Financial Management of

Health Care Organizations

4th Edition

Zelman, McCue, Glick, and Thomas

Chapter 2 Answers
2-1 Definitions
a. Accumulated depreciation: The total amount of depreciation taken on
an asset since it was put into use.
b. Amortization: The allocation of the acquisition cost of debt to the period
which it benefits.
c. Assets: Assets are probable future economic benefits obtained or
controlled by a particular entity as a result of past transactions or events.
In many instances they represent resources that the entity owns. Assets
are recorded at their cost, unless donated. In these cases they are
recorded at fair value at the date of donation.
d. Available for sale security: An investment is considered available for
sale if it is not held for trading.
e. Basic accounting equation: Assets = Liabilities + Net Assets (or
shareholders' equity).
f. Charity care discounts: Discounts from gross patient accounts
receivable given to those who cannot pay their bills and who meet the
entity’s charity care policy.
g. Classified balance sheet: A classified balance sheet is one that
presents current and noncurrent assets and liabilities.
2-1 (cont)
k. Depreciation: A measure of how much a tangible asset (such as plant
or equipment) has been "used up" or consumed.
l. Deferred revenue: An obligation to provide or deliver goods or services
when the payment has been received in advance.
m. Fair value: The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
n. Goodwill: Goodwill is the term used when an entity pays cash and
assumes liabilities in excess of the fair value of the assets acquired in an
acquisition. It represents the future earnings power of the acquired entity.
Goodwill is no longer amortized. However, it must be evaluated for
impairment every year.
o. Held to maturity security: Debt securities that the entity intends to hold
until maturity are reported at amortized cost.
p. Liabilities: Liabilities are probable future sacrifices of economic benefits
arising from present obligations of a particular entity to transfer assets or
provide services to other entities in the future as a result of past
transactions or events. These can be debts or other obligations, for
example, deferred revenue which is an obligation to provide or deliver
goods or services when the payment has been received in advance.
2-1 (cont)
v. Non-current liabilities: The financial obligations not due within one
year.
w. Notes to the financial statements: The notes to the financial
statements include information about all of the financial statements and
explain in more detail the significant elements. These are included at the
back of the statements.
x. Operating income: Income derived from the entity's main line of
business.
y. Performance indicator: The FASB requires not-for-profit health care
entities to include a performance indicator in their statement of operations.
The FASB defines it as an intermediate level that reports the results of
operations. Note that operations includes both operating and nonoperating
items. It is analogous to income from continuing operations or net income
in an investor-owned entity.
z. Shareholders' equity: For an investor-owned entity, the residual
interest in the assets of the entity that remains after deducting its liabilities
is known as shareholders' (or stockholders') equity.
aa. Third-party payors: Commonly referred to as third parties, these are
entities that pay on behalf of patients.
bb. Trading security: Investments in equity securities with readily
determinable fair values and all investments in debt securities (except
those intended to be held to maturity) are measured at fair value and are
classified as trading securities.
2-2a. The traditional names of the four main financial statements and
their equivalents in investor owned health care entities are:
· Balance Sheet
· Income Statement and Comprehensive Income or this can be two
statements.
· Statement of Changes in Stockholders’ Equity
· Statement of Cash Flows
The traditional names of the four main financial statements and their
equivalents in not-for-profit health care entitys are:
· Balance Sheet
· Statement of Operations and Changes in Net Assets or this can be
two separate statements.
· Statement of Cash Flows
b. The assets, liabilities and equity are the three sections. However, in
an investor owned entity it is called Stockholders' equity and in a not-
for-profit, net assets.

2-3 The general accounting equation is: Assets = Liabilities +

Stockholders’ Equity. This becomes: Assets = Liabilities + Net
Assets in a not-for-profit health care entity.
2-4 a. Balance Sheet

b. The three sections of the balance sheet for investor-owned entity are:
assets, liabilities, and shareholders’ equity.

c. The three sections of the balance sheet for not-for-profit, business-

oriented health care entitys are: assets, liabilities, and net assets.

d. Patient Accounts Receivable is money owed to the entity by patients or

their third-parties for services rendered. It is what remains after contractual
allowances and charity care have been deducted from Gross Accounts
Receivable. It is shown net of the allowance for doubtful accounts (or bad
debts).

e. Deferred Revenue is a liability which is created when money is received,

but not yet earned (e.g. money received in advance from managed care--it
will be earned as time passes and services are rendered.) It will be
recognized as revenue once it is earned. Examples are unearned
capitation revenue received in advance (often the amount will be received
before the end of the current month for the subsequent month. Also grant
monies received in advance of the service performed.
f. Restricted Net Assets is the amount of the assets which an outside donor
requires be used for some defined purpose. In contrast, Unrestricted Net
Assets is the amount of the assets which can be used at the discretion of
the board of directors within legal limits. Types of restrictions are
temporary and permanent.
2-5 a.

Gross patient service revenue

- Contractual allowances and Charity Care
- Bad debt expense (also called provision for bad debts)
Net patient service revenue
2-5 (continued)
b. Expenses are related to patient care, administration and
fundraising. The main patient care expenses are labor expenses
followed by medical supplies. Administrative expenses are
occupancy and interest. Depreciation can be administrative or related
to patient care depending on the asset.

c. The performance indicator is a measure of operations that is analogus to

net income in an investor owned entity. It focuses on the results of
operations.
2-6 a. The purpose of the statement of changes in net assets is to help
explain the changes in net assets from one period to the next.
b. The main sections of the statement in changes in net assets include
change in unrestricted net asset accounts, change in temporarily restricted
net asset accounts, and change in permanently restricted net asset
accounts.
c. For temporarily restricted assets, the donor imposes a restriction that
permits the health care entity to expend the donated asset after a certain
condition has been met. For example, a donor gives $5 million fund for new
cancer hospital. As the amounts are spent for the hospital they are
released from restriction. If the donor gave $5 million to provide a stream of
funding to help pay the debt service on the hospital then the $5 million
would be permanently restricted. The return generated would be
temporarily restricted.
2-7 a. The main sections of the statement of cash flows are: cash
flows from operating activities, cash flows from financing activities,
and cash flows from investing activities.
b. The purpose of the statement of cash flows is to tell the reader how
much cash came into the entity and how much went out. It also tells
how the cash was generated and how it was used.

