Multiple Choice Questions

1. In a particular year, a not-for-profit hospital provides free care to charity patients, which, if billed at standard rates, has a value of $3 million. During the same period, it bills patients for $100 million. However, owing to contractual adjustments with insurance companies and other third-party payers, it expects to collect only $80 million. The hospital should report gross revenues of

a. $80 million

b. $83 million

c. $100 million

d. $103 million

2. In a particular year, owing to arrangements with an insurance company, a not-for-profit hospital receives $600,000 in capitation fees. During the year, however, it provides covered services, which, if billed at standard rates, have a value of only $500,000. The fees received from the insurance company are based on what the parties expect to be the average value of services provided. Hence, in some years, the amount received from the insurance company exceeds the value of services provided; in some years it is less. The hospital should report

a. Revenue of $500,000 and deferred revenue of $100,000

b. Revenue of $600,000, less an allowance of $100,000 for contractual adjustments

c. Revenue of $500,000 and a liability of $100,000

d. Revenue of $600,000

3. The fiscal year of Baker College, a private institution, ends June 30. However, the college conducts a summer session that begins June 1 and concludes August 30. In May 2013 the college collects $1,800,000 in summer session tuition. For the year ending June 30, 2013, the college should recognize summer session tuition revenue of

a. $0

b. $600,000

c. $900,000

d. $1,800,000

4. Several days prior to the end of its fiscal year, physicians at Healthy Heart Hospital negligently treated a patient, resulting in the patient’s death. Although the patient’s family has not yet asserted a claim against the hospital, itis likely to do so. Hospital officials are unable to make a reliable estimate of the magnitude of any eventual costs to the hospital, but they assume a range of $400,000 to $500,000. In its financial statements for the year in which the incident occurred, the hospital

a. Need not report the incident

b. Should report an expense and a liability equal to the hospital’s best estimate of the eventual costs

c. Should disclose the incident in notes to the financial statements, indicating the hospital’s best estimate of the range of eventual costs

d. Should disclose the incident in notes to the financial statements, without placing an estimate on the eventual costs

5. In their external financial statements, government colleges and universities

a. May opt to adhere to the standards of the FASB

b. May opt to report as special-purpose governments that are engaged in only business-type activities

c. Are not required to prepare government-wide statements

d. May opt to adhere to the AIPCA model

6. In its statement of activities, a hospital

a. Must classify all expenses by object

b. Must classify all expenses by function

c. May classify all expenses by object, but, if it does so, it must present a functional classification in notes

d. May classify all expenses by function, but, if it does so, it must present an object classification in notes

7. Depreciation on a hospital’s plant and equipment may be reported in a temporarily restricted fund if the plant and equipment

a. Were acquired with proceeds of bonds that were restricted to the acquisition of equipment

b. Were acquired with proceeds of donations that were restricted to the acquisition of equipment

c. Will be replaced with proceeds from bonds restricted to the acquisition of equipment

d. Will be replaced with proceeds from donations restricted to the acquisition of equipment

8. A government hospital, unlike a not-for-profit hospital,

a. Reports on a modified accrual basis

b. Has to report all investments at cost

c. Has to report its cash flows in four categories rather than three

d. Reports charity care as an expense, rather than as a deduction from revenues

9. A not-for-profit university receives an unrestricted contribution of $200,000. In its statement of cash flows, the contribution should be shown as a cash inflow from

a. Operating activities

b. Noncapital financing activities

c. Capital financing activities

d. Investing activities

10. A not-for-profit university accounts for its athletic department as an auxiliary enterprise. The operations of the department should be accounted for in a(n)

a. Proprietary fund

b. Auxiliary fund

c. Temporarily restricted fund

d. Unrestricted fund