CC Business and Financial Management 2

Question 1

What is the primary advantage of organizing a contracting business as an LLC?

Accepted Answer

It provides personal liability protection for the owners

Answer

An LLC (Limited Liability Company) separates the owner's personal assets from business liabilities, protecting personal wealth in the event of a lawsuit.

Question 2

What is 'workers' compensation' and why is it important for contractors?

Accepted Answer

Insurance that covers employees injured on the job, required in most states for contractors with employees

Answer

Workers' comp provides medical and wage replacement benefits to injured employees and protects contractors from costly personal injury lawsuits.

Question 3

What does a contractor's 'markup' cover when pricing a job?

Accepted Answer

Overhead costs and profit margin added on top of direct project costs

Answer

Markup is the percentage added to direct costs to recover overhead expenses and generate a profit for the business.

Question 4

Which tax form must a contractor issue to unincorporated subcontractors paid $600 or more in a tax year?

Accepted Answer

Form 1099-NEC

Answer

Contractors must issue IRS Form 1099-NEC to independent subcontractors paid $600 or more to report non-employee compensation.

Question 5

What is 'accounts receivable' in a contracting business?

Accepted Answer

Money owed to the contractor for completed work that has not yet been paid

Answer

Accounts receivable represents invoices sent to clients for work already performed but not yet collected, reflecting the business's outstanding revenue.

CC - Contractor Certificate Practice Test

CC - Contractor Certificate Practice Test

CC Business and Financial Management 2