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NV General Contractor practice questions

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Question 1Business Management and Financial Responsibility

In Nevada, a contractor's license is generally required when the total price of a construction project exceeds:

  1. $1,000
  2. $500 Correct answer.
  3. $10,000
  4. $5,000

Explanation

NRS 624 requires a contractor's license for construction work valued over $500 in labor and materials. This low threshold means even small jobs can require a licensed contractor.

Question 2Business Management and Financial Responsibility

Which Nevada contractor classification allows a licensee to construct, remodel, or repair buildings of any type?

  1. Class AB
  2. Class B Correct answer.
  3. Class A
  4. Class C

Explanation

Class B is the general building classification; Class A is general engineering and Class C covers specialty trades. Nevada does not issue a Class AB license.

Question 3Business Management and Financial Responsibility

The main purpose of a Nevada contractor's license bond is to:

  1. insure the contractor's equipment against damage
  2. guarantee on-time project completion
  3. protect the public from certain losses
  4. cover employee workers' compensation claims Correct answer.

Explanation

A license bond is a surety bond filed with the Nevada State Contractors Board and can be used to pay certain valid claims against the licensee. It is not equipment insurance, workers' compensation coverage, or a schedule guarantee.

Question 4Business Management and Financial Responsibility

Every Nevada contractor license must be associated with a qualifier who:

  1. passes the required trade exam Correct answer.
  2. is a licensed architect in Nevada
  3. owns a controlling share of the company
  4. is on the job site daily

Explanation

The qualifier must meet experience and examination requirements and be affiliated with the licensee. Architectural licensure, daily site presence, and majority ownership are not universal requirements.

Question 5Business Management and Financial Responsibility

A Nevada contractor hires its first employee. What is required regarding workers' compensation?

  1. coverage applies only to hourly employees
  2. coverage must be in place before work starts Correct answer.
  3. a general liability policy satisfies the requirement
  4. coverage is optional for firms with few employees

Explanation

Nevada requires employers to carry workers' compensation coverage for employees from the first day of work. General liability insurance does not satisfy this obligation.

Question 6Business Management and Financial Responsibility

Which business structure provides limited liability to its owners while generally being taxed as a pass-through entity?

  1. general partnership
  2. C corporation
  3. sole proprietorship
  4. S corporation Correct answer.

Explanation

An S corporation offers limited liability and, by default, pass-through taxation. Sole proprietorships and general partnerships do not provide limited liability, and a C corporation is taxed at the entity level.

Question 7Business Management and Financial Responsibility

On a contractor's balance sheet, total assets minus total liabilities equals:

  1. net cash flow
  2. working capital
  3. owner's equity Correct answer.
  4. gross profit

Explanation

The balance sheet equation is assets = liabilities + owner's equity, so equity is the residual. Gross profit and net cash flow are not balance-sheet residuals, and working capital uses only current items.

Question 8Business Management and Financial Responsibility

Before performing work outside the scope of a signed contract, a contractor should obtain:

  1. a new building permit from the jurisdiction
  2. a written change order signed by the owner Correct answer.
  3. verbal approval from the owner's superintendent
  4. a lien waiver signed by the owner

Explanation

Extra work should be authorized in writing before it is performed so the contractor can be paid and avoid disputes. A verbal instruction, lien waiver, or permit does not by itself adjust the contract price or scope.

Question 9Business Management and Financial Responsibility

Nevada contractor licenses must be renewed:

  1. every five years
  2. every three years
  3. every year
  4. every two years Correct answer.

Explanation

The Nevada State Contractors Board issues licenses on a biennial renewal cycle. Failing to renew on time can result in expiration and loss of authority to contract.

Question 10Business Management and Financial Responsibility

In Nevada, a contractor who buys materials for a construction contract generally:

  1. charges the owner sales tax as a separate line item
  2. is exempt from sales tax on construction materials
  3. may buy materials tax-free with a resale certificate
  4. pays sales tax when purchasing the materials Correct answer.

Explanation

Nevada treats contractors as consumers of the materials they incorporate into a project. They generally pay sales tax at purchase and include that cost in the contract price rather than charging sales tax separately to the owner.

Question 11Business Management and Financial Responsibility

The Nevada State Contractors Board sets a licensee's monetary limit primarily based on the licensee's:

  1. years of experience in the trade
  2. number of full-time employees
  3. total dollar value of bids submitted
  4. financial capacity Correct answer.

Explanation

The monetary limit reflects the maximum contract value the licensee is considered financially able to perform. The Board reviews financial statements and net worth rather than bid volume or headcount.

