Question

The following data comes from the 2020 financial statements of the Village of Matthews. Although presented in summarized format, the balance sheet debits and credits are equal and the operating statement information is complete.

General Fund - Balance Sheet Elements
Cash	$1,200,000
Short-term Investments	405,000
Property taxes receivable - delinquent	282,000
Due from other funds	58,000
Accounts payable and other accrued liabilities	920,000
Assigned fund balance	90,000
Unassigned fund balance	935,000
General Fund - Operating Statement Elements
Revenues, including property taxes of $6,125,000	$8,350,000
Expenditures (total)	7,510,000
Transfer out to Debt Service Fund	400,000
Excess of revenues and other sources over expenditures and other uses	440,000
Debt Service Fund - Balance Sheet Elements
Cash and cash equivalents	230,000
Restricted fund balance	230,000
Debt Service Fund - Operating Statement Elements
Debt service expenditures:
Principal	100,000
Interest	200,000
Operating transfer from General Fund	400,000
Excess of revenues and other sources over expenditures and other uses	100,000

Calculate the following ratios for the Village of Matthews:

1. Number of days’ cash on hand - General Fund
2. Quick ratio - General Fund
3. Property tax receivable delinquency rate
4. Budgetary cushion for the General Fund (Assume all assigned fund balance is available.)
5. Debt service burden
6. Excess of revenues and other sources over expenditures and other uses, as a percentage of revenues - Combined, General Fund and Debt Service Fund (Hint: The transfers out and in cancel each other. Therefore, use the revenues for the denominator.)
7. Assess the liquidity of the Village of Matthews, based on the standard that the General Fund’s number of days’ cash on hand should be no less than 45 (and that 60 is more desirable) and that the quick ratio should be at least 1.

Answer 1

Part A

Number of days’ cash on hand = Cash / Operating Expenses * 365

= ($1200000/ $7510000) *365 = 58 days

Part B

Quick ratio = (Cash + investments) / Current liabilities= ($1,200,000 + 405,000) / $900,000 = $1,605,000 / $900,000= 1.78

Part C

Property tax receivable delinquency rate= Delinquent taxes / Tax revenues = $282,000 / $6,125,000 = 4.60%

Part D

Budgetary cushion for the General Fund = Available fund balance / Revenues = (935000+90000)/8350000 = $1,025,000 / $8,350,000 = 12.28%

Part E

Debt service burden = Debt service expenditures / Revenues = (100000+200000)/8350000 = $300,000 / $8,350,000 = 3.59%

Part F

Excess of revenues and other sources over expenditures and other uses / Revenues = [$440,000 + 100,000] / $8,350,000 = $540,000 / $8,350,000 = 6.47%

Part G

The liquidity position of the Village of Matthews on the basis General Fund is good. Its Number of days’ cash on hand is between 45 to 60 days and it is 58 days, which reflects that it is highly liquid. Moreover, its quick ratio is above 1 and it is 1.78. The calculation and results of these liquid ratios of the Village of Matthews indicates that it has sufficient amount liquid assets to meet its current obligations as and when they arise.