AFSB 152 INSURANCE FUNDAMENTALS
UPDATED ACTUAL EXAM QUESTIONS AND CORRECT
ANSWERS
Question 1.
B. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for
the past three to five years, including interim statements for the current fiscal year and concurrent
statements for all indemnitors.
ANSWER
Underwriter Albert of Smithson Insurance and Surety would be most interested in which one of
the following groups of financial statements?
A. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past three to five years, including all concurrent interim statements and
current fiscal year statements for all indemnitors.
B. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past three to five years, including interim statements for the current fiscal
year and concurrent statements for all indemnitors.
C. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past two years, including all concurrent interim statements.
D. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past two years, including interim statements for the current fiscal year.
Question 2.
A. Soliciting an architect's comments regarding performance of the work
ANSWER
Which one of the following best describes the reason for a status inquiry?
A. Soliciting an architect's comments regarding performance of the work
B. Gaining the underwriter's perspective on a project's performance to date
C. Procuring progress status reports from producers while visiting job sites and conversing
with contractors
D. Confirming the status of a project at the time a contract status report is being furnished
,Question 3.
A. Its income is not taxed at the corporate level.
ANSWER
Kim operates a small business out of her home. She decided to file the company as a
Subchapter S corporation. The primary advantage of a Subchapter S corporation for small
businesses with a limited number of owners is that
A. Its income is not taxed at the corporate level.
B. Its income is taxed at the corporate level.
C. Its income is taxed at both the corporate and individual level.
D. Its income is taxed at a percentage of the corporate level.
Question 4.
A. Work on the project is completed early in the contract term, and the contract spans multiple years.
ANSWER
The payment of retainage held by the contractor is of particular interest in underwriting a
subcontractor whose
A. Work on the project is completed early in the contract term, and the contract spans multiple
years.
B. Work on the project is completed throughout the entire contract term, and the contract
spans a year or less.
C. Work on the project is completed in the last ninety days of the contract term, and the
contact spans multiple years.
D. Work on the project is completed throughout the entire contract term, and the contract
spans multiple years.
Question 5.
B. Contractor.
ANSWER
The party that directly benefits from an enhanced competitive position in private work because
of the surety's assurance that its capacity to perform has been carefully reviewed is the
A. Taxpayers.
B. Contractor.
C. Project owner.
D. Architect or engineer.
, Question 6.
C. The scope of the certified public accountant's (CPA's) engagement
ANSWER
Jonathan, a surety underwriter, has received the annual financial statement from Way
Construction, and begins his assessment. Which one of the following does Jonathan consider
when first assessing the quality of a financial statement?
A. The number of years the CPA has been in business
B. The name of the CPA that has been engaged
C. The scope of the certified public accountant's (CPA's) engagement
D. The page count for the complete financial statement
Question 7.
B. Additional compensation and an extension of time.
ANSWER
Stanton Construction was the general contractor on a construction project for Rowe Industries.
The project experienced a delay due to a reorganization at Rowe Industries. Because this was
classified as a compensable delay under the construction contract, Stanton Construction was
entitled to
A. An extension of time only.
B. Additional compensation and an extension of time.
C. Additional compensation only.
D. Terminate the contract without penalty.
Question 8.
B. The contractor can often influence the timing of collection of receivables and payment of payables.
ANSWER
Which one of the following is an advantage of the cash method of construction accounting?
A. It provides an accurate measure of the balance sheet condition at a point in time.
B. The contractor can often influence the timing of collection of receivables and payment of
payables.
C. Cash requirements to fund income tax payments are easily forecast.
D. Job revenue and costs are likely to match the business activity that generated them.
UPDATED ACTUAL EXAM QUESTIONS AND CORRECT
ANSWERS
Question 1.
B. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for
the past three to five years, including interim statements for the current fiscal year and concurrent
statements for all indemnitors.
ANSWER
Underwriter Albert of Smithson Insurance and Surety would be most interested in which one of
the following groups of financial statements?
A. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past three to five years, including all concurrent interim statements and
current fiscal year statements for all indemnitors.
B. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past three to five years, including interim statements for the current fiscal
year and concurrent statements for all indemnitors.
C. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past two years, including all concurrent interim statements.
D. Balance sheets, income statements, cash flow statements, and supporting notes and
schedules for the past two years, including interim statements for the current fiscal year.
Question 2.
A. Soliciting an architect's comments regarding performance of the work
ANSWER
Which one of the following best describes the reason for a status inquiry?
A. Soliciting an architect's comments regarding performance of the work
B. Gaining the underwriter's perspective on a project's performance to date
C. Procuring progress status reports from producers while visiting job sites and conversing
with contractors
D. Confirming the status of a project at the time a contract status report is being furnished
,Question 3.
A. Its income is not taxed at the corporate level.
ANSWER
Kim operates a small business out of her home. She decided to file the company as a
Subchapter S corporation. The primary advantage of a Subchapter S corporation for small
businesses with a limited number of owners is that
A. Its income is not taxed at the corporate level.
B. Its income is taxed at the corporate level.
C. Its income is taxed at both the corporate and individual level.
D. Its income is taxed at a percentage of the corporate level.
Question 4.
A. Work on the project is completed early in the contract term, and the contract spans multiple years.
ANSWER
The payment of retainage held by the contractor is of particular interest in underwriting a
subcontractor whose
A. Work on the project is completed early in the contract term, and the contract spans multiple
years.
B. Work on the project is completed throughout the entire contract term, and the contract
spans a year or less.
C. Work on the project is completed in the last ninety days of the contract term, and the
contact spans multiple years.
D. Work on the project is completed throughout the entire contract term, and the contract
spans multiple years.
Question 5.
B. Contractor.
ANSWER
The party that directly benefits from an enhanced competitive position in private work because
of the surety's assurance that its capacity to perform has been carefully reviewed is the
A. Taxpayers.
B. Contractor.
C. Project owner.
D. Architect or engineer.
, Question 6.
C. The scope of the certified public accountant's (CPA's) engagement
ANSWER
Jonathan, a surety underwriter, has received the annual financial statement from Way
Construction, and begins his assessment. Which one of the following does Jonathan consider
when first assessing the quality of a financial statement?
A. The number of years the CPA has been in business
B. The name of the CPA that has been engaged
C. The scope of the certified public accountant's (CPA's) engagement
D. The page count for the complete financial statement
Question 7.
B. Additional compensation and an extension of time.
ANSWER
Stanton Construction was the general contractor on a construction project for Rowe Industries.
The project experienced a delay due to a reorganization at Rowe Industries. Because this was
classified as a compensable delay under the construction contract, Stanton Construction was
entitled to
A. An extension of time only.
B. Additional compensation and an extension of time.
C. Additional compensation only.
D. Terminate the contract without penalty.
Question 8.
B. The contractor can often influence the timing of collection of receivables and payment of payables.
ANSWER
Which one of the following is an advantage of the cash method of construction accounting?
A. It provides an accurate measure of the balance sheet condition at a point in time.
B. The contractor can often influence the timing of collection of receivables and payment of
payables.
C. Cash requirements to fund income tax payments are easily forecast.
D. Job revenue and costs are likely to match the business activity that generated them.
