Test bank Chapter 12 12th ed PDF

Preview

Summary

Chapter 12 Accounting for Hospitals and Other Health Care ProvidersTrue/False Questions Like charities and private colleges, private not-for-profit health care organizations follow FASB standards. Answer: True Private health care organizations, both not-for-profit and for-profit, follow GASB standar...

Description

Chapter 12 Accounting for Hospitals and Other Health Care Providers Chapter 12 Accounting for Hospitals and Other Health Care Providers True/False Questions 1. Like charities and private colleges, private not-for-profit health care organizations follow FASB standards. Answer: True 2. Private health care organizations, both not-for-profit and for-profit, follow GASB standards while government healthcare organizations follow FASB. Answer: False 3. Private for-profit health care organizations follow FASB standards excluding those written specifically for not-for-profits. Answer: True 4. If a health care organization is owned or controlled by a government, it is typically considered a special-purpose entity engaged only in business–type activities and would use proprietary fund accounting. Answer: True 5. The AICPA Audit and Accounting Guide: Health Care Organizations applies equally to private not-for-profit, investor-owned, and governmentally owned health care organizations. Answer: True 6. As both the FASB and the GASB approved the AICPA Health Care Guide, its requirements constitute Category B GAAP and must be followed by all health care organizations. Answer: True 7. Government-owned health care organizations do not report depreciation expense. Answer: False 8. Because they are engaged in business-type activities, governmental health care organizations typically use the accrual basis and economic 1

Chapter 12 Accounting for Hospitals and Other Health Care Providers resources measurement focus. Answer: True 9. Private-sector health care organizations use the three-category FASB format for the Statement of Cash flows, while public sector organizations use the four-category GASB format Answer: True 10. Not-for-profit business-oriented organizations use accrual accounting. Answer: True

11.Government hospitals are typically considered special purpose entities engaged in business-type activities under GASB Statement 34. Answer: True 12.Both governmental owned and private health care providers use the modified accrual basis of accounting and the economic resources measurement focus. Answer: False 13.Government owned hospitals follow FASB Statements 116 and 117. Answer: False 14.Both public and private sector health care organizations measure transactions and events similarly, but use different equity accounts. Answer: True 15.Both commercial and not-for-profit hospitals in the private sector follow FASB standards. Answer: True 16.The AICPA Health Care Guide applies to investor-owned, private not-for-profit, and government-owned hospitals. Answer: True

2

Chapter 12 Accounting for Hospitals and Other Health Care Providers 17.Both commercial and private sector not-for-profit hospitals and health care providers follow FASB Statements 116 and 117. Answer: False 18.The AICPA Health Care Guide provides accounting and reporting requirements that override GASB and FASB standards, but apply only to health care providers. Answer: False 19.For accounting purposes, health care organizations include HMOs and individual medical practitioners, as well as hospitals. Answer: True 20.The AICPA Health Care Guide provides additional guidance regarding accounting and reporting requirements for voluntary health and welfare organizations. Answer: False 21.The AICPA Health Care Guide does not require a performance indicator in the financial statements of private sector not-for-profit health care providers. Answer: False 22.The AICPA Health Care Guide prescribes a separate Statement of Operations and Statement of Changes in Net Assets rather than a Statement of Activities. Answer: True 23.Patient Service Revenue of hospitals is to be presented net of contractual adjustments in the Statement of Operations. Answer: True 24.Contractual adjustments from insurance companies are reported as expenses in the Statement of Operations. Answer: False 25.Differences between actual and estimated contractual adjustments are treated as changes in accounting estimates.

3

Chapter 12 Accounting for Hospitals and Other Health Care Providers Answer: True 26.Charity care is reported as both revenue and expense (bad debt) in the Statement of Operations. Answer: False 27.

Patient service revenue for a hospital does not include charges for charity care.

Answer: True 28. The level of charity care is included in revenue and should be disclosed in the notes to financial statements. Answer: False 29. With respect to health care organizations, expenses must be reported using their natural classifications. Answer: False 30. Private sector not-for-profit health care entities must disclose expenses by functional classifications, if not provided in the Statement of Operations. Answer: True 31. Health care organizations that are privately owned and operated to provide a return to investors follow GASB standards. Answer: False 32. Health care organizations that are privately owned and operated to provide a return to investors follow FASB standards excluding those standards specifically for not-for-profits. Answer: True 33. Voluntary health and welfare organizations raise a significant amount or nearly all of their resources from contributions and grants, and are subject to the rules of the AICPA Not-for-Profit Guide. Answer: True.

