Question

St. Mary’s Hospital is a private not-for-profit entity that provides health care services to citizens of the small rural community in which the hospital is located. The most recent construction at the hospital was financed using Hill-Burton funds. During the current month, St. Mary’s engaged in the following transactions. Make the appropriate journal entries for St. Mary’s for the current month.

a. Based on the hospital’s established billing rate, services rendered to patients amounted to $1.5 million. Of this amount $1,100,000 will be billed to Zeta Medical Group; a third-party payor that insures many state employees; $190,000 will be billed to uninsured patients; $150,000 is provided to indigents and will be considered charity care; and $60,000 was for services rendered to hospital employees.

2. Zeta Medical Group pays for services rendered to its insurees on a rate schedule based on types of procedures rendered. For the services rendered during the current month to Zeta insurees, Zeta will reimburse the hospital $975,000. Part of the agreement between St. Mary’s and Zeta is that Zeta insurees will not be billed for the difference between the amount that the hospital bills and the amount that Zeta pays.

c.   Based on prior experience with uninsured patients, the Hospital estimates that $35,000 of the $190,000 will be uncollectible.

d.   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 and that the best estimate of the amount of the loss is $4,500,000. The hospital carries medical malpractice insurance with a $400,000 deductible clause.

7. The hospital has numerous capital assets on its books. Straight-line depreciation on the assets is $350,000 for the current period.

Answer 1

	Particulars	Debit	Credit
1	Patients	1,500,000
	To Sale of services		1,500,000
2	Zeta Medical Group	1,100,000
	uninsured patients	190,000
	Charity care	150,000
	Hospital employees	60,000
	To Patients		1,500,000
3	Cash	975,000
	Discount	125,000
	To Zeta Medical Group		1,100,000
4	Income and expenditure	35,000
	To Provision for bad debts		35,000
5	Cash	30,000
	Discount	30,000
	To Hospital employees		60,000
	Income and expenditure	30,000
	To Discount		30,000
6	Charity	150,000
	To Charity care		150,000
7	Income and expenditure	4,500,000
	Malpractice insurance	400,000
	To Provision for liability		4,900,000
8	Income and expenditure	350,000
	To Depreciation		350,000