Question 12Business Management and Financial Responsibility

A Nevada Class B general building license applicant must generally show a minimum net worth of:

  1. $40,000
  2. $10,000
  3. $50,000 Correct answer.
  4. $25,000

Explanation

The Board requires a minimum net worth of $50,000 for Class A and Class B licenses, while Class C specialty licenses have a lower requirement. Net worth is one measure of financial responsibility.

Question 13Business Management and Financial Responsibility

A contractor can show a profit on its income statement yet still fail because of:

  1. completing too many projects ahead of schedule
  2. keeping detailed job cost records
  3. running short of cash when bills come due Correct answer.
  4. paying suppliers within the discount period

Explanation

Profit is an accounting measure, but bills must be paid in cash. A contractor with receivables or retainage tied up can run out of cash even while reporting profit.

Question 14Business Management and Financial Responsibility

A contractor marks up a job cost of $10,000 by 20%. What is the selling price?

  1. $12,000 Correct answer.
  2. $8,000
  3. $10,200
  4. $12,500

Explanation

Markup is applied to cost: $10,000 × 1.20 = $12,000. Adding 2% or subtracting 20% does not apply the stated markup.

Question 15Business Management and Financial Responsibility

To earn a 20% gross margin on a project with $80,000 in costs, a contractor should charge:

  1. $96,000
  2. $100,000 Correct answer.
  3. $90,000
  4. $104,000

Explanation

Gross margin is a percentage of price, so price = cost ÷ (1 − margin) = $80,000 ÷ 0.80 = $100,000. Applying 20% as a markup on cost would underprice the job.

Question 16Business Management and Financial Responsibility

Retainage in a construction contract is:

  1. a deposit the owner pays at signing
  2. a bonus paid when the project finishes early
  3. a holdback released at final acceptance Correct answer.
  4. the profit the contractor expects to earn

Explanation

Retainage is a percentage of progress payments withheld by the owner to protect against incomplete or defective work. It is typically released after final acceptance and closeout.

Question 17Business Management and Financial Responsibility

A bid bond primarily protects the owner against:

  1. delays caused by weather
  2. a bidder who refuses to sign Correct answer.
  3. subcontractor payment claims
  4. defective workmanship after completion

Explanation

A bid bond assures the owner that a low bidder will enter the contract and provide required bonds. If the bidder defaults, the surety may pay the difference up to the bond amount.

Question 18Business Management and Financial Responsibility

A performance bond guarantees that:

  1. the contractor will complete the contract work Correct answer.
  2. the owner will pay progress payments on time
  3. the contractor will earn a profit on the job
  4. suppliers will deliver materials by the scheduled date

Explanation

A performance bond backs the contractor's obligation to complete the work according to the contract. It protects the owner if the contractor defaults and the surety must arrange completion.

Question 19Business Management and Financial Responsibility

A payment bond protects:

  1. unpaid subs and suppliers Correct answer.
  2. the contractor against an owner default
  3. the surety against accrued interest
  4. the owner against defective workmanship

Explanation

A payment bond ensures that subcontractors and suppliers on a bonded project can be paid for labor and materials. It protects the owner from liens that could arise from unpaid lower-tier parties.

Question 20Business Management and Financial Responsibility

Which cost is a general overhead expense rather than a direct job cost?

  1. wages of a carpenter on the job
  2. lumber installed in a specific home
  3. concrete poured for a foundation
  4. company office rent Correct answer.

Explanation

Overhead costs support the business as a whole and are not traceable to one project. Materials and job-site labor are direct costs of the specific job.

Question 21Business Management and Financial Responsibility

In Nevada, a mechanics lien generally must be recorded within how many days after completion of the work?

  1. 60 days after completion
  2. 30 days after completion
  3. 90 days after completion Correct answer.
  4. 180 days after completion

Explanation

Nevada's mechanics lien statute sets a 90-day period after completion of the work for recording a lien. Missing the deadline can forfeit the lien right.

Question 22Business Management and Financial Responsibility

A worker is most likely an employee rather than an independent contractor when the contractor:

  1. has the worker sign a subcontract agreement
  2. lets the worker choose their own work hours
  3. pays the worker a fixed price for the project
  4. controls the worker's daily tasks Correct answer.

Explanation

The degree of control over how and when work is performed is a key test. A fixed price, flexible hours, and a subcontract label suggest independence but are not controlling.

Question 23Business Management and Financial Responsibility

A contractor has fixed overhead of $90,000 per year and earns $4,500 gross profit per project. How many projects must be sold to break even?

