The 2012 annual report for HCA Inc., a nationwide chain of hospitals, contains the following statement in the footnotes to the financial statements:
Reserves for professional liability risks were $1.297 billion and $1.291 billion at December 31, 2012 and 2011, respectively. The current portion of this reserve, $324 million and $298 million at December 31, 2012 and 2011, respectively, is included in “other accrued expenses” in the consolidated balance sheet. Provisions for losses related to professional liability risks were $331 million, $244 million and $222 million for 2012, 2011, and 2010, respectively, and are included in “other operating expenses” in our consolidated income statements. Provisions for losses related to professional liability risks are based upon actuarially determined estimates. Loss and loss expense reserves represent the estimated ultimate net cost of all reported and unreported losses incurred through the respective consolidated balance sheet dates.

a. The term reserve refers to accrued liabilities. What portion of the reserves reported in 2012 and 2011 is listed in the current liability section of the balance sheet?
b. What entries were made in 2010, 2011, and 2012 to record additional reserves?
c. Estimate the cash payments made during 2012 to cover professional liability risks.
d. Discuss how management could manage earnings in this industry.

  • CreatedAugust 19, 2014
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