HFMA EXAM GUIDE 2026/2027 | Healthcare Financial
Management Association | Verified Answers | Complete
Exam Prep | Pass Guaranteed - A+ Graded
Healthcare Finance & Accounting | Revenue Cycle Management | Managed
Care & Reimbursement | Financial Planning & Budgeting | Healthcare
Economics & Policy | Risk Management & Compliance | Strategic Financial
Decision-Making | Financial Statement Analysis | Healthcare Operations &
Cost Management | Comprehensive Review
SECTION 1: HEALTHCARE FINANCE & ACCOUNTING
Q1: A not-for-profit hospital receives a $2.5 million donation restricted for the
construction of a new cardiac wing. According to FASB standards for healthcare
entities, how should this contribution be classified on the statement of financial
position?
A. As unrestricted net assets since the hospital has control over the funds
B. As temporarily restricted net assets until the cardiac wing is completed
C. As permanently restricted net assets because the donation is restricted for a specific
purpose
D. As operating revenue in the period the donation is received
Correct Answer: B
Rationale: Under FASB standards, contributions with donor-imposed restrictions that
will be met by the passage of time or by actions of the organization are classified as
temporarily restricted net assets. Since the restriction will be satisfied upon completion
of the cardiac wing, the funds remain temporarily restricted until the purpose is fulfilled.
Option A is incorrect because the hospital lacks unrestricted control; Option C is
incorrect because permanent restrictions typically apply to endowments where principal
,must be maintained in perpetuity; Option D is incorrect because restricted contributions
are not recognized as operating revenue until the restriction is met. VERIFIED ✓
Q2: A not-for-profit hospital reports gross patient service charges of $50 million. During
the period, the hospital records $10 million in contractual adjustments with third-party
payors, $4 million in charity care provisions for patients who qualify under the hospital's
financial assistance policy, and $2 million in provisions for bad debt. Under current
GAAP (ASC 606), what amount should be reported as net patient service revenue?
A. $50 million
B. $40 million
C. $36 million
D. $34 million
Correct Answer: C
Rationale: Under ASC 606, charity care is not recognized as revenue because the
hospital does not expect to collect consideration for services provided to patients
meeting charity care criteria; therefore, charity care is excluded entirely from the
transaction price. Contractual adjustments represent variable consideration and reduce
revenue. Bad debt expense under the current expected credit loss (CECL) model is
recorded as an operating expense, not as a reduction to revenue. Thus, net patient
service revenue = $50M - $10M contractual adjustments - $4M charity care (excluded
from revenue recognition) = $36M, with the $2M bad debt provision recorded separately
as an expense. Option A ignores all adjustments; Option B incorrectly excludes only
contractual adjustments but fails to exclude charity care; Option D incorrectly treats bad
debt as a revenue reduction. VERIFIED ✓
Q3: A government-owned hospital prepares its financial statements in accordance with
GASB Statement No. 34. Which of the following financial statements is NOT required for
this public entity?
A. Statement of Net Position
B. Statement of Revenues, Expenses, and Changes in Net Position
C. Statement of Cash Flows
D. Statement of Changes in Fund Balances
,Correct Answer: D
Rationale: GASB Statement No. 34 requires government-owned hospitals to prepare
three basic financial statements: the Statement of Net Position, the Statement of
Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows.
The Statement of Changes in Fund Balances is a governmental fund financial statement
required for governmental fund types, but government-owned hospitals that use
enterprise fund reporting (business-type activities) do not present this statement as
part of their basic financial statements. Option A, B, and C are all required statements
under GASB 34 for enterprise funds. VERIFIED ✓
Q4: A hospital purchases a new MRI machine for $3.2 million with an estimated useful
life of 8 years and a salvage value of $400,000. Using the straight-line depreciation
method, what is the annual depreciation expense for financial reporting purposes?
A. $400,000
B. $350,000
C. $450,000
D. $300,000
Correct Answer: B
Rationale: Straight-line depreciation is calculated as (Cost - Salvage Value) / Useful Life
= ($3,200,000 - $400,000) / 8 years = $2,800, = $350,000 per year. Option A
incorrectly divides cost by useful life without subtracting salvage value; Option C uses
an incorrect numerator; Option D incorrectly applies a different formula. This
depreciation expense reduces the carrying value of the capital asset on the balance
sheet and is reflected in operating expenses on the income statement. VERIFIED ✓
Q5: Which of the following items would be classified as non-operating revenue on a
hospital's income statement?
