Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 1 Construction Financial Management
Chapter 1 Construction Financial Management
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) In the last 37 years, how many years has the business failure rate for the construction industry been below the
combined average failure rate for all business sectors in the United States? 1) _______
A) 37 B) 32 C) 0 D) 5
2) Based on the data for 2013, what age of firm has the highest failure rate? 2) _______
A) 6 to 10 years B) 2 years C) 1 year D) 5 years
3) Which sector has the highest establishment failure rate? 3) _______
A) Specialty contractors B) Heavy and civil construction
C) Non-residential building D) Residential
4) What percent of the business failures in 2013 occurred in construction businesses between six and ten years old?
4) _______
A) 12.1% B) 17.2% C) 8.5% D) 4.9%
5) Hiring employees to perform the work on the project will require ________ financial resources than if the company had
hired subcontractors to perform the labor. 5) _______
A) the same B) more C) less
6) A construction company is different from a manufacturer in that a construction company is ________ orientated.
6) _______
A) schedule B) process C) project D) budget
7) Project owners often withhold ________ thus ________ payment of a portion of the progress payment. 7) _______
A) profit, accelerating B) retention, deferring
C) profit, deferring D) retention, accelerating
8) Which of the following construction personnel are responsible for one or more financial management tasks? 8)
_______
A) Superintendents B) Estimators
C) Project managers D) All of the above
9) Understanding financial management helps the construction manager complete which of the following tasks? 9)
_______
A) Estimate equipment costs B) Interpret accounting reports
C) Estimate labor costs D) All of the above
1
,Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 1 Construction Financial Management
10) In which chapter of the book would information on calculating the over- and under-billings be found? 10) ______
A) Chapter 2 B) Chapter 3 C) Chapter 4 D) Chapter 5
11) In which chapter of the book would information on monitoring and controlling construction costs be found? 11)
______
A) Chapter 7 B) Chapter 8 C) Chapter 9 D) Chapter 10
12) In which chapter of the book would information on setting profit margins be found? 12) ______
A) Chapter 7 B) Chapter 8 C) Chapter 9 D) Chapter 10
13) In which chapter of the book would information on how to develop a cash flow for a construction project be found?
13) ______
A) Chapter 11 B) Chapter 12 C) Chapter 13 D) Chapter 14
14) In which chapter of the book would information on how loan provisions and closing costs affect the interest rate on
loans be found? 14) ______
A) Chapter 15 B) Chapter 16 C) Chapter 17 D) Chapter 18
15) In which chapter of the book would information about quantitative methods that may be used to analyze financial
alternatives be found? 15) ______
A) Chapter 15 B) Chapter 16 C) Chapter 17 D) Chapter 18
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
16) Define financial management.
17) Identify at least three questions that should be asked before deciding to bid on a large project.
18) How do construction companies deal with fluctuations in demand? How does this compare with how manufacturers
deal with fluctuations in demand?
19) Why do many construction companies rely heavily on subcontractors to perform work on projects?
20) What is one of the best ways for an employee to succeed in a company?
2
,Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 1 Construction Financial Management
1) D
2) C
3) D
4) B
5) B
6) C
7) B
8) D
9) D
10) C
11) A
12) D
13) B
14) B
15) C
16) Financial management is the use of a company's financial resources.
17) The question may include any of the following:
• Does the company have enough cash resources to perform this work or will the company need outside financing?
• Can the company get bonded for this work?
• What changes need to be made in the company's financial structure so that the company can get a bond for the
project?
• Should the company hire employees to perform the work or should the company subcontract out this labor?
• Should the company lease or purchase the additional equipment needed for this project?
• If the company purchases the equipment, how should it be financed?
• Will this project require the company to increase its main office overhead?
• What profit and overhead markup should be added to the bid?
18) Construction companies must constantly bid new work to keep the company's workforce fully utilized or build
speculative projects. Manufacturers can produce and store extra products when demand is slower for use when the
demand is higher.
19) It allows a construction company to tap into a subcontractor's financial assets during the construction process.
20) Increasing the company's profitability through sound construction financial management.
3
, Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 2 Construction Accounting Systems
Chapter 2 Construction Accounting Systems
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The accounting system should ensure which of the following when paying bills? 1) _______
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
2) The balance sheet is located in which of the following ledgers? 2) _______
A) Overhead ledger B) General ledger
C) Equipment ledger D) Job cost ledger
3) Which of the following accounting methods does not recognize revenues when the company has the right to receive the
revenues? 3) _______
A) Accrual B) Percentage of completion
C) Completed contract D) Cash
4) Historically, speculative builders have used this method of accounting because the contract amount was not known
until the project was sold? 4) _______
A) Cash B) Accrual
C) Completed contract D) Percentage of completion
5) One the balance sheets, assets equal which of the following? 5) _______
A) Revenues + Construction Costs B) Liabilities - Equity
C) Liabilities + Equity D) Revenues - Construction Costs
6) Which of the following would not be considered a capital lease? 6) _______
A) A lease with a purchase option with a heavily discounted price
B) A lease where the present value of the lease payments at market interest rates exceeds 90% of the fair market value of
the equipment
C) A lease that extends for 70% of the equipment's useful life
D) A lease that transfers ownership at the end of the lease
7) A subcontract must provide which of the following to the jobsite? 7) _______
A) Materials B) Equipment C) Labor D) All of the above
8) Where would the cost of Federal Unemployment Tax (FUTA) be recorded on the income statement? 8) _______
A) Equipment B) Other C) Materials D) Labor
9) Which of the following is a contra account? 9) _______
A) Taxes, licenses, and insurance B) Repairs and maintenance
4
Chapter 1 Construction Financial Management
Chapter 1 Construction Financial Management
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) In the last 37 years, how many years has the business failure rate for the construction industry been below the
combined average failure rate for all business sectors in the United States? 1) _______
A) 37 B) 32 C) 0 D) 5
2) Based on the data for 2013, what age of firm has the highest failure rate? 2) _______
A) 6 to 10 years B) 2 years C) 1 year D) 5 years
3) Which sector has the highest establishment failure rate? 3) _______
A) Specialty contractors B) Heavy and civil construction
C) Non-residential building D) Residential
4) What percent of the business failures in 2013 occurred in construction businesses between six and ten years old?
