LSUS MHA 706 Financial Management Midterm
ACTUAL EXAM 2026/2027 | Healthcare
Financial Management | Verified Q&A | Pass
Guaranteed - A+ Graded
Section 1: Healthcare Financial Environment & Accounting Basics (12 questions)
Q1: A not-for-profit hospital reports $50 million in net assets without donor restrictions on its balance
sheet. This represents:
A. Total cash available for operations
B. The hospital's total debt capacity
C. The residual interest in assets after deducting liabilities, available for mission fulfillment. [CORRECT]
D. Endowment funds that cannot be spent
Correct Answer: C
Rationale: Net assets without donor restrictions represent the organization's equity—assets minus
liabilities—that can be used at the organization's discretion to support operations and mission. Unlike
for-profit equity, these assets cannot be distributed to owners.
Q2: Which accounting principle requires that expenses be matched with the revenues they helped
generate in the same period?
A. Revenue recognition principle
B. Matching principle. [CORRECT]
C. Historical cost principle
D. Full disclosure principle
Correct Answer: B
Rationale: The matching principle (expense recognition) dictates that costs be recognized in the same
period as the related revenues, ensuring accurate profitability measurement. This prevents distortion of
financial performance across accounting periods.
,Q3: A hospital receives a $1 million donation restricted for construction of a new wing. How is this
reported on the balance sheet?
A. Net assets without donor restrictions
B. Net assets with donor restrictions. [CORRECT]
C. Deferred revenue
D. Current liabilities
Correct Answer: B
Rationale: Donor-restricted contributions are classified as net assets with donor restrictions until the
restriction is satisfied (building completion) or time restriction expires. This maintains transparency
regarding available resources versus restricted funds.
Q4: Under accrual accounting, revenue is recognized when:
A. Cash is received from the payer
B. The service is provided and the revenue is earned. [CORRECT]
C. The claim is submitted to insurance
D. The patient is discharged
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when earned (service rendered) regardless of cash
receipt timing. This provides more accurate financial performance measurement than cash basis
accounting, particularly important for healthcare's complex reimbursement delays.
Q5: A for-profit health system reports net income of $12 million. An equivalent not-for-profit
organization would report:
A. Excess of revenues over expenses. [CORRECT]
B. Net profit
C. Retained earnings
D. Dividend distribution
Correct Answer: A
Rationale: Not-for-profits use "excess of revenues over expenses" rather than "net income" or "profit,"
reflecting their mission-driven purpose. These funds are reinvested in operations rather than distributed
to shareholders.
Q6: Which characteristic distinguishes for-profit healthcare organizations from not-for-profit entities?
, A. For-profits cannot access tax-exempt bond financing
B. For-profits pay taxes and may distribute profits to shareholders. [CORRECT]
C. For-profits are exempt from Medicare regulations
D. For-profits cannot provide charity care
Correct Answer: B
Rationale: The fundamental distinction is that for-profit healthcare entities pay income and property
taxes and may distribute residual earnings to owners/shareholders, while not-for-profits reinvest all
surplus in mission-related activities in exchange for tax exemption.
Q7: A hospital's cost of capital includes:
A. Only the interest rate on long-term debt
B. The weighted average cost of debt and equity financing. [CORRECT]
C. Only the return required by equity investors
D. The prime lending rate plus inflation
Correct Answer: B
Rationale: Weighted average cost of capital (WACC) combines the cost of debt (interest) and cost of
equity (required return) weighted by their proportions in the capital structure. This represents the
minimum acceptable return for capital investments.
Q8: Which financial statement reports an organization's financial position at a specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet. [CORRECT]
D. Statement of changes in net assets
Correct Answer: C
Rationale: The balance sheet (statement of financial position) presents assets, liabilities, and net assets
at a specific date, like a snapshot. Income statements cover periods, while balance sheets report
position at period-end.
