Comprehensive set of journal entries and financial statements Cort Hospital was established as a nonprofit organization on January 1 to take over the assets of an existing hospital. It had the following transactions during its calendar fiscal year. 1. The hospital sold revenue bonds in the amount of $60.0 million. The hospital received $57.0 million in cash from sale of the bonds. To provide security for payment of the debt service, the other $3.0 million was deposited in an escrow account with a trustee. The trustee immediately invested the cash in U.S. Treasury bills. 2. The physical assets of the existing hospital were purchased for $52.5 million in cash. The appraised values of the assets were as follows: land $4.5 million; buildings $42.0 million; and equipment $6.0 million. 3. The hospital provided services of $30.0 million at its established rates to Medicare patients. Its agreement with Medicare provided for contractual adjustments of 35 percent against the established rates. By year-end, the hospital had collected $18.8 million against the billings. 4. The hospital provided services of $15.0 million at its established rates to patients insured by a third party payer. Its agreement with the third party provided for contractual adjustments of 25 percent from the established rates. It also provided for a retrospective adjustment, based on a cost submission by the hospital 30 days after the end of the year. By year-end, the hospital had collected the entire amount that it was owed by the third-party payer. When it prepared its financial statements, the hospital estimated that it owed the third party $120,000, but the final settlement had not yet been negotiated. 5. The hospital provided services to members of an HMO at rates per member, per month, receiving cash premiums totaling $22.5 million for the year. The hospitals internal records showed that, if billings had been made at its established rates, it would have charged the HMO $27.0 million for these services. 6. The hospital provided care to charity patients amounting to $3.0 million at its established billing rates. It estimated the direct and indirect costs of that care to be $2.1 million. 7. The hospital provided care to self-pay patients in the amount of $7.5 million at its established rates. The hospital collected $3.0 million against these billings. At year-end, the hospital received specific adverse information about the ability of self-pay patients financial condition which indicates they will not be able to pay 45 percent of the remaining amounts due. 8. The hospital had the following functional expenses. Of the amounts shown, $43.5 million was paid in cash. (Depreciation expense on the building and the equipment ( $2.1 million and $0.9 million, respectively, was included in the functional categories.) Health care services $33.0 million Dietary services $6.0 million Maintenance expenses $3.0 million Administrative expenses $4.5 million 9. The hospital paid debt service of $6.0 million on its bonds ( $2.4 million in amortization of principal and $3.6 million in interest). It also made a year-end journal entry, reclassifying $2.4 million of long-term debt as current. 10. The hospital recorded accrued expenses at year-end as follows: Health care services $3.0 million Administrative expenses $0.8 million 11. The hospital paid $1.5 million for a claims-made policy for medical malpractice insurance through year-end. Because the policy did not transfer risk to the insurance carrier for incurred but not reported (IBNR) claims, the hospital accrued $450,000 as a liability. (Note: Charge the expenses to the health care services function.) 12. The hospital received a check from the trustee for $150,000, representing earnings on the investment made by the trustee with the escrow money. The investment income is available for the hospitals general operations. 13. The hospital received equity securities from a donor who specified that the securities, together with any earnings thereon, be used for the purpose of upgrading the hospital buildings. The securities had a fair value of $375,000 when the donor made the gift. During the year, the hospital received dividends of $15,000 on the securities. At year-end, when the hospital prepared its financial statements, the securities had a fair value of $405,000. (Assume the hospitals accounting policy provides for recording realized and unrealized gains and losses on restricted net assets in a single account.) 14. During 2019, the hospital created Cort Hospital Foundation, whose sole purpose is to obtain donations for the hospital. At year-end, the foundation advised the hospital that it had received cash donations of $450,000. Of this amount, $75,000 did not contain donor restrictions, and $375,000 was restricted for upgrading the hospitals equipment. At the hospitals request, the foundation sent to the hospital the entire $75,000 of cash received from contributions without donor restrictions. a) Prepare the necessary journal entries to record these transactions. If no entry is necessary, select 'No debit (or credit) entry needed' in the account fields and enter 0 in the amount fields. Account Debit Credit Patient accounts receivable 0 0 Answer Patient service revenue 0 0 Answer 0 0 Answer 1a. To record sale of bonds. Patient accounts receivable 57,000,000 0 Answer Patient service revenue 0 57,000,000 Answer 1b. To record the trustee's investment in treasury bills. 