How does this income statement differ from the one presented in? What is BestCare%u2019s total pro%uFB01t margin? How can it be interpreted?
How does this income statement differ from the one presented in? What is BestCare%u2019s total pro%uFB01t margin? How can it be interpreted?
Table 3.1?
Answer problems 3.2, 3.3, 3.5, 3.6
Problems
3.1 Entries for the Warren Clinic 2007 income statement are listed below in
alphabetical order. Reorder the data in proper format.
Bad debt expense $ 40,000
Depreciation expense 90,000
General/administrative expenses 70,000
Interest expense 20,000
Interest income 40,000
Net income 30,000
Other revenue 10,000
Patient service revenue 440,000
Purchased clinic services 90,000
Salaries and bene%uFB01ts 150,000
Total revenues 490,000
Total expenses 460,000
3.2 Consider the following income statement:
BestCare HMO
Statement of Operations
Year Ended June 30, 2007
(in thousands)
Revenue:
Premiums earned $26,682
Coinsurance 1,689
Interest and other income 242
Total revenues $28,613
Expenses:
Salaries and bene%uFB01ts $15,154
Medical supplies and drugs 7,507
Insurance 3,963
Provision for bad debts 19
Depreciation 367
Interest 385
Total expenses $27,395
Net income $ 1,218
a. How does this income statement differ from the one presented in
Table 3.1?
b. Did BestCare spend $367,000 on new %uFB01xed assets during %uFB01scal year
2007? If not, what is the economic rationale behind its reported
c. Explain the provision for bad debts entry.
d. What is BestCare%u2019s total pro%uFB01t margin? How can it be interpreted?
3.3 Consider this income statement:
Green Valley Nursing Home, Inc.
Statement of Income
Year Ended December 31, 2007
Revenue:
Net patient service revenue $3,163,258
Other revenue 106,146
Total revenues $3,269,404
Expenses:
Salaries and bene%uFB01ts $1,515,438
Medical supplies and drugs 966,781
Insurance and other 296,357
Provision for bad debts 110,000
Depreciation 85,000
Interest 206,780
Total expenses $3,180,356
Operating income $ 89,048
Provision for income taxes 31,167
Net income $ 57,881
a. How does this income statement differ from the ones presented in
Table 3.1 and Problem 3.2?
b. Why does Green Valley show a provision for income taxes while the
other two income statements did not?
c. What is Green Valley%u2019s total pro%uFB01t margin? How does this value
compare with the values for Sunnyvale Clinic and BestCare?
d. The before-tax pro%uFB01t margin for Green Valley is operating income
divided by total revenues. Calculate Green Valley%u2019s before-tax pro%uFB01t
margin. Why may this be a better measure of expense control when
comparing an investor-owned business with a not-for-pro%uFB01t business?
3.5 Brandywine Homecare, a not-for-pro%uFB01t business, had revenues of $12
million in 2007. Expenses other than depreciation totaled 75 percent of
revenues, and depreciation expense was $1.5 million. All revenues were
collected in cash during the year and all expenses other than depreciation
were paid in cash.
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