General Contractor License Business and Finance Management 2

Question 1

A contractor's overhead rate is calculated by dividing total overhead costs by which figure?

Accepted Answer

Direct labor costs

Answer

Overhead rate is calculated by dividing total overhead costs by direct labor costs to allocate indirect expenses to projects.

Question 2

Which financial statement shows a contractor's assets, liabilities, and equity at a specific point in time?

Accepted Answer

Balance sheet

Answer

The balance sheet is a snapshot of financial position at a given date, showing what the company owns versus what it owes.

Question 3

A subcontractor fails to complete work and causes a project delay. Under a typical subcontract agreement, the general contractor may:

Accepted Answer

Back-charge the subcontractor for resulting costs

Answer

Back-charges allow the GC to deduct costs incurred due to a subcontractor's default from amounts owed to that subcontractor.

Question 4

What does the term 'accounts receivable turnover' measure in a contracting business?

Accepted Answer

How efficiently the company collects money owed to it

Answer

Accounts receivable turnover measures how many times receivables are collected over a period, indicating billing and collection efficiency.

Question 5

A contractor purchases a $120,000 piece of equipment with a 5-year useful life and $0 salvage value. Using straight-line depreciation, the annual depreciation expense is:

Accepted Answer

$24,000

Answer

Straight-line depreciation divides cost by useful life: $120,000 ÷ 5 = $24,000 per year.

General Contractor License Practice Test

General Contractor License Practice Test

General Contractor License Business and Finance Management 2