Business Finances
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Questions and Answers

Which of the following should show a profit in order for a financial institution to easily give the company a loan?

  • Balance sheet
  • Assets account
  • Income statement (correct)
  • Overhead account

    • What is another term for net income?

  • Cash flow
  • Debits
  • Pretax income
  • Net profit for the year (correct)

    • Fixed assets are defined as:

  • Assets which are normally sold within one year
  • Assets which are normally kept for more than one year (correct)
  • Materials, buildings, and vehicles
  • Materials, buildings, and vehicles

    • Deduction of taxes that reach the ceiling, such as social security tax, occur when:

    <p>Wages reach that point, the deductions (or withholdings) will stop</p> Signup and view all the answers

    Why is overhead important to a contractor?

    <p>It represents the amount of money it costs to run a company and is important in determining accurate bids</p> Signup and view all the answers

    Which of the following taxes is only paid by the employer?

    <p>State unemployment insurance</p> Signup and view all the answers

    Employers must report and pay federal unemployment (FUTA) tax to which agency?

    <p>Internal Revenue Service</p> Signup and view all the answers

    In accounting, fixed costs can be:

    <p>Rent, property taxes, and salaries</p> Signup and view all the answers

    Which of the following statements regarding overhead is false?

    <p>Overhead should include costs directly associated with a particular project, such as material, and the specific project's payroll</p> Signup and view all the answers

    What can happen if payroll tax returns are not filed in a timely manner?

    <p>Large penalties can be charged for late filings</p> Signup and view all the answers

    Which of the following is not considered a direct cost?

    <p>Office Supplies</p> Signup and view all the answers

    Which of the following items do accounts receivable include?

    <p>Money paid for labor and received for services</p> Signup and view all the answers

    How is the Quick Ratio calculated?

    <p>Current assets minus inventory divided by current liabilities</p> Signup and view all the answers

    What would a contractor use to determine the budget of a new project?

    <p>Estimated labor and materials</p> Signup and view all the answers

    FICA taxes are:

    <p>Paid by both the employer and employee</p> Signup and view all the answers

    What is the difference between fixed cost and overhead cost?

    <p>Fixed costs fall under the overhead</p> Signup and view all the answers

    James has a truck worth $10,000 that is considered to have a useful life of 10 years. He depreciates it 10% the first year for income tax purposes. In the second year, he wants to write off the remaining 9 years. Is this acceptable?

    <p>No, this is not allowed</p> Signup and view all the answers

    The result of subtracting liabilities from assets is known as:

    <p>Net worth</p> Signup and view all the answers

    What is considered a variable cost to a contractor?

    <p>Construction material</p> Signup and view all the answers

    Which method of accounting is recommended for a construction business?

    <p>Accrual basis</p> Signup and view all the answers

    Which of the following has the characteristics of a “Cost Plus Contract”?

    <p>The client reimburses the contractor for building expenses plus a percentage-based profit amount</p> Signup and view all the answers

    What is the purpose of the IRS publication, Circular E?

    <p>An employer's Tax Guide that has instructions on how to calculate withholding tax and depositing employee’s taxes.</p> Signup and view all the answers

    The key functions of a business plan are:

    <p>Planning/forecasting tool, loan or investor document, benchmarking/management tool</p> Signup and view all the answers

    Which of the following will allow employers to keep track of products and services purchases?

    <p>Purchase order form</p> Signup and view all the answers

    What is considered a fixed cost to a contractor?

    <p>Office rent</p> Signup and view all the answers

    Direct labor burden includes:

    <p>Both B and C</p> Signup and view all the answers

    Which of the following statements regarding accounting systems is correct?

    <p>Financial statements and management reports do not reflect current financial conditions when using the cash method</p> Signup and view all the answers

    What information should a job filing system contain?

