HFMA EXAM 2026/2027 | Healthcare Financial
Management Certification | Questions & Verified Answers
| Pass Guaranteed - A+ Graded
Section 1: Healthcare Finance Fundamentals (Questions 1–15)
Q1: A not-for-profit community hospital has generated excess revenue over expenses of
$4.2 million for the fiscal year. Under GAAP reporting standards applicable to
not-for-profit healthcare entities, this amount should be classified in which financial
statement component?
A. Retained earnings on the balance sheet
B. Net income on the income statement
C. Change in net assets without donor restrictions on the statement of operations
[CORRECT]
D. Operating cash flow on the statement of cash flows
Correct Answer: C
Rationale: Not-for-profit healthcare entities do not have retained earnings or net income;
instead, they report "change in net assets without donor restrictions" (formerly "excess
of revenues over expenses"). This aligns with FASB ASC 958 guidance for not-for-profit
entities. Option A is incorrect because retained earnings is a for-profit concept. Option B
is incorrect because not-for-profits do not report net income. Option D is incorrect
because excess revenue is not a cash flow classification.
Q2: A for-profit health system with 15 million shares outstanding reports total
stockholders' equity of $380 million. The system's primary financial management
objective should be to:
A. Maximize the market value of the firm's common stock per share [CORRECT]
B. Maximize accounting profits as reported on the income statement
C. Minimize the debt-to-equity ratio to achieve zero leverage
D. Maximize revenue growth regardless of profitability
Correct Answer: A
Rationale: The primary financial management objective for for-profit healthcare entities
is shareholder wealth maximization, measured by the market value per share of
,common stock. This objective considers risk, timing of cash flows, and return. Option B
is incorrect because accounting profits can be manipulated and do not consider cash
flow timing or risk. Option C is incorrect because optimal capital structure typically
includes some debt. Option D is incorrect because revenue growth without profitability
destroys shareholder value.
Q3: Under IRS regulations for tax-exempt status under Section 501(c)(3), a not-for-profit
hospital must satisfy which of the following requirements to maintain its federal tax
exemption?
A. Generate zero profit in any fiscal year
B. Provide community benefit that addresses identified community health needs
through a CHNA conducted every three years [CORRECT]
C. Accept all patients regardless of ability to pay without any billing
D. Operate exclusively with volunteer staff and donated equipment
Correct Answer: B
Rationale: The Affordable Care Act requires 501(c)(3) hospitals to conduct a
Community Health Needs Assessment (CHNA) every three years and adopt an
implementation strategy to address identified needs. Option A is incorrect because
not-for-profits can generate profits (excess revenue over expenses). Option C is
incorrect because hospitals may bill patients and pursue collection, though charity care
policies must be in place. Option D is incorrect because tax-exempt hospitals may
employ paid staff and purchase equipment.
Q4: A government-owned county hospital reports its financial results in accordance with
GASB Statement No. 34. Which of the following statements is required in its annual
financial report?
A. Statement of changes in stockholders' equity
B. Statement of revenues, expenses, and changes in net position [CORRECT]
C. Statement of comprehensive income
D. Statement of retained earnings
Correct Answer: B
Rationale: Governmental healthcare entities following GASB 34 prepare a Statement of
Revenues, Expenses, and Changes in Net Position (business-type activities) rather than
for-profit or not-for-profit formats. Option A is incorrect because government entities do
,not have stockholders. Option C is incorrect because GASB does not require a
statement of comprehensive income. Option D is incorrect because retained earnings is
not used in governmental reporting.
Q5: Which of the following healthcare organizational structures is most likely to face the
"double taxation" of corporate earnings?
A. A not-for-profit community hospital with 501(c)(3) status
B. A government-owned public health district
C. A publicly traded for-profit hospital corporation with taxable dividends [CORRECT]
D. A federally qualified health center (FQHC)
Correct Answer: C
Rationale: C-corporation for-profit healthcare entities face double taxation: once at the
corporate level on taxable income and again at the shareholder level on dividend
distributions. Option A is incorrect because 501(c)(3) entities are tax-exempt. Option B
is incorrect because government entities are generally tax-exempt. Option D is incorrect
because FQHCs receive federal funding and tax-exempt status.
Q6: On a healthcare entity's balance sheet, which of the following would be classified as
a non-current liability?
