Question

You are the Senior Accountant at St. Luke’s Hospital, a private not-for-profit entity providing health care services to citizens of a small rural community.

During the current month, the hospital engaged in the following transactions. Your responsibility is making the appropriate journal entries for St. Luke's for the current month for patient service revenues along with any required adjustments based on the circumstances listed below in parts a) through e) as well as the entries based on the information contained in parts f) and g).

a. Based on the hospital’s established billing rate, services rendered to patients during the month amounted to $1.5 million. Of this amount, $250,000 was provided to indigents and will be considered charity care.

b. $1,000,000 of the $1.5 million in patient service billings will be billed to Omega Medical Group; a third-party payor that insures many state employees. Omega Medical Group pays for services rendered to its customers based on a rate schedule for the types of procedures rendered. Omega will reimburse the hospital $975,000 for the services rendered during the current month to its customers. Part of the agreement between St. Luke’s and Omega is that Omega’s customers will not be billed for the difference between the amount that the hospital bills and the amount that Omega pays the hospital.

c. $190,000 of the $1.5 million in patient service billings will be billed to uninsured patients. Based on prior experience with uninsured patients, the Hospital estimates that $75,000 of the $190,000 will be uncollectible.

d. $60,000 of the $1.5 million in patient service billings was for services rendered to hospital employees. The hospital provides a 50 percent discount for services rendered to its employees.

e. The hospital recognizes the value of charity services rendered.

f. The hospital is the defendant in a malpractice suit. Attorneys for the hospital are reasonably sure the hospital will be found liable. Their best estimate of the amount of loss is $1,500,000. The hospital carries medical malpractice insurance with a $500,000 deductible clause.

g. The hospital has numerous capital assets on its books. Straight-line depreciation on these assets totals $150,000 for the current period.

Answer 1

PREPRATION OF JOURNAL ENTRIS FOR ST.LUKE'S HOSPITAL
A. charity servies A/c Dr. $250000
to Account & notes recievables $250000
(being service provided to an indigent patient recorded as charity)


B. Omega Mdecal group A/c Dr. $1000000
To sale (Service rendered) A/c $1000000
(being omega Medical group is billed for payment)

Cash A/c Dr. $975000
    To Omega Medial group A/c $975000
(Being payment received from Omega )

C. Uinsured patient A/c Dr. $190000
To serviced rendered A/c $190000
(being Amount due on Uinsured patient)

CASH A/c Dr. $115000
Bad Debts A/c Dr. $75000
To Uninsured patient A/c $190000
(Being Cash received from Uninsured patient and balance transfer to bed debts)

D. hospital Employees Dr. $30000
Discount A/c Dr. $30000
To services rendered A/c $60000
(Being payment due on Hospital employees with 50% discount)


E. Profit and loss A/c Dr. $250000
To charity A/c $250000
(being charity recognizes)


F. penalty A/c Dr. $1000000
malpractice insurance A/c Dr. $500000
To contingent libilities A/c $1500000

G. Depreciation A/c Dr. $150000
To accumulated Depreciation A/c $150000

( being assets depreciated)