  1. 15
  2. 18
  3. 25
  4. 20 Correct answer.

Explanation

Break-even volume equals fixed costs divided by gross profit per project: $90,000 ÷ $4,500 = 20 projects. At 20 projects, gross profit exactly covers overhead.

Question 24Business Management and Financial Responsibility

A contractor has current assets of $150,000 and current liabilities of $100,000. What is the current ratio?

  1. 1.50 Correct answer.
  2. 1.00
  3. 2.50
  4. 0.67

Explanation

Current ratio = current assets ÷ current liabilities = $150,000 ÷ $100,000 = 1.50. A ratio above 1.0 indicates current assets cover current liabilities.

Question 25Business Management and Financial Responsibility

A contractor has current assets of $120,000, inventory of $40,000, and current liabilities of $80,000. What is the quick ratio?

  1. 1.00 Correct answer.
  2. 0.50
  3. 2.00
  4. 1.50

Explanation

Quick ratio = (current assets − inventory) ÷ current liabilities = ($120,000 − $40,000) ÷ $80,000 = 1.00. It excludes inventory because inventory may be slow to convert to cash.

Question 26Business Management and Financial Responsibility

Which financial statement reports a contractor's revenues and expenses for a period such as a month or a year?

  1. The statement of cash flows
  2. The income statement Correct answer.
  3. The work-in-progress schedule
  4. The balance sheet

Explanation

The income statement matches revenues earned with the expenses incurred to produce them over a period, producing a profit or loss figure. The other statements serve different purposes and do not pair revenue with expenses.

Question 27Business Management and Financial Responsibility

Under a cost-plus contract, the contractor is paid:

  1. A single lump sum agreed at bid time regardless of actual costs
  2. Only the amount the owner's lender approves
  3. Actual allowable costs plus an agreed fee Correct answer.
  4. A fixed price per unit of work installed

Explanation

In a cost-plus contract the owner reimburses the contractor for actual allowable job costs and then adds a fee for overhead and profit. Because the fee is added to actual cost, the owner bears most of the risk of cost overruns.

Question 28Business Management and Financial Responsibility

A mechanics lien recorded against a project property gives the claimant:

  1. A right to collect from the owner's lender only
  2. Immediate ownership of the property
  3. A security interest in the property for unpaid work or materials Correct answer.
  4. The right to stop all work on the project indefinitely

Explanation

A mechanics lien is a statutory security interest in the real property securing payment for labor, materials, or services provided to the improvement. The claimant must ordinarily foreclose the lien to force a sale; the lien itself does not convey title.

Question 29Business Management and Financial Responsibility

The main purpose of serving a preliminary notice, sometimes called a notice of right to lien, on the owner early in a project is to:

  1. Preserve the claimant's right to record a mechanics lien later Correct answer.
  2. Guarantee the claimant will be paid before other creditors
  3. Start the statute of limitations for a defect claim
  4. Transfer the owner's payment obligation to the lender

Explanation

A preliminary notice identifies the claimant and the amount potentially owed so the owner or lender can protect against hidden lien claims. In many states, including Nevada, serving it is a condition that must be met before a valid mechanics lien can be recorded.

Question 30Business Management and Financial Responsibility

Workers' compensation insurance primarily covers:

  1. Medical costs and lost wages for employees injured on the job Correct answer.
  2. Loss of business income after a fire
  3. The contractor's liability for faulty design
  4. Damage to the owner's property caused by defective work

Explanation

Workers' compensation is a no-fault statutory system that pays medical expenses and wage replacement for employees injured in the course of employment. In exchange, employees generally give up the right to sue their employer for those injuries.

Question 31Business Management and Financial Responsibility

In a job cost system, cost codes are used mainly to:

  1. Calculate the owner's financing charges
  2. Assign each employee a payroll deduction category
  3. Sort project costs by work item so actual costs can be compared with the estimate Correct answer.
  4. Determine the contractor's license classification

Explanation

Cost codes break a project into work items such as concrete, framing, or electrical so labor, material, equipment, and subcontract costs are captured in consistent categories. Comparing coded actual costs with the estimate is the basis for job cost reports and change-order pricing.

Question 32Business Management and Financial Responsibility

A contractor's working capital is calculated as:

  1. Net profit plus depreciation
  2. Current assets minus current liabilities Correct answer.
  3. Cash on hand plus accounts receivable
  4. Total assets minus total liabilities

Explanation

Working capital equals current assets minus current liabilities, measuring the short-term resources available to fund operations. It indicates whether the contractor can meet obligations coming due within the year.

