Chapter 16 - Accounting for Health Care Organizations

CHAPTER 16:

ACCOUNTING FOR HEALTH CARE ORGANIZATIONS

OUTLINE

Number 'ue!#io(!: 16-1 1616-$ 16-& 16-' 16-6 16-7 16-, 16-. 16-1/ C !e!: 16-1 1616-$ 16-&

Topic

Type/T !"

S# #u! $re: 1%/e& 17-1 revised 1717-$ 17-& (e) 17-6 revised 17-7 (e) 17-. (e) 17-1 revised 17(e) 17-& revised 17-1 revised 17(e) (e) 17-' 17-6 (e) 17-,5 revised

Standards-setting authority !inancial state"ents %eductions fro" revenue Capital assets Operating state"ents *estricted gifts Assets li"ited as to use H-Os and CC*C %iagnosis-related groups !inancial and operational perfor"ance Charity care Organizational for" 0atient 0rotection and Afforda+ility Act Evaluating the 2uality of health care

Explain #ist Explain Co"pare Co"pare %escri+e Explain Co"pare Explain *esearch Evaluate Evaluate 1nternet 1nternet -ultiple Choice Classifying 4ournal entries Evaluate 4ournal entries5 prepare partial financial state"ent 4ournal entries !inancial state"ent preparation 4ournal entries5 financial state"ent preparation

E)erci!e!/Prob*em!: 16-1 3arious 16*evenue classifications 16-$ 3arious unrelated transactions 16-& 0erfor"ance indicators 16-' *evenue and related transactions 16-6 16-7 16-, 6overn"ental hospital7enterprise fund (ot-for-profit hospital7financial state"ents (ot-for-profit hospital78ournal entries and financial state"ents

16-1

Chapter 16 - Accounting for Health Care Organizations

CHAPTER 16: ACCOUNTING FOR HEALTH CARE ORGANIZATIONS

Ans)ers to 9uestions 16-1: %isagree: 1t is true that the !AS; is the authoritative source for esta+lishing accounting and financial reporting standards for for-profit and not-for-profit health care organizations< ho)ever5 the 6AS; is the authoritative source for govern"ental health care organizations: 16- : =he !AS; re2uires health care providers to issue a state"ent of financial position5 state"ent of operations5 and a state"ent of cash flo)s5 as )ell as notes to the financial state"ents: Additionally5 infor"ation concerning changes in net assets is to +e included in a state"ent of operations and changes in net assets or in a separate state"ent of changes in net assets: Considera+le discretion is allo)ed in presenting financial infor"ation: 6overn"ental health care organizations that engage in +usiness-type activities provide a state"ent of net position >+alance sheet?< a state"ent of revenues5 expenses5 and changes in net position< a state"ent of cash flo)s< and notes to the financial state"ents: 1n accordance )ith the 6AS; standards5 govern"ental health care organizations "ust also present a "anage"ent@s discussion and analysis: 16-$: !AS; ASC .'&-6/'-&' indicates that patient discounts and contractual ad8ust"ents are netted against gross patient revenue in arriving at net patient revenue: =he 0rovision for ;ad %e+ts is reported as an operating expense +y not-for-profit health care organizations: Charity service is not reported on the state"ent of operations< ho)ever5 the a"ount as )ell as "anage"ent@s policies regarding charity service "ust +e disclosed in the notes to the financial state"ents: =he one difference +et)een not-for-profit organizations and govern"ental organizations is in the recognition of +ad de+ts: =he 6AS; re2uires that any provision for +ad de+t +e netted against patient revenue >i:e:5 a provision for +ad de+ts is considered a contra-revenue not an operating expense?: 16:&: 0erfor"ance indicators relate to the results of operations: An exa"ple of a perfor"ance indicator is the excess of revenues and gains over expenses and losses: 1te"s that )ould +e o"itted fro" the perfor"ance indicator includeA extraordinary ite"s5 discontinued operations5 cu"ulative effect of an accounting change5 unrealized gainsBlosses on other than trading securities5 distri+utionsBreceipts fro" o)ners5 and restricted contri+utions: =he perfor"ance indicator5 excess of revenues and gains over expenses and losses5 is intended to +e co"para+le to inco"e after taxes >+ut +efore discontinued ite"s? of a forprofit organization: Although there are several si"ilarities in the presentation of the state"ents5 so"e of the differences in presentation are sho)n on the ta+le +elo):

16:':

16-

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Ans)ers5 16-' >ContCd?

I#em =itle

No#+,or+pro,i# Pre!e(# #io( State"ent of operations

Go-er(me(# Pre!e(# #io( State"ent of revenues5 expenses5 and changes in net position 6AS; re2uires operating and nonoperating activity sections +e displayed 6AS; does not re2uire such an indicator >ho)ever5 +y construction a si"ilar type of "easure )ould +e displayed?: All operating activity is presented on the state"ent of revenues5 expenses5 and changes in net position

0resentation of operating and nonoperating activities 0erfor"ance indicator

!AS; does not re2uire that revenues andBor expenses +e displayed as operatingBnonoperating !AS; re2uires an indicator co"para+le to a for-profit@s inco"e fro" continuing operations "easure Only unrestricted net asset activity and net assets released fro" restrictions are presented: >(oteA the state"ent of changes in net assets sho)s te"porarily and per"anently restricted net asset activity:? *eported as an operating expense

(et assetBposition classifications

0resentation of +ad de+ts

1s recorded as a contraaccount and netted against the revenue account for presentation:

