C33 Business Financial 2 — Questions and Answers
Question 1: A painting contractor receives a $50,000 contract. Under California law, what is the maximum deposit the contractor can legally collect before starting work?
- $1,000 or 10% of the contract price, whichever is less (Correct answer)
- $5,000 or 10% of the contract price, whichever is less
- $2,500 or 15% of the contract price, whichever is less
- There is no legal limit on deposits for commercial contracts
Correct answer: $1,000 or 10% of the contract price, whichever is less
California Business and Professions Code §7159.5 limits contractors to collecting no more than $1,000 or 10% of the contract price (whichever is less) as a down payment.
Question 2: Which financial document provides the best snapshot of a painting company's assets, liabilities, and owner's equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Accounts receivable aging report
Correct answer: Balance sheet
A balance sheet shows the company's financial position at a specific date by listing assets, liabilities, and equity.
Question 3: A California painting contractor fails to pay workers' compensation premiums for 60 days. What is the most likely CSLB consequence?
- A written warning is issued
- The contractor's license is suspended (Correct answer)
- The contractor receives a $500 fine
- The contractor must post a larger bond
Correct answer: The contractor's license is suspended
CSLB automatically suspends a contractor's license when workers' compensation insurance lapses, as required by California law.
Question 4: What does 'accounts payable' represent on a painting contractor's balance sheet?
- Money owed TO the contractor by clients
- Money the contractor owes TO suppliers and vendors (Correct answer)
- The total value of completed contracts
- Employee wages already paid
Correct answer: Money the contractor owes TO suppliers and vendors
Accounts payable are short-term obligations the contractor owes to suppliers, subcontractors, or vendors for goods and services received.
Question 5: A C-33 contractor wants to calculate gross profit. Which formula is correct?
- Gross Profit = Net Sales – Operating Expenses
- Gross Profit = Net Sales – Cost of Goods Sold (Correct answer)
- Gross Profit = Total Revenue – Taxes
- Gross Profit = Net Sales – Total Liabilities
Correct answer: Gross Profit = Net Sales – Cost of Goods Sold
Gross profit equals net sales minus the direct costs of completing jobs (cost of goods sold), before subtracting operating expenses.
Question 6: Which type of business entity provides the owner of a small painting company personal liability protection while being taxed as a pass-through entity by default?
- Sole proprietorship
- General partnership
- Limited Liability Company (LLC) (Correct answer)
- C-Corporation
Correct answer: Limited Liability Company (LLC)
An LLC shields owners from personal liability for business debts while its profits and losses pass through to the owner's personal tax return by default.
Question 7: When preparing a job cost estimate, a painting contractor should include which of the following as an indirect (overhead) cost?
- Paint and primer for the specific job
- Labor hours for crew on the specific job
- Office rent and administrative salaries (Correct answer)
- Brushes and rollers consumed on the job
Correct answer: Office rent and administrative salaries
Office rent and administrative salaries are overhead costs that support the business generally, not tied to a single specific job.
C33 Business Financial 2
A painting contractor receives a $50,000 contract.
Under California law, what is the maximum deposit the contractor can legally collect before starting work?