Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1)
1)
Where would the cost of Federal Unemployment Tax (FUTA) be recorded on the income
statement?
A)
Other
B)
Labor
C)
Materials
D)
Equipment
Answer:
B
Explanation:
2)
2)
Which of the following would be deducted from revenues to get net profit from operations?
A)
Overhead
B)
Construction costs
C)
Equipment costs
D)
All of the above
Answer:
D
Explanation:
3)
3)
Which of the following would not be considered a capital lease?
A)
A lease that transfers ownership at the end of the lease
B)
A lease with a purchase option with a heavily discounted price
C)
A lease that extends for 70% of the equipment’s useful life
D)
A lease where the present value of the lease payments at market interest rates exceeds 90%
of the fair market value of the equipment
Answer:
C
Explanation:
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4)
4)
Which of the following is a contra account?
A)
Equipment costs charged to employees
B)
Repairs and maintenance
C)
Fuel and lubrication
D)
Taxes, licenses, and insurance
Answer:
A
Explanation:
5)
5)
Which of the following accounting methods does not recognize revenues when the company has
the right to receive the revenues?
A)
Percentage of completion
B)
Completed contract
C)
Accrual
D)
Cash
Answer:
D
Explanation:
6)
6)
One the balance sheets, assets equal which of the following?
A)
Revenues + Construction Costs
B)
Liabilities + Equity
C)
Liabilities – Equity
D)
Revenues – Construction Costs
Answer:
B
Explanation:
7)
7)
The accounting system should ensure which of the following when paying bills?
A)
A hard copy of the bill has been received.
B)
Bills are paid in a timely fashion.
C)
Payments are made only for bona fide expenses incurred by the company.
D)
B and C
Answer:
D
Explanation:
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8)
8)
The balance sheet is located in which of the following ledgers?
A)
Equipment ledger
B)
Job cost ledger
C)
Overhead ledger
D)
General ledger
Answer:
D
Explanation:
9)
9)
A subcontract must provide which of the following to the jobsite?
A)
Equipment
B)
Materials
C)
Labor
D)
All of the above
Answer:
C
Explanation:
10)
10)
Historically, speculative builders have used this method of accounting because the contract
amount was not known until the project was sold?
A)
Accrual
B)
Percentage of completion
C)
Completed contract
D)
Cash
Answer:
C
Explanation:
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11)
Define costs and profits in excess of billings.
Answer:
Costs and profits in excess of billings occur when the company bills less than the costs incurred plus
the estimated profits or earnings associated with the completed work. Costs and profits in excess of
billings can be the result of cost overruns on the completed work or as a result of the profit not being
equally spread over the items listed on the schedule of values.
12)
Why do the job cost codes in Figure 2–6 in the text have 32200 Site ConcreteLabor and 32300 Site Concrete
Concrete?
Answer:
By separating the forming and pouring costs from the concrete costs, the contractor can easily compare
the cost of using a subcontractor to the cost of using in–house crews by charging all costs usually paid
by the subcontractor to 32200 Site ConcreteLabor when the company’s crews pour the concrete.
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13)
Compare how retention is handled under the percentage–of–completion and the accrual accounting method.
Answer:
Under the percentage–of–completion method, the revenue associated with the retention is recognized
along with the revenues from the bill (i.e., at the time the retention is withheld). Under the accrual
method, retention is not recognized as revenue until the company has the right to receive the retention.
14)
Why is the equipment ledger needed?
Answer:
For a construction company to effectively manage equipment, to ensure that the equipment costs are
being billed to projects, and that they are making enough money on each piece of equipment to
warrant the investment in the equipment, the costs and billings for each piece of equipment must be
tracked. This tracking is accomplished through the equipment ledger.
15)
Why do the job cost codes in Figure 2–6 in the text have both 03500 Slab/FloorConcrete and 32300 Site
ConcreteConcrete?
Answer:
The cost codes have been set up this way so that building costs could be easily separated from the site
costs.
16)
Define committed costs and provide one example from the book.
Answer:
Committed costs are those costs that the company has committed to pay and can be identified before a
bill is received for the costs. For example, a fixed–price subcontract.
17)
Define general overhead.
Answer:
Overhead costs are those costs that cannot be charged to a specific construction project or be included
in the equipment costs section of the income statement.
18)
What is the difference between direct and indirect construction costs?
Answer:
Direct costs can be specifically identified to the completion of a specific construction component of a
specific construction project. Indirect costs consist of those costs that can be specifically identified to the
completion of a specific construction project but cannot be identified with the completion of a specific
construction component on that project.
19)
Describe the coding system used for the job cost system outlined in the book.
Answer:
The cost coding system consists of four levels: project, phase, cost code, and cost type. The phase code
allows the costs to be broken down into phases (e.g., structures, site versus building). The cost code
allows the job to be broken down into the standard categories for costs, which are used by both the
estimating and accounting departments to ensure that the costs are tracked the same way they are
estimated. The cost type allows the costs to be separated by type, which typically includes materials
(M), labor (L), subcontracts (S), equipment (E), and other (O).
20)
What is the purpose of the equipment costs charged to employees account?
Answer:
Employees must be charged for personal use of company vehiclesincluding travel to and from work
or the company must include the value of the employees’ use of company vehicles as a taxable
benefit in the employees’ benefits package.
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Answer Key
Testname: C2
1)
B
2)
D
3)
C
4)
A
5)
D
6)
B
7)
D
8)
D
9)
C
10)
C
11)
Costs and profits in excess of billings occur when the company bills less than the costs incurred plus the estimated
profits or earnings associated with the completed work. Costs and profits in excess of billings can be the result of cost
overruns on the completed work or as a result of the profit not being equally spread over the items listed on the
schedule of values.
12)
By separating the forming and pouring costs from the concrete costs, the contractor can easily compare the cost of
using a subcontractor to the cost of using in–house crews by charging all costs usually paid by the subcontractor to
32200 Site ConcreteLabor when the company’s crews pour the concrete.
13)
Under the percentage–of–completion method, the revenue associated with the retention is recognized along with the
revenues from the bill (i.e., at the time the retention is withheld). Under the accrual method, retention is not
recognized as revenue until the company has the right to receive the retention.
14)
For a construction company to effectively manage equipment, to ensure that the equipment costs are being billed to
projects, and that they are making enough money on each piece of equipment to warrant the investment in the
equipment, the costs and billings for each piece of equipment must be tracked. This tracking is accomplished through
the equipment ledger.
15)
The cost codes have been set up this way so that building costs could be easily separated from the site costs.
16)
Committed costs are those costs that the company has committed to pay and can be identified before a bill is received
for the costs. For example, a fixed–price subcontract.
17)
Overhead costs are those costs that cannot be charged to a specific construction project or be included in the
equipment costs section of the income statement.
18)
Direct costs can be specifically identified to the completion of a specific construction component of a specific
construction project. Indirect costs consist of those costs that can be specifically identified to the completion of a
specific construction project but cannot be identified with the completion of a specific construction component on that
project.
19)
The cost coding system consists of four levels: project, phase, cost code, and cost type. The phase code allows the costs
to be broken down into phases (e.g., structures, site versus building). The cost code allows the job to be broken down
into the standard categories for costs, which are used by both the estimating and accounting departments to ensure
that the costs are tracked the same way they are estimated. The cost type allows the costs to be separated by type,
which typically includes materials (M), labor (L), subcontracts (S), equipment (E), and other (O).
20)
Employees must be charged for personal use of company vehiclesincluding travel to and from workor the
company must include the value of the employees’ use of company vehicles as a taxable benefit in the employees’
benefits package.
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