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As an organization expands its operations into different countries there is an increase in political risk 
as there are more levels of government to deal with and varying government regulations and policies. 
It is important that a company understand the risk that exists in all countries they operate in. 
Critically comment on this statement with the help of examp

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25.Which of the following statements about the financial risk to providers under different reimbursement methods is most correct?

a. Different payers use different reimbursement methods, so providers face varying levels of risk.

b. Prospective payment transfers the cost risk (of each reimbursable episode) from insurers to providers.

c. Capitation transfers both cost risk and utilization risk to providers.

d. Statements a. and b. are both correct.

e. Statements a., b., and c. are all correct.

32.Which of the following would most likely be considered nonoperating income (versus operating income) on the income statement of a healthcare organization?

a. Revenue from patient care activities

b. Revenue from cafeteria and parking garage operations

c. Premium revenue

d. Income from investments in financial securities

e. Government appropriations

33.Assume Mercy Hospital underestimated the provision for bad debts reported on its December 31, 2015 income statement. What would be the most likely effect on the actual cash flow stemming from the reported net patient service revenue?

a. The cash flow would be less than expected.

b. The cash flow would be greater than expected.

c. The cash flow would not be affected.

d. The cash flow could be either overstated or understated depending on the nature of the bad debts.

e. None of the statements are correct.

34.Meadowlands, a for-profit skilled nursing facility, pays taxes at a rate of 40 percent. Assume Meadowlands recorded depreciation expense of $100,000 for the year ended December 31, 2015. If Meadowlands changed its method of calculating depreciation such that depreciation expense doubled for the year, which of the following statements is most correct?

a. Meadowlands’ net income (after tax) for the year ended December 31, 2015 would increase by $100,000.

b. Meadowlands’ net income (after tax) for the year ended December 31, 2015 would decrease by $100,000.

c. Meadowlands’ estimated cash flow for the year ended December 31, 2015 would increase by $100,000.

d. Meadowlands’ estimated cash flow for the year ended December 31, 2015 would increase by $40,000.

e. Statements b. and d. are both correct.

35.Assume Hospital A is a for-profit organization that pays taxes at a rate of 30 percent and Hospital B is a not-for-profit organization that pays no taxes. If depreciation expense for the year ended December 31, 2015 was doubled (e.g., from $100,000 to $200,000) for both organizations, which of the following statements is most correct?

a. Net income would increase for both Hospitals A and B.

b. Net income would decrease for Hospital A but not for Hospital B.

c. Estimated cash flow would increase for both Hospitals A and B.

d. Estimated cash flow would increase for Hospital A but not for Hospital B.

e. Estimated cash flow would increase for Hospital B butnot for Hospital A.

36.Which of the following statements about revenues, expenses, and net income is most correct?

a. Revenues increase the equity of an organization.

b. Expenses decrease the equity of an organization.

c. Net income (less any dividend payments) increases the organization.

d. Net losses decrease the equity of an organization.

e. Statements a., b., c., and d. are all correct.

37.Which of the following statements about operating income, nonoperating income, and net income is most correct?

a. Operating income typically is greater than net income.

b. For hospitals, nonoperating income includes outpatient services income.

c. Operating income focuses on the profitability of a provider’s core business.

d. Net income is defined as operating income less nonoperating income.

e. Net income focuses on the profitability of a provider’s core business.

38.Which of the following statements best describes the statement of changes in equity?

a. It shows how much of net income is retained within the business.

b. It shows how much of net income flows to the balance sheet equity account.

c. For investor-owned businesses, it shows how much of net income is paid out as dividends.

d. Statements a. and c. are both correct.

e. Statements a., b., and c. are all correct.

44.A nonendowment contribution made to a not-for-profit healthcare organization that the donor specifies is to be used only for the provision of charity care would most likely be classified as:

a. Unrestricted

b. Temporarily restricted

c. Forever restricted

d. Board designated

e. A liability

45.Which of the following statements about the balance sheet is most correct?

a. The balance sheet provides information about the financial position of an organization as of a moment in time.

b. The balance sheet provides detailed information about the assets, liabilities, equity, revenues, and expenses of an organization.

c. The balance sheet is affected by changes in the net income of the organization.

d. Statements a. and c. are both correct.

e. Statements a., b., and c. are all correct.

