Consider this income statement:

a. How does this income statement differ from the ones presented in exhibit 3.1 and problem 3.2?

b. Why does Green Valley show an income tax expense, while the other two income statements do not?

c. What is Green Valley’s total profit margin? How does this value compare with the values for Sunnyvale Clinic and BestCare?

d. 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?

Problem 3.2

Consider the following income statement:

a. How does this income statement differ from the one presented in exhibit 3.1?

Exhibit 3.1

b. What is BestCare’s total profit margin? How can it beinterpreted?

Transcribed Image Text:

Green Valley Nursing Home, Inc. Statement of Income Year Ended December 31, 2020 Revenue: Net resident services revenue Other revenue Total revenues Expenses: $3,053,258 106,146 $3,159,404 Salaries and benefits $1,515,438 Medical supplies and drugs 966,781 Insurance and other 296,357 85,000 206,780 Depreciation Interest Total expenses Operating income Income tax expense Net income $3,070,356 $ 89,048 31,167 $ 57,881