Final examination is designed as an individual work open-book open-notes test. The approximate exam time is 1 hour 50 minutes. The examination must be submitted between 6 PM and 11:59 PM on the date of the Exam on Canvas by email to the instructor at xxxx. The exam can be typewritten or handwritten. Be sure to show your work and write neatly. Do not forget to underscore numeric answers and to write conclusions. Good luck!
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Final Examination Structure (30 points): Part A. Three essay questions (18 points) and Part B. Three financial analysis questions (18 points) – choose any five out of six questions provided below (30 points for the entire examination). |
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Part A. Three essay questions.
Do not spend more than 20 minutes answering each question. Be specific and to the point. Check your responses prior to submitting the examination.
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A1. Internal Controls and Audit (6 points)
Background:
Seattle University is running out of rooms on campus, and, if student enrollment increases in line with the current projections, a construction of a new building will be essential to meet the demand for classrooms. To be finished by the fall of 2020, the new building will cost the University about $20 million.
You are in charge of Seattle University’s capital campaign and your goal is to raise money for the construction. As you probably know, the University does not have a large internal audit department. In fact, your fundraising duties will be combined with the basic tasks of an internal auditor. You are requested to develop the policies to safeguard incoming moneys and to keep an eye on any potential fraud.
The task: Describe three action steps you would like to take to safeguard the donations. Explain why each step that you have selected is essential to the campaign’s success.
A2. GAAP and IFRS Principles (6 points)
- Highlight the roles of GASB and FASB in regulating accounting principles in the United States.
- Elaborate on each of the below financial reporting concepts:
- Materiality
- Objective evidence
- Conservatism
A3. Financial Condition Pre-Screening (6 points)
Seattle University’s Eastern Washington Engagement Initiative is a long-term commitment by Seattle University community to “connect classroom concepts to service experiences both in the community and throughout the State. That direct experience is a learning tool that provides opportunities to apply theories you learn in class. It’s also part of educating students to be informed citizens, one of Seattle University’s defining characteristics”.
Your role as a Program Director at Seattle University is to pre-screen community organizations in Spokane willing to host Seattle University students for short-term service assignments. Some of these community organizations may have prepared their financial reports, making your task relatively straightforward, while others may still lack high-quality financial data.
Your task is to obtain some level of comfort about the potential partner’s indebtedness, their liquidity position and overall compliance with annual reporting to the IRS. You must find out about all of these during a 1-hour conference call.
Prepare five questions for the Executive Director of the prospective partner organization inquiring about these three areas of interest. Do keep in mind that questions about specific financial ratios may not yield revealing answers, since your counterparty may not be familiar with such ratios. Frame your questions in a “non-expert” and friendly way.
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Part B. Financial planning and financial analysis questions.
Be careful not to spend more than 20 minutes answering each question. Be specific and to the point. Check your responses prior to submitting the examination. |
B1. Statement of Activities (6 points)
The Task. Fill in all the blanks in the below table, estimate profitability ratios and discuss the levels of profitability of Seattle City Light in 2014-2016.
| Seattle City Light – Results of Operations ($ in millions) | 2016 | 2015 | 2014 |
| Operating revenues | 903.2 | 882.9 | 886.4 |
| Non-operating revenues | 14.5 | 16.7 | 18.5 |
| Total Revenues | |||
| Operating expenses | 795.8 | 772.0 | 734.1 |
| Non-operating expenses | 75.1 | 76.5 | 77.9 |
| Total expenses | |||
| Income before capital contributions and grants | |||
| Capital contributions received | 37.9 | 39.0 | 27.7 |
| Capital grants received | 0.5 | 0.4 | 0.7 |
| Total capital contributions and grants | |||
| Change in net position | |||
| Net assets at the beginning of the year | 1,250.5 | ||
| Net Assets at the end of the year |
B2: Financial Analysis (6 points)
Seattle Parks and Recreation department considers new applications for the provider of basketball lessons across its 26 community centers. The goal of the department is not only to support the best basketball youth initiative, but to also to select community service providers in good financial standing. Two providers have applied for the tender. Their financials are provided below.
The Task: Based on the information contained in the financial statements, compare and contrast the financial standing of each provider without calculating financial ratios. Which organization appears to have stronger financials? Why? Support your arguments with specific numbers from the Statement of Activities and the Statement of Financial Position.
B3. Financial Analysis (continued from B2) (6 points)
The Task: Calculate four financial ratios of your choice for each provider (a total of 8 ratios). Justify your selection of ratios based upon the information that they convey. Which provider has a better financial standing based on your ratio analysis? Be careful to use a mosaic, or complex, approach in your interpretation.
Northgate Basketball
Balance Sheet as of December 31, 2017 in USD
| Assets | Liabilities |
| Short-Term Assets | Accounts Payable 10,000 |
| Cash 20,000 | Wages Payable 13,050 |
| Accounts Receivable 2,000 | Short-Term Debt 20,000 |
| Grants Receivable 10,000 | Long-Term Debt 1,000 |
| Total Liabilities 44,050 | |
| Long-Term Assets | |
| Buildings, Property, Plant and Equipment 5,000 | Net Assets |
| Investments in Equity of a Subsidiary 10,020 | Net Assets 2,970 |
| Total Assets 47,020 | Total Net Assets 2,970 |
Northgate Basketball
Statement of Activities for the year ended December 31, 2017 in USD
| Program Revenues | 78,000 |
| Contributions from Grants | 4,000 |
| Total Revenues | 82,000 |
| Purchases of Inventory | 33,000 |
| Payments to Suppliers | 35,000 |
| Equipment repair expense | 2,000 |
| Total Operating Expenses | 70,000 |
| Interest expense | 5,000 |
| Other non-operating expenses | 1,000 |
| Total Expenses | 76,000 |
| Change in Net Assets (Net Income/Loss) | 6,000 |
Kare for Basketball
Balance Sheet as of December 31, 2017 in USD
| Assets | Liabilities |
| Short-Term Assets | Accounts Payable 6,000 |
| Cash 7,200 | Wages Payable 3,050 |
| Accounts Receivable 10,500 | Short-Term Debt 1,000 |
| Grants Receivable 20,500 | Long-Term Debt 0 |
| Total Liabilities 10,050 | |
| Long-Term Assets | |
| Buildings, Property, Plant and Equipment 0 | Net Assets |
| Investments in Equity of a Subsidiary 0 | Net Assets 28,150 |
| Total Assets 38,200 | Total Net Assets 28,150 |
Kare for Basketball
Statement of Activities for the year ended December 31, 2017 in USD
| Program Revenues | 95,000 |
| Contributions from Grants | 2,000 |
| Total Revenues | 97,000 |
| Purchases of Inventory | 23,000 |
| Payments to Suppliers | 15,000 |
| Equipment repair expense | 2,000 |
| Total Operating Expenses | 40,000 |
| Interest expense | 6,000 |
| Other non-operating expenses | 3,000 |
| Total Expenses | 49,000 |
| Change in Net Assets (Net Income/Loss) | 48,000 |