4

Chapter 12 Accounting for Hospitals and Other Health Care Providers 34. The AICPA Audit and Accounting Guide: Health Care Organizations applies equally to private not-for-profit, governmentally owned, and investor-owned health care organizations. Answer: True 35. According to The AICPA Health Care Guide, transfers among affiliated organizations should be included in the determination of a performance indicator for a health care organization. Answer: False 36. According to The AICPA Health Care Guide, transfers among affiliated organizations should not be included in the determination of a performance indicator for a health care organization. Answer: True 37. For hospitals, contractual adjustments to 3rd party payers, such as insurance companies, are recorded with a debit to Contractual Adjustments (a contra-revenue account) and a credit to an allowance for contractual adjustments. Answer: True 38. For hospitals, contractual adjustments to 3rd party payers, such as insurance companies, are recorded with a debit to Contractual Adjustment expense and a credit to Accounts Receivable. Answer: False 39. Health care organizations that are privately owned and operated to provide a return to investors report the same net asset classifications as private not-for-profit health care organizations. Answer: False 40. The cash flow statements of private health care organizations, both not-for-profit and for-profit, may use only the indirect method. Answer: False 41. The cash flow statements of health care organizations, both private and governmentowned, may use the direct or indirect method.

5

Chapter 12 Accounting for Hospitals and Other Health Care Providers Answer: False 42. The equity section of governmentally-owned hospitals includes net investment in capital assets, restricted, and unrestricted. Answer: True

6

Chapter 12 Accounting for Hospitals and Other Health Care Providers Multiple Choice Questions 43.

Private not-for-profit health care organizations follow standards set by: A) GASB. B) FASB. C) SEC. D) All of the above. Answer: B

44. Health care organizations that are privately owned and operated to provide a return to investors follow which standards: A) GASB. B) FASB, including standards specifically for not-for-profits. C) FASB, excluding standards specifically for not-for-profits. D) None of the above. Answer: C 45.

The AICPA Audit and Accounting Guide: Health Care Organizations applies to: A) Private not-for-profit health care organizations. B) Governmentally owned health care organizations. C) Investor-owned health care organizations. D) All of the above. Answer: D

46.The AICPA Audit and Accounting Guide: Health Care Organizations provides reporting requirements for all of the following organizations except: A) The University of Virginia Hospital, a government-owned hospital. B) A psychiatrist operating as a limited liability corporation. C) A nursing home operated by the Lutheran Church. D) Voluntary health and welfare organizations Answer: D 47.The AICPA Audit and Accounting Guide: Health Care Organizations applies to: A) Private sector, not-for-profit hospitals. B) Public sector, government-owned hospitals. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: C

7

Chapter 12 Accounting for Hospitals and Other Health Care Providers 48.The equity section of the Statement of Net Position of a government-owned hospital may contain which of the following descriptions? A) Fiduciary, Proprietary, and General. B) Nonspendable, Committed, Restricted and Assigned. C) Permanently Restricted, Temporarily Restricted, and Unrestricted. D) Net Investment in Capital Assets, Restricted, and Unrestricted Net Position. Answer: D 49.The equity section of the Statement of Net Assets of a private not-for-profit hospital may contain which of the following descriptions? A) Fiduciary, Proprietary, and General. B) Nonspendable, Committed, Restricted and Assigned. C) Permanently Restricted, Temporarily Restricted, and Unrestricted. D) Net Investment in Capital Assets, Restricted, and Unrestricted Net Position. Answer: C 50. Which of the following is not correct with respect to reporting of patient service revenue for health care organizations? A) Patient service revenue must be reported net of estimated adjustments for contractual adjustments. B) Patient service revenue does not include amounts representing charity care. C) Changes to estimates of contractual adjustments related to prior periods must be reported as a prior period adjustment if material. D) Unrestricted bequests and investment income for current unrestricted purposes may be reported as either operating or nonoperating revenue, depending on the policy of the entity. Answer: C

