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introduction to accounting
Questions and Answers of
Introduction To Accounting
John Doe is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that carry a 12 percent interest rate.a. What is his after-tax yield (interest rate) on the bonds?b.
George and Margaret Wealthy are in the 48 percent tax bracket, considering both federal and state personal taxes. Norman Briggs, the CEO of Community General Hospital, has been aggressively pursuing
Are investors passive users of this information?
Briefly explain the following basic concepts as they apply to the preparation of financial statements:• Accounting entity• Going concern• Accounting period• Objectivity and reliability•
Briefly explain the differences between cash and accrual accounting.
Why do GAAP favor accrual over cash accounting?
Explain two problems that can occur when the matching principle is implemented.
Briefly explain the following terms used in the recording and compiling of accounting data:• Transaction• Account• Posting• Chart of accounts• General ledger• T account• Double entry
What are the three primary financial statements?
Why are the footnotes to the financial statements important?
Describe how the following types of revenue are reported on the income statement:• Discounts from charges• Charity care• Bad debt losses
What is the logic behind the provision for bad losses?
How is net income calculated?
What is the payout ratio?
What is the retention ratio?
What are the payout and retention ratios of a not-for-profit organization?
a. What are generally acceptable accounting principles (GAAP)?b. What is the purpose of GAAP?c. What organizations are involved in establishing GAAP?
Explain the difference between cash and accrual accounting. Be sure to include a discussion of the matching principle.
a. What is the difference between gross revenues and net revenues?b. What is the difference between patient service revenue and other revenue?c. What is the difference between charity care and bad
Entries for the Warren Clinic 2004 income statement are listed below in alphabetical order. Reorder the data in proper format. Bad debt expense Depreciation expense General/administrative expenses
Consider the following income statement:a. How does this income statement differ from the one presented in Table 3.1?b. Did BestCare spend $367,000 on new fixed assets during fiscal year 2004? If
Consider this income statement:a. How does this income statement differ from the ones presented in Table 3.1 and Problem 3.2?b. Why does Green Valley show a provision for income taxes while the other
Great Forks Hospital reported net income for 2004 of $2.4 million on total revenues of $30 million. Depreciation expense totaled $1 million.a. What were total expenses for 2004?b. What were total
Assume that Mainline Homecare, a for-profit corporation, had exactly the same situation as reported in Problem 3.5. However, Mainline must pay taxes at a rate of 40 percent of pretax income. Assuming
What is the purpose of the balance sheet?
What are the four major categories of asset accounts?
What is the primary difference between current assets and the remainder of the asset side of the balance sheet?
What are liabilities?
Use an example to explain the logic behind accruals.
Is there a significant difference in the economic content of balance sheets created by investor-owned and not-for-profit health services organizations?
Briefly explain the three major categories shown on the statement.
In your view, what is the most important piece of information reported on the statement?
What is the effect on a business’s equity account of a payment on a bill that has already been booked (recorded as an account payable)?
a. What is the difference between the income statement and balance sheet in regards to timing?b. What is wrong with this statement: “The clinic’s cash balance for 2004 was $150,000, while its net
Middleton Clinic had total assets of $500,000 and an equity balance of$350,000 at the end of 2003. One year later, at the end of 2004, the clinic had $575,000 in assets and $380,000 in equity. What
The following are selected entries for Warren Clinic for December 31, 2004, in alphabetical order. Create Warren Clinic’s balance sheet. Accounts payable Accounts receivable, net Cash $ 20,000
Consider the following balance sheet:a. How does this balance sheet differ from the one presented in Table 4.1 for Sunnyvale ?b. What is BestCare’s net working capital for 2004?c. What is
Consider this balance sheet:a. How does this balance sheet differ from the ones presented in Table 4.1 and Problem 4.5?b. What is Green Valley’s net working capital for 2004?c. What is Green
What is meant by the term cost?
How does time period affect the definition of fixed costs?
Construct a simple table like the one in Table 5.1, and discuss its elements.
Sketch and explain a simple diagram similar to Figure 5.1 to match your table.
What is a semi-fixed cost?
How does the addition of semi-fixed costs change a cost behavior graph?
Construct a simple P&L statement like the one in Table 5.4, and discuss its elements.
Sketch and explain a simple diagram to match your table.
Define and explain the contribution margin.
Can breakeven concepts be applied to a profit value other than zero?
What is meant by the following statement: “Marginal analysis is made more complicated by long-run considerations.”
Under capitation, what is the difference between a CVP graph with the number of visits on the X axis versus one with the number of members on the X axis?
How do provider incentives differ when it moves from a fee-for-service to a capitated environment?
