Beruflich Dokumente
Kultur Dokumente
1:
Entries for the Warren Clinic 2008 income statement are listed below in
alphabetical order. Reorder the data in the proper format.
Particulars Amount
REVENUE:
Patient service revenue $440,000
Bad debt expense - ($40,000)
Net Revenue: $400,000
Other revenue: $10,000
Total revenues: $410,000
EXPENSES:
Salaries and benefits: $150,000
Depreciation expense: $90,000
Interest expense $20,000
General/administrative expenses: $70,000
Purchased clinic services: $90,000
Total expenses: $460,000
The operating loss at Warren Clinic in 2008 is $10,000 because total net
income is $30,000 and we know that interest income is $40,000 so we can
calculate the operating loss to be the difference which is $10,000.
11.3:
a. How does this income statement differ from the ones presented
in Table 11.1 and Problem 11.2?
The main difference between the income statement of GreenValley
Nursing Home from the income statements at BestCare and Warren Clinic is
that this nursing home has operating (taxable) income as well as provision
for income taxes entries while the other income statements didnt contain
these entries. The fact that this nursing home has both operating income and
provision for income taxes indicates that this is an investor owned company
because there are tax payments on this sheet. The implied tax rate for Green
valley would be 35% calculated by: (($31,167/$89,048)x100)).
b. Why does Green Valley show a provision for income taxes while
the other two income statements did not?
This is because Green Valley is an investor-owned firms and as a result
will have taxable income.
c. What is Green valleys total (profit) margin? How does this value
compare with the values for Park Ridge Homecare Clinic and
BestCare?
Green Valleys total profit margin is 1.8%. This was calculated by
dividing the net income ($57,881) by the total revenues ($3,269,404) and
multiplying by 100 to get the percentage. This total profit margin is a lot
lower than the profit margins of Warren Clinic (6.67%) and Best Care
(4.26%). This may be because this is a for-profit, investor-owned company
and because there are taxes, it can have a lower profit margin than not-for-
profit businesses if other variables are kept constant.
11.4: Great Forks Hospital reported net income for 2008 of $2.4 million on
total revenues of $30 million. Depreciation expense totaled $1 million.
a. What were total expenses for 2008?
The total expenses for 2008 will be the total revenue of $30 million
minus the net income of $2.4 million which results in $27.6 million as the
total expenses.
b. What were total cash expenses for 2008? (Hint: Assume that all
expenses, except depreciation, were cash expenses.)
Since depreciation was $1 million, total cash expenses will be adjusted
to be $26.6 million (Answer form part a with $1 million subtracted).
b. What were Brandywines net income, total profit margin, and cash flow?
Net Income: $1,500,000 ($12,000,000 - $10,500,000)
Total profit margin: 12.5 %
TPM = Net Income / Revenues
X = $1,500,000 / $12,000,000 = 12.5%
Cash Flow: $3,000,000
Cash Flow = $1,500,000 + $1,500,000 = $3,000,000
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?
The new depreciation expense would be $3 million instead of $1.5
million so calculations would be changed:
Net Income: $0 ($12,000,000 - $12,000,000)
Total profit margin: 0%
TPM = Net Income / Revenues
X = 0 / $12,000,000 = 0%
Cash Flow: $3,000,000
Cash Flow = $0 + $3,00,000 = $3,000,000
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?
The new depreciation expense would be $.75 million or $750,000 so
the calculations would come out to as follows:
Net Income: $2.25 million ($12 - $9 - $.75)
Total profit margin: 18.8% (($2.25/$12)x100)
Cash Flow: $3,000,000 ($2.25 million + .75 million)
For all three examples, depreciation did not affect cash flow.
b)
Net income = $12,000,000 - $9,000,000 - $1,500,000 = $10,500,000
$12,000,000 - $10,500,00 = $1,500,000 -> Operating income
$1,500,000 x .4 = $600,000 -> Taxes
$1,500,000 - $600,000 = $900,000
Total profit margin: 7.5% -> net income / total revenues = $900,000 /
$12,000,000 = .075 x100 = 7.5%
Cash flow: $2.4 million -> net income / depreciation expenses =
$900,000 / $1,500,000 = $2,400,000