2-8 Important explanatory information can be found in notes to the financial

statements.

2-9 Information on purchases of long-term investments would be shown in

the Statement of Cash Flows.

2-10 The accrual basis of accounting recognizes revenues when earned

and resources when incurred. Some expenses such as depreciation are
noncash and represent resources consumed ("used up") whereas the cash
basis of accounting only records when cash was spent or received.
Problem 2-11 Ray Hospital

Givens:
Gross plant, property, and equipment $70,000,000
Accrued expenses $6,000,000
Cash $8,000,000
Net accounts receivable $15,500,000
Accounts payable $7,000,000
Long-term debt $45,000,000
Supplies $3,000,000
Accumulated depreciation $5,000,000

Ray Hospital
Balance Sheet
September 30, 20X1

9/30/20X1 9/30/20X1
Current assets Current liabilities
Cash $8,000,000 Accounts payable $7,000,000
Net accounts receivable 15,500,000 Accrued expenses 6,000,000
Supplies 3,000,000 Total current liabilities 13,000,000
Total current assets 26,500,000
Long-term debt 45,000,000
Gross plant, property, and equipment 70,000,000 Total liabilitiies 58,000,000
(less accumulated depreciation) (5,000,000) Net assets:
Net plant, property, and equipment 65,000,000 Total net assets 33,500,000

Total assets $91,500,000 Total liabilities and net assets $91,500,000

Problem 2-12 Stone Hospital

Givens:
Gross plant, property, and equipment $65,000,000
Cash $6,000,000
Net accounts receivable $12,700,000
Accrued expenses $5,200,000
Inventory $5,300,000
Long-term debt $22,500,000
Accounts payable $8,300,000
Accumulated depreciation $28,500,000

Stone Hospital
Balance Sheet
September 30, 20X1

9/30/20X1 9/30/20X1
Current assets Current liabilities
Cash $6,000,000 Accounts payable $8,300,000
Net accounts receivable 12,700,000 Accrued expenses 5,200,000
Inventory 5,300,000 Total current liabilities 13,500,000
Total current assets 24,000,000
Long-term debt 22,500,000
Gross plant, property, and equipment 65,000,000 Total liabilites 36,000,000
(less accumulated depreciation) (28,500,000) Net assets:
Net plant, property, and equipment 36,500,000 Total net assets 24,500,000

Total assets $60,500,000 Total liabilities and net assets $60,500,000

Problem 2-13 Snead Hospital

Givens:
Net patient revenues $720,000
Interest expense $18,000
Net assets released from restriction for operations $220,000
Depreciation expense $65,000
Labor expense $444,000
Provison for bad debt $7,000
Supply expense $144,000

Snead Hospital
Statement of Operations
For the Year Ended September 30, 20X1
9/30/20X1
Unrestricted revenues
Net patient revenue (net of contractual allowances) $720,000
Provision for bad debts (7,000)
Net patient service revenue less provision for bad debts 713,000
Net assets released from restriction 220,000
Total revenues 933,000

Operationg expenses:
Labor expense 444,000
Supply expense 144,000
Depreciation expense 65,000
Interest expense 18,000
Total operating expenses 671,000

Excess of revenues over expenses 262,000

Increase in unrestricted net assets $262,000

Problem 2-14 Moore Hospital

Givens:
Patient service revenue (net of contractuals) $950,000
Supply expense $255,000
Net assets released from restriction for operations $45,000
Depreciation expense $35,000
Transfer to parent corporation $9,500
Labor expense $300,000
Provision for bad debts $12,000
Unrealized gains from available for sale securities $150,000

Moore Hospital
Statement of Operations
For the Year Ended September 30, 20X1
9/30/20X1
Unrestricted revenue
Patient service revenue (net of contractuals) $950,000
Provision for bad debts ($12,000)
Net patient service revenue $938,000
Net assets released from restriction for operations 45,000
Total revenue 983,000

Operationg expenses:
Labor expense 300,000
Supply expense 255,000
Depreciation expense 35,000
Total operating expenses 590,000
Operating income 393,000
Unrealized gains from available for sale securities 150,000
Excess of revenues over expenses 543,000
Transfer to parent corporation (9,500)
Problem 2-15a Exton Outpatient Center

Givens:
Insurance expense $55,000 Depreciation expense $33,000
Cash $61,000 General expense $255,000

Patient revenues (net of contractuals ) $1,100,000 Transfer to parent corporation $55,000

Net accounts receivable $350,000 Beginning balance, unrestricted net assets $275,000
Ending balance, temporarily restricted net assets $48,000 Accounts payable $23,000
Wages payable $37,000 Beginning balance, temporarily restricted net assets $70,000
Prepaid expenses $8,000 Provision for bad debts $8,000
Long-term debt $270,000 Labor expense $470,000
Supply expense $65,000 Accumulated depreciation $450,000
Gross plant, property, and equipment $900,000 Ending / beginning balance, permanently restricted net assets $35,000
Net assets released from temporary restriction $22,000 Ending balance, unrestricted net assets $456,000

Exton Outpatient Center

Balance Sheet
September 30, 20X1

9/30/20X1 9/30/20X1
Current assets Current liabilities
Cash $61,000 Accounts payable $23,000
Net accounts receivable 350,000 Wages payable 37,000
Prepaid expenses 8,000 Total current liabilities 60,000
Total current assets 419,000
Long-term debt 270,000
Gross plant, property, and equipment 900,000 Total liabilities 330,000
(less accumulated depreciation) (450,000) Net assets:
Net plant, property & equipment 450,000 Ending balance, unrestricted net assets 456,000
Ending balance, temporarily restricted net assets $48,000
Ending / beginning balance, permanently restricted net assets 35,000
Total net assets 539,000

Total assets $869,000 Total liabilities and net assets $869,000

Problem 2-15b,c Exton Outpatient Center

Givens:
Insurance expense $55,000 Depreciation expense $33,000
Cash $61,000 General expense $255,000
Patient revenues (net of contractuals ) $1,100,000 Transfer to parent corporation $55,000
Net accounts receivable $350,000 Beginning balance, unrestricted net assets $275,000
Ending balance, temporarily restricted net assets $48,000 Accounts payable $23,000
Wages payable $37,000 Beginning balance, temporarily restricted net assets $70,000
Prepaid expenses $8,000 Provision for bad debts $8,000
Long-term debt $270,000 Labor expense $470,000
Supply expense $65,000 Accumulated depreciation $450,000
Gross plant, property, and equipment $900,000 Ending / beginning balance, permanently restricted net assets $35,000
Net assets released from temporary restriction $22,000 Ending balance, unrestricted net assets $456,000