Assume that a radiologist group practice has the following cost structure:Furthermore, assume that the group expects to perform 7,500 procedures in the coming year.a. Construct the group’s base
General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services:The hospital expects to have a patient load of 15,000 inpatient days next year.a.
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:Assume that all costs are fixed except supply costs, which are
Review the walk-in clinic data presented in Problem 5.5. Construct projected profit and loss statements at volume levels of 8,000, 9,000, 10,000, 11,000, and 12,000 visits.Problem 5.5.You are
Give some examples of each type of cost for an emergency services department.
On what basis are cost drivers chosen?
What two characteristics make a good cost driver?
What are the three primary methods of cost allocation?
Briefly outline the allocation procedures used by Kensington Hospital.
What is the most important organizational benefit derived from the selection of a good cost driver?
Why might organizations adopt a more complicated allocation system?
What are the key differences between traditional and activity based costing?
How does activity based costing (ABC) differ from traditional costing approaches?
The Housekeeping Services department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs during 2004.These costs must be allocated to Ruger’s three
Assume that the hospital uses the direct method for cost allocation.Furthermore, the cost driver for General Administration and Financial Services is patient services revenue, while the cost driver
Assume that the hospital uses salary dollars as the cost driver for General Administration, housekeeping labor hours as the cost driver for Facilities, and patient services revenue as the cost driver
Now, assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost driver for General Administration, housekeeping labor hours as the cost driver for
Return to the direct method of cost allocation and use the same cost drivers as specified in Problem 6.4 for General Administration and Facilities. However, assume that $2,000,000 of Financial
Consider the following data for a clinical laboratory:a. Using ABC techniques, determine the allocation rate for each activity.b. Now, using this allocation rate, estimate the total cost of
Are healthcare providers generally either price takers or price setters exclusively? Explain your answer.
Briefly explain the process for pricing individual services.
Briefly explain why the base case analysis required the calculation to move up the profit and loss statement rather than down (the normal direction).
Briefly describe the following three methods for developing premium rates:• Fee-for-service approach• Cost approach• Demographic approach
Of the three approaches, which one would be the most accurate? Which approach is the easiest to apply in practice?
It is common to express premium rates as PMPM. Does this mean that all providers will be capitated?
What is a relative value unit (RVU)?
Explain how RVUs can be used to estimate costs and set prices on individual services?
What would you do regarding the contract if you were the CEO of Baptist Memorial Hospital?
a. Using a healthcare provider (e.g., a hospital) to illustrate your answer, explain the difference between a price setter and a price taker.b. Can most providers be classified strictly as a price
The Audiology department at Randall Clinic offers many services to the clinic’s patients. The three most common, along with cost and utilization data, are:a. What is the fee schedule for these
Assume that Valley Forge Hospital has only the following three payer groups:The hospital’s fixed costs are $38 million.a. What is the hospital’s net income?b. Assume that half of the 100,000
Bay Pines Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics:In addition to medical costs, Bay Pines
Assume that a primary care physician practice performs only physical examinations. However, there are three levels of examination—I, II, and III—that vary in depth and complexity. A RVU analysis
What is the primary difference between Sections 1 and 3 of the financial plan?
What is budgeting?
How does the cash budget differ from the operating budget? From the statement of cash flows?
What are the primary differences between conventional and zero-based budgets?
What are the primary differences between top-down and bottom-up budgets?
What is the difference between a static budget and a flexible budget?
Considering all the information in the operating budget, why do organizations need a cash budget?
Why is planning and budgeting so important to an organization’s success?
a. Explain the relationships among the static budget, flexible budget, and actual budget.b. Assume that a group practice has both capitated and fee-for-service(FFS) patients. Furthermore, the number
Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value.a. Suppose that two years after the bonds were issued, the
Pacific Homecare has three bond issues outstanding. All three bonds pay $100 in annual interest plus $1,000 at maturity. Bond S has a maturity of five years, Bond M has a 15-year maturity, and Bond L
Six years ago, Bradford Community Hospital issued 20-year municipal bonds with a 7 percent annual coupon rate. The bonds were called today for a $70 call premium—that is, bondholders received
Regal Health Plans issued a ten-year, 12 percent annual coupon bond a few years ago. The bond now sells for $1,100. The bond has a call provision that allows Regal to call the bond in four years at a
a. What is meant by the term risk/return trade-off ?b. Does this trade-off hold in all markets?
Critique this statement: “The use of debt financing lowers the net income of the firm, and hence debt financing should be used only as a last resort.”
What capital components are typically included when estimating a firm’s corporate cost of capital?
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