16-6: a: 1f =upper is a govern"ental hospital using +usiness-type accounting >the "ost co""on case?5 it )ould report the D'/5/// contribution as nonexchange >generally nonoperating? revenue on the state"ent of revenues5 expenses5 and changes in net position: Since the pledge a"ount is not availa+le5 the ti"e re2uire"ent for recognition under 6AS; standards is not "et: At the fiscal year end5 =upper )ould need to ad8ust restricted net position on the state"ent of net position to reflect the increase of D'/5/// related to the donor restricted contri+ution for heart research: 1n the su+se2uent period the pledged D'/5/// )ould +e recognized as nonexchange revenue5 assu"ing the donor honors the pledge: b. 1f =upper is a not-for-profit hospital5 it )ould report D1//5/// as an increase in te"porarily restricted net assets on its state"ent of changes in net assets: =he full

16-$

Chapter 16 - Accounting for Health Care Organizations

Ch: 165 Ans)ers5 16-6 >ContCd?

D1//5/// is te"porarily restricted due to the re2uire"ent the funds +e used for heart research: Additionally5 the pledge a"ount is te"porarily restricted due to the ti"e constraint: On the +alance sheet the D1//5/// )ould +e sho)n as (et Assets7 =e"porarily *estricted: 16-7: =he !AS; recognizes assets limited as to use as unrestricted assets )hose use is li"ited +y contract or agree"ents )ith outside parties5 or +y the governing +ody: *estrictions i"posed on assets +y donors or grantors are not included in the definition of assets limited as to use: =he 6AS; defines restricted assets as those )ith restrictions such that the restriction li"its the a+ility of the entity to use the asset to pay current lia+ilities: Ender the 6AS; definition a restriction can include contracts or agree"ents )ith outside parties5 and donor or grantor restrictions: 16-,: (o: H-Os record pre"iu" revenue as earned revenue as soon as a contract to provide care is entered into: =his revenue represents prepay"ent for the care that )ill +e provided under the H-O contract: !AS; re2uires that a portion of advanced fee revenue received +y a CC*C +e recorded as deferred revenue if there is an expectation that a portion of the advance fee )ill +e returned: 16-.: =he federal govern"ent initiated the %*6 >diagnosis-related group? syste" in 1.,& in connection )ith -edicare pay"ents to hospitals for inpatient services: 0ay"ent to the provider is +ased on the %*6 case-"ix classification >e:g:5 "aternity patient or heart transplant patient?5 a relative index5 and predeter"ined rates of pay"ent: =he hospital often does not receive the full cost of treating the patient: =he cost accounting syste" "ust ade2uately capture the cost of each %*6 and a Fcost reportG "ust +e filed )ith the govern"ent each year: 16-1/: =here are "any organizations "entioned in the text that co"pile +ench"arHing data+ases: 1t is highly liHely that the hospital is a "e"+er of at least so"e of the organizations "entioned5 and as a result5 the +oard "e"+er )ould have little trou+le o+taining data to assist in his assess"ent of the hospital: So"e of the organizations "entioned in the text are the Healthcare !inancial -anage"ent Association5 )hich annually co"piles +ench"arH data and provides for"ulas for calculating financial indicators provided in the data< Health Care Accounting and !inance ;ench"arHing Association< and Consu"er Assess"ent of Healthcare 0roviders and Syste"s5 )hich )as created +y three federal agencies: Solutions to Cases 16-1: a: =here are no precise guidelines discussed in the text or in 1nternal *evenue Service announce"ents regarding the a"ount of charity care that "ust +e provided in order to retain tax-exe"pt status: =he ;urton-Hill Act of 1.&6 that "ade construction loans availa+le to hospitals did re2uire that so"e level of care to indigent patients +e delivered< ho)ever5 the act does not provide any "ini"u" a"ounts of care:

16-&

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 Case 16-1 >ContCd?

