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CHAPTER 19

UNDERSTANDING THE ISSUES

1. The measurement focuses used by public uni- a contribution can be restricted. It is less impor-
versities under GASB Statement No. 34 are tant in public universities where both contribu-
both the flows of financial resources and the tions and grants are considered restricted rev-
flows of economic resources. Private universi- enues.
ties use a measurement focus of economic
4. Assets limited as to use are not restricted,
resources. Both entities use full accrual
merely board (or internally) designated. Only a
accounting and must focus on the recovery of
donor can impose a restriction per FASB
costs. However, a public university also must
Statement No. 116.
adhere to the governmental reporting model
and yearly funding and budgetary issues of 5. A hospital will bill out to all types of patients
governments. Therefore, they have unique (with and without insurance and with different
needs for a financial resources (working capi- types of insurance coverage) the same amount.
tal) focus. This adherence to gross revenue determination
is designed to get the maximum revenue to
2. Accounting for contributions for a private uni-
cover costs. Adjustments are then determined
versity requires recognizing revenue in the
in the contractual negotiations with HMOs and
period the unconditional contribution (or prom-
other insurance providers. Medicare and Medi-
ise to give) is received. If a donor-imposed
caid reimbursements are considerably lower
restriction as to use or time period is present,
than most hospital gross revenues due to for-
the contribution is recognized as temporarily
mulas that average cost reimbursement across
restricted revenue in the period received. When
all of the rural and urban hospitals in the United
donor-imposed restrictions are satisfied, the
States.
restriction is released. In a public university,
contributions of cash or investments to the 6. Accounting for medical malpractice claims is of
unrestricted current fund may be recorded as special concern to health care organizations
revenue in the period received unless the because of the potential for very large ex-
contribution is designated for future periods. penses and the inability to fully insure against
Contributions designated for future periods are the risk of loss. Accounting for medical mal-
recognized as deferred revenue. practice claims is similar to accounting for con-
tingencies. costs should be accrued when
3. In order for the government grant to be a con-
the incidents occur that give rise to the claims if
tribution, the grantor may not receive anything
it can be determined that it is probable that the
of value from the use of the funds by the receiv-
liabilities have been incurred and if the amounts
ing organization. If something of value is given
of the losses can be reasonably estimated.
in return for the grant, the grant is an exchange
This basic rule applies to both claims that have
transaction that will recognize an equal amount
occurred and incidents that have occurred but
of earned revenue when expenses are made in
have not yet been reported as of the balance
accordance with the provisions of the grant.
sheet date.
This distinction is important in private universi-
ties since under FASB Statement No. 116 only

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Ch. 19Exercises

EXERCISES

EXERCISE 19-1

(1) a Recognized in period received.

(2) b Recognized in period received. Restriction is released when expenses are incurred.

(3) a Recognized in period made.

(4) a Recorded at present value at time promise to give is received.

(5) c Endowment principal cannot be spent. Earnings are unrestricted.

(6) b Recognized in period received. Restriction released either (1) when asset is placed in ser-
vice or (2) over its useful life.
(7) f Recognized when conditions are met.

(8) a Recorded at fair value when received.

(9) a Donated services of a skilled nature that would otherwise be purchased.

(10) f Not skilled services. May be footnoted.

(11) b Recognized in period received. Restriction is released when time restriction is satisfied.

(12) b Recognized in period received. Restriction is released when expenses are incurred.

(13) d Recognized revenue as expenses are incurred for research project.

(14) b Recognized in period received. Restriction is released either (1) when asset is placed in
service or (2) over useful life of asset.

(15) a, b, or f (If collection is displayed to the public or otherwise held for exhibit, the university is not
required to recognize contributions as revenue.)

EXERCISE 19-2

(1) Public University


(a) Cash ........................................................................................ 200,000
Nonoperating RevenuesContributions ............................ 200,000

(b) ExpendituresPublic Support ................................................ 110,000


Cash .................................................................................. 110,000

(c) Interfund Transfer-Out............................................................. 90,000


Due to Endowment Fund................................................... 90,000

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Ch. 19Exercises

Exercise 19-2, Concluded

(d) Cash ........................................................................................ 15,000


Interfund Transfer-In.......................................................... 15,000

(2) Private University


(a) Cash ........................................................................................ 200,000
RevenuesTemporarily Restricted Contributions ............ 200,000

(b) Expenses ................................................................................ 110,000


Cash .................................................................................. 110,000
Reclassifications OutTemporarily Restricted
Satisfaction of Program Restrictions ................................. 110,000
Reclassifications InUnrestricted
Satisfaction of Program Restrictions ..................... 110,000
(c) Reclassifications OutTemporarily Restricted
Satisfaction of Program Restrictions ................................. 90,000
Reclassifications InPermanently Restricted
Satisfaction of Program Restrictions ..................... 90,000
Permanently Restricted Net AssetsMandatory
Transfer-Out ...................................................................... 90,000
Due to Endowment Fund ............................................. 90,000
Note to Instructor: The following entry would be made in the endowment fund:
Due from Restricted Current Fund .......................................... 90,000
Permanently Restricted Net AssetsMandatory
Transfer-In ................................................................... 90,000

(d) Cash ........................................................................................ 15,000


RevenuesTemporarily Restricted Contributions ............ 15,000

EXERCISE 19-3

(1) Cash ............................................................................................... 575,000


Accounts Receivable ...................................................................... 25,000
ExpensesUncollectible Accounts ................................................ 4,000
RevenuesEducational and General ...................................... 600,000
Allowance for Uncollectibles ..................................................... 4,000

(2) Cash ............................................................................................... 80,000


Accounts Receivable ...................................................................... 20,000
RevenuesAuxiliary Enterprises ............................................. 100,000
ExpensesAuxiliary Enterprises ................................................... 105,000
Cash ......................................................................................... 90,000
Accounts Payable ..................................................................... 15,000

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Ch. 19Exercises

Exercise 19-3, Concluded

(3) Mandatory Transfer for Mortgage Payment .................................... 75,000


Cash ......................................................................................... 75,000

(4) ExpensesStudent Aid.................................................................. 35,000


Cash ......................................................................................... 25,000
Accounts Receivable ................................................................ 10,000

