Select the best answer 1 A not for pro t hospital signs a
Select the best answer.
1. A not-for-profit hospital signs a contract with an insurance company in which the company agrees to pay it $6 million in capitation fees for the year July 1, 2014 through June 30, 2015. Between July 1, 2014 and December 31, 2014, the hospital provides services that, at its standard rates, would bill at $3.4 million. Between January 1, 2014 and June 30, 2015, it provides services that it would bill at $2.8 million. For the year ending December 31, 2014, the hospital should recognize capitation revenue of
a. $0
b. $3 million
c. $3.4 million
d. $6 million

2. During a particular year, a not-for-profit hospital provides services that at standard rates would be billed at $200 million. This amount includes $10 million of charity care. Of the remaining $190 million, it estimates that $120 million will be billed to third- party providers which, per contractual agreements, will pay only 75 percent of the standards rate (i.e., $90 million). Of the $70 million to be billed to individuals, the hospital estimates that $40 million will have to be written off as bad debts. The hospital should recognize net patient care revenue of
a. $120
b. $160
c. $190
d. $200

3. A not-for-profit hospital received a restricted contribution of $10 million, which it used to purchase new equipment. It estimates that the useful life of the equipment will be 10 years with no salvage value. In the year of the contribution the hospital should recognize
a. Depreciation of $1 million classified as an unrestricted expense
b. A capital expense of $10 million classified as unrestricted
c. Depreciation of $1 million classified as a temporarily restricted expense
d. Net assets released from restriction of $1 million

4. A government hospital determines that the death of a patient was the result of negligence on the part of its medical staff. As of the date its financial statements are to be released, no claims have been asserted against the hospital. Nevertheless, based on past experience, the hospital is reasonably certain that a lawsuit will be forthcoming and estimates it will likely result in a required cash payment of between $3 and $5 million after accounting for insurance recoveries. In its financial statements the hospital should
a. Make no mention of the potential litigation and possible settlement
b. Record an expense of $4 million
c. Record an expense of $5 million
d. Disclose the nature of the incident and indicate the likely range of the loss

5. Ms. Wiley’s estate donated land with a fair market value of $600,000, and subject to a mortgage of $320,000 to Saint Joseph Hospital without any restriction. Which of the following entries should the St. Joseph hospital make to record this donation?

6. A donor gave $100,000 to a nonprofit hospital in 2013 with the restriction that it be used for the purchase of equipment. While the cash was received in 2013, the equipment was purchased in 2014. The hospital would record the $100,000 as:
a. A temporarily restricted revenue in 2013 and the equipment as an unrestricted fixed asset in 2014
b. A temporarily restricted revenue in 2013 and the equipment as a temporarily restricted fixed asset in 2014
c. A temporarily restricted revenue in 2014 and the equipment as an unrestricted fixed asset in 2014
d. Either a or b, depending on the choice of the hospital

7. The Gulf Coast Hospital, a not-for-profit health care institute, issued $140 million in term bonds to finance construction of a new cancer unit at its main hospital. Terms of the bond covenant stipulate that $10 million of the proceeds of the bond issue be invested in U.S. government securities and must be held until maturity of the bonds. The $10 million will increase which class of net assets?
a. Unrestricted net assets
b. Temporarily restricted net assets
c. Permanently restricted net assets
d. Either (b) or (c)

8. The Helping Hand Relief Hospital, a not-for-profit entity, received a pledge from a donor in support of a fund raising effort by the hospital to finance construction of a new unit for pediatric neurology treatment. The donor promised to pay $1 million in equal annual installments of $100,000 over the next 10 years. The present value of the gift at the risk-free interest rate is $736,000.
The amount of unrestricted revenue that should be recognized by Kale in the year of the gift is a. $1 million
b. $736,000
c. $100,000
d. $0

9. The Old-Fashioned Doc Clinic, a well-established health care organization, received a $500,000 pledge in fiscal year 2015 that was restricted to cover operating expenses. The gift was received over two years; $200,000 in the first year and $300,000 in the second year. The following table reflects the funds received as well as the amount spent on operating the clinic.

How much should The Old-Fashioned Doc Clinic report as ‘‘Support from Contributions’’ for the year ended June 30, 2016?
a. $0
b. $300,000
c. $340,000
d. $500,000

10. Using the same data as in Question 9, what should the Clinic report as Net Assets Released from Restrictions on the statement of activities for the fiscal year ended
June 30, 2016?
a. $300,000
b. $320,000
c. $340,000
d. $500,000

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