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22 Fischer10e SM Ch19 Final
22 Fischer10e SM Ch19 Final
com
CHAPTER 19
1. The measurement focuses used by public uni- a contribution can be restricted. It is less impor-
versities under GASB Statement No. 34 are tant in public universities where both contribu-
both the flows of financial resources and the tions and grants are considered restricted rev-
flows of economic resources. Private universi- enues.
ties use a measurement focus of economic
4. Assets limited as to use are not restricted,
resources. Both entities use full accrual
merely board (or internally) designated. Only a
accounting and must focus on the recovery of
donor can impose a restriction per FASB
costs. However, a public university also must
Statement No. 116.
adhere to the governmental reporting model
and yearly funding and budgetary issues of 5. A hospital will bill out to all types of patients
governments. Therefore, they have unique (with and without insurance and with different
needs for a financial resources (working capi- types of insurance coverage) the same amount.
tal) focus. This adherence to gross revenue determination
is designed to get the maximum revenue to
2. Accounting for contributions for a private uni-
cover costs. Adjustments are then determined
versity requires recognizing revenue in the
in the contractual negotiations with HMOs and
period the unconditional contribution (or prom-
other insurance providers. Medicare and Medi-
ise to give) is received. If a donor-imposed
caid reimbursements are considerably lower
restriction as to use or time period is present,
than most hospital gross revenues due to for-
the contribution is recognized as temporarily
mulas that average cost reimbursement across
restricted revenue in the period received. When
all of the rural and urban hospitals in the United
donor-imposed restrictions are satisfied, the
States.
restriction is released. In a public university,
contributions of cash or investments to the 6. Accounting for medical malpractice claims is of
unrestricted current fund may be recorded as special concern to health care organizations
revenue in the period received unless the because of the potential for very large ex-
contribution is designated for future periods. penses and the inability to fully insure against
Contributions designated for future periods are the risk of loss. Accounting for medical mal-
recognized as deferred revenue. practice claims is similar to accounting for con-
tingencies. costs should be accrued when
3. In order for the government grant to be a con-
the incidents occur that give rise to the claims if
tribution, the grantor may not receive anything
it can be determined that it is probable that the
of value from the use of the funds by the receiv-
liabilities have been incurred and if the amounts
ing organization. If something of value is given
of the losses can be reasonably estimated.
in return for the grant, the grant is an exchange
This basic rule applies to both claims that have
transaction that will recognize an equal amount
occurred and incidents that have occurred but
of earned revenue when expenses are made in
have not yet been reported as of the balance
accordance with the provisions of the grant.
sheet date.
This distinction is important in private universi-
ties since under FASB Statement No. 116 only
769
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Ch. 19Exercises
EXERCISES
EXERCISE 19-1
(2) b Recognized in period received. Restriction is released when expenses are incurred.
(6) b Recognized in period received. Restriction released either (1) when asset is placed in ser-
vice or (2) over its useful life.
(7) f Recognized when conditions are met.
(11) b Recognized in period received. Restriction is released when time restriction is satisfied.
(12) b Recognized in period received. Restriction is released when expenses are incurred.
(14) b Recognized in period received. Restriction is released either (1) when asset is placed in
service or (2) over useful life of asset.
(15) a, b, or f (If collection is displayed to the public or otherwise held for exhibit, the university is not
required to recognize contributions as revenue.)
EXERCISE 19-2
770
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Ch. 19Exercises
EXERCISE 19-3
771
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Ch. 19Exercises
EXERCISE 19-4
772
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Ch. 19Exercises
EXERCISE 19-5
EXERCISE 19-6
773
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Ch. 19Exercises
EXERCISE 19-7
774
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Ch. 19Exercises
EXERCISE 19-8
(1) Patient service revenues include charges to patients for routine services, nursing services, and
professional services.
Other operating revenues include revenues from services other than health care provided to
patients as well as from sales and services to persons other than patients.
Nonoperating revenues are primarily from gifts, grants, and investment income and gains that
are peripheral or incidental to the major operation of the hospital.
(2) a. OO d. PS g. OO j. PS
b. N e. N h. PS k. N
c. PS f. N i. OO
EXERCISE 19-9
775
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Ch. 19Exercises
EXERCISE 19-10
(2) Net patient service revenues = $4,620,000 ($8,500,000 $3,700,000 $340,000 + $250,000
$90,000)
(3) Net cash flow from transactions with Medicare = $4,620,000 ($4,460,000 + $250,000 $90,000)
(4) Assuming the $90,000 payment back to Medicare was in settlement, the revenue account will be
closed along with the contra-revenue account Contractual Adjustments. The net amount will ap-
pear on the financial statements.
776
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Ch. 19Exercises
EXERCISE 19-11
EXERCISE 19-12
(1) e A designation is not the same as a donor-imposed restriction. The designated assets stay in
the unrestricted net assets category.
(2) a Income from board-designated assets is unrestricted.
(3) c The restricted donation is an increase in temporarily restricted net assets.
(4) a The purchase of a building releases the restriction in entry (3).
(5) a This donated service is recognized as unrestricted revenues and expenses because it requires
specialized skills and would have to be purchased if it were not donated.
(6) d The donated assets are permanently restricted; income will be temporarily restricted.
777
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Ch. 19Problems
PROBLEMS
PROBLEM 19-1
(1) b The three financial statements for private universities are the statement of financial position,
the statement of activities, and the statement of cash flows.
(2) c Only donors can restrict funds. Assets held at the discretion of the board are unrestricted.
(4) a Endowment income is recognized in the endowment fund. A transfer to another fund will occur,
depending on donor-stipulation as to use.
(5) a Plant funds include unexpended plant funds, plant fund for renewals and replacements, plant
fund for retirement of indebtedness, and investment in plant.
(6) c Only nonexpendable principals are permanently restricted. The term endowment is temporarily
restricted. The designation is not externally restricted and is classified as unrestricted.
(8) b Loans to students, faculty, and staff are accounted for in the loan fund.
(9) b The $6,000 earnings from internal designated funds are unrestricted. Only a donor may restrict
assets given to an organization.
(10) c Since Oak Private College is not the trustee, contribution revenue is recognized only when
income is due (or received).
PROBLEM 19-2
(2) a Revenue is recognized when contributions are received. Restricted gifts and contributions are
reclassified as unrestricted when expended for donor-specified purposes.
(4) b The rate of pay normally commanded by a paid person performing a given function would
serve as the measurement basis for the amount. Because they regularly contribute their ser-
vices, the employer-employee relationship would seem to exist.
(5) a Institutional support expenditures are those of central administration. Scholarships and fellow-
ships are expendituresstudent aid. The $200,000 is expendituresoperation and mainten-
ance of plant.
778
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Ch. 19Problems
(7) a Endowment income is recognized as unrestricted and temporarily restricted upon receipt.
(9) c The $100,000 is only a restriction within the current unrestricted fund and is not externally im-
posed.
(10) d A public university engaged only in business-type activities may report under GASB Statement
No. 34 as a proprietary fund.
PROBLEM 19-3
(5) Contribution transaction. Recognize as revenues when condition is met. Record as temporarily re-
stricted; when restriction is met, reclassify revenues to unrestricted.
(6) Neither contribution nor exchange transactionnot recorded. Contributed service that does not
meet the criterion of requiring specialized skills. Do not recognize but include in footnote disclo-
sure.
779
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Ch. 19Problems
(7) Contribution transaction. Intention to give. Do not recognize currently because the will can be
changed prior to death.
PROBLEM 19-4
780
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Ch. 19Problems
Current Funds
Entry Unrestricted Restricted
Letter Accounts Debit Credit Debit Credit
(f) Cash ................................................................ 31,000
Investments ................................................ 25,000
Fund Balance.............................................. 6,000
Investments ..................................................... 40,000
Cash ........................................................... 40,000
Cash ................................................................ 18,000
Fund Balance.............................................. 18,000
781
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Ch. 19Problems
Current Funds
Unrestricted Restricted Total
Revenues:
Tuition and fees..................................................... $2,517,000
$2,517,000
Governmental appropriations ................................ 60,000
60,000
Private gifts and grants ......................................... 80,000
80,000
Other income......................................................... $ 10,000 10,000
Total revenues ................................................ $2,657,000 $ 10,000
$2,667,000
Expenses:
General ................................................................. $2,510,000
$2,510,000
Research ............................................................... $ 10,000 10,000
Total expenses ................................................ $2,510,000 $ 10,000
$2,520,000
Other transfers and additions (deductions):
Excess of restricted receipts over
transfers to revenues ...................................... $ 14,000 $ 14,000
Transfers to other funds ........................................ $ (30,000)
(30,000)
Net increase for the year ............................................. $ 117,000 $ 14,000 $
131,000
Fund balancebeginning of year ............................... 435,000 215,000
650,000
Fund balanceend of year......................................... $ 552,000 $229,000 $ 781,000
PROBLEM 19-5
782
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Ch. 19Problems
783
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Ch. 19Problems
784
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Ch. 19Problems
785
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Ch. 19Problems
PROBLEM 19-6
786
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Ch. 19Problems
787
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Ch. 19Problems
PROBLEM 19-7
788
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Ch. 19Problems
789
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Ch. 19Problems
790
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Ch. 19Problems
Temporarily Permanently
Unrestricted Restricted Restricted Total
Changes in net assets:
Revenues and gains:
Contributions ................................................... $ 460,000 $ 5,700,000
$6,160,000
Other investment earnings .............................. 0 10,000 10,000
Total unrestricted revenues and gains ....... $ 460,000 $ 5,710,000 $ 0
$6,170,000
Net assets released from restrictions:
Satisfaction of plant acquisition restrictions ......... 5,000,000 (5,000,000)*
0
Total revenues and gains and other support .. $5,460,000 $ 710,000 $
0 $6,170,000
Expenses:
Operations and maintenance of plant .................. $1,625,000
$1,625,000
Institutional support .............................................. 20,000
20,000
Total expenses ................................................ $1,645,000 $ 0 $ 0
$1,645,000
Increase (decrease) in net assets ........... $3,815,000 $ 710,000 $
0 $4,525,000
*Note to Instructor: The reclassification amount would total $25,000 if Kronkes policy is to release the
restrictions over the life of the assets rather than when placed into operation.
