Question 1

Congress mandated diagnosis-related groups (DRG) as a method for recording costs in health care organizations, in part to facilitate Medicare's prospective payment system. Explain what the DRG system is and describe the impact this change may have had on the cost accounting systems of health care organizations.

Accepted Answer

Diagnosis-related groups (DRGs) is a case-mix classification scheme that is used to determine the payment provided to the hospital for inpatient services, regardless of how much the hospital spends to treat a patient. Health care providers, therefore, have an incentive to determine actual costs of services rendered: to keep their costs commensurate with payments for services. It is now common for most hospitals to have sophisticated systems to capture costs by procedure. Some payment methods, such as capitation fees in prepaid health care plans, shift a considerable amount of risk to the provider. That is, the fixed amount of revenue received per patient may not cover the costs of providing the service.

Question 2

Both the FASB and the GASB would require that a contribution received for the construction of a future medical facility be reported as an investing activity on the statement of cash flows.

Accepted Answer

A) True 
 B)False  False

Question 3

Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use."

Accepted Answer

A) True 
 B)False  True

Question 4

In accounting for health care entities, the account Provision for Bad Debts should be reported as a contra-revenue, rather than as an expense.

Accepted Answer

A) True 
 B)False

Question 5

Prepare general journal form for the following transactions of Bothwell Regional Hospital, a nongovernmental not-for-profit hospital. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1. For the month just ended the hospital received in cash $8,000 from the hospital's gift shop sales, and received donated medicines with a fair value of $47,000. These medicines are of the type the hospital normally would purchase.
2. The hospital's finance officer, in compliance with the directive of the governing board, invested $600,000 of operating cash in certificates of deposit to be held for future purchases of equipment.
3. New equipment costing $750,000 was purchased from money given to the hospital by a donor in a prior year to be held until needed for equipment purchases.
4. A federal grant was received in cash in the amount of $400,000 to be used for heart research. During the current year only $50,000 was spent for this research program.

Accepted Answer

The answer of Prepare general journal form for the following...

Question 6

In accordance with the FASB Codification, an expense for diabetes research that was financed by restricted contributions would be recorded as a decrease in net assets without donor restrictions by a not-for-profit health care organization.

Accepted Answer

A) True 
 B)False

Question 7

Patient service revenues and related receivables exclude charges for charity care services.

Accepted Answer

A) True 
 B)False

Question 8

Describe what prepaid health care plans are and some of the related accounting issues.

Accepted Answer

The answer of Describe what prepaid health care plans are...

Question 9

There are three main reasons why a nongovernmental not-for-profit hospital does not receive the full amount that it normally charges for a room: (1) contractual adjustments arising from transactions with third-party payors, (2) charity service provided to indigent patients, and (3) bad debts. Compare the accounting treatment for the three reasons listed.

Accepted Answer

The answer of There are three main reasons why a...

Question 10

Which of the following is not a financial statement prepared by nongovernmental not-for-profit health care entities?

Accepted Answer

A)   Statement of changes in net assets.
B)   Statement of revenues, expenses, and changes in net assets.
C)   Balance sheet.
D)   Statement of cash flows.

Question 11

When assessing the financial condition of a health care entity, the excess margin percentage includes only income from operating activities.

Accepted Answer

A) True 
 B)False

Question 12

Similar to other not-for-profit entities, health care entities are required under FASB standards to report program and support functional expenses.

Accepted Answer

A) True 
 B)False

Question 13

Contrast the statement of cash flows that nongovernmental not-for-profit hospitals prepare to those that government hospitals prepare.

Accepted Answer

The answer of Contrast the statement of cash flows that...

Question 14

When evaluating the financial condition of health care entities, the cushion ratio provides:

Accepted Answer

A)   A measure of the capital structure of the organization.
B)   A measure of how efficiently an organization pays its bills.
C)   A measure of the efficiency of the collections function.
D)   An indicator of the profitability of the organization.

Question 15

All health care organizations report investments at fair value and report unrealized gains or losses on the statement of operations.

Accepted Answer

A) True 
 B)False

Question 16

Contractual adjustments that arise from differences between the gross charge for patient services and the amount paid by a third party payor are reported as:

Accepted Answer

A)   Deductions from gross patient revenue in arriving at net patient revenue.
B)   Disclosures in the notes to the financial statements.
C)   Either deductions from gross patient revenue or disclosure in the notes, depending on the dollar amount of the adjustments relative to billings.
D)   Bad debt expense.

Question 17

Which of the following would usually be considered as net assets with donor restrictions in a nongovernmental not-for-profit hospital?

Accepted Answer

A)   Funds designated by the board of directors for future equipment purchases.
B)   Donated services by senior citizens.
C)   A permanent endowment received from the city's leading citizen.
D)   Sales from the hospital gift shop.

Question 18

Which of the following would be considered an asset limited as to use?

Accepted Answer

A)   Cash donated for an endowment.
B)   Cash from a federal research grant, which is to be used for water quality research.
C)   Cash designated for equipment acquisitions by the board of directors.
D)   Cash contributions that are to be used for the building fund.

Question 19

The purpose of a performance indicator is to provide an operating measure for not-for-profit health care organizations that is equivalent to income from continuing operations of for-profit health care organizations.

Accepted Answer

A) True 
 B)False

Question 20

The format for a not-for-profit health care entity's statement of operations is the same as that for other types of not-for-profits; the FASB requires a different title on the statement since most revenues are derived from user charges.

Accepted Answer

A) True 
 B)False

Exam 16: Accounting for Health Care Organizations

Both the FASB and the GASB would require that a contribution received for the construction of a future medical facility be reported as an investing activity on the statement of cash flows.

Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use."

In accounting for health care entities, the account Provision for Bad Debts should be reported as a contra-revenue, rather than as an expense.

In accordance with the FASB Codification, an expense for diabetes research that was financed by restricted contributions would be recorded as a decrease in net assets without donor restrictions by a not-for-profit health care organization.

Patient service revenues and related receivables exclude charges for charity care services.

Describe what prepaid health care plans are and some of the related accounting issues.

Which of the following is not a financial statement prepared by nongovernmental not-for-profit health care entities?

When assessing the financial condition of a health care entity, the excess margin percentage includes only income from operating activities.

Similar to other not-for-profit entities, health care entities are required under FASB standards to report program and support functional expenses.

Contrast the statement of cash flows that nongovernmental not-for-profit hospitals prepare to those that government hospitals prepare.

When evaluating the financial condition of health care entities, the cushion ratio provides:

All health care organizations report investments at fair value and report unrealized gains or losses on the statement of operations.

Contractual adjustments that arise from differences between the gross charge for patient services and the amount paid by a third party payor are reported as:

Which of the following would usually be considered as net assets with donor restrictions in a nongovernmental not-for-profit hospital?

Which of the following would be considered an asset limited as to use?

The purpose of a performance indicator is to provide an operating measure for not-for-profit health care organizations that is equivalent to income from continuing operations of for-profit health care organizations.

The format for a not-for-profit health care entity's statement of operations is the same as that for other types of not-for-profits; the FASB requires a different title on the statement since most revenues are derived from user charges.