Tennessee Contractor License Exam — All Questions
3 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 verbal statement of the contractor's assets
- c.No financial statement is required above that amount
- d.A one-page printout of the business bank balance
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.$1,420,000
- b.$380,000✓
- c.$520,000
- d.$900,000
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.Gross revenue minus all expenses
- c.The cash on hand at year end only
- 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