NFP Final Exam Review Chapter 14
UPDATED ACTUAL Exam Questions and
CORRECT Answers
In what significant ways would each of the 3 major statements of a gov't hospital differ from
those of a private NFP hospital? - CORRECT ANSWER - Private NFP hospitals have to
follow the provisions of FASB ASU No. 2016-14 as to the form and content of their financial
statements. the balance sheet of a NFP hospital , but not a gov't hospital, must display the two
categories of donor restrictiveness. Gov't healthcare entities do not have a statement comparable
to the statement of changes in net assets.
What are the major categories of revenues and expenses for a health-care org? - CORRECT
ANSWER - The major categories of revenues for a health care org are divided into at least
2 classifications, patient care revenues and other revenues. Patient care revenues include routine
services, other nursing services, and professional services. Other revenues include auxiliary
sales, fees for educational programs, rental of facilities other than to residents, investment gains
and losses and miscellaneous sources. The major expenses of a healthcare org must be presented
at a minimum in two major categories, program service expenses and support services such as
general/admin expenses.
What are the differences between recording a hospital's expenses by natural classifications than
by function? - CORRECT ANSWER - Expenses may be classified using either a natural
classification (salaries, supplies, etc.) or a functional classification (impatient services, ancillary
outpatient services, etc.) If the expenses are classified using a natural classification then the
functional classifications must be presented in the notes to the financial statements.
Why is the statement of functional expenses requied for voluntary health and welfare
organizations? - CORRECT ANSWER - The statement of functional expenses is required
for NFP orgs, because for most of these entities major source source of revenues is from
donations rather than from the sale of goods or services.
What are capitation fees and how should they be accounted for? - CORRECT ANSWER -
Capitation fees are those received in exchange for a health care orgs agreement either with an
individual or with a company to provide specified services to a specified population during a
specified period of time. The fees are based on the number of persons covered and on expected
, costs to be incurred rather than on actual services provided. Revenues from capitation fees
should generally be shown apart from other types of revenues and should be accounted for over
the period covered, not as services provided.
Hospitals and other health-care organizations provide services knowing that hey will collect from
third-party payers, such as insurance companies, considerably less than their established billing
rates. In addition, they provide services to uninsured patients and are aware that they will collect
either none or only a small portion of the amounts to be billed. Comment on how these orgs
distinguish between charity care, bad debts, and contractual adjustments, and indicate how each
affects the amount of revenue from patient care that they should report. - CORRECT
ANSWER - Charity care results from a healthcare entity's policy to provide health services
free of charge to individuals who meet certain financial criteria. Since charity care is not
expected to result in cash inflows, it is not recognized either as revenue, or as receivables. Health
care entities should disclose in notes to the financial statements their policies as to the charitable
care and the value of the charity care provided which is measured based on the costs of providing
the care. Bad debt expenses represents what the entity expects to be able to collect from parties
to whom it has extended credit. Contractual adjustments are the difference between established
rates and third-party-payer payments and discounts is the difference between established rates
and the amount collectible that the entity knowingly and willingly provides to third-party payers.
A NFP hospital pays $150,000 interest on its bonds outstanding. The bonds were issued to
finance construction of a new hospital wing. In its statement of cash flow, the interest should be
shown as a cash outflow from - CORRECT ANSWER - operating activities
A gov't hospital pays $150,000 in interest on its bonds outstanding. the bonds were issued to
finance construction of a new hospital wing. In its statement of cash flows, the interest should be
shown as a cash outflow attributable to... - CORRECT ANSWER - Capital financing
activities
During the current year, a voluntary health and welfare organization receives $400,000 in total
pledges. Of this amount, $150,000 has been designated by donors for use next year to support
operations in the pharmacy. If 20% of the pledges without donor restrictions are expected to be
uncollectible, what amount of support without donor restrictions should the organization
recognize in its current-year financial statements? - CORRECT ANSWER - $200,000
UPDATED ACTUAL Exam Questions and
CORRECT Answers
In what significant ways would each of the 3 major statements of a gov't hospital differ from
those of a private NFP hospital? - CORRECT ANSWER - Private NFP hospitals have to
follow the provisions of FASB ASU No. 2016-14 as to the form and content of their financial
statements. the balance sheet of a NFP hospital , but not a gov't hospital, must display the two
categories of donor restrictiveness. Gov't healthcare entities do not have a statement comparable
to the statement of changes in net assets.
