St. Joseph’s Hospital began operations in December 2019 and had patient service revenues totaling $1,000,000 (based on customary rates) for the month. Of this, $120,000 is billed to patients, representing their insurance deductibles and co-payments. The balance is billed to third-party payers, including insurance companies and government health care agencies. St. Joseph estimates that 20 percent of these third-party payer charges will be deducted by contractual adjustment. The Hospital’s fiscal year ends on December 31. 

Required: 

1. Prepare the journal entries for December 2019. Assume that 15 percent of the amounts billed to patients will be reduced through implicit price adjustments.

2. Prepare the journal entries for 2020 assuming the following:

a. $98,000 is collected from the patients during the year and $9,500 of price adjustment are generated to individuals.

b. Actual contractual adjustments total $181,000. The remaining receivable from third-party payers is collected.

3. The actual contractual adjustments differed from the amount initially estimated by the hospital. Briefly describe the type of accounting change this represents and the appropriate accounting treatment.