    <p>Contract documents</p> Signup and view all the answers

    A cash shortage is BEST avoided by:

    <p>Establishing progress payments to cover cash flow</p> Signup and view all the answers

    The term “net worth” on a corporate balance sheet represents:

    <p>The claim of the owners on the assets of the business</p> Signup and view all the answers

    When a contractor loses money on a job, the contractor should investigate in the estimating system, trim labor costs or use materials more effectively. Which of the following is the best way to determine these sources of information?

    <p>Comparing the job cost record to the budget</p> Signup and view all the answers

    Why is it important to keep project cost records current and accurate?

    <p>To determine the cost status of a project</p> Signup and view all the answers

    How should a contractor estimate overhead costs?

    <p>Base estimates on projected expenses</p> Signup and view all the answers

    To keep accurate accounting records, it is recommended that the contractor:

    <p>Hire a bookkeeper or CPA to maintain accounting data</p> Signup and view all the answers

    A long- term receivable would be included in the balance sheet under:

    <p>Other assets</p> Signup and view all the answers

    All revenues minus all of the expenses refers to:

    <p>Net profit</p> Signup and view all the answers

    Debts which are due within one year are known as _______________.

    <p>Current liabilities</p> Signup and view all the answers

    Which of the following costs do NOT contribute to the direct labor burden?

    <p>Company use of personal vehicles</p> Signup and view all the answers

    A corporation’s total earnings from its creation minus the total dividends is the definition for:

    <p>Retained earnings</p> Signup and view all the answers

    Which accounting tool describes a company's cash source, and how that cash was spent over a specified time?

    <p>Cash Flow Statement</p> Signup and view all the answers

    Bob Jones has been contracting for about 5 years. Bob, who has been managing all phases of this business, is checking his financial statements to determine the condition of his company. What can an intelligent construction manager do to determine his financial position?

    <p>All of the above</p> Signup and view all the answers

    Which of the following depreciation methods allows a contractor to depreciate a significant amount of an item in the first year?

    <p>Accelerated depreciation</p> Signup and view all the answers

    What is a liability?

    <p>All debts and obligations owed by the business</p> Signup and view all the answers

    If a construction company buys a new car for general use by the sales staff, to which of the following accounts would the depreciation of the car be charged?

    <p>General and administrative costs</p> Signup and view all the answers

    The ability of a company to pay its current debt is called:

    <p>Liquidity</p> Signup and view all the answers

    Which financial statement gives a picture of the business over a period of time?

    <p>Income Statement</p> Signup and view all the answers

    Contracts, sales receipts, and disbursements should be kept at LEAST:

    <p>5 years</p> Signup and view all the answers

    A company that is able to make payroll and pay for material costs has:

    <p>Proper cash flow</p> Signup and view all the answers

    Overhead percentage is greater for:

    <p>Small contractors</p> Signup and view all the answers

    Which of the following is the best method of bookkeeping for a construction company?

    <p>Record expenses when they occur and not when they are paid, as well as record income when it is earned</p> Signup and view all the answers

    Overhead includes ___________.

    <p>Fixed cost</p> Signup and view all the answers

    What is the Cash Basis Method of Accounting?

    <p>Report income in the year it is received and deduct expenses in the year paid</p> Signup and view all the answers

    With what agency is a DE34 form filed?

    <p>The Employment Development Department</p> Signup and view all the answers

    The two types of external financing available to a business are:

    <p>Equity funds and debt</p> Signup and view all the answers

    A business must use an electronic funds transfer (EFT) to make all federal tax deposits. Generally, an EFT is made using the Electronic Federal Tax Payment System (EFTPS). Which of the following is FALSE about EFTPS?

    <p>You cannot enroll in EFTPS if a third-party service prepares your tax payments</p> Signup and view all the answers

    How often should an employer file a federal payroll tax return Form 941?

    <p>Quarterly</p> Signup and view all the answers

    The SBA prefers to provide funds to a business by:

    <p>Guaranteeing up to 90% of a bank loan</p> Signup and view all the answers

    Which of the following may appear under accounts receivable?

