Choice "B" is correct. Hospital, Inc. would report net patient revenue in an amount equal to its gross patient service revenue net of both charity care and the difference between established billing rates and fees negotiated with third party payors (sometimes called contractual adjustments). Net patient revenue for Hospital, Inc for the current year ended December 31, is computed as follows:
| |
|---|
| Gross patient revenues including charity care of $25,000 | $ 775,000 |
| Less: Charity care | (25,000) |
| Less: Contractual adjustments | (70,000) |
| Net patient service revenue | $ 680,000 |
Choice "c" is incorrect. The amount represented by this selection ($690,000) is the amount properly recognized as net patient service revenue ($680,000) plus charity care of $25,000 and net of bad debt expense of $15,000 given in the fact pattern. Charity care is improperly included and should not be recognized and bad debt expense is recognized as an expense, not a contra revenue.
Choice "d" is incorrect. The amount represented by this selection ($705,000) is the amount properly recognized as net patient service revenue ($680,000) plus charity care of $25,000. Charity care is improperly included and should not be recognized.
Choice "a" is incorrect. The amount represented by this selection ($735,000) is the amount properly recognized as net patient service revenue ($680,000) plus contractual adjustments of $70,000 and net of bad debt expense of $15,000 given in the fact pattern. Contractual adjustments are improperly included and should not be recognized and bad debt expense is recognized as an expense, not a contra revenue.
