General Contractor License Business Law and Finance 2 — Questions and Answers
Question 1: A contractor signs a contract with a homeowner but later discovers the project requires a specialty license they don't hold. What is the legal status of the contract?
- Void and unenforceable (Correct answer)
- Voidable at the contractor's option
- Valid but subject to penalty
- Automatically transferred to a licensed subcontractor
Correct answer: Void and unenforceable
A contract requiring an unlicensed activity is generally void and unenforceable, meaning the contractor cannot collect payment.
Question 2: Which financial statement shows a company's revenues and expenses over a specific period?
- Balance sheet
- Income statement (Correct answer)
- Cash flow statement
- Statement of retained earnings
Correct answer: Income statement
The income statement (profit and loss statement) summarizes revenues and expenses over a defined accounting period.
Question 3: A subcontractor files a mechanics lien after completing work. What must typically happen for the lien to remain valid?
- The contractor must acknowledge it in writing
- A lawsuit to enforce the lien must be filed within the statutory deadline (Correct answer)
- The property owner must post a bond
- The lien must be approved by a court within 30 days
Correct answer: A lawsuit to enforce the lien must be filed within the statutory deadline
Mechanics liens must be enforced through a lawsuit within the state-mandated deadline or they expire and become unenforceable.
Question 4: Under the Fair Labor Standards Act (FLSA), non-exempt employees must be paid overtime at what rate for hours worked over 40 in a workweek?
- 1.25 times the regular rate
- 1.5 times the regular rate (Correct answer)
- 2 times the regular rate
- The same regular rate with a bonus
Correct answer: 1.5 times the regular rate
The FLSA requires non-exempt employees to receive at least 1.5 times their regular pay rate for overtime hours.
Question 5: What is the primary purpose of a surety bond in the construction industry?
- To insure workers against on-site injuries
- To guarantee the contractor will fulfill contractual obligations (Correct answer)
- To cover property damage during construction
- To provide liability coverage for the owner
Correct answer: To guarantee the contractor will fulfill contractual obligations
A surety bond protects the project owner by guaranteeing the contractor will complete the work as agreed or the surety will cover losses.
Question 6: When a contractor uses the 'percentage of completion' accounting method, revenue is recognized based on:
- When final payment is received
- The proportion of work completed to date (Correct answer)
- The calendar quarter in which work was performed
- When the contract is signed
Correct answer: The proportion of work completed to date
Under the percentage of completion method, revenue and expenses are recognized proportionally as the project progresses.
Question 7: A contractor's employee is injured on a jobsite. Under workers' compensation laws, the injured worker typically:
- Must prove employer negligence to receive benefits
- Receives medical and wage benefits regardless of fault (Correct answer)
- Can only sue the property owner
- Is ineligible if they were partially at fault
Correct answer: Receives medical and wage benefits regardless of fault
Workers' compensation is a no-fault system — injured employees receive benefits without needing to prove the employer was negligent.
General Contractor License Business Law and Finance 2
A contractor signs a contract with a homeowner but later discovers the project requires a specialty license they don't hold.
What is the legal status of the contract?