Chapter 06 1 You have the full three-hour period to complete the exam

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SOLUTIONS

UNIVERSITY AT ALBANY

Rockefeller College of Public Affairs and Policy

PAD-501: Financial Management

Final Examination

Fall 2011

Name: ________________________________________________

Section: Tuesday Wednesday

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

2. Circle your section of the class.

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

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

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

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 (46 points)

Questions 1 to 12 refer to the audited 2010 financial statements of St

Catherine’s Center for Children (SCC).

Subtract ¼ point for math errors.

1. (1 point) Is SCC’s audit opinion unqualified or qualified? Where did you find the

information?

2. (1 point) What method of depreciation does SCC use? Where did you find the

information?

3. (3 point) What percentage of SCC’s Land, Buildings and Equipment has been

depreciated? Where did you find the information?

4. (5 points) How much does SCC owe to its bank under its operating line of credit

agreement? How much did that amount increase or decrease in dollars from fiscal

years 2009 to 2010 and from fiscal years 2008 to 2009? Where did you find that

information?

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5. (6 points) How much does SCC owe on its long-term debt at the end of fiscal

years 2009 and 2010? How much of SCC’s long-term debt was repaid in fiscal

years 2009 and 2010? How much will they have to pay in fiscal year 2011?

Where did you find that information?

6. (3 points) What was the percentage increase or decrease in cash flow from

operations between fiscal years 2009 and 2010? Where did you find the

information? Solution

7. (3 points) How much did SCC’s overall cash flow increase or decrease between

fiscal years 2009 and 2010? What was the primary reason for that change in

SCC’s cash balance? Support your answers with the appropriate numbers from

the statements. Where did you find the information?

Solution

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8. (6 points) What were SCC’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 and to state what you included as current assets and liabilities. Where

did you find the information? Current ratio = current assets / current liabilities

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9. (7 points) How many days of cash did SCC 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?

Days of cash on Hand = (cash + marketable securities) / (total expenses –

depreciation)/365

10. (3 point) What was the value at cost of SCC’s additions or deletions of 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?

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11. (5 points) What were SCC’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?

Gross profit margin = change in unrestricted net assets / total unrestricted revenue

12. (3 points) What was SCC’s program expense ratio in fiscal year 2010? Were you

able to calculate the program expense ratio for 2009? If not, why not? Support

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

find the information?

Program expense ratio = total program expenses / total expenses

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Part II (22 points)

The following questions do not relate to St Catherine’s Center for Children’s

financial statements.

Subtract ¼ point for math errors.

1. 1 point. What is the fundamental accounting equation for a nonprofit

organization?

2. 1 point. How do the rules for Modified Accrual Accounting “modify” the

fundamental accounting equation?

3. (2 points) The Federal Department of Education offers demonstration grants that

County Education Departments can use to develop teacher evaluation criteria.

Each three-year grant is for $120,000. Grants are paid to education departments as

follows: 30% in each year of the grant and 10% upon completion of a

performance report at the end of the third year of the grant. The Albany County

Department of Education (ACDE), an element of the central county government,

received one of the grants. ACDE expects to complete the performance report by

the middle of its next fiscal year. How would ACDE record the State grant

revenue for the first year of the grant on September 30, 2012, the first day of their

current fiscal year?

Solution

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4. (2 points) Albany County issued total tax bills for $2,000,000. They expect to

collect 80% of this amount within the end of the fiscal year or early in the next

fiscal year. How should Albany County record the transaction?

6. (1 point) The Albany County government would recognize expenses on its

government-wide financial statements when. (choose from the selections below)

7. (8 points) The Animal Rescue Foundation (ARF) supports animal adoptions for

abandoned pets. Each person that adopts a pet receives a complementary animal

bed from ARF. On July 1, 2010, they had had 100 beds valued at $5,000 total. In

September, they purchased 200 beds at $60 each. In December, they purchased

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50 beds at $65 each. In February, 2012, they purchased 70 beds at $70 each. In

May 2011, they purchased 25 beds at $72 each. At the end of the fiscal year

(June 30, 2011) they had 40 beds in inventory.

a. 6 points. Use FIFO to determine the expense for animal beds for the fiscal

year ending June 2011 for ARF.

b. (2 points) What is the value of the year-end inventory?

8. (2 points) Plant, property and equipment owned by nonprofit organizations are

9. (3 points) The Albany YMCA (The Y), a nonprofit organization, issued into a

twenty-year serial bond on January 1, the first day of the fiscal year. The par

value of the bond was $10,000,000, will be repaid at the bond’s maturity date.

The coupon rate on the bond was 6%. The loan calls for interest payments every

six months on June 30 and December 31. As the Y’s finance director, you want to

record the loan on the organizations balance sheet and plan for its inclusion on the

activity statement. What are the short-term and long-term portions of the loan that

will be recorded on the balance sheet as of the first day of the fiscal year? What is

the expected interest expense for the year?

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Part III: Creating Financial Statements (32 points)

Subtract ¼ point for math errors.

Subtract ½ point for each number that is not consistent with the worksheet.

Latinos Unidos (LU) 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 eight 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 1/4 credit on each transaction.

1) (2 points) Took out a $50,000 bank loan. Latino Unidos also signed a

contract with a local car dealer to buy a van for their summer

program and gave the dealer a $1,000 deposit.

2) (2 points) Received $50,000 in contribution pledges and cash

contributions from members of the Hispanic community. $25,000 of

the contributions were received in cash. LU expects that 20% of the

remaining pledges will not be collected.

3) (2 points) Received a check for $10,000 from the Heritage

Foundation. This amount includes the final payment of $2,000 from a

grant made by the Heritage Foundation on 2009 as well as a new

grant for the remainder.

4) (2 points) Purchased a van for $50,000. The van is expected to have a

useful life of 10 years and no residual value. LU uses straight-line

depreciation. The van was purchased at the beginning of the year

5) (1 points) Purchased $5,000 worth in supplies for the Summer Camp.

LU paid 80% of the cost of the supplies in cash.

6) (2 points) Latinos Unidos paid its employees $30,000 in wages

during the fiscal year. Wage expense for the year was $25,000. The

payment included the wages payable balance outstanding from fiscal

year 2010.

7) (1 points) By the end of the year, LU used $4,000 worth of supplies to

operate their summer camp.

8) (2 points) Complied with the terms of the bank loan, which require

Latinos Unidos to pay the bank $1,400. That includes interest for the

year at an annual rate of 2% plus a portion of the principal.

Transactions

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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 $ 25,000

Grants Receivable $ 2,000

Inventory $ 2,000

Unrestricted Net Assets $ 50,000

Pledges Receivable $ 1,000

Property, plant, and equipment $ 25,000

Wages Payable $ 5,000

Using the data on the worksheet and the beginning balances:

a. 6 points. Prepare a Balance Sheet for LU as of December 31, 2011, the last

day of SAC’s fiscal year, along with a comparison balance sheet for the prior

fiscal year.

b. 6 points. Prepare an Activity Statement for LU for the fiscal year ending

December 31, 2011.

c. 6 points. Prepare a Cash Flow Statement for LU for the fiscal year ending

December 31, 2011.

Transactions Worksheet

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