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Net profit = gross profit - overhead = $120,000 - $95,000 = $25,000. Gross profit covers overhead first; what remains is net profit.

Markup = $3,200 x 30% = $960. Change order price = $3,200 + $960 = $4,160. Change orders should carry the same markup as base work to protect margin.

A signed change order fixes the added scope, the price for it and any schedule effect before the extra work starts, which is what preserves the right to be paid for it; on a home improvement contract B&P §7159 requires the change to be in writing and signed. It modifies the contract rather than cancelling it, and the original terms continue to govern everything else. Material tax follows the purchase, not the paperwork. And added scope may well require a permit amendment rather than excusing one.

Annual depreciation = $18,000 / 6 = $3,000. After 3 years, accumulated depreciation = 3 x $3,000 = $9,000. Book value = $18,000 - $9,000 = $9,000.

Contractors apply a single markup to direct cost to recover both overhead and the target profit, commonly written O&P; forgetting the overhead half is the classic way to bid a job that earns nothing. Contribution margin is revenue less variable cost and measures what a job contributes toward fixed cost, a related but different figure. Straight-line depreciation spreads an asset's cost over its life. Retention is money the owner withholds from payments and is not a markup at all.

Retention = 5% of $75,000 = $3,750, leaving $71,250. Subtract the $1,500 back-charge: $71,250 - $1,500 = $69,750 (b). Civil Code §8811 caps private-works retention at 5% for contracts entered into on or after January 1, 2026. (a) $71,250 stops after the retention and forgets the back-charge. (c) $73,500 deducts only the back-charge and forgets the retention. (d) $66,000 is the answer under the superseded 10% retention: $75,000 - $7,500 - $1,500.

A separate business account documents income and expense cleanly for tax and job costing, and it keeps the corporation or LLC from commingling funds, which is one of the facts a court weighs before disregarding the entity's separate existence. Permits are issued on plans and code compliance and no bank account is inspected. Sales tax rates are set by statute and local measures. And the licence bond amount is fixed by B&P §7071.6 regardless of how the contractor banks.

Actual gross profit is the fixed price less the actual cost: $50,000 - $46,000 = $4,000. $10,000 is the estimated gross profit, $50,000 - $40,000, which the overrun destroyed. $6,000 is the overrun itself, the gap between estimate and actual cost, not a profit. $14,000 comes from adding the overrun to the estimated profit instead of subtracting it.

Both are overhead: they recur regardless of which jobs are underway and cannot be charged to any single project, so they must be recovered through the markup applied to jobs. (In practice a general liability premium is often rated on payroll or gross receipts and audited at year end, so the total does move with volume — but it stays overhead, because the test is whether a cost can be assigned to one job, not whether it ever changes.)

Under Regulation 1521 the subcontractor that furnishes and installs the material is its consumer, so the tax is part of the subcontractor's cost and travels into the contract price rather than being billed to the owner as a tax. The CSLB collects licence fees and pays no taxes for anyone. Charging it is not illegal, but it is not itemised as tax to the owner either; it is priced in. And nothing is refunded to the general contractor, who never paid it to the state.

Working capital is current assets less current liabilities: $90,000 - $120,000 = -$30,000, and a negative figure means the short-term bills exceed the short-term resources. $210,000 comes from adding the two instead of subtracting. $30,000 is the same answer with the sign dropped, which reverses its meaning. $0 assumes working capital cannot go below zero, and the whole point of the measure is that it can.

Overhead = 25% of $10,000 = $2,500. Profit = 15% of $10,000 = $1,500. Price = $10,000 + $2,500 + $1,500 = $14,000. (Applying both markups to direct cost is a simple method; note the resulting margin on price is $4,000 / $14,000 = 28.6%.)

Amortisation spreads the cost of an intangible asset such as purchased goodwill, a covenant not to compete or an acquired licence over its life, as IRC §197 requires over fifteen years for most acquired intangibles. Cash is not consumed over time and carries no cost to allocate. Liabilities are amounts owed, not assets with a cost basis. And land is the classic asset that is neither depreciated nor amortised, because it does not wear out.

Gross profit = revenue - COGS = $400,000 - $280,000 = $120,000. Net income = gross profit - operating expenses = $120,000 - $90,000 = $30,000.

A job several times the usual size demands payroll and material money weeks before the first progress payment lands, and retention holds part of it back longer still, so the contractor can run dry mid-project on a job that is profitable on paper. Depreciation follows the asset's schedule and is unaffected by job size. Classification follows the trade the contractor is qualified in and is never upgraded automatically. And material tax is owed on every job whatever its size.

