(Accounting for net patient service revenues)

Shelley Marder Hospital had the following transactions during the year ended December 31, 2004:

1. The hospital provided services to third-party payer A amounting to $\$ 5$ million at its established billing rates. The hospital's prospective billing arrangement with this third party stipulates payment to the hospital of 80 percent of its established rates for services performed. All billings were paid during the year.

2. The hospital provided services to third-party payer $\mathrm{B}$ amounting to $\$ 4$ million at its established billing rates. Its retrospective billing arrangement with this third party agrees that the hospital should receive payment at an interim rate of 90 percent of its established rates, subject to retrospective adjustment based on agreed-upon allowable costs. By year-end, B had paid all the billings. Before issuing its financial statements, the hospital calculated that it would need to refund $\$ 250,000$ to B based on allowable costs.

3. The hospital provided services to charity patients amounting to $\$ 1$ million at its established billing rates.

Required: 1. Prepare journal entries to record these transactions.

2. State the amount that Shelley Marder Hospital would report as net patient service revenues in its operating statement.