8

Chapter 12 Accounting for Hospitals and Other Health Care Providers 51. Which of the following is correct with respect to the recording of charity care for health care organizations? A) Revenues are not recorded for the value of charity care services provided, but related expenses are included with other expenses on the Statement of Operations B) Charity care is recorded as revenue and an adjustment is recorded for the difference between the value of the revenue and expenses incurred in providing health care services. C) The value of foregone charity care revenue is deducted as a charitable contribution expense in the Statement of Operations D) Management’s policy for providing charity care and the level of charity care provided is an optional disclosure Answer: A 52. St. David’s is a not-for-profit business-oriented hospital. What is the journal entry for the following transaction: During the month, gross patient service revenue amounted to $93,000 of which $82,000 was received in cash. Contractual adjustments to third-party payers amounted to $10,000 (actual, not estimated). A) Cash 82,000 Patient Accounts Receivable 11,000 Operating Revenues – Unrestricted - Patient Service Revenue 93,000 Contractual Adjustments – Unrestricted 10,000 Patient Accounts receivable 10,000 B) Cash 82,000 Patient Accounts Receivable 11,000 Operating Revenues – Patient Service Revenue, Restricted 93,000 Bad Debts Expense – Restricted 10,000 Patient Accounts receivable 10,000 C) Cash 82,000 Patient Accounts Receivable 11,000 Operating Revenues – Unrestricted - Patient Service Revenue 93,000 Operating Revenues-Unrestricted patient Service Revenue 10,000 Patient Accounts receivable 10,000 D) Cash 82,000 Patient Accounts Receivable 1,000 Operating Revenues – Unrestricted - Patient Service Revenue 83,000 Answer: A

9

Chapter 12 Accounting for Hospitals and Other Health Care Providers 53. St. David’s is a not-for-profit business-oriented hospital. What is the journal entry for the following transaction: Cash was received for pledges made in the prior year in the amount of $85,000. That amount has been recorded as temporarily restricted net assets, based on time restrictions. A) Cash 85,000 Contributions receivable 85,000 Reclassification from Temporarily Restricted Net AssetsExpiration of Time Restrictions 85,000 Reclassification to Unrestricted Net Assets – Expiration of Time restrictions 85,000 B) Cash 85,000 Contributions receivable 85,000 Reclassification to Unrestricted Net Assets - Expiration of Time Restrictions 85,000 Reclassification from Temporarily Restricted Net Assets – Expiration of Time restrictions 85,000 C) Contributions Receivable-Unrestricted 85,000 Contributions Receivable – Restricted 85,000 Cash 85,000 Contributions receivable-Unrestricted 85,000 D) Cash 85,000 Contribution Revenue – Unrestricted 85,000 Answer: A 54.Which of the following is not a required statement of a private not-for-profit hospital? A) Statement of Functional Expense. B) Statement of Financial Position. C) Statement of Cash Flows. D) Statement of Operations. Answer: A 55.Which of the following is not true regarding financial reporting of health care entities? A) It is important to distinguish operating revenues and expenses from nonoperating. B) It is important to distinguish between current and noncurrent assets and liabilities. C) Private sector organizations use a three-category format for the Statement of Cash Flows, and public sector organizations us a four-category format. D) Private sector organizations use accrual accounting, while public sector organizations use modified accrual. Answer: D 56.Private sector, not-for-profit health care organizations have a category of assets called

10

Chapter 12 Accounting for Hospitals and Other Health Care Providers “Assets Whose Use is Limited.” That category refers to: A) Assets that have been restricted by donor action. B) Unrestricted assets that have been limited by individuals or entities other than contributors (such as by bond covenants). C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: B 57.The statement reflecting revenues, expenses, and other changes in unrestricted net assets for a private sector, not-for-profit hospital is called the: A) Statement of Changes in Unrestricted Net Assets. B) Statement of Operations. C) Statement of Activities. D) Income Statement. Answer: B 58.Which of the following is true regarding the financial statements of a private sector notfor-profit hospital? A) Revenues are measured using the accrual basis of accounting. B) Changes in net assets must be shown by net asset classification. C) The Statement of Cash Flows uses a three-category format. D) All of the above are true. Answer: D 59.Which of the following is true regarding revenue recognition for health care organizations? A) Patient service revenue includes an imputed charge for charity care. B) Patient service revenue is reported net of contractual adjustments. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: B 60.A private sector not-for-profit hospital received a gift of $250,000 cash on the first day of 2015 with a donor restriction that the resources be used to purchase certain equipment. The equipment was purchased on the same day and is expected to last five years with no salvage value. The Statement of Financial Position as of December 31, 2015 would reflect as net assets of: A) $200,000 unrestricted and $0 temporarily restricted. B) $0 unrestricted and $200,000 temporarily restricted.

