B is corrent. Cash contributions that are donor-restricted for long-term purposes are reported as financing activities on the statement of cash flows. Applying this to Simmons Hospital, the hospital should report the sum of the cash received for the capital acquisition and for the permanent endowment as an increase of $750,000 in cash flows from financing activities on the statement of cash flows. According to the AICPA Audit and Accounting Guide, Health Care Organizations, cash received which is restricted as to withdrawal or use for other than current operations or is designated for expenditure in the acquisition or construction of noncurrent assets is excluded from cash and cash equivalents disclosed in current assets. This means that cash received for long-term financing is not part of the change in cash and cash equivalents which is explained on the statement of cash flows. For the statement of cash flows to reconcile to the change in cash and cash equivalents reported in current assets, cash flows reported in the investing activities section has to equal the amount reported in the financing section. The amount reported in investing activities has to be opposite in sign to the cash flows reported in the financing activities section. For Simmons Hospital, this translates to reporting a decrease of $750,000 in the investing activities section. Note that this amount is reported whether the $750,000 of cash received was actually spent or not during year 1. If the cash was not spent, as was the case with the $500,000 received for capital acquisitions, the investing activities section would report the decrease using a caption such as "purchase of assets restricted to investment in property and equipment."
A is incorrect because the hospital should report the sum of the cash received for the capital acquisition and for the permanent endowment as an increase of $750,000 in cash flows from financing activities on the statement of cash flows.
C is incorrect because the hospital should report the sum of the cash received for the capital acquisition and for the permanent endowment as an increase of $750,000 in cash flows from financing activities on the statement of cash flows.
D is incorrect because the hospital should report the sum of the cash received for the capital acquisition and for the permanent endowment as an increase of $750,000 in cash flows from financing activities on the statement of cash flows.
|
