Chapter 12

Accounting for Hospitals and Other Health Care Providers

Multiple Choice

Exercise 1: For each of the following, select the letter corresponding with the best answer.

  1. Which of the following health care entities would not follow the requirements listed in the AICPA Health Care Guide?
  1. Governmental health care entities.
  2. Private, not-for-profit health care entities.
  3. Private, for profit health care entities.
  4. Voluntary health and welfare organizations.
  1. Which of the following healthcare entities would not be subject to the standards issued by the Financial Accounting Standards Board?
  2. Private, not-for-profit health care entities
  3. Private, for profit health care entities
  4. Governmental health care entities
  5. None of the above
  1. The net asset types required for private, not-for-profit health care organizations, under the FASB standards include:
  2. Unrestricted, specific purpose, plant replacement and expansion, and endowment.
  3. Unrestricted and restricted
  4. Permanently restricted, temporarily restricted, and unrestricted.
  5. None of the above.
  1. Financial statements required for private, not-for-profit health care entities include:
  2. Statement of operations, statement of changes in net assets, balance sheet, statement of cash flows
  3. Statement of activities, statement of financial position, and statement of cash flows.
  4. Statement of operations, statement of changes in fund balances, balance sheet, statement of cash flows.
  5. Statement of revenues, expenses, and changes in retained earnings, statement of financial position, and statement of cash flows.
  1. The HopeHospital a private sector nonprofit entity, received $1,000,000 in unrestricted cash from a donor. The board decided to place that money in an endowment and never expend the principal. The $1,000,000 would be classified in the statement of financial position, as”
  2. Unrestricted, undesignated
  3. Permanently restricted
  4. Temporarily restricted
  5. Unrestricted assets whose use is limited.
  1. In 2018, a nonprofit hospital received a pledge of $100,000 restricted to cancer research. The cash was received and the research expenditures took place in 2019. The hospital would record
  2. Temporarily restricted revenue in 2018 and an unrestricted expense in 2019.
  3. Temporarily restricted revenue in 2018 and a temporarily restricted expense in 2019.
  4. Unrestricted revenue and expense in 2019.
  5. Temporarily restricted revenue in 2018 and an unrestricted expenditure.
  1. A donor gave $100,000 to a nonprofit hospital in 2018 with the restriction that it be used for the purchase of equipment. While the cash was received in 2018, the equipment was purchased in 2019. The hospital would record the $100,000 as:
  2. Temporarily restricted revenue in 2018 and the equipment as an unrestricted fixed asset in 2019.
  3. Temporarily restricted revenue in 2018 and the equipment as a temporarily restricted fixed asset in 2019.
  4. Temporarily restricted revenue in 2019 and the equipment as an unrestricted fixed asset in 2019.
  5. Either a or b, depending on the choice of the hospital.
  1. A donor gave $100,000 to a nonprofit hospital in 2018 with the restriction that it be used for the purchase of equipment. While the cash was received in 2018, the equipment was purchased in 2019. In its statement of cash flows, the hospital would report the $100,000 as:
  2. Cash provided by operating activities in 2018 and as cash used for investing activities in 2019
  3. A noncash transaction
  4. Cash provided by financing activities in 2018 and as cash used for investing activities in 2019
  5. Cash provided by investing activities in 2018 and as cash used for financing activities in 2019
  1. A donor made a pledge, unrestricted as to purpose, in late 2018 with the intent that the funds be used in 2019. The cash was transferred in 2019. The health care organization would record the amount as
  2. Unrestricted revenue when cash is received in 2019
  3. Temporarily restricted revenue in 2018 and as a reclassification when expended in 2019 or later years.
  4. Temporarily restricted revenue in 2018 and as a reclassification in 2019, whether or not expended.
  5. Unrestricted revenue in 2018
  1. Which of the following is true regarding a statement of cash flows prepared for a private, not-for-profit hospital?
  2. Private, not for profits are required to use the direct method
  3. The statement of cash flows has four sections: operating, investing, capital related financing, and noncapital related financing.
  4. Purchases of fixed assets are classified as cash flows from investing activites
  5. All of the above are true

Exercise 2: For each of the following, select the letter corresponding with the best answer.

  1. Net assets invested in capital assets, net of related debt is an account title that may appear in the statement of net assets for a:

GovernmentOwnedHospitalPrivate not-for-profit hospital

  1. YesNo
  2. NoYes
  3. YesYes
  4. NoNo
  1. Retained earning is an account title that may appear in the statement of net assets for a (an):

Government-owed hospitalPrivate not-for-profit hospital

  1. YesNo
  2. NoYes
  3. YesYes
  4. NoNo
  1. Which of the following organizations would typically raise a significant portion of their resources form voluntary contributions or grants?

Health Care OrganizationsVoluntary Health and Welfare Organizations

  1. YesNo
  2. NoYes
  3. YesYes
  4. NoNo
  1. Which of the following would be included in the determination of operating income for a private, not-for-profit health care organization?
  2. Transfers among affiliated organizations
  3. Receipt of restricted contributions
  4. Gift shop sales
  5. All of the above
  1. A private, not-for-profit health care organization provides services to an individual who it knows has no ability to pay. How should the organization report this activity?
  2. Record revenue for the amount of the care provided
  3. Record bad debt expense for the amount of the care provided
  4. Both a and b above
  5. None of the above, record neither a revenue nor bad debt expense.
  1. A private hospital billed patients $560,000 for the current month. The hospital expects the amount ultimately collected to be $440,000. The $120,000 difference is comprised of the following items: contractual adjustments with third-party payors, $70,000; estimated uncollectible accounts, $50,000. There is no charity care in the amount billed. How much net patient service revenue should be reported for the current month?
  2. $560,000
  3. $510,000
  4. $490,000
  5. $440,000
  1. A private, not-for-profit hospital billed patients $660,000 for the current month. The hospital expects the amount ultimately collected to be $460,000. The $200,000 difference is comprised of the following items: contractual adjustments with third-party payors, $110,000; estimated uncollectible accounts, $60,000; charity care, $30,000. What is amount of bad debt expense to be reported for the current month?
  2. $200,000
  3. $170,000
  4. $90,000
  5. $60,000
  1. Which of the following health care organizations report according to the AICPA Audit and Accounting Guide: Health Care Organizations and must follow the reporting requirements of the guide? (Assume most revenues are received from patient service charges, rather than contributions.)
  2. Individual doctors practices
  3. Nursing homes
  4. Alcohol rehabilitation centers
  5. All of the above
  1. Which of the following is true regarding government-owned health care organizations?
  2. Government-owned organizations use the modified accrual basis of accounting and current financial resources measurement focus.
  3. Government-owned organizations do not have to follow the requirements of the AICPA audit and accounting guide: Health care organizations.
  4. Government owned health care organizations do not have to present a statement of cash flows.
  5. None of the above are true.
  1. Which of the following is true of government-owed health care organizations?
  2. Government-owned health care organizations must record depreciation expense
  3. Government-owned health care organizations will report net assets released from restrictions for the expiration of time restrictions on temporarily restricted contributions.
  4. Government-owned health care organizations follow FASB Statement 116 with regard to the recognition of contribution revenue.
  5. None of the above are true