(5) Cash ............................................................................................... 10,000


RevenuesTemporarily Restricted Contributions* .................. 10,000

(6) Due from Endowment Fund............................................................ 11,760


RevenuesUnrestricted Endowment Income .......................... 11,760
*Revenues Restricted (if public university)

EXERCISE 19-4

(1) Cash ............................................................................................... 420,000


RevenuesTemporarily Restricted Contributions ................... 420,000

(2) Loans Receivable ........................................................................... 380,000


Cash ......................................................................................... 380,000
Reclassifications OutTemporarily Restricted
Satisfaction of Program Restrictions ........................................ 380,000
Reclassifications InUnrestrictedSatisfaction
of Program Restrictions ..................................................... 380,000

(3) Cash on Deposit at Credit Union .................................................... 40,000


Cash ......................................................................................... 40,000

(4) Cash ............................................................................................... 20,800


Loans Receivable ..................................................................... 20,000
RevenuesUnrestricted Investment Income ........................... 800

(5) Cash ............................................................................................... 1,400


RevenuesUnrestricted Investment Income ........................... 1,400

(6) Allowance for Uncollectibles ........................................................... 1,000


Loans Receivable ..................................................................... 1,000

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Ch. 19Exercises

EXERCISE 19-5

(1) Cash ............................................................................................... 250,000


RevenuesPermanently Restricted Contributions .................. 250,000
Endowment Investments ................................................................ 250,000
Cash ......................................................................................... 250,000

(2) Cash ............................................................................................... 11,250


Endowment Investments .......................................................... 667
RevenuesTemporarily Restricted Endowment Income ......... 10,583

(3) Temporarily Restricted Net AssetsMandatory Transfer-Out ....... 10,583


Cash ......................................................................................... 10,583
Note to Instructor: The following entry would be made in the current restricted fund:
Cash ............................................................................................... 10,583
Temporarily Restricted Net AssetsMandatory Transfer-In .... 10,583

(4) Cash ............................................................................................... 260,500


Endowment Investments ($250,000 $667) ............................ 249,333
RevenuesTemporarily Restricted Gain on Sale
of Endowment Investments ................................................ 11,167

EXERCISE 19-6

(1) Investments .................................................................................... 90,000


Annuities Payable ..................................................................... 34,068
RevenuesTemporarily Restricted Contributions ................... 55,932

(2) Cash ............................................................................................... 5,400


RevenuesTemporarily Restricted Investment Income .......... 5,400
*The same entry would be made annually when dividends are received.

(3) Actuarial Adjustment on Annuities Payable .................................... 3,407


Annuities Payable ($34,068 10%) ......................................... 3,407
Annuities Payable ........................................................................... 5,000
Cash ......................................................................................... 5,000

(4) Actuarial Adjustment on Annuities Payable .................................... 3,248


Annuities Payable [($34,068 + $3,407 $5,000) 10%] ......... 3,248
Annuities Payable .......................................................................... 5,000
Cash ......................................................................................... 5,000

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Ch. 19Exercises

Exercise 19-6, Concluded

(5) Annuities Payable ........................................................................... 30,723


RevenuesTemporarily Restricted Contributions
($34,068 + $3,407 $5,000 + $3,248 $5,000) ................ 30,723

(6) Cash ............................................................................................... 97,000


Investments .............................................................................. 90,000
RevenuesTemporarily Restricted Gain on the
Sale of Annuity Investments ............................................... 7,000
Temporarily Restricted Net AssetsMandatory
Transfer-Out ............................................................................. 97,800
Cash ................................................................................... 97,800
{$97,000 + [($5,400 $5,000) 2]}
Note to Instructor: The following entry would be made in the student loan fund:
Cash ............................................................................................... 97,800
Temporarily Restricted Net AssetsMandatory
Transfer-Out ....................................................................... 97,800

EXERCISE 19-7

(1) Cash ............................................................................................... 250,000


Unrestricted Net AssetsMandatory Transfer-In ..................... 250,000
Note to Instructor: The following entry would be made in the current fund:
Unrestricted Net AssetsMandatory Transfer-Out ........................ 250,000
Cash ......................................................................................... 250,000

(2) Cash ............................................................................................... 30,000


RevenuesTemporarily Restricted Contributions ................... 30,000
ExpensesOperation and Maintenance of Plant........................... 20,000
Cash ......................................................................................... 20,000
Reclassifications OutTemporarily Restricted
Satisfaction of Program Restrictions ........................................ 20,000
Reclassifications InUnrestrictedSatisfaction
of Program Restrictions ..................................................... 20,000

(3) Mortgage Liability ........................................................................... 50,000


Cash ......................................................................................... 50,000

(4) Building ........................................................................................... 220,000


Accounts Payable ..................................................................... 35,000
Cash ......................................................................................... 185,000

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Ch. 19Exercises

Exercise 19-7, Concluded

(5) Equipment ...................................................................................... 25,000


Cash ......................................................................................... 25,000
Reclassifications OutTemporarily RestrictedSatisfaction
of Equipment Acquisition Restrictions ...................................... 25,000
Reclassifications InUnrestrictedSatisfaction
of Equipment Acquisition Restrictions ............................... 25,000

(6) Building ........................................................................................... 300,000


RevenuesUnrestricted Contributions .................................... 300,000

(7) Depreciation Expense .................................................................... 75,000


Allowance for Depreciation ....................................................... 75,000

(8) Loss on Equipment ......................................................................... 2,000


Equipment ................................................................................ 2,000

EXERCISE 19-8

(1) Patient service revenues include charges to patients for routine services, nursing services, and
professional services.
Other operating revenues include revenues from services other than health care provided to
patients as well as from sales and services to persons other than patients.
Nonoperating revenues are primarily from gifts, grants, and investment income and gains that
are peripheral or incidental to the major operation of the hospital.

(2) a. OO d. PS g. OO j. PS
b. N e. N h. PS k. N
c. PS f. N i. OO

EXERCISE 19-9

(1) Accounts Receivable ...................................................................... 1,010,000


Patient Service Revenues ........................................................ 1,010,000
To record billings.

(2) Inventory ......................................................................................... 12,000


Other Operating RevenuesUnrestricted (contributions) ........ 12,000
To record donation of drugs from doctor.

