UNIVERSITY OF PHOENIX GOVERNMENT 2305 LATEST TESTBANK

UNIVERSITY OF PHOENIX GOVERNMENT 2305 LATEST TESTBANK Chapter 13: Accounting for Health Care Organizations Multiple Choice 1. Which of the following statements is generally true about the basis of accounting used by governmental and not-for-profit hospitals? a. both use the full accrual basis of accounting b. both use the modified accrual basis of accounting c. governmental hospitals use the modified accrual basis of accounting and not-for-profit hospitals use the full accrual basis of accounting d. both use the full accrual basis of accounting; but governmental hospitals also prepare a second modified accrual basis operating statement Answer: a 2. Which three categories of net position are reported by governmental hospitals? a. restricted, committed, and unassigned b. net investment in capital assets, restricted , and unrestricted c. temporarily restricted, permanently restricted, and unrestricted d. permanently restricted, current, and noncurrent Answer: b 3. In a governmental hospital’s operating statement, which of the following is true? a. The last category reports other comprehensive income b. Restricted revenues are distinguished from unrestricted revenues c. Operating expenses are deducted from operating revenues to show operating income d. Bad debt expense is reported to the extent that patients are not expected to pay their bills. Answer: c 4. The difference between a hospital's established billing rate and the amount paid by a third-party payer is referred to as: a. a bad debt b. a capitation agreement c. a charity allowance d. a contractual adjustment Answer: d 5. How are hospitals paid when they enter into a capitation agreement? a. based on predetermined rates for individual procedures performed by the hospital b. based on interim rates for individual procedures performed by the hospital, subject to retrospective adjustment after submission of actual costs c. based on agreed-upon premiums per member per month, for agreeing to provide care d. based on the total costs incurred by the hospital for actual care rendered to members of a particular group Answer: c 6. How do not-for-profit hospitals calculate "net patient service revenue," on their operating statements? a. gross billings at established rates; minus contractual adjustments, charity care, and similar items that the hospital does not expect to collect b. gross billings at established rates; minus contractual adjustments, charity care, and other items, such as bad debts expense c. gross billings at established rates; minus any amounts that the hospital does not expect to collect; plus revenue from capitation premiums d. gross billings at established rates; revenue from capitation premiums; and any other revenue directly attributable to patient services such as special charges for TV Answer: a 7. A hospital had gross patient billings of $50 million, contractual adjustments of $20 million, and charity care of $5 million. How much is the hospital's net patient service revenue? a. $50 million b. $25 million c. $30 million d. $45 million Answer: b 8 How do governmental hospitals calculate "net patient service revenue," on their operating statements? a. gross billings at established rates; minus contractual adjustments, charity care, and similar items that the hospital does not expect to collect b. gross billings at established rates; minus contractual adjustments, charity care, and a provision for uncollectible accounts c. gross billings at established rates; minus any amounts that the hospital does not expect to collect; plus revenue from capitation premiums d. gross billings at established rates; revenue from capitation premiums; and any other revenue directly attributable to patient services such as special charges for TV Answer: b 9. A not-for-profit hospital had gross patient billings of $43 million, contractual adjustments of $8 million, and charity care of $1,500,000. The hospital also made a provision for bad debts in the amount of $1,000,000. How much should the hospital report as net patient service revenue? a. $43 million b. $35 million c. $33.5 million d. $32.5 million Answer: c 10. A hospital entered into a retrospective billing arrangement with a third-party payer, calling for interim billing rates, subject to final settlement after the year's end. Final settlement was to be based on the hospital's submission of costs and audit by the third-party payer. During the year, the hospital provided services to patients covered by this third party, billing for $4.8 million at the hospital's established rates. However, the hospital's services at the interim billing rates were 25 percent less than the established rates. Before issuing its financial statements for the year, the hospital analyzed its costs and estimated that the rates charged to the third-party payer were $300,000 too high. For this third party, how much was the total contractual adjustment for the year? a. $300,000 b. $1,200,000 c. $1,500,000 d. $1,700,000 Answer: c 11. A not-for-profit hospital provided charity care. The value of the hospital's service for the year, at its normal billing rates, was $4 million. How should the hospital report the charity care services in its financial statements? a. include the $4 million as part of patient service revenue and report an operating expense (labeled Charity care) of $4 million. b. in the revenue section of the operating statement, include the $4 million as part of patient service revenue, but also show a deduction (labeled Charity care) for $4 million. c. report nothing for charity care, neither on the face of the operating statement nor in the notes d. report nothing on the face of the operating statement for charity care. In the notes, describe the charity care policy, and disclose the level of charity care provided based on the direct and indirect cost of providing the care. Answer: d 12. A hospital had capitation agreements with several health maintenance organizations to provide services. The hospital received $12 million of capitation fees for the year. The hospital also calculated that: (a) its costs to provide these services were $11.8 million; and (b) the value of these services at established billing rates were $16 million. How should the hospital report this information on the face of its financial statements? a. report $200,000 as a separate item of revenue, labeled net premium revenue. b. add $16 million to Net patient service revenue, and deduct $4 million in a separate item labeled Adjustment for capitation premiums. c. report Premium revenue of $12 million as a separate item of revenue, and report cost of serving HMO patients of $11.8 million as a separate item of expense. d. report premium revenue of $12 million as a separate item of revenue, if significant. Answer: d 13. A hospital invested $780,000 in equity securities in March, 2012. When it prepared its financial statements at year-end, the securities had a fair value of $802,000. How should the hospital report the securities in its balance sheet at year end? a. report the securities at cost ($780,000). b. report the securities at cost ($780,000) and show the fair value ($802,000) parenthetically next to the caption "Investments." c. report the securities at cost ($780,000) and show the fair value ($802,000) in the notes to he financial