AFSB 152 Practice Exam Part A

AFSB 152 Practice Exam Part A The two main types of construction are heavy and highway construction and - ✔✔The general building trades Dramatic increase in project size, taking work in new geographical areas, moving ...

AFSB 152 Practice Exam Part A The two main types of construction are heavy and highway construction and - ✔✔The general building trades Dramatic increase in project size, taking work in new geographical areas, moving into new types of construction, and lack of management maturity are all factors that can result in - ✔✔Contractor failure The Miller Act requires a contractor on a federal construction project to post two bonds, a performance bond and a - ✔✔Labor and material payment bond Contractors would typically be granted relief from bidding mistakes from errors in - ✔✔Mathematical calculation Profitable construction can be achieved by careful estimating, good construction practices, and - ✔✔Efficient job supervision Most sureties use the 10 percent rule when underwriting bonds. An explanation from the contractor is required when - ✔✔There is a 10 percent or greater difference between the first and second bids. A contractor might finance or refinance equipment or real estate. This financing, secured by real estate and payable in monthly installments over five to fifteen years, is called - ✔✔A term loan Which one of the following types of financial statements do sureties prefer with a bond application? - ✔✔Audit The primary consideration that influences most contractors in electing a tax reporting method is - ✔✔The deferral of income tax payments to the greatest extent possible. The analyst's notes taken during the review of the contract status report might include all of the following, EXCEPT: - ✔✔Gross profit (loss) recognition A financial analyst might check for a management change such as that associated with a stockholder's death, retirement, resignation, or termination when signaled by - ✔✔A treasury stock transaction From the analyst's viewpoint, accumulated depreciation or amortization on fixed assets represents - ✔✔A calculated reduction of value from the cost or capitalized basis of the assets. The income statement line-item that is widely recognized as the best measure of the contractor's success in the principal business activity is - ✔✔Income from operations. One of the principal areas included in a forecast of financial conditions and financial results is - ✔✔Expected financial performance of construction contracts and backlogs. An essential step for trend analysis and forecasting is - ✔✔Formulate an overall judgment of financial trends. Supply contracts that surety underwriters do not consider hazardous involve products that are easily replicated, can be purchased from a variety of sources, and - ✔✔Are short in duration A claim representative needs the principal's cooperation when gathering information to process a claim. One problem that could result from an uncooperative principal is - ✔✔Payment of additional attorneys' fees and expenses to enforce the surety's rights. A surety claim representative has many sources of information available. However, the logical starting point for the claim representative is the - ✔✔Surety's underwriters and their tiles. The two main sources of construction work in the United States are the federal, state, and local governme1lts and - ✔✔Private business and industry. In starting the design process, the design professional interviews the client and measures current and future needs and reviews existing facilities for potential renovation and ability to handle future growth needs. What is the next step? - ✔✔Professional engineers, architects, and attorneys obtain required zoning approvals and ensure that plans and specifications comply with all government regulations. All of the following are primary functions in a successful construction firm, EXCEPT: - ✔✔Management development John, a general contractor, produces good cash flow through frontloading. Typically, all of the following statements are true, EXCEPT: - ✔✔Frontloading would increase John's cash flow in the later stages of the project. The owner of a project does not pay Chip Construction in a timely fashion and Chip's cash flow is disrupted. Other than frontloading other jobs, how would Chip manage immediate cash flow problems? - ✔✔Obtain a bank credit line Types of construction contracts are distinguished by examining the wording in the - ✔✔Payment clause. The traditional alternative available to a contractor who cannot settle its dispute with the owner through arbitration procedures is - ✔✔Litigation. The party responsible for the adequacy of the design or the efficiency of the building or system is the - ✔✔Architect or engineer. Overhead costs include all of the following indirect costs necessary to support the actual construction, EXCEPT: - ✔✔Labor Contractors subcontract various portions of the construction work to achieve the benefit of - ✔✔Specialization. The bond penalty, or limit 6f liability, for most bidbonds is expressed as - ✔✔A percentage of the contractor's bid. A producer's responsibilities include knowing the bond markets, advising the contractor, keeping the underwriter informed, reviewing underwriter decisions, appealing decisions, and - ✔✔Supporting decisions The term "underwriting submission" could be used to describe - ✔✔An annual updating of the file on an established. account. All of the following are challenges to underwriting bonds for newly formed companies, EXCEPT: - ✔✔Geographic location Factors that influence the quality and usefulness of a contractor's financial statement are ( 1) scope of engagement of the CPA or preparer, (2) completeness of the financial statement, (3) accounting methodology and methods used to measure the contractor's financial condition, and ( 4) - ✔✔Qualifications of the CPA or preparer. The Schedule of Changes in