Business Finances — California C-20 Practice Questions

34 questions · 15% of the Law & Business exam

Worked questions

1. A supplier statement differs from the contractor’s ledger. What should occur before payment?

AChange the statement without support
BPay both balances
Reconcile invoices and payments
DDelete the supplier record

Why C is correct

Three-way matching and reconciliation confirm that goods were ordered, received, priced, and not already paid. Unsupported adjustment or duplicate payment damages cash and records.

2. 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.

3. 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.

4. A customer disputes an aging invoice because the billed phase cannot be tied to signed tickets. What should accounting do before escalating collection?

ADelete the receivable
Reconcile, then seek relief
CThreaten unrelated property
DAlter the invoice date

Why B is correct

The best answer is: Reconcile, then seek relief. Accurate documentation and compliance with billing conditions establish whether payment is due and preserve available remedies. Changing records or making unsupported threats creates additional exposure. 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.

5. The bookkeeper can create a vendor, enter its invoice, approve it, and release payment. Which internal-control weakness exists?

AInsufficient advertising
Poor separation of duties
CToo much project documentation
DExcessive jobsite supervision

Why B is correct

The best answer is: Poor separation of duties. Concentrating vendor setup, approval, and payment enables error or fraud without detection. Segregation, approval thresholds, reconciliations, and audit trails strengthen control. 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.

29 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 profitable contractor cannot meet payroll because receivables are late and suppliers require payment. What does this demonstrate?
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?
An invoice is overdue and the owner disputes its backup. What is the best first control?
One employee can create vendors, approve invoices, and issue payments. What weakness exists?
What does a break-even analysis identify?
What does an income statement primarily show?
Which statement best describes a balance sheet?
Why is equipment depreciation relevant to financial planning?
Why must overhead be included when pricing work?
Why should a contractor forecast income, sales or use, and payroll tax obligations separately from general cash?
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 contractor has $120,000 of annual fixed overhead and a 30% contribution-margin ratio. What annual sales level is required to break even?
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?
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 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 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 cash forecast treats payroll withholding and sales-tax collections as money freely available for operations. What exposure does this create?
The company owns several fully paid trucks but has almost no bank balance and current bills are due. Which financial weakness is immediate?
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?

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