Q9: Under value-based purchasing programs, hospitals are reimbursed based on:
A. Volume of services provided
B. Quality metrics and patient outcomes rather than service volume. [CORRECT]
C. Historical costs plus markup
D. Negotiated per diem rates only
ACTUAL EXAM 2026/2027 | Healthcare
Financial Management | Verified Q&A | Pass
Guaranteed - A+ Graded
Section 1: Healthcare Financial Environment & Accounting Basics (12 questions)
Q1: A not-for-profit hospital reports $50 million in net assets without donor restrictions on its balance
sheet. This represents:
A. Total cash available for operations
B. The hospital's total debt capacity
C. The residual interest in assets after deducting liabilities, available for mission fulfillment. [CORRECT]
D. Endowment funds that cannot be spent
Correct Answer: C
Rationale: Net assets without donor restrictions represent the organization's equity—assets minus
liabilities—that can be used at the organization's discretion to support operations and mission. Unlike
for-profit equity, these assets cannot be distributed to owners.
Q2: Which accounting principle requires that expenses be matched with the revenues they helped
generate in the same period?
A. Revenue recognition principle
B. Matching principle. [CORRECT]
C. Historical cost principle
D. Full disclosure principle
Correct Answer: B
Rationale: The matching principle (expense recognition) dictates that costs be recognized in the same
period as the related revenues, ensuring accurate profitability measurement. This prevents distortion of
financial performance across accounting periods.
,Q3: A hospital receives a $1 million donation restricted for construction of a new wing. How is this
reported on the balance sheet?
A. Net assets without donor restrictions
B. Net assets with donor restrictions. [CORRECT]
C. Deferred revenue
D. Current liabilities
Correct Answer: B
Rationale: Donor-restricted contributions are classified as net assets with donor restrictions until the
restriction is satisfied (building completion) or time restriction expires. This maintains transparency
regarding available resources versus restricted funds.
Q4: Under accrual accounting, revenue is recognized when:
A. Cash is received from the payer
B. The service is provided and the revenue is earned. [CORRECT]
C. The claim is submitted to insurance
D. The patient is discharged
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when earned (service rendered) regardless of cash
receipt timing. This provides more accurate financial performance measurement than cash basis
accounting, particularly important for healthcare's complex reimbursement delays.
Q5: A for-profit health system reports net income of $12 million. An equivalent not-for-profit
organization would report:
A. Excess of revenues over expenses. [CORRECT]
B. Net profit
C. Retained earnings
D. Dividend distribution
Correct Answer: A
Rationale: Not-for-profits use "excess of revenues over expenses" rather than "net income" or "profit,"
reflecting their mission-driven purpose. These funds are reinvested in operations rather than distributed
to shareholders.
Q6: Which characteristic distinguishes for-profit healthcare organizations from not-for-profit entities?
, A. For-profits cannot access tax-exempt bond financing
B. For-profits pay taxes and may distribute profits to shareholders. [CORRECT]
C. For-profits are exempt from Medicare regulations
D. For-profits cannot provide charity care
Correct Answer: B
Rationale: The fundamental distinction is that for-profit healthcare entities pay income and property
taxes and may distribute residual earnings to owners/shareholders, while not-for-profits reinvest all
surplus in mission-related activities in exchange for tax exemption.
Q7: A hospital's cost of capital includes:
A. Only the interest rate on long-term debt
B. The weighted average cost of debt and equity financing. [CORRECT]
C. Only the return required by equity investors
D. The prime lending rate plus inflation
Correct Answer: B
Rationale: Weighted average cost of capital (WACC) combines the cost of debt (interest) and cost of
equity (required return) weighted by their proportions in the capital structure. This represents the
minimum acceptable return for capital investments.
Q8: Which financial statement reports an organization's financial position at a specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet. [CORRECT]
D. Statement of changes in net assets
Correct Answer: C
Rationale: The balance sheet (statement of financial position) presents assets, liabilities, and net assets
at a specific date, like a snapshot. Income statements cover periods, while balance sheets report
position at period-end.
Q9: Under value-based purchasing programs, hospitals are reimbursed based on:
A. Volume of services provided
B. Quality metrics and patient outcomes rather than service volume. [CORRECT]
C. Historical costs plus markup
D. Negotiated per diem rates only
