FLORIDA CONSTRUCTION INDUSTRY
LICENSING BOARD RESIDENTIAL
CONTRACTOR BUSINESS AND FINANCE
EXAM WITH QUESTIONS AND VERIFIED
ANSWERS, PLUS DETAILED
RATIONALES/EXPERT VERIFIED FOR
GUARANTEED PASS 2026/LATEST
UPDATE/INSTANT DOWNLOAD PDF
1. A residential contractor is deciding whether to operate as a sole
proprietorship, partnership, corporation, or limited liability
company. Which consideration is MOST important when
evaluating the business structure from a risk-management
perspective?
A. Whether the company can advertise on social media
B. Whether the structure can provide liability protection and how it
affects taxation and management
C. Whether the contractor can purchase construction materials wholesale
D. Whether the company can employ subcontractors
Answer: B. Whether the structure can provide liability protection
and how it affects taxation and management
Rationale: The legal structure of a contracting business affects
ownership, management, taxation, recordkeeping, and potential
personal liability. A corporation or LLC may provide liability
protection that is generally not available in the same manner to a sole
proprietor, although that protection has limitations and does not shield
a person from personal liability for their own wrongful acts.
1
, 2. A residential contractor has annual gross sales of $1,200,000.
Direct job costs are $780,000, while office rent, insurance,
administrative salaries, advertising, utilities, and other operating
expenses total $240,000. What is the contractor's operating profit
before taxes?
A. $180,000
B. $240,000
C. $420,000
D. $960,000
Answer: A. $180,000
Rationale: Gross profit is $1,200,000 − $780,000 = $420,000.
Operating expenses are $240,000. Therefore, operating profit is
$420,000 − $240,000 = $180,000. A contractor must distinguish gross
profit from net or operating profit because overhead consumes part of
the gross margin.
3. A contractor estimates that a project will require $85,000 in direct
labor and materials. The contractor applies a 20% markup to the
direct cost. What is the selling price?
A. $102,000
B. $100,000
C. $105,000
D. $106,250
Answer: A. $102,000
Rationale: A markup is calculated on cost. $85,000 × 20% = $17,000
markup. Adding the markup to cost gives $102,000. This differs from a
20% profit margin, which would require dividing the cost by 0.80.
2
, 4. A contractor wants a 20% gross profit margin on a project with
estimated direct costs of $80,000. What should the contract selling
price be?
A. $96,000
B. $100,000
C. $104,000
D. $120,000
Answer: B. $100,000
Rationale: A 20% margin means direct cost represents 80% of the
selling price. Therefore, $80,000 ÷ 0.80 = $100,000. The resulting
gross profit is $20,000, which is exactly 20% of the $100,000 selling
price.
5. A contractor's annual fixed overhead is $300,000. The contractor's
average contribution margin is 30% of sales. What annual sales
volume is required to break even?
A. $900,000
B. $1,000,000
C. $1,200,000
D. $1,300,000
Answer: B. $1,000,000
Rationale: Break-even sales = fixed costs ÷ contribution margin
percentage. Therefore, $300,000 ÷ 0.30 = $1,000,000. At that sales
level, the contribution generated by the projects exactly covers fixed
overhead, leaving no operating profit or loss.
3
, 6. A contractor purchases materials for $42,000 and pays a supplier
within the period required to receive a 2% cash discount. How
much is the discount?
A. $420
B. $840
C. $1,260
D. $2,100
Answer: B. $840
Rationale: The discount equals $42,000 × 2% = $840. Therefore, the
contractor pays $41,160 if all other terms are satisfied. Prompt-
payment discounts can improve cash flow and reduce the effective cost
of materials.
7. Which financial statement primarily reports a company's assets,
liabilities, and owner's equity at a specific point in time?
A. Income statement
B. Cash-flow statement
C. Balance sheet
D. Job-cost report
Answer: C. Balance sheet
Rationale: A balance sheet presents the financial position of a
business at a particular date. Assets represent resources controlled by
the business, liabilities represent obligations, and equity represents the
residual interest. The fundamental accounting equation is Assets =
Liabilities + Equity.
8. A contractor's balance sheet shows $450,000 in current assets and
$300,000 in current liabilities. What is the current ratio?
