14-10.

Lafayette Film Center (LFC) is a not-for-profit theater that presents independent films. In addition to revenue from theater admissions, LFC relies on concession and caf sales, grants and other external support, theater rental sales, and proceeds from special events and other programs that not only promote an appreciation for independent films but also generate grants and contributions. LFCs new executive director has asked you, as the director of finance, to provide an analysis of the organizations financial position. Refer to Exhibits 14-7 through 14-10; these exhibits present LFCs statements of financial position, statements of activities, analysis of expenses by nature and function, and statements of cash flows for the years ended December 31, 2021, and 2020. 1. Does LFC have an endowment? How do you know? 2. How much of LFCs net assets with donor restrictions were reclassified as unrestricted in 2021? Where can this be found in the statements of financial position and statements of activities? 3. Calculate the four profitability ratios presented in the chapter for LFC for 2021 and 2020 as well as the percent change in each from 2020 to 2021. By which measure did LFCs profitability deteriorate the most, and by how much? 4. LFCs total expenses grew by over 100 percent from 2020 to 2021, while its total revenue and other support declined by over 50 percent. Look at the theaters statements of activities to answer a and b: a. Excluding interest/investment income and the one-time sale of tax credits, which three revenue or support categories declined by over 50 percent from 2020 to 2021? b. Which expense category grew by over 100 percent? Calculate LFCs program services ratio for 2021 and 2020 as well as the percent change in each from 2020 to 2021. Is LFCs program services ratio for 2021 higher than the commonly accepted benchmark?

Calculate the quick ratio and debt to equity ratio for LFC for 2021 and 2020 as well as the percent change in each from 2020 to 2021. Are these trends favorable or unfavorable? Which presents the greater area of concern in 2021, and why? Given your answers to the questions above and an overall review of LFCs financial statements, would you characterize LFCs financial position as weak, neutral, or strong? Why? a. Common size ratios for the statements of financial position and statements of activities b. The current ratio c. Days of cash-on-hand d. The debt to equity ratio e. The total margin f. The program services ratio How do you assess Code 4 Changes overall financial position and performance? Why? In your assessment, make reference to each ratio you calculated.

EXHIBIT 14-7 2021 2020 Lafayette Film Center Statements of Financial Position as of December 31, 2021 and 2020 Assets Current Assets Cash and cash equivalents $ 75,582 Grants receivable 562,696 Inventory 50,400 Other receivables 36,172 Prepaid expenses 11,552 Total Current Assets $ 736,402 $ 174,662 137,858 59,508 37,624 $ 409,652 Long-Term Assets Conditional promises to give Deposits Property and equipment, net Total Long-Term Assets $ 264,514 1,510 9,336,672 $ 9,602,696 $ 488,530 7,910 9,278,616 $ 9,775,056 Total Assets $10,339,098 $10,184,708 $ 113,240 111,776 Liabilities and Net Assets Current Liabilities Accounts payable Accrued expenses Deferred revenue Line of credit Current portion of capital lease obligations Total Current Liabilities $ 106,214 109,044 31,186 960,510 51,100 $ 1,260,054 100,000 48,394 373,410 $ Long-Term Liabilities: Capital lease obligations less current portion 36,596 88,638 Total Liabilities $ 1,296,650 $ 462,048 Net assets: Without Donor Restrictions With Donor Restrictions Total Net Assets $ 8,777,934 264,514 $ 9,042,448 $ 9,184,130 