A. Net patient service revenue from inpatient surgical procedures
B. Investment income from the hospital's endowment portfolio
C. Revenue from the hospital's outpatient pharmacy operations
D. Capitation payments received from a managed care organization
Correct Answer: B
, Rationale: Non-operating revenue includes income derived from activities peripheral to
the hospital's primary mission of providing patient care, such as investment income,
rental income, and gains from asset sales. Net patient service revenue (Option A),
outpatient pharmacy revenue (Option C), and capitation payments (Option D) are all
directly related to the hospital's core healthcare delivery operations and are classified as
operating revenue. Investment income from endowments is incidental to the hospital's
primary purpose and is therefore reported as non-operating revenue. VERIFIED ✓
Q6: A healthcare system prepares its statement of cash flows using the indirect
method. Which of the following adjustments would be added back to net income in the
operating activities section?
A. Gain on sale of medical equipment
B. Increase in accounts receivable
C. Depreciation expense on hospital buildings
D. Decrease in accrued expenses
Correct Answer: C
Rationale: Under the indirect method, depreciation expense is a non-cash charge that
was deducted to arrive at net income; therefore, it must be added back to net income in
the operating activities section to reconcile net income to cash flow from operations.
Option A (gain on sale) would be subtracted because it is an investing activity included
in net income; Option B (increase in A/R) and Option D (decrease in accrued expenses)
represent uses of cash and would be subtracted from net income. VERIFIED ✓
Q7: A hospital's board of trustees designates $5 million of unrestricted net assets for a
future capital expansion project. How does this board-designated allocation affect the
hospital's total net assets?
A. Total net assets decrease by $5 million
B. Total net assets remain unchanged; only the composition between unrestricted and
temporarily restricted net assets changes
C. Total net assets increase by $5 million due to the board's commitment
D. Total net assets remain unchanged, and the designation remains within unrestricted
net assets
Correct Answer: D
Management Association | Verified Answers | Complete
Exam Prep | Pass Guaranteed - A+ Graded
Healthcare Finance & Accounting | Revenue Cycle Management | Managed
Care & Reimbursement | Financial Planning & Budgeting | Healthcare
Economics & Policy | Risk Management & Compliance | Strategic Financial
Decision-Making | Financial Statement Analysis | Healthcare Operations &
Cost Management | Comprehensive Review
SECTION 1: HEALTHCARE FINANCE & ACCOUNTING
Q1: A not-for-profit hospital receives a $2.5 million donation restricted for the
construction of a new cardiac wing. According to FASB standards for healthcare
entities, how should this contribution be classified on the statement of financial
position?
A. As unrestricted net assets since the hospital has control over the funds
B. As temporarily restricted net assets until the cardiac wing is completed
C. As permanently restricted net assets because the donation is restricted for a specific
purpose
D. As operating revenue in the period the donation is received
Correct Answer: B
Rationale: Under FASB standards, contributions with donor-imposed restrictions that
will be met by the passage of time or by actions of the organization are classified as
temporarily restricted net assets. Since the restriction will be satisfied upon completion
of the cardiac wing, the funds remain temporarily restricted until the purpose is fulfilled.
Option A is incorrect because the hospital lacks unrestricted control; Option C is
incorrect because permanent restrictions typically apply to endowments where principal
,must be maintained in perpetuity; Option D is incorrect because restricted contributions
are not recognized as operating revenue until the restriction is met. VERIFIED ✓
Q2: A not-for-profit hospital reports gross patient service charges of $50 million. During
the period, the hospital records $10 million in contractual adjustments with third-party
payors, $4 million in charity care provisions for patients who qualify under the hospital's
financial assistance policy, and $2 million in provisions for bad debt. Under current
GAAP (ASC 606), what amount should be reported as net patient service revenue?