0 0 Answer 0 0 Answer 0 0 Answer 0 0 Answer 2. To record purchase of property and equipment. Interest in net assets of Foundation 52,500,000 0 Answer Cash 0 52,500,000 Answer 3a. To record revenues from Medicare patients. 0 0 Answer 0 0 Answer 3b. To record contractual adjustment for Medicare patients. 0 0 Answer 0 0 Answer 3c. To record payments from Medicare. 0 0 Answer 0 0 Answer 4a. To record revenues from third-party insured patients. 0 0 Answer 0 0 Answer 4b. To record contractual adjustment for third-party payer. 0 0 Answer 0 0 Answer 4c. To record payments from third-party payers. 0 0 Answer 0 0 Answer 4d. To record estimate of retrospective adjustment. 0 0 Answer 0 0 Answer 5a. To record services provided to HMO members. 0 0 Answer 0 0 Answer 5b. To record adjustment to recognize fees at established rates. 0 0 Answer 0 0 Answer 6a. To record services provided to charity patients. 0 0 Answer 0 0 Answer 6b. To record adjustment for charity care. 0 0 Answer 0 0 Answer 6c. To record direct and indirect costs of charity care. 0 0 Answer 0 0 Answer 7a. To record services provided to self-pay patients. 0 0 Answer 0 0 Answer 7b. To record cash collected from self-pay patients. 0 0 Answer 0 0 Answer 7c. To record estimate of uncollectible self-pay patient receivables. 0 0 Answer 0 0 Answer 0 0 Answer 0 0 Answer 0 0 Answer 0 0 Answer 0 0 Answer 8. To record operating expenses. 0 0 Answer 0 0 Answer 0 0 Answer 9a. To record long-term debt repayment. 0 0 Answer 0 0 Answer 9b. To record reclassification of current portion of Revenue bonds payable. 0 0 Answer 0 0 Answer 0 0 Answer 10. To record operating expenses unpaid at year end. 0 0 Answer 0 0 Answer 11a. To record payment of malpractice insurance premium. 0 0 Answer 0 0 Answer 11b. To record estimate of uncovered malpractice claims. 0 0 Answer 0 0 Answer 12. To record earnings on escrow account. 0 0 Answer 0 0 Answer 13a. To record contribution of equity securities. 0 0 Answer 0 0 Answer 13b. To record dividends received from equity securities. 0 0 Answer 0 0 Answer 13c. To record change in fair value of equity securities. 0 0 Answer 0 0 Answer 0 0 Answer 14a. To record donations to Cort Hospital Foundation. 0 0 Answer 0 0 Answer 14b. To record Cort Hospital Foundation transfer of funds. b) Prepare a statement of operations for 2019. Cort Hospital Statement of Operations For the Year Ended December 31 Revenues, gains and other support without donor restrictions: Net patient service revenue Answer 0 Premium revenue Answer 0 Total revenues, gains and other support Answer 0 Expenses: Health care Answer 0 Dietary services Answer 0 Administrative Answer 0 Interest Answer 0 Maintenance Answer 0 Bad debt Answer 0 Total expenses Answer 0 Operating income Answer 0 Other income--investment income Answer 0 Excess of revenues over expenses Answer 0 Change in interest in net assets of Central Hospital Foundation Answer 0 Increase in net assets without donor restrictions Answer 0 c) Prepare a statement of changes in net assets for 2019. Cort Hospital Statement of Changes in Net Assets For the Year Ended December 31, 2019 Net assets without donor restrictions: Excess of revenues over expenses Answer 0 Change in interest in net assets of Central Hospital Foundation Answer 0 Increase in net assets without donor restrictions Answer 0 Net assets with donor restrictions: Contributions for equipment acquisition Answer 0 Investment income Answer 0 Net realized and unrealized gains on investments Answer 0 Change in interest in net assets of Central Hospital Foundation Answer 0 Increase in net assets with donor restrictions Answer 0 Total increase in net assets Answer 0 Net assets, beginning of year Answer 0 Net assets, end of year Answer 0 d) Prepare a balance sheet as of December 31, 2019. Enter all contra asset amounts as positive numbers. Cort Hospital Balance Sheet December 31, 2019 ASSETS Current: Cash Answer 0 Patient accounts receivable Answer 0 Allowance for doubtful accounts Answer 0 Net patient accounts receivable Answer 0 Total current assets Answer 0 Interest in net assets of Cort Hospital Foundation Answer 0 Assets limited as to use: Held by trustee Answer 0 Cash and investments restricted for capital acquisition Answer 0 Total assets limited as to use Answer 0 Property, plant, and equipment Answer 0 Accumulated depreciation Answer 0 Net property, plant, and equipment Answer 0 Total assets Answer 0 LIABILITIES AND FUND BALANCE Current: Accrued expenses payable Answer 0 Claims payable Answer 0 Current portion of bonds payable Answer 0 Estimated third party settlements Answer 0 Total current liabilities Answer 0 Long-term debt: Revenue bonds payable Answer 0 Net assets: Without donor restrictions Answer 0 With donor restrictions Answer 0 Total net assets Answer 0 Total liabilities and net assets Answer 0