Under Southdale Hospital's Established Rate Structure, the Hospital Would Have

question 17

Multiple Choice

Under Southdale Hospital's established rate structure, the hospital would have earned patient service revenue of $7,000,000 for the year ended December 31, 2014.However, Southdale did not expect to collect this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third party payers.In May 2014, Southdale purchased bandages from Ace Supply Co.at a cost of $5,000.However, Ace notified Southdale that the invoice was being cancelled and that the bandages were being donated to Southdale.
For the year ended December 31, 2014, Southdale should record the donation of bandages as:

• A)a $5,000 reduction in operating expenses.
• B)nonoperating revenue of $5,000.
• C)other operating revenue of $5,000.
• D)a memorandum entry only.

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Definitions:

Raw Materials

The basic materials from which products are manufactured or made.

Corporate Headquarters

The main office or center of operations for a corporation, where key managerial and administrative activities are conducted.

LIFO Inventory Method

Last In, First Out, an inventory valuation method where the goods purchased last are the first to be sold.

Gross Profit

The difference between revenue and the cost of goods sold before deducting overheads, payroll, taxation, and interest payments.