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
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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

  1. How does this income statement differ from the ones presented in exhibits 11.1 and 11.2 and problem 11.2?
  2. Why does Green Valley show an income tax expense?
  3. What is Green Valley’s total profit margin? How does this value compare with the values for Park Ridge Homecare and BestCare Health Insurer?
  4. 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

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