America Service Group

America Service Group

America Service Group Inc. (ASG) contracts to provide and/or administer managed healthcare services to over 140 correctional facilities throughout the United States. The partial statement of operations for the years ending December 31, 2010, 2009, and 2008 is shown below:

Statement of Operations (partial)201020092008
Health-care revenues$ 630,303$ 579,474$ 460,457
Health-care expenses575,628533,928423,075
Gross margin54,67545,54637,382

Required:

Go online and find ASG”s10-Kfor the period ending 12/31/2011 (it was filed on 03/03/2011). Read footnote 2 on the summary of significant accounting policies.

  1. Which GAAP does ASG follow?
  2. Revenues fall into three categories of contracts. What are these categories (define each); which category is growing (as a percentage of total revenues)?
  3. List the expenses that are included in the health-care expense category on the income statement.
  4. Which category of contracts would an investor prefer to see grow to help mitigate the risk of cost increases? Dose the gross margin earned on each contract vary depending on how this risk is included?

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