    <p>Retention</p> Signup and view all the answers

    Where do the funds generally come from to pay for current liabilities?

    <p>Current assets</p> Signup and view all the answers

    If “2%, 10; net 30” or “2% prox 10, net 30,” appear on a supplier’s billing statement, what does it mean?

    <p>A 2% discount is given if the bill is paid by the 10th day, otherwise, the bill is to be paid in full by the 30th day</p> Signup and view all the answers

    What is Long-Term Liability?

    <p>Any debt that extends for more than 1 year</p> Signup and view all the answers

    What does the ceiling limit mean in tax?

    <p>Maximum tax that can be imposed</p> Signup and view all the answers

    Which of the following statements best describes the difference between the balance sheet and the income statement?

    <p>The balance sheet shows net worth at a particular point in time, while the income statement shows profit earned over a period of time.</p> Signup and view all the answers

    Which of the following statements is correct regarding the quick ratio?

    <p>All the above</p> Signup and view all the answers

    Who has jurisdiction over the state sales and use tax?

    <p>California State Board of Equalization</p> Signup and view all the answers

    What do liquidity ratios tell you?

    <p>The measure of a company's short-term solvency or liquidity. The higher the ratio, the better a company's position and capability of meeting obligations.</p> Signup and view all the answers

    A fixed cost is:

    <p>Part of the overhead</p> Signup and view all the answers

    Which of the following items is listed as a current asset on a balance sheet?

    <p>Accounts receivable</p> Signup and view all the answers

    What is the advantage of funding a business with debt and not with equity?

    <p>Interest is paid on a loan, but the ownership is retained</p> Signup and view all the answers

    ______ refers to the total of financial resources available to the owner of the business.

    <p>Capitalization</p> Signup and view all the answers

    If John, a contractor, decides to take out a loan to pay for a truck, he should obtain a:

    <p>Intermediate term loan to be paid in 1-7 years</p> Signup and view all the answers

    Why is net worth important on the balance sheet?

    <p>It represents the amount of money the owner has invested in the company, as well as the profits the company has retained. It tells how much of the company's assets belong to the owner.</p> Signup and view all the answers

    If the ratio of net sales to net worth is low, it means:

    <p>Net assets are not being used efficiently</p> Signup and view all the answers

    If a contractor wanted to show funding to a financial institution, what would be the LEAST applicable thing to show?

    <p>Vehicle depreciation</p> Signup and view all the answers

    When should a contractor maintain large inventories?

    <p>Never</p> Signup and view all the answers

    How is a line of credit with suppliers established?

    <p>Sign a promissory note with the suppliers ensuring that invoices will be paid monthly</p> Signup and view all the answers

    Assets that are purchased for use in operations but are not intended to be resold are called:

    <p>Fixed assets</p> Signup and view all the answers

    Another term for “stockholders equity’’ on a balance sheet is:

    <p>Net worth</p> Signup and view all the answers

    The “bottom line’’ of an income statement is:

    <p>Net profit (income) or net loss</p> Signup and view all the answers

    How often does an employer have to file FUTA?

    <p>Yearly</p> Signup and view all the answers

    When collecting sales tax from a customer for goods, to which agency is the sales tax reported and paid?

    <p>California Department of Tax and Fee Administration</p> Signup and view all the answers

    Working capital is defined as:

    <p>Total current assets minus total current liabilities</p> Signup and view all the answers

    An employer is required to file quarterly state tax returns with the:

    <p>Employment Development Department</p> Signup and view all the answers

    Where would depreciation appear on the Balance Sheet?

    <p>Fixed asset section</p> Signup and view all the answers

    Which of the following is true about overhead?

    <p>All of the above</p> Signup and view all the answers

    Which agency can allow a company to switch their accounting method?

    <p>IRS</p> Signup and view all the answers

    Direct labor is comprised of:

    <p>Actual cost of labor payroll</p> Signup and view all the answers

    Which of the following is NOT part of the DE 9C form?

