General Contractor License Business and Finance Management 3

Question 1

A contractor's current ratio is calculated as current assets divided by current liabilities. A ratio below 1.0 generally indicates:

Accepted Answer

Insufficient liquidity to cover short-term obligations

Answer

A current ratio below 1.0 means the company has more short-term debts than short-term assets, signaling potential cash flow problems.

Question 2

Under the percentage-of-completion accounting method, revenue is recognized:

Accepted Answer

Based on the proportion of work completed to date

Answer

Percentage-of-completion recognizes revenue proportionally as work progresses, matching revenue with costs incurred.

Question 3

A general contractor wants to protect against losses from employee theft. Which type of insurance is most appropriate?

Accepted Answer

Commercial crime or fidelity bond insurance

Answer

Commercial crime insurance or fidelity bonds cover losses resulting from employee dishonesty, including theft of money or property.

Question 4

What is the primary purpose of a 'schedule of values' in construction contracts?

Accepted Answer

To break down the contract sum for progress billing purposes

Answer

A schedule of values allocates the contract sum across work items, forming the basis for monthly progress payment applications.

Question 5

If a contractor's bid is $500,000 and the owner requests a 10% reduction, what technique should the contractor use to identify where savings are possible?

Accepted Answer

Perform value engineering to reduce scope or find alternatives

Answer

Value engineering systematically analyzes project components to find cost-effective alternatives that maintain required function and quality.

General Contractor License Practice Test

General Contractor License Practice Test

General Contractor License Business and Finance Management 3