(3) Cash ............................................................................................... 28,800


Other Operating RevenuesUnrestricted ................................ 28,800
To record cash revenues.

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Ch. 19Exercises

Exercise 19-9, Concluded

(4) Charity Services ............................................................................. 13,000


Accounts Receivable ................................................................ 13,000
To record charity allowance.

(5) Contractual Adjustments ................................................................ 68,000


Accounts Receivable ................................................................ 68,000
To record adjustments for Medicare charges.

(6) Provision for Bad Debts .................................................................. 26,000


Allowance for Uncollectible Receivables .................................. 26,000
To record increase in allowance.

EXERCISE 19-10

(1) Accounts Receivable ...................................................................... 8,500,000


Revenues ................................................................................. 8,500,000
Contractual Adjustments ................................................................ 3,700,000
Allowance for Contractual Adjustments .................................... 3,700,000
Cash ............................................................................................... 4,460,000
Contractual Adjustments ................................................................ 340,000
Allowance for Contractual Adjustments .......................................... 3,700,000
Accounts Receivable ................................................................ 8,500,000
Cash ............................................................................................... 250,000
Contractual Adjustments .......................................................... 250,000
Contractual Adjustments ................................................................ 90,000
Cash ......................................................................................... 90,000

(2) Net patient service revenues = $4,620,000 ($8,500,000 $3,700,000 $340,000 + $250,000
$90,000)

(3) Net cash flow from transactions with Medicare = $4,620,000 ($4,460,000 + $250,000 $90,000)

(4) Assuming the $90,000 payment back to Medicare was in settlement, the revenue account will be
closed along with the contra-revenue account Contractual Adjustments. The net amount will ap-
pear on the financial statements.

776
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Ch. 19Exercises

EXERCISE 19-11

Pure Air Rehabilitation Hospital


Statement of Activities
For Period Ended December 31, 20X9
Temporarily Permanently
Unrestricted Restricted Restricted Total
Patient service revenues (net of $26,000
contractual adjustments)........................................ $ 714,000 $ 714,000
Other operating revenues:
Seminar income ..................................................... $ 23,000 $ 23,000
Child day care income ........................................... 15,000 15,000
Parking fees ........................................................... 4,500 4,500
Total other operating revenue........................... $ 42,500 $ 42,500
Total operating revenues ............................................ $ 756,500 $ 756,500
Operating expenses:
Nursing services .................................................... $ 230,000 $ 230,000
Professional fees ................................................... 340,000 340,000
General and administrative .................................... 150,000 150,000
Depreciation expense ............................................ 90,000 90,000
Interest expense .................................................... 13,000 13,000
Repairs and maintenance ...................................... 110,000 110,000
Provision for uncollectibles .................................... 14,000 14,000
Total operating expenses ................................. $ 947,000 $ 947,000
Loss from operations .................................................. $(190,500) $ (190,500)
Nonoperating revenue:
Interest income ...................................................... $ 3,000 $ 3,000
Contributions .......................................................... $ 18,000 18,000
Endowment income ............................................... 120,000 120,000
Gains on sale of endowments ............................... 56,000 $ 0 56,000
Total nonoperating revenue .............................. $ 3,000 $194,000 $ 0 $ 197,000
Change in net assets .................................................. $(187,500) $194,000 $ 0 $ 6,500
Net assets, January 1, 20X9 ...................................... 800,000 755,000 750,000 2,305,000
Net assets, December 31, 20X9................................. $ 612,500 $949,000 $750,000 $2,311,500

EXERCISE 19-12

(1) e A designation is not the same as a donor-imposed restriction. The designated assets stay in
the unrestricted net assets category.
(2) a Income from board-designated assets is unrestricted.
(3) c The restricted donation is an increase in temporarily restricted net assets.
(4) a The purchase of a building releases the restriction in entry (3).
(5) a This donated service is recognized as unrestricted revenues and expenses because it requires
specialized skills and would have to be purchased if it were not donated.
(6) d The donated assets are permanently restricted; income will be temporarily restricted.

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Ch. 19Problems

PROBLEMS

PROBLEM 19-1

(1) b The three financial statements for private universities are the statement of financial position,
the statement of activities, and the statement of cash flows.

(2) c Only donors can restrict funds. Assets held at the discretion of the board are unrestricted.

(3) a Nonexpendable contributions are permanently restricted.

(4) a Endowment income is recognized in the endowment fund. A transfer to another fund will occur,
depending on donor-stipulation as to use.

(5) a Plant funds include unexpended plant funds, plant fund for renewals and replacements, plant
fund for retirement of indebtedness, and investment in plant.

(6) c Only nonexpendable principals are permanently restricted. The term endowment is temporarily
restricted. The designation is not externally restricted and is classified as unrestricted.

(7) b Net assets = Total assets Total liabilities.

(8) b Loans to students, faculty, and staff are accounted for in the loan fund.

(9) b The $6,000 earnings from internal designated funds are unrestricted. Only a donor may restrict
assets given to an organization.

(10) c Since Oak Private College is not the trustee, contribution revenue is recognized only when
income is due (or received).

PROBLEM 19-2

(1) b Assets Liabilities = Fund balance.

(2) a Revenue is recognized when contributions are received. Restricted gifts and contributions are
reclassified as unrestricted when expended for donor-specified purposes.

(3) a Tuition remissions and scholarships are student aid expenditures.

(4) b The rate of pay normally commanded by a paid person performing a given function would
serve as the measurement basis for the amount. Because they regularly contribute their ser-
vices, the employer-employee relationship would seem to exist.

(5) a Institutional support expenditures are those of central administration. Scholarships and fellow-
ships are expendituresstudent aid. The $200,000 is expendituresoperation and mainten-
ance of plant.

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Ch. 19Problems

Problem 19-2, Concluded

(6) a All of the items result in plant fund balances.

(7) a Endowment income is recognized as unrestricted and temporarily restricted upon receipt.

(8) b Board designation does not create an endowment or restriction.

(9) c The $100,000 is only a restriction within the current unrestricted fund and is not externally im-
posed.

(10) d A public university engaged only in business-type activities may report under GASB Statement
No. 34 as a proprietary fund.

