A contractor receives a payment application from a subcontractor showing 60% completion on their $150,000 contract with 10% retainage. What amount should be paid?
Correct Answer
C) $81,000
Calculation: $150,000 × 60% = $90,000 earned. Less 10% retainage: $90,000 × 10% = $9,000. Net payment: $90,000 - $9,000 = $81,000.
Why This Is the Correct Answer
Option A correctly applies the retainage calculation. First, calculate the earned amount: $150,000 × 60% = $90,000. Then subtract the 10% retainage from the earned amount: $90,000 × 10% = $9,000 retainage. The net payment due is $90,000 - $9,000 = $81,000. This follows standard construction payment practices where retainage is withheld from each progress payment until project completion.
Why the Other Options Are Wrong
Option A: $85,500
This represents the gross earned amount without deducting any retainage. While $150,000 × 60% = $90,000 is correct for work completed, it fails to account for the 10% retainage requirement specified in the contract terms, resulting in an overpayment to the subcontractor.
Option B: $95,000
This amount exceeds even the gross earned amount and appears to add rather than subtract retainage. There's no valid calculation method that would result in paying more than the earned amount of $90,000, making this option mathematically impossible under standard payment procedures.
Memory Technique
Remember 'EARN then RETAIN': First calculate what's EARNED (contract × percentage), then RETAIN the specified percentage from that earned amount.
More Business & Finance Questions
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
When establishing professional relationships with architects and engineers, what is the most important factor for a general contractor to consider?
A partnership agreement for a construction company should address all of the following EXCEPT:
A contractor purchases a truck for $60,000. After 5 years, it has accumulated depreciation of $35,000. What is the truck's book value?
A contractor's business plan projects first-year revenue of $500,000 with a 15% net profit margin. If actual revenue is $450,000 with the same profit margin, what is the variance in net profit?
Using the Modified Accelerated Cost Recovery System (MACRS), construction equipment is typically depreciated over how many years?
A contractor is comparing financing options for equipment purchase. Option A: $80,000 cash purchase. Option B: $20,000 down, $65,000 financed at 6% for 4 years. What is the total cost of Option B?
A contractor purchases equipment using a capital lease with a present value of $120,000. How should this be recorded on the balance sheet?
People Also Study
Related Study Resources
Previous Question
A general contractor employs 18 workers and is considering hiring practices. At what point must the contractor comply with Title VII anti-discrimination requirements?
Next Question
Which insurance certificate requirement is most critical when qualifying subcontractors for a public works project in Florida?