33) Which of the following statements is true about diagnosis-related groups (DRGs)?
A) DRGs are the basis for a cost accounting method that groups costs together by departments
performing the services.
B) A DRG is a case-mix classification scheme that is used to determine the payment provided to
the hospital for inpatient services, regardless of how much the hospital spends to treat a patient.
C) The federal Medicare system of retroactive payment for services depends on DRGs.
D) The DRGs method is the prevailing practice of billing third-party payors for a health care
organization’s average cost for providing care for locally defined similar medical conditions.
34) The primary source of revenue for most hospitals is:
A) Nonexchange transactions, such as contributions.
B) Exchange transactions, such as fees for services.
C) Investment income.
D) Capitation fees from health maintenance organizations.
35) A hospital originally recorded all patient services it provided as a $500,000 debit to accounts
receivable. Upon review the hospital determined that a contractual adjustment of $200,000 needs
to be made, and estimated bad debts of $5,000 need to be recorded. In addition, at the time the
receivable was recorded the hospital did not realize $100,000 should be considered charity
services. Based on the information provided, what is the net amount of accounts receivable that the
hospital would report on its financial statements?
A) $495,000.
B) $300,000.
C) $200,000.
D) $195,000.
36) Charity service and bad debts in a government hospital that follows business-type accounting
are:
A) Both reported as deductions from gross patient revenue in arriving at net patient revenue.
B) Both reported as expenses.
C) Reported differently, with charity service disclosed in the notes to the financial statements and
bad debts reported as a deduction from revenue.
D) Reported differently, with charity service reported as a deduction from gross patient revenue
and bad debts reported as an expense.
37) Which of the following volunteer services is most likely to be reported by a nongovernmental
not-for-profit hospital as contribution revenue and an expense?
A) Community members who plant flowers on the grounds once a year in the spring.
B) Volunteers in the gift shop who work a few hours a day serving customers.
C) Nurses from a religious organization who volunteer to assist in the care of critically ill children.
D) An accountant who is a member of the board of directors.
38) Which of the following could be included in the performance indicator measure provided by a
nongovernmental not-for-profit hospital?
A) Contribution to an endowment.
B) Gain on sale of equipment.
C) Grant restricted for diabetes research.
D) Interest income that is donor restricted.
39) Which of the following would usually be considered as net assets with donor restrictions in a
nongovernmental not-for-profit hospital?
A) Funds designated by the board of directors for future equipment purchases.
B) Donated services by senior citizens.
C) A permanent endowment received from the city’s leading citizen.
D) Sales from the hospital gift shop.
40) Where does a nongovernmental not-for-profit health care entity report increases that have
occurred in its net assets with donor restrictions?
A) Statement of changes in net assets.
B) Statement of operations.
C) Balance sheet.
D) Similar to governmental health care entities, it would not report the change on the face of a
financial statement.
41) Contractual Adjustments is properly characterized as:
A) An expense.
B) An other financing use.
C) A liability.
D) A contra revenue.
42) In accordance with the FASB Codification, donated medicines that normally would be
purchased by a hospital should be recorded at fair value and credited to which of the following?
A) Net Patient Service Revenue.
B) Other Revenue.
C) Nonoperating Gains.
D) Deferred Revenues.
43) An annual contributor to a nongovernmental not-for-profit hospital made an unrestricted
pledge in October 2019 that will be paid in March 2020. Assuming the hospital’s fiscal year-end is
December 31, 2019, the pledge should be credited to:
A) Contributions—With Donor Restrictions in 2019.
B) Contributions—Without Donor Restrictions in 2019.
C) Contributions—With Donor Restrictions in 2020.
D) Contributions—Without Donor Restrictions in equal amounts in 2019 and 2020.
44) How would the cash acquisition of equipment be reported on a health care entity’s statement of
cash flows?
A) Investing activity applying GASB standards.
B) Investing activity applying FASB standards.
C) Financing activity applying FASB standards.
D) Operating activity applying GASB standards.
45) Where would a capitation fee be reported on a health care entity’s financial statements?
A) Service revenue.
B) Other professional expense.
C) Other revenue.
D) Short-term liability.
46) In accordance with the FASB Codification, which of the following would be an appropriate
performance indicator for a not-for-profit health care organization?
A) Revenues.
B) Excess of revenues and gains over expenses and losses.
C) Expenses and losses.
D) Contributions to long-lived assets.
47) The GASB requires business-type health care organizations to prepare which of the following
financial statements?
A) Statement of revenues, expenses, and changes in net position; statement of net position; and
statement of cash flows.
B) Statement of operations; statement of net assets; and a statement of cash flows.
C) Statement of revenues, expenses, and changes in net position; and statement of net position.
D) Statement of activities; statement of net position; statement of changes in net position; and
statement of cash flows.
48) Which of the following statements concerning the Patient Protection and Affordable Care Act
(also known as the Affordable Care Act) is true?
A) Since the Act primarily focuses on the insurance industry there is little impact on health care
accounting.
B) Since the Act is a federal law it only affects governmental health care facilities.
C) The Act has impacted delivery of services, as well as the cost and compensation of services.
D) The Act had no impact on a nongovernmental hospital’s Internal Revenue Service filing of the
Form 990, since the Act is not under the oversight of the Internal Revenue Service.
49) Which of the following is shown on a statement of changes in net assets?
A) An increase in net assets with donor restrictions.
B) A gain on the sale of equipment.
C) A loss from a discontinued operation.
D) A contribution without donor restrictions.
50) Which of the following would be considered service revenue of a health care entity?
A) Revenue from the hospital cafeteria.
B) Capitation fees received from a health maintenance organization.
C) Fee revenue received for providing medical transcripts.
D) Revenue received for the rental of an assisted living facility’s conference room to a local
not-for-profit.
51) Financial and operational analysis of health care entities is useful to which of the following
decision makers?
A) Managers directly accountable for performance.
B) Analysts determining the credit worthiness of the organization’s debt.
C) Third parties determining the appropriate payment based on costs.
D) All of these decision makers find financial and operational analysis of health care entities
useful.
52) When evaluating the financial condition of health care entities, the cushion ratio provides:
A) A measure of the capital structure of the organization.
B) A measure of how efficiently an organization pays its bills.
C) A measure of the efficiency of the collections function.
D) An indicator of the profitability of the organization.