b: =he chart sho)s that if charity care alone is considered all three hospitals fall short of the esti"ated taxes the hospitals )ould pay if they )ere not tax-exe"pt: Ihen contractual ad8ust"ents are added to the charity care all three hospitals exceed the esti"ated taxes the hospitals )ould pay: 1f the extra costs incurred for co""unity service progra"s are included5 "ore evidence exists to indicate that the hospitals are "eeting their Fo+ligationG to serve the pu+lic at large: 0resu"a+ly the unpaid cost of -edicaid and -edicare is the contractual ad8ust"ent that arises related to -edicaid and -edicare services: =eaching and research hospitals that are not fully rei"+ursed for research or graduate "edical education )ould report the expenses related to this function5 +ut )ould not consider this Fcharity service:G Students )ill undou+tedly have different opinions on )hat should +e included in deter"ining if the hospitals have provided FsufficientG charity care to Ffulfill their o+ligations:G (ote that this chart )as prepared +y a reporter and the nu"+ers used "ay neither +e audited nor directly co"para+le across hospitals: c. =he audited annual financial state"ents of these three hospitals )ould +e useful: =he a"ount of charity care and the hospitals@ policies should +e disclosed in the notes to the financial state"ents: Ie could also deter"ine the difference in size and purpose of the hospitals5 )hich "ay +e relevant: Ie "ight also +e a+le to calculate the a"ount of taxes that )ould +e paid if the organization )as not tax-exe"pt: 0resu"a+ly the reported Festi"ated taxesG )as +ased on the Fexcess of revenues over expensesG< ho)ever5 it is not clear )hether all ite"s on a state"ent of operations )ould +e su+8ect to taxation: 16- : a: Although t)o +oard "e"+ers raised concerns a+out the 2uality of care and pricing structures5 one should not overlooH the possi+ility that political factors "ay influence all +oard "e"+ers@ vie)s: Apparently5 the t)o "inority "e"+ers are concerned that the A;C -edical 6roup focuses too "uch on profita+ility and not enough on charity care and afforda+le "edical care for uninsured patients: =he li"ited financial infor"ation provided suggests that their concerns "ay +e valid: Enless A;C can 8ustify SuffolH County Hospital@s reported profit "argin of a+out 6$ percent on sales >net inco"e of D1/:. "illion divided +y revenues of D17:& "illion? as necessary for capital i"prove"ents5 or so"e other valid reason5 the o+served profit "argin see"s excessive: Another possi+ility that should +e exa"ined is )hether A;C provides ad"inistrative or other services to SuffolH County Hospital that are not charged as expenses: =he +oard should also checH )hether the current year profit "argin is typical or atypical +y co"paring it to the hospital@s profit "argin for the past fe) years: !inally5 the +oard should checH )ith a national health care association or +ond rating agency to deter"ine )hether the hospital@s profit "argin and other i"portant financial ratios are excessive )hen co"pared )ith national +ench"arHs: Apparently5 the three "a8ority "e"+ers also +elieve that the hospital "ay +e "aHing excessive profit5 +ecause they )ould liHe to negotiate a +etter deal for the county +y increasing the county@s share of profit to / percent: =hese "e"+ers have not expressed the sa"e concerns a+out A;C@s "anage"ent perfor"ance that the other t)o "e"+ers have:
16-'

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 Case 16- >ContCd?

An o+8ective analysis of the facts is the +est approach to overco"e )hat "ay5 in part5 +e political and local "edia hype: 1n conducting your analysis as a foundation for a reco""endation5 you should use ))):hospitalco"pare:hhs:gov to co"pare SuffolH County Hospital@s 2uality of care scores to those of other si"ilar hospitals and to national +ench"arHs: 1n addition5 you should investigate the level of charity care provided +y the hospital in recent years and ho) that level co"pares )ith that of other hospitals in the region: 1f A;C -edical 6roup is forthco"ing )ith detailed financial infor"ation a+out SuffolH County Hospital5 you should contact the Health Care !inancial -anage"ent Association to o+tain infor"ation for calculating the 11 Hey financial ratios discussed in this chapter5 as )ell as +ench"arH data for these ratios: Jour reco""ended action to the hospital +oard should reflect your careful analysis: b: ;ased on the extensive local "edia coverage and strong de+ate )ithin the co""unity5 factors such as ensuring that county and area patients are +eing )ell served and cared for are pro+a+ly the "ost i"portant: Conse2uently5 the +oard should conduct local opinion surveys and focus groups5 in addition to your report and reco""endations5 to ensure that they are considering all relevant factors: Such o+8ective evidence5 rather than Hnee-8erH political reactions5 should +e the +asis for a decision )hether or not to rene) the lease and "anage"ent contract )ith A;C -edical 6roup5 or to renegotiate the contract if a decision is "ade to rene) it: 16-$: a. =he pri"ary purpose of the act is health insurance refor": *efor"s re2uired under the act are intended to enhance the 2uality of health care +y holding insurance co"panies "ore accounta+le5 lo)ering health care costs5 and guaranteeing "ore health care choices: =he act contains nu"erous provisions: As a result5 the provisions of the act are +eing i"ple"ented over a five year period: So"e provisions +eca"e effective i""ediately )ith other provisions going into effect over the period /1/ through /1&: (u"erous provisions of the act have already +een enacted: So"e of the provisions enacted in /1/ includeA Expanded coverage for young adults7it generally allo)s young adults to stay on their parents@ plan until they turn 6: S"all +usiness tax credits for health insurance: 0re-existing condition7provides an insurance plan for those individuals uninsured for the 6-"onth )aiting period generally re2uired due to pre-existing "edical conditions: Expanded health insurance coverage for early retirees >those +et)een '' and 6'?: -edicare prescription drug gap coverage: !ree preventive health care coverage >e:g:5 "a""ogra"s and colonoscopies?: 0rohi+ition against rescinding insurance coverage: Eli"ination of lifeti"e li"its on insurance coverage:

b:

c.

16-6

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 Case 16-$ >ContCd?

d.

=he purchase of health care provision is a very controversial aspect of the Act: =his provision of the Act )ill re2uire that all individuals )ho can afford health insurance +e re2uired to purchase health insurance: =he intent of this provision is to increase the insurance pool to the point it )ill include "any "ore healthy individuals than those that are ill: ;y doing this the cost of health insurance pre"iu"s to all participants should theoretically decline relative to the current cost of health insurance pre"iu"s: One of the controversies surrounding this provision is that the federal govern"ent is forcing an individual to pay for a +enefitBservice the individual "ay personally feel heBshe does not need or )ant: =his provision of the Act should help generate a good discussion5 given that students tend to +e younger and healthier than those )ho )ould "ost i""ediately +enefit fro" the enact"ent of the provision >older and less healthy individuals )ho )ould see lo)er pre"iu"s?: =he argu"ent raised that the govern"ent does not have a right to force individuals to purchase insurance is an interesting one7so"e points that can +e "ade relate to federal versus state po)ers as outlined in the constitution >generally health care has +een a state right?< the fact that everyone is already generally re2uired to pay for social security and -edicare< and the idea that health insurance under the Act@s provisions is supposed to +e provided +y a non-govern"ent entity5 )hich does "aHe it different >private for-profit entity or insurance pools in )hich for-profits participate? than paying for social security and -edicare:

