) The equity accounts have different titles and definitions
D) All of the above

Question 70

If a clinic raises a significant amount or nearly all their resources from voluntary contributions or grants, then they are subject to the guidance in the:

A) Not-for-Profit Guide
B) Health Care Guide
C) Voluntary Health and Welfare Guide
D) Contributions and Grants Guide

Question 71

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

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

Question 72

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

A) GASB
B) FASB
C) SEC
D) AICPA

Question 73

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 Cash Flows
D) None of the above is a required statement

Question 74

Contractual allowances for amounts billed to 3^rd parties are treated as:

A) A contra-revenue
B) A bad debt expense
C) Contractual allowance expense
D) None of the above

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 make a prior period adjustment to retained earnings for $5,000
B) The hospital should reduce current period net patient service revenues for the $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

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 77

A hospital reported the following uncollectible amounts: $ 10,000 for services rendered to homeless individuals with no intention of collection.
$ 15,000 for services rendered with the expectation of collection, but proved to be uncollectible.
What amount should be reported in revenues and bad debt expense for these items?

A) Revenues: $ 25,000; Bad Debt Expense: 25,000.
B) Revenues: $ 15,000; Bad Debt Expense: 15,000.
C) Revenues: $ 25,000; Bad Debt Expense: 15,000.
D) Revenues: $ 0; Bad Debt Expense: 0.

Question 78

The University of Texas in-state tuition and fees for the semester amount to $4,300. Joe Smith was working as a graduate assistant in the College of Psychology which waived $4,120 of the tuition. What accounts should be debited when recording the collection of this money?

A) Cash for $4,300
B) Cash for $4,120 and Tuition Discount for $180
C) Cash for $180 and Expense for $4,120
D) Cash for $180 and Tuition Discount for $4,120

Question 79

Dukes Medical Center performed charity care at a cost of $4 million and a standard charge of $10 million. How much should Dukes recognize as revenue?

A) $10 million
B) $ 6 million
C) $ 4 million
D) $ 0

Question 80

The Audit and Accounting Guide identifies which of the following items that should NOT be included in the determination of the performance indicator?

A) Receipt of temporarily or permanently restricted contributions
B) Items requiring separate display (such as extraordinary items, discontinued operations and the effect of changes in accounting principle
C) Both A and B
D) Neither A nor B