Question

St. Mary's Medical Center performed charity care at a cost (supplies etc.) of $21,000. The standard charge to patients for these services is $63,000. How much should the hospital recognize as revenue?

A. No revenue should be recognized.
B. $42,000.
C. $21,000.
D. $63,000.

Answer 1

The correct answer is A. No revenue should be recognized.

Step-by-step explanation:

In the context of accounting for charity care, hospitals must adhere to specific accounting and revenue recognition principles. According to standard accounting practices, no revenue should be recognized for services provided as charity care. This is because these services are given without the expectation of receiving payment. If St. Mary's Medical Center provided services that cost them $21,000 in supplies, but these services were offered as charity, they do not have the ability to bill patients or receive payment for these services.

Therefore, the hospital should report $0 in revenue from this charity care. The standard charge of $63,000 is irrelevant to revenue recognition because it does not represent an actual transaction or cash flow. The cost of charity care is an expense and does not generate revenue for the hospital.