NAME: ______________________________________ ____________________________

UNI: ______-

COLUMBIA UNIVERSITY MAILMAN SCHOOL OF PUBLIC HEALTH HEALTH CARE FINANCE I: P6529.003 FALL 2012 FINAL EXAM Instructions: PLEASE READ ALL INSTRUCTIONS BEFORE BEGINNING THE EXAM! All exam answers must be submitted by 5:00 PM on December 17, 2012. No late exams will be accepted. All exams must be posted in PDF Format. All files submitted should include your name in the file name (i.e. ELKINS L Healthcare finance midterm.doc) All pages of exam responses must have your name and UNI on them and should be numbered. Please complete exam answers on this document, with each answer listed after the question asked. Clearly indicate your final answer for each question. Add space between questions as needed. Any information not included on the exam document will not be graded. You should show all formulas used and should show your work. Partial credit may be given but only if all work is provided. Numbers in Parentheses represent the possible points for each question or subquestion. Good Luck. This section is for grading purposes only:
Short Answer Questi on 1 2 3 4 5 6 7 8 9 10 11 12 Possibl e Points 1 1 2 2 2 2 2 2 2 4 6 8 34 Actu al Poin ts Financial Statements Analysis Questio n 1 2 3 4 5 6 7 8 9 10 11 12 Possib le Points 1 2 1 2 3 1 1 3 3 3 3 3 26 40 Possibl Total Actual Points Financial Statement Creation Actua Possibl l Statement e Point Points s Trans Worksheet 8 Balance Sheet Income State. Cash Flows 11 10 11

NAME: ______________________________________ ____________________________

UNI: ______e Points Final Grade 100 Point s

NAME: ______________________________________ ____________________________

UNI: ______-

COLUMBIA UNIVERSITY MAILMAN SCHOOL OF PUBLIC HEALTH HEALTH CARE FINANCE I: P6529.003 FALL 2012 MIDTERM EXAM MULTIPLE CHOICE AND SHORT ANSWER PROBLEMS (34 Points) 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) Plant, property and equipment owned by nonprofit organizations are reported net of _____________________________ on the organizations balance sheet while accounts receivable are reported net of _________________________________.

4. (2 points) Under modified accrual accounting, borrowing money results in _____________________ while under accrual accounting it results in __________________.

5. (2 points) A not-for-profit opera company purchased a new lighting rig for

NAME: ______________________________________ ____________________________

UNI: ______-

6. (2 points) In order to retain their tax-exempt status, not-for-profit organizations are required to have two authorized signatures on all checks they issue above a specific dollar threshold. a) True

b) False
7. (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?

8. (2 points) The following organizations must prepare a statement of functional expenses as part of their audited financial statements (circle all that apply): a) Not-for-profit organizations b) Not-for-profit hospitals

c) Voluntary health and welfare organizations

9. (2 points) Investment income earned from an endowment should always be classified as temporarily restricted. a) True

b) False

NAME: ______________________________________ ____________________________

UNI: ______-

10. (4 points) A not-for-profit hospitals fiscal year ends on December 31st. On January 1st, 2007, the hospital took out a bank loan for $750,000. The loan has an annual interest rate of 6% and requires that the hospital repay the loan principal in 15 equal payments made annually on the last day of the fiscal year. Interest is paid separately. Loan repayments began on the last day of FY 2007. Assuming the bank loan is the hospitals only debt, what are the current and long-term portions of notes payable that would be shown on the balance sheet as of the last day of FY 2011? Write your answers in the spaces below.

Current Portion: ____________________ ___________________

Long-Term Portion:

11. (6 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 NASs inventory expense and inventory value be on September 30, the last day of its fiscal year? 0 1 Using LIFO Using FIFO
Bought or on Hand 9/1/2010 20 10/15/2010 10 11/15/2010 12/1/2010 35 1/18/2011 15 3/30/2011 5/15/2011 50 7/15/2011 50 9/30/2011 Date Used Unit Cost $ $ 25 $ $ 40 $ $ 90 10.00 9.50 9.00 8.50 8.00 7.50

Beginning Balance Purchase Used from 9/1 to date shown Purchase Purchase Used from 11/15 to date shown Purchase Purchase Used from 3/30 to date shown

NAME: ______________________________________ ____________________________

UNI: ______-

12. (8 points total) Show the impact of each transaction using the modified accrual
basis of accounting. Be sure to label each fund:

a)

(3 points) On the first day of the fiscal year, Capital Citys capital project fund borrowed $150,000 from the general fund. It then purchased 3 new snow removal trucks that cost $50,000 each. The trucks are expected to have a useful life of 10 years and no salvage value.

b) (1 point) Using accrual accounting, the transaction in part (a) would have been recorded the same. a. True b. False

c)

(3 points) Each year, Capital City is legally required to transfer $900,000 from its general fund to its debt service fund. It transferred the full 6

NAME: ______________________________________ ____________________________

UNI: ______-

$900,000 due this year, plus an additional $200,000 that was required to be transferred the previous year.

d) (1 point) Using accrual accounting, the transaction in part (c) would have been recorded the same. a. True b. False

NAME: ______________________________________ ____________________________

UNI: ______-

SECTION 2: FINANCIAL STATEMENT ANALYSIS (26 points) All questions in this section reference the FY 2012 Audited Financial Statements from Roca, Inc. (Please note the attached statements include consolidated statements for Roca and Roca Pallin. Please respond to all questions using data from Roca only in other words, disregard the columns in each statement labeled Roca Pallin.)

1. (1 point) What type of opinion did the auditors give the Rocas financial position?
How do you know? Does this mean Rocas financial statements reflect no errors?

2. (2 points) What are Rocas two largest sources of total income in 2012? Use
common-size ratios to show their importance to the Roca revenue portfolio. Provide year-over-year percentage increases for each.

3.

(1 point) How much did Roca spend on salaries and benefits as a percentage of expenses in 2012 and 2011? What was the percent change between the two years?

4. (2 points) What was Rocas program expense ratio for 2012 and 2011? Where
did you find this information?

5. (3 points) Calculate Rocas Days of Cash on Hand for 2012 and 2011. Is the trend
favorable? Most nonprofit financial experts suggest that organizations maintain 2-3 months of cash on hand for emergencies. How does this ratio compare to this rule of thumb?

6. (1 point) Does Roca have a formal endowment? How do you know?

NAME: ______________________________________ ____________________________

UNI: ______-

7. (1 point) In FY 2012, the time or purpose restrictions on $1,439,628 in net assets expired.

For questions 8 through 12, please select the appropriate ratio from the following list, and make sure to include units of analysis in your answers when appropriate (days, $, %, etc.). Cash from Operations + Interest Expense Cash-Flow Coverage = Interest Expense + Debt Payments Current Assets Current Ratio = Current Liabilities Debt to Equity Total Liabilities = Total Net Assets

Program Service Expenses Program Services = Total Expenses Ratio Receivables Turnover Return on Net Assets Unrestricted Revenues and Support = Total Receivables = Change in Net Assets Total Net Assets

8. (3 points) As Chief Financial Officer for Roca, you want to calculate the organizations profitability. a. Which ratio provides this information? _______________________________________ b. What is the value of this ratio for FY 2012? Show your work, and circle the answer.

c.

Has Rocas profitability improved or deteriorated since FY 2011? 9

NAME: ______________________________________ ____________________________

UNI: ______-

2. (3 points) Now, you want to determine whether Rocas liquidity is sufficient. a. Which ratio measures liquidity? _____________________________________

b. What is the value of this ratio for FY 2012? Show your work, and circle the answer.

c. Does the ratio you calculated in part (b) compare favorably or unfavorably to the rule of thumb for this ratio? Write none if there is no rule of thumb.

3.

(3 points) A creditor will evaluate the extent to which Roca is leveraged. a. Which ratio will the creditor use? ____________________________________________ b. What is the value of this ratio for FY 2012? Show your work, and circle the answer.

c. Does the ratio you calculated in part (b) compare favorably or unfavorably to the rule of thumb for this ratio? Write none if there is no rule of thumb.

10

NAME: ______________________________________ ____________________________

UNI: ______-

4. (3 points) The Operations Manager would like to evaluate how efficiently Roca collects on amounts that are owed to the organization. a. Which ratio should the Operations Manager use? _________________________________ b. What is the value of this ratio for FY 2012? Show your work, and circle the answer.

c. Does the ratio you calculated in part (b) compare favorably or unfavorably to the rule of thumb for this ratio? Write none if there is no rule of thumb.

5. (3 points) Finally, you want to calculate Rocas ability to make debt service payments. a. Which ratio should you use? ________________________________________

b. What is the value of this ratio for FY 2012? Show your work, and circle the answer.

11

NAME: ______________________________________ ____________________________

UNI: ______-

c. Does the ratio you calculated in part (b) compare favorably or unfavorably to the rule of thumb for this ratio? Write none if there is no rule of thumb.

12

NAME: ______________________________________ ____________________________

UNI: ______-

FINANCIAL STATEMENT PREPARATION (40 Points) The Science Learning Institute (SLI), a not-for-profit educational center that provides science tutoring to middle school students, uses accrual accounting to prepare its annual financial statements. The SLI ended FY 2011 with the following balances in its accounts: Accounts Payable Cash Grants Receivable, net Inventory Net Assets Notes Payable Pledges Receivable, net PP&E, net Wages Payable 0 103,10 0 35,100 2,300 273,50 0 595,00 0 10,000 735,00 0 17,000

The SLI recorded the following transactions during FY 2012, which ended on August 31, 2012. 1. SLI took out an $850,000 bank loan on September 1, 2008. The loan has an annual interest rate of 6.5% and is the only borrowing the organization has done since its inception. Principal repayments are due in 10 equal installments beginning on the last day of FY 2009. Interest payments on the loan must be made in full on the last day of the fiscal year. SLI is in full compliance with the terms of the loan. 2. SLI used the proceeds from the bank loan to purchase its office space on March 1, 2009. The office space cost $775,000. It is expected to have a useful life of 25 years and no salvage value. The organization uses the straight-line method of depreciation. 3. On the first day of FY 2012, SLI purchased new classroom equipment worth $20,000. The equipment is expected to have a useful life of 8 years and a salvage value of $2,000. Equipment and furniture SLI purchased in previous years depreciated by $9,000 in FY 2012. 4. SLI earned $325,000 in state grants during FY 2012, spread evenly throughout the year. This was an increase from the $304,200 in state grants that SLI earned evenly throughout FY 2011. In both FY 2011 and FY 2012, the state paid SLI with a six-week lag. 5. During FY 2012, SLI received $75,000 in donor pledges, 80% of which was collected in cash. The organization also collected $7,500 in outstanding pledges from the previous fiscal year. SLI has a policy of writing down 2% of its total outstanding pledges at the end of the year as bad debt. 6. SLIs employees earned $17,500 per month in FY 2012, a monthly increase of $500 from FY 2011. In both FY 2011 and FY 2012, SLI paid its employees with a one-month lag. 13

NAME: ______________________________________ ____________________________

UNI: ______-

7. During FY 2012, SLI ordered $40,000 worth of classroom supplies on credit and used $35,000 of those supplies throughout the year. At the end of FY 2012, SLI still owed its vendors $7,000 for the supplies it ordered. 8. SLI pays $900 a month in utilities. Utilities are paid timely. Record these events on a transactions worksheet and then create a balance sheet, activity statement, and cash flow statement for FY 2012 on the pages that follow.

14

NAME: ______________________________________ ____________________________

UNI: ______-

Prepare your Transactions Worksheet on this page (8 points)

15

NAME: ______________________________________ ____________________________

UNI: ______-

Prepare your balance sheet on this page (11 points) (Hint: To receive full credit, you do not need to report the previous years (FY 2010) balances on the balance sheet, but we recommend that you do so anyway because it will help you prepare the cash flow statement.)

16

NAME: ______________________________________ ____________________________

UNI: ______-

Prepare your activity statement on this page (10 points)

17

NAME: ______________________________________ ____________________________

UNI: ______-

Prepare your cash flow statement on this page (11 points)

18