Question

A hospital arranges with a third-party payer to charge the third party 85 percent of its established billing rates. During January, the hospital provided services amounting to $2.0 million at the established billing rates. Prepare journal entries to record the January billings.

Answer 1

The journal entries to record the January billings of the hospital are as follows:

Debit Accounts Receivable $1,700,000

Debit Finance Charge $300,000

Credit Service Revenue $2,000,000

• To record the services provided.

Data Analysis:

Accounts Receivable $1,700,000 ($2,000,000 x 85%) Finance Charge $300,000 Service Revenue $2,000,000

Thus, the hospital will split the billing for January into two: the amount it will receive and the finance charge for using the third-party payer.

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