4) _______
A) 12.1% B) 17.2% C) 8.5% D) 4.9%
5) Hiring employees to perform the work on the project will require ________ financial resources than if the company had
hired subcontractors to perform the labor. 5) _______
A) the same B) more C) less
6) A construction company is different from a manufacturer in that a construction company is ________ orientated.
6) _______
A) schedule B) process C) project D) budget
7) Project owners often withhold ________ thus ________ payment of a portion of the progress payment. 7) _______
A) profit, accelerating B) retention, deferring
C) profit, deferring D) retention, accelerating
8) Which of the following construction personnel are responsible for one or more financial management tasks? 8)
_______
A) Superintendents B) Estimators
C) Project managers D) All of the above
9) Understanding financial management helps the construction manager complete which of the following tasks? 9)
_______
A) Estimate equipment costs B) Interpret accounting reports
C) Estimate labor costs D) All of the above
1
,Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 1 Construction Financial Management
10) In which chapter of the book would information on calculating the over- and under-billings be found? 10) ______
A) Chapter 2 B) Chapter 3 C) Chapter 4 D) Chapter 5
11) In which chapter of the book would information on monitoring and controlling construction costs be found? 11)
______
A) Chapter 7 B) Chapter 8 C) Chapter 9 D) Chapter 10
12) In which chapter of the book would information on setting profit margins be found? 12) ______
A) Chapter 7 B) Chapter 8 C) Chapter 9 D) Chapter 10
13) In which chapter of the book would information on how to develop a cash flow for a construction project be found?
13) ______
A) Chapter 11 B) Chapter 12 C) Chapter 13 D) Chapter 14
14) In which chapter of the book would information on how loan provisions and closing costs affect the interest rate on
loans be found? 14) ______
A) Chapter 15 B) Chapter 16 C) Chapter 17 D) Chapter 18
15) In which chapter of the book would information about quantitative methods that may be used to analyze financial
alternatives be found? 15) ______
A) Chapter 15 B) Chapter 16 C) Chapter 17 D) Chapter 18
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
16) Define financial management.
17) Identify at least three questions that should be asked before deciding to bid on a large project.
18) How do construction companies deal with fluctuations in demand? How does this compare with how manufacturers
deal with fluctuations in demand?
19) Why do many construction companies rely heavily on subcontractors to perform work on projects?
20) What is one of the best ways for an employee to succeed in a company?
2
,Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 1 Construction Financial Management
1) D
2) C
3) D
4) B
5) B
6) C
7) B
8) D
9) D
10) C
11) A
12) D
13) B
14) B
15) C
16) Financial management is the use of a company's financial resources.
17) The question may include any of the following:
• Does the company have enough cash resources to perform this work or will the company need outside financing?
• Can the company get bonded for this work?
• What changes need to be made in the company's financial structure so that the company can get a bond for the
project?
• Should the company hire employees to perform the work or should the company subcontract out this labor?
• Should the company lease or purchase the additional equipment needed for this project?
• If the company purchases the equipment, how should it be financed?
• Will this project require the company to increase its main office overhead?
• What profit and overhead markup should be added to the bid?
18) Construction companies must constantly bid new work to keep the company's workforce fully utilized or build
speculative projects. Manufacturers can produce and store extra products when demand is slower for use when the
demand is higher.
19) It allows a construction company to tap into a subcontractor's financial assets during the construction process.
20) Increasing the company's profitability through sound construction financial management.
3
, Test Bank For Construction Accounting and Financial Management 4th Edition
Chapter 2 Construction Accounting Systems
Chapter 2 Construction Accounting Systems
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The accounting system should ensure which of the following when paying bills? 1) _______
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
2) The balance sheet is located in which of the following ledgers? 2) _______
A) Overhead ledger B) General ledger
C) Equipment ledger D) Job cost ledger
3) Which of the following accounting methods does not recognize revenues when the company has the right to receive the
revenues? 3) _______
A) Accrual B) Percentage of completion
C) Completed contract D) Cash
4) Historically, speculative builders have used this method of accounting because the contract amount was not known
until the project was sold? 4) _______
A) Cash B) Accrual
C) Completed contract D) Percentage of completion
5) One the balance sheets, assets equal which of the following? 5) _______
A) Revenues + Construction Costs B) Liabilities - Equity
C) Liabilities + Equity D) Revenues - Construction Costs
6) Which of the following would not be considered a capital lease? 6) _______
A) A lease with a purchase option with a heavily discounted price
B) A lease where the present value of the lease payments at market interest rates exceeds 90% of the fair market value of
the equipment
C) A lease that extends for 70% of the equipment's useful life
D) A lease that transfers ownership at the end of the lease
7) A subcontract must provide which of the following to the jobsite? 7) _______
A) Materials B) Equipment C) Labor D) All of the above
8) Where would the cost of Federal Unemployment Tax (FUTA) be recorded on the income statement? 8) _______
A) Equipment B) Other C) Materials D) Labor
9) Which of the following is a contra account? 9) _______
A) Taxes, licenses, and insurance B) Repairs and maintenance
4
