Answer the following questions by reading the most recent consolidated financial statements of the American Red Cross (ARC) at its website, www.redcross.org . (The financial statements may be accessed through the Publications link on the website’s home page.)
a. Why does the U.S. Army Audit Agency audit the ARC’s financial statements?
b. For the most recent year, what was the ratio of program services expenses to total expenses?
According to the Better Business Bureau, a ratio of program expenses to total expenses of 60 percent is considered acceptable. How does the ratio for the ARC compare with this benchmark?
c. What is the ARC’s policy with respect to recognizing contribution revenue? Of the total contributions receivable at June 30 of the most recent year, what amount is temporarily restricted?
d. What interest rate was used to determine the present value for contributions receivable in years after June 30 of the most recent year?
e. For the most recent year ended June 30, what was the amount of net assets reclassified due to satisfaction of purpose and/or time restrictions?
f. Of all program services provided, which one had the highest total cost for salaries, wages, and employee benefits?
g. How does the ARC define temporarily restricted net assets?
h. At June 30 of the most recent year, what was the amount of conditional contributions? Did the ARC report these contributions in revenue for that year?
i. Of the total amount of unrestricted investment income reported for the most recent year, what amount came from dividends and interest?
j. What does the ARC report when donor-imposed purpose restrictions are accomplished or donor-imposed time restrictions expire?
k. Assume the ARC received a cash contribution during the most recent year that the donor restricted for disaster relief. Also assume that the ARC spent the amount donated in the year for disaster relief. Specify whether the ARC would report this donation on its statement of activities for the most recent year as (1) an increase in unrestricted net assets when the donation was received or (2) an increase in temporarily restricted net assets when the donation was received and as a reclassification of net assets from temporarily restricted to unrestricted when the donation was used.
l. Assume the ARC received a donation of equipment in the most recent year from a donor who did not place any restrictions on the donated assets. Specify whether the ARC would report this donation in its statement of activities for the current year as (1) an increase in unrestricted net assets when the equipment was received or (2) an increase in temporarily restricted net assets when the equipment was received and as a reclassification of net assets from temporarily restricted to unrestricted when the equipment is depreciated.