23.Which of the following statements about capitation is most correct?

a. Capitation creates a delay between providing services and receiving payment.

b. The capitation payment amount to providers varies significantly from month to month and hence is difficult to predict.

c. Capitation encourages providers to focus on prevention and wellness.

d. Capitation places a greater administrative burden on providers than does fee-for-service payment.

e. Capitation uses a per diagnosis methodology to set hospital payment rates.

24.Which of the following statements about the financial risk to providers under different reimbursement methods is most correct?

a. Risk is the least under cost-based reimbursement.

b. Risk is the most under capitation.

c. Risk is the most under charge-based reimbursement.

d. Statements a. and b. are both correct.

e. Statements a. and c. are both correct.

25.Which of the following statements about the financial risk to providers under different reimbursement methods is most correct?

a. Different payers use different reimbursement methods, so providers face varying levels of risk.

b. Prospective payment transfers the cost risk (of each reimbursable episode) from insurers to providers.

c. Capitation transfers both cost risk and utilization risk to providers.

d. Statements a. and b. are both correct.

e. Statements a., b., and c. are all correct.

32.Which of the following would most likely be considered nonoperating income (versus operating income) on the income statement of a healthcare organization?

a. Revenue from patient care activities

b. Revenue from cafeteria and parking garage operations

c. Premium revenue

d. Income from investments in financial securities

e. Government appropriations

33.Assume Mercy Hospital underestimated the provision for bad debts reported on its December 31, 2015 income statement. What would be the most likely effect on the actual cash flow stemming from the reported net patient service revenue?

a. The cash flow would be less than expected.

b. The cash flow would be greater than expected.

c. The cash flow would not be affected.

d. The cash flow could be either overstated or understated depending on the nature of the bad debts.

e. None of the statements are correct.

34.Meadowlands, a for-profit skilled nursing facility, pays taxes at a rate of 40 percent. Assume Meadowlands recorded depreciation expense of $100,000 for the year ended December 31, 2015. If Meadowlands changed its method of calculating depreciation such that depreciation expense doubled for the year, which of the following statements is most correct?

a. Meadowlands’ net income (after tax) for the year ended December 31, 2015 would increase by $100,000.

b. Meadowlands’ net income (after tax) for the year ended December 31, 2015 would decrease by $100,000.

c. Meadowlands’ estimated cash flow for the year ended December 31, 2015 would increase by $100,000.

d. Meadowlands’ estimated cash flow for the year ended December 31, 2015 would increase by $40,000.

e. Statements b. and d. are both correct.

35.Assume Hospital A is a for-profit organization that pays taxes at a rate of 30 percent and Hospital B is a not-for-profit organization that pays no taxes. If depreciation expense for the year ended December 31, 2015 was doubled (e.g., from $100,000 to $200,000) for both organizations, which of the following statements is most correct?

a. Net income would increase for both Hospitals A and B.

b. Net income would decrease for Hospital A but not for Hospital B.

c. Estimated cash flow would increase for both Hospitals A and B.

d. Estimated cash flow would increase for Hospital A but not for Hospital B.

e. Estimated cash flow would increase for Hospital B butnot for Hospital A.

36.Which of the following statements about revenues, expenses, and net income is most correct?

a. Revenues increase the equity of an organization.

b. Expenses decrease the equity of an organization.

c. Net income (less any dividend payments) increases the organization.

d. Net losses decrease the equity of an organization.

e. Statements a., b., c., and d. are all correct.

37.Which of the following statements about operating income, nonoperating income, and net income is most correct?

a. Operating income typically is greater than net income.

b. For hospitals, nonoperating income includes outpatient services income.

c. Operating income focuses on the profitability of a provider’s core business.

d. Net income is defined as operating income less nonoperating income.

e. Net income focuses on the profitability of a provider’s core business.

38.Which of the following statements best describes the statement of changes in equity?

a. It shows how much of net income is retained within the business.

b. It shows how much of net income flows to the balance sheet equity account.

c. For investor-owned businesses, it shows how much of net income is paid out as dividends.

d. Statements a. and c. are both correct.

e. Statements a., b., and c. are all correct.

