CRC CRC Business & Financial Management 1 — Questions and Answers
Question 1: Which financial statement shows a contractor's assets, liabilities, and equity at a specific point in time?
- Balance sheet (Correct answer)
- Income statement
- Cash flow statement
- Profit and loss statement
Correct answer: Balance sheet
The balance sheet provides a snapshot of a company's financial position — assets, liabilities, and owner's equity — on a given date.
Question 2: A residential contractor's overhead rate is calculated by dividing total overhead costs by which figure?
- Total direct labor costs (Correct answer)
- Total material costs
- Gross revenue
- Net profit
Correct answer: Total direct labor costs
The overhead rate is typically calculated by dividing total overhead costs by total direct labor costs to determine how much overhead to allocate per labor dollar.
Question 3: What type of business structure offers a residential contractor personal liability protection while avoiding double taxation?
- Limited Liability Company (LLC) (Correct answer)
- Sole proprietorship
- C-Corporation
- General partnership
Correct answer: Limited Liability Company (LLC)
An LLC provides personal liability protection like a corporation but is taxed as a pass-through entity, avoiding the double taxation that C-Corporations face.
Question 4: A contractor submits a Schedule of Values to the owner. What is its primary purpose?
- To establish the basis for progress payment requests (Correct answer)
- To list all subcontractors on the project
- To document change orders
- To outline the project timeline
Correct answer: To establish the basis for progress payment requests
A Schedule of Values breaks the contract sum into line items that correspond to work phases, forming the basis for monthly pay applications.
Question 5: Which ratio measures a company's ability to meet short-term obligations with its most liquid assets?
- Current ratio (Correct answer)
- Debt-to-equity ratio
- Net profit margin
- Return on assets
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) indicates whether a contractor has enough short-term assets to cover short-term debts.
Question 6: When a residential contractor uses the 'percentage-of-completion' method for revenue recognition, revenue is recorded based on what?
- The proportion of work completed relative to total contract value (Correct answer)
- When the final invoice is paid
- When materials are purchased
- At the start of each billing cycle
Correct answer: The proportion of work completed relative to total contract value
Under the percentage-of-completion method, revenue is recognized in proportion to the work actually completed, matching income with project progress.
CRC CRC Business & Financial Management 1
Which financial statement shows a contractor's assets, liabilities, and equity at a specific point in time?