CSLB CONTRACTOR'S LAW & BUSINESS FINAL EXAM STUDY GUIDE 2025/2026 ACCURATE QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES || 100% GUARANTEED PASS BRAND NEW VERSION

CSLB CONTRACTOR'S LAW & BUSINESS FINAL EXAM STUDY GUIDE 2025/2026 ACCURATE QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES || 100% GUARANTEED PASS BRAND NEW VERSION 1. An employer remits State disability taxes withheld from an employees wages to what agency? - ANSWER Employment Development Department 2. Which act establishes the rights of workers to organize into unions and negotiate contracts? - ANSWER National Labor Relations Act of 1935 3. A contractor has had a problem with employees stealing tools and equipment from job sites. When conducting job interviews, may the contractor ask prospective employees about their arrest records? A. It is legal to ask prospective employees about arrests not leading to convictions. B. It is not legal to ask prospective employees about arrests not leading to convictions. C. It is legal for a private employer to ask about arrests not leading to convictions, but it would not be legal for city or county agencies to ask about such arrests. D. It is legal for a private employer to ask about arrests leading to convictions, but it would not be legal for a federal, state, or local public agency to do so. - ANSWER It is not legal to ask prospective employees about arrest not leading to convictions. 4. Why would a contractor have a case in Superior Court? - ANSWER If it is a dispute of more than $25,000 it can be transferred to Superior Court. 5. Which would not have to be reported to DOSH immediately or within 24 hours? A. Death from a three-story fall. B. Drunken crane operator hits a high-voltage power line C. Car accident in which an employee steps onto a public road, gets hit by a car, and suffers a concussion. D. Employee falls off forklift and suffers a sever back injury. - ANSWER Car accident in which an employee steps onto a public road, gets hit by a car, and suffers a concussion. 6. A general contractor has obtained bids from several subcontractors for a private project. He notices that one bid is substantially lower than the rest. Is it ethical and a good business practice for this contractor to inform the subcontractor that the bid is substantially lower than the bids of the other subcontractors? - ANSWER Yes. If the contractor has reason to believe that the subcontractor has made an error in preparing his bid, the contractor should notify the subcontractor of the apparent error, but the contractor may not disclose the amounts of the other bids. 7. An employer must furnish an employee with a completed IRS Form W-2 (Wage and Tax Statement) by: - ANSWER The 31st of January. 8. After a job is completed, the owner decides to have additional work done. How should the contractor proceed? - ANSWER Write a new contract and ask the owner to sign it. 9. The purpose of a 20-day preliminary notice for private work is to? - ANSWER Notify the owner that the person or firm who sent the notice has improved the property. 10. Is it legal for a contractor to pay employees in cash? - ANSWER Yes, if the contractor provides each employee with a wage deduction statement semimonthly or at the time of each wage payment. 11. Who would be held responsible if a contractor completes a project according to plans and later discovers that there is a building code violation? - ANSWER Both the contractor and the architect would be liable. 12. A(n) _____ summarizes revenues, cost of sales, and operating expenses over a period of time. A. Profit plan B. Balance sheet C. Cash flow statement D. Income statement - ANSWER Income Statement 13. If required safety devices are missing from tools, what should an employee do? - ANSWER Notify the contractor, who is responsible for safety. 14. AB 2040 requires that before work begins on a project, the contractor must inquire of the owner whether asbestos is present in any building constructed prior to: - ANSWER A contractor must inquire on any building built before 1978 about asbestos. 15. The required Injury and Illness Prevention Program (IIPP) takes the form of: - ANSWER The IIPP Injury and Illness Prevention Program takes the form of a written plan that includes procedures and that is put into practice and documented. 16. Social security tax for a self-employed contractor is: - ANSWER Based on the rate set for the self-employed for the year in which the tax is paid. 17. For which of the following injuries does Cal/OSHA require employers to make and keep records? A. Worker is knocked unconscious but returns to work after resting for one hour. B. Worker suffers a burn that requires a one-time visit to the doctor. C. Worker develops a chronic allergy after repeated exposure to fiberglass insulation. D. All of the above. - ANSWER A worker develops a chronic allergy after repeated exposure to fiberglass insulation. 