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.)
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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.)
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