Business Finances — California C-36 Practice Questions

34 questions · 15% of the Law & Business exam

Worked questions

1. A profitable contractor cannot meet payroll because receivables are late and suppliers require payment. What does this demonstrate?

APayroll can be ignored until final payment
BMore revenue always solves collection timing
Forecast cash receipts and payments
DProfit guarantees cash on hand

Why C is correct

Accrual profit can exist while cash is unavailable. A cash-flow forecast identifies working-capital needs, billing timing, retainage, collections, payroll, taxes, and supplier obligations.

2. Why is equipment depreciation relevant to financial planning?

AIt creates cash in the bank
It allocates cost over time
CIt eliminates maintenance
DIt changes employee hours

Why B is correct

Depreciation is an accounting allocation rather than a cash receipt. Understanding it helps measure job cost and profitability while management separately plans cash for future replacement.

3. A bidder prices craft labor and material accurately but includes nothing for office rent, estimating, accounting, or general insurance. What pricing principle was missed?

Recover job costs and overhead
BIndirect costs never affect price
COverhead applies only to public work
DOverhead is identical to profit

Why A is correct

The best answer is: Recover job costs and overhead. Office salaries, rent, insurance, licenses, estimating, and other indirect costs remain necessary to perform work. Omitting them can make apparently profitable jobs erode the company. 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.

4. A lender wants to see what the contractor owns and owes on the final day of the quarter. Which financial statement supplies that view?

AIt replaces payroll records
BIt lists only project revenue
Assets, liabilities, and equity
DIt reports only cash received during a week

Why C is correct

The best answer is: Assets, liabilities, and equity. The balance sheet presents the financial position on a specified date and follows the assets-equal-liabilities-plus-equity relationship. It is distinct from the income and cash-flow statements. 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.

30 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?
An invoice is overdue and the owner disputes its backup. What is the best first control?
How should contract retention be treated in cash planning?
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 must overhead be included when pricing work?
Why should a contractor forecast income, sales or use, and payroll tax obligations separately from general cash?
Why should withheld payroll taxes be segregated and remitted on schedule?
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 customer disputes an aging invoice because the billed phase cannot be tied to signed tickets. What should accounting do before escalating collection?
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 bookkeeper can create a vendor, enter its invoice, approve it, and release payment. Which internal-control weakness exists?
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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