18. All would be kept for contractor records however when employee is exposed to asbestos that is mandatory report. If an employee misses one day or more of work or is hospitalized that would also be mandatory. 19. As part of the safety training process, contractors' supervisors are required to meet with management how often? - ANSWER Contractors supervisors are required to meet with management monthly in regards to the safety training process. 20. Using money from a current job to pay for unrelated projects is called: - ANSWER Diversion is when you use money from a current job to pay for unrelated projects. 21. Direct costs are $7,200, overhead is 12%, and profit is 10%. What is the selling price? - ANSWER $9,230.77 22. Take 10% plus 10%=22% subtract 22% from 100 %= 78% now divide the total cost of $7,200 by 78%=$9,230.76 round up to $9,230.77. 23. Excavators must clearly mark the boundaries of a work area, usually with what color paint. - ANSWER Excavators usually mark boundaries of a work area with white paint. 24. Suppose you include depreciation on your income statement your first year in business, but you do not include it in the second year. How will this affect your net income being reported? - ANSWER Your net income will be greater than it should be in the second year. 25. How many days of inactivity must pass before a notice of cessation may be recorded? - ANSWER 30 days of inactivity must pass before a notice of cessation may be recorded. 26. A RME may act as the qualifier for no more than ________ firms in any one-year period. A. One B. Two C. Three D. Four - ANSWER A RME may only act as the qualifier for one firm in any one year period. 27. Which of the following is not covered by standard contractor's insurance policies? A. Employees' tools B. Contractor's tools C. Damage from fire, storm, theft, and vandalism D. Job materials - ANSWER If a contractor had a builders risk policy, a general liability policy, and a inland marine policy as a standard guideline, employees tools would not be covered by any of the standard policies. 28. Unsafe or faulty equipment is found on a job site. What should be done?. - ANSWER It is the contractor's responsibility to correct the problem. 29. Who furnishes MSDS sheets? - ANSWER The supplier is who should furnish MSDS sheets. 30. At the end of each month, data is posted from the bookkeeping journals to the: - ANSWER At the end of each month data should be posted from the bookkeeping journal to the general ledger. 31. Except in an emergency, you must notify the regional Underground Service Alert Notification Center no less than _____ nor more than _____ starting excavation work. A. 1 day before ... 14 days before B. 2 days before ... 14 days after C. 2 days before ... 14 days before D. 3 days before ... 28 days after - ANSWER You must notify the regional UAS alert notification center at least 2 days before and no more than 14 days before starting excavation work. 32. If you are a subcontractor, there are three general steps in the mechanics' lien procedure to make sure you are paid for works of improvement upon property. Step 1: Determine the exact legal description of the property (map book, page, etc.). Step 2: Step 3: Complete the work and record a Claim of Lien if you are not paid on time. What is Step 2? A. Request prepayment for your work. B. Serve a preliminary 20-day notice. C. Run credit checks on the owner and prime contractor. D. List the attorney representing the subcontractor. - ANSWER If you are a subcontractor the three steps of the mechanics' lien procedure to make sure you are paid for your work are Step 1: Determine the exact legal description of the property (map book, page, etc.) Step 2: Serve preliminary 20-day notice. Step: 3 Complete the work and record a Claim of Lien if you are not paid on time. 33. Before you build on a landfill you must notify: - ANSWER The government and the engineers. 34. If a building permit is required, when does the law permit a building inspector to enter and inspect a residence? - ANSWER The law permits an inspector to enter and inspect a residence between 8 am and 6 pm unless the owner has given permission to inspect at some other time. 35. When a joint control addendum is used, which of the following does not have to be included in a home improvement contract? A. Owner's signature B. Schedule of payments C. Notice to Owner D. License number of the contractor - ANSWER A schedule of payments does not need to be included in a home improvement contract if a joint control addendum is used. 36. A contractor is bidding on a project for a homeowner. The homeowner has included several "extra" items to be bid upon. After receiving the bid, the homeowner said it was too high and asked the contractor to lower the price. What should the contractor do? - ANSWER Negotiate with the homeowner to reduce the scope of the work by eliminating some of the extra items. 