538,530 $ 9,722,660 Total Liabilities and Net Assets $10,339,098 $10,184,708 The accompanying notes are an integral part of these statements. EXHIBIT 14-8 2021 Lafayette Film Center Statements of Activities for the Years Ended December 31, 2021 and 2020 Without Donor Restrictions 2020 Revenue and Support Theater admissions $ 414,818 $ 78,640 Concession and caf sales 1,522,426 196,288 Memberships 139,684 61,350 Theater rental sales 68,180 58,414 Special events 47,710 140,616 Other programs 62,006 45,726 Interest and investment income 56,656 Sale of tax credits 1,384,002 Grants 1,061,762 3,016,550 Contributions 360,104 1,129,112 Total Revenue and Support $3,676,690 $6,167,354 Net assets released from restrictions 274,016 1,826,578 Total Revenue and Other Support $3,950,706 $7,993,932 Expenses Program services General administration Fundraising Total Expenses $3,640,634 455,436 260,832 $4,356,902 $1,378,472 407,244 302,384 $2,088,100 Change in Net Assets Net assets--beginning of year Net assets-end of year $ (406,196) 9,184,130 $8,777,934 $5,905,832 3,278,298 $9,184,130 The accompanying notes are an integral part of these statements. 6. Given your answers to questions 4 and 5, would you recommend that LFC reallocate some of its spending from program services to fundraising in 2022? Why or why not? 7. What was LFC's depreciation expense in 2020 and 2021? Which financial statement(s) provide this information? 8. Now that receivables constitute a much larger proportion of LFC's assets than in the past, the executive director has asked you to calculate the receivables turnover ratio and average collection period for 2021. a. Which revenue items will you exclude from the ratio? Why? b. What is LFC's receivables turnover ratio and average collection period for 2021? Are they favorable or unfavorable? Why? c. Would you recommend recalculating the receivables turnover ratio using the average of beginning-of-year and end-of-year receivables in the denominator? Why or why not? EXHIBIT 14-9 Lafayette Film Center Analysis of Expenses by Nature and Type for the Years Ended December 31, 2021 and 2020 Program Services General Administration Fundraising 2020 2021 2020 2021 2020 $1,388,176 $ 644,896 $215,536 $197,140 $ 73,028 $ 45,474 2021 TOTAL 2021 2020 $1,676,740 $887,510 59,826 146,382 15,100 22,178 70,190 64,640 9,290 22,724 42,980 15,428 21,448 38,872 3,148 7,680 94,430 4,948 98,868 72,264 176,786 152,510 37,606 96,586 202,380 3,192 2,220 69,940 108,682 100,236 23,426 10,788 59,410 30,372 23,272 45,832 6,550 19,840 17,292 17,810 362 26,658 40 7,496 19,442 11,828 12,130 29,586 5,546 19,538 11,154 4,696 12,488 2,120 2,858 17,790 8,642 37,900 104,958 Expenses: Salaries and wages Employee benefits Payroll taxes Contracted labor and services Insurance Equipment and maintenance Supplies Printing materials Meeting and travel Interest Special events Cost of goods sold Occupancy Membership dues Computer expenses Postage and handling Uniforms Licenses and permits Subscriptions Marketing Programming Depreciation Other Total Expenses 8,448 793,120 135,196 620 22,150 137,540 68,636 1,528 8,128 1,784 532 25,350 2,304 1,818 17,956 20,684 792 1,546 4,050 4,702 5,692 196 3,584 286 90,942 109,044 131,590 35,954 20,404 78,852 37,900 793,120 168,994 3,456 23,968 26,146 2,896 2,808 712 91,016 33,340 624,356 3,104 $4,356,902 44,420 35,402 78,276 29,886 48,020 28,454 104,958 137,540 94,022 8,012 9,870 9,418 2,608 5,440 2,336 39,942 73,046 107,900 4,468 $2,088,100 7,366 824 2,322 272 900 424 2,896 2,536 148 91,016 33,340 570,280 140 210 4,540 1,634 39,942 73,046 94,310 1,948 42,390 2,584 $455,436 11,642 4,468 $407,244 11,686 520 $260,832 $3,640,634 $1,378,472 $302,384 The accompanying notes are an integral