A. Accounts payable to medical supply vendors due in 30 days
B. Accrued salaries payable to nursing staff
C. Bonds payable maturing in 15 years with annual interest payments [CORRECT]
D. Estimated third-party payer settlements due within the current fiscal year
Correct Answer: C
Rationale: Bonds payable with a 15-year maturity are non-current liabilities because they
are not due within one year or the operating cycle. Options A, B, and D are all current
liabilities expected to be settled within the normal operating cycle or one year.
Q7: A hospital's statement of cash flows shows the following activities: (1) purchase of
a new MRI machine for $2.5 million, (2) issuance of tax-exempt bonds for $10 million,
and (3) collection of $450,000 in patient accounts receivable. How should these
activities be classified, respectively?
A. Operating, financing, operating
B. Investing, financing, operating [CORRECT]
C. Financing, investing, operating
, D. Investing, financing, financing
Correct Answer: B
Rationale: Purchase of capital equipment (MRI) is an investing activity. Issuance of
bonds is a financing activity. Collection of accounts receivable is an operating activity.
This classification follows FASB ASC 230 (Statement of Cash Flows) guidance
applicable to healthcare entities.
Q8: Which financial statement would provide the most useful information for assessing
a hospital's liquidity position at a specific point in time?
A. Statement of operations
B. Statement of cash flows
C. Balance sheet [CORRECT]
D. Statement of changes in net assets
Correct Answer: C
Rationale: The balance sheet (statement of financial position) reports assets, liabilities,
and net assets at a specific date, providing the data needed to calculate liquidity ratios
such as current ratio and days cash on hand. The statement of operations shows
performance over time, while the statement of cash flows shows cash movements over
a period.
Q9: A not-for-profit health system receives a $5 million donation restricted by the donor
for construction of a new cardiac center. Until the center is constructed, this donation
should be reported as:
A. Operating revenue on the statement of operations
B. Net assets with donor restrictions on the statement of financial position [CORRECT]
C. Unrestricted net assets on the balance sheet
D. Deferred revenue on the liability section of the balance sheet
Correct Answer: B
Rationale: Under FASB ASC 958, donor-restricted contributions are reported as net
assets with donor restrictions until the restriction is met (in this case, construction of
the cardiac center). Option A is incorrect because restricted donations are not operating
revenue until the restriction is satisfied. Option C is incorrect because the restriction
prevents classification as unrestricted. Option D is incorrect because donations are not
liabilities.
Management Certification | Questions & Verified Answers
| Pass Guaranteed - A+ Graded
Section 1: Healthcare Finance Fundamentals (Questions 1–15)
Q1: A not-for-profit community hospital has generated excess revenue over expenses of
$4.2 million for the fiscal year. Under GAAP reporting standards applicable to
not-for-profit healthcare entities, this amount should be classified in which financial
statement component?
A. Retained earnings on the balance sheet
B. Net income on the income statement
C. Change in net assets without donor restrictions on the statement of operations
[CORRECT]
D. Operating cash flow on the statement of cash flows
Correct Answer: C
Rationale: Not-for-profit healthcare entities do not have retained earnings or net income;
instead, they report "change in net assets without donor restrictions" (formerly "excess
of revenues over expenses"). This aligns with FASB ASC 958 guidance for not-for-profit
entities. Option A is incorrect because retained earnings is a for-profit concept. Option B
is incorrect because not-for-profits do not report net income. Option D is incorrect
because excess revenue is not a cash flow classification.
Q2: A for-profit health system with 15 million shares outstanding reports total
stockholders' equity of $380 million. The system's primary financial management
objective should be to:
A. Maximize the market value of the firm's common stock per share [CORRECT]
B. Maximize accounting profits as reported on the income statement
C. Minimize the debt-to-equity ratio to achieve zero leverage
D. Maximize revenue growth regardless of profitability
Correct Answer: A
Rationale: The primary financial management objective for for-profit healthcare entities
is shareholder wealth maximization, measured by the market value per share of
,common stock. This objective considers risk, timing of cash flows, and return. Option B
is incorrect because accounting profits can be manipulated and do not consider cash
flow timing or risk. Option C is incorrect because optimal capital structure typically
includes some debt. Option D is incorrect because revenue growth without profitability
destroys shareholder value.
Q3: Under IRS regulations for tax-exempt status under Section 501(c)(3), a not-for-profit
hospital must satisfy which of the following requirements to maintain its federal tax
exemption?