    <p>Employee’s PLT withheld</p> Signup and view all the answers

    What are the fixed costs in the construction business?

    <p>Expenses such as rent, manager’s salary, etc.</p> Signup and view all the answers

    Although employers report social security (FICA) tax to the IRS, what are the appropriate shares paid by the employee and employer?

    <p>50% employer and 50% employee</p> Signup and view all the answers

    Liabilities are broken down into two major categories:

    <p>Current and long-term</p> Signup and view all the answers

    Which of the following is considered a direct cost?

    <p>Workers’ compensation insurance</p> Signup and view all the answers

    What is the purpose of retaining records of all project activities?

    <p>They are used to track project progress</p> Signup and view all the answers

    Which of the following is an example of an indirect cost?

    <p>Marketing costs</p> Signup and view all the answers

    Which of the following is considered a fixed cost?

    <p>Rent expense</p> Signup and view all the answers

    Direct labor burden refers to:

    <p>Payroll costs for labor, such as taxes and insurance</p> Signup and view all the answers

    Sales tax is collected from customers and paid to the:

    <p>Board of Equalization</p> Signup and view all the answers

    An income and expense statement can also be called a:

    <p>All of the above</p> Signup and view all the answers

    State unemployment insurance taxes are:

    <p>Paid by employers</p> Signup and view all the answers

    Contractors who work in sales and use tax districts in California and purchase fixtures or materials are subject to what percentage of tax?

    <p>A certain percentage based on supplies used at the job site differs between tax districts</p> Signup and view all the answers

    ____________ fall under direct cost for bidding purposes.

    <p>Bonds</p> Signup and view all the answers

    Which of the following depreciation methods allows a contractor to depreciate the same amount every year?

    <p>Straight line depreciation</p> Signup and view all the answers

    Depreciation is:

    <p>The decrease in value of a fixed asset due to wear and tear, passage of time, or obsolescence</p> Signup and view all the answers

    How often must an employer report and pay social security (FICA) taxes?

    <p>Quarterly</p> Signup and view all the answers

    Banks usually limit long-term borrowing for businesses to _____ of the capitalization (debt ratio).

    <p>50%</p> Signup and view all the answers

    FICA tax return for the second calendar quarter must be filed with the IRS by:

    <p>July 31st</p> Signup and view all the answers

    Which of the following represents a current asset?

    <p>Retentions</p> Signup and view all the answers

    Which of the following shows how far past-due each customer’s payment is?

    <p>Accounts receivable aging report</p> Signup and view all the answers

    The ABC Construction Company has found itself in bad times and must convert its assets into cash to pay some outstanding debt. The ability to do this is called:

    <p>Liquidity</p> Signup and view all the answers

    If an $8.30 discrepancy emerges between debits and credits, what should the bookkeeper do?

    <p>Find the error, no matter how long it takes</p> Signup and view all the answers

    What is the basic balance sheet equation?

    <p>Assets = Liabilities + Owner's Equity</p> Signup and view all the answers

    A company’s profits are calculated by:

    <p>Subtracting expenses from revenues</p> Signup and view all the answers

    Bob Hunter, a contractor, wants to bid on several large jobs. The only significant debt Bob has is a mortgage on his shop building. After discussing loans with several banks, Bob decides to try equity funding as a source of financing. Equity funds are:

    <p>Supplied by investors who acquire some control of the business and a share of the profits. The funds stay in the business.</p> Signup and view all the answers

    How often should income statements be prepared?

    <p>Whenever profit or loss is to be reviewed</p> Signup and view all the answers

    Net working capital is equal to:

    <p>Current assets minus current liabilities</p> Signup and view all the answers

    A loan from a bank to buy supplies is sought, which can be paid within 90 days. Approval of the loan depends on:

    <p>All of the above</p> Signup and view all the answers

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