Question;3.2 Consider the following income statement:BestCare HMOStatement of OperationsYear Ended June 30, 2011(in thousands)Revenue:Premiums earned $26,682Coinsurance 1,689Interest and other income 242Total revenues $28,613Expenses:Salaries and benefits $15,154Medical supplies and drugs 7,507Insurance 3,963Provision for bad debts 19Depreciation 367Interest 385Total expenses $27,395Net income $ 1,218a. How does this income statement differ from the one presented in Exhibit 3.1?b. Did BestCare spend $367,000 on new fixed assets during fiscal year2011? 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 profit margin? How can it be interpreted?3.3 Consider this income statement:Green Valley Nursing Home, Inc.Statement of IncomeYear Ended December 31, 2011Revenue:Net patient service revenue $ 3,163,258Other revenue 106,146Total revenues $ 3,269,404Expenses:Salaries and benefits $ 1,515,438Medical supplies and drugs 966,781Insurance and other 296,357Provision for bad debts 110,000Depreciation 85,000Interest 206,780Total expenses $ 3,180,356Operating income $ 89,048Provision for income taxes 31,167Net income $ 57,881a. 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 incomestatements did not?c. What is Green Valleys total profit margin? How does this value com-pare with the values forSunnyvale Clinic and BestCare?d. The before-tax profit margin for Green Valley is operating in-come divided by total revenues.Calculate Green Valleys before-tax profit margin. Why may this be a better measure of expensecontrol when comparing an investor-owned business with a not-for-profit business?3.5 Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2011.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 thandepreciation were paid in cash.a. Construct Brandywines 2011 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 withinGAAP) such that its depreciation expense doubled. How would this change affect Brandywinesnet income, total profit margin, and cash flow?d. Suppose the change had halved, rather than doubled, the firms de-preciation expense. Now,what would be the impact on net income, total profit margin, and cash flow?3.6 Assume that Mainline Homecare, a for-profit corporation, had exactly the same situation asreported in Problem 3.5. However, Mainline must pay taxes at a rate of 40 percent of pretax(operating) income. Assuming that the same revenues and expenses reported for financialaccounting pur-poses would be reported for tax purposes redo Problem 3.5 for Mainline.4.7 Refer to the transactions pertaining to Bayshore Radiology Center pre-sented in this chapter.Restate the impact of the transactions on Bay-shores balance sheet using these data:Cash $ 800,000 Common stock $1,000,000Gross fixed assets 200,000Total assets $1,000,000 Total claims $1,000,000a. Transaction 2: The $200,000 equipment purchase is made with long-term borrowings insteadof cash.Cash $ 800,000 Accounts payable $ 20,000Supplies 20,000 Common stock 1,000,000Gross fixed assets 200,000b. Transaction 3: The $20,000 in supplies are purchased with cash in-stead of on trade credit.Cash $ 800,000 Accounts payable $ 20,000Accounts receivable 50,000 Common stock 1,000,000Supplies 20,000 Retained earnings 50,000Gross fixed assets 200,000Total assets $1,070,000 Total claims $1,070,000c. Transaction 4: The $50,000 in services provided are immediately paid for by patients insteadof billed to third-party payers.
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