A. Generate zero profit in any fiscal year
B. Provide community benefit that addresses identified community health needs
through a CHNA conducted every three years [CORRECT]
C. Accept all patients regardless of ability to pay without any billing
D. Operate exclusively with volunteer staff and donated equipment
Correct Answer: B
Rationale: The Affordable Care Act requires 501(c)(3) hospitals to conduct a
Community Health Needs Assessment (CHNA) every three years and adopt an
implementation strategy to address identified needs. Option A is incorrect because
not-for-profits can generate profits (excess revenue over expenses). Option C is
incorrect because hospitals may bill patients and pursue collection, though charity care
policies must be in place. Option D is incorrect because tax-exempt hospitals may
employ paid staff and purchase equipment.
Q4: A government-owned county hospital reports its financial results in accordance with
GASB Statement No. 34. Which of the following statements is required in its annual
financial report?
A. Statement of changes in stockholders' equity
B. Statement of revenues, expenses, and changes in net position [CORRECT]
C. Statement of comprehensive income
D. Statement of retained earnings
Correct Answer: B
Rationale: Governmental healthcare entities following GASB 34 prepare a Statement of
Revenues, Expenses, and Changes in Net Position (business-type activities) rather than
for-profit or not-for-profit formats. Option A is incorrect because government entities do
,not have stockholders. Option C is incorrect because GASB does not require a
statement of comprehensive income. Option D is incorrect because retained earnings is
not used in governmental reporting.
Q5: Which of the following healthcare organizational structures is most likely to face the
"double taxation" of corporate earnings?
A. A not-for-profit community hospital with 501(c)(3) status
B. A government-owned public health district
C. A publicly traded for-profit hospital corporation with taxable dividends [CORRECT]
D. A federally qualified health center (FQHC)
Correct Answer: C
Rationale: C-corporation for-profit healthcare entities face double taxation: once at the
corporate level on taxable income and again at the shareholder level on dividend
distributions. Option A is incorrect because 501(c)(3) entities are tax-exempt. Option B
is incorrect because government entities are generally tax-exempt. Option D is incorrect
because FQHCs receive federal funding and tax-exempt status.
Q6: On a healthcare entity's balance sheet, which of the following would be classified as
a non-current liability?
A. Accounts payable to medical supply vendors due in 30 days
B. Accrued salaries payable to nursing staff
C. Bonds payable maturing in 15 years with annual interest payments [CORRECT]
D. Estimated third-party payer settlements due within the current fiscal year
Correct Answer: C
Rationale: Bonds payable with a 15-year maturity are non-current liabilities because they
are not due within one year or the operating cycle. Options A, B, and D are all current
liabilities expected to be settled within the normal operating cycle or one year.
Q7: A hospital's statement of cash flows shows the following activities: (1) purchase of
a new MRI machine for $2.5 million, (2) issuance of tax-exempt bonds for $10 million,
and (3) collection of $450,000 in patient accounts receivable. How should these
activities be classified, respectively?
A. Operating, financing, operating
B. Investing, financing, operating [CORRECT]
C. Financing, investing, operating
, D. Investing, financing, financing
Correct Answer: B
Rationale: Purchase of capital equipment (MRI) is an investing activity. Issuance of
bonds is a financing activity. Collection of accounts receivable is an operating activity.
This classification follows FASB ASC 230 (Statement of Cash Flows) guidance
applicable to healthcare entities.
Q8: Which financial statement would provide the most useful information for assessing
a hospital's liquidity position at a specific point in time?
A. Statement of operations
B. Statement of cash flows
C. Balance sheet [CORRECT]
D. Statement of changes in net assets
Correct Answer: C
Rationale: The balance sheet (statement of financial position) reports assets, liabilities,
and net assets at a specific date, providing the data needed to calculate liquidity ratios
such as current ratio and days cash on hand. The statement of operations shows
performance over time, while the statement of cash flows shows cash movements over
a period.
Q9: A not-for-profit health system receives a $5 million donation restricted by the donor
for construction of a new cardiac center. Until the center is constructed, this donation
should be reported as:
A. Operating revenue on the statement of operations
B. Net assets with donor restrictions on the statement of financial position [CORRECT]
C. Unrestricted net assets on the balance sheet
D. Deferred revenue on the liability section of the balance sheet
Correct Answer: B
Rationale: Under FASB ASC 958, donor-restricted contributions are reported as net
assets with donor restrictions until the restriction is met (in this case, construction of
the cardiac center). Option A is incorrect because restricted donations are not operating
revenue until the restriction is satisfied. Option C is incorrect because the restriction
prevents classification as unrestricted. Option D is incorrect because donations are not
liabilities.