Exton Outpatient Center Exton Outpatient Center

Statement of Operations Statement of Changes in Net Assets
For the Year Ended September 30, 20X1 For the Year Ended September 30, 20X1

9/30/20X1 9/30/20X1
Unrestricted revenue Unrestricted net assets

Patient revenues (net of contractuals ) $1,100,000 Excess of revenues over expenses 236,000

Provision for bad debts ($8,000)

Net patient service revenue $1,092,000

Net assets released from temporary restriction $22,000 Transfer to parent corporation (55,000)
Total revenues 1,114,000 Change in unrestricted net assets 181,000

Operating expenses: Temporarily restricted net assets

Labor expense 470,000 Net assets released from temporary restriction (22,000)
General expense 255,000 Change in temporarily restricted net assets (22,000)
Supply expense 65,000
Insurance expense 55,000 Permanently restricted net assets
Depreciation expense 33,000 Change in permanently restricted net assets 0
Total operating expenses 878,000 Increase in net assets 159,000
Beginning balance, unrestricted net assets 275,000
Excess of revenues over expenses 236,000 Beginning balance, temporarily restricted net assets 70,000
Transfer to parent corporation (55,000) Ending / beginning balance, permanently restricted net assets $35,000

Increase in unrestricted net assets $181,000 Ending balance, Total net assets $539,000
Problem 2-16a Mayview Medical Center

Givens (in '000s):

Administrative expense $35,000 Depreciation expense $33,000
Cash $42,000 General expense $85,000
Patient revenues (net of contractuals ) $555,000 Transfer to parent corporation $7,000
Gross accounts receivable $53,000 Beginning balance, unrestricted net assets $155,600
Ending balance, temporarily restricted net assets $5,000 Accounts payable $24,000
Wages payable $14,000 Beginning balance, temporarily restricted net assets $13,000
Prepaid expenses $8,000 Provision for bad debt expense $6,500
Long-term debt $482,300 Labor expense $144,000
Supply expense $61,000 Accumulated depreciation $100,000
Gross plant, property, and equipment $660,000 Ending / beginning balance, permanently restricted net assets $11,000
Net assets released from restriction for operations $8,000 Ending balance, unrestricted net assets $356,300
Uncollectibles in accounts receivable $5,000 Accrued expense $4,100
Inventory $9,000 Temporary investments $9,200
Premium revenues $6,200 Other revenues $3,000
Long-term investments, unrestricted $222,000 Current portion of long-term debt $1,500

Mayview Medical Center

Balance Sheet (in '000s)
September 30, 20X1

9/30/20X1 9/30/20X1
Current Assets Current Liabilities
Cash $42,000 Accounts payable $24,000
Temporary investments 9,200 Wages payable 14,000
Accrued expense 4,100
Gross accounts receivable 53,000 Current portion of long-term debt 1,500
(less uncollectibles in accounts receivable) (5,000) Total current liabilities 43,600
Net accounts receivable 48,000
Long-term debt 482,300
Inventory 9,000
Prepaid expenses 8,000 Total liabilities 525,900
Total current assets 116,200
Net assets:
Gross plant, property, and equipment 660,000 Ending balance, unrestricted net assets 356,300
(less accumulated depreciation) (100,000) Ending balance, temporarily restricted net assets $5,000
Net Plant, Property & Equipment 560,000 Ending / beginning balance, permanently restricted net assets 11,000
Total net assets 372,300
Long-term investments, unrestricted 222,000

Total assets $898,200 Total liabilities and net assets $898,200

Problem 2-16b,c Mayview Medical Center

Givens (in '000s):

Administrative expense $35,000 Depreciation expense $33,000
Cash $42,000 General expense $85,000

Patient revenues (net of contractuals ) $555,000 Transfer to parent corporation $7,000

Gross accounts receivable $53,000 Beginning balance, unrestricted net assets $155,600
Ending balance, temporarily restricted net assets $5,000 Accounts payable $24,000
Wages payable $14,000 Beginning balance, temporarily restricted net assets $13,000
Prepaid expenses $8,000 Provision for bad debt expense $6,500
Long-term debt $482,300 Labor expense $144,000
Supply expense $61,000 Accumulated depreciation $100,000
Gross plant, property, and equipment $660,000 Ending / beginning balance, permanently restricted net assets $11,000
Net assets released from restriction for operations $8,000 Ending balance, unrestricted net assets $356,300
Uncollectibles in accounts receivable $5,000 Accrued expense $4,100
Inventory $9,000 Temporary investments $9,200
Premium revenues $6,200 Other revenues $3,000
Long-term investments, unrestricted $222,000 Current portion of long-term debt $1,500

Mayview Medical Center Mayview Medical Center

Statement of Operations (in '000s) Statement of Changes in Net Assets (in '000s)
For the Year Ended September 30, 20X1 For the Year Ended September 30, 20X1

9/30/20X1 9/30/20X1
Unrestricted revenue Unrestricted Net Assets
Patient revenues (net of contractuals ) $555,000 Excess of Revenues Over Expenses $207,700
Provision for bad debt expense ($6,500)
Net patient revenues $548,500
Premium revenues 6,200 Transfer to Parent Corporation (7,000)
Other revenues 3,000 Change in Unrestricted Net Assets 200,700
Net assets released from restriction for operations 8,000
Total revenue 565,700 Temporarily Restricted Net Assets
Net Assets Released from Restriction (8,000)
Operationg expenses: Change in Temporarily Restricted Net Assets (8,000)
Labor expense 144,000
General expense 85,000 Permanently Restricted Net Assets
Supply expense 61,000 Change in Permanently Restricted Net Assets 0
Administrative expense 35,000
Depreciation expense 33,000
Increase in Net Assets 192,700
Total operating expenses 358,000 Beginning balance, unrestricted net assets 155,600
Beginning balance, temporarily restricted net assets 13,000
Excess of revenues over expenses 207,700 Ending / beginning balance, permanently restricted net assets $11,000
Transfer to parent corporation (7,000)