16-&: a:

Jou )ill learn that the Ie+ site ))):hospitalco"pare:hhs:gov5 sponsored +y the %epart"ent of Health and Hu"an Services provides a variety of patients hospital experience5 process of care, and outcomes of care perfor"ance "easures for nu"erous hospitals: =he process of care categories includeA heart attacH care5 heart failure care5 pneu"onia care5 surgical care i"prove"ent pro8ect5 and asth"a care for children: Outco"e of care categories are the death rate and the read"ission rate: Outco"e "easures are +ased on the -edicare population5 )hich includes those 6' and older: *ather than a specific ratio or percentage5 the outco"e of care "easures are +ench"arHed against the national rate )ith an indication of )hether the "easure is the sa"e or different fro" the national rate:

b. Each student )ill find different data depending on the particular hospitals they choose to co"pare: Students should +e surprised to find ho) co"plete these data are and ho) easy it is to access the data: 1n their overall evaluation >ite" &?5 students )ill pro+a+ly assign different )eights to "easures: !or exa"ple5 so"e "ay )eight patients@ hospital experience "easures "ore highly than outco"e of care "easures: c: Student@s explanations )ill vary depending on the a"ount of effort and creativity they +ring to this analysis: =hey should +e a+le to appreciate that certain hospitals5 such as pu+lic hospitals that disproportionately serve an underprivileged populace or hospitals )ith an unusually large nu"+er of -edicare patients5 "ay have different
16-7

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 Case 16-& >ContCd?

2uality of care scores than hospitals )ith a "ore affluent5 +etter insured5 and younger patient "ix: Si"ilarly5 )ealthier health care organizations are "ore liHely to have state-of-the-art technology and perhaps the "ost highly 2ualified "edical staff: =hose hospitals "ay have a co"parative advantage over health care organizations )ith fe)er resources: !inally5 research hospitals or those that specialize in difficult or ter"inal types of conditions >e:g:5 infectious diseases5 cancer5 or geriatric specialties? "ay have different outco"e of care scores: Solutions to Exercises and 0ro+le"s 16-1: 1: : $: &: ': 16- : 1: : $: &: a. c. b. f. ': 6: 7: e. c. c. ,: a: b: c: c: a: 6: 7: ,: .: 1/: b: a: c: d: c:

c.

16-,

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions >ContCd?

16-3. a. NOT-FOR-PROFIT FACILITY JOURNAL Debits 1. ASSETS LIMITED AS TO USECAS CAS $. ACCOUNTS AND NOTES RECEI%A&LE CONTRACTUAL ADJUSTMENTS PATIENT SER%ICE RE%ENUE (N)te *+,rit- *,re is .)t re*)rded i. t+e /)0r.,1.2 3. PRO%ISION FOR &AD DE&TS ALLO4ANCE FOR UNCOLLECTI&LE RECEI%A&LES 3. 5ENERAL SER%ICES E6PENSE CONTRI&UTIONSUNRESTRICTED !. CAS CONTRI&UTIONSPERMANENTLY RESTRICTED b. &USINESS-TYPE 5O%ERNMENT FACILITY JOURNAL Debits 1. CAS &OND REPAYMENT CAS Credits !""#""" !""#""" 1#!""#""" 1#!""#""" 1""#""" 1""#""" 3!#""" 3!#""" '6!#""" !3!#""" 1#!""#""" Credits !""#""" !""#"""

(N)te t+e 7)8er.9e.t :,*i1it- is re*)rdi.7 restri*ted *,s+ ,.d ;)01d re<)rt it i. t+e restri*ted ,sset se*ti). ): t+e st,te9e.t ): .et <)siti).= ;+ere,s# t+e NFP is re<)rti.7 ,. ,sset 1i9ited ,s t) 0se.2 $. T+e /)0r.,1 e.tr- is t+e s,9e :)r t+e 7)8er.9e.t :,*i1it-.

16-.

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-$ >ContCd?

3. T+e /)0r.,1 e.tr- is t+e s,9e :)r t+e 7)8er.9e.t :,*i1it-= +);e8er# t+e ,**)0.ts 0sed ,re di::ere.t. T+e Pr)8isi). :)r &,d Debts ,**)0.t re<rese.ts ,. )<er,ti.7 e><e.se :)r , NFP ,.d , *).tr,-re8e.0e ,**)0.t :)r , 7)8er.9e.t :,*i1it-. 3. A 7)8er.9e.t :,*i1it- ;)01d .)t re*)rd t+e d).,ted ser8i*es# si.*e t+e 5AS& st,.d,rds d) .)t <r)8ide :)r re*)7.iti). ): d).,ted ser8i*es. !. CAS RE%ENUECONTRI&UTIONS FOR ENDO4MENT 1#!""#""" 1#!""#"""

