3.1
Revenue:
Patient Service $440,000
Other revenue $10,000
Total revenue $490,000

Expenses:
General/administrative expense $70,000
Bad debt expense $40,000
Depreciation expense $90,000
Purchased clinic services $90,000
Interest expense $20,000
Salaries and benefits $150,000
Total expense $460,000

Interest income $40,000

Net income $30,000

3.2
a. The majority of revenue in 3.1 is earned through patient services and the majority revenue in this problem is earned through premiums. Also, 3.1 shows income for 2010 and 2011 while this problem only shows income for 2011.

b. No. The reported depreciation expense reflects the wear and tear on a business’s fixed assets over a certain period of time. When fixed assets are first produced they are not reported as an expense due to the cost matching principle.

c. Facilities realize that some payments for patient services that are owed will never be collected and is reported as bad debt loss.

d. Bestcare’s total profit margin is 4.25%. Each dollar of revenue and income generated by Bestcare produced 4.25 cents of income/profit. The total margin is a measure of expense control. Increased income leads to increased margin, which ultimately leads to decreased expenses.

3.3
a. This income statement is different from the ones presented in exhibits 3.1 and problem
3.2 in that it has a provision for income taxes.
b. Green Valley shows a provision for income tax while the other two does not because it is a for profit company.

c. Green Valley’s total profit margin is measured at 1.77%. This value is much lower than the values for Sunnyvale Clinic and Bestcare.

d. Green Valley’s before-tax profit margin is 2.72%. Before tax margin shows a more accurate measure of expense in for profit companies because a tax bill will influence a company’s profit