791
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Ch. 19Problems
PROBLEM 19-8
RevenuesPermanently Restricted
Contributions ................................................................. 500,000
Permanently Restricted Net Assets ...................... 500,000
792
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Ch. 19Problems
Temporarily Permanently
Unrestricted Restricted Restricted Total
Changes in net assets:
Revenues and gains:
Tuition and fees ................................................... $1,500,000
$1,500,000
Contributions ........................................................ 265,000 $ 200,000 $ 500,000
965,000
Government appropriations, grants, and
contracts.......................................................... 800,000
........................................................... 800,000
Investment income on endowment ...................... 15,000
15,000
Net realized gains on endowment investments ... 25,000
25,000
Other investment income ................................ 250,000
........................................................... 250,000
Sales and services of auxiliary enterprises.......... 500,000
........................................................... 500,000
Total revenues and gains................................ $3,315,000 $ 240,000 $ 500,000
$4,055,000
Net assets released from restrictions:
Satisfaction of program restrictions .......................... $ 75,000 $ (75,000) $
0
Satisfaction of equipment acquisition restrictions ..... 250,000 (250,000)
0
Satisfaction of time restrictions ................................. 50,000 (50,000)
0
Total net assets released from restrictions .......... $ 375,000 $(375,000) $
0
Total revenues and gains and other support .. $3,690,000$(135,000) $ 500,000
$4,055,000
Expenses:
Research................................................................... $ 840,000
...................................................... $ 840,000
Instruction ................................................................. 1,230,000
........................................................ 1,230,000
Academic support ..................................................... 250,000
........................................................... 250,000
Student services ....................................................... 200,000
........................................................... 200,000
Institutional support................................................... 225,000
225,000
Operation and maintenance of plant ........................ 400,000
........................................................... 400,000
793
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Ch. 19Problems
794
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Ch. 19Problems
PROBLEM 19-9
Assets:
Cash............................................................................................................. $ 255,000
Accounts receivable ..................................................................................... 625,000
Contributions receivable .............................................................................. 85,000
Inventory of supplies .................................................................................... 75,000
Student loans receivable.............................................................................. 300,000
Land, buildings, and equipment (net) ........................................................... 1,000,000
Endowment investments .............................................................................. 3,025,000
Total assets .......................................................................................... $5,365,000
Liabilities:
Accounts payable......................................................................................... $ 220,000
Amounts held on behalf of others ................................................................ 250,000
Long-term debt............................................................................................. 560,000
U.S. government grants refundable ............................................................. 100,000
Total liabilities ...................................................................................... $1,130,000
Net assets:
Unrestricted ................................................................................................ $ 395,000
Temporarily restricted ............................................................................... 840,000
Permanently restricted .............................................................................. 3,000,000
Total net assets .................................................................................... $4,235,000
Total liabilities and net assets ............................................................................ $5,365,000
PROBLEM 19-10
(1) b Goods and services that otherwise would be purchased are recorded as other operating
revenues.
(2) c The $300,000 is part of unrestricted net assets because there are no external donor restrictions
on the use of the funds.
(3) a For hospitals, property, plant, and equipment and their related liabilities are within the
unrestricted or temporarily restricted (if donated) net asset classes.
(5) a Both board-designated funds and plant assets are part of the unrestricted net assets of the
hospital. Restrictions by outsiders have been released.
795
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Ch. 19Problems
(7) d Because the assets are not under the control of the hospital, they should not appear in the
hospitals financial statements.
(9) d Donated goods and services are not recorded unless they would have otherwise been
purchased and are of a skilled nature.