Increase (decrease) in unrestricted net assets $200,700 Ending balance, total net assets $372,300
Problem 2-17 Sunview Hospital

Givens (in '000s):

Decrease in prepaid expenses $2,500
Payments on long-term debt ($7,000)
Cash and cash equivalents at beginning of the year $24,000
Increase in inventory ($3,300)
Increases in long-term debt $175,000
Decrease in accrued expenses ($2,400)
Change in net assets $6,500
Sale of long-term investments $31,000
Increase in other current liabilities $2,600
Depreciation $6,600
Payments on capital lease ($6,100)
Purchases of equipment ($177,000)
Increase in net account receivables ($50,000)
Increase in accounts payable $40,000

Sunview Hospital
Statement of Cash Flows (in '000s)
For the Year Ended December 31, 20X1

12/31/20X1
Cash Flows from Operating Activities:
Change in net assets $6,500
Adjustments to reconcile change in net assets
to net cash provided by operating activities
Depreciation 6,600
(Increase) decrease in current assets:
Increase (decrease) in current liabilities
Increase in net account receivables (50,000)
Increase in inventory (3,300)
Decrease in prepaid expenses 2,500
Increase in accounts payable 40,000
Decrease in accrued expenses (2,400)
Increase in other current liabilities 2,600
Net cash flows from operating activities 2,500

Cash flows from investing activities

Purchases of equipment (177,000)
Sale of long-term investments 31,000
Net cash used in investing activities (146,000)

Cash flows from financing activities

Payments on long-term debt (7,000)
Increases in long-term debt 175,000
Payments on capital lease (6,100)
Net cash used in financing activities 161,900

Net increase (decrease) in cash and cash equivalents 18,400

Cash and cash equivalents at beginning of the year 24,000

Cash and cash equivalents at end of the year $42,400

Problem 2-18 Hilltop Hospital

Givens (in '000s):

Increase in prepaid expenses ($8,000)
Increase in accrued expenses $6,000
Cash and cash equivalents at beginning of the year $62,000
Proceeds from restricted contribution $119,000
Change in net assets $12,000
Increase in net account receivables ($27,000)
Sale of equipment $46,000
Decrease in other current liabilities ($6,100)
Depreciation $43,000
Decrease in inventory $8,000
Purchase of long-term investments ($111,000)
Payments on long-term debt ($72,000)
Decrease in accounts payable ($13,000)

Hilltop Hospital
Statement of Cash Flows (in '000s)
For the Year Ended December 31, 20X1

12/31/20X1
Cash Flows from operating activities:
Change in net assets $12,000
Adjustments to reconcile change in net assets
to net cash provided by operating activities
Depreciation 43,000
(Increase) decrease in current assets:
Increase (decrease) in current liabilities
Increase in net account receivables (27,000)
Decrease in inventory 8,000
Increase in prepaid expenses (8,000)
Decrease in accounts payable (13,000)
Increase in accrued expenses 6,000
Decrease in other current liabilities (6,100)
Net cash flows from operating activities 14,900

Cash flows from investing activities

Purchase of long-term investments (111,000)
Sale of equipment 46,000
Net cash used in investing activities (65,000)

Cash flows from financing activities

Payments on long-term debt (72,000)
Proceeds from restricted contribution 119,000
Net cash used in financing activities 47,000

Net increase (decrease) in cash and cash equivalents (3,100)

Cash and cash equivalents at beginning of the year 62,000

Cash and cash equivalents at end of the year $58,900

Problem 2-19a Balance sheet for Lima Health Plan
Lima Health Plan
Balance Sheet (in '000s)
Givens (in '000s): December 31, 20X0
Income tax Benefit of operating loss $8,000 12/31/20X0
Net property and equipment $2,000 Current assets:
Physician services expense $164,000 Cash & cash equivalents $97,000
Premium revenue $125,000 Accounts receivable 3,000
Marketing expense $11,000 Total current assets 100,000
Compensation expense $13,000
Interest income and other revenue $6,000 Net property and equipment 2,000
Outside referral expense $4,000
Medicare revenue $131,000 Total assets $102,000
Occupancy and depreciation expense $2,000
Medical claims payable $37,000 Current liabilities:
Accounts receivable $3,000 Medical claims payable $37,000
Emergency room expense $14,000 Total current liabilities 37,000
Inpatient services expense $101,000
Interest expense $2,000 Long-term debt 3,500
Medicaid revenue $35,000
Owners' equity $61,500 Total liabilities 40,500
Cash & cash equivalents $97,000 Owners' equity 61,500
Long-term debt $3,500
Other administrative expense $2,000 Total liabilities and owners' equity $102,000
Problem 2-19b Income statement for Lima Health Plan
Lima Health Plan
Income Statement (in '000s)
Givens (in '000s): For the Year Ended 12/31/20X0
Income tax Benefit of operating loss $8,000 12/31/20X0
Net property and equipment $2,000 Revenues:
Physician services expense $164,000 Premium revenue $125,000
Premium revenue $125,000 Medicare revenue 131,000
Marketing expense $11,000 Medicaid revenue 35,000
Compensation expense $13,000 Interest income and other revenue 6,000
Interest income and other revenue $6,000 Total revenues 297,000
Outside referral expense $4,000
Medicare revenue $131,000 Expenses:
Occupancy and depreciation expense $2,000 Medical & hospital:
Medical claims payable $37,000 Physician services expense 164,000
Accounts receivable $3,000 Inpatient services expense 101,000
Emergency room expense $14,000 Outside referral expense 4,000
Inpatient services expense $101,000 Emergency room expense 14,000
Interest expense $2,000 Total medical 283,000
Medicaid revenue $35,000
Owners' equity $61,500 Administrative:
Cash & cash equivalents $97,000 Compensation expense 13,000
Long-term debt $3,500 Interest expense 2,000
Other administrative expense $2,000 Occupancy and depreciation expense 2,000
Marketing expense 11,000
Other administrative expense 2,000
Total administrative 30,000

Total expenses 313,000

Operating profit ( loss) before taxes (16,000)

