Week 5 Team Assignment Help

1. What is meant by the reference in Table 5.3-1 to an FAS 116 adjustment?

FAS 116 adjustment recognizes the contribution revenue for money that is brought in by

Nonprofit. When you have a nonprofit, they receive their money from businesses, individuals, and government entities. When the person that is donating the money, they can say how the money is to be spent for the transaction now. No longer is it recognized as a deferred revenue. The reason for this is because the money is used for a donation and it doesn’t come from sales, or any other revenue. Contributions made are temporarily restricted and they post it on the statement of position with other revenue and expenses that goes with it.

2. How are contributions recorded? Is there a distinction between pledges receivable and accounts receivable?

When you are receiving contributions and even the people who promise to pay is recorded as revenue in the current period at fair value. The contributions made during that period is also recorded as expenses in the period of the fair values. When they receive conditional contributions, they get recorded when the promise to give shows upon the financial statement.

Pledges receivable can be an issue between accounting and the fundraising team. The rules in accounting lets any organization to record pledges in that time period when it is promised. There is no distinction between pledges receivable and accounts receivable. Pledges receivable is like accounts receivable, but used in a different area.

3. Are there circumstances when financial statements can quantify volunteers' services?

The case explains that the unpaid volunteer time, while significant, is not represented on the financial statements. This is because FASB No. 116 states that volunteer service should not be recognized in the cases. Specifically, the FASB states that contributed services from volunteers are only recognized if the service creates or enhances a nonfinancial asset or if the service the volunteer is providing is specialized and would otherwise need to be purchases if not provided by volunteers (FASB, 1993). Creating or enhancing a nonfinancial asset could include constructing a building, such as hospital, at no cost to the organization (but all licenses and permits have already been obtained). Skilled or specialized labor includes anything that someone would require special training or education to do, such as doctors or nurses in the case of hospitals. If either of these criteria were met by the volunteer services provided, they would need to be recorded and disclosed on the financial statements. However, none of the volunteer work provided matches these criteria. These services would not be recognized on the financial statements, but they are encouraged to be included as a footnote as they are still important even though they are not currently recognized on the financial statements.

4. Can financial statement users of not-for-profit hospitals' financial statements expect to be fully informed regarding affiliated parties, such as the linkages between St. Jude Children's Research Hospital, ALSAC, and the foundation cited? Explain

Users of financial statements can expect to be reasonably informed regarding affiliated parties. This is because the FASB's ASC topic 850, Related Party Disclosures, requires that companies disclose any information regarding transactions with related parties, including those they may not receive accounting recognition in most cases (Deloitte, 2017). This means that any user of the financial statements should expect to have any information regarding the transactions between a company and its related entities but also means that users of the statement should expect to have any information regarding the company's obligations and commitments, including those of affiliates. In the provided case, the text states that St. Jude disclosed their link to both the American Lebanese Syrian Associated Charities, Inc. (ALSAC) and the Sr. Jude Hospital Foundation in their Form 990 Part VI. This form is used to provide an idea on the capital of tax exempt companies and should help any users of the financial statements in pulling information on affiliated companies and foundations.

1. How does this revenue mix compare with the revenue blend of the not-for-profit entity, St. Jude Children’s Research Hospital (ALSAC)? Access the latest SEC filing and compare the reported revenue mix; has it changed?

Universal Health Services, Inc. Patient Revenue Mix

St. Jude Children’s Research Hospital Revenue Mix

According to the table above, Universal Health Services Inc. has been earning more revenue through managed care such as HMO’s and PPO’s from 1996 to 2000. The table shows Medicare with a slight drop of 3.3%, Medicaid with a drop of 3.8%, Managed Care with an increase of 15.4% from 1997, and Other Sources with a significant drop of 27.7%. On the other hand, St. Jude’s Hospital has been earning revenue mainly through commercial third party payers. The table above shows Medicaid at a steady 31%, Blue Cross with an increase of 1%, Commercial with a steady 41%, and other sources dropping 1% in net patient service revenue. According to St. Jude’s Reported Financial Statements, commercial third party payers include other reimbursement arrangements that the hospital has entered in to. The website notes, “other reimbursement arrangement providing for payment methodologies include prospectively determine rates per discharge, per diem amounts, case rates, fee schedules, and discounts from established charges.” (Combined Financial Statements as of and for the Years Ended June 30, 2015 and 2014, and Independent Auditors Report, 2016). That being said, United Health Services earn most of their patient revenue through HMO’s and PPO’s (the equivalent to St. Jude’s Blue Cross), while St. Jude Hospital earns most of their patient revenue through commercial payers offering discounts and determined rates.

Universal Health Services Patient Revenue Mix

Universal Health Services’ Patient Revenue Mix has changed within the recent years, however, the trends that were happening from 1996 to 2000 are similar. Revenue from Medicare and Medicaid have dropped 15.6% and 3.3% respectively, in the past ten years. On the other hand, from 1996 to 2016, Managed Care has steadily been increasing. Currently, Managed Care accounts for 56% of net patient revenue while in 2000 it accounted for 34.5%. This substantial increase of 21.5% shows that more patients rely on HMO’s and PPO’s rather than governmental programs such as Medicare and Medicaid. These were the same trends that the data showed from 1996 to 2000; Managed Care plans increasing in earning revenue, while Medicare, Medicaid, and Other Sources were decreasing.

2. What does that imply as to the strategies of investor-owned hospitals in managing risk and ensuring adequate capital relative to not-for-profit entities? An opportunity exists to explore the greater social and political questions that are frequently debated about the compatibility of profit-oriented entities and quality of health care, relative to not-for-profit entities. As background, identify what the latest SEC filings report concerning charity care.