For several years, Bay town Rehabilitative Camp for Disabled Children (hereafter referred to as the camp) has applied for an operating grant from the Bay town 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 2020 statement of activities, the United Way agency allocated $25,000 to the camp for fiscal year 2020. However, the amount allocated was $5,000 less than the camp had requested in its fiscal year 2020 budget, reflecting the allocation panel's concern about the camp's financial reserves (representing about 12 days in 2019) and low ratio of program services expense to total expense (only 57 percent in 2019). As a condition for receiving the $25,000 fiscal year 2020 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, 2019. The camp is requesting a $35,000 United Way allocation for fiscal year 2021, 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 net assets without donor restrictions resulted from $37,500 of net assets with donor restrictions that were released from restriction during fiscal year 2020, with no corresponding increase in the balance of the Buildings and Building Improvements account. ($20,000 of the $57,500 released from restriction related to $20,000 of contributions with donor restrictions received during 2020.) 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 camp's 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. In your analysis, you should look at the camp's financial position without donor restrictions, both including and excluding the use of the $37,500 of net assets with donor restrictions for operating purposes. As part of your analysis, you should consider liquidity (current and/or quick ratio), days of financial reserves, and effectiveness (program expenses/total expenses). Financial reserves ratio is calculated as working capital (current assets - current liabilities) divided by expenses. To calculate the number of days of financial reserves available to cover expenses, multiply the financial reserves ratio by 365 days.
b. What is your reaction to the board of directors decision to use, for operating purposes, the $100,000 net assets with donor restrictions provided by a donor for building expansion?
c. What amount of United Way funds would you recommend be allocated to the camp for fiscal year 2021? Explain your recommendation.

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BAYTOWN REHABILITATIVE CAMP FOR DISABLED CHILDREN Statement of Financial Position December 31, 2020 and 2019 2020 2019 Assets Current assets $ 36,802 $ 12,248 Cash Contributions receivable 28,728 16,372 15,559 81,089 90,434 Prepaid expenses 17,748 Total current assets 46,368 Investments-with donor restrictions 122,368 Property, plant, and equipment Land 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) 457,008 449,768 185,342 171,924 803,932 $972,668 Total property, plant, and equipment 810,110 $981,633 Total assets Liabilities and Net Assets Current liabilities $ 23,852 $ 35,722 5,064 40,786 Accounts payable Accrued payroll and other accrued liabilities 5,289 Total current liabilities 29,141 Net assets 809,514 Without donor restrictions 862,058 With donor restrictions 90,434 952,492 $981,633 122,368 931,882 $972,668 Total net assets Total liabilities and net assets BAYTOWN REHABILITATIVE CAMP FOR DISABLED CHILDREN Statement of ActIvitles For the Year Ended December 31, 2020 Without With Donor Donor Restrictions Restrictions Total Revenues and other support Contributions $ 65,250 $20,000 $ 85,250 25,000 United Way allocation Charges to clients Donated goods and services 25,000 34,400 34,400 105,160 105,160 Interest 154 5,566 5,720 Miscellaneous 4,012 4,012 Net assets released from restriction satisfaction of purpose Total revenues and other support Expenses Program services Management and general Fund-raising Total expenses Increase (decrease) in net assets Net assets, December 31, 2019 (57,500) 57,500 291,476 -0- (31,934) 259,542 152,828 77,604 152,828 77,604 8,500 238,932 8,500 238,932 52,544 (31,934) 122,368 $90,434 20,610 809,514 $862,058 931,882 Net assets, December 31, 2020 $952,492