Construction Industry Group Survey

Survey on construction industry knowledge

Name


  1. Which of the following are types of contracts used in the construction industry?
    Traditional bid (fixed price)
    Spec home construction
    Cost-plus
    All of the above
    A & C only


  1. The purpose of retainage is to provide the owner security for costs incurred to repair defective work, to settle claims from parties not paid by the contractor, and to ensure that work is completed in accordance with the contract.
    True
    False


  1. The purpose of "lien rights" is to:
    Protect the owner of the project from non-performance of a contractor
    Protect the contractor from non-performance of a subcontractor
    Protect the contractor from non-payment of an owner (or to protect a subcontractor from non-payment of a general contractor)
    To have someting for the new building to "lien" against so it doesn't fall down
    None of the above


  1. A long term contract is defined as a contract that is expected to take more than one year to complete.
    True
    False


  1. Which of the following are reasons why contractor businesses fail?
    Obtaining work in a new geographic location
    Poor estimating and job costing
    Poor cash flow
    Dramatic increase in single job size
    All of the above


  1. Under worker's compensation insurance, a lost-wage claim will become more expensive to a company than a medical-only claim.
    True
    False


  1. The cost for surety bonds vary, but generally are:
    $500 or less
    0% - 1% of the contract amount
    1% - 3% of the contract amount
    3% - 5% of the contract amount
    None of the above


  1. A "rule of thumb" for calculating a company's bonding capacity is to multiple their "adjusted net worth" by a factor of:
    2
    5
    10
    20
    None of the above


  1. Under what type of bond does the contractor and surety promise the owner that, if the contractor who is awarded the contract does not sign the contract, the surety will pay the diference between the contractor's bid and the bid of the next lowest bidder?
    Performance bond
    Initial bond
    Payment bond
    Bid bond
    None of the above


  1. A construction manager:
    Is an agent for the owner
    Controls the project from early design to move-in
    Negotiates contracts with subcontractors
    Supervises and coordinates all construction activity on the project
    All of the above


  1. Which method(s) of accounting is allowed by generally accepted accounting principles?
    The construction method
    The completed contract method
    The percentage of completion method
    All of the above
    B & C are both allowed, but typically only C is used


  1. Recording additional accounts payable related to job costs will typically increase net income in the contractor's financial statements.
    True
    False


  1. Under the "cost-to-cost" method of estimating percentage of completion, which of the following should NOT be included in costs incurred to date?
    Labor costs
    Common materials purchased but not installed
    Subcontractor costs incurred but invoice not received
    All of the above should be included
    B & C


  1. When the estimated total cost of a contract is projected to exceed the corresponding contract price, a loss accrual is required for the entire estimated job loss (not just the loss related to the % complete)
    True
    False


  1. Which of the following overhead items should not be allocated to the jobs?
    Job equipment depreciation
    Receptionist wages
    Small tools and construction supplies
    Contractor's liability insurance
    All of the about should be allocated to the jobs


  1. Retentions should be recorded as a receivable when billed.
    True
    False


  1. Which of the following are required and/or recommended financial statement disclosures?
    Revenue recognition method of accounting for long-term contracts
    Receivables separately disclosed as billed, unbilled, retainage, completed contracts, and contracts in progress
    Costs, estimated earnings, and billing to date on uncompleted contracts
    Backlog
    Supplemental schedules of completed contracts and contracts in progress
    All of the above


  1. The risk of material misstatement with regard to contracts in progress is typically highest between 20% to 80% completion.
    True
    False


  1. Profit-fade is the term used to describe:
    A company that is continually losing money
    Gross profit on a job that upon completion is lower than during the earlier stages of construction
    Profit declining due to rising labor and benefits costs
    When the partner on the engagement can't remember if their client made money or not the previous year


  1. A normal, healthy construction contractor will typically be slightly over-billed with regard to contracts in progress.
    True
    False


  1. Which of the following statements egarding the taxation of long-term contracts is true:
    The accounting rules of Code Section 460 are never applicable to manufacturing contracts.
    ode Section 460 generally requires that contractors use the completed contract method.
    A long-term contract is defined as a contract that takes more than one year to complete.
    Taxpayers using the PC method must "look back" at the prior taxable years that a contract was in progress and recompute the contract's gross profit/loss of those prior years based on actual rather than estimated total price and costs.


  1. Which of the following conditions must be met in order to qualify for the "Small Contractor's Exemption?"
    The contract is a construction contract
    The contract is estimated to be completed within 2 years
    The taxpayer's average annual gross receipts for the 3 preceding taxable years do not exceed $10M
    The owner of the company must not be more than six feet tall
    A, B, and C above


  1. Which of the following methods may be available to a contractor eligible for the small contractor's exemption?
    The completed contract method
    The cash method
    The accrual method
    All of the above


  1. Small contractors may use the cash method of accounting if all of the following conditions are met EXCEPT:
    The taxpayer must not have significant inventories or be required to maintain inventories
    The use of the cash method does not significantly distort income
    The taxpayer must not report more than $50,000 of cash on its balance sheet
    The taxpayer must meet a 3-year average gross receipts test of $5M or less if the taxpayer is a C corporation


  1. With regard to Code Section 460, "Home Construction Contracts" and "Residential Construction Contracts" share the same definition.
    True
    False


  1. The following statements concerning the PC method are true, EXCEPT:
    The cost-to-cost method to determine the percentage of completion is required by Code section 460
    Taxpayers using the cost-to-cost method may elect to defer recognizing gross profit if, at the end of the taxable year, less than 10% of the estimated contract costs have been incurred
    Under the cost-to-cost method, advertising and marketing costs must be allocated to contracts
    Use of the simplified cost-to-cost method may not be revoked without the Commissioner's consent


  1. Under Code Sec 199 ("Production Activities Deduction"), a contractor is allowed a deduction against gross income of 3% of "qualified production activities income" for tax years beginning in 2005 and 2006. The percentage increases to 6% for tax years 2007-2009 and 9% for tax years after 2009.
    True
    False


  1. The $2,000 "Energy Efficient Credit" is available if which of the following requirements are met:
    The home must meet specific energy savings requirements
    The home's construction must be substantially completed after the enactment date of August 8, 2005
    It must be purchased for use as a residence during the tax year
    All of the above


  1. Small contractors may use their regular method of accounting to determine alternative minimum taxable income.
    True
    False


  1. The cost allocation rules for large contractors required by Code Section 460 are substantially similar to the Uniform Capitalization rules under code Section 263A.
    True
    False