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Exercise 10-20

10-20 Comparative Ratios. The government-wide financial statements for the City of Arborland for a three-year period are presented on the following pages.

Additional information follows:

Population: Year 2020: 30,420, Year 2019: 28,291, Year 2018: 26,374.

Debt limit remained at $20,000,000 for each of the three years. Net cash from operations is generally 80 percent of total revenues each year.

Required

A. Which of the financial performance measures in Illustration 10-4 can be calculated for the City of Arborland based on the information that is provided?

The performance measures shown have both the government-wide financial statements as well as the fund financial statements, which are:

a. Business-type activities self-sufficiency

b. Unrestricted net position

c. Capital asset condition

d. Debt to assets

e. Current ratio

f. Quick ratio

g. Change in net position

h. Revenue Dispersion

B. Calculate those ratios identified in part a for FY 2020. Show your computations.

Statement	Governmental	2020	Business Type	2020
Business-type activities Self-Suff	5218 2895	1.80 Times
Unrestricted Net Position	4597 20302+3860+1886+495	17%	3546 5218+7	68%
Capital Asset Condition	15039 (37183+37600)/2	40%	3681 (17775+14455)/2	23%
Debt to asset	19266 34040	57%	7167 14740	49%
Current Ratio	9299 3366	2.76 Times	3966 667	5.95 Times
Quick ratio	9299-253-26 3366	2.68 Times	3966-8-58 667	5.85 Times
Change in net position	22347-17447	$4900	22347-17447	$4900
Revenue Dispersion	3860+1886+495+2190+716 20302+3860+1886+495-100	34.6%

c. Provide an overall assessment of the City of Arborland’s financial condition using all the information provided, both financial and nonfinancial. Use information from the prior years to form your assessment.

The City of Arborland appears to be in strong financial condition based on the following interpretations of the ratios calculated for part b: Unrestricted net position has increased each of the three years in both governmental and business-type activities; capital assets still have at least half of their useful lives to go; the current and quick ratios indicate that the government is liquid and can pay its current liabilities; there is still capacity to issue more debt if needed. Some indicators that should be watched include the relatively high amount of debt as a percent of total assets.