1/15 means a 1% discount if paid within 15 days. Discount = $5,000 x 1% = $50. Payment = $5,000 - $50 = $4,950.

A falling gross margin means direct cost is taking a larger share of revenue, and only the job-cost reports say whether the cause is labour hours, material prices or subcontract cost, so that is where the diagnosis starts. Raising the markup treats the symptom before the cause is known and may simply lose bids. The franchise tax is an income tax below the gross-margin line and cannot move it. And bonding is a licensing requirement with no effect on job cost at all.

Retention held to date = 5% of the amount billed to date = 5% x $120,000 = $6,000 (d); it accrues on each progress billing until released at completion. Civil Code §8811 caps private-works retention at 5% for contracts entered into on or after January 1, 2026. (a) $9,000 applies the correct 5% to the full $180,000 contract instead of the $120,000 billed. (c) $12,000 is 10% of the billed amount, the pre-2026 private-works custom. (b) $114,000 is the amount paid out, not the amount held.

Money borrowed is money the contractor did not collect, so billing the moment work is complete and chasing the payment shortens the gap that a line of credit would otherwise fill. Larger retention withholds more of the earned money for longer and increases the need for financing. Paying suppliers ahead of billing moves cash out before it comes in. And refunding a deposit hands back cash the contractor already holds.

Sales tax = $20,000 x 9% = $1,800. Because the contractor is the consumer and owes this tax, forgetting it means $1,800 comes straight out of profit. Estimators must always include material tax.

An S corporation is a pass-through: under IRC §1366 income and loss land on the shareholders' own returns, so there is no second layer of federal corporate tax. It is not tax-free in California, which charges an S corporation a 1.5 percent franchise tax on net income under Revenue and Taxation Code §23802(b). Double taxation at entity and shareholder level is the C corporation pattern, which the S election exists to avoid. And the $800 minimum franchise tax under §23153 is owed whether or not the year was profitable.

A C corporation exists apart from its shareholders, files its own Form 1120 and pays tax on its profits, and the shareholders are taxed again on dividends; a sole proprietorship has no separate existence and reports on the owner's Form 1040. The corporation still needs the licence bond under B&P §7071.6, and a corporate licence also needs a qualifying individual. It withholds and pays payroll taxes on its employees like any employer. And a corporation can and routinely does hold a contractor licence under B&P §7065.

Direct cost is $30,000 + $25,000 + $15,000 = $70,000, the markup is 20 percent of that, $14,000, and the bid is $84,000. $70,000 is the direct cost with the markup left off. $14,000 is the markup on its own. $87,500 comes from treating the 20 percent as a margin on the selling price and dividing by 0.80 instead of multiplying by 1.20, which is the markup-versus-margin error.

Contribution margin ($9,000) minus fixed overhead ($12,000) = -$3,000. Because contribution did not cover fixed overhead, the month produced a $3,000 loss.

Current assets divided by current liabilities is the current ratio, the standard quick test of whether obligations due within a year can be met from resources available within a year. Accumulated depreciation records how much of an asset's cost has been written off and says nothing about cash. Franchise tax paid is a past expense. And revenue measures volume, not liquidity: a company can bill heavily and still be unable to pay its bills.

Paper is consumed in the period it is bought and is an ordinary deductible expense under IRC §162, so it is expensed rather than capitalised. The laptop and the printer are property with a life beyond the year and are capital items, although the de minimis safe harbour in 26 CFR §1.263(a)-1(f) or a §179 election commonly lets a small business expense items of this size anyway. Treating all three as five-year property ignores both the consumable and the safe harbour.

The built-in profit is 15 percent of $100,000, or $15,000, and $12,000 of cost that cannot be recovered leaves $3,000. $15,000 is the profit as bid, which assumes the overrun never happened. $0 assumes any overrun wipes the profit out entirely, which would need $15,000 of extra cost, not $12,000. $27,000 comes from adding the overrun to the profit instead of subtracting it.

Gross profit per hour = $85 - $52 = $33. Margin = $33 / $85 = 0.388 = 38.8%. (Markup on cost would be $33 / $52 = 63.5%.)

The discount is 2% for paying 20 days early. Annualized: (2/98) x (365/20) = 0.0204 x 18.25 = 0.372 = about 37%. Skipping early-payment discounts is expensive financing, so taking them usually pays.

Paying cash for equipment exchanges one asset for another, so cash falls and equipment rises by the same amount and total assets do not move; the cost reaches the income statement later, through depreciation. It is not profit, because nothing has been earned. It is not revenue, because nothing has been sold. And equity is untouched: equity changes when the business earns, loses, or when the owner contributes or withdraws, not when it converts one asset into another.

Gross profit is revenue less the direct job costs of labour, material, subcontract and job equipment, and it is what remains before overhead is charged; subtracting overhead from it gives net profit. Net profit therefore comes after overhead, not before it. The current ratio measures liquidity and is not a profit figure. And retention is money the owner withholds from payments, which is a cash-timing matter rather than a margin.

Home improvement law caps the down payment at 10% of the contract OR $1,000, whichever is LESS. Here 10% is $3,000, so the $1,000 cap governs. The lawful maximum down payment is $1,000.

Labor = 220 x $48 = $10,560. Direct cost = labor $10,560 + materials $9,400 + sub $6,200 = $26,160.

Under-recovery rate = 22% - 15% = 7% of direct costs. 7% x $500,000 = $35,000 of overhead not recovered through pricing, which comes straight out of profit. Accurate overhead rates are critical.

The balance sheet balances because of the identity Assets = Liabilities + Owner's Equity, and double-entry bookkeeping records every transaction so that the identity holds. Revenue equalling expenses would mean zero profit, which is a coincidence and belongs to the income statement anyway. Assets equalling net profit confuses a stock of resources with a period result. And cash equalling liabilities would be an accident of one moment, not a rule.

Advance = 90% x $50,000 = $45,000 up front. Fee = 3% x $50,000 = $1,500. Factoring speeds cash but at a cost, reducing the effective amount collected.

An income statement measures flow over an interval, so it is headed 'for the month ended', while a balance sheet reports position at an instant and is headed 'as of' a date. Either can be produced at any interval a business chooses, so nothing forces December 31 and nothing prevents a monthly balance sheet. And the last option reverses the two: the snapshot is the balance sheet, and reading it the other way round is the error this question exists to catch.

Missing or underpaying required estimated tax installments triggers IRS (and state) underpayment penalties plus interest. Using tax money for payroll creates a debt to the government that grows with penalties.

Current ratio = current assets / current liabilities. Current assets = ratio x current liabilities = 2.0 x $160,000 = $320,000.

Combined O&P markup = 25% x $80,000 = $20,000, split into $12,000 overhead recovery + $8,000 profit as stated. Price = $80,000 + $20,000 = $100,000. Total O&P added is $20,000.

Commingling personal and business money is one of the classic facts a court relies on to disregard a corporation or LLC and reach the owner's personal assets, and Corporations Code §17703.04(b) makes clear that the shield depends on the entity being treated as separate. The mixing also makes the records unreliable for tax and job costing. It does not improve the current ratio; it corrupts the figures that ratio is computed from. Licence renewal depends on fees and bonds, and sales tax rates are set by law.

Two rules meet here. The worker's status picks the form: an employee gets a Form W-2, a non-employee paid for services gets a Form 1099-NEC. The dollar threshold then decides whether the 1099-NEC is required at all. For tax years beginning after 2025 that threshold is $2,000, so the $1,800 paid to the subcontractor falls under it and no 1099-NEC is due. A Form W-9 travels the other way: the payer collects it from the payee to obtain a taxpayer identification number, and it reports no wages.

Work the rate first, then the base. The 6.0% statutory rate less the 5.4% credit gives 0.6%, and California's 1.2% credit reduction for 2025 puts it back to 1.8%. FUTA is charged only on the first $7,000 of each employee's wages, not on everything paid, so 1.8% of $7,000 is $126. The $42 answer forgets that the credit was reduced; the $540 and $1,800 answers charge the tax against the whole $30,000.

Working capital is current assets minus current liabilities: $180,000 less $215,000 is negative $35,000. The result is an amount of money, and it can be negative. A negative figure means the obligations due inside the year exceed what the business expects to turn into cash inside the year, which is a shortfall rather than a cushion. Dividing the same two balances instead of subtracting them gives a ratio, a different measure that carries no dollar sign; adding them measures nothing at all.

The cap is $1,000 or 10 percent of the contract amount, whichever is LESS, so the test has to be run separately on each contract. On the $7,500 job, 10 percent is $750, which is less than $1,000, so $750 is the ceiling. On the $62,000 job, 10 percent is $6,200, so the $1,000 figure is the smaller of the two and it binds. On a small contract the percentage governs; on a large one the dollar figure does.