Arizona Contractor License Exam — All Questions

Before an Arizona contractor license is issued, the applicant must post what financial security for the benefit of persons who may be damaged?

• a.A contractor's license bond (or an approved cash deposit) in an amount set by the Registrar✓
• b.A flat $1,000,000 cash payment to the state
• c.A life insurance policy on the business owner
• d.Nothing is required before the license issues

Arizona requires a contractor's license bond (or an approved cash deposit) before a license issues, in an amount set by the Registrar based on the license class and the contractor's volume of work. The bond protects those who may be damaged by the contractor.A.R.S. §32-1152 (contractor's license bond)

What is the purpose of the Arizona contractor's license bond?

• a.To pay the contractor's income taxes
• b.To guarantee the contractor a minimum profit on each job
• c.To cover the Registrar's operating budget
• d.To provide a source of recovery for persons damaged by the contractor's violation of the licensing law or of a construction contract✓

The license bond gives injured parties - owners, workers, or suppliers - a source of recovery when a contractor violates the licensing statutes or breaches a contract. It is a consumer-protection device, not a guarantee of the contractor's profit.A.R.S. §32-1152 (purpose of the license bond)

An Arizona applicant's financial statement shows total assets of $250,000 and total liabilities of $160,000. What is the applicant's net worth (owner's equity)?

• a.$410,000
• b.$90,000✓
• c.$160,000
• d.$250,000

Net worth = total assets - total liabilities = $250,000 - $160,000 = $90,000. Net worth (owner's equity) is what the financial statement demonstrates about the contractor's underlying financial strength.Accounting: net worth = total assets - total liabilities