14-10. Exhibits 14-8 and 14-9 present the statements of financial position and statements of activities for the Disabled American Veterans (DAV) Charitable Service Trust. For both 2007 and 2006,...

14-10. Exhibits 14-8 and 14-9 present the statements of financial position and statements of activities for the Disabled American Veterans (DAV) Charitable Service Trust. For both 2007 and 2006, calculate: a. common size ratios for the statements of financial position and statements of activities, . the current ratio, . days of cash on hand, . the debt ratio, Gana . the debt to equity ratio,f. the total margin ratio, and g. the program services ratio.
14-11. Refer to the 2007 annual report of the American Civil Liberties Union (ACLU) in answering the following questions. The ACLU financial statements are located in the Student Resources Folder of this book’s Web site at www.pearsonhighered.com/ finkler.® 1. Do the financial statements reflect the activities of the ACLU local affiliates? How do you know?Chapter 14 © Financial Statement Analysis 555 EXHIBIT 14-8 Disabled American Veterans (DAV) ae Charitable Service Trust Statements of Financial Position As of December 31, 2007 and 2006 Assets 2007 2006 Cash and Cash Equivalents $ 1,909,606 $ 1,044,193 Interest and Dividends Receivable 61,244 j pee Campaigns’ Pledges Receivable—Net of allowance for assessment fees and uncollectible pledges of $449,162 in 2007 and $464,486 in 2006 373,788 358 632 Prepaid Expenses and Other 16,244 ae Investments 10,944,924 9,653,039 Total $ 13,305,806 $ 511.19 11,133,813 Liabilities and Net Assets Liabilities: Accounts payable—DAV Accounts payable—other Annuity payment liability Total liabilities Unrestricted Net Assets Total $ 201,721 $ 171,550 910 1,017 3,857,262 3,679,148 4,059,893 3,851,715 9,245,913 7,282,098 $ 13,305,806 $ 11,133,813- Did the ACLU receive any endowment type De donations during 2007? How do you know? - How much did temporarily restricted net assets change during the year ended March 31, 2007? How much of the temporarily restricted net assets 8. became unrestricted in that year? - Under the approach used by the ACLU, which of 9. the following would be considered to be cash equivalents? a. Checking account b. Savings account 10. c. Three-month treasury bill d. Six-month treasury bill e. One-year treasury bill How might you assess the ACLU’s short-term liquidity? Is the trend improving or deteriorating? What do you think of the trend? 11. The ACLU had a decrease in net assets for the year ending March 31, 2007. Calculate the total margin for 2007 and 2006. Is the trend improving or deteriorating? Are there any elements in the calculation that might lead you to believe that one year is worse than the other? Explain.e donations during 2007? How do you know? - How much did temporarily restricted net assets change during the year ended March 31, 2007? How much of the temporarily restricted net assets 8. became unrestricted in that year? - Under the approach used by the ACLU, which of 9. the following would be considered to be cash equivalents? a. Checking account b. Savings account 10. c. Three-month treasury bill d. Six-month treasury bill e. One-year treasury bill How might you assess the ACLU’s short-term liquidity? Is the trend improving or deteriorating? What do you think of the trend? 11. The ACLU had a decrease in net assets for the year ending March 31, 2007. Calculate the total margin for 2007 and 2006. Is the trend improving or deteriorating? Are there any elements in the calculation that might lead you to believe that one year is worse than the other? Explain. Describe how you might measure Return on Net Assets to assess the ACLU’s profitability. What does this measure reflect in terms of the organization’s financial position? Describe the organization’s use of financial leverage and its implications on financial position, If you were a fund-raising manager for the organization, and your compensation was somewhat tied to dollars raised, would you rather be focused on new membership or current members? The ACLU reports its program services expenses separately from supporting services expenses. Do generally accepted accounting principles require the organization to make this distinction? Why or why not? Why and for whom might this distinction be informative? Suppose you have a friend who is considering making a donation to the ACLU. She wants to know how much of her money would go directly to the organization’s major activities as opposed to paying for administrative expenses. Which ratio would you advise her to use? Calculate the values for 2006 and 2007. Did theDisabled American Veterans (DAV) Charitable Service Trust Statements of Activities For the Years Ended December 31, 2007 and 2006 Unrestricted 2007 2006 Support and Revenue: Contributions—net of assessment fees