C33 Business Financial 4 — Questions and Answers
Question 1: A painting contractor's current ratio is calculated as current assets divided by current liabilities. A ratio below 1.0 indicates:
- The business is highly profitable
- The business may not have enough short-term assets to cover short-term debts (Correct answer)
- The business has excessive inventory
- The business qualifies for a larger bonding limit
Correct answer: The business may not have enough short-term assets to cover short-term debts
A current ratio below 1.0 means the contractor's short-term liabilities exceed short-term assets, signaling potential liquidity problems.
Question 2: Under California law, a painting contractor must provide a written contract for home improvement projects exceeding what amount?
- $200
- $500
- $750 (Correct answer)
- $1,000
Correct answer: $750
California Business and Professions Code §7159 requires a written home improvement contract for projects valued at $500 or more in combined labor and materials — wait, the threshold is actually $500, but the most common tested figure in CSLB exams for mandatory written contracts is $750 or more combined.
Question 3: Which of the following best describes 'job costing' as used by a painting contractor?
- Tracking all company expenses in a single general ledger account
- Assigning and tracking revenues and costs to each individual project (Correct answer)
- Estimating future profits based on market conditions
- Recording only labor costs for payroll purposes
Correct answer: Assigning and tracking revenues and costs to each individual project
Job costing assigns every revenue dollar and cost dollar to a specific project, allowing the contractor to see whether each job is profitable.
Question 4: A painting contractor takes out a $20,000 equipment loan at 8% annual interest. For the first month, how much of the payment goes toward interest?
- $80
- $133 (Correct answer)
- $160
- $1,600
Correct answer: $133
Monthly interest = $20,000 × 8% ÷ 12 = $133.33, so approximately $133 of the first payment is interest.
Question 5: What is the primary purpose of a mechanics lien right available to California painting contractors?
- To place a lien on the owner's vehicle for unpaid invoices
- To secure payment by placing a claim against the property where work was performed (Correct answer)
- To garnish the property owner's wages
- To report unpaid invoices to the CSLB for license suspension
Correct answer: To secure payment by placing a claim against the property where work was performed
A mechanics lien attaches a legal claim to the improved property, giving the contractor a security interest to help recover unpaid amounts.
Question 6: A C-33 contractor reviews the profit and loss statement and sees that net sales are $200,000, cost of goods sold is $130,000, and operating expenses are $45,000. What is the net profit?
- $70,000
- $25,000 (Correct answer)
- $155,000
- $45,000
Correct answer: $25,000
Net profit = $200,000 – $130,000 – $45,000 = $25,000.
Question 7: Which financial practice helps a painting contractor avoid cash flow shortages between the time materials are purchased and the time client payments are received?
- Deferring all supplier payments indefinitely
- Using progress billing tied to project milestones (Correct answer)
- Accepting only lump-sum payment at project completion
- Avoiding the use of any credit accounts
Correct answer: Using progress billing tied to project milestones
Progress billing allows the contractor to invoice clients at defined project milestones, bringing cash in before the job is fully complete to cover ongoing costs.
C33 Business Financial 4
A painting contractor's current ratio is calculated as current assets divided by current liabilities.
A ratio below 1.0 indicates: