11.3 Consider this income statement Green Valley Nursing Home Inc. Statement of Income, Year Ended December 31, 2016 Revenue Resident services revenue $ 3,163,258 Provision for bad debts (110,000) Other revenue 106,146 Total revenues $ 3,159,404 Expenses Salaries and benefits $ 1,515,438 Medical supplies and drugs 966,781 Insurance and other 296,357 Depreciation 85,000 Interest 206,780 Total expenses $3,070,356 Operating income $ 89,048 Income tax expense 31,167 Net income $ 57,881 How does this income statement differ from the ones presented in exhibits 11.1 and 11.2 and problem 11.2? Why does Green Valley show an income tax expense? What is Green Valley’s total profit margin? How does this value compare with the values for Park Ridge Homecare and BestCare Health Insurer? The before-tax profit margin for Green Valley is operating income divided by total revenues. Calculate Green Valley’s before-tax profit margin. Why might this be a better measure of expense control when comparing an investor-owned business with a not-for-profit business? Exhibit 11.1 Depreciation expense $ 90,000 General/administrative expenses 70,000 Interest expense 20,000 Net income 30,000 Nonoperating income 40,000 Other operating revenue 10,000 Patient service revenue 440,000 Provision for bad debts 40,000 Purchased clinic services 90,000 Salaries and benefits 150,000 Exhibit 11.2 Revenue: Healthcare premiums $26,682 $26,682 Fees and other revenue 1,689 1,689 Net investment income 242 242 Total revenues $28,613 Benefits and expenses: Healthcare costs $15,154 Operating expenses: Selling expenses 3,963 General & administrative expenses 7,893 Interest expense 385 Total benefits and expenses $27,395 Net income $1,218 Problem 11.2 Compare and contrast this income statement with the ones presented in exhibits 11.1 and 11.2. What is BestCare’s total margin? How can it be interpreted?

11.3 Consider this income statement Green Valley Nursing Home Inc. Statement of Income, Year Ended December 31, 2016 Revenue Resident services revenue $ 3,163,258 Provision for bad debts (110,000) Other revenue 106,146 Total revenues $ 3,159,404 Expenses Salaries and benefits $ 1,515,438 Medical supplies and drugs 966,781 Insurance and other 296,357 Depreciation 85,000 Interest 206,780 Total expenses $3,070,356 Operating income $ 89,048 Income tax expense 31,167 Net income $ 57,881 How does this income statement differ from the ones presented in exhibits 11.1 and 11.2 and problem 11.2? Why does Green Valley show an income tax expense? What is Green Valley’s total profit margin? How does this value compare with the values for Park Ridge Homecare and BestCare Health Insurer? The before-tax profit margin for Green Valley is operating income divided by total revenues. Calculate Green Valley’s before-tax profit margin. Why might this be a better measure of expense control when comparing an investor-owned business with a not-for-profit business? Exhibit 11.1 Depreciation expense $ 90,000 General/administrative expenses 70,000 Interest expense 20,000 Net income 30,000 Nonoperating income 40,000 Other operating revenue 10,000 Patient service revenue 440,000 Provision for bad debts 40,000 Purchased clinic services 90,000 Salaries and benefits 150,000 Exhibit 11.2 Revenue: Healthcare premiums $26,682 $26,682 Fees and other revenue 1,689 1,689 Net investment income 242 242 Total revenues $28,613 Benefits and expenses: Healthcare costs $15,154 Operating expenses: Selling expenses 3,963 General & administrative expenses 7,893 Interest expense 385 Total benefits and expenses $27,395 Net income $1,218 Problem 11.2 Compare and contrast this income statement with the ones presented in exhibits 11.1 and 11.2. What is BestCare’s total margin? How can it be interpreted?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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11.3 Consider this income statement

Green Valley Nursing Home Inc. Statement

of Income, Year Ended December 31, 2016

Revenue
Resident services revenue	$ 3,163,258
Provision for bad debts	(110,000)
Other revenue	106,146
Total revenues	$ 3,159,404
Expenses
Salaries and benefits	$ 1,515,438
Medical supplies and drugs	966,781
Insurance and other	296,357
Depreciation	85,000
Interest	206,780
Total expenses	$3,070,356
Operating income	$ 89,048
Income tax expense	31,167
Net income	$ 57,881

How does this income statement differ from the ones presented in exhibits 11.1 and 11.2 and problem 11.2?
Why does Green Valley show an income tax expense?
What is Green Valley’s total profit margin? How does this value compare with the values for Park Ridge Homecare and BestCare Health Insurer?
The before-tax profit margin for Green Valley is operating income divided by total revenues. Calculate Green Valley’s before-tax profit margin. Why might this be a better measure of expense control when comparing an investor-owned business with a not-for-profit business?

Exhibit 11.1

Depreciation expense	$ 90,000
General/administrative expenses	70,000
Interest expense	20,000
Net income	30,000
Nonoperating income	40,000
Other operating revenue	10,000
Patient service revenue	440,000
Provision for bad debts	40,000
Purchased clinic services	90,000
Salaries and benefits	150,000

Exhibit 11.2

Revenue:
Healthcare premiums $26,682	$26,682
Fees and other revenue 1,689	1,689
Net investment income 242	242
Total revenues	$28,613
Benefits and expenses:
Healthcare costs	$15,154
Operating expenses:
Selling expenses	3,963
General & administrative expenses	7,893
Interest expense	385
Total benefits and expenses	$27,395
Net income	$1,218

Problem 11.2

Compare and contrast this income statement with the ones presented in exhibits 11.1 and 11.2.
What is BestCare’s total margin? How can it be interpreted?

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