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1 / 60
A plumbing contractor lays off two helpers when a project ends. According to the EDD Employer’s Guide (DE 44), which pamphlet must the contractor give them?
EDD Employer’s Guide (DE 44): the pamphlet For Your Benefit: California’s Programs for the Unemployed (DE 2320) explains UI, DI, PFL, and Workforce Services benefits and must be given when an employer discharges, lays off, or places an employee on a leave of absence.
Source: California Employer’s Guide (DE 44) p.19
2 / 60
A contractor has $100,000 revenue, $35,000 COGS, and $45,000 overhead. What is net profit?
Net Profit = $100,000 - $35,000 - $45,000 = $20,000. This is the profit after all costs.
Source: Arithmetic from the question
3 / 60
Following the employer’s directions, a plumbing employee pays out of pocket for a fitting needed on a job. Under Labor Code Section 2802, what must the employer do?
Labor Code Section 2802: an employer shall indemnify an employee for all necessary expenditures or losses incurred in direct consequence of the discharge of the employee’s duties, or of obedience to the directions of the employer.
Source: Labor Code, cited sections LAB 2802
4 / 60
A contractor has $150,000 revenue and estimates 20% overhead rate. What should be allocated for overhead?
Overhead allocation = revenue x overhead rate: $150,000 x 20% = $30,000.
Source: Arithmetic from the question
5 / 60
Under Title 8 Section 3203, what must an Injury and Illness Prevention Program (IIPP) include regarding work place hazards?
Title 8 Section 3203(a): the written Injury and Illness Prevention Program includes, among other elements, procedures for identifying and evaluating work place hazards, including scheduled periodic inspections to identify unsafe conditions and work practices.
Source: CCR Title 8 outside the Construction Safety Orders (General Industry, Electrical, and other safety orders), cited sections T8 3203
6 / 60
When must a serious work-related injury (e.g., hospitalization) be reported to Cal/OSHA?
Title 8 Section 342: every employer shall report immediately to the Division any serious injury or illness, or death, of an employee. Immediately means as soon as practically possible but not longer than 8 hours after the employer knows or with diligent inquiry would have known.
Source: CCR Title 8 outside the Construction Safety Orders (General Industry, Electrical, and other safety orders), cited sections T8 342
7 / 60
Under IRS Publication 15, a contractor's required $8,000 payroll tax deposit is made 4 days late. What is the late-deposit penalty?
IRS Publication 15 sets the penalty at 2% for deposits made 1 to 5 days late. 2% of $8,000 = $160.
A new plumbing business hires its first helper. According to the EDD Employer’s Guide (DE 44), when does the business become a subject employer?
EDD Employer’s Guide (DE 44): you become a subject employer when you pay wages over $100 during any calendar quarter to one or more employees. A subject employer must then register with EDD.
Source: California Employer’s Guide (DE 44) p.14
9 / 60
A plumbing contractor hires a new apprentice. According to the EDD Employer’s Guide (DE 44), by when must the contractor report the new employee to the New Employee Registry, using the Report of New Employee(s) (DE 34)?
EDD Employer’s Guide (DE 44): employers must report all newly hired or rehired employees to the New Employee Registry within 20 calendar days of their start-of-work date, which is the first day services were performed for wages.
Source: California Employer’s Guide (DE 44) p.64
10 / 60
A job is estimated at $3,000 with estimated direct costs of $2,000 and overhead allocation of $600. Is this job profitable?
Profit = price - (direct costs + overhead): $3,000 - ($2,000 + $600) = $400, a 13.3% margin on the $3,000 price.
Source: Arithmetic from the question
11 / 60
According to the CSLB Law and Business book, what advantage do limited partners have over general partners?
The CSLB Law and Business book: a limited partnership lets investors join without taking full responsibility for the business; the limited partner risks only their original investment. At least one general partner runs the business and remains fully responsible for its liabilities.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.40
12 / 60
According to the CSLB Law and Business book, Contractors State License Law requires a contractor to carry commercial general liability (CGL) insurance when the business is organized as which type of entity?
The CSLB Law and Business book says Contractors State License Law does not require contractors to carry CGL insurance unless their business entity is a limited liability company. Commercial owners, however, routinely require it from the contractors they hire.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.43
13 / 60
According to the CSLB Law and Business book, how does the accrual basis of accounting recognize revenues and expenses?
The CSLB Law and Business book says the accrual basis of accounting recognizes revenues when earned and expenses when incurred, regardless of when payment is received or made. This lets revenues be matched with their related expenses for each period.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.51
14 / 60
According to the CSLB Law and Business book, what does the income statement (profit and loss statement) show?
The CSLB Law and Business book: the income statement summarizes the operations of the company over a period of time, from revenue through cost of operations to net profit for the period.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.56
15 / 60
A plumbing shop has employees working in a city whose minimum wage is higher than the state rate. According to the Labor Commissioner’s Minimum Wage FAQ, which rate must the shop pay those employees?
Labor Commissioner’s Minimum Wage FAQ: when laws conflict, the employer follows the stricter standard, the one most beneficial to the employee. If a city or county has adopted a higher minimum wage, employees must be paid the local wage where it is higher than the state or federal rate.
Under IRS Publication 15, for payments made after calendar year 2025, what is the information reporting threshold in a calendar year for Forms 1099-NEC for payments for services, such as payments to an unincorporated subcontractor?
IRS Publication 15 says that for payments made after calendar year 2025, the information reporting (Forms 1099-MISC and 1099-NEC) payment threshold increases from $600 to $2,000 in a calendar year for certain payments for services.
