Question

Integrated Physicians & Associates, an investor-owned company, had
the following general ledger account balances at the end of 2015:
Gross patient service revenue (total charges) $975,000
Contractual discounts and allowances to third-party payers 250,000
Charges for charity (indigent) care 100,000
Estimated provision for bad debts 50,000

a. Construct the revenue section of Integrated Physicians &
Associates’ income statement for the year ended December 31,
2015.

b. Suppose the 2015 contractual discounts and allowances balance
reported above is understated by $50,000. In other words, the
correct balance should be $300,000. Assuming a 40 percent
income tax rate, what would be the effect of the misstatement on
Integrated Physicians & Associates’ 2015 reported:
1. Net patient service revenue?
2. Total expenses, including income tax expense?
3. Net income?
For each item (1–3), indicate whether the balance is overstated,
understated, or not affected by the misstatement. If overstated or
understated, indicate by how much.

Answer 1