(N)te ,t t+e e.d ): t+e re<)rti.7 <eri)d t+e 7)8er.9e.t :,*i1it- ;)01d ,d/0st t+e ,**)0.t Net P)siti).Restri*ted t) re:1e*t t+e i.*re,se i. t+e e.d);9e.t2 16-3. 1. $. 3. 3. !. 6. Y N Y Y Y N A&e1); t+e 1i.e ite9sB s0*+ ,s e>tr,)rdi.,r- ite9s# dis*).ti.0ed )<er,ti).s ,.d *+,.7e i. ,**)0.ti.7 <ri.*i<1e ,re .)t i.*10ded i. t+e <er:)r9,.*e i.di*,t)r. C. E. '. Y N Y A tr,.s:er ): *,s+ is .)t t+e s,9e ,s , tr,.s:er ): eD0it-# ;+i*+ ;)01d be e>*10ded :r)9 t+e <er:)r9,.*e i.di*,t)r. T+ere is , <0r<)se restri*ti). ). t+e 7r,.t. U.re,1i?ed 7,i.s@1)sses ). only tr,di.7 t-<e se*0rities ,re i.*10ded i. t+e <er:)r9,.*e i.di*,t)r O<er,ti.7 <er:)r9,.*e re1,tes t) 0.restri*ted .et ,ssets

1". Y

16-1/

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions >ContCd?

16-!. a.

DEAR&ORN 5ENERAL OSPITAL 5ENERAL JOURNAL Debits Credits E#$$$#""" '$E#""" '#1!"#""" 'C"#""" 'C"#""" !#36!#""" $#E!C#""" E#$$$#""" !#"""#""" !#"""#""" E3"#""" E3"#""" 1#$"" 1#$""

1. ACCOUNTS AND NOTES RECEI%A&LE CAS PATIENT SER%ICE RE%ENUE $. CAS OT ER RE%ENUE 3. CAS CONTRACTUAL ADJUSTMENTS ACCOUNTS AND NOTES RECEI%A&LE 3. CAS CONTRI&UTIONSTEMPORARILY RESTRICTED !. CAS OT ER RE%ENUES 6. PRO%ISION FOR &AD DE&TS

ALLO4ANCE FOR UNCOLLECTI&LE RECEI%A&LES b. U.restri*ted re8e.0es# 7,i.s# ,.d )t+er s0<<)rtF Net <,tie.t ser8i*e re8e.0e Ot+er re8e.0e G 6#$'3#""" 1#E1"#"""

c. T+e G!#"""#""" te9<)r,ri1- restri*ted *).trib0ti). ;)01d be re<)rted ,s <,rt ): t+e st,te9e.t ): *+,.7es i. .et ,ssets# ,ss09i.7 , se<,r,te st,te9e.t is <re<,red# )r )<ti).,11- ,s , <,rt ): t+e *+,.7es i. .et ,ssets se*ti). ): t+e st,te9e.t ): )<er,ti).s.

16-11

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions >ContCd?

16-6. a.

1.

NIC OLS COUNTY OSPITAL 5ENERAL JOURNAL FOR T E YEAR $"13 Debits Credits ACCOUNTS AND NOTES RECEI%A&LE 1#363#'"" PATIENT SER%ICE RE%ENUES 1#363#'"" !$#""" !$#""" 63$#""" 3"#$"" 63$#""" 3"#$"" !6#!"" !"#""" 6#!"" $""#""" $""#""" $""#""" $""#""" 3'#""" 3'#""" !"" 1#'"" $E#6"" 31#"""

$.

PATIENT SER%ICE RE%ENUES ACCOUNTS AND NOTES RECEI%A&LE

3.

CONTRACTUAL ADJUSTMENTS PRO%ISION FOR &AD DE&TS ACCOUNTS AND NOTES RECEI%A&LE ALLO4ANCE FOR UNCOLLECTI&LE ACCOUNTS

3.

CAS RE%ENUE5RANTS H CONTRI&UTIONS IN%ESTMENT INCOME

!.

RESEARC CAS CAS

E6PENSES

RE%ENUE5RANTS H CONTRI&UTIONS 6. EIUIPMENT CAS CAS LOSS ON DISPOSAL OF EIUIPMENT ACCUMULATED DEPRECIATIONEIUIPMENT EIUIPMENT

16-1

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-6 >ContCd?

C.

NIC OLS COUNTY OSPITAL 5ENERAL JOURNAL Debits FISCAL AND ADMINISTRATI%E SER%ICE E6PENSES 5ENERAL SER%ICES E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES IN%ENTORY ACCRUED E6PENSES PAYA&LE %OUC ERS PAYA&LE

Credits $31#E"" $!3#1"" !E!#""" 1E!#6"" 6C#!"" C#$"" 1#33"#$"" 1#1!'#""" 11#'"" 1#1C"#'"" 1#"31#$"" 1#"31#$"" 6E#""" 6E#""" E"" E"" 1$3#""" !1#""" C3#"""

E.

CAS ALLO4ANCE FOR UNCOLLECTI&LE ACCOUNTS ACCOUNTS AND NOTES RECEI%A&LE

'.

%OUC ERS PAYA&LE CAS

1".

NURSIN5 SER%ICES E6PENSES IN%ENTORY

11.

ACCRUED INTEREST RECEI%A&LE IN%ESTMENT INCOME

1$.

DEPRECIATION E6PENSE ACCUMULATED DEPRECIATION&UILDIN5S ACCUMULATED DEPRECIATIONEIUIPMENT

16-1$

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-6 >ContCd?