Income tax Benefit of operating loss 8,000

Net profit (loss) ($8,000)

Problem 2-20a Balance sheet for Media Health Plan
Media Health Plan
Balance Sheet (in '000s)
Givens (in '000s): September 30, 20X1
Income tax expense $600 9/30/20X1
Prepaid expense $3,000 Current assets:
Physician services expense $7,000 Cash & cash equivalents $18,900
Premium revenues $23,000 Premium receivables 2,800
Cash & cash equivalents $18,900 Prepaid expense 3,000
Marketing expense $600 Total current assets 24,700
Compensation expense $1,900
Other non-current assets $3,100 Net property and equipment 5,000
Interest Income and other revenue $2,100 Other non-current assets 3,100
Accrued expense $3,700
Outside referral expense $4,000 Total assets $32,800
Claims payable - medical $18,000
Medicare revenues $9,000 Current liabilities:
Occupancy and depreciation expense $400 Claims payable - medical $18,000
Owners' equity $5,300 Notes payable 1,700
Emergency room expense $2,400 Accrued expense 3,700
Net property and equipment $5,000 Unearned premium revenues 2,000
Premium receivables $2,800 Total current liabilities 25,400
Inpatient service expense $8,400
Notes payable $1,700 Long-term debt 2,100
Interest expense $900 Total liabilities 27,500
Unearned premium revenues $2,000
Medicaid revenues $7,000 Owners' equity 5,300
Long-term debt $2,100
Other administrative expense $600 Total liabilities and owners' equity $32,800
Problem 2-20b Income statement for Media Health Plan
Media Health Plan
Income Statement (in '000s)
Givens (in '000s): For the Year Ended 09/30/20X1
Income tax expense $600 9/30/20X1
Prepaid expense $3,000 Revenues:
Physician services expense $7,000 Premium revenues $23,000
Premium revenues $23,000 Medicare revenues 9,000
Cash & cash equivalents $18,900 Medicaid revenues 7,000
Marketing expense $600 Interest income and other revenue 2,100
Compensation expense $1,900 Total revenues 41,100
Other non-current assets $3,100
Interest Income and other revenue $2,100 Expenses:
Accrued expense $3,700 Medical & hospital:
Outside referral expense $4,000 Physician services expense 7,000
Claims payable - medical $18,000 Inpatient service expense 8,400
Medicare revenues $9,000 Outside referral expense 4,000
Occupancy and depreciation expense $400 Emergency room expense 2,400
Owners' equity $5,300 Total medical 21,800
Emergency room expense $2,400
Net property and equipment $5,000 Administrative:
Premium receivables $2,800 Compensation expense 1,900
Inpatient service expense $8,400 Interest expense 900
Notes payable $1,700 Occupancy and depreciation expense 400
Interest expense $900 Marketing expense 600
Unearned premium revenues $2,000 Other administrative expense 600
Medicaid revenues $7,000 Total administrative 4,400
Long-term debt $2,100
Other administrative expense $600 Total expenses 26,200

Operating Income (Loss) before taxes 14,900

Income tax expense (600)

Net income (loss) $14,300

Problem 2-21a Balance sheet for Louis Medical Center
Louis Medical Center
Balance Sheet (in '000s)
Givens (in '000s): September 30, 20X1
Inventory $7,000 9/30/20X1

Patient revenues (net of contractual allowance ) $220,000 Current assets

Gross plant, property, and equipment $161,900 Cash and cash equivalents $7,500
Net accounts receivable $65,000 Net accounts receivable 65,000
Ending balance, temporarily restricted net assets $9,300 Inventory 7,000
Wages payable $18,000 Total current assets 79,500
Long-term debt $104,000
Supply expense $18,000 Gross plant, property, and equipment 161,900
Net assets released from temporary restriction $3,500 (less accumulated depreciation) (90,000)
Depreciation expense $20,000 Net plant, property & equipment 71,900
General expense $40,000 Long-term investments 108,000
Provision for bad debt expense $12,000
Cash and cash equivalents $7,500 Total assets $259,400
Transfer to parent corporation ($3,300)
Beginning balance, unrestricted net assets $70,000 Current liabilities
Accounts payable $12,000 Accounts payable $12,000
Beginning balance, temporarily restricted net assets $12,800 Wages payable 18,000
Interest expense $6,500 Total current liabilities 30,000
Labor expense $77,600
Accumulated depreciation $90,000 Long-term debt 104,000
Long-term investments $108,000 Total liabilities 134,000
Ending balance, unrestricted net assets $116,100
Net assets
Ending balance, unrestricted net assets 116,100
Ending balance, temporarily restricted net assets 9,300
Total net assets 125,400

Total liabilities and net assets $259,400

Problem 2-21b Statement of operations for Louis Medical Center
Louis Medical Center
Statement of Operations (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Inventory $7,000 9/30/20X1
Patient revenues (net of contractual allowance ) $220,000 Unrestricted revenues
Gross plant, property, and equipment $161,900 Patient revenues (net of contractuals) $220,000
Provision for bad debt expense ($12,000)
Net patient revenues $208,000
Net accounts receivable $65,000 Net assets released from temporary restriction 3,500
Ending balance, temporarily restricted net assets $9,300 Total revenues 211,500
Wages payable $18,000
Long-term debt $104,000 Operating expenses:
Supply expense $18,000 Labor expense 77,600
Net assets released from temporary restriction $3,500 General expense 40,000
Depreciation expense $20,000 Supply expense 18,000
General expense $40,000
Provision for bad debt expense $12,000 Depreciation expense 20,000
Cash and cash equivalents $7,500 Interest expense 6,500
Transfer to parent corporation ($3,300) Total operating expenses 162,100
Beginning balance, unrestricted net assets $70,000
Accounts payable $12,000 Excess of revenues over expenses 49,400
Beginning balance, temporarily restricted net assets $12,800 Transfer to parent corporation (3,300)
Interest expense $6,500
Labor expense $77,600 Increase in unrestricted net assets $46,100
Accumulated depreciation $90,000
Long-term investments $108,000
Ending balance, unrestricted net assets $116,100
Problem 2-21c Statement of changes in net assets for Louis Medical Center
Louis Medical Center
Statement of Changes in Net Assets (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Inventory $7,000 9/30/20X1

