Tennessee Contractor License Exam — All Questions

A Tennessee contractor applies for a monetary limit above $1,500,000. What kind of financial statement must accompany the application?

• a.A reviewed or audited financial statement prepared by a licensed CPA✓
• b.A one-page printout of the business bank balance
• c.No financial statement is required above that amount
• d.A verbal statement of the contractor's assets

When the requested monetary limit exceeds $1,500,000, Tennessee requires a reviewed or audited financial statement prepared by a CPA. Lower limits can be supported by a compiled statement, but the larger the limit, the higher the assurance the Board demands.Board financial-statement rule (reviewed/audited statement above $1,500,000 limit)

A Tennessee contractor's balance sheet shows total assets of $900,000 and total liabilities of $520,000. What is the owner's equity (net worth)?

• a.$380,000✓
• b.$900,000
• c.$1,420,000
• d.$520,000

Owner's equity = assets - liabilities = $900,000 - $520,000 = $380,000. Because the monetary limit is based on net worth, an accurate balance sheet directly affects how large a project the contractor may take.Accounting equation: Assets = Liabilities + Owner's Equity

Tennessee bases part of the monetary limit on working capital. Working capital is defined as:

• a.Total assets minus total liabilities
• b.The cash on hand at year end only
• c.Gross revenue minus all expenses
• d.Current assets minus current liabilities✓

Working capital = current assets - current liabilities. It measures the short-term liquidity a contractor can put toward a job. Net worth (total assets minus total liabilities) is a different, broader measure; Tennessee uses the lesser of ten times each.Working capital = current assets - current liabilities