CCA Construction Cost Principles & Accounting 3

Question 1

Which accounting method is most commonly used by small home builders for tax purposes because it defers income recognition?

Accepted Answer

Completed-contract method

Answer

The completed-contract method defers all revenue and expense recognition until the contract is substantially complete, providing a tax deferral benefit for qualifying small contractors.

Question 2

A bid bond guarantees that if a contractor is awarded a project, the contractor will:

Accepted Answer

Enter into the contract and furnish required performance bonds

Answer

A bid bond ensures the contractor will execute the contract and provide performance and payment bonds if awarded the project.

Question 3

Front-loading a schedule of values inflates early payment applications by:

Accepted Answer

Overstating the cost of early work items and understating later items

Answer

Front-loading assigns higher values to early-schedule line items than their actual cost, enabling the contractor to collect cash in excess of work performed early in the project.

Question 4

An auditor discovers that equipment depreciation charged to a government contract exceeds the actual cost of the equipment over the contract period. This is a violation of which cost principle?

Accepted Answer

Allowability

Answer

Charging depreciation that exceeds actual equipment cost violates allowability because the government cannot be charged more than the asset's actual cost.

Question 5

The formula for calculating cost variance (CV) in earned value management is:

Accepted Answer

Earned Value (EV) minus Actual Cost (AC)

Answer

Cost Variance equals Earned Value minus Actual Cost; a negative CV indicates the project is over budget.

(CCA) Certified Construction Auditor Practice Test

(CCA) Certified Construction Auditor Practice Test

CCA Construction Cost Principles & Accounting 3