(10) b The valuation allowance must be decreased by $40,000 in order for the allowance balance to
be $10,000 at the end of 20Y0.
PROBLEM 19-11
(3) a The release of restrictions will be reported as operating expenses are incurred.
(4) a Inventory donated is used for the hospitals principal operations and is part of other operating
revenues.
(5) b This is revenue from sales or services to persons other than patients.
(9) d Earnings are available for expenditure but must be spent on specific items. Thus, they are
temporarily restricted.
796
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Ch. 19Problems
PROBLEM 19-12
Temporarily Permanently
Unrestricted Restricted Restricted Total
Public support and revenue:
Public support:
Contributions .............................................................. $300,000 $15,000 $315,000
Annual auction proceeds (net of $11,000 expense) .. 31,000 31,000
Total public support................................................. $331,000 $15,000 $ 0 $346,000
Revenues:
Membership dues ....................................................... $ 25,000 $ 25,000
Program service fees ................................................. 30,000 30,000
Investment income ..................................................... 10,000 10,000
Endowment income.................................................... $20,000 20,000
Total revenue .......................................................... $ 65,000 $20,000 $ 0 $ 85,000
Net assets released from restrictions:
Satisfaction of program restrictions ............................... $ 5,000 $ (5,000) $
0
Total public support, revenue, and other support ............. $401,000 $30,000 $ 0 $431,000
Expenses:
Program services:
Blind children .............................................................. $150,000 $ 150,000
Deaf children .............................................................. 120,000 120,000
Supporting services:
Management and general .......................................... 51,000* 51,000
Fund raising ............................................................... 9,000 9,000
Total expenses ................................................................. $330,000 $ 0 $ 0 $330,000
Change in net assets ........................................................ $ 71,000 $30,000 $ 0 $101,000
Net assets, July 1, 20X7 ................................................... 38,000 3,000 250,000 291,000
Net assets, June 30, 20X8 ............................................... $109,000 $33,000 $250,000 $392,000
797
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Ch. 19Problems
Assets:
Cash ....................................................................................................... $ 40,000
Pledges receivable (net of $3,000 allowance) ....................................... 9,000
Bequest receivable................................................................................. 5,000
Accrued interest receivable .................................................................... 1,000
Long-term investments........................................................................... 140,000
Endowment investments ........................................................................ 250,000
Total assets ...................................................................................... $445,000
Liabilities:
Accounts payable and accrued expenses.............................................. $ 51,000
Refundable deposits .............................................................................. 2,000
Total liabilities ................................................................................... $ 53,000
Net assets:
Unrestricted ............................................................................................ $109,000
Temporarily restricted ............................................................................ 33,000
Permanently restricted ........................................................................... 250,000
Total net assets ................................................................................ $392,000
Total liabilities and net assets ...................................................................... $445,000
798
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Ch. 19Problems
PROBLEM 19-13
Temporarily Permanently
Unrestricted Restricted Restricted Total
Patient service revenues (net of $1,543,500 contractual
adjustments and charity care) .................................... $ 9,505,700 $
9,505,700
Other operating revenues:
Research grant ........................................................... $ 361,000 $
361,000
Contributions .............................................................. $ 225,000
225,000
Donated services ........................................................ 145,000
145,000
Cafeteria meal sales ................................................... 108,000
108,000
Parking lot fees ........................................................... 31,000
31,000
Vending machine sale ................................................ 68,000
68,000
Total other operating revenue ................................. $ 713,000 $ 225,000 $ 0 $
938,000
Net assets released from restrictions:
Satisfaction of plant acquisition restrictions ............... 220,000 (220,000)
0
Satisfaction of program restrictions ............................ 125,000 (125,000)
0
Total operating revenue and other support ............. $10,563,700 $ (120,000) $ 0
$10,443,700
Operating expenses:
Nursing services ......................................................... $ 6,589,100 $
6,589,100
Dietary services .......................................................... 1,511,200
1,511,200
Maintenance services ................................................. 838,300
838,300
Administrative services ............................................... 112,500
112,500
Interest expense ......................................................... 142,200
142,200
Depreciation and amortization.................................... 478,200
478,200
Provision for uncollectibles ......................................... 341,600
341,600
Total operating expenses ........................................ $10,013,100 $ 0 $ 0
$10,013,100
799
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Ch. 19Problems
800
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Ch. 19Problems
PROBLEM 19-14
Lakeside Hospital
Statement of Cash Flows
For Year Ended December 31, 20X8
PROBLEM 19-15
Lakeside Hospital
Reconciliation of Change in Net Assets
to Net Cash Provided by Operating Activities
For Year Ended December 31, 20X8
801
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