C33 Business Financial 5 — Questions and Answers
Question 1: A California painting contractor is required to keep financial and business records for how long after project completion in case of a CSLB audit?
- 1 year
- 3 years
- 5 years (Correct answer)
- 7 years
Correct answer: 5 years
The CSLB requires contractors to maintain project and financial records for at least five years after project completion.
Question 2: What does the term 'retainage' mean in a California construction payment context?
- The contractor's profit margin on a job
- A percentage of each progress payment withheld until project completion (Correct answer)
- The deposit paid by the client before work begins
- The amount withheld for state income tax
Correct answer: A percentage of each progress payment withheld until project completion
Retainage is a portion (commonly 5–10%) held back from each progress payment and released after satisfactory project completion.
Question 3: A painting contractor's bond required by the CSLB primarily protects:
- The contractor's personal assets from lawsuits
- Consumers who suffer financial harm from the contractor's actions (Correct answer)
- The contractor's employees in case of injury
- The contractor's suppliers from non-payment
Correct answer: Consumers who suffer financial harm from the contractor's actions
The CSLB contractor's license bond exists to compensate consumers who are financially harmed by a licensed contractor's defective work or fraud.
Question 4: Which accounting method records income when it is earned and expenses when they are incurred, regardless of when cash changes hands?
- Cash basis accounting
- Accrual basis accounting (Correct answer)
- Modified cash basis accounting
- Single-entry bookkeeping
Correct answer: Accrual basis accounting
Accrual accounting recognizes revenue when earned and expenses when incurred, providing a more accurate picture of financial performance for larger contractors.
Question 5: A painting contractor receives payment from a client but uses the funds for personal expenses instead of paying subcontractors. Under California law, this conduct may constitute:
- A minor bookkeeping error with no legal consequence
- Misappropriation of construction funds, subject to criminal charges (Correct answer)
- Grounds for a CSLB license renewal delay only
- An allowable practice if the contractor repays within 90 days
Correct answer: Misappropriation of construction funds, subject to criminal charges
Diverting funds meant for subcontractors to personal use can be prosecuted as misappropriation or theft under California Penal Code, in addition to CSLB disciplinary action.
Question 6: When a painting contractor calculates 'break-even' for the business, they are determining:
- The point at which total revenue equals total costs, yielding zero profit (Correct answer)
- The minimum number of employees needed to complete a project
- The maximum allowable markup under California law
- The date by which all liabilities must be paid
Correct answer: The point at which total revenue equals total costs, yielding zero profit
Break-even is the revenue level at which total costs equal total income, meaning the business neither profits nor loses money.
Question 7: A sole proprietor C-33 contractor must pay self-employment tax in addition to regular income tax. The self-employment tax rate applied to net self-employment earnings is approximately:
- 7.65%
- 10.2%
- 15.3% (Correct answer)
- 21.0%
Correct answer: 15.3%
Self-employment tax is 15.3% (12.4% Social Security + 2.9% Medicare) on net self-employment income, covering both the employer and employee shares.
C33 Business Financial 5
A California painting contractor is required to keep financial and business records for how long after project completion in case of a CSLB audit?