PROBLEM 19-3

(1) Contribution transaction:


Cash ............................................................................................... 200,000
RevenuesUnrestricted Contributions .................................... 200,000
Cost of Special Events ................................................................... 95,000
Cash ......................................................................................... 95,000

(2) Contribution transaction:


Cash ............................................................................................... 2,000,000
RevenuesTemporarily Restricted Contributions ................... 2,000,000

(3) Contribution transaction:


Cash ............................................................................................... 850,000
RevenuesPermanently Restricted Contributions .................. 850,000

(4) Contribution transaction:


Building ........................................................................................... 105,000
RevenuesUnrestricted Contributions .................................... 105,000
Note to Instructor: Some colleges will recognize property acquisitions and gifts as additions to
temporarily restricted net assets if an institutional policy is adopted that releas-
es restrictions over the life of the donated assets.

(5) Contribution transaction. Recognize as revenues when condition is met. Record as temporarily re-
stricted; when restriction is met, reclassify revenues to unrestricted.

(6) Neither contribution nor exchange transactionnot recorded. Contributed service that does not
meet the criterion of requiring specialized skills. Do not recognize but include in footnote disclo-
sure.

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Ch. 19Problems

Problem 19-3, Concluded

(7) Contribution transaction. Intention to give. Do not recognize currently because the will can be
changed prior to death.

(8) Exchange transaction:


Cash ............................................................................................... 400,000
U.S. Government Grants Refundable ....................................... 400,000

(9) Neither contribution nor exchange transactionrecorded as an agency transaction.


Cash ............................................................................................... 50,000
Assets Held in Trust for Others ................................................ 50,000

PROBLEM 19-4

(1) Current Funds


Entry Unrestricted Restricted
Letter Accounts Debit Credit Debit Credit
(a) Cash ................................................................ 3,000,000
Accounts Receivable .................................. 362,000
RevenuesTuition and Fees ..................... 2,500,000
Deferred RevenuesTuition and Fees ...... 138,000

(b) Deferred RevenuesTuition and Fees ........... 25,000


RevenuesTuition and Fees ..................... 25,000

(c) Allowance for Uncollectibles ........................... 13,000


Accounts Receivable .................................. 13,000
RevenuesStudent Tuition and Fees ............ 8,000
Allowance for Uncollectibles
[$10,000 ($15,000 $13,000)] ............ 8,000

(d) State Appropriations Receivable ..................... 60,000


RevenuesGovernmental Appropriations . 60,000

(e) Cash ................................................................ 80,000


RevenuesPrivate Gifts and Grants.......... 80,000
Fund Balance (or Nonmandatory Transfer
to Loan Fund) ............................................. 30,000
Cash ....................................................... 30,000

780
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Ch. 19Problems

Problem 19-4, Continued

Current Funds
Entry Unrestricted Restricted
Letter Accounts Debit Credit Debit Credit
(f) Cash ................................................................ 31,000
Investments ................................................ 25,000
Fund Balance.............................................. 6,000
Investments ..................................................... 40,000
Cash ........................................................... 40,000
Cash ................................................................ 18,000
Fund Balance.............................................. 18,000

(g) Expenditures*General ................................. 2,500,000


Accounts Payable ....................................... 2,500,000
Accounts Payable ........................................... 2,525,000
Cash ($100,000 + $2,500,000 $75,000) .. 2,525,000

(h) Accounts Payable .......................................... 5,000


Cash ........................................................... 5,000
Expenditures*Research ............................... 10,000
Cash ........................................................... 10,000
Fund Balance .................................................. 10,000
RevenuesOther Income .......................... 10,000

(i) Due to Other Funds......................................... 40,000


Cash ........................................................... 40,000

(j) Expenditures*General ................................. 10,000


Prepaid Expenses....................................... 10,000

*Public universities use the term expenditures.

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Ch. 19Problems

Problem 19-4, Concluded

(2) Greenleaf State University


Statement of Current Funds Revenues, Expenses, and Other Changes
For Fiscal Year Ended July 31, 20X9

Current Funds
Unrestricted Restricted Total
Revenues:
Tuition and fees..................................................... $2,517,000
$2,517,000
Governmental appropriations ................................ 60,000
60,000
Private gifts and grants ......................................... 80,000
80,000
Other income......................................................... $ 10,000 10,000
Total revenues ................................................ $2,657,000 $ 10,000
$2,667,000
Expenses:
General ................................................................. $2,510,000
$2,510,000
Research ............................................................... $ 10,000 10,000
Total expenses ................................................ $2,510,000 $ 10,000
$2,520,000
Other transfers and additions (deductions):
Excess of restricted receipts over
transfers to revenues ...................................... $ 14,000 $ 14,000
Transfers to other funds ........................................ $ (30,000)
(30,000)
Net increase for the year ............................................. $ 117,000 $ 14,000 $
131,000
Fund balancebeginning of year ............................... 435,000 215,000
650,000
Fund balanceend of year......................................... $ 552,000 $229,000 $ 781,000

PROBLEM 19-5

Event Fund Journal Entry


(1) Unexpended Cash ...................................................................... 22,385,000
Plant Fund Bonds Payable7% ......................................... 22,000,000
Due to Retirement of Indebtedness
Plant Fund .................................................... 385,000
To record sale of bonds with accrued
interest for three months ($22,000,000
7% 3/12 = $385,000).

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Ch. 19Problems

(2) Unexpended Due to Retirement of Indebtedness Plant Fund..... 385,000


Plant Fund Cash .................................................................. 385,000
To record accrued interest transfer.
Plant Fund for Cash ...................................................................... 385,000
Retirement of Fund BalanceRestricted ................................ 385,000
Indebtedness To record receipt of cash transfer.
Unexpended Construction in Progress ...................................... 5,000,000
Plant Fund Cash .................................................................. 5,000,000
To record payment for construction to date.

783
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Ch. 19Problems

Problem 19-5, Continued

Event Fund Journal Entry


(3) Unrestricted Mandatory Transfers for Principal and Interest
Current Fund Payment ............................................................ 385,000
Cash ............................................................. 385,000
To record cash transferred for
interest payments.
Plant Fund for Cash ...................................................................... 385,000
Retirement of Fund BalanceRestricted ................................ 385,000
Indebtedness To record cash received for interest
payment.