and provision for uncollectible pledges of $428,587 in 2007 and $433,252 in 2006 $4,771,172 $ 2,654,400 Contributions of charitable gift annuities 241,245 178,626 Bequests 2,178,924 32,436,803 Investment income—net 766,580 384,670 Total support and revenue 7,957,921 35,654,499 Expenses: Program services 6,053,675 34,754,236 Management and general 85,933 75,499 Fundraising 179,277 168,316 Total expenses 6,318,885 34,998,051 Change in Net Assests before Change in Unrealized Appreciaion of investments 1,639,036 656,448 Change in Unrealized Appreciaion of Investments 324,779 428,159 Change in Net Assets 1,963,815 1,084,607 Net Assests—Beginning of year 7,282,098 6,197,491 Net Assests—End of year $ 9,245,913 $ 7,282,098ratio improve or worsen between 2006 and 2007? Explain. 14-12. Refer to the 2002 annual report of the Make-A-Wish Foundation (Wish), in answering the following questions.° The complete report is located in the Student Resources Folder of this book’s Web site at www. pearsonhighered.com/finkler. 1. Did the accounting firm of KPMG audit all of the Make-A-Wish Foundation chapters? How do you know? 2. Would you say that the financial statements are free of error, since they have been audited by a CPA? 3. What was the range of the cost of wishes granted in 2002? How do you know?4. Under the approach used by Wish, which of the following would be considered to be cash equivalents? a. Checking account b. Savings account ¢. Three-month treasury bill d. Six-month treasury bill e. One-year treasury bill 5. Is there any difference in the way that Wish treats the donation of land, buildings and equipment from the way it treats the contributions of cash that are restricted for the purchase of land, buildings, and equipment? If so, how, and how do you know? If not, why not?6. Wish records supplies using the FIFO method. Assuming that there has been an average rate of inflation of 2.5 percent in recent years, if Wish used LIFO would they have reported a higher or lower increase in net assets than they did using FIFO? 7. In their notes, Wish indicates that it performs eight functions, listed below. Which of these eight qualify as program services, as opposed to support services? . Wish granting . Chapter support . Program-related support Committee and board support . Training and development . Public information . Fund-raising So . Management and general +» Aan Op 8. Wish had a decrease in net assets for the year ending August 31, 2002. Would you say that a sizeable portion of that decrease resulted from stock market losses on Wish’s investment portfolio? Explain. 9. Did the amount of land Wish owned increase or decrease during the year ending August 31, 2002? How do you know? 10. How much did permanently restricted net assets change during the year ending August 31, 2002? How much of the temporarily restricted net assets as of August 31, 2002 are restricted for the specific purpose of wish fulfillment? 11. Does Wish include any provision (i.e., liability) for lawsuits in its financial statements? How do you know? 12. What is the Program Services Expense Ratio for Wish for the year ending August 31, 2002? 13. What were fund-raising costs, as a percent of total revenue and other support, for the years ending August 31, 2002 and 2001? 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Chapter 14 ¢ Financial Statement Analysis 557 a. What percent did Program Service Expenses grow from 2001 to 2002? b. What percent did Support Service Expenses grow from 2001 to 2002? c. Which is growing at a faster rate, Program Service Expenses or Support Service Expenses? Did Wish meet any donor restrictions during the year ending August 31, 2002, allowing restricted contributions to become unrestricted? If so, how much? 3 What is the unrestricted total margin for the year ending August 31, 2002? From the combined statement of cash flows we see that the change in contributions receivable required a negative adjustment of $710,659 for the year ending August 31, 2002. How would you interpret this adjustment? Explain. Cash used for investing activities was over $9 million. Should we be concerned with this cash decrease? Why or why not? Looking at Wish’s assets on the combined statements of financial position, would you consider investments to be short-term or longterm? Why? Assuming that the obligation to international affiljates is short-term, and deferred rent is long-term, what is the current ratio for 2002? What is the ratio of total debt to equity for 2002? Based on your calculation of total margin, current ratio, and debt to equity, in Questions 16, 20, and 21, and your overall review of the financial statements and notes of Wish, how would you categorize their financial position? Circle just one answer. a. Weak b. Neutral c. Strong What is your overall assessment of the finances of Wish?