Question 33Business Management and Financial Responsibility

In a surety bond arrangement, the party that is protected by the bond and may make a claim against it is called the:

  1. Obligee Correct answer.
  2. Surety
  3. Indemnitor
  4. Principal

Explanation

The obligee is the party protected by the bond, typically the project owner or a public agency, and is entitled to make a claim. The principal is the contractor whose obligations are guaranteed, and the surety is the company issuing the bond.

Question 34Business Management and Financial Responsibility

A contractor has total liabilities of $450,000 and total equity of $300,000. What is the debt-to-equity ratio?

  1. 0.67
  2. 1.67
  3. 2.50
  4. 1.50 Correct answer.

Explanation

The debt-to-equity ratio divides total liabilities by total equity: $450,000 divided by $300,000 equals 1.50. It shows how much creditor financing the contractor uses relative to owner capital.

Question 35Business Management and Financial Responsibility

A contractor buys a machine for $85,000 with an estimated salvage value of $10,000 and a useful life of 5 years. Using straight-line depreciation, the annual depreciation expense is:

  1. $10,000
  2. $15,000 Correct answer.
  3. $19,000
  4. $17,000

Explanation

Straight-line depreciation spreads the depreciable basis, which is cost minus salvage value, evenly over the useful life. ($85,000 minus $10,000) divided by 5 years equals $15,000 per year.

Question 36Business Management and Financial Responsibility

A carpenter's base wage is $28.00 per hour and the contractor's labor burden is 32%. What is the fully burdened hourly labor cost?

  1. $40.32
  2. $36.96 Correct answer.
  3. $28.32
  4. $8.96

Explanation

Fully burdened labor cost equals the base wage multiplied by one plus the burden rate: $28.00 times 1.32 equals $36.96 per hour. Burden includes payroll taxes, insurance, and fringe benefits.

Question 37Business Management and Financial Responsibility

A contractor has $150,000 of annual overhead and allocates it to projects in proportion to direct labor dollars. Total direct labor for the year is $500,000. A project with $80,000 of direct labor should be charged overhead of:

  1. $15,000
  2. $24,000 Correct answer.
  3. $37,500
  4. $80,000

Explanation

The overhead rate is $150,000 divided by $500,000, or 30% of direct labor dollars. Applying 30% to this project's $80,000 of direct labor gives $24,000.

Question 38Business Management and Financial Responsibility

During a month a contractor bills $300,000, collects $220,000 from customers, and pays $190,000 of job costs and expenses. What is the net cash flow for the month?

  1. $80,000 increase
  2. $30,000 decrease
  3. $110,000 increase
  4. $30,000 increase Correct answer.

Explanation

Net cash flow is cash received minus cash disbursed: $220,000 minus $190,000 equals a $30,000 increase. Billings are not cash until they are collected.

Question 39Business Management and Financial Responsibility

When a subcontractor signs an unconditional lien waiver in exchange for a progress payment, the subcontractor:

  1. Gives up lien rights for all future work on the project
  2. Transfers its lien rights to the general contractor
  3. Gives up lien rights for the amount covered by that payment Correct answer.
  4. Keeps lien rights for the amount already paid

Explanation

A progress lien waiver releases lien rights for the work and amount covered by the payment received. Because an unconditional waiver takes effect on signing, the claimant should confirm the funds are received or secured before signing.

Question 40Business Management and Financial Responsibility

Under Nevada law, money a contractor receives from an owner for a construction project is generally treated as:

  1. Escrow funds that can only be released by the lender
  2. The contractor's unrestricted operating cash once deposited
  3. Trust funds that must be applied to the costs of that project Correct answer.
  4. A loan from the owner that accrues interest

Explanation

Nevada treats construction payments as trust funds held for the benefit of those who supplied labor and materials to the project. Applying those funds to unrelated purposes can constitute diversion of construction funds, which carries serious penalties.

Question 41Business Management and Financial Responsibility

A pay-when-paid clause in a subcontract typically provides that:

  1. Payment is due on a fixed calendar date regardless of owner payment
  2. The owner must pay the subcontractor directly
  3. The general contractor's obligation to pay the subcontractor arises only after the owner pays the general contractor Correct answer.
  4. The subcontractor must pay the general contractor a fee for processing payments

Explanation

A pay-when-paid clause makes the general contractor's obligation to pay the subcontractor arise only after the owner pays the general contractor. The clause shifts the risk of owner nonpayment down to the subcontractor.

Question 42Business Management and Financial Responsibility

A bid bond on a public construction project is most commonly written for what percentage of the bid amount?