(4) Plant Fund for Fund BalanceRestricted ..................................... 770,000


Retirement of Cash .................................................................. 770,000
Indebtedness To record bond interest payment.

(5) Unexpended Construction in Progress ....................................... 17,000,000


Plant Fund Retained Percentage Contract Payable ............ 1,000,000
Cash .................................................................. 16,000,000
To record payment to contractor and
account payable.

(6) Unexpended Bonds Payable7% .............................................. 22,000,000


Plant Fund Construction in Progress ................................... 22,000,000
To record transfer of completed complex
and related bond issue.
Investment Buildings ................................................................ 22,000,000
in Plant Bonds Payable7% ......................................... 22,000,000
To record transfer of completed complex
and related bond issue.

(7) Unrestricted Mandatory Transfers for Principal and Interest


Current Fund Payments .......................................................... 2,770,000
Cash ............................................................. 2,770,000
To record cash transfer for serial and
interest payments.
Plant Fund for Cash ...................................................................... 2,770,000
Retirement of Fund BalanceRestricted ................................ 2,770,000
Indebtedness To record cash received for serial and
interest payments.

784
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Ch. 19Problems

Problem 19-5, Concluded

Event Fund Journal Entry


(8) Plant Fund for Fund BalanceRestricted ..................................... 2,770,000
Retirement of Cash .................................................................. 2,770,000
Indebtedness To record payments made.
Investment Bonds Payable7% .............................................. 2,000,000
in Plant Net Investment in Plant ..................................... 2,000,000

(9) Investment Land ....................................................................... 200,000


in Plant Buildings ................................................................ 350,000
Mortgage Payable ............................................. 90,000
Net Investment in Plant ..................................... 460,000
To record contribution.

(10) Unexpended No entry. Public universities account for pledges


Plant Fund under the cash basis of accounting.

(11) Unexpended Cash ...................................................................... 100,000


Plant Fund Fund BalanceRestricted ................................ 100,000
To record contribution for first editions.
Unrestricted Fund Balance ........................................................ 60,000
Current Fund Cash .................................................................. 60,000
To record transfer to Unexpended Plant
Fund for first editions.
Unexpended Cash ...................................................................... 60,000
Plant Fund Fund BalanceUnrestricted ............................. 60,000
To record receipt of cash transferred by
the board.

(12) Unexpended Fund BalanceUnrestricted ................................. 60,000


Plant Fund Fund BalanceRestricted ..................................... 100,000
Cash .................................................................. 160,000
To record payment for first editions.
Investment Library Books ......................................................... 160,000
in Plant Net Investment in Plant ..................................... 160,000
To record additions of first editions to library.

785
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Ch. 19Problems

PROBLEM 19-6

(1) (a) Cash ......................................................................................... 90,000


RevenuesTemporarily Restricted Contributions.............. 45,000
RevenuesPermanently Restricted Contributions ............ 45,000
Endowment Investments .......................................................... 45,000
Cash ................................................................................... 45,000

(b) Cash ......................................................................................... 1,686,000


Accounts Receivable ................................................................ 148,000
Deferred Revenues .................................................................. 66,000
RevenuesStudent Tuition and Fees ................................ 1,900,000
Cash ......................................................................................... 158,000
Deferred Revenues............................................................. 158,000

(c) Cash ......................................................................................... 308,000


Allowance for Uncollectible Tuition and Fees ........................... 12,000
Accounts Receivable .......................................................... 320,000
ExpensesInstitutional Support (Provision for Uncollectible
Tuition and Fees) ................................................................ 9,000
Allowance for Uncollectible Tuition and Fees ............... 9,000
(d) Cash ......................................................................................... 6,000
RevenuesUnrestricted Investment Income ..................... 6,000

(e) Cash ......................................................................................... 75,000


State Appropriations Receivable ........................................ 75,000
State Appropriations Receivable .............................................. 40,000
RevenuesState Government Appropriations................... 40,000

(f) Cash ......................................................................................... 30,000


RevenuesTemporarily Restricted Contributions.............. 30,000

(g) Cash ......................................................................................... 24,000


Investments ........................................................................ 21,000
RevenuesTemporarily Restricted Gain on the Sale of
Investments .................................................................. 1,100
RevenuesTemporarily Restricted Investment Income .... 1,900

786
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Ch. 19Problems

Problem 19-6, Continued

(h) ExpensesInstruction .............................................................. 500,000


ExpensesResearch ............................................................... 400,000
ExpensesInstitutional Support .............................................. 100,000
ExpensesStudent Aid ............................................................ 100,000
ExpensesStudent Services ................................................... 200,000
ExpensesOperation and Maintenance of Plant ..................... 500,000
Accounts Payable ............................................................... 60,000
Cash ................................................................................... 1,740,000

(i) ExpensesResearch ............................................................... 13,000


Cash ................................................................................... 13,000
Reclassifications OutTemporarily RestrictedSatisfaction
of Program Restrictions ...................................................... 13,000
Reclassifications InUnrestrictedSatisfaction of
Program Restrictions ................................................ 13,000

(j) Accounts Payable ..................................................................... 40,000


Cash ................................................................................... 40,000

(k) Cash ......................................................................................... 7,000


RevenuesTemporarily Restricted Endowment Income ... 7,000

(l) Cash ......................................................................................... 16,000


Pledges Receivable .................................................................. 14,000
RevenuesUnrestricted Contributions .............................. 30,000
ExpensesInstitutional Support Provision for Uncollectible
Contributions....................................................................... 2,000
Allowance for Uncollectible Contributions ..................... 2,000

