Consider this income statement:

Green Valley Nursing Home, Inc.

Statement of Income

Year Ended December 31,2011

Revenue:

Net patient service 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 presented in Exhibit 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'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 in come divided by total revenues. Calculate Green Valley's before tax profit margin. Why may this be a better measure of expense control when comparing an investor-owned business with a not for-profit business?

Exhibit 3.1

Entries for the Warren Clinic 2011 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 benefits 150,000

Total revenues 490,000

Total expenses 460,000

Exhibit 3.2

Consider the following income statement:

BestCare HMO Statement

of Operations Year Ended

June 30, 2011

(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

Provism for bad debts 19

Depreciation 367

Interest 385

Total expenses $27,395

Net income $1,218