  1. 50 percent
  2. 100 percent
  3. 5 to 10 percent Correct answer.
  4. 25 to 30 percent

Explanation

Bid security is customarily set at 5 to 10 percent of the bid amount and is intended to discourage withdrawal of a bid after award. The exact percentage is stated in the bidding documents.

Question 43Business Management and Financial Responsibility

Builder's risk insurance on a construction project primarily covers:

  1. Physical damage to the work under construction from fire, wind, or theft Correct answer.
  2. Employee injuries at the job site
  3. The contractor's obligation to pay subcontractors
  4. The owner's loss of rental income after completion

Explanation

Builder's risk is property insurance covering the structure and materials under construction against perils such as fire, wind, and theft. It protects the project itself rather than injuries or payment obligations.

Question 44Business Management and Financial Responsibility

In an estimate, a contingency allowance is included primarily to:

  1. Increase the contractor's profit margin
  2. Provide for unforeseen conditions and minor scope changes Correct answer.
  3. Pay for the owner's design professionals
  4. Cover the cost of permits and fees

Explanation

A contingency is an allowance for unknowns such as unforeseen site conditions, minor scope changes, and quantity variations. It should be tracked separately from profit so the contractor can measure how much was actually used.

Question 45Business Management and Financial Responsibility

A subcontractor abandons the job. To protect its schedule and cost position, the general contractor should typically:

  1. Pay the subcontractor's remaining contract balance to the next bidder
  2. Document the default in writing and back-charge the cost of completing the work to the defaulting subcontractor Correct answer.
  3. Absorb the extra cost as overhead without documentation
  4. Wait for the owner to hire a replacement subcontractor

Explanation

The general contractor should notify the subcontractor of the default in writing, document the condition, and then charge the cost of completing the work, including any premium, back to the defaulting subcontractor. A written record supports the back-charge and any claim against the subcontractor's surety.

Question 46Business Management and Financial Responsibility

A contractor has annual revenue of $2,400,000, cost of goods sold of $1,800,000, overhead of $420,000, and interest expense of $30,000. What is the net profit before taxes?

  1. $600,000
  2. $180,000
  3. $570,000
  4. $150,000 Correct answer.

Explanation

Gross profit is revenue minus cost of goods sold: $2,400,000 minus $1,800,000 equals $600,000. Subtracting overhead of $420,000 and interest of $30,000 leaves net profit before taxes of $150,000.

Question 47Business Management and Financial Responsibility

A contractor's net operating income is $240,000 and annual debt service, including principal and interest, is $160,000. What is the debt service coverage ratio?

  1. 1.67
  2. 1.50 Correct answer.
  3. 2.40
  4. 0.67

Explanation

Debt service coverage ratio equals net operating income divided by annual debt service: $240,000 divided by $160,000 equals 1.50. Lenders generally want a ratio comfortably above 1.0 so income covers debt payments with a cushion.

Question 48Business Management and Financial Responsibility

A project has a contract price of $1,000,000, an estimated total cost at completion of $850,000, and costs incurred to date of $340,000. Using percentage of completion measured by cost, how much revenue should be recognized to date?

  1. $400,000 Correct answer.
  2. $460,000
  3. $340,000
  4. $850,000

Explanation

Percentage of completion equals costs incurred to date divided by total estimated cost: $340,000 divided by $850,000 equals 40%. Revenue recognized is 40% of the $1,000,000 contract price, or $400,000.

Question 49Business Management and Financial Responsibility

A contractor estimates $250,000 of materials at today's prices for a project that will be purchased 2 years from now. With expected escalation of 6% per year compounded, what material budget should be carried?

  1. $290,000
  2. $275,000
  3. $280,900 Correct answer.
  4. $265,000

Explanation

Compounded escalation applies the rate to the growing balance each year: $250,000 times 1.06 times 1.06 equals $280,900. Using compound rather than simple growth prevents underfunding the material budget.

Question 50Business Management and Financial Responsibility

A contractor owns a machine that cost $150,000, has a salvage value of $30,000, a useful life of 6,000 operating hours, and annual insurance and storage of $6,000. If the machine is used 1,000 hours per year, what is the total owning cost per hour, ignoring interest and taxes?

  1. $31.00
  2. $21.00
  3. $26.00 Correct answer.
  4. $20.00

Explanation

Depreciation is ($150,000 minus $30,000) divided by 6,000 hours, or $20.00 per hour. Insurance and storage are $6,000 divided by 1,000 annual hours, or $6.00 per hour, for a total owning cost of $26.00 per hour.