Lafayette Film Center (LFC) is a not-for-profit theater that plays 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 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 15-8 through 15-11, which present LFCs statements of financial position, statements of activities, statements of functional expenses, and statements of cash flows for the years ended December 31, 2014 and 2013.

1.) Does LFC have an endowment? How do you know?

2.) How much of LFCs temporarily restricted net assets were reclassified as unrestricted in 2014? 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 2014 and 2013, as well as the percent change in each from 2013 to 2014. By which measure did LFCs profitability deteriorate the most, and by how much?

4.) LFCs total expenses grew by over 100 percent from 2013 to 2014, while its total revenue and other support declined by over 50 percent. Looking at the theaters statements of activities,

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 2013 to 2014? b.) Which expense category grew by over 100 percent?

5.) Calculate LFCs program services ratio for 2014 and 2013, as well as the percent change in each from 2013 to 2014. Is LFCs program services ratio for 2014 higher than the commonly accepted benchmark?

6.) Given your answers to questions 4 and 5, would you recommend that LFC reallocate some of its spending from program services to fund-raising in 2015? Why or why not?

EXHIBIT 15-8

LFC Statements of Financial Position as of Dec 31, 2014 and 2013

2014 2013 Assets Current Assets Cash and Cash Equivalents $75,582 $174,662 Grants receivable 562696 137858 Inventory 50400 59508 Other receivables 36172 37624 Prepaid expenses 11552 _ Total Current Assets $736,402 $409,652 Long-Term Assets Conditional promises to give $264,514 $488,530 Deposits 1510 7910 Property and equip., net 9336672 9278616 Total Long-Term Assets $9,602,696 $9,775,056 Total Assets $10,339,098 $10,184,708 Liabilities and Net Assets Current Liabilities Accounts payable 108214 113240 Accrued expenses 109044 111776 Deferred revenue 31186 - Line of credit 960510 100000 Current portion of capital lease obligations 51100 48394 Total current liabilities $1,260,054 $373,410 Long-term Liabilities Capital lease obligations less current portion 36596 88638 Total liabilities $1,296,650 $462,048 Net Assets Unrestricted $8,777,934 $9,184,130 Temp. Restricted 264514 538530 Total Net Assets $9,042,448 $9,722,660 Total liabilities and net assets $10,339,098 $10,184,708

Exhibit 15-9

LFC Statements of Activities for the years ended Dec 31, 2014 and 2013

Unrestricted 2014 2013 Revenue and support Theatre admissions $414,818 $78,640 Concession & cafe sales 1,522,426 196288 Memberships 139684 61350 Theatre rental sales 68180 58414 Special events 47710 140616 Other programs 62006 45726 Interest and investment income - 56656 Sale of tax credits - 1,384,002 Grants 1,061,762 3,016,550 Contributions 360104 1,129,112 Total revenue and support $3,676,690 $6,176,354 Net assets released from restrictions 274016 1,826,578 Total revenue and other support $3,950,706 $7,993,932 Expenses Program services $3,640,634 $1,378,472 General administration 455436 407244 Fundraising 260832 302384 Total Expenses $4,356,902 $2,088,100 Change in net assets $ (406,196) $5,905,832 Net assets-beginning of year 9,184,130 3,278,298 Net assets-end of year $8,777,934 $9,184,130

7.) What was LFCs depreciation expense in 2013 and 2014? Which financial statement(s) provide this information?

8.) Now that receivables constitute a much larger proportion of LFCs assets than in the past, the executive director has asked you to calculate the receivables turnover ratio and average collection period for 2014. a.)Which revenue items will you exclude from the ratio? Why? b.) What is LFCs receivables turnover ratio and average collection period for 2014? 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?

9.) Calculate the quick ratio and debt to equity ratio for LFC for 2014 and 2013, as well as the percent change in each from 2013 to 2014. Are these trends favorable or unfavorable? Which presents the greater area of concern for 2014, and why?

10.) 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?

EXHIBIT 15-10

Functional Expenses

Program Srvc Gen. Admin. Fundraising TOTAL Expenses 2014 2013 2014 2013 2014 2013 2014 2013 Salaries and Wages $1,388,176 $644,896 $215,536 $197,140 $73,028 $45,474 $1,676,740 $887,510 Employee Benefits 59826 22178 9290 15428 3148 - 72264 37606 Payroll Taxes 146382 70190 22724 21448 7680 4948 176786 96586 Contracted Labor and Services 15100 64640 42980 38872 94430 98868 152510 202380 Insurance 69940 30372 17810 11828 3192 2220 90942 44420 Equipment and Maint. 108682 23272 362 12130 - - 109044 35402 Supplies 100236 45832 26658 29586 4696 2858 131590 78276 Print Materials 23426 6550 40 5546 12488 17790 35954 29886 Meeting and travel 10788 19840 7496 19538 2120 8642 20404 48020 Interest 59410 17292 19442 11154 - 8 78852 28454 Special Events - - - - 37900 104958 37900 104958 Cost of goods sold 793120 137540 - - - - 793120 137540 Occupancy 135196 68636 25350 20684 8448 4702 168994 94022 Membership dues 620 1528 2304 792 532 5692 3456 8012 Computer expenses 22150 8128 1818 1546 - 196 23968 9870 Postage and handling 7366 1784 17956 4050 824 3584 26146 9418 Uniforms 2896 2322 - - - 286 2896 2608 Licenses and permits 2536 4540 272 900 - - 2808 5440 Subscriptions 148 1634 424 492 140 210 712 2336 Marketing 91016 39942 - - - - 91016 39942 Programming 33340 73046 - - - - 33340 73046 Depreciation 570280 94310 42390 11642 11686 1948 624356 107900 Other - - 2584 4468 520 - 3104 4468 Total Expenses $3,640,634 $1,378,472 $455,436 $407,244 $260,832 $302,384 $4,356,902 $2,088,100

Exhibit 15-11

LFC Statements of Cash Flow for the years ended Dec 31, 2014 and 2013

2014 2013 Operating activities Change in net assets $(680,212) $4,129,254 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Depreciation 624356 107900 Contributions restricted for building renovations - 1,843,396 (Increase) decrease in operating assets Grants receivable (424,838) 292666 Other receivables 1452 (33344) Conditional promises to give 224016 (16818) Prepaid expenses (11552) - Inventory 9108 (59,510) Deposits 6400 (1510) Increase (decrease) in operating liabilities Accounts payable (5026) (423404) Accrued expenses (2732) 111776 Deferred revenue 31186 - Net cash provided by (used in) operating activities $(227842) $5,950,406 Investing activities Payments for property and equipment (682412) (7,159,362) Net cash (used in) investing activities (682412) (7,159,362) Financing activities Payments on capital leases (49336) (10084) Net increase in line of credit 860510 100000 Net cash provided by financing activities $811,174 $89,916 Net cash (decrease) in cash and cash equivalents (99,080) (1,119,040) Cash and cash equivalents-beginning of year 174,662 1,293,702 Cash and cash equivalents-end of year $75,582 $174,662