787
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Ch. 19Problems

Problem 19-6, Concluded

(2) Washbush Private University


Statement of Activities
For Year Ended June 30, 20X9
Temporarily Permanently
Unrestricted Restricted Restricted Total
Changes in net assets:
Revenues and gains:
Tuition and fees ................................................ $1,900,000 $1,900,000
Contributions .................................................... 30,000 $ 75,000 $45,000 150,000
Government appropriations, grants, and
contracts ...................................................... 40,000 40,000
Endowment income .......................................... 7,000 7,000
Net realized gains on investments ................... 1,100 1,100
Other investment income ................................. 6,000 1,900 7,900
Total revenues and gains ............................ $1,976,000 $ 85,000 $45,000
$2,106,000
Net assets released from restrictions:
Satisfaction of program restrictions ....................... 13,000 (13,000) 0
Total revenues and gains and other support ........ $1,989,000 $ 72,000 $45,000
.............................................. $2,106,000
Expenses and losses:
Instruction .............................................................. $ 500,000 $ 500,000
Research ............................................................... 413,000 413,000
Institutional support ............................................... 111,000 111,000
Student aid ............................................................ 100,000 100,000
Operation and maintenance of plant ..................... 500,000 500,000
Student services .................................................... 200,000 200,000
Total expenses and losses ............................... $1,824,000 $ 0 $ 0
$1,824,000
Increase (decrease) in net assets ......................... $ 165,000 $ 72,000 $45,000 $
282,000
Net assets at beginning of year ................................... 487,000 40,000 50,000
577,000
Net assets at end of year ............................................. $ 652,000 $112,000 $95,000 $
859,000

PROBLEM 19-7

(1) Journal entries:


(a) Cash ......................................................................................... 20,000,000
Bonds Payable.................................................................... 20,000,000
Cash ......................................................................................... 5,000,000
RevenuesTemporarily Restricted Contributions.............. 5,000,000

(b) Construction in Progress .......................................................... 7,000,000


Cash ................................................................................... 7,000,000

788
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Ch. 19Problems

(c) ExpensesOperation and Maintenance of Plant


(Interest Expense) .............................................................. 800,000
Cash ............................................................................. 800,000

789
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Ch. 19Problems

Problem 19-7, Continued

(d) Building ..................................................................................... 25,000,000


Construction in Progress .................................................... 7,000,000
Cash ................................................................................... 16,000,000
Retained PercentageLiability to Contractor..................... 2,000,000
Reclassifications OutTemporarily RestrictedSatisfaction of
Plant Restrictions ................................................................ 5,000,000
Reclassifications InUnrestrictedSatisfaction of Plant
Restrictions ............................................................... 5,000,000

(e) Mortgage Payable .................................................................... 2,000,000


ExpensesOperation and Maintenance of Plant
(Interest Expense) .............................................................. 800,000
Cash ............................................................................. 2,800,000

(f) Land .......................................................................................... 200,000


Building ..................................................................................... 350,000
Mortgage Payable............................................................... 90,000
RevenuesUnrestricted Contributions .............................. 460,000

(g) Contributions Receivable .......................................................... 200,000


RevenuesTemporarily Restricted Contributions.............. 200,000
ExpensesInstitutional Support (Provision for Uncollectible
Contributions) ..................................................................... 20,000
Allowance for Uncollectible Contributions ..................... 20,000

(h) Investments .............................................................................. 500,000


RevenuesTemporarily Restricted Contributions.............. 500,000

(i) Cash ......................................................................................... 10,000


RevenuesTemporarily Restricted Investment Income .... 10,000

(j) ExpensesOperation and Maintenance of Plant


(Depreciation Expense) ...................................................... 25,000
Accumulated Depreciation ............................................ 25,000

790
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Ch. 19Problems

Problem 19-7, Concluded

(2) Kronke Private University


Statement of Activities
For Period Ended June 30, 20XX

Temporarily Permanently
Unrestricted Restricted Restricted Total
Changes in net assets:
Revenues and gains:
Contributions ................................................... $ 460,000 $ 5,700,000
$6,160,000
Other investment earnings .............................. 0 10,000 10,000
Total unrestricted revenues and gains ....... $ 460,000 $ 5,710,000 $ 0
$6,170,000
Net assets released from restrictions:
Satisfaction of plant acquisition restrictions ......... 5,000,000 (5,000,000)*
0
Total revenues and gains and other support .. $5,460,000 $ 710,000 $
0 $6,170,000
Expenses:
Operations and maintenance of plant .................. $1,625,000
$1,625,000
Institutional support .............................................. 20,000
20,000
Total expenses ................................................ $1,645,000 $ 0 $ 0
$1,645,000
Increase (decrease) in net assets ........... $3,815,000 $ 710,000 $
0 $4,525,000

*Note to Instructor: The reclassification amount would total $25,000 if Kronkes policy is to release the
restrictions over the life of the assets rather than when placed into operation.

791
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Ch. 19Problems

PROBLEM 19-8

(1) Closing entries:


Each asset RevenuesTuition and Fees ............................................ 1,500,000
class is closed RevenuesGovernment Appropriations ........................... 800,000
separately. RevenuesUnrestricted Contributions ............................. 265,000
RevenuesUnrestricted Other Investment Income .......... 250,000
Reclassifications InUnrestrictedSatisfaction of
Program Restrictions .................................................... 75,000
Reclassifications InUnrestrictedSatisfaction of Plant
Acquisition Restrictions ................................................. 250,000
Reclassifications InUnrestrictedExpiration of Time
Restrictions ................................................................... 50,000
Unrestricted Net Assets .................................................. 305,000
ExpensesResearch ................................................... 840,000
ExpensesInstruction .................................................. 1,230,000
ExpensesAcademic Support ..................................... 250,000
ExpensesStudent Services ....................................... 200,000
ExpensesInstructional Support .................................. 225,000
ExpensesOperation and Maintenance of Plant ......... 400,000
ExpensesStudent Aid ................................................ 350,000

RevenuesSales and Services of Auxiliary Enterprises 500,000


ExpensesAuxiliary
Enterprises ............................................................... 475,000
Unrestricted Net Assets ............................................. 25,000

RevenuesTemporarily Restricted Contributions ............ 200,000


RevenuesTemporarily Restricted Endowment
Income .......................................................................... 15,000
RevenuesTemporarily Restricted Net Realized Gains
on Endowment .............................................................. 25,000
Temporarily Restricted Net Assets ................................ 135,000
Reclassifications OutTemporarily Restricted
Satisfaction of Program Restrictions ........................ 75,000
Reclassifications OutTemporarily Restricted
Expiration of Time Restrictions ................................. 50,000
Reclassifications OutTemporarily Restricted
Satisfaction of Equipment Acquisition Restrictions ... 250,000

