Good Faith Hospital needs to sell bonds to finance major renovations and purchases of modern equipment. The hospital recently experienced difficulties, however, and its operating margin for the past 3 years fell below the median operating margin for hospitals of similar size. The hospital is preparing its financial statements, and preliminary indications are that its operating margin will continue its downward slide. The CFO is concerned that the bond- rating agency will lower the hospital’s bond rating, resulting in an increase in the interest rate on the new bonds. The CFO wants to report a higher operating margin than that of the previous year. He tells the chief accountant: “I don’t want you to do anything you shouldn’t do, but we both know that higher interest rates on the new bonds will reduce our operating margin even further. Just sharpen your pencil to see if you can reduce this year’s provision for uncollectible patient receivables and estimated third- party settlements.” If you were the chief accountant, how would you react to the CFO’s request?
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