Prepare Journal Entries for the Following Transactions of St

question 37

Essay

Prepare journal entries for the following transactions of St. Mary's Hospital, a not-for-profit health care entity.
a. St. Mary's hospital billed the state Medicaid program $550,000 for services provided at its standard billing rate. The prospective payment system gives Medicaid a 38 percent discount from these rates.
b. The hospital has an arrangement with an HMO to provide hospital care to the HMO's members at a specific rate per member, per month. In April the HMO paid the hospital $640,000 per agreement for patients treated in March. Based on pre-established billing rates, the hospital would have billed the HMO $735,000.
c. The hospital provided services to patients under "charity care" which amounted to $1,915,000 for the year.
d. At its standard billing rates St. Mary's hospital provided services to Lowen, Inc., a third-party payor, for $3,580,000. The retrospective billing arrangement with Lowen, Inc. stipulates that the hospital would receive payment at an interim rate of 85 percent of its established rates, subject to retrospective adjustment based upon agreed-upon allowable costs. By the end of the fiscal year, Lowen, Inc. had paid all the billings. Before issuing its financial statements, the hospital estimated that it would need to refund $290,000 to Lowen, Inc., based on allowable costs.

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Definitions:

Job Cost Sheets

Documents used to record and track expenses for specific jobs under the job-order costing method.

Direct Material

Raw materials that are directly traceable to the manufacturing of a specific product and constitute a significant portion of the product's costs.

Manufacturing Overhead

Indirect production costs that are not directly tied to the production of goods, such as maintenance and utilities.

Departmental Overhead Rates

Rates used to allocate overhead costs to specific departments based on predetermined criteria, often used for cost accounting purposes.