Accounting for Governmental and Nonprofit Entities, 18e (Reck)
1) Financial reporting standards for all hospitals are established by the FASB.
2) Patient service revenues and related receivables exclude charges for charity care services.
3) In accounting for health care entities, the account Provision for Bad Debts should be reported as
a contra-revenue, rather than as an expense.
4) Under the FASB GAAP hierarchy the AICPA Audit and Accounting Guide Health Care
Entities would be category (b) authoritative guidance.
5) In accordance with the FASB Codification, an expense for diabetes research that was financed
by restricted contributions would be recorded as a decrease in net assets without donor restrictions
by a not-for-profit health care organization.
6) FASB standards require that not-for-profit health care entities prepare a statement of changes in
net assets.
7) Under GAAP, both governmental and nongovernmental not-for-profit health care entities are
required to identify operating and nonoperating activity on their operating statements.
8) Health care is provided by organizations that may be for-profit, not-for-profit, or governmental;
although over half of all nonfederal health care is provided by not-for-profit entities.
9) Similar to other not-for-profit entities, health care entities are required under FASB standards to
report program and support functional expenses.
10) Assets set aside by the governing board for the eventual construction of a hospital addition
should be recorded as “assets limited as to use.”
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11) A nongovernmental not-for-profit health care entity would report the net asset categories
unrestricted, restricted, and net investment in capital assets.
12) Continuing care retirement communities (CCRC) provide residential care in a facility, along
with some level of long-term medical care that is less intensive that hospital care.
13) All health care organizations report investments at fair value and report unrealized gains or
losses on the statement of operations.
14) The “equity” section (assets minus liabilities) of a health care entity’s balance sheet or
statement of net position will indicate whether the health care organization is for-profit,
not-for-profit, or governmental.
15) A contractual adjustment is recorded as a contra-revenue account.
16) The goal of financial and operational analysis of a health care entity is to determine if the entity
is profitable.
17) Similar to for-profit entities, under FASB standards, not-for-profit health care entities are
required to classify investments in debt securities into trading, available-for-sale, and held to
maturity for reporting purposes.
18) The purpose of a performance indicator is to provide an operating measure for not-for-profit
health care organizations that is equivalent to income from continuing operations of for-profit
health care organizations.
19) The GASB and the FASB provide the same criteria for recognizing and reporting services
donated to a health care entity.
20) Unlike other not-for-profit entities, the FASB requires health care entities to prepare a
statement of changes in net assets.
21) The format for a not-for-profit health care entity’s statement of operations is the same as that
for other types of not-for-profits; the FASB requires a different title on the statement since most
revenues are derived from user charges.
22) In accordance with the FASB Codification estimated uncollectible account amounts are
reported in the same manner for patient accounts receivable and donor pledges receivable.
23) Assets limited as to use are assets without donor restrictions whose use is limited by parties
other than donors or grantors.
24) In accordance with the FASB Codification, net assets released from restriction should be
included as part of the performance indicator on a health care entity’s statement of operations.
25) Both the FASB and the GASB would require that a contribution received for the construction
of a future medical facility be reported as an investing activity on the statement of cash flows.
26) When assessing the financial condition of a health care entity, the excess margin percentage
includes only income from operating activities.
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27) When assessing the financial condition of a health care entity, the average age of plant measure
assists with assessing the short-term need for capital resources.
28) Which of the following entities would not be considered a health care organization?
A) The Heart Research Institute.
B) The St. George Hospital.
C) The Family Practice Medical Clinic.
D) The Northeast Health Maintenance Organization.
29) Which of the following is (are) considered an authoritative source of GAAP for
nongovernmental not-for-profit health care entities?
A) The AICPA Audit and Accounting Guide Health Care Entities.
B) The Healthcare Financial Management Associations’ Financial Accounting and Reporting
C) The FASB Accounting Standards Codification (ASC).
D) All of the options given are considered GAAP according to the GAAP hierarchy.
30) Which of the following is not a financial statement prepared by nongovernmental
not-for-profit health care entities?
A) Statement of changes in net assets.
B) Statement of revenues, expenses, and changes in net assets.
C) Balance sheet.
D) Statement of cash flows.
31) Contractual adjustments that arise from differences between the gross charge for patient
services and the amount paid by a third party payor are reported as:
A) Deductions from gross patient revenue in arriving at net patient revenue.
B) Disclosures in the notes to the financial statements.
C) Either deductions from gross patient revenue or disclosure in the notes, depending on the dollar
amount of the adjustments relative to billings.
D) Bad debt expense.
32) Which of the following would be considered an asset limited as to use?
A) Cash donated for an endowment.
B) Cash from a federal research grant, which is to be used for water quality research.
C) Cash designated for equipment acquisitions by the board of directors.
D) Cash contributions that are to be used for the building fund.