Deck 12: Accounting for Hospitals and Other Health Care Providers

Question 1

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

Answer 1

False
Explanation: Private not-for-profit health care organizations follow FASB standards, including those specifically applicable to not-for-profits. Private for-profit health care organizations follow FASB standards excluding those written specifically for-not-for profits. 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 and follow GASB.

Question 2

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.

Answer 2

True
Explanation: Private-sector health care organizations use the three-category operating, investing and financing) FASB format for the Statement of Cash flows, while public sector organizations use the four-category operating, noncapital financing, capital and related financing, and investing) GASB format.

Question 3

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

Answer 3

True
Explanation: Private for-profit health care organizations follow FASB standards, excluding those specifically applicable to not-for-profits.

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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

Question 9

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

Question 10

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 11

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

Question 12

Government hospitals are typically considered engaged in business-type activities.

Question 13

Government owned hospitals follow FASB Statements 116 and 117) for not-for-profit organizations.

Question 14

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 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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 26

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

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

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 29

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 30

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

Question 31

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

Question 32

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 33

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 34

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

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 AICPA Not-for-Profit Guide.

Question 36

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

Question 37

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

Question 38

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 39

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 Patient Accounts Receivable.

Question 40

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 41

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 42

All health care organizations must follow the Health Care Guide

Question 43

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

A) Patient service revenue does not include amounts representing charity care.
B) Changes to estimates of contractual adjustments related to prior periods must be reported as a prior period adjustment if material.
C) 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.
D) Patient service revenue must be reported net of estimated adjustments for contractual adjustments.

Question 44

With respect to governmental health care entities, the Statement of Cash Flows will have three categories.

Question 45

If an investor-owned hospital receives donations whose use is restricted, the cash must be reported as a restricted item on the balance sheet in the equity section.

Question 46

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

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

Question 47

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

Question 48

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 49

Not-for-profit businesses-oriented organizations, investor-owned health care enterprises and governmental health care organizations all must prepare a Statement of Changes in Equity.

Question 50

Health care entities may be private, not-for-profit, governmental, or for-profit. All are subject to the AICPA Health Care Guide and FASB statements 116 and 117.

Question 51

While governmental health care organizations follow GASB standards, they typically report as special-purpose entities engaged only in business-type activities.

Question 52

Unlike Investor-owned health care enterprises, not-for-profit business-oriented organizations and governmental health care enterprises must include RSI other than MD&A.

Question 53

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

Question 54

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 55

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 56

Health care entities may be private not-for-profit, governmental, or for-profit. All, however, are subject to the AICPA Health Care Guide, which is accepted by both FASB and GASB as being Category B GAAP.

Question 57

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 58

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

Question 59

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 60

With respect to governmental health care entities, both GASB and AICPA require presentation of a performance indicator.

Question 61

A private sector not-for-profit hospital received a gift of $200,000 cash on the first day of 2017 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 ten years with no salvage value. The Statement of Financial Position as of December 31, 2017 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 62

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 63

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

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

Question 64

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 65

A private sector, not-for-profit hospital received a pledge of $150,000 in 2016 to be used for a building to be constructed in 2017 but contingent on the hospital being able to raise an equivalent amount from other donors. As of the end of 2016, two-thirds of the amount had been raised from other donors. In 2017, the hospital raised the remaining amount from other donors. The donor gave the $150,000 to the hospital in 2017 and the building was completed in 2018. In which year should the hospital recognize the $150,000 from the pledge?

A) $100,000 in 2016 and $50,000 in 2017.
B) $100,000 in 2017 and $50,000 in 2018.
C) $150,000 in 2018 .
D) $150,000 in 2017.

Question 66

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.

Question 67

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 68

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 69

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

A) Health care organizations do not provide services to individuals who are unable to pay.
B) Health care organizations provide health care services while voluntary health and welfare organizations do not.
C) Health care organizations use accrual accounting whereas voluntary health and welfare organizations do not.
D) 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.

Question 70

A donor pledged $500,000 to a not-for-profit hospital in 2016 to conduct medical research, conditional on the hospital raising $500,000 from other donors. The other donors met the condition in 2016 The donor transferred the funds to the hospital in 2017. In which year would the revenue be recognized?

A) 2016.
B) 2017.
C) Half in 2016 and half in 2017.
D) None of the above; the hospital would only recognize revenue when the amounts had been expended according to the donor's wishes.

Question 71

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 72

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 73

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 74

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

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

Question 75

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 76

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

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

Question 77

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 78

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 79

A private sector, not-for-profit hospital received a pledge of $100,000 in 2016, with no purpose restriction. The pledge card indicated that the funds were to be paid and used in 2017. Cash was turned over to the hospital in 2017. The not-for-profit hospital would recognize contribution revenue in:

A) When the funds are expended.
B) 2016.
C) 2017.
D) Either 2016 or 2017, depending on the policy of the hospital.

Question 80

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

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