Reference no: EM131320307

Section I: Multiple Choice

Mark one box only to indicate the answer you consider correct for each question

1. Which of the following is the goal of the U.S. health care system?
a. Access
b. Cost
c. Quality
d. All of the above

2. All of the following factors contribute to the rising cost of health care except:
a. Aging population
b. New and returning consumers in the marketplace
c. Chronic Disease
d. Providers embracing lean Six Sigma and other techniques to deliver better care with less resources

3. All of the following factors could contribute to a decrease in health care costs except:
a. Pharmaceuticals going off patent
b. Providers using health information technology in robust ways
c. Medical technology continuing to develop new systems
d. Hospitals overriding physician preference in supplies

4. Balance Sheet for a non-profit contains all of the following except:
a. Organization's assets
b. Organizations liabilities
c. Stockholders' equity
d. Cash flow

5. A Balance Sheet summarizes the organization's total assets, liabilities and net assets in what time period?
a. Last day of the accounting period
b. At a point of time
c. Last quarter
d. Annually

6. Which one of these is not a source of revenue:
a. Salary and wages
b. Appropriations and grants
c. Income from investments
d. Revenue from contributions

7. Cash flows from investing activities includes:
a. Purchase of plant property and equipment
b. Accounts payable
c. Accrued pension
d. Estimated third party payer settlements

8. A complete record of financial transactions is called:
a. Journal
b. Ledger
c. Balance
d. Asset

9. Rules for recording transactions do not include:
a. Increase in revenues, gains or other support account when earnings are received.
b. After each transaction, the fundamental account equation must be in balance.
c. An accounting method when cash was received or expended.
d. Increase an expense account when an asset is used.

10. Statement of Operations includes:
a. Operating Expenses
b. Increase in unrestricted net assets
c. a & b
d. None of the above

11. In the accrual accounting method:
a. Revenues are recognized when cash is received
b. Expenses are recognized when cash is paid out
c. Revenues are recognized when revenues are earned
d. All of the above

12. Analyzing financial statements helps a health care organization to:
a. Determine if profitable
b. Determine the effectiveness in collecting receivables
c. a & b
d. None of the above

13. Approaches to analyze financial statements do not include:
a. Ratio analysis
b. Collateral analysis
c. Vertical analysis
d. Horizontal analysis

14. Operating margin ratio measures:
a. How dependent the organization is on patient related income
b. Profits earned from the organization's main line of business
c. How much profit is earned for each dollar invested in assets
d. Total operating expenses incurred from providing patient care services

15. An asset mix strategy includes:
a. How an organization chooses to finance its working capital needs
b. The amount of working capital an organization keeps on hand relative to its working capital obligations
c. Risk of greater return to lower liquidity
d. Coin and currency

16. Which of the following is not a major reason to hold cash:
a. Hedge against inflation
b. For daily operation purposes
c. Precautionary purposes
d. Speculative purposes

17. Revenue Cycle Maintenance can be hindered by:
a. Patients giving correct demographic information
b. Lack of clarity about who is responsible for the bill
c. Current health care insurance information
d. An accurate/clean final bill

18. Methods to monitor accounts receivable:
a. Net accounts receivable
b. Treasury bills
c. Aging Schedule
d. a & c

19. Which of the following is not a point to consider when using and interpreting ratios?
a. No one ratio is necessarily better than any other ratio
b. With benchmarking, it is not necessary to make sure the same formula is used
c. A ratio can best be interpreted relative to a benchmark
d. Ensuring reliability of data

20. The "book" refers to transactions
a. Only done by computer entry
b. Journal recorded chronologically
c. Current balance in each account
d. Current ratio

Section II: True/False

Read the statement completely and determine if the statement is true or false. In the blank provided, write "True" for a true statement and "False" for a false statement.

1. ACOs are voluntary groups of health care providers who coordinate care to a patient population. True or False?
Answer:

2. Current Liabilities are financial obligations due within a year. True or False? Answer:

3. Contra-asset is an asset that when increased, decreases the value of a related asset on the books.
Answer:

4. Capital structure ratios address how an organization's assets are financed and able to take on new debt. True or False?
Answer:

5. Statement of cash flows discloses key noncash investing and financial transactions. True or False?
Answer: True or False? Answer:

Section III: Financial Analysis

1. Multiple Statements: The following are account balances (in thousands) at October 30, 2014, for Apapa Hospital. Prepare (a) a balance sheet

