11.3 Consider this income statement:

Green Valley Nursing Home Inc.Statement of IncomeYear Ended December 31, 2012

Revenue:

Resident services revenue $3,163,258

Other revenue 106,146

Total revenues $3,269,404

Expenses:

Salaries and benefits $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 presentedin Exhibit11.1 and Problem11.2?

b.Why does Green Valley show a provision for income taxes while the other two income statements do not?

c.What is Green Valleys total (profit) margin? How does this value compare with the values for Park Ridge Homecare Clinic and BestCare HMO?

EXHIBIT 11.1

Park Ridge Homecare Statement of Operations for Year Ended December 31, 2012 and 2011 (in thousands)

Revenues: 2012 2011

Patient service revenue $ 4,042 $ 2,687

Provision for bad debts 46 21

Net patient service revenue $ 3,996 $ 2,666

Other operating revenue 27 32

Total revenues $ 4,023 $ 2,698

Expenses:

Salaries and benefits $ 2,714 $ 1,835

Supplies and drugs 1,042 675

Insurance 90 83

Depreciation 21 15

Interest 16 19

Total expenses $ 3,883 $ 2,627

Operating income $ 140 $ 71

Nonoperating income:

Contributions $ 10 $ 22

Investment income 13 6

Total nonoperating income $ 23 $ 28

Net income (excess of revenues over expenses) $ 163 $ 99

.Problem 11.2

11.2 Consider the following income statement:BestCare HMOStatement of OperationsYear Ended June 30, 2012(in thousands)

Revenue:

Premiums earned $26,682

Coinsurance 1,689

Interest and other income 242

Total revenues $ 28,613

Expenses:

Salaries and benefits $ 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 Exhibit 11.1?

b. Did BestCare spend $367,000 on new fixed assets during fiscal year 2012? If not, what is the economic rationale behind its reported depreciation expense?

c. Explain the provision for bad debts entry.

d. What is BestCares total margin? How can it be interpreted?