Debits 13. Closing Entries: PATIENT SER%ICE RE%ENUES IN%ESTMENT INCOME RE%ENUE5RANTS H CONTRI&UTIONS JNET POSITIONUNRESTRICTED CONTRACTUAL ADJUSTMENTS PRO%ISION FOR &AD DE&TS RESEARC E6PENSES FISCAL AND ADMINISTRATI%E SER%ICES E6PENSES 5ENERAL SER%ICES E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES DEPRECIATION E6PENSE LOSS ON DISPOSAL OF EIUIPMENT JNOTEF

Credits 1#31$#'"" C#3"" $!"#""" C!1#3"" 63$#""" 3"#$"" $""#""" $31#E"" $!3#1"" 6!3#""" 1E!#6"" 1$3#""" 1#'""

A1t+)07+ it ;,s .)t dis*0ssed i. t+e *+,<ter (see *+,<ter C2# it ;)01d be .e*ess,r- t) ,d/0st Net P)siti).U.restri*ted# Net P)siti). Restri*ted# ,.d Net P)siti).Net I.8est9e.t i. C,<it,1 Assets :)r t+e e::e*ts ): *,<it,1 ,sset ,*D0isiti).s ,.d dis<)siti).s (e.tr- 62# ,.d de<re*i,ti). (e.tr- 1$2. 5AS& st,.d,rds reD0ire t+,t .et <)siti). be re<)rted i. t+ese t+ree *,te7)riesF 0.restri*ted= restri*ted= ,.d .et i.8est9e.t i. *,<it,1 ,ssets.

b. Net <,tie.t ser8i*e re8e.0e ;)01d beF P,tie.t ser8i*e re8e.0e ,d/0sted :)r *+,rit- *,re (tr,.s,*ti).s 1 ,.d $2 1essF C).tr,*t0,1 ,d/0st9e.ts Net <,tie.t ser8i*e re8e.0e G1#31$#'"" (63$#"""2 G 6E"#'""

16-1&

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions >ContCd?

16-C. a. OPERATIONS

C RISTINA RE A&ILITATION

OSPITAL STATEMENT OF

FOR YEAR ENDED SEPTEM&ER 3"# $"13

("""s )9itted2

UNRESTRICTED RE%ENUE# 5AINS AND OT ER SUPPORTF NET PATIENT SER%ICE RE%ENUE (.)te 12 OT ER OPERATIN5 RE%ENUE IN%ESTMENT INCOME TOTAL RE%ENUE AND 5AINS E6PENSES AND LOSSES (.)te $2F SALARY E6PENSE SUPPLIES E6PENSE PRO%ISION FOR UNCOLLECTI&LE ACCOUNTS DEPRECIATION E6PENSE INTEREST E6PENSE UNREALIKED LOSS ON IN%ESTMENTS TOTAL E6PENSES AND LOSSES E6CESS OF RE%ENUES AND 5AINS O%ER E6PENSES AND LOSSES NET ASSETS RELEASED FROM RESTRICTIONSF SATISFACTION OF PURPOSE RESTRICTIONS INCREASE IN UNRESTRICTED NET ASSETS 1#"1" G 3#!!" 3#!3" G33E#!$" 13"#61" 1C#"3" $!#$3" !#13" '!" !$C#3C" G!1$#3E" 11#33" C#3"" !31#"1"

16-1'

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-7 >ContCd?

STATEMENT OF C AN5ES IN NET ASSETS FOR YEAR ENDED SEPTEM&ER 3"# $"13
("""s )9itted2

UNRESTRICTED NET ASSETS (see <,rt 1 ,b)8e2F E6CESS OF RE%ENUES AND 5AINS O%ER E6PENSES AND LOSSES NET ASSETS RELEASED FROM RESTRICTIONS INCREASE IN UNRESTRICTED NET ASSETS TEMPORARILY RESTRICTED NET ASSETSF CONTRI&UTIONS IN%ESTMENT INCOME UNREALIKED 5AIN ON IN%ESTMENTS NET ASSETS RELEASED FROM RESTRICTIONS INCREASE IN TEMPORARILY RESTRICTED NET ASSETS PERMANENTLY RESTRICTED NET ASSETSF CONTRI&UTIONS INCREASE IN PERMANENTLY RESTRICTED NET ASSETSF INCREASE IN NET ASSETS NET ASSETS AT &E5INNIN5 OF T E YEAR NET ASSETS AT END OF T E YEAR 13" 13" 11#$C" 3$6#E1! G33E#"E! 6#!3" 3C" !'" (1#"1"2 6#!'" G 3#!3" 1#"1" 3#!!"

N)te 1F Net ): *).tr,*t0,1 ,d/0st9e.ts ,9)0.ti.7 t) G!!"#'E". N)te $F &e*,0se t+e .,t0r,1 *1,ssi:i*,ti). ): e><e.ses is 0sed ). t+e st,te9e.t# t+e +)s<it,1 ;)01d dis*1)se t+e :0.*ti).,1 *1,ssi:i*,ti).s i. t+e .)tes.

16-16

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-7 >ContCd?

b.

