3.3 Consider this income statement:

Green Valley Nursing Home, Inc.

Statement of Income

Year Ended December 31, 2007

Revenue:

Patient service revenue $3,163,258

Less provision of bad debts (110,000)

Net patient service revenue $3,053,258

Other revenue 106,146

Net operation revenue $3,269,404

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

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 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 Valleys before-tax profit

margin. Why may this be a better measure of expense control when

comparing an investor-owned business with a not-for-profits business?

3.5 Brandywine Homecare, a not-for-profits 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.

a. Construct Brandywines 2015 income statement.

b. What were Brandywines net income, total profit margin, and cash

flow?

c. Now, suppose the company changed its depreciation calculation

procedures (still within GAAP) such that its depreciation expense

doubled. How would this change affect Brandywines net income, total profit margin, and cash flow?

d. Suppose the change had halved, rather than doubled, the firms

depreciation expense. Now, what would be the impact on net income,

total profit margin, and cash flow?