The December 31, 2013, statement of financial position of Mosholu Medical Center, a major urban hospital and research center, is shown as follows. All amounts are in thousands.
The following transactions and events occurred in 2014 (all dollar amounts in thousands):
a. The hospital provided $705,943
in patient care at standard rates. On average, it expects to collect approximately 75% ($529,457) of this amount, owing mainly to discounts by third-party providers. Further, it expects that 5% of the 75% ($26,473) will have to be written off as bad debts.
b. It collected $480,125 in patient accounts, and it wrote off $50,000 of bad debts.
c. It also provided $52,000 in charity care, which it never expected to collect.
d. It earned $15,040 in investment income, of which $10,080 is unrestricted and $4,960 is temporarily restricted.
e. It purchased plant and equipment of $242, all of which was paid for with restricted resources.
f. It charged depreciation of $29,262.
g. It received unrestricted pledges of $2,070 and temporarily restricted pledges of $120. It collectedalloftheunrestrictedpledgesand$100of the temporarily restricted pledges.
h. It earned other operating revenues (including those from auxiliary enterprises) of $135,000.
i. It incurred $430,650 in wages and salaries, of which it paid $425,000. The balance was accrued. It also incurred $200,000 in other operating expenses (including those of auxiliary enterprises), of which it paid $198,500. The balance was vouchered (and thereby credited to accounts payable).
j. It incurred and paid $210,200 in costs related to restricted contracts and grants (amounts that were not included in any other expense category). It was reimbursed for $206,800 and expects to be reimbursed for the balance in the future. In addition, it received $3,000 in advances on other grants.
k. The other operating expenses include insurance costs. However, under ‘‘retrospective’’ insurance policies, the hospital anticipates having to pay an additional $3,500 in premiums.
1. Prepare journal entries to record the transactions. Be sure to indicate whether each entry affects unrestricted, temporarily restricted, or permanently restricted funds.
2. Prepare a statement of activities for 2014 and a statement of financial position as of December 31, 2014.
SOLUTION
1. Journal entries
(a)
Receivables for patient care $705,943
Revenue from patient services estimated
contractual adjustments 176,486
Bad debt expense 26,473
Patient care revenues $705,943
Receivables for patient care—allowance
for contractual adjustments 176,486
Patient accounts receivable—allowance for bad debts 26,473
To record patient service revenues (in an unrestricted fund) This entry reflects a contra-asset, “Receivables for patient care—allowance for contractual adjustments.” However, for reporting purposes this account will be combined with “Receivables for patient care,” inasmuch as it was similarly combined in the December 31, 2013 balance sheet. If the amount to be paid by the insurance companies and health plans is known in advance, then the receivable can be recorded at that amount and the allowance for contractual adjustments would be unnecessary.
(b)
Cash $480,125
Receivables for patient care $480,125
To record cash collections (in an unrestricted fund)
Patient accounts receivable—allowance for bad debts $50,000
Receivables for patient care $50,000
To write-off bad debts (in an unrestricted fund)
(c)
No entry is required. Charity care should not be included in patient care revenue.
(d)
Cash (unrestricted) $10,080
Cash (temporarily restricted) 4,960
Investment income (unrestricted) $10,080
Investment income (temporarily restricted) 4,960
To record investment income (in the fund-types indicated)
(e)
Resources released from restriction $ 242
Cash $ 242