part of these statements. EXHIBIT 14-10 2020 $ 4,129,254 107,900 1,843,396 Lafayette Film Center Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 2021 Operating Activities Change in net assets $(680,212) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 624,356 Contributions restricted for building renovations (Increase) decrease in operating assets Grants receivable (424,838) Other receivables 1,452 Conditional promises to give 224,016 Prepaid expenses (11,552) Inventory 9,108 Deposits 6,400 Increase (decrease) in operating liabilities Accounts payable (5,026) Accrued expenses (2,732) Deferred revenue 31,186 Net cash provided by (used in) operating activities $(227,842) 292,666 (33,344) (16,818) (59,510) (1,510) (423,404) 111,776 $ 5,950,406 Investing Activities Payments for property and equipment Net cash/(used in) investing activities $(682,412) $(682,412) $17,159,362) $(7,159,362) $ Financing Activities Payments on capital leases Net increase in line of credit Net cash provided by financing activities $ (49,336) 860,510 $ 811,174 (10,084) 100,000 89,916 $ Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents-beginning of year Cash and cash equivalents-end of year $ (99,080) 174,662 $ 75,582 $(1,119,040) 1,293,702 $ 174,662 The accompanying notes are an integral part of these statements. EXHIBIT 14-7 2021 2020 Lafayette Film Center Statements of Financial Position as of December 31, 2021 and 2020 Assets Current Assets Cash and cash equivalents $ 75,582 Grants receivable 562,696 Inventory 50,400 Other receivables 36,172 Prepaid expenses 11,552 Total Current Assets $ 736,402 $ 174,662 137,858 59,508 37,624 $ 409,652 Long-Term Assets Conditional promises to give Deposits Property and equipment, net Total Long-Term Assets $ 264,514 1,510 9,336,672 $ 9,602,696 $ 488,530 7,910 9,278,616 $ 9,775,056 Total Assets $10,339,098 $10,184,708 $ 113,240 111,776 Liabilities and Net Assets Current Liabilities Accounts payable Accrued expenses Deferred revenue Line of credit Current portion of capital lease obligations Total Current Liabilities $ 106,214 109,044 31,186 960,510 51,100 $ 1,260,054 100,000 48,394 373,410 $ Long-Term Liabilities: Capital lease obligations less current portion 36,596 88,638 Total Liabilities $ 1,296,650 $ 462,048 Net assets: Without Donor Restrictions With Donor Restrictions Total Net Assets $ 8,777,934 264,514 $ 9,042,448 $ 9,184,130 538,530 $ 9,722,660 Total Liabilities and Net Assets $10,339,098 $10,184,708 The accompanying notes are an integral part of these statements. EXHIBIT 14-8 2021 Lafayette Film Center Statements of Activities for the Years Ended December 31, 2021 and 2020 Without Donor Restrictions 2020 Revenue and Support Theater admissions $ 414,818 $ 78,640 Concession and caf sales 1,522,426 196,288 Memberships 139,684 61,350 Theater rental sales 68,180 58,414 Special events 47,710 140,616 Other programs 62,006 45,726 Interest and investment income 56,656 Sale of tax credits 1,384,002 Grants 1,061,762 3,016,550 Contributions 360,104 1,129,112 Total Revenue and Support $3,676,690 $6,167,354 Net assets released from restrictions 274,016 1,826,578 Total Revenue and Other Support $3,950,706 $7,993,932 Expenses Program services General administration Fundraising Total Expenses $3,640,634 455,436 260,832 $4,356,902 $1,378,472 407,244 302,384 $2,088,100 Change in Net Assets Net assets--beginning of year Net assets-end of year $ (406,196) 9,184,130 $8,777,934 $5,905,832 3,278,298 $9,184,130 The accompanying notes are an integral part of these statements. 6. Given your answers to questions 4 and 5, would you recommend that LFC reallocate some of its spending from program services to fundraising in 2022? Why or why not? 7. What was LFC's depreciation expense in 2020 and 2021? Which financial statement(s) provide this information? 