Question
A local private not-for-profit health care entity (Rochester Medical) incurred the following transactions during the current year. The entity has one program service (health care)
A local private not-for-profit health care entity (Rochester Medical) incurred the following transactions during the current year. The entity has one program service (health care) and two supporting services (fundraising and administrative).
- The board of governors for Rochester Medical (RM) announces that $160,000 in previously unrestricted cash will be used in the near future to acquire equipment. These funds are invested until the purchase eventually occurs.
- RM receives a donation of $80,000 in cash with the stipulation that the money be invested in U.S. government bonds. All subsequent income derived from this investment must be paid to supplement nursing salaries.
- RM spends $31,000 in cash to acquire medicines. RM had received this money during the previous year. The donor had specified that it had to be used for medicines.
- RM charges patients $2 million. These amounts are the responsibility of government programs and insurance companies. These third-party payors will receive explicit price concessions because of long standing contracts. Officials believe RM has an 80 percent chance of receiving $1.5 million and a 20 percent chance of receiving $1.0 million. RM has a policy of reporting the most likely outcome.
- RM charges patients $1 million. These patients are not insured. RM sets implicit price concessions because of the high cost of health care. Officials believe RM has a 70 percent chance of collecting $250,000 and a 30 percent chance of receiving $100,000. As stated before, RM has a policy of reporting the most likely outcome.
- RM charges patients $600,000. These patients have little or no income. The hospital administration chooses to view this work as charity care and make no attempt at collection.
- Depreciation expense for the year is $110,000. Of that amount, 70 percent relates to health care, 20 percent to administrative, and 10 percent to fundraising.
- RM receives interest income of $15,000 on the investments acquired in (a).
- Based on past history, officials estimate that $56,000 of the reported receivable amount from third-party payors will never be collected. Of the amount reported by uninsured patients who are expected to pay a portion of their debt, officials estimate that $20,000 of the reported receivable amount will not be collected. The medicines in (c) are consumed through daily patient care.
- RM sells the investments in (a) for $178,000 in cash. RM used that money plus the previously recorded interest income (along with $25,000 in cash given last year to RM with the donor stipulation that the money be used for equipment) to buy new equipment.
- RM receives pledges near the end of the year totaling $200,000. Of that amount, $38,000 is judged to be conditional. The remaining $162,000 has a donor-stipulated purpose restriction. The present value of the $162,000 is calculated as $131,000.
Required:
a. Record each of these transactions in appropriate journal entry form. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars not in millions of dollars.)
b. Prepare a schedule calculating the change in net assets without donor restrictions and net assets with donor restrictions. (Negative amounts should be indicated by a minus sign. Enter your answers in dollars not in millions of dollars.)
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