Question

Cort Hospital was established as a not- for- profit organization on January 1, 2013, to take over the assets of an existing hospital. The hospital does not use fund accounting. It had the following trans-actions during 2013.
1. The hospital sold revenue bonds in the amount of $ 40 million. The hospital received $ 38 mil-lion in cash from sale of the bonds. To provide security for payment of the debt service, the other $ 2 million was deposited in an escrow account with a trustee. The trustee immediately invested the cash in U. S. Treasury bills.
2. The physical assets of the existing hospital were purchased for $ 35 million in cash. The appraised values of the assets were as follows: land—$ 3 million; buildings—$ 28 million; and equipment—$ 4 million.
3. The hospital provided services of $ 20 million at its established rates to Medicare patients. Its agreement with Medicare provided for contractual adjustments of 30 percent against the established rates. By year- end, the hospital had collected $ 12.5 million against the billings.
4. The hospital provided services of $ 10 million at its established rates to patients insured by a third- party payer. Its agreement with the third party provided for contractual adjustments of 20 percent from the established rates. It also provided for a retrospective adjustment, based on a cost submission by the hospital 30 days after the end of the year. By year- end, the hospital had collected the entire amount that it was owed by the third- party payer. When it prepared its
financial statements, the hospital estimated that it owed the third party $ 80,000, but the final settlement had not yet been negotiated.
5. The hospital provided services to members of an HMO at rates per member, per month, receiv-ing cash premiums totaling $ 15 million for the year. The hospital’s internal records showed that, if billings had been made at its established rates, it would have charged the HMO $ 18 mil-lion for these services.
6. The hospital provided care to charity patients amounting to $ 2 million at its established billing rates. It estimated the direct and indirect costs of that care to be $ 1.4 million.
7. The hospital provided care to self- pay patients in the amount of $ 5 million at its established rates. The hospital collected $ 2 million against these billings. At year- end, the hospital estab-lished an allowance for uncollectible receivables of 40 percent of the remaining amount due from the self- pay patients.
8. The hospital had the following functional expenses. Of the amounts shown, $ 29 million was paid in cash. Depreciation on building and equipment (included in each function) was $ 1.4 million and $ 600,000, respectively.
Health care services...... $ 22 million
Dietary services ...... 4 million
Maintenance expenses ..... 2 million
Administrative expenses..... 3 million
9. The hospital paid debt service of $ 4 million on its bonds ($ 1.6 million in amortization of prin-cipal and $ 2.4 million in interest). It also made a year- end journal entry, reclassifying $ 1.6 mil-lion of long- term $1.6mil-lionoflong-term debt as current.
10. The hospital recorded accrued expenses at year- end as follows:
Health care services......... $ 2 million
Administrative expenses......... 500,000
11. The hospital paid $ 1 million for a claims- made policy for medical malpractice insurance through December 31, 2013. Because the policy did not transfer risk to the insurance carrier for incurred but not reported claims (IBNR), the hospital accrued $ 300,000 as a liability.
12. The hospital received a check from the trustee for $ 100,000, representing earnings on the investment made by the trustee with the escrow money. The investment income is available for the hospital’s general operations.
13. The hospital received equity securities from a donor who specified that the securities, together with any earnings thereon, be used for the purpose of upgrading the hospital buildings. The securities had a fair value of $ 250,000 when the donor made the gift. During the year, the hospital received dividends of $ 10,000 on the securities. At year- end, when the hospital prepared its financial statements, the securities had a fair value of $ 270,000. (Assume the hospital’s accounting policy provides for recording realized and unrealized gains and losses on restricted net assets in a single account.)
14. During 2013, the hospital created Cort Hospital Foundation, whose sole purpose is to obtain donations for the hospital. At year- end, the foundation advised the hospital that it had received cash donations of $ 300,000. Of this amount, $ 50,000 was unrestricted, and $ 250,000 was restricted for upgrading the hospital’s equipment. At the hospital’s request, the foundation sent to the hospital the entire $ 50,000 of cash received from unrestricted donations.
Use the preceding information to do the following:
a. Prepare the necessary journal entries to record these transactions.
b. Prepare a statement of operations for 2013.
c. Prepare a statement of changes in net assets for 2013.
d. Prepare a balance sheet as of December 31, 2013.



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  • CreatedDecember 30, 2014
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