The topic of atomic spectra is part of university and secondary school curricula around the world. Relatively little research, however, has been done on the learning and teaching of this subject, despite the fact that it forms a foundation for advanced study in quantum mechanics, astronomy, and astrophysics. A systematic investigation into student understanding of the formation and structure of atomic spectra was conducted among more than 1000 science majors in physics courses at the University of Zagreb, Croatia and the University of Washington, USA. The research had two primary goals: (i) to probe the extent to which university students are able to relate the wavelength of spectral lines to the transition of electrons between energy levels in an atom, and (ii) to probe the extent to which students recognize the conditions under which discrete line spectra are (and are not) formed. This paper focuses on the latter aspect, in particular, student understanding of the experimental setup that is commonly used to illustrate the formation of discrete line spectra. Students were asked about how changes to a setup consisting of a light source, a mask with a slit, a prism (or diffraction grating), and a screen affect the spectra observed. The findings suggest that relatively few students recognize that the type of light source is critical for the formation of line spectra. Instead students often attribute the formation of line spectra to the slit, the prism (or diffraction grating), or even to the distance between the prism and screen.