General Contractor License Business and Finance Management 5

Question 1

Which financial metric best measures a contractor's ability to generate cash from operations, independent of financing and investing activities?

Accepted Answer

Operating cash flow

Answer

Operating cash flow measures cash generated from core business operations, excluding financing and investment activities, revealing true liquidity.

Question 2

A contractor submits a change order request for unforeseen site conditions. Under AIA contract terms, this must typically be submitted:

Accepted Answer

Within 21 days of discovering the condition

Answer

AIA A201 requires contractors to submit claims for additional costs within 21 days of discovering the condition that gave rise to the claim.

Question 3

What is the purpose of a 'lien waiver' in construction payment processes?

Accepted Answer

To release the right to file a mechanics lien upon receipt of payment

Answer

A lien waiver is a document signed by a contractor, sub, or supplier releasing their right to file a mechanics lien in exchange for payment.

Question 4

A contractor uses the 'cost-plus' pricing method. This means the client pays:

Accepted Answer

Actual project costs plus an agreed fee or percentage

Answer

Cost-plus contracts reimburse the contractor for all allowable project costs plus an agreed-upon fee or markup for overhead and profit.

Question 5

Which IRS form is a general contractor required to issue to an unincorporated subcontractor who was paid $600 or more in a tax year?

Accepted Answer

1099-NEC

Answer

A 1099-NEC must be issued to non-employee individuals or unincorporated businesses paid $600 or more for services during the tax year.

General Contractor License Practice Test