Chapter 16, Problem 22EP

a.

To determine

Prepare journal entry to record the given transaction by assuming Hospital E is a not-for profit organization.

Explanation of Solution

Not for profit organizations: The business entities whose motive of business is not to reap economic benefits and to provide services for the well-being of society.

Prepare journal entry to record the given transaction by assuming Hospital E is a not-for profit organization.

Transaction  Number	Account Title	Debit ($)	Credit ($)
1.	Accounts and notes receivable	2,979,650
	Contractual adjustments	1,520,000
	Patients service revenue		3,500,900
	Other operating revenues		998,750
	(To record accrual of revenues and gains)
2.	Cash	2,960,600
	Assets limited as to use-Cash	7,350
	Accounts and notes receivable		2,960,600
	Investment income-without donor restrictions		7,350
	(To record cash receipts)
3.	Administration expenses	446,480
	General service expenses	524,360
	Nursing services expenses	1,031,800
	Other professional services expense	342,750
	Accounts payable		891,000
	Accrued payroll		1,454,390
	(To record accounts payable)
	Net assets released from restriction-temporarily restrictions	94,000
	Net assets released from restriction- unrestricted		94,000
	(To record release of restricted net assets)
4.	Nursing services expenses	140,000
	General services expenses	140,000
	Mortgage payable	500,000
	Accounts payable	836,800
	Accrued payroll	1,279,500
	Cash		2,896,300
	(To record cash payments)
5.	Assets limited to use-interest receivable	1,180
	Investment income-Unrestricted		1,180
	(To record release of restricted net assets)
6.	Administration expense	49,100
	General services expense	49,100
	Nursing services expense	110,475
	Other professional service expenses	36,825
	Accumulated depreciation-building		117,000
	Accumulated depreciation-equipment		128,500
	(To record allocation of expense)
7. (a)	No entry is required
7. (b)	Inventory $\left(\$73,100-71,000\right)$	2,100
	Administration expense $\left(\$7,300-8,000\right)$	700
	Nursing services expense $\left(\$16,800-17,000\right)$	200
	Other professional services expense $\left(\$40,000-37,300\right)$		2,700
	General services expenses $\left(\$9,000-8,700\right)$		300
	(To record supplies inventory balances)
7.(c)	Mortgage payable	500,000
	Current portion of mortgage payable		500,000
	(To record mortgage payable due)
8.	Unrealized loss on investments	663
	Assets limited as to use-investments		663
	(To record unrealized loss in investments)
	Closing entry:
9.	Patient services revenue	3,500,900
	Other operating revenues	998,750
	Investment income-without donor restriction	8,530
	Contractual adjustments		1,520,000
	Administration services expenses		496,280
	General services expense		713,160
	Nursing services expense		1,282,475
	Other professional services expense		376,875
	Unrealized loss on investment		663
	Net assets-without donor restrictions, undesignated		118,727
	(To record the closing entry for revenues)
	Net assets, unrestricted-undesignated	7,867
	Net assets, unrestricted, designated for plant		7,867
	(To record closing entry for unrestricted net assets)
	Net assets, temporarily restricted	94,000
	Net assets released from restriction- unrestricted	94,000
	Net assets, unrestricted		94,000
	Net assets released from restriction-temporarily restricted		94,000
	(To record closing entry for temporarily restricted and unrestricted)

(Table 1)

Note:

• Transaction 7 (a): journal entry is not required to be provided for the provision for uncollectible receivable as they are identified to be adequate.

b.

To determine

Prepare a balance sheet for Hospital E as of December 31, 2017.

Explanation of Solution

Prepare a balance sheet for Hospital E as of December 31, 2017.

Hospital E
Balance sheet
For the year ended December 31,2017
(000s omitted)
Particulars	Amount in $	Amount in $
Assets
Current assets:
Cash		323,600
Accounts and notes receivable (net of uncollectible accounts of $15,800)		45,550
Inventory		75,200
Total current assets		444,350
Assets limited as to use:
Cash	24,490
Interest receivable	1,180
Investments	228,557
Total assets limited as to use		254,227
Property , plant and equipment:
Land		208,000
Building (Net of accumulated depreciation of  $1,740,000)		2,776,000
Equipment (Net of accumulated depreciation of  $1,153,000)		1,730,300
Total property, plant and equipment		4,714,300
Total assets		5,412,877
Liabilities and net assets
Current liabilities:
Accounts payable		73,400
Accrued payable		219,890
Current portion of bonds payable		500,000
Total current liabilities		793,290
Long term debt-mortgage payable		2,000,000
Total liabilities		2,793,290
Net assets:
Without donor restrictions, undesignated	2,287,620
With donor restrictions, designated	254,227
With donor restrictions	77,740	2,619,587
Total liabilities and net assets		5,412,877

(Table 2)

c.

To determine

Prepare a statement of operations for Hospital for the year ended December 31, 2017.

Explanation of Solution

Prepare a statement of operations for Hospital for the year ended December 31, 2017.

Hospital E
Statement of Operations
For the year ended December 31, 2017
(000s omitted)
Particulars	Amount in $	Amount in $
Revenue without donor restrictions:
Net patient service revenue		1,980,900
Other operating revenues		998,750
Total revenues		2,979,650
Expense and losses:
Administration  expense	496,280
General services expense	713,160
Nursing services expense	1,282,475
Other professional services expenses	376,875
Total  expense		2,868,790
Excess of revenue over expense and losses		110,860
Non-operating gains (losses):
Investment income- without donor restrictions		8,530
Excess of revenue  and gains  over expense		119,390
Net assets released from restrictions:
Satisfaction of purpose restrictions		94,000
Increase in net assets without donor restrictions		213,390

(Table 3)

Note:

• Net patient service revenue is derived from deducting patient service revenue from the net of contractual adjustment that amounts to $1,520,000.

Prepare a statement of changes in net assets for the year ended September 30, 2017.

Hospital E
Statement of Changes in Net Assets
For the year ended December 31, 2017
(000s omitted)
Particulars	Amount in $	Amount in $
Net assets without donor restrictions:
Excess of revenue and gains over expense and losses		119,390
Unrealized loss on investments		(663)
Net assets released from restrictions		94,000
Increase in net assets without donor restrictions		212,727
Net assets with donor restrictions:
Net assets released from restrictions		(94,000)
Increase in net assets		118,727
Net assets at beginning of the year		2,500,860
Net assets at the end of the year		2,619,587

(Table 4)

d.

To determine

Prepare a statement of cash flow for Hospital for the year ended December 31, 2017.

Explanation of Solution

Prepare a statement of cash flow for Hospital for the year ended December 31, 2017.

Hospital E
Statement of cash flow
For the  year ended December 31, 2017
Particulars	Amount in $
Cash flow from operating activities:
Change in assets	118,727
Adjustments to reconcile changes in net assets to net cash  provided by operating activities:
Increase in accounts receivable	(19,050)
Increase in interest receivable	(1,180)
Increase in inventory	(2,100)
Increase in accounts payable	54,200
Increase in accrued payables	174,890
Depreciation	245,500
Unrealized loss on investments	663
Net cash provided by operating activities	571,650
Cash flows from financing activities:
Payment on bond principal	(500,000)
Net cash  used in financing activities	(500,000)
Net increase in cash  and cash equivalents	71,650
Cash  and cash  equivalents, beginning of the year	276,440
Cash and cash equivalents, end of  the year	348,090

(Table 5)