A is corrent. The cash flows from revenues, gains, and other support, which are reported on the hospital’s statement of operations, would be included in the net cash provided (used) by operating activities on the statement of cash flows. Both are included in the amount reported for revenue, gains, and other support on the hospital’s statement of operations. Accordingly, cash received from patient service revenue and from tuition revenue are both included in the amount reported for cash flows from operating activities. The cash received for the term endowment as well as the cash received from dividends would not be included in the amount reported for net cash provided (used) by operating activities. Both of these cash receipts would be reported as increases in cash flows provided by financing activities. Cash contributions that are donor-restricted for long-term purposes are reported as financing activities on the statement of cash flows. In addition, the AICPA Audit and Accounting Guide, Health Care Organizations, states that cash received for long-term purposes, for example, the cash received for the term endowment and the building improvements, is not reported as a current asset. So that the statement of cash flows will reconcile with the change in cash and cash equivalents reported as current assets on the balance sheet, an amount equal to the cash received for the two financing activities is included in the amount reported for cash flows from investing activities. For Carlson Hospital, this would mean that $225,000, the sum of the $150,000 for the term endowment and the $75,000 of restricted dividends, is reported as a negative amount in the investing activities’ section of the statement of cash flows. Note that both of these amounts are reported as investing activities whether the cash was spent this period or in subsequent period(s).
B is incorrect because the contributions from donor is reported in the investing activities section.
C is incorrect because the dividends received should be reported in the investing activities section.
D is incorrect because the tuition for nursing school would be included in the operating activities section.
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