Long-Term Liabilities - ✔✔Shows the effects of borrowing, payment, or reclassification of debt. Which one of the following methods of construction accounting does not realistically measure financial performance of work actually performed during the accounting period, except for contracts that were started and completed during that period? - ✔✔Completed-contract method Status reports help assess financial stability by - ✔✔Comparing estimates of original gross profits with subsequent estimates. What is another term used to describe "billings in excess of costs and recognized earnings"? - ✔✔Overbillings Backlog is a critical underwriting factor because the limits to which the contractor and surety agree generally define a contractor's - ✔✔Bonding capacity. One factor affecting the analyst's ability to make a realistic assessment of financial data is - ✔✔Access to the contractor's CPA or personnel with data or insights. All of the following events or changes occurring after statement preparation might affect a financial analysis either positively or negatively, EXCEPT: - ✔✔Litigation involving the CPA could create uncertainty. A part of the financial statement that provides the analyst further insight into business activity and liquidity other than the amount of working capital and that reveals the effects of the contractor's operating, investing, and financing activities is the - ✔✔Statement of cash flows. All of the following are miscellaneous accrued expenses, EXCEPT: - ✔✔Accounts payable When comparing the immediacy of estimates due subcontractors and retainages due subcontractors, which one of the following is true? - ✔✔Earned estimates due subcontractors are among the most immediate debt obligations. Which one of the following is the income statement line item widely recognized as the best measure of the contractor's overall financial performance and the "bottom line" result? - ✔✔Net income The most important objective of a complete financial analysis is - ✔✔To objectively forecast the contractor's financial condition and financial results. All of the following are principal financial areas subject to trend analysis, EXCEPT: - ✔✔Gross profit comparison spreadsheets All aspects of the contractor's finances, including trends and forecasts, current financial condition, and recent results attained, are described as - ✔✔Capital. The backlog to working capital ratio generally preferred by sureties is in the range of - ✔✔10:1 to 20:1. A bond underwriter is evaluating Eagle Construction for payment and performance bonds. Which one of the following would the bond underwriter consider the best indicator for a positive financial forecast? - ✔✔Eagle Construction's working capital is 8 percent of the backlog. Which one of the following specialty contract bonds would the surety typically consider the least hazardous? - ✔✔Supply bond When a lender requests that it be named in the performance bond as a dual obligee with the owner, the surety can limit its exposure by using - ✔✔A savings clause. A turnkey contract differs from that of a conventional construction job because - ✔✔The contractor supervises the work. All of the following are factors that tnake trash removal contracts more complex than food service contracts, EXCEPT: - ✔✔The "renew option clause" in most trash removal contracts poses risk to the surety because the option is mutual. Bennigan Builders will construct a plant as a turnkey project. The plant, owned by National Company, will manufacture the next generation of rocket propellants for NASA National Company requests an efficiency guarantee for certain components of the processing equipment. All of the following are true, EXCEPT: - ✔✔National Company would request competitive bids The principal for whom the bonds are written must indemnify the surety for any loss incurred. This protection - ✔✔Is an implied obligation at law. A principal requests financial assistance from its surety in response to - ✔✔A cash flow or solvency problem Claim representatives should determine who drafted the bond form(s) because - ✔✔Ambiguities in contracts are interpreted against its drafter. A surety claim representative determines various information on a performance and payment bond claim against the prime contractor, including tl1e fact that the job's completion will be delayed about three months resulting in a penalty for each day delayed. Which one of the following statements is the least reliable? - ✔✔The prime contractor will incur an additional $100,000 in direct expenses to complete the job. Four events that must generally occur before the surety has an obligation to act and to respond to a claim under its performance bond are: (1) the principal must be in default, ( 2) the obligee must declare the principal to be in default under the contract, (3) the obligee must have performed its obligations under the contract, and ( 4) - ✔✔The obligee must terminate the principal's right to proceed under the contract. When the obligee makes claim against the performance bond, the surety's least favorite option is - ✔✔Takeover. Key elements in a tender option are that the surety arranges for completion of the work and the - ✔✔Completion contractor provides the obligee with new bonds Plumbing-Materials Supplier furnished pipe and fittings to a first-tier subcontractor on a federal job. On March 1, 2003, Plumbing-Materials Supplier filed written notice to the prime contractor that payment had not been received for materials delivered to the job site between June 23, 2002, and July 2, 2002. Plumbing-Materials Supplier also filed a claim against the prime contractor's payment bond, stating that Plumbing-Materials Supplier - ✔✔Has met the time to sue requirement but has not met the notice requirement of the Miller Act. Which one of the following would generally be covered under the Miller Act? - ✔✔Steel and concrete incorporated in the construction project