44.A nonendowment contribution made to a not-for-profit healthcare organization that the donor specifies is to be used only for the provision of charity care would most likely be classified as:

a. Unrestricted

b. Temporarily restricted

c. Forever restricted

d. Board designated

e. A liability

45.Which of the following statements about the balance sheet is most correct?

a. The balance sheet provides information about the financial position of an organization as of a moment in time.

b. The balance sheet provides detailed information about the assets, liabilities, equity, revenues, and expenses of an organization.

c. The balance sheet is affected by changes in the net income of the organization.

d. Statements a. and c. are both correct.

e. Statements a., b., and c. are all correct.

47. True or False: The balance sheet and income statement together provide detailed information about where a business gets its cash and how that cash is spent.

48.Carlisle Clinic, a not-for-profit organization, began 2016 with an equity balance of $1,000,000. Assuming Carlisle Clinic reported net income of $200,000 for the year ended December 31, 2015, and had no other adjustments to equity during 2015, what was Carlisle Clinic’s equity balance as of December 31, 2014?

a. $800,000

b. $1,200,000

c. $200,000

d.$1,000,000

e. Can’t tell with the information provided

56.Smith Pharmaceuticals is trying to estimate the breakeven volume of sales on a newly developed drug. Which of the following would be expected to reduce the number of pills Smith would need to sell to breakeven (i.e., which would result in a lower breakeven volume) assuming everything else remains the same?

a. An increase in total fixed costs

b. A decrease in the selling price per pill

c. An increase in the variable cost per pill

d. An increase in the unit (per pill) contribution margin

e. An increase in allocated overhead (indirect) costs

57.Assume the local children’s hospital implements an outpatient asthma intervention to improve the health outcomes of children with asthma. As a result, the hospital sees a dramatic reduction in the number of inpatient admissions for children with asthma, but very little change in the total cost of operating the hospital. Which of the following statements describes the most likely reason for the lack of cost savings?

a. The hospital’s cost structure primarily consists of variable costs.

b. The hospital’s cost structure primarily consists of fixed costs.

c. The hospital’s cost structure consists of an equal mix of variable and fixed costs.

d. The hospital reduced its capacity (i.e., downsized) following the drop in admissions.

e. The hospital has a very high variable cost per admission

Terry Zupita is considering how to invest the modest amount ofmoney she recently inherited ($48,000). Based on her knowledge ofdifferent types of investments, as well as the advice of friends,Terry thinks that she should invest her inheritance in a long-termU.S. Treasury bond that promises to pay her $3,690 interest every 6months for 10 years. However, today at lunch, Terry asked her bestfriend Mike how he would invest the money. Mike responded that hethought she could invest in something other than the T-bond andearn a much higher rate of return. In fact, he told Terry that hewas at a company social a few nights ago where he overheard a fewpeople talking about a U.S. automobile manufacturer that ispartnering with the Chinese government to open a manufacturingoperation in Shanghai. The firm, named Universal Autos (UA), wouldhave exclusive rights to manufacture U.S. automobiles in China. Oneof the men involved in the conversation stated that he thought thearrangement presented a huge opportunity for UA to substantiallyincrease its profits during the next 10 years, which shouldtranslate into significant increases in the company’s stock price.All of the other people involved in the discussion agreed.Intrigued, Terry thought it would be a good idea to investigate UAas a potential investment, so she sought advice from her friendsand relatives. One friend advised against UA as an investmentbecause she had heard from another friend that the company does notadhere to the same labor practices as companies do in the UnitedStates. Another friend advised against the investment becauseworkers have no union representation, like those who work forautomobile manufacturers in other countries. And, Terry’s uncle,who works in the U.S. State Department, said that he had heard thatUA made a huge payment, which he called a bribe, to the Chinesegovernment before the deal was signed. Her uncle thought that thepayment UA made to the government might be considered illegal inthe United States. However, Terry’s boyfriend, who happens to beChinese, thinks that she should invest her money in UA. Accordingto information provided by his family and friends in China, theagreement between UA and china represents a historic business dealthat the Chinese government intends to support fully, so there islittle risk associated with the investment. In fact, according toher boyfriend, Terry’s $48,000 could grow to $112,500 in 10 yearsif she invests it in UA. If you were Terry, what would you do?Should you invest in a company that might have questionable laborpractices or pay bribes to foreign governments?

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