LSUS MHA 706 Financial Management Midterm Exam
Question Bank (Latest 2026/2027 Edition) – 100% Correct
Questions, Answers & Detailed Rationales
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SECTION 1: Healthcare Accounting & Financial Reporting
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Question 1
A not-for-profit community hospital prepares its financial statements in accordance with
GAAP. Which financial statement reports the organization's financial position at a
specific point in time?
A. Statement of operations
B. Statement of changes in net assets
C. Balance sheet
D. Statement of cash flows
Correct Answer:
C — Balance sheet
Rationale:
The balance sheet reports assets, liabilities, and net assets at a specific date. The
statement of operations and statement of cash flows report activity over a period of
time, not at a single point.
Question 2
A hospital reports $12 million in gross patient revenue and $4 million in contractual
adjustments for the fiscal year. What is the hospital's net patient service revenue?
A. $16 million
,B. $12 million
C. $8 million
D. $4 million
Correct Answer:
C — $8 million
Rationale:
Net patient service revenue equals gross charges minus contractual adjustments
($12M − $4M = $8M). Contractual adjustments represent the difference between billed
charges and amounts collectible from third-party payers.
Question 3
A hospital's balance sheet shows current assets of $5 million, net plant and equipment
of $15 million, and total liabilities of $12 million. What is the hospital's total net assets?
A. $20 million
B. $8 million
C. $17 million
D. $32 million
Correct Answer:
B — $8 million
Rationale:
Total assets equal $20 million ($5M + $15M). Net assets equal total assets minus total
liabilities ($20M − $12M = $8M). Net assets represent the not-for-profit equivalent of
equity.
Question 4
A hospital provides $500,000 of care to uninsured patients who qualify for charity care
under its financial assistance policy. How should this care be reported in the hospital's
financial statements under GAAP?
, A. As bad debt expense
B. As a reduction to net patient service revenue
C. As an expense and as charity care revenue
D. As a disclosure only, with no revenue recognition or expense
Correct Answer:
D — As a disclosure only, with no revenue recognition or expense
Rationale:
Charity care is not recognized as revenue or expense in the financial statements; it is
disclosed in the notes. Bad debt expense applies to patients who were expected to pay
but did not.
Question 5
A hospital uses accrual accounting. In December, it provides patient care worth
$100,000 but does not receive payment until January. It also pays $60,000 in December
for supplies that will be used in January. What is the impact on December net income?
A. Net income increases by $40,000
B. Net income decreases by $60,000
C. Net income increases by $100,000
D. Net income decreases by $160,000
Correct Answer:
A — Net income increases by $40,000
Rationale:
Under accrual accounting, revenue is recognized when earned ($100,000 in December),
and expenses are recognized when incurred. The supplies paid in December but used in
January are recorded as prepaid assets, not expenses. Thus December net income
increases by $100,000 with no offsetting expense.
Question 6
Question Bank (Latest 2026/2027 Edition) – 100% Correct
Questions, Answers & Detailed Rationales
──────────────────────────────
SECTION 1: Healthcare Accounting & Financial Reporting
──────────────────────────────
Question 1
A not-for-profit community hospital prepares its financial statements in accordance with
GAAP. Which financial statement reports the organization's financial position at a
specific point in time?
A. Statement of operations
B. Statement of changes in net assets
C. Balance sheet
D. Statement of cash flows
Correct Answer:
C — Balance sheet
Rationale:
The balance sheet reports assets, liabilities, and net assets at a specific date. The
statement of operations and statement of cash flows report activity over a period of
time, not at a single point.
Question 2
A hospital reports $12 million in gross patient revenue and $4 million in contractual
adjustments for the fiscal year. What is the hospital's net patient service revenue?
A. $16 million
,B. $12 million
C. $8 million
D. $4 million
Correct Answer:
C — $8 million
Rationale:
Net patient service revenue equals gross charges minus contractual adjustments
($12M − $4M = $8M). Contractual adjustments represent the difference between billed
charges and amounts collectible from third-party payers.
Question 3
A hospital's balance sheet shows current assets of $5 million, net plant and equipment
of $15 million, and total liabilities of $12 million. What is the hospital's total net assets?
A. $20 million
B. $8 million
C. $17 million
D. $32 million
Correct Answer:
B — $8 million
Rationale:
Total assets equal $20 million ($5M + $15M). Net assets equal total assets minus total
liabilities ($20M − $12M = $8M). Net assets represent the not-for-profit equivalent of
equity.
Question 4
A hospital provides $500,000 of care to uninsured patients who qualify for charity care
under its financial assistance policy. How should this care be reported in the hospital's
financial statements under GAAP?
, A. As bad debt expense
B. As a reduction to net patient service revenue
C. As an expense and as charity care revenue
D. As a disclosure only, with no revenue recognition or expense
Correct Answer:
D — As a disclosure only, with no revenue recognition or expense
Rationale:
Charity care is not recognized as revenue or expense in the financial statements; it is
disclosed in the notes. Bad debt expense applies to patients who were expected to pay
but did not.
Question 5
A hospital uses accrual accounting. In December, it provides patient care worth
$100,000 but does not receive payment until January. It also pays $60,000 in December
for supplies that will be used in January. What is the impact on December net income?
A. Net income increases by $40,000
B. Net income decreases by $60,000
C. Net income increases by $100,000
D. Net income decreases by $160,000
Correct Answer:
A — Net income increases by $40,000
Rationale:
Under accrual accounting, revenue is recognized when earned ($100,000 in December),
and expenses are recognized when incurred. The supplies paid in December but used in
January are recorded as prepaid assets, not expenses. Thus December net income
increases by $100,000 with no offsetting expense.
Question 6