37. A balance sheet shows: - ANSWER A balance sheet shows assets and liabilities at a certain point in time. 38. Which of the following are employees NOT required to learn? A. CPR B. How to conduct tailgate safety meetings C. Safety features of tools D. First-aid procedures - ANSWER Employees are required to learn safety features of tools, first-aid procedures and how to conduct tailgate safety meetings. They are not required to learn CPR. 39. A contractor buys a construction firm from a person who is retiring. There is an existing collective bargaining agreement with a successor clause that is good for three years. As the new owner, is the contractor bound by the collective bargaining agreement? - ANSWER Yes a successor clause in a collective bargaining agreement is binding on a successor for up to three years. 40. After the building plans are approved, what is the next step? - ANSWER The first step after a building plan is approved is to review the plans for errors and corrections. 41. As a subcontractor on a public work of improvement, you complete your contract in a workmanlike manner. But the prime contractor, Mr. Adams, informs you that he cannot pay you. One of your best options is to file a stop notice, which has what effect? - ANSWER On a public work of improvement, a stop notice would create a lien on the construction funds. 42. Who is responsible for keeping track of change orders? - ANSWER The contractor is responsible for keeping track of any change orders. 43. Bob Smith is the RME for the XYZ Construction Co., where he works all week. His own construction business, under a different name and license number, builds decks on weekends. Is this an acceptable practice for Bob? A. Yes: Bob may qualify as many licenses as he desires. B. Yes: Bob may qualify both licenses provided that he is regularly employed by XYZ and is actively involved in the operation of the business at least 32 hours per week or 80% of XYZ's total operating hours per week, whichever is less. C. No: Bob must take another qualifying exam to qualify a second license. D. No: Bob may qualify only XYZ Co.'s license in this case. - ANSWER No Bob may qualify only XYZ Co.'s license in this case. 44. In the cash system of accounting, a transaction is recorded or posted: - ANSWER Anytime cash changes hands it should be recorded or posted. 45. How often are FUTA tax deposits made by most employers? - ANSWER Most employers would deposit FUTA tax quarterly. 46. If an owner cancels a home solicitation contract on March 20, by what date must the contractor return the down payment? - ANSWER The contractor must return the down payment of a canceled contract within 10 days. 47. What is the best way to ensure that your license bond remains in effect after its expiration date (i.e., what is the best way to avoid a period of suspension)? - ANSWER Make sure the effective date of the new bond is the same as the cancellation date of the old bond and renew 30 days in advance. 48. What federal forms are given to a newly hired employee? - ANSWER A W-4 and I-9 must be given to all newly hired employees. 49. An income statement shows: - ANSWER An income statement shows revenues and expenses over an extended period of time. 50. When calculating unemployment and disability insurance taxes, an employer would not include: A. Bonuses B. Severance Pay C. Wages D. Overtime - ANSWER Severance pay would not be included in calculating unemployment and disability insurance. 51. Which of the following is a correct statement about budgets? A. Budgets do not require accurate books. B. Budgets do not require detailed cost information. C. The goal of a budget is to forecast expenses as accurately as possible. D. A budget should allow leeway for month-to-month variations. - ANSWER A budget should allow leeway for month-to-month variations. 52. When should you let your attorney see a construction contract? A. Before you let the client see the contract B. After the contract is prepared but before you sign it C. After the building permit is obtained D. After the contract is signed by you and the client - ANSWER B. After the contract is prepared but before you sign it 53. Which is the most correct statement as to what must be included in every home improvement contract? A. Notice of right to cancel B. Contractor's license number C. Truth-in-lending notice D. Name of the project - ANSWER B. Contractor's license number 54. Which is NOT required on a home improvement contract? A. A notice, in at least 10 point print, in close proximity to the signature, and a statement that the owner has a right to require a performance and payment bond B. The name and home address of all the personnel listed on the license C. An approximate date when work will begin and be substantially completed D. A description of the work to be done and materials and equipment to be used or installed - ANSWER B. The name and home address of all the personnel listed on the license. Know that A, C and D are