Chapter 05 1 The State Department of Education offers demonstration grants that Charter Schools

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SOLUTIONS

UNIVERSITY AT ALBANY

Rockefeller College of Public Affairs and Policy

PAD-501: Financial Management

Final Examination

Spring 2011

Name: ________________________________________________

As a courtesy to your classmates, turn off all cell phones.

INSTRUCTIONS

1. PRINT your name clearly on the first page of this exam and put your

initials at the top of each page.

2. You may use a calculator and one page of notes. All other books and

3. You have the full three-hour period to complete the exam. That should be more

4. If you get stuck on any one question, move on, and come back to it later if

5. International students may refer to a dictionary.

6. If something is not clear, ask for clarification.

7. You may separate the pages of the exam but it is your responsibility to re-staple

the pages before turning in the exam. You will be held responsible for any missing pages.

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Part I: Financial Statement Analysis (45 points)

Questions 1 to 13 refer to the audited 2010 financial statements of Fulmont

Community Action Agency, Inc. (FCAA).

1. (2 point) What is the basis of the audit for FCAA? Where did you find the

information?

2. (2 point) What types of investments does FCAA classify as cash equivalents?

Where did you find the information?

3. (2 point) What method of depreciation does FCAA use? Where did you find the

information?

4. (1 point) Is FCAA’s audit opinion unqualified or qualified?

5. (4 points) Did total expenses grow faster or slower than total revenues between

fiscal years 2009 and 2010. Support your answer with the appropriate numbers from

the statements. Where did you find the information?

6. (4 points) What were the two largest contributors to the growth in operating

expenses (in dollars) by natural account between fiscal years 2009 and 2010? Support

your answer with the appropriate numbers from the statements. Where did you find

the information?

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7. (2 points) What was the impact of “contributions and in–kind support” on FCAA’s

profitability in fiscal year 2010? Support your answer with the appropriate numbers

from the statements. Where did you find the information?

8. (6 points) What were FCAA’s current ratios in fiscal years 2009 and 2010? Are

the current ratios above or below the rule of thumb? Is the trend favorable or

unfavorable? Support your answer with the appropriate numbers from the statements.

Where did you find the information?

9. (7 points) How many days of cash did FCAA have on hand at the end of fiscal

years 2009 and 20010? Is the trend favorable or unfavorable? Support your answer

with the appropriate numbers from the statements. Where did you find the

information?

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10. (2 point) What was the value at cost of FCAA’s additions or deletions to

leasehold improvements and equipment in fiscal years 2009 and 2010? Did the value

of equipment at cost increase or decrease? Support your answer with the appropriate

numbers from the statements. Where did you find the information?

11. (5 points) What were FCAA’s gross profit margins in fiscal years 2009 and 2010?

Is the trend favorable or unfavorable? Support your answer with the appropriate

numbers from the statements. Where did you find the information?

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12. (5 points) What were FCAA’s program expense ratios in fiscal years 2009 and

2010? Is the trend favorable or unfavorable? Support your answer with the

appropriate numbers from the statements. Where did you find the information?

13. (3 points) What were FCAA’s deferred revenue balances as of the end of fiscal

years 2009 and 2010? What do these amounts represent? Support your answer with

the appropriate numbers from the statements. Where did you find the information?

Part II (23 points)

The following questions do not relate to the Fulmont Community Action

Agency, Inc. (FCAA) financial statements.

1. (2 points) The State Department of Education offers demonstration grants that

Charter Schools can use to develop curriculum. Each grant is for $100,000. Grants are

paid to school districts as follows: 80% at the start of the academic year and 20%

upon completion of a performance report. The New Academy of Sciences (NAS)

which, an independent, non-profit organization received one of the grants. NAS

expects to complete the performance report by the middle of its next fiscal year. How

would NAS record the State grant revenue on September 30, the last day of their

current fiscal year?

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2. (8 points) During the fiscal year the New Academy of Sciences (NAS) bought and

used cases of cleaning fluids as shown in the table below. What would NAS’s

inventory expense and inventory value be on September 30, the last day of its fiscal

year?

a. Using LIFO

b. Using FIFO

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3. (3 points) Food for Folks (FFF), a nonprofit organization, issued a $5,000,000

bond on February 15, 2011. The bond matures on February 15, 2031 and has a

coupon rate of 5%. Interest payments are due on February 15th and August 15th of

each year. FFF’s current 2011-12 fiscal year ends on July, 31, 2012. Answer the

questions below about NAS’s bond. Be sure to show all calculations.

a. How much would FFF recognize as an interest expense at the end of its

fiscal year?

b. On February 15, the day they took out the loan, how much of the

$5,000,000 bond would FFF recognize as a current liability?

c. On February 15, the day they took out the loan, how much of the

$5,000,000 bond would FFF recognize as a long-term liability?

4. (1 point) What is the fundamental accounting equation for a balance sheet?

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6. (3 points) County Government would recognize expenditures when __________

________________________________________________________________

_____________________________________. (choose from the selections below)

7. (4 points) On April 1 of the fiscal year, New County Government’s (NCG)

General Fund transferred $1,250,000 out of a required $1,500,000 to its Debt Service

Fund. That transaction was recorded on the date it occurred. (You do not have to

record this transaction.) On May 1, NCG transferred an additional $125,000 (also part

of the required $1,500,000) to the debt service fund. How would the $125,000

transfer be recorded in each of the two affected funds?

Part III: Creating Financial Statements (32 points)

The Starving Artists Center (SAC) began operations on January 1st 2011, the first day of

its fiscal year, with the assets, liability and net asset balances shown in the table

following part B of this question.

A. Record the nine transactions below. Be sure to identify the accounts impacted by

each transaction and show that the transactions are balanced. You must write out

each transaction in the space provided. If you just enter them on the worksheet,

you will lose 1/2 credit.

1) (1 point) On January 4, SAC ordered $10,000 of art supplies

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2) (1 point) On January 12, 2011 SAC received the art supplies ordered at

the beginning of the year. 50% was paid in cash.

3) (2 points) Employees at SAC earned a total of $100,000 during the 2011

fiscal year and SAC paid $120,000 to its workers

4) (3 points) During the 2011 fiscal year, SAC received $100,000 in cash

donations and $50,000 in pledges. Historically, 10% of SAC’s pledges have

been uncollectible

5) (2 points) On December 12, 2011 SAC made a payment of $50,000

related to its long term debt. $2,000 of this payment was interest.

6) (1 point) From January 1 to December 31, 2011 SAC used $18,000 of

art supplies

7) (1 point) On December 31, 2011 SAC wrote off $2,500 of pledges that

had not been collected within the past two years

8) (2 points) One January 30, 2011, SAC purchased a new reprographic

machine for $5,000. During the fiscal year, SAC’s plant property and

equipment depreciated $20,000.

9) (3 points) On December 31 2011, SAC purchased a two-year insurance

policy and paid cash. That policy replaced SAC’s prior 2-year policy which

was purchased for $2,000 and will expire on December 31, 2011.

Transactions

B. Record the beginning balances shown below on the worksheet provided with the

exam and transcribe transactions 1 through 9 to the worksheet.

Beginning Balances

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Account Beginning Balance

Cash $150,000

Pledges Receivable $10,000

Allowance for Uncollectible Pledges $7,500

Supplies $15,000

PP&E $250,000

Prepaid Insurance $1,000

Accumulated Depreciation $80,000

Wages Payable $40,000

LT Debt $150,000

Net Assets $148,500

Using the data on the worksheet: