a-(1).
Compute the percentage of individual income taxes and withholdings to the total revenues of the federal government for the year ended September 30, 2016.
a-(1).
Explanation of Solution
Financial capability: This is the ratio that measures the ability of the government in managing the payment of financial charges from the revenue, or the burden of the government’s debt or the burden of property tax over its tax payers.
Compute the percentage of individual income taxes and withholdings to the total revenues of the federal government for the year ended September 30, 2016.
a-(2).
Compute the debt service ratio of the federal government for the year ended September 30, 2016.
a-(2).
Explanation of Solution
Debt service ratio: This ratio measures the percentage of revenue available for the payment of principal and interest of debt.
Compute the debt service ratio of the federal government for the year ended September 30, 2016.
b-(1).
Compute the inter-period equity of the federal government for the year ended September 30, 2016.
b-(1).
Explanation of Solution
Financial performance: This is the ratio that measures the financial condition of the government, or the way in which the services and activities are financed during the period.
Compute the inter-period equity of the federal government for the year ended September 30, 2016.
c-(1).
Compute the non-dedicated collections funds to total revenue ratio of the federal government for the year ended September 30, 2016.
c-(1).
Explanation of Solution
Financial position: Financial position refers to the capability of government to pay the short-term liabilities which are due.
Compute the non-dedicated collections funds to total revenue ratio of the federal government for the year ended September 30, 2016.
c-(2).
Compute the quick ratio of the federal government for the year ended September 30, 2016.
c-(2).
Explanation of Solution
Quick ratio: The financial ratio which evaluates the ability of government to pay off the instant debt obligations is referred to as quick ratio.
Compute the quick ratio of the federal government for the year ended September 30, 2016.
Note: Cash (unrestricted) is considered as quick assets, and accounts payable as current liabilities.
c-(3).
Compute the capital asset condition of the federal government for the year ended September 30, 2016.
c-(3).
Explanation of Solution
Capital asset condition: This ratio gauges the amount of
Compute the capital asset condition of the federal government for the year ended September 30, 2016.
d.
Evaluate the financial condition of the federal government for the year 2016, based on the ratios computed in the previous requirements.
d.
Explanation of Solution
Financial condition: This ratio measures the ability of the government to pay both the current and future financial obligations of taxpayers, employees, consumers, and creditors.
Comments: Based on the ratios computed in the previous requirements, the overall financial condition of the federal government is poor. The revenues of the government are mostly from the taxpayers. The debt service ratio is very high which indicates that it has low expenditure flexibility with much higher percentage (227.4%) than the warning sign of 20%. Inter-period equity is very low which indicates that 76% of the total costs are covered by current revenues. The net position is negative which indicate that there are nil funds with the government.
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Chapter 17 Solutions
Accounting For Governmental & Nonprofit Entities
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