4
LICENSING BOARD RESIDENTIAL
CONTRACTOR BUSINESS AND FINANCE
EXAM WITH QUESTIONS AND VERIFIED
ANSWERS, PLUS DETAILED
RATIONALES/EXPERT VERIFIED FOR
GUARANTEED PASS 2026/LATEST
UPDATE/INSTANT DOWNLOAD PDF
1. A residential contractor is deciding whether to operate as a sole
proprietorship, partnership, corporation, or limited liability
company. Which consideration is MOST important when
evaluating the business structure from a risk-management
perspective?
A. Whether the company can advertise on social media
B. Whether the structure can provide liability protection and how it
affects taxation and management
C. Whether the contractor can purchase construction materials wholesale
D. Whether the company can employ subcontractors
Answer: B. Whether the structure can provide liability protection
and how it affects taxation and management
Rationale: The legal structure of a contracting business affects
ownership, management, taxation, recordkeeping, and potential
personal liability. A corporation or LLC may provide liability
protection that is generally not available in the same manner to a sole
proprietor, although that protection has limitations and does not shield
a person from personal liability for their own wrongful acts.
1
, 2. A residential contractor has annual gross sales of $1,200,000.
Direct job costs are $780,000, while office rent, insurance,
administrative salaries, advertising, utilities, and other operating
expenses total $240,000. What is the contractor's operating profit
before taxes?
A. $180,000
B. $240,000
C. $420,000
D. $960,000
Answer: A. $180,000
Rationale: Gross profit is $1,200,000 − $780,000 = $420,000.
Operating expenses are $240,000. Therefore, operating profit is
$420,000 − $240,000 = $180,000. A contractor must distinguish gross
profit from net or operating profit because overhead consumes part of
the gross margin.
3. A contractor estimates that a project will require $85,000 in direct
labor and materials. The contractor applies a 20% markup to the
direct cost. What is the selling price?
A. $102,000
B. $100,000
C. $105,000
D. $106,250
Answer: A. $102,000
Rationale: A markup is calculated on cost. $85,000 × 20% = $17,000
markup. Adding the markup to cost gives $102,000. This differs from a
20% profit margin, which would require dividing the cost by 0.80.
2
, 4. A contractor wants a 20% gross profit margin on a project with
estimated direct costs of $80,000. What should the contract selling
price be?
A. $96,000
B. $100,000
C. $104,000
D. $120,000
Answer: B. $100,000
Rationale: A 20% margin means direct cost represents 80% of the
selling price. Therefore, $80,000 ÷ 0.80 = $100,000. The resulting
gross profit is $20,000, which is exactly 20% of the $100,000 selling
price.
5. A contractor's annual fixed overhead is $300,000. The contractor's
average contribution margin is 30% of sales. What annual sales
volume is required to break even?
A. $900,000
B. $1,000,000
C. $1,200,000
D. $1,300,000
Answer: B. $1,000,000
Rationale: Break-even sales = fixed costs ÷ contribution margin
percentage. Therefore, $300,000 ÷ 0.30 = $1,000,000. At that sales
level, the contribution generated by the projects exactly covers fixed
overhead, leaving no operating profit or loss.
3
, 6. A contractor purchases materials for $42,000 and pays a supplier
within the period required to receive a 2% cash discount. How
much is the discount?
A. $420
B. $840
C. $1,260
D. $2,100
Answer: B. $840
Rationale: The discount equals $42,000 × 2% = $840. Therefore, the
contractor pays $41,160 if all other terms are satisfied. Prompt-
payment discounts can improve cash flow and reduce the effective cost
of materials.
7. Which financial statement primarily reports a company's assets,
liabilities, and owner's equity at a specific point in time?
A. Income statement
B. Cash-flow statement
C. Balance sheet
D. Job-cost report
Answer: C. Balance sheet
Rationale: A balance sheet presents the financial position of a
business at a particular date. Assets represent resources controlled by
the business, liabilities represent obligations, and equity represents the
residual interest. The fundamental accounting equation is Assets =
Liabilities + Equity.
8. A contractor's balance sheet shows $450,000 in current assets and
$300,000 in current liabilities. What is the current ratio?
4
