PAF 9153 Final Exam
Please answer the following ten questions. None of these questions require more than a
few sentences. You may use one page of notes.
1. (2 point) What is the nondistribution constraint?
2. (3 points) Economic theories about why nonprofits exist are based on the “Three
Failures” notion of public goods (as outlined, for example, by the Steinberg reading we
discussed). Pick one of these failures, explain it, and briefly discuss how it explains
nonprofit existence.
3. (1 point) If a nonprofit operates an unrelated business to earn income for itself,
what is the basis for potential tax liability? That is, to what is a tax rate applied to
determine what the nonprofit owes to the federal government?
4. (1 point) If your nonprofit organization uses the direct distribution method to
allocate your indirect costs to mission centers, will the order you allocate these indirect
cost centers affect the outcome of how costs are allocated to mission centers? For
example, if you have a purchasing department and an administration department, does it
matter which you allocate first? Explain your answer.
PAF 9153 Final Exam
5. (1 point) Nonprofits are required to report on three categories of net assets. What
are they?
6. (2 point) Describe what factors permit a nonprofit to record donated goods and
services on its financial statements.
7. (1 point) True or False. Suppose a nonprofit receives a donation for a specific
program. When the nonprofit uses resources to meet the terms of this donation, these
expenses are recorded as decreases in temporarily restricted expenses. Explain your
answer.
8. (1 point) What is the fundamental equation of accounting?
9. (1 point) Why might a nonprofit choose to use the LIFO inventory valuation
method?
10. (2 points) What are the three sections of an organization’s cash flow statement?