Far – difference answer for NFP Net patient service Fee

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  • #1810354
    setmefree
    Participant

    Is the bad debt include in the Net patient service revenue? Becker said is include in operating revenue or not net patient service revenue.

    Hospital, Inc., a not-for-profit entity with no governmental affiliation, reported the following in its accounts for the current year ended December 31:
    Gross patient service revenue from all services provided
    at the established billing rates of the hospital (note
    that this figure includes charity care of $25,000) $775,000
    Provision for bad debts 15,000
    Difference between established billing rates and fees
    negotiated with third-party payers (contractual adjustments) 70,000
    What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?

    A.

    $665,000
    Incorrect
    B.

    $680,000

    C.

    $705,000

    D.

    $735,000

Viewing 6 replies - 1 through 6 (of 6 total)
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  • #1810358
    Anonymous
    Participant

    It's my understanding that bad debt allowance wouldn't be included in this calculation. Since I don't see anything related to A/R, I wouldn't even consider it. I would add the gross service revenue less the charity care and subtract the difference between the established billing rates and fees. What is the answer? B?

    I'm tired of operating in fear and mediocrity. It's time to try. It's time to do. It's time to go.

    #1810364
    setmefree
    Participant

    The answer is A, it subtracted the bad debt expenses to get to the net patient revenue. I was quite confused myself too.

    #1810394
    Anonymous
    Participant

    OMG!!! Now, I DEFINITELY need to know why.

    I just found this….
    https://www.another71.com/cpa-exam-forum/topic/net-patient-service-revenue-question/

    I'm tired of operating in fear and mediocrity. It's time to try. It's time to do. It's time to go.

    #1810405
    Anonymous
    Participant

    This is a similar problem and answer I found in my Roger course IPQs…

    Hospital, Inc., a not-for-profit organization with no governmental affiliation, reported the following in its accounts for the current year ended December 31:

    Gross patient service revenue from all services
    provided at the established billing rates of the hospital
    (note that this figure includes charity care of $25,000) $775,000
    Provision for bad debts $100,000
    Difference between established billing rates and fees
    negotiated with third-party payors (contractual adjustments) $70,000

    What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?

    YOUR ANSWER WAS CORRECT:
    Icon indicating this is the correct answer$680,000
    $690,000
    $705,000
    $735,000

    CORRECT ANSWER EXPLANATION:
    Correct! Net patient service revenue is gross service revenue (exclusive of any revenue from charity care) minus any discounts and contractual adjustments for third-party payments ($750,000 – $70,000 = $680,000). Bad debt expenses are claimed separately as an operating expense.

    I'm tired of operating in fear and mediocrity. It's time to try. It's time to do. It's time to go.

    #1810408
    setmefree
    Participant

    Both Wiley and Becker also exclude bad debt expenses from the Cacluation. I am really confused.

    #1810418
    setmefree
    Participant

    Per the WIley profosser, you do deduct the bad debt expenses. I think those just old questions that never get updated.

    Bad debt expense that is related to patient services (e.g. room charges, nursing costs, doctor fees, medicines, lab work), is deducted from revenue for both public hospitals and private NFP hospitals. It is HOW the bad debt expense is deducted that differs between the two:

    Public hospitals: bad debt related to patient services is treated as a direct reduction to patient service revenue. For example, if Net Patient Service Revenue was $100,000 and we had bad debt related to patient services totaling $10,000, we would report Net Patient Service Revenue as $90,000. We would only know that there was $10,000 of bad debt expense related to patient services by looking in the notes.

    Private NFP hospitals: bad debt related to patient services is shown explicitly as a line item deduction from patient service revenue. For example, if Net Patient Service Revenue was $100,000 and we had bad debt related to patient services totaling $10,000, we would report Net Patient Service Revenue as $100,000, show Bad Debt Expense as $10,000 and end up with Adjusted Net Patient Service Revenue of $90,000. The main thing to note here is that Bad Debt Expense (related to patient service revenue) is shown as a separate line item on the Statement of Operations.

    Any Bad Debt Expense that is NOT related to patient services (i.e. bad debt related to monthly parking fees, course fees, gift shop rent, etc.) is treated as an Operating Expense by BOTH public hospitals and private NFP hospitals.

    Prof Gillespie

Viewing 6 replies - 1 through 6 (of 6 total)
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