Patient revenues (net of contractual allowance ) $220,000 Unrestricted net assets

Gross plant, property, and equipment $161,900 Excess of revenues over expenses 49,400
Net accounts receivable $65,000 Unrestricted contributions 0
Ending balance, temporarily restricted net assets $9,300 Transfer to parent corporation (3,300)
Wages payable $18,000 Change in unrestricted net assets 46,100
Long-term debt $104,000
Supply expense $18,000 Temporarily restricted net assets
Net assets released from temporary restriction $3,500 Net assets released from temporary restriction (3,500)
Depreciation expense $20,000 Change in temporarily restricted net assets (3,500)
General expense $40,000
Provision for bad debt expense $12,000 Permanently restricted net assets
Cash and cash equivalents $7,500 0
Transfer to parent corporation ($3,300) Change in permanently restricted net assets 0
Beginning balance, unrestricted net assets $70,000
Accounts payable $12,000 Increase in net assets 42,600
Beginning balance, temporarily restricted net assets $12,800 Beginning balance, net assets 82,800
Interest expense $6,500
Labor expense $77,600 Ending balance, total net assets $125,400
Accumulated depreciation $90,000
Long-term investments $108,000
Ending balance, unrestricted net assets $116,100
Problem 2-22a Balance sheet for Sharpe Medical Center
Sharpe Medical Center
Balance Sheet (in '000s)
Givens (in '000s): September 30, 20X1
Inventory $4,000 9/30/20X1
Patient revenues (net of contractuals) $302,000 Current assets
Gross plant, property, and equipment $375,000 Cash and cash equivalents $18,000
Net accounts receivable $85,000 Net accounts receivable 85,000
Ending balance, temporarily restricted net assets $6,000 Inventory 4,000
Wages payable $6,600 Total current assets 107,000
Long-term debt $218,400
Supply expense $34,000 Gross plant, property, and equipment 375,000
Net assets released from temporary restriction $7,000 (less accumulated depreciation) (22,000)
Depreciation expense $44,000 Net plant, property & equipment 353,000
General expense $95,000 Long-term investments 20,000
Provision for bad debt expense $4,500
Cash and cash equivalents $18,000 Total assets $480,000
Transfer to parent corporation ($3,900)
Beginning balance, unrestricted net assets $239,400 Current liabilities
Accounts payable $11,000 Accounts payable $11,000
Beginning balance, temporarily restricted net assets $13,000 Wages payable 6,600
Interest expense $6,000 Total current liabilities 17,600
Labor expense $123,000
Accumulated depreciation $22,000 Long-term debt 218,400
Long-term investments $20,000 Total liabilities 236,000
Ending balance, unrestricted net assets $238,000
Net assets
Ending balance, unrestricted net assets 238,000
Ending balance, temporarily restricted net assets 6,000
Total Net Assets 244,000

Total liabilities and net assets $480,000

Problem 2-22b Statement of operations for Sharpe Medical Center
Sharpe Medical Center
Statement of Operations (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Inventory $4,000 9/30/20X1
Patient revenues (net of contractuals) $302,000 Unrestricted revenues
Gross plant, property, and equipment $375,000 Patient revenues (net of contractuals) $302,000
Provision for bad debt expense ($4,500)
Net Patient Revenue $297,500
Net accounts receivable $85,000 Net assets released from temporary restriction 7,000
Ending balance, temporarily restricted net assets $6,000 Total revenues 304,500
Wages payable $6,600
Long-term debt $218,400 Operating expenses:
Supply expense $34,000 Labor expense 123,000
Net assets released from temporary restriction $7,000 General expense 95,000
Depreciation expense $44,000 Supply expense 34,000
General expense $95,000 Depreciation expense 44,000
Provision for bad debt expense $4,500 Interest expense 6,000
Cash and cash equivalents $18,000 Total operating expenses 302,000
Transfer to parent corporation ($3,900)
Beginning balance, unrestricted net assets $239,400 Excess of revenues over expenses 2,500
Accounts payable $11,000 Transfer to parent corporation (3,900)
Beginning balance, temporarily restricted net assets $13,000
Interest expense $6,000 Increase in unrestricted net assets ($1,400)
Labor expense $123,000
Accumulated depreciation $22,000
Long-term investments $20,000
Ending balance, unrestricted net assets $238,000
Problem 2-22c Statement of changes in net assets for Sharpe Medical Center
Sharpe Medical Center
Statement of Changes in Net Assets (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Inventory $4,000 9/30/20X1
Patient revenues (net of contractuals) $302,000 Unrestricted net assets
Gross plant, property, and equipment $375,000 Excess of revenues over expenses $2,500
Net accounts receivable $85,000 Unrestricted contributions 0
Ending balance, temporarily restricted net assets $6,000 Transfer to parent corporation (3,900)
Wages payable $6,600 Change in unrestricted net assets (1,400)
Long-term debt $218,400
Supply expense $34,000 Temporarily restricted net assets
Net assets released from temporary restriction $7,000 Net assets released from temporary restriction (7,000)
Depreciation expense $44,000 Change in temporarily restricted net assets (7,000)
General expense $95,000
Provision for bad debt expense $4,500 Permanently restricted net assets
Cash and cash equivalents $18,000 0
Transfer to parent corporation ($3,900) Change in permanently restricted net assets 0
Beginning balance, unrestricted net assets $239,400
Accounts payable $11,000 Increase in net assets (8,400)
Beginning balance, temporarily restricted net assets $13,000 Beginning balance, net assets 252,400
Interest expense $6,000
Labor expense $123,000 Ending balance, total net assets $244,000
Accumulated depreciation $22,000
Long-term investments $20,000
Ending balance, unrestricted net assets $238,000
Problem 2-23a Putman Outpatient Center
Putman Outpatient Center
Balance Sheet (in '000s)
Givens (in '000s): September 30, 20X1
Insurance expense $70,000 9/30/20X1
Cash $23,000 Current Assets
Patient revenues (net of contractuals) $614,000 Cash $23,000
Net accounts receivable $25,000 Net accounts receivable 25,000
Ending balance, temporarily restricted net assets $8,700 Prepaid expense 1,100
Wages payable $9,100 Total current assets 49,100
Prepaid expense $1,100
Long-term debt $191,700 Gross plant, property, and equipment 556,000
Supply expense $66,000 (less accumulated depreciation) (99,000)
Gross plant, property, and equipment $556,000 Net plant, property, and equipment 457,000
Net assets released from temporary restriction $8,000
Depreciation expense $10,000 Long-term investments 150,400
General expense $95,000
Transfer to parent corporation ($8,000) Total assets $656,500
Beginning balance, unrestricted net assets $203,400
Accounts payable $21,000 Current liabilities
Beginning balance, temporarily restricted net assets $16,700 Accounts payable $21,000
Provision for bad debt expense $5,400 Wages payable 9,100
Labor expense $145,000 Total current liabilities 30,100
Accumulated depreciation $99,000
Long-term investments $150,400 Long-term debt 191,700
Ending balance, unrestricted net assets $426,000 Total liabilities 221,800

