1. Under Lennon Hospital’s rate structure, it earned patient service revenue of
ID: 2585646 • Letter: 1
Question
1. Under Lennon Hospital’s rate structure, it earned patient service revenue of $8.2 million for the year ended December 31, 2017. However, Lennon did not expect to collect this entire amount because it deemed $1.00 million to be charity care and estimated contractual adjustments to be $720,000.
During 2017, Lennon purchased medical supplies from Harrison Medical Supply Company at a cost of $3,200. Harrison notified Lennon that it was donating the supplies to the hospital.
Lennon is a private not-for-profit entity:
a. How much should Lennon record as patient service revenue? (Enter your answer in millions rounded to 2 decimal places.)
b. How much should Lennon record as net patient service revenue? (Enter your answer in millions rounded to 2 decimal places.)
c. How should Lennon record the donation of the supplies? (Enter your answer in dollars not in millions.)
a.
Patient service revenue
?
Million
b.
Net patient service revenue
?
Million
c.
Donation of the supplies
?
a.
Patient service revenue
?
Million
b.
Net patient service revenue
?
Million
c.
Donation of the supplies
?
Explanation / Answer
(a) Patient service revenue
Patient service revenue = Initial amount charged from patient - Amount utilized for charitable purpose
= $8,200,000 - $1,000,000
= $7,200,000
Patient service revenue will be recorded at a amount of $7,200,000 becouse Lennon Hospital does not expect that charitable amount wil be recovered.
(b) Net Patient service revenue
Net patient service revenue = Patient service revenue - contractual adjustments
= $7,200,000 - $720,000
= $6,480,000
Net patient service revenue will be recorded at $6,480,000 because Lennon Hospital estimated contractual adjustment of $720,000 which need to write off since Lennon Hospital expect that such amount will not be collected.
Note: In case Provision for bad debts mentioned in question it will also be deducted from patient revenue to arrive at the figure of net patient revenue.
(c) Treatment of Donated medical supplies
The following journal entry needed to be pass for the treatment of donated medical supplies
Inventory A/C.............................Dr $3,200 (Inventory of donated medical supplies)
To unrestricted net asset.......................$3,200 (Contribution)
Lennon Hospital purchase supplies from Harrison medical at a cost of $3,200 but Harrison Medical decided to donate the supplies to Hospital so the increase in supply will be offset by the contribution that will be recorded in the unrestricted net asset account.
When Lennon Hospital completely used the supplies it will book such amount as an expense
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