[mjbey1s]

Hi everyone, below is a question that I found word for word the same in both Becker and Ninja. Both of them give different answers. Can someone please view the below and let me know which answer is right? Becker says that the “Provision for bad debts” should not be subtracted.

Hospital, Inc., a not-for-profit organization with no governmental affiliation, reported the following in its accounts for the current year ended December 31:

Gross Patient service revenue (note this figure includes charity care of $25,000) : $775,000
Provision for bad debts: $ 15,000
Difference b/t established billing rates and fees negotiated with 3rd party payers: $ 70,000

Becker Solution: 775,000-25,000-70,000 = $680,000 of net patient service revenue
Ninja Solution: 775,000-25,000-15,000-70,000 = $665,000 of net patient service revenue.

As you can see, the difference is that ninja is saying that the provision for bad debts should be subtracted. The Becker solution specifically states that “bad debt expense is recognized as an expense, not a contract revenue, and should not be subtracted.

@Jeff, can you please weigh in on this? It would be greatly appreciated. I want to make sure that I understand what the correct answer is and why.

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[Mike J]

My feeling is NINJA is incorrect.

If memory serves, this is because NON GOVT hospitals accrue bad debt expense separately. GOVT hospitals are the hospitals that net bad debt expense and hospital revenue.

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[mjbey1s]

@Mike030882, I'm not sure I understand your response. In the question, it says that there is “no government affiliation”. And ninja still is the one that subtracted bad debt to get to net patient service revenue. Can you expand a bit on what you mean? From what i see, this is not a GOVT hospital.

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“There is only one thing that makes a dream impossible to achieve: the fear of failure.”

― Paulo Coelho,

Ethics - 96

[Mike J]

Becker was the one that is correct, I believe. I made a clear distinction, I thought, between the two.

I added GOVT hospital in my explanation because that is when you net the bad debt expense (NINJA's solution) with the patient revenue.

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[Mscfisher]

Oh boy….this just adds to my confusion.

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[mjbey1s]

@Mscfisher,

I contacted Becker, and a CPA from their support team explained to me how theirs is right. It is correct that the the bad debt should not have been subtracted. Bad debt is only subtracted from patient service revenue when it is probable that it will be uncollectible. There is nothing in the questions that gives that indication.

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“There is only one thing that makes a dream impossible to achieve: the fear of failure.”

― Paulo Coelho,

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[jeff]

This may help – read page 6:

https://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176158037540

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Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[mjbey1s]

Thanks Jeff! So really it looks like it could go either way? Would you agree?

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BEC - 82
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REG - 83

“There is only one thing that makes a dream impossible to achieve: the fear of failure.”

― Paulo Coelho,

Ethics - 96

[jeff]

I believe the standard says that NINJA is correct. I don't think the MCQs on the test will go “either way” 🙂

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Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[Stilgoin]

So we do subtract it out. My question is- is it the same for GASB and FASB?

Stilgoin, CPA

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