RevenuesPermanently Restricted
Contributions ................................................................. 500,000
Permanently Restricted Net Assets ...................... 500,000

792
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Ch. 19Problems

Problem 19-8, Concluded

(2) Gas Private College


Statement of Activities
For Year Ended December 31, 20X8

Temporarily Permanently
Unrestricted Restricted Restricted Total
Changes in net assets:
Revenues and gains:
Tuition and fees ................................................... $1,500,000
$1,500,000
Contributions ........................................................ 265,000 $ 200,000 $ 500,000
965,000
Government appropriations, grants, and
contracts.......................................................... 800,000
........................................................... 800,000
Investment income on endowment ...................... 15,000
15,000
Net realized gains on endowment investments ... 25,000
25,000
Other investment income ................................ 250,000
........................................................... 250,000
Sales and services of auxiliary enterprises.......... 500,000
........................................................... 500,000
Total revenues and gains................................ $3,315,000 $ 240,000 $ 500,000
$4,055,000
Net assets released from restrictions:
Satisfaction of program restrictions .......................... $ 75,000 $ (75,000) $
0
Satisfaction of equipment acquisition restrictions ..... 250,000 (250,000)
0
Satisfaction of time restrictions ................................. 50,000 (50,000)
0
Total net assets released from restrictions .......... $ 375,000 $(375,000) $
0
Total revenues and gains and other support .. $3,690,000$(135,000) $ 500,000
$4,055,000
Expenses:
Research................................................................... $ 840,000
...................................................... $ 840,000
Instruction ................................................................. 1,230,000
........................................................ 1,230,000
Academic support ..................................................... 250,000
........................................................... 250,000
Student services ....................................................... 200,000
........................................................... 200,000
Institutional support................................................... 225,000
225,000
Operation and maintenance of plant ........................ 400,000
........................................................... 400,000

793
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Ch. 19Problems

Student aid ................................................................ 350,000


........................................................... 350,000
Auxiliary enterprises ................................................. 475,000
........................................................... 475,000
Total expenses..................................................... $3,970,000 $ 0 $ 0
$3,970,000
Increase (decrease) in net assets ................... $ (280,000) $(135,000) $ 500,000 $
85,000
Net assets, January 1, 20X8 ......................................... 675,000 975,000 2,500,000
4,150,000
Net assets, December 31, 20X8 .................................. $ 395,000 $ 840,000 $3,000,000
$4,235,000

794
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Ch. 19Problems

PROBLEM 19-9

Gas Private College


Statement of Financial Position
December 31, 20X8

Assets:
Cash............................................................................................................. $ 255,000
Accounts receivable ..................................................................................... 625,000
Contributions receivable .............................................................................. 85,000
Inventory of supplies .................................................................................... 75,000
Student loans receivable.............................................................................. 300,000
Land, buildings, and equipment (net) ........................................................... 1,000,000
Endowment investments .............................................................................. 3,025,000
Total assets .......................................................................................... $5,365,000

Liabilities:
Accounts payable......................................................................................... $ 220,000
Amounts held on behalf of others ................................................................ 250,000
Long-term debt............................................................................................. 560,000
U.S. government grants refundable ............................................................. 100,000
Total liabilities ...................................................................................... $1,130,000

Net assets:
Unrestricted ................................................................................................ $ 395,000
Temporarily restricted ............................................................................... 840,000
Permanently restricted .............................................................................. 3,000,000
Total net assets .................................................................................... $4,235,000
Total liabilities and net assets ............................................................................ $5,365,000

PROBLEM 19-10

(1) b Goods and services that otherwise would be purchased are recorded as other operating
revenues.

(2) c The $300,000 is part of unrestricted net assets because there are no external donor restrictions
on the use of the funds.

(3) a For hospitals, property, plant, and equipment and their related liabilities are within the
unrestricted or temporarily restricted (if donated) net asset classes.

(4) b To meet GAAP, reporting must be on the accrual basis.

(5) a Both board-designated funds and plant assets are part of the unrestricted net assets of the
hospital. Restrictions by outsiders have been released.

(6) a Report as unrestricted nonoperating revenues at fair value.

795
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Ch. 19Problems

Problem 19-10, Concluded

(7) d Because the assets are not under the control of the hospital, they should not appear in the
hospitals financial statements.

(8) a Charity allowances and discounts are contra-revenue accounts.

(9) d Donated goods and services are not recorded unless they would have otherwise been
purchased and are of a skilled nature.

(10) b The valuation allowance must be decreased by $40,000 in order for the allowance balance to
be $10,000 at the end of 20Y0.

PROBLEM 19-11

(1) c This is an internal designation of unrestricted resources. Only donor-imposed restricted


contributions are temporarily or permanently restricted.

(2) d All of the third-party reimbursements are unrestricted revenue.

(3) a The release of restrictions will be reported as operating expenses are incurred.

(4) a Inventory donated is used for the hospitals principal operations and is part of other operating
revenues.

(5) b This is revenue from sales or services to persons other than patients.

(6) b The fair value of the gift is considered an unrestricted revenue.

(7) d Only donor-imposed external stipulations are restrictions.

(8) d All of these organizations sponsor health care organizations.

(9) d Earnings are available for expenditure but must be spent on specific items. Thus, they are
temporarily restricted.

(10) b Only donor-imposed external stipulations are restrictions.

