29 ow zational goals Problems 21 217 Finn Fixes is a new cha

2-9. ow zational goals? Problems 2-1 2-17. Finn Fixes is a new charity that repairs donated cars for use by unemployed job seekers. Finn collects the cars from area unkards. The first year Finn is in opera- tion, jobs programs bought cars from the organization for $60,000. They paid Finn $45,000 during the year and owe $15,000. Finn uses donated, unskilled labor and free garage space at a local high school. Its only cost is for parts. Total parts cost $58,000 for the year. During that first year Finn paid its parts suppliers $52,000. It owes its sup- 2-1 pliers the balance. 1. What is the profit or loss to Finn Fixes On a cash basis? 2. What is the profit or loss to Finn Fixes on an accrual basis? 3. If Finn Fixes were to stop operating at the end of the first year but received payment from the jobs programs and paid its suppliers, what would its cash budget for the next year be? How much cash would Finn Fixes have on hand at the end of the second year? How does that amount compare to its budgeted accrual basis profit or loss for 4. the first year? 5. Which basis reflects the long-term sta- bility of the organization?

Solution

1 Profit or loss on Cash Basis Year-I Income in $ Sales of Cars 45000 Less: Expenses Cost of Parts 52000 Net Loss 7000 2 Profit or loss on Accrual Basis Year-I Income in $ Sales of Cars 60000 Less: Expenses Cost of Parts 58000 Net Profit 2000 3 Cash Budget for Year-II Receipts Payment from job programmes 15000 Total (A) 15000 Less: Payments Payment for parts to suppliers 6000 Total (B) 6000 Net Cash Generations (A-B) 9000 4 Cash on hand at end of Year-II Net Cash Generations year-I (45000-52000) -7000 Net Cash Generations year-II (15000-6000) 9000 Ending Cash Balance 2000