Assume that the entity is a private not-for-profit hospital. During Year 2, the hospital has two portfolios: patients with insurance and patients without insurance. Work with a standard charge of $2 million is done for the first group and work with a standard charge of $1 million is done for the second group. Insurance companies have contracts that create explicit price concessions. The hospital believes it has a 60 percent chance of collecting $1.5 million and a 40 percent chance of collecting $1.3 million. Because of the high cost of health care, uninsured patients receive a variety of implicit price concessions. The hospital believes it has a 70 percent chance of collecting $300,000 and a 30 percent chance of collecting $200,000. The hospital reported exchange revenue of $3 million and a provision for bad debt (a contra revenue account) of $1.2 million to drop the reported balance to the expected collection amount. Assume the hospital wants to use the most likely amount where possible even though the hospital historically collects 5 percent less than that figure. Required: a. What was the appropriate amount of net assets without donor restrictions at the end of Year 2? (Enter your answers in dollars not in millions of dollars.) Answer is complete but not entirely correct. Net assets without donor restrictions at the end of Year 2 $ 250,000 b. How much should total revenue for Year 2 be increased or decreased to arrive at the appropriate balance? (Enter your answer in millions rounded to 1 decimal place.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Assume that the entity is a private not-for-profit hospital. During Year 2, the hospital has two portfolios: patients with insurance and
patients without insurance. Work with a standard charge of $2 million is done for the first group and work with a standard charge of $1
million is done for the second group. Insurance companies have contracts that create explicit price concessions. The hospital believes
it has a 60 percent chance of collecting $1.5 million and a 40 percent chance of collecting $1.3 million. Because of the high cost of
health care, uninsured patients receive a variety of implicit price concessions. The hospital believes it has a 70 percent chance of
collecting $300,000 and a 30 percent chance of collecting $200,000. The hospital reported exchange revenue of $3 million and a
provision for bad debt (a contra revenue account) of $1.2 million to drop the reported balance to the expected collection amount.
Assume the hospital wants to use the most likely amount where possible even though the hospital historically collects 5 percent less
than that figure.
Required:
a. What was the appropriate amount of net assets without donor restrictions at the end of Year 2? (Enter your answers in dollars not
in millions of dollars.)
Answer is complete but not entirely correct.
Net assets without donor restrictions at the end of Year 2 $ 250,000
b. How much should total revenue for Year 2 be increased or decreased to arrive at the appropriate balance? (Enter your answer in
millions rounded to 1 decimal place.)
Transcribed Image Text:Assume that the entity is a private not-for-profit hospital. During Year 2, the hospital has two portfolios: patients with insurance and patients without insurance. Work with a standard charge of $2 million is done for the first group and work with a standard charge of $1 million is done for the second group. Insurance companies have contracts that create explicit price concessions. The hospital believes it has a 60 percent chance of collecting $1.5 million and a 40 percent chance of collecting $1.3 million. Because of the high cost of health care, uninsured patients receive a variety of implicit price concessions. The hospital believes it has a 70 percent chance of collecting $300,000 and a 30 percent chance of collecting $200,000. The hospital reported exchange revenue of $3 million and a provision for bad debt (a contra revenue account) of $1.2 million to drop the reported balance to the expected collection amount. Assume the hospital wants to use the most likely amount where possible even though the hospital historically collects 5 percent less than that figure. Required: a. What was the appropriate amount of net assets without donor restrictions at the end of Year 2? (Enter your answers in dollars not in millions of dollars.) Answer is complete but not entirely correct. Net assets without donor restrictions at the end of Year 2 $ 250,000 b. How much should total revenue for Year 2 be increased or decreased to arrive at the appropriate balance? (Enter your answer in millions rounded to 1 decimal place.)
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Financial Statements
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education