What are the major categories of revenues and expenses for a health-care org? - CORRECT
ANSWER - The major categories of revenues for a health care org are divided into at least
2 classifications, patient care revenues and other revenues. Patient care revenues include routine
services, other nursing services, and professional services. Other revenues include auxiliary
sales, fees for educational programs, rental of facilities other than to residents, investment gains
and losses and miscellaneous sources. The major expenses of a healthcare org must be presented
at a minimum in two major categories, program service expenses and support services such as
general/admin expenses.
What are the differences between recording a hospital's expenses by natural classifications than
by function? - CORRECT ANSWER - Expenses may be classified using either a natural
classification (salaries, supplies, etc.) or a functional classification (impatient services, ancillary
outpatient services, etc.) If the expenses are classified using a natural classification then the
functional classifications must be presented in the notes to the financial statements.
Why is the statement of functional expenses requied for voluntary health and welfare
organizations? - CORRECT ANSWER - The statement of functional expenses is required
for NFP orgs, because for most of these entities major source source of revenues is from
donations rather than from the sale of goods or services.
What are capitation fees and how should they be accounted for? - CORRECT ANSWER -
Capitation fees are those received in exchange for a health care orgs agreement either with an
individual or with a company to provide specified services to a specified population during a
specified period of time. The fees are based on the number of persons covered and on expected
, costs to be incurred rather than on actual services provided. Revenues from capitation fees
should generally be shown apart from other types of revenues and should be accounted for over
the period covered, not as services provided.
Hospitals and other health-care organizations provide services knowing that hey will collect from
third-party payers, such as insurance companies, considerably less than their established billing
rates. In addition, they provide services to uninsured patients and are aware that they will collect
either none or only a small portion of the amounts to be billed. Comment on how these orgs
distinguish between charity care, bad debts, and contractual adjustments, and indicate how each
affects the amount of revenue from patient care that they should report. - CORRECT
ANSWER - Charity care results from a healthcare entity's policy to provide health services
free of charge to individuals who meet certain financial criteria. Since charity care is not
expected to result in cash inflows, it is not recognized either as revenue, or as receivables. Health
care entities should disclose in notes to the financial statements their policies as to the charitable
care and the value of the charity care provided which is measured based on the costs of providing
the care. Bad debt expenses represents what the entity expects to be able to collect from parties
to whom it has extended credit. Contractual adjustments are the difference between established
rates and third-party-payer payments and discounts is the difference between established rates
and the amount collectible that the entity knowingly and willingly provides to third-party payers.
A NFP hospital pays $150,000 interest on its bonds outstanding. The bonds were issued to
finance construction of a new hospital wing. In its statement of cash flow, the interest should be
shown as a cash outflow from - CORRECT ANSWER - operating activities
A gov't hospital pays $150,000 in interest on its bonds outstanding. the bonds were issued to
finance construction of a new hospital wing. In its statement of cash flows, the interest should be
shown as a cash outflow attributable to... - CORRECT ANSWER - Capital financing
activities
During the current year, a voluntary health and welfare organization receives $400,000 in total
pledges. Of this amount, $150,000 has been designated by donors for use next year to support
operations in the pharmacy. If 20% of the pledges without donor restrictions are expected to be
uncollectible, what amount of support without donor restrictions should the organization
recognize in its current-year financial statements? - CORRECT ANSWER - $200,000