C RISTINA RE A&ILITATION OSPITAL &ALANCE S EET AS OF SEPTEM&ER 3"# $"13

("""s )9itted2

ASSETS CURRENT ASSETSF CAS AND CAS EIUI%ALENTS ACCOUNTS RECEI%A&LE (NET OF ALLO4ANCE FOR UNCOLLECTI&LES OF G16#!!"2 IN%ENTORY PREPAID E6PENSES TOTAL CURRENT ASSETS ASSETS LIMITED AS TO USEF IN%ESTMENTS PLED5ES RECEI%A&LE (NET OF DISCOUNT OF G'1"2 IN%ESTMENTS PROPERTY# PLANT# H EIUIPMENTF LAND G C#!E" &UILDIN5S G3$3#33" LESSF ACCUMULATED DEPRECIATION 13$#'6" 1E1#3E" EIUIPMENT $!'#16" LESSF ACCUMULATED DEPRECIATION 11E#"3" 131#1$" TOTAL PROPERTY# PLANT# H EIUIPMENT TOTAL ASSETS LIA&ILITIES AND NET ASSETS CURRENT LIA&ILITIESF ACCOUNTS PAYA&LE ACCRUED PAYA&LES INTEREST PAYA&LE CURRENT PORTION OF &ONDS PAYA&LE TOTAL CURRENT LIA&ILITIES LON5-TERM LIA&ILITIESF &ONDS PAYA&LE OT ER LON5-TERM LIA&ILITIES TOTAL LON5-TERM LIA&ILITIES TOTAL LIA&ILITIES NET ASSETSF UNRESTRICTED TEMPORARILY RESTRICTED PERMANENTLY RESTRICTED TOTAL LIA&ILITIES AND NET ASSETS G1!E#""" 1$6#C"" $E3#C"" 33E#$'" $$!#6!! E!#1'" $C#$3" G $"#C3" $6#C'" 1#"C" 1!#""" 63#!'" G 3!#!$! 3!#3"" E#31" 6#61" 1"!#E3! 3'#33" $#'1" 1'E#"""

33"#1E" G6E6#3C!

33E#"E! G6E6#3C!

16-17

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions >Cont@d?

16-E. a. %INCENT COMMUNITY OSPITAL 5ENERAL JOURNAL ENTRIES FISCAL YEAR $"13 Debits Credits ACCOUNTS AND NOTES RECEI%A&LE 3#3$$#'"" CONTRACTUAL ADJUSTMENTS PATIENT SER%ICES RE%ENUE OT ER OPERATIN5 RE%ENUES $. CAS ASSETS LIMITED AS TO USE CAS ACCOUNTS AND NOTES RECEI%A&LE IN%ESTMENT INCOME UNRESTRICTED 3. ADMINISTRATION E6PENSES 5ENERAL SER%ICES E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES ACCOUNTS PAYA&LE ACCRUED PAYROLL 3. NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES MORT5A5E PAYA&LE ACCOUNTS PAYA&LE ACCRUED PAYROLL ASSETS LIMITED AS TO USE CAS CAS !(a). ASSETS LIMITED AS TO USE CAS ASSETS LIMITED AS TO USE IN%ESTMENTS 1"#!'" 1"#""" 13"#""" 13"#""" !""#""" '36#E"" 1#!C'#!"" 3"#""" 3#3$6#3"" 3$1#6"" 36"#3"" '3E#""" 6E!#!"" E'1#""" 1#!13#!"" 3#!$"#6"" C#3!" 3#!$"#6"" C#3!" 16$#""" 3#!""#'"" E3#"""

1.

16-1,

Chapter 16 - Accounting for Health Care Organizations

IN%ESTMENT INCOME UNRESTRICTED

Ch: 165 Solutions5 16-, >Cont@d?

!'"

%INCENT COMMUNITY OSPITAL 5ENERAL JOURNAL ENTRIES Debits Credits (b). ASSETS LIMITED AS TO USE IN%ESTMENTS ASSETS LIMITED AS TO USE CAS (c). EIUIPMENT ASSETS LIMITED AS TO USE CAS 6. ADMINISTRATION E6PENSES 5ENERAL SER%ICES E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES ACCUMULATED DEPRECIATION &UILDIN5S ACCUMULATED DEPRECIATION EIUIPMENT 7(a). ADMINISTRATI%E SER%ICES E6PENSE ALLO4ANCE FOR UNCOLLECTI&LES (b). IN%ENTORY ADMINISTRATION E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES 5ENERAL SER%ICES E6PENSES C,1*01,ti).sF C3#1"" L C1#""" M $#1"" C#3"" L E#""" M (C""2 16#E"" L 1C#""" M ($""2 3"#""" L 3C#3"" M $#C"" '#""" L E#C"" M 3"" $#1"" C"" $"" $#C"" 3"" 3#E"" 3#E"" 36#E$! 36#E$! 'E#$"" C3#6!" 11C#""" 1$E#!"" 1$#3"" 1$#3"" 3"#""" 3"#"""

16-1.

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-, >Cont@d?