11

Chapter 12 Accounting for Hospitals and Other Health Care Providers C) Either (a) or (b), depending on the policy of the hospital. D) None of the above. Answer: C 61. A private sector, not-for-profit hospital received a pledge of $100,000 in 2014, with no purpose restriction. The pledge card indicated that the funds were to be used in 2015. Cash was turned over to the hospital in 2015. The not-for-profit hospital would recognize contribution revenue in: A) When the funds are expended. B) 2014. C) 2015. D) Either 2014 or 2015, depending on the policy of the hospital. Answer: B 62.A private sector, not-for-profit hospital received a pledge of $150,000 in 2014 to be used for a building to be constructed in 2015 but contingent on the hospital being able to raise an equivalent amount from other donors. As of the end of 2014, half the amount had been raised from other donors. In 2015, the hospital raised the amount from other donors. The donor gave the $150,000 to the hospital in 2015 and the building was completed in 2016. In which year should the hospital recognize the $150,000 from the pledge? A) 2014. B) 2015. C) 2016. D) $75,000 should be recognized in 2014 and $75,000 in 2015. Answer: B

12

Chapter 12 Accounting for Hospitals and Other Health Care Providers 63.Which of the following is true regarding the reporting of expenses by private sector, notfor-profit hospitals? A) All expenses are considered reductions in unrestricted net assets. B) Expenses must be reported by natural (i.e. salaries, supplies, etc.) classification in the statements. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: A

64.Not-for-profit health care entities are distinguished from voluntary health and welfare organizations in the following manner: A) Health care organizations provide health care services while voluntary health and welfare organizations do not. B) Health care organizations use accrual accounting whereas voluntary health and welfare organizations do not. C) Health care organizations are considered to be primarily business-oriented whereas voluntary health and welfare organizations raise a significant portion of their money from voluntary contributions. D) Health care organizations do not provide services to individuals who are unable to pay. Answer: C

13

Chapter 12 Accounting for Hospitals and Other Health Care Providers 65.Which of the following health care organizations must follow standards established by the Governmental Accounting Standards Board? A) Private not-for-profit hospitals. B) Government owed hospitals. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: B 66.Which of the following health care organizations have “Category B” GAAP established by the AICPA's Audit and Accounting Guide: Health Care Organizations? A) Cook County Hospital, a department of Cook County. B) Kishwaukee Hospital, a nongovernmental, not-for-profit hospital. C) Open Door Urgent Care, a privately owned for-profit organization. D) All of the above. Answer: D 67.A “performance indicator” is required in the Statement of Operations for health care entities. Which of the following must be reported below that performance indicator? A) Other revenue, such as parking lot or cafeteria revenue. B) Net assets released from restrictions for operating purposes. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: D 68.A donor contributed $1,000,000 to a not-for-profit hospital with the restriction that the funds be invested indefinitely and the income be used for cancer research. Which of the following would be true? A) The gift would be recorded as an increase in permanently restricted net assets. B) The income from the endowment would be recorded as an increase in temporarily restricted net assets. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: C

14

Chapter 12 Accounting for Hospitals and Other Health Care Providers 69.Which of the following is true regarding accounting and financial reporting for not-forprofit health care organizations? A) Charity care is reported as operating revenue at the normal and customary rate and bad debt expense is reported for an equal amount. B) Contractual adjustments with insurance companies are reported as a reduction in patient service revenue. C) Both (a) and (b) above. D) Neither (a) nor (b) above. Answer: B 70.A donor pledged $500,000 to a not-for-profit hospital in 2014 to conduct medical research, conditional on the hospital raising $500,000 from other d...