A payment application shows completed work valued at $850,000 with 10% retainage held. Materials stored on-site are valued at $65,000 with 100% retainage held. What is the net amount due to the contractor?
Correct Answer
A) $765,000
Completed work payment: $850,000 × 90% = $765,000. Stored materials: $65,000 × 0% = $0. Total = $765,000.
Why This Is the Correct Answer
$765,000 is correct. For completed work: $850,000 × (1 - 0.10) = $850,000 × 0.90 = $765,000. For stored materials: $65,000 × (1 - 1.00) = $65,000 × 0 = $0 (100% retainage means nothing is paid yet). Total due = $765,000 + $0 = $765,000.
Why the Other Options Are Wrong
Option B: $830,000
$830,000 is incorrect. This result would come from applying only the 10% retainage to both the completed work and stored materials ($850,000 × 0.90 + $65,000 × 0.90 = $765,000 + $58,500 = $823,500, which doesn't match either — likely from ignoring the different retainage rates). The error is failing to recognize that stored materials carry 100% retainage (zero payment).
Option C: $915,000
$915,000 is incorrect. This equals $850,000 + $65,000, which is the sum of both values with no retainage deducted at all. This error occurs when test-takers overlook the retainage terms entirely.
Option D: $822,500
$822,500 is incorrect. This figure likely results from applying a blended or averaged retainage to the total ($915,000 × some rate), or from miscalculating which retainage rate applies to which line item.
Memory Technique
100% retainage = ZERO dollars paid. When you see 100% retainage, that item contributes $0 to the payment application. Then calculate completed work retainage separately: $850,000 × 90% = $765,000. Add the zeros and you get $765,000.
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