North Carolina General Contractor Exam — All Questions

A contracting company has current assets of $240,000 and current liabilities of $120,000. What is its current ratio?

• a.0.5 to 1
• b.1.2 to 1
• c.2.0 to 1✓
• d.12 to 1

Current ratio = current assets / current liabilities = $240,000 / $120,000 = 2.0. A ratio of 2.0 means the company has $2 of short-term assets for every $1 of short-term debt, which generally indicates healthy short-term liquidity. Sureties and lenders watch this ratio closely; a ratio below 1.0 signals the company may struggle to pay near-term obligations.

Working capital is calculated as:

• a.Current assets minus current liabilities✓
• b.Total revenue minus total expenses for the year
• c.The value of all equipment the company owns
• d.The owner's original cash investment

Working capital = current assets - current liabilities. It measures the short-term funds available to run daily operations, buy materials, meet payroll, and absorb delays before receivables come in. Positive working capital is essential in construction because contractors often pay costs long before the owner pays them. It is different from annual net profit and from equipment value.

On a project, the owner withholds 10% from each progress payment until the work is satisfactorily completed. This withheld amount is called:

• a.A liquidated damage
• b.Retainage (retention)✓
• c.A change order
• d.Overhead

Retainage (retention) is a portion of each progress payment the owner holds back — commonly 5% to 10% — and releases after the contractor satisfactorily completes the work and addresses punch-list items. It gives the owner leverage to ensure completion, but it also strains the contractor's cash flow, so contractors must plan for it and pass appropriate retainage terms down to subcontractors.

Why do contractors use job costing (tracking costs to each specific project)?

• a.Because the law forbids one combined company bank account
• b.To avoid ever having to file a tax return
• c.Only to make the paperwork look more professional
• d.To compare actual costs against the estimate for each job and see which jobs are profitable✓

Job costing assigns labor, materials, equipment, and subcontractor costs to each individual project. This lets the contractor compare actual costs to the original estimate in real time, catch overruns early, price future work more accurately, and identify which types of jobs actually make money. Without job costing, a company can be busy and still lose money without knowing which project caused the loss.