statements. d. report the securities at the fair value ($802,000) Answer: d 14. A not-for-profit hospital purchased an equity security for $150,000 on September, 2012. When it prepared its 2012 financial statements, the security had a fair value of $145,000. It sold the security for $160,000 in 2013. What was the net effect of the sale of the security on the hospital's net assets in the year 2013? a. no effect b. an increase of $10,000 c. an increase of $15,000 d. an increase of $160,000 Answer: c 15. A not-for-profit hospital purchased stock for $11,000 in March but by December 31, its fair value had dropped to $8,000. Assuming the hospital didn’t sell the stock at December 31, how should the unrealized loss be reported in the hospital’s operating statement? a. it should report the loss below Excess of revenues over expenses b. it should report the loss as a direct addition to net assets c. it should report the loss before Excess of revenues over expenses d. it should not report the loss. The stock should be reported at cost. Answer: a 16. Several high school seniors donate some time to a not-for-profit hospital. They perform services the hospital would not otherwise provide, such as reading to patients and wheeling them around hospital grounds. The hospital estimates the value of these services at $6,500 if they had paid the students the minimum wage and at $8,800 if they had paid at fair value. How should the hospital report these donated services on the face of its operating statement? a. report donated revenue and expenses of $6,500. b. report neither donated revenue nor expenses. c. report donated revenue and expenses of $8,800. d. report donated revenue of $8,800 but do not report any expenses. Answer: b 17. Catlett County Hospital, a governmental hospital, has its financial statement audit done by a local CPA firm. In 2012, the CPA firm announced that it would no longer charge for the audit. How is the County Hospital required to report the donated audit in 2013, assuming that it would have been billed $20,000 for the audit and that the cost incurred by the CPA firm is estimated at $11,000? a. Report contribution revenue of $20,000 and audit fees of $11,000 b. Report contribution revenue of $0 and audit fees of $0 c. Report contribution revenue of $20,000 and audit fees of $20,000 d. Report contribution revenue of $11,000 and audit fees of $11,000. Answer: b 18. Shults Labs donates an item of prescription medications worth $100,000 to a local not-for- profit hospital. How should the hospital report the donation in its financial statements? a. Report an other revenue (or gain) and an expense of $100,000. b. Report an other revenue (or gain) and an asset (inventory) of $100,000 c. Report an asset and an other revenue (or gain) at the manufacturer's direct cost to produce the equipment, which is estimated at $70,000 d. Report nothing on the face of the financial statements, but describe the donation in the notes to the statements. Answer: b 19. A governmental hospital has about 30 outstanding medical malpractice claims when it prepares its 2012 financial statements. It does not carry third-party insurance. The total amount claimed on these claims is $2,000,000. Historically, most of these claims are settled out-of-court for about 20 percent of the amount claimed. Some of claims were filed before 2012 and some were filed in 2012. It takes an average of three years to settle them. What is the appropriate method of handling this situation on the financial statements? a. do not report anything either on the face or in the notes to the statements b. do not report anything on the face of the statements; but in the notes, state that claims were received, insurance is not carried, and it takes about three years to settle claims; say nothing about the amount of the claims or the potential loss c. develop a best estimate of the probable loss (about $400,000), based on past experience, and report a liability for that amount on the balance sheet d. report a liability of $2,000,000 on the balance sheet; and state in the notes that the liability may be lower if the hospital is successful in defending itself Answer: c 20. A hospital that carries no malpractice insurance has several outstanding malpractice claims, including one for $1.5 million. Hospital attorneys believe the claim can be settled in the range of $200,000 to $340,000, but negotiations have not reached the point where they can estimate where within that range they can reach agreement. How should the hospital handle this claim in its financial statements? a. report nothing on the face of the statements; in the notes, state that there are claims against the hospital, and that historically it wins some cases and loses others. b. report an expense and a liability of $270,000, the mid-point of the range. c. report an expense and a liability of $340,000, the upper end of the range. d. report an expense and a liability of $200,000, the lower end of the range, and disclose the potential for additional loss in the notes to the statements. Answer: d 21. After it prepares its financial statements, a hospital has historically received malpractice claims for events occurring before the balance sheet date. How should the hospital handle these incurred but not reported (IBNR) claims its financial statements? a. take no action until it actually receives claims. b. disclose, in the notes to its financial statements, that it historically receives IBNR claims; state that no estimate can be made of probable loss because no claims have been filed c. estimate, based on past experience, the amount of probable loss on IBNR claims; report this amount in the notes d. estimate, based on past experience, the amount of probable loss on IBNR claims; report this amount as an expense and a liability Answer: d 22. A not-for-profit hospital's trustees designate $600,000 of the hospital's unrestricted resources for the future acquisition of equipment. The trustees tell the hospital comptroller to purchase a separate certificate of deposit for it. How should the hospital record and report this investment? a. as an investment, the resources of which will be designated as restricted in the net assets section of the balance sheet b. report the investment as "assets limited as to use," and report $600,000 of net assets as restricted net assets c. report the investment as "assets limited as to use," and report $600,000 of net assets as unrestricted net assets d. report the investment as “restricted” investments and report $600,000 of net assets as restricted net assets Answer: c 23. A not-for-profit hospital receives a $150,000 donation that must be used for a specific research project. The hospital anticipates that it will undertake the project next year. How should the hospital report the donation? a. as unrestricted support b. as temporarily restricted support c. as assets limited as to use d. as permanently restricted support Answer: b 24. A not-for-profit hospital receives a $25,000 donation that must be used for a special training program for nurses. When the donated resources are used for the intended purpose, in which net asset classification should the hospital report the expense? a. assets limited as to use b. temporarily restricted net assets c. unrestricted net assets d. permanently restricted net assets Answer: c