A. $50 million
B. $40 million
C. $36 million
D. $34 million
Correct Answer: C
Rationale: Under ASC 606, charity care is not recognized as revenue because the
hospital does not expect to collect consideration for services provided to patients
meeting charity care criteria; therefore, charity care is excluded entirely from the
transaction price. Contractual adjustments represent variable consideration and reduce
revenue. Bad debt expense under the current expected credit loss (CECL) model is
recorded as an operating expense, not as a reduction to revenue. Thus, net patient
service revenue = $50M - $10M contractual adjustments - $4M charity care (excluded
from revenue recognition) = $36M, with the $2M bad debt provision recorded separately
as an expense. Option A ignores all adjustments; Option B incorrectly excludes only
contractual adjustments but fails to exclude charity care; Option D incorrectly treats bad
debt as a revenue reduction. VERIFIED ✓
Q3: A government-owned hospital prepares its financial statements in accordance with
GASB Statement No. 34. Which of the following financial statements is NOT required for
this public entity?
A. Statement of Net Position
B. Statement of Revenues, Expenses, and Changes in Net Position
C. Statement of Cash Flows
D. Statement of Changes in Fund Balances
,Correct Answer: D
Rationale: GASB Statement No. 34 requires government-owned hospitals to prepare
three basic financial statements: the Statement of Net Position, the Statement of
Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows.
The Statement of Changes in Fund Balances is a governmental fund financial statement
required for governmental fund types, but government-owned hospitals that use
enterprise fund reporting (business-type activities) do not present this statement as
part of their basic financial statements. Option A, B, and C are all required statements
under GASB 34 for enterprise funds. VERIFIED ✓
Q4: A hospital purchases a new MRI machine for $3.2 million with an estimated useful
life of 8 years and a salvage value of $400,000. Using the straight-line depreciation
method, what is the annual depreciation expense for financial reporting purposes?
A. $400,000
B. $350,000
C. $450,000
D. $300,000
Correct Answer: B
Rationale: Straight-line depreciation is calculated as (Cost - Salvage Value) / Useful Life
= ($3,200,000 - $400,000) / 8 years = $2,800, = $350,000 per year. Option A
incorrectly divides cost by useful life without subtracting salvage value; Option C uses
an incorrect numerator; Option D incorrectly applies a different formula. This
depreciation expense reduces the carrying value of the capital asset on the balance
sheet and is reflected in operating expenses on the income statement. VERIFIED ✓
Q5: Which of the following items would be classified as non-operating revenue on a
hospital's income statement?
A. Net patient service revenue from inpatient surgical procedures
B. Investment income from the hospital's endowment portfolio
C. Revenue from the hospital's outpatient pharmacy operations
D. Capitation payments received from a managed care organization
Correct Answer: B
, Rationale: Non-operating revenue includes income derived from activities peripheral to
the hospital's primary mission of providing patient care, such as investment income,
rental income, and gains from asset sales. Net patient service revenue (Option A),
outpatient pharmacy revenue (Option C), and capitation payments (Option D) are all
directly related to the hospital's core healthcare delivery operations and are classified as
operating revenue. Investment income from endowments is incidental to the hospital's
primary purpose and is therefore reported as non-operating revenue. VERIFIED ✓
Q6: A healthcare system prepares its statement of cash flows using the indirect
method. Which of the following adjustments would be added back to net income in the
operating activities section?
A. Gain on sale of medical equipment
B. Increase in accounts receivable
C. Depreciation expense on hospital buildings
D. Decrease in accrued expenses
Correct Answer: C
Rationale: Under the indirect method, depreciation expense is a non-cash charge that
was deducted to arrive at net income; therefore, it must be added back to net income in
the operating activities section to reconcile net income to cash flow from operations.
Option A (gain on sale) would be subtracted because it is an investing activity included
in net income; Option B (increase in A/R) and Option D (decrease in accrued expenses)
represent uses of cash and would be subtracted from net income. VERIFIED ✓
Q7: A hospital's board of trustees designates $5 million of unrestricted net assets for a
future capital expansion project. How does this board-designated allocation affect the
hospital's total net assets?
A. Total net assets decrease by $5 million
B. Total net assets remain unchanged; only the composition between unrestricted and
temporarily restricted net assets changes
C. Total net assets increase by $5 million due to the board's commitment
D. Total net assets remain unchanged, and the designation remains within unrestricted
net assets
Correct Answer: D