8. Now that receivables constitute a much larger proportion of LFC's assets than in the past, the executive director has asked you to calculate the receivables turnover ratio and average collection period for 2021. a. Which revenue items will you exclude from the ratio? Why? b. What is LFC's receivables turnover ratio and average collection period for 2021? Are they favorable or unfavorable? Why? c. Would you recommend recalculating the receivables turnover ratio using the average of beginning-of-year and end-of-year receivables in the denominator? Why or why not? EXHIBIT 14-9 Lafayette Film Center Analysis of Expenses by Nature and Type for the Years Ended December 31, 2021 and 2020 Program Services General Administration Fundraising 2020 2021 2020 2021 2020 $1,388,176 $ 644,896 $215,536 $197,140 $ 73,028 $ 45,474 2021 TOTAL 2021 2020 $1,676,740 $887,510 59,826 146,382 15,100 22,178 70,190 64,640 9,290 22,724 42,980 15,428 21,448 38,872 3,148 7,680 94,430 4,948 98,868 72,264 176,786 152,510 37,606 96,586 202,380 3,192 2,220 69,940 108,682 100,236 23,426 10,788 59,410 30,372 23,272 45,832 6,550 19,840 17,292 17,810 362 26,658 40 7,496 19,442 11,828 12,130 29,586 5,546 19,538 11,154 4,696 12,488 2,120 2,858 17,790 8,642 37,900 104,958 Expenses: Salaries and wages Employee benefits Payroll taxes Contracted labor and services Insurance Equipment and maintenance Supplies Printing materials Meeting and travel Interest Special events Cost of goods sold Occupancy Membership dues Computer expenses Postage and handling Uniforms Licenses and permits Subscriptions Marketing Programming Depreciation Other Total Expenses 8,448 793,120 135,196 620 22,150 137,540 68,636 1,528 8,128 1,784 532 25,350 2,304 1,818 17,956 20,684 792 1,546 4,050 4,702 5,692 196 3,584 286 90,942 109,044 131,590 35,954 20,404 78,852 37,900 793,120 168,994 3,456 23,968 26,146 2,896 2,808 712 91,016 33,340 624,356 3,104 $4,356,902 44,420 35,402 78,276 29,886 48,020 28,454 104,958 137,540 94,022 8,012 9,870 9,418 2,608 5,440 2,336 39,942 73,046 107,900 4,468 $2,088,100 7,366 824 2,322 272 900 424 2,896 2,536 148 91,016 33,340 570,280 140 210 4,540 1,634 39,942 73,046 94,310 1,948 42,390 2,584 $455,436 11,642 4,468 $407,244 11,686 520 $260,832 $3,640,634 $1,378,472 $302,384 The accompanying notes are an integral part of these statements. EXHIBIT 14-10 2020 $ 4,129,254 107,900 1,843,396 Lafayette Film Center Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 2021 Operating Activities Change in net assets $(680,212) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 624,356 Contributions restricted for building renovations (Increase) decrease in operating assets Grants receivable (424,838) Other receivables 1,452 Conditional promises to give 224,016 Prepaid expenses (11,552) Inventory 9,108 Deposits 6,400 Increase (decrease) in operating liabilities Accounts payable (5,026) Accrued expenses (2,732) Deferred revenue 31,186 Net cash provided by (used in) operating activities $(227,842) 292,666 (33,344) (16,818) (59,510) (1,510) (423,404) 111,776 $ 5,950,406 Investing Activities Payments for property and equipment Net cash/(used in) investing activities $(682,412) $(682,412) $17,159,362) $(7,159,362) $ Financing Activities Payments on capital leases Net increase in line of credit Net cash provided by financing activities $ (49,336) 860,510 $ 811,174 (10,084) 100,000 89,916 $ Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents-beginning of year Cash and cash equivalents-end of year $ (99,080) 174,662 $ 75,582 $(1,119,040) 1,293,702 $ 174,662 The accompanying notes are an integral part of these statements