Problem:
The Maggie King Hospital, a not-for-profit hospital, had the following transactions regarding its patient service billings.
1. The total services provided by the hospital to all patients during the year amounted to $19 million at the hospital's established billing rates.
2. Transaction 1 includes billings to Medicare (for services to program beneficiaries) at prospectively determined rates. Under this program contractual adjustments to the predetermined rates were $1.5 million.
3. Transaction 1 also includes billings to third-party payer X under an agreement that calls for retrospective final rates. Interim billing rates under this agreement resulted in contractual adjustments of $1 million.
4. The hospital provided charity care included in transaction 1 valued at $500,000 at the established rates.
5. The hospital made a provision for bad debts in the amount of $300,000.
6. The hospital collected $13.5 million from third-party payers and direct-pay patients. The hospital also wrote off bad debts of $200,000.
7. The hospital estimated it would need to refund $100,000 to payer X in transaction 3 when retrospective rates are determined. (The hospital's receivables include no amounts due from payer X.)
Prepare the journal entries needed to record these transactions. State (a) the amount of net patient service revenue the hospital will report on its operating statement and (b) the amount of net patient accounts receivable the hospital will report on its balance sheet. Also, state (c) how the estimated third-party payer settlements should be reported and (d) how charity care should be reported.