EstatePass

Business Finances — California C-10 Practice Questions

34 questions · 15% of the Law & Business exam

Worked questions

3. How should contract retention be treated in cash planning?

  • As earned funds held pending release
  • BAs permanent profit with no collection risk
  • CAs a substitute for payroll reserves
  • DAs immediate unrestricted cash

Why A is correct

Retention delays cash even when revenue or cost has been recognized. Forecasts should reflect release timing, closeout conditions, disputes, and collection risk.

5. What does an income statement primarily show?

  • AOnly unapproved change orders
  • BOnly bank account balance
  • CAssets and liabilities on one date
  • Periodic profit or loss

Why D is correct

The income statement measures operating performance across a period. It does not by itself show cash timing or the complete financial position, so managers use it with other reports.

7. Why should withheld payroll taxes be segregated and remitted on schedule?

  • Payment obligations, not operating cash
  • BThey become profit until year-end
  • CEmployees remit all employer obligations
  • DThey may be used permanently for materials

Why A is correct

Payroll withholding and employer taxes carry filing and deposit duties and potential personal or business penalties. Using them as general working capital creates serious compliance risk.

8. A contractor has $120,000 of annual fixed overhead and a 30% contribution-margin ratio. What annual sales level is required to break even?

  • A$120,000
  • B$520,000
  • C$36,000
  • $400,000

Why D is correct

The best answer is: $400,000. Break-even sales equal fixed overhead divided by the contribution-margin ratio: $120,000 ÷ 0.30 = $400,000. At that sales level, the $120,000 contribution covers fixed overhead with no remaining profit. The other values result from using the wrong base, operation, percentage, or cash-flow treatment.

9. A contractor has earned $240,000 on a project, and the owner will hold 5% retention until release conditions are met. How much is currently retained?

  • $12,000
  • B$240,000
  • C$5,000
  • D$228,000

Why A is correct

The best answer is: $12,000. Retention is 5% of $240,000: $240,000 × 0.05 = $12,000. The contractor may have earned that amount but should not treat it as available cash until the contractual release requirements are met. The other values result from using the wrong base, operation, percentage, or cash-flow treatment.

10. A masonry job budgeted $48,000 of labor for the completed scope but recorded $54,000 of actual labor. What is the labor cost variance?

  • A$54,000 unfavorable
  • B$12,000 unfavorable
  • C$6,000 favorable
  • $6,000 unfavorable

Why D is correct

The best answer is: $6,000 unfavorable. Actual labor cost of $54,000 minus the $48,000 labor budget equals a $6,000 unfavorable variance. The comparison must use the same completed scope; company-wide profit can conceal this job-level overrun. The other values result from using the wrong base, operation, percentage, or cash-flow treatment.

11. The cash forecast treats payroll withholding and sales-tax collections as money freely available for operations. What exposure does this create?

  • ACustomers pay every contractor tax
  • BTaxes are optional until project closeout
  • Tax deadlines can create cash exposure
  • DTax records replace job costing

Why C is correct

The best answer is: Tax deadlines can create cash exposure. Tax liabilities may arise before customer collection and some funds are withheld for agencies. Forecasting and timely deposits protect operating cash and avoid penalties. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

12. The company owns several fully paid trucks but has almost no bank balance and current bills are due. Which financial weakness is immediate?

  • AInsufficient depreciation expense only
  • BExcessive gross profit
  • CToo much license scope
  • Insufficient working cash

Why D is correct

The best answer is: Insufficient working cash. Assets do not necessarily convert to cash in time for current obligations. Cash forecasts, collections, credit terms, reserves, and working capital manage short-term solvency. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

22 more in the bank

Answers and explanations for these are in the app.

  • A bid includes labor and material but omits supervision, equipment, permits, insurance, and overhead. What is the likely result?
  • A company has valuable equipment but cannot pay current payroll and suppliers. Which problem is most immediate?
  • A project is halfway through but has spent 70 percent of its budget. What analysis is needed?
  • A project is profitable in the estimate but losing money in the field. Which control best reveals the cause?
  • A requested change adds material but also extends supervision and equipment rental. What should the price analysis include?
  • A supplier statement differs from the contractor’s ledger. What should occur before payment?
  • What does a break-even analysis identify?
  • Which statement best describes a balance sheet?
  • Why is equipment depreciation relevant to financial planning?
  • Why must overhead be included when pricing work?
  • A bidder prices craft labor and material accurately but includes nothing for office rent, estimating, accounting, or general insurance. What pricing principle was missed?
  • A company purchases a service truck expected to benefit several accounting periods. How should that asset cost be recognized for planning purposes?
  • A concrete estimate covers field labor and material but excludes permits, equipment, supervision, insurance, and office cost. What is the financial effect?
  • A customer disputes an aging invoice because the billed phase cannot be tied to signed tickets. What should accounting do before escalating collection?
  • A lender wants to see what the contractor owns and owes on the final day of the quarter. Which financial statement supplies that view?
  • A project is 55% complete but 78% of budget has been committed or spent. What forward-looking analysis should management perform?
  • A project produced $250,000 of revenue and $175,000 of direct job cost. Before overhead and other operating expenses, what is its gross profit?
  • An invoice bills 100 units, the receiving record shows 80, and the purchase order shows 90. What should occur before payment?
  • An owner-directed change has $8,000 of documented direct cost. The agreed pricing method adds 10% overhead to direct cost, then 10% profit to that subtotal. What is the change price?
  • Management considers using employee tax withholdings to pay a material invoice and replacing the money later. Why is that unsafe?
  • The bookkeeper can create a vendor, enter its invoice, approve it, and release payment. Which internal-control weakness exists?
  • The income statement shows profit, but next Friday's payroll exceeds available cash because customer checks arrive next month. What planning tool addresses the immediate risk?

Practice all 34 Business Finances questions

Plus timed mock exams and a wrong book that follows you between the web and the app.

Start studying free

Other California C-10 content areas