Law 1 Part 2

Question-and-answer flashcards covering the key points from Test 2 lecture notes, including accounting concepts, tax rules, bidding practices, and contract requirements.

Must part-time employees be covered by workers’ compensation insurance?

Yes. All employees—including part-time workers—must be covered by workers’ compensation insurance.

What does an income statement show?

Revenues and expenses over an extended period of time.

Before a public-works contract is executed, what proof of insurance must be supplied?

A certificate of workers’ compensation insurance.

Under the cash method of accounting, when is a transaction recorded?

When cash actually changes hands.

When must employees give Form W-4 to their employer?

When they start work.

What are “accounts receivable”?

Money due from customers who have purchased goods or services on credit.

At what payment threshold must a business file Form 1099-MISC for non-employees?

When payments total $600 or more in a calendar year.

Extending materials or equipment based solely on the contractor’s reputation is what type of credit?

An open-account (unsecured) credit arrangement.

How is Social Security tax calculated for a self-employed contractor?

It is based on the self-employed rate set for the tax year (the combined employer + employee rate).

How often do most employers deposit FUTA taxes?

Quarterly.

To which agency are FUTA taxes paid?

The Internal Revenue Service (IRS).

What are the gross wages for 60 hours in week 1 and 30 hours in week 2 at $20/hour (time-and-a-half over 40 hrs)?

$2,000.

What is the best document to examine to see if a company is profitable?

The income statement.

Which of the following is a fixed expense?

Office rent.

Which financial ratios measure liquidity?

Both the current ratio and the acid-test (quick) ratio.

Which statement about budgets is correct?

A budget should allow leeway for month-to-month variations.

Who must obtain a federal Employer Identification Number (EIN) if employment taxes are reported?

The employer.

If you omit depreciation in year 2 after including it in year 1, how is net income affected?

Net income will be greater than it should be in year 2.

Which federal forms are given to every newly hired employee?

Form W-4 and Form I-9.

How can you tell if you are bidding correctly?

The actual job cost is almost the same as the estimated cost.

If plans supplied by a homeowner have dimensions that don’t add up, what should the contractor do?

Inform the homeowner that a bid can’t be given until the dimensions are corrected.

When a bid seems too high because of extra items, what is the contractor’s best response?

Negotiate to reduce the scope by eliminating some of the extra items.

What must a payment schedule in a home-improvement contract include?

The dollar amount of each payment, and specific references to the work, services, materials, and equipment to be supplied (i.e., all of the above).

How should a prime contractor set the price for subcontracted electrical work?

Obtain a firm bid from the electrical subcontractor.