Net assets
Ending balance, unrestricted net assets 426,000
Ending balance, temporarily restricted net assets 8,700
Total net assets 434,700

Total liabilities and net assets $656,500

Problem 2-23b Putman Outpatient Center
Putman Outpatient Center
Statement of Operations (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Insurance expense $70,000 9/30/20X1
Cash $23,000 Unrestricted revenues
Patient revenues (net of contractuals) $614,000 Patient revenues (net of contractuals) $614,000
Net accounts receivable $25,000 Provision for bad debt expense ($5,400)
Ending balance, temporarily restricted net assets $8,700 Net patient revenues $608,600
Wages payable $9,100 Net assets released from temporary restriction 8,000
Prepaid expense $1,100 Total revenues 616,600
Long-term debt $191,700
Supply expense $66,000 Operating expenses:
Gross plant, property, and equipment $556,000 Labor expense 145,000
Net assets released from temporary restriction $8,000 General expense 95,000
Depreciation expense $10,000 Supply expense 66,000
General expense $95,000 Insurance expense 70,000
Transfer to parent corporation ($8,000) Depreciation expense 10,000
Beginning balance, unrestricted net assets $203,400 Total operating expenses 386,000
Accounts payable $21,000
Beginning balance, temporarily restricted net assets $16,700 Excess of revenues over expenses 230,600
Provision for bad debt expense $5,400 Transfer to parent corporation (8,000)
Labor expense $145,000
Accumulated depreciation $99,000 Increase (decrease) in unrestricted net assets $222,600
Long-term investments $150,400
Ending balance, unrestricted net assets $426,000
Problem 2-23c Putman Outpatient Center
Putman Outpatient Center
Statement of Changes in Net Assets (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Insurance expense $70,000 9/30/20X1
Cash $23,000 Unrestricted Net Assets
Patient revenues (net of contractuals) $614,000 Excess of Revenues Over Expenses $230,600
Net accounts receivable $25,000 Unrestricted Contributions 0
Ending balance, temporarily restricted net assets $8,700 Transfer to Parent Corporation (8,000)
Wages payable $9,100 Change in Unrestricted Net Assets 222,600
Prepaid expense $1,100
Long-term debt $191,700 Temporarily Restricted Net Assets
Supply expense $66,000 Net Assets Released from Temporary Restriction (8,000)
Gross plant, property, and equipment $556,000 Change in Temporarily Restricted Net Assets (8,000)
Net assets released from temporary restriction $8,000
Depreciation expense $10,000 Permanently Restricted Net Assets
General expense $95,000 0
Transfer to parent corporation ($8,000) Change in Permanently Restricted Net Assets 0
Beginning balance, unrestricted net assets $203,400
Accounts payable $21,000 Increase in Net Assets 214,600
Beginning balance, temporarily restricted net assets $16,700 Beginning Balance, Net Assets $220,100
Provision for bad debt expense $5,400
Labor expense $145,000 Ending Balance, Total Net Assets $434,700
Accumulated depreciation $99,000
Long-term investments $150,400
Ending balance, unrestricted net assets $426,000
Problem 2-24a Chester Hospital
Chester Hospital
Balance Sheet (in '000s)
Givens (in '000s): September 30, 20X1
Provision for bad debt expense $10,200 9/30/20X1
Cash $12,600 Current assets
Patient revenues (net of contractuals) $188,000 Cash $12,600
Net accounts receivable $15,300 Net accounts receivable 15,300
Ending balance, temporarily restricted net assets $13,700 Inventory 4,400
Wages payable $7,800 Total current assets 32,300
Inventory $4,400
Long-term debt $39,000 Gross plant, property, and equipment 175,000
Supply expense $21,000 (less accumulated depreciation) (35,000)
Gross plant, property, and equipment $175,000 Net plant, property, and equipment 140,000
Net assets released from temporary restriction $3,300
Depreciation expense $10,000 Long-term investments, restricted 64,800
General expense $36,000
Transfer to parent corporation ($3,300) Total assets $237,100
Beginning balance, unrestricted net assets $160,600
Accounts payable $12,000 Current liabilities
Beginning balance, temporarily restricted net assets $17,000 Accounts payable $12,000
Interest expense $1,800 Wages payable 7,800
Labor expense $105,000 Total current liabilities 19,800
Accumulated depreciation $35,000
Long-term investments, restricted $64,800 Long-term debt 39,000
Ending balance, unrestricted net assets $164,600 Total liabilities 58,800

Net assets
Ending balance, unrestricted net assets 164,600
Ending balance, temporarily restricted net assets 13,700
Total net assets 178,300

