Temporarily Restricted el Assets. For several years, Baytown Rehabilitative Camp for Disabled Children (hereafter referred to as the camp) has applied for an operating grant from the Baytown Area United Way. As the finance adviser for the local United Way allocation panel, it is your responsibility to evaluate the camp€™s budget request for the forthcoming year and its audited financial statements. The camp€™s most recent comparative statement of financial position and statement of activities are presented below.

Additional Information: As reflected in the camp€™s 2011 statement of activities, the United Way agency allocated $25,000 to the camp for fiscal year 2011. However, the amount allocated was $5,000 less than the camp had requested in its fiscal year 2011 budget, reflecting the allocation panel€™s concern about the camp€™s inadequate financial reserves and low ratio of program services expense total expense (only 57 percent in 2010). As a condition for receiving the $25,000 fiscal year 2011 allocation, Baytown Rehabilitative Camp agreed to take actions to improve its financial reserves and its ratio of program services expense to total expense, including an increase in its fund-raising efforts and a reduction in its support payroll. Another area of concern to the allocation panel has been the camp€™s long delay in using a restricted contribution of $100,000 received several years earlier. This gift was restricted by the donor for future expansion of a building used as a dining hall and for rehabilitative activities. This contribution has been invested in CDs and has grown to $122,368 as of December 31, 2010. The camp is requesting a $35,000 United Way allocation for fiscal year 2012, based on a growing demand for its services and improvement made in its financial condition. As financial adviser for the local United Way allocation panel, however, you note that much of the improvement in unrestricted net as sets resulted from $37,500 of temporarily restricted net assets that were released from restriction during fiscal year 2011, with no corresponding increase in the of the Buildings and Building Improvements account. (Note: $20.000 of the $57,500 released from restriction related to $20,000 of temporarily restricted contributions received during 2011.) You immediately contact the camp administrator for an explanation, whereupon she explains that the board of directors voted to use $37,500 of previously restricted investments for operating purposes after the administrator reported to the board that the original agreement with the donor could not be located and the donor was now deceased, She further indicated that the board may continue to use this pool of resources to further improve the camp€™s financial condition.
Required
a. As financial adviser, evaluate the camps statement of financial position and statement of activities and prepare a report for the chair of the allocation committee indicating the extent to which the camp€™s financial situation has improved or worsened. You should base your recommendation on measures such as the current ratio and ratio of unrestricted net assets, net of total property, plant, and equipment, to total expenses for the year. In your analysis you should look at the camp€™s unrestricted financial position, both including and excluding the questionable use of the $37,500 of restricted net assets for operating purposes.
b. Has the camp€™s board of directors violated the terms of the $100,000 contribution that was restricted by the donor for future building expansion? What sanctions might be taken against the board and the camp administrator for not meeting their fiduciary responsibilities?
c. What amount of United Way funds would you recommend be allocated to the camp for fiscal year 2012? Explain yourrecommendation.

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BAYTOWN REHABILITATIVE CAMP FOR DISABLED CHILDREN Statement of Financial Position December 31, 2011, and 2010 Assets 2011 2010 Current assets $ 36,802 $ 12,248 Cash Contributions receivable 28,728 16,372 17,748 Prepaid expenses 15,559 Total current assets 46,368 81,089 Investments-Temporarily restricted Property, plant, and equipment Land 90,434 122,368 175,000 175,000 Buildings and building improvements (net of accumulated depreciation of $137,440 and $130,200) Equipment (net of accumulated depreciation of $195,370 and $186,788) 449,768 457,008 185,342 810,110 171,924 Total property, plant, and equipment 803,932 Total assets $972,668 $981,633 Liabilities and Net Assets Current liabilities $ 23,852 5,289 $ 35,722 Accounts payable Accrued payroll and other accrued liabilities 5,064 Total current liabilities 29,141 40,786 Net assets Unrestricted 862,058 809,514 Temporarily restricted 90,434 122,368 Total net assets 952,492 931,882 Total liabilities and net assets $981,633 $972,668