%INCENT COMMUNITY OSPITAL 5ENERAL JOURNAL ENTRIES Debits Credits C(c). MORT5A5E PAYA&LE !""#""" CURRENT PORTION OF MORT5A5E PAYA&LE E. UNREALIKED LOSS ON IN%ESTMENTS ASSETS LIMITED AS TO USE IN%ESTMENTS '. Closing EntryF PATIENT SER%ICES RE%ENUE OT ER OPERATIN5 RE%ENUES IN%ESTMENT INCOME UNRESTRICTED CONTRACTUAL ADJUSTMENTS ADMINISTRATION SER%ICES E6PENSES 5ENERAL SER%ICES E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES UNREALIKED LOSS ON IN%ESTMENTS NET ASSETS UNRESTRICTED# UNDESI5NATED 1". NET ASSETS# UNRESTRICTED# UNDESI5NATED NET ASSETS# UNRESTRICTED# DESI5NATED FOR PLANT REPLACEMENT $3#E6" $3#E6" 3#!""#'"" E3#""" C#'3" 16$#""" 36$#'$! 3'6#'$! 1#1C6#3"" E'6#3!" CE" 3'C#36" CE" CE" !""#"""

16- /

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-, >Cont@d?

b. ASSETSF CAS

%INCENT COMMUNITY OSPITAL &ALANCE S EET AS OF DECEM&ER 31# $"13 G $!'#3"" G 3$#3"" 1!#E"" $6#!"" C3#1"" 3!E#'"" 1C#13" $$'#$$" $36#36" $"E#""" 3#!16#""" 1#6$3#""" $#EE3#3"" 1#"$3#!"" 1#E!E#E"" 3#'!'#E"" G!#!6!#"6" G 1'#$"" 3!#""" !""#""" !63#$"" $#!""#""" 3#"63#$"" $#$!3#!"" $36#36" $#!""#E6" G!#!6!#"6"
16- 1

ACCOUNTS AND NOTES RECEI%A&LE LESSF ALLO4ANCE FOR UNCOLLECTI&LES IN%ENTORY TOTAL CURRENT ASSETS ASSETS LIMITED AS TO USEF CAS IN%ESTMENTS TOTAL ASSETS LIMITED AS TO USE PROPERTY# PLANT# AND EIUIPMENTF LAND &UILDIN5S LESSF ACCUMULATED DEPRECIATION EIUIPMENT LESSF ACCUMULATED DEPRECIATION TOTAL PROPERTY# PLANT# AND EIUIPMENT TOTAL ASSETS LIA&ILITIES AND NET ASSETSF ACCOUNTS PAYA&LE ACCRUED PAYROLL CURRENT PORTION OF MORT5A5E PAYA&LE TOTAL CURRENT LIA&ILITIES LON5-TERM DE&TMORT5A5E PAYA&LE TOTAL LIA&ILITIES NET ASSETSF UNRESTRICTED# UNDESI5NATED UNRESTRICTED# DESI5NATED TOTAL LIA&ILITIES AND NET ASSETS

$#E'3#"""

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-, >ContCd?

c.

%INCENT COMMUNITY OSPITAL STATEMENT OF OPERATIONS FOR YEAR ENDED DECEM&ER 31# $"13

UNRESTRICTED RE%ENUEF NET PATIENT SER%ICE RE%ENUE (NOTE 12 OT ER OPERATIN5 RE%ENUES TOTAL RE%ENUES E6PENSESF ADMINISTRATION E6PENSES 5ENERAL SER%ICES E6PENSES NURSIN5 SER%ICES E6PENSES OT ER PROFESSIONAL SER%ICES E6PENSES TOTAL E6PENSES E6CESS OF RE%ENUES O%ER E6PENSES NONOPERATIN5 5AINS (LOSSES2 IN%ESTMENT INCOMEUNRESTRICTED UNREALIKED LOSS ON IN%ESTMENTS TOTAL NONOPERATIN5 5AINS INCREASE IN UNRESTRICTED NET ASSETS C#'3" CE" C#16" G 3'C#36" G 36$#'$! 3'6#'$! 1#1C6#3"" E'6#3!" $#'3$#C"" 3'"#$"" G3#33E#'"" E3#""" 3#3$$#'""

NOTE 1F Net ): *).tr,*t0,1 ,d/0st9e.ts ,9)0.ti.7 t) G16$#""".

16-

Chapter 16 - Accounting for Health Care Organizations Ch: 165 Solutions5 16-, >ContCd?

d.

%INCENT COMMUNITY OSPITAL STATEMENT OF CAS FLO4S FOR YEAR ENDED DECEM&ER 31# $"13 FLO4 FROM OPERATIN5 ACTI%ITIESF G3'C#36"

CAS

C AN5E IN NET ASSETS ADJUSTMENTS TO RECONCILE C AN5E IN NET ASSETS TO NET CAS PRO%IDED &Y OPERATIN5 ACTI%ITIESF DECREASE IN ACCOUNTS RECEI%A&LE (NET2 INCREASE IN IN%ENTORY DECREASE IN ACCOUNTS PAYA&LE DECREASE IN ACCRUED PAYA&LES DEPRECIATION UNREALIKED LOSS ON IN%ESTMENTS NET CAS CAS PRO%IDED &Y OPERATIN5 ACTI%ITIES

1"1#!"" ($#1""2 (3!#E""2 (6!#"""2 $3!#!"" CE" C3$#$3"

FLO4S FROM IN%ESTIN5 ACTI%ITIESF G($"#"""2 (1$#3""2 (3$#3""2

PURC ASE OF IN%ESTMENTS PURC ASE OF EIUIPMENT NET CAS CAS USED IN IN%ESTIN5 ACTI%ITIES

FLO4S FROM FINANCIN5 ACTI%ITIESF (!""#"""2 (!""#"""2 1''#'3" C6#!"" G$C6#33" EIUI%ALENTS NET CAS USED IN FINANCIN5 ACTI%ITIES AND CAS EIUI%ALENTS# &E5INNIN5 OF T E YEAR EIUI%ALENTS# END OF YEAR

PAYMENT OF &OND PRINCIPAL NET INCREASE IN CAS CAS CAS AND CAS AND CAS

16- $