Givens (in '000s):
Administrative expense	$35,000	Depreciation expense	$33,000
Cash	$42,000	General expense	$85,000
Patient revenues (net of contractuals )	$555,000	Transfer to parent corporation	$7,000
Gross accounts receivable	$53,000	Beginning balance, unrestricted net assets	$155,600
Ending balance, temporarily restricted net assets	$5,000	Accounts payable	$24,000
Wages payable	$14,000	Beginning balance, temporarily restricted net assets	$13,000
Prepaid expenses	$8,000	Provision for bad debt expense	$6,500
Long-term debt	$482,300	Labor expense	$144,000
Supply expense	$61,000	Accumulated depreciation	$100,000
Gross plant, property, and equipment	$660,000	Ending / beginning balance, permanently restricted net assets	$11,000
Net assets released from restriction for operations	$8,000	Ending balance, unrestricted net assets	$356,300
Uncollectibles in accounts receivable	$5,000	Accrued expense	$4,100
Inventory	$9,000	Temporary investments	$9,200
Premium revenues	$6,200	Other revenues	$3,000
Long-term investments, unrestricted	$222,000	Current portion of long-term debt	$1,500

2. You are the CFO of a company considering an acquisition of a Hospital. Perform Ratio Analysis. Compare its liquidity, revenue, expense, and profitability; activity, and capital structure ratios to national industry benchmarks for all hospitals, using the data from Exhibit 4.16a.

 

Ratio	2015	2014
Liquidity ratios
Current ratio	1.70	1.85
Acid test ratio	0.15	0.19
Days in accounts receivable	65.00	53
Days cash on hand	60.00	75
Average payment period (days)	65.00	50
Revenue, expense and profitability ratios
Operating revenue per adjusted discharge	$ 6,800.00	$ 6,800.00
Operating expense per adjusted discharge	$ 6,500.00	$ 6,700.00
Salary and benefit expense as a percentage of total operating expense	44%	47%
Operating margin	0.04	0.03
Return on total assets	0.06	0.05
Activity ratios
Total asset turnover ratio	1.00	0.99
Fixed asset turnover ratio	1.90	1.8
Age of plant	8.34	10.89
Capital structure ratios
Long-term debt to equity	0.20	0.35
Equity to total assets	0.60	0.50
Debt service coverage ratio	3.80	3.40

3. Horizontal, vertical and ratio analyses. Exhibits 4.27a and 4.27b show the statement of operations and balance sheet for the 310-bed Lagos Island Community Hospital for 20X0 and 20X1.

Lagos Island Community Hospital
Balance Sheet (Horizontal and Vertical Analyses) (in '000)
For the Years Ended 12/31/20X1 and 12/31/20X0
	20X1		20X0
Current Assets
Cash and Cash Equivalents	$40,500		$35,500
Net Patient Accounts Receivables	39,500		36,400
Inventories	3,800		4,000
Other Current Assets	6,500		5,200
Total Current Assets	90,300		81,100
Plant, Property, & Equipment
Gross Plant, Property, & Equipment	215,000		175,500
(less Accumulated Depreciation)	(65,000)		(107,000)
Net Property, Plant and Equipment	150,000		68,500
Board Designated Funds
Short-Term & Long-term Investments	185,000		110,000
Total Assets	$425,300		$259,600
Current Liabilities
Accounts Payable	$14,500		$8,500
Salaries Payable	4,500		3,500
Notes Payable	4,300		4,500
Total Current Liabilities	23,300		16,500
Long-Term Liabilities
Bonds Payable	60,000		27,500
Total Long-Term Liabilities	60,000		27,500
Net Assets	342,000		215,600
Total Liabilities and Net Assets	$425,300		$259,600

Lagos Island Community Hospital
Statement of Operations (Horizontal and Vertical Analyses) (in '000)
For the Years Ended 12/31/20X1 and 12/31/20X0
	20X1		20X0
Revenues
Net Patient Service Revenue	$225,000		$210,000
Other Operating Revenue	6,400		5,700
Total Operating Revenues	231,400		215,700
Operating Expenses
Salaries and benefits	124,173		110,167
Supplies and other expenses	85,000		61,000
Depreciation	12,000		11,300
Interest	4,500		2,500
Total Operating Expenses	225,673		184,967
Income from Operations	5,727		30,733
Non-Operating Income
Investment Income / Contributions	7,500		8,500
Excess of Revenues over Expenses	13,227		39,233
Net Income	$13,227		$39,233

a. Perform a horizontal analysis on both statements
b. Perform a vertical analysis on both statements relative to 20XO

Using these financial performance measures, evaluate the financial state of Lagos Island Community Hospital.

4. Trade credit discount. Compute the approximate annual interest cost of not taking a discount, using each of the following scenarios. What conclusion can be drawn from the calculations?
a. 2/10 net 20 b. 2/10 net 30 c. 2/10 net 40

5. If a nurse deposits $24,000 today in a mutual fund that is expected to grow at an annual rate of 8 percent, what will be the value of this investment:
a. Three years from now?
b. Six years from now?
c. Nine years from now?
d. Twelve years from now?