796
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Ch. 19Problems

PROBLEM 19-12

(1) Bayfield Community Health Care Association


Statement of Activities
For Year Ended June 30, 20X8

Temporarily Permanently
Unrestricted Restricted Restricted Total
Public support and revenue:
Public support:
Contributions .............................................................. $300,000 $15,000 $315,000
Annual auction proceeds (net of $11,000 expense) .. 31,000 31,000
Total public support................................................. $331,000 $15,000 $ 0 $346,000
Revenues:
Membership dues ....................................................... $ 25,000 $ 25,000
Program service fees ................................................. 30,000 30,000
Investment income ..................................................... 10,000 10,000
Endowment income.................................................... $20,000 20,000
Total revenue .......................................................... $ 65,000 $20,000 $ 0 $ 85,000
Net assets released from restrictions:
Satisfaction of program restrictions ............................... $ 5,000 $ (5,000) $
0
Total public support, revenue, and other support ............. $401,000 $30,000 $ 0 $431,000
Expenses:
Program services:
Blind children .............................................................. $150,000 $ 150,000
Deaf children .............................................................. 120,000 120,000
Supporting services:
Management and general .......................................... 51,000* 51,000
Fund raising ............................................................... 9,000 9,000
Total expenses ................................................................. $330,000 $ 0 $ 0 $330,000
Change in net assets ........................................................ $ 71,000 $30,000 $ 0 $101,000
Net assets, July 1, 20X7 ................................................... 38,000 3,000 250,000 291,000
Net assets, June 30, 20X8 ............................................... $109,000 $33,000 $250,000 $392,000

*$49,000 + $2,000 provision for uncollectible pledges

797
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Ch. 19Problems

Problem 19-12, Concluded

(2) Bayfield Community Health Care Association


Statement of Financial Position
June 30, 20X8

Assets:
Cash ....................................................................................................... $ 40,000
Pledges receivable (net of $3,000 allowance) ....................................... 9,000
Bequest receivable................................................................................. 5,000
Accrued interest receivable .................................................................... 1,000
Long-term investments........................................................................... 140,000
Endowment investments ........................................................................ 250,000
Total assets ...................................................................................... $445,000

Liabilities:
Accounts payable and accrued expenses.............................................. $ 51,000
Refundable deposits .............................................................................. 2,000
Total liabilities ................................................................................... $ 53,000

Net assets:
Unrestricted ............................................................................................ $109,000
Temporarily restricted ............................................................................ 33,000
Permanently restricted ........................................................................... 250,000
Total net assets ................................................................................ $392,000
Total liabilities and net assets ...................................................................... $445,000

798
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Ch. 19Problems

PROBLEM 19-13

Downs Private Hospital


Statement of Activities
For Year Ended December 31, 20X8

Temporarily Permanently
Unrestricted Restricted Restricted Total
Patient service revenues (net of $1,543,500 contractual
adjustments and charity care) .................................... $ 9,505,700 $
9,505,700
Other operating revenues:
Research grant ........................................................... $ 361,000 $
361,000
Contributions .............................................................. $ 225,000
225,000
Donated services ........................................................ 145,000
145,000
Cafeteria meal sales ................................................... 108,000
108,000
Parking lot fees ........................................................... 31,000
31,000
Vending machine sale ................................................ 68,000
68,000
Total other operating revenue ................................. $ 713,000 $ 225,000 $ 0 $
938,000
Net assets released from restrictions:
Satisfaction of plant acquisition restrictions ............... 220,000 (220,000)
0
Satisfaction of program restrictions ............................ 125,000 (125,000)
0
Total operating revenue and other support ............. $10,563,700 $ (120,000) $ 0
$10,443,700
Operating expenses:
Nursing services ......................................................... $ 6,589,100 $
6,589,100
Dietary services .......................................................... 1,511,200
1,511,200
Maintenance services ................................................. 838,300
838,300
Administrative services ............................................... 112,500
112,500
Interest expense ......................................................... 142,200
142,200
Depreciation and amortization.................................... 478,200
478,200
Provision for uncollectibles ......................................... 341,600
341,600
Total operating expenses ........................................ $10,013,100 $ 0 $ 0
$10,013,100

799
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Ch. 19Problems

Income (loss) from operations ....................................... $ 550,600 $ (120,000) $ 0 $


430,600
Nonoperating revenues:
Interest income ...........................................................
Contributions .............................................................. $ 100,200 $ 540,000 $ 150,000 $
790,200
Investment income ..................................................... 207,000
207,000
Endowment income .................................................... 12,000 25,000
37,000
Loss on sale of endowment investments ................... (5,300)
(5,300)
Total nonoperating revenues .................................. $ 313,900 $ 565,000 $ 150,000 $
1,028,900
Change in net assets ..................................................... $ 864,500 $ 445,000 $ 150,000 $
1,459,500
Net assets, January 1, 20X8 ......................................... 625,000 825,000 2,350,000
3,800,000
Net assets, December 31, 20X8.................................... $ 1,489,500 $1,270,000 $2,500,000 $
5,259,500

800
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Ch. 19Problems

PROBLEM 19-14

Lakeside Hospital
Statement of Cash Flows
For Year Ended December 31, 20X8

Cash flows from operating activities:


Cash received from patients ........................................................................ $ 2,061,900
Cash received from third-party payors ......................................................... 6,500,000
Cash received from operation of gift shop ................................................... 517,700
Cash received from unrestricted gifts .......................................................... 323,500
Cash paid to employees .............................................................................. (1,151,000)
Cash paid to suppliers ................................................................................. (6,200,000)
Cash paid for consultation services ............................................................. (800,000)
Interest paid ................................................................................................. (147,000)
Net cash provided by operating activities............................................... $ 1,105,100
Cash flows from investing activities:
Purchase of property and equipment ........................................................... $ (501,200)
Net cash used by investing activities .................................................... $ (501,200)
Cash flows from financing activities:
Repayment of long-term debt ...................................................................... $ (242,300)
Contributions received restricted for endowment ......................................... 500,000
Contributions received restricted for purchase of property and equipment . 183,000
Net cash provided by financing activities ............................................... $ 440,700
Net increase in cash .......................................................................................... $ 1,044,600
Cash at beginning of year .................................................................................. 275,900
Cash at year-end ............................................................................................... $ 1,320,500

PROBLEM 19-15

Lakeside Hospital
Reconciliation of Change in Net Assets
to Net Cash Provided by Operating Activities
For Year Ended December 31, 20X8

Change in net assets ......................................................................................... $1,635,200


Adjustments to reconcile change in net assets to net cash provided by
operating activities:
Depreciation and amortization .............................................................. 422,500
Noncash gifts and bequests ................................................................. (37,500)
Increase in expense and liability for estimated malpractice costs ........ 12,300
Increase in patient accounts receivable ............................................... (266,300)
Decrease in supplies inventory ............................................................. 11,800
Increase in accounts payable ............................................................... 10,100
Contributions restricted for endowment ................................................ (500,000)
Contributions restricted for purchase of property and equipment ......... (183,000)
Net cash provided by operating activities .......................................................... $1,105,100

801
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