Total liabilities and net assets $237,100

Problem 2-24b Chester Hospital
Chester Hospital
Statement of Operations (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Provision for bad debt expense $10,200 9/30/20X1
Cash $12,600 Unrestricted revenues
Patient revenues (net of contractuals) $188,000 Patient revenues (net of contractuals) $188,000
Net accounts receivable $15,300 Provision for bad debt expense ($10,200)
Ending balance, temporarily restricted net assets $13,700 Net patient revenue $177,800
Wages payable $7,800 Net assets released from temporary restriction 3,300
Inventory $4,400 Total revenues 181,100
Long-term debt $39,000
Supply expense $21,000 Operating expenses:
Gross plant, property, and equipment $175,000 Labor expense 105,000
Net assets released from temporary restriction $3,300 General expense 36,000
Depreciation expense $10,000 Supply expense 21,000
General expense $36,000 Depreciation expense 10,000
Transfer to parent corporation ($3,300) Interest expense 1,800
Beginning balance, unrestricted net assets $160,600 Total operating expenses 173,800
Accounts payable $12,000
Beginning balance, temporarily restricted net assets $17,000 Excess of revenues over expenses 7,300
Interest expense $1,800 Transfer to parent corporation (3,300)
Labor expense $105,000
Accumulated depreciation $35,000 Increase in unrestricted net assets $4,000
Long-term investments, restricted $64,800
Ending balance, unrestricted net assets $164,600
Problem 2-24c Chester Hospital
Chester Hospital
Statement of Changes in Net Assets (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Provision for bad debt expense $10,200 9/30/20X1
Cash $12,600 Unrestricted net assets
Patient revenues (net of contractuals) $188,000 Excess of revenues over expenses $7,300
Net accounts receivable $15,300 Unrestricted contributions 0
Ending balance, temporarily restricted net assets $13,700 Transfer to parent corporation (3,300)
Wages payable $7,800 Change in unrestricted net assets 4,000
Inventory $4,400
Long-term debt $39,000 Temporarily restricted net assets
Supply expense $21,000 Net assets released from temporary restriction (3,300)
Gross plant, property, and equipment $175,000 Change in temporarily restricted net assets (3,300)
Net assets released from temporary restriction $3,300
Depreciation expense $10,000 Permanently restricted net assets
General expense $36,000 0
Transfer to parent corporation ($3,300) Change in permanently restricted net assets 0
Beginning balance, unrestricted net assets $160,600
Accounts payable $12,000 Increase in net assets 700
Beginning balance, temporarily restricted net assets $17,000 Beginning balance, net assets $177,600
Interest expense $1,800
Labor expense $105,000 Ending balance, total net assets $178,300
Accumulated depreciation $35,000
Long-term investments, restricted $64,800
Ending balance, unrestricted net assets $164,600
Problem 2-25a Upper Merion Hospital
Upper Merion Hospital
Balance Sheet (in '000s)
Givens (in '000s): September 30, 20X1
Provision for bad debt $23,800 9/30/20X1
Cash $30,000 Current assets
Patient revenues (net of contractuals) $275,000 Cash $30,000
Net accounts receivable $42,100 Net accounts receivable 42,100
Ending balance, temporarily restricted net assets $15,900 Inventory 2,800
Wages payable $6,500 Total current assets 74,900
Inventory $2,800
Long-term debt $143,000 Gross plant, property, and equipment 290,000
Supply expense $55,000 (less accumulated depreciation) (35,000)
Gross plant, property, and equipment $290,000 Net plant, property, and equipment 255,000
Net assets released from temporary restriction $2,100
Depreciation expense $13,000 Long-term investments 120,000
General expense $19,000
Transfer to parent corporation ($2,800) Total assets $449,900
Beginning balance, unrestricted net assets $234,000
Accounts payable $15,000 Current liabilities
Beginning balance, temporarily restricted net assets $18,000 Accounts payable $15,000
Interest expense $9,000 Wages payable 6,500
Labor expense $119,000 Total current liabilities 21,500
Accumulated depreciation $35,000
Long-term investments $120,000 Long-term debt 143,000
Ending balance, unrestricted net assets $269,500 Total liabilities 164,500

Net assets
Ending balance, unrestricted net assets 269,500
Ending balance, temporarily restricted net assets 15,900
Total net assets 285,400

Total Liabilities and Net Assets $449,900

Problem 2-25b Upper Merion Hospital
Upper Merion Hospital
Statement of Operations (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Provision for bad debt $23,800 9/30/20X1
Cash $30,000 Unrestricted revenues
Patient revenues (net of contractuals) $275,000 Patient revenues (net of contractuals) $275,000
Provision for bad debts ($23,800)
Net patient revenues $251,200
Net accounts receivable $42,100 Net assets released from temporary restriction 2,100
Ending balance, temporarily restricted net assets $15,900 Total revenues 253,300
Wages payable $6,500
Inventory $2,800 Operating expenses:
Long-term debt $143,000 Labor expense 119,000
Supply expense $55,000 General expense 19,000
Gross plant, property, and equipment $290,000 Supply expense 55,000
Net assets released from temporary restriction $2,100 Depreciation expense 13,000
Depreciation expense $13,000 Interest expense 9,000
General expense $19,000 Total operating expenses 215,000
Transfer to parent corporation ($2,800)
Beginning balance, unrestricted net assets $234,000 Excess of revenues over expenses 38,300
Accounts payable $15,000 Transfer to parent corporation (2,800)
Beginning balance, temporarily restricted net assets $18,000
Interest expense $9,000 Increase in unrestricted net assets $35,500
Labor expense $119,000
Accumulated depreciation $35,000
Long-term investments $120,000
Ending balance, unrestricted net assets $269,500
Problem 2-25c Upper Merion Hospital
Upper Merion Hospital
Statement of Changes in Net Assets (in '000s)
Givens (in '000s): For the Year Ended September 30, 20X1
Provision for bad debt $23,800 9/30/20X1
Cash $30,000 Unrestricted net assets
Patient revenues (net of contractuals) $275,000 Excess of revenues over expenses $38,300
Net accounts receivable $42,100 Unrestricted contributions 0
Ending balance, temporarily restricted net assets $15,900 Transfer to parent corporation (2,800)
Wages payable $6,500 Change in unrestricted net assets 35,500
Inventory $2,800
Long-term debt $143,000 Temporarily restricted net assets
Supply expense $55,000 Net assets released from temporary restriction (2,100)
Gross plant, property, and equipment $290,000 Change in temporarily restricted net assets (2,100)
Net assets released from temporary restriction $2,100
Depreciation expense $13,000 Permanently restricted net assets
General expense $19,000 0
Transfer to parent corporation ($2,800) Change in permanently restricted net assets 0
Beginning balance, unrestricted net assets $234,000
Accounts payable $15,000 Increase in net assets 33,400
Beginning balance, temporarily restricted net assets $18,000 Beginning balance, net assets 252,000
Interest expense $9,000
Labor expense $119,000 Ending balance, total net assets $285,400
Accumulated depreciation $35,000
Long-term investments $120,000
Ending balance, unrestricted net assets $269,500