A plumbing business owner believes the business is not a subject employer because the workers it pays are exempt. According to the EDD Employer’s Guide (DE 44), for how long must the owner keep records of payments to those service providers?
EDD Employer’s Guide (DE 44): if you believe that you are not a subject employer or that your employees are exempt, state law requires you to maintain records of payments to service providers for at least eight years in case of an employment tax audit.
Source: California Employer’s Guide (DE 44) p.20
18 / 60
According to the EDD Employer's Guide (DE 44), how is California State Disability Insurance (SDI) funded?
EDD Employer's Guide (DE 44): UI and ETT are employer paid contributions, while SDI and personal income tax are withheld from employee wages. Paid Family Leave (PFL) is a component of the SDI program.
Source: California Employer’s Guide (DE 44) p.16
19 / 60
Under Business and Professions Code Section 7111, for at least how long after a project is completed must a contractor's records be available for inspection by the registrar?
Business and Professions Code Section 7111: failure to have project records available for inspection by the registrar for a period of not less than five years after completion of the construction project is cause for disciplinary action.
Source: Business and Professions Code, Division 3, Chapter 9 (Contractors State License Law) BPC 7111
20 / 60
Under IRS Publication 15, an apprentice claimed exemption from federal income tax withholding on last year's Form W-4. To continue to be exempt from withholding, by what date must the apprentice give the employer a new Form W-4?
IRS Publication 15 says that to continue to be exempt from withholding, an employee must give you a new Form W-4 by February 15. If not, begin withholding as if the employee checked Single or Married filing separately with no other entries.
According to the Labor Commissioner’s Minimum Wage FAQ, during the first 160 hours of employment, what may a learner with no previous similar or related experience in the occupation be paid?
Labor Commissioner’s Minimum Wage FAQ: learners, regardless of age, may be paid not less than 85 percent of the minimum wage, rounded to the nearest nickel, during their first 160 hours of employment in occupations in which they have no previous similar or related experience.
According to the EDD Employer's Guide (DE 44), what is California State Unemployment Insurance (UI), and who pays it?
EDD Employer's Guide (DE 44): UI and ETT are employer paid contributions, while SDI and personal income tax are withheld from employee wages. Employers' filings enable EDD to pay Unemployment Insurance, Disability Insurance, and Paid Family Leave benefits.
Source: California Employer’s Guide (DE 44) p.16
23 / 60
Under Labor Code Section 3700, which is one of the ways a private plumbing employer may secure the payment of workers’ compensation?
Labor Code Section 3700: every employer except the state shall secure the payment of compensation by being insured by an insurer authorized to write compensation insurance in California, or by securing a certificate of consent to self-insure from the Director of Industrial Relations.
Source: Labor Code, cited sections LAB 3700
24 / 60
According to the CSLB Law and Business book, what happens to a contractor's license issued to a general partnership when the partnership wants to add another general partner?
The CSLB Law and Business book: when a contractor's license is issued to a general partnership and a general partner leaves for any reason or the partnership wants to add another general partner, the license is canceled.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.40
25 / 60
Under IRS Publication 15, how long must a plumbing contractor keep all records of employment taxes?
IRS Publication 15 says to keep all records of employment taxes for at least 4 years, and they should be available for IRS review.
According to the CSLB Law and Business book, what is a key disadvantage of a sole ownership compared to an LLC?
The CSLB Law and Business book: in a sole ownership the owner is personally liable for any claims against the business, while a California LLC generally offers liability protection similar to that of a corporation.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.39
27 / 60
According to the CSLB Law and Business book, which of these is a cost charged to a specific job rather than overhead?
The CSLB Law and Business book: materials used include the cost of all materials used on the job, usually the largest single expense item. Office rental, administrative wages, and general fleet costs are overhead.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.58
28 / 60
A plumber is deciding how to set up a new contracting business. According to the CSLB Law and Business book, what will the legal form of the business determine?
The CSLB Law and Business book states that the legal form of the business will determine the available sources of financing, the extent of personal liability, the extent of control, and the tax liabilities.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.39
29 / 60
An employer willfully fails to pay a discharged plumber’s final wages when they are due. Under Labor Code Section 203, for how long can the employee’s wages continue as a penalty?
Labor Code Section 203: when an employer willfully fails to pay a discharged or quitting employee’s wages on time, the wages continue as a penalty from the due date at the same rate until paid or until an action is commenced, but the wages shall not continue for more than 30 days.
Source: Labor Code, cited sections LAB 203
30 / 60
Under IRS Publication 15, a plumbing contractor entitled to the maximum 5.4% credit has 3 employees, and each is paid more than the $7,000 FUTA wage base during the year. What is the contractor's FUTA tax after credit for the year?
IRS Publication 15 says that with the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%, applied to the first $7,000 of each employee's wages: 3 x $7,000 x 0.6% = $126.
According to the CSLB Law and Business book, when a contractor and a customer have differences over a job, what should the contractor attempt if possible?
The CSLB Law and Business book: lawsuits are costly, time-consuming, and disruptive. If possible, you should attempt to settle your differences.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.71
32 / 60
According to the CSLB Law and Business book, what is the liability exposure of each partner in a general partnership?
The CSLB Law and Business book: a general partnership is not an entity separate from the partners. Each partner may be personally liable to the extent of their personal assets and may be legally responsible for the negligent acts of the other partners.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.40
33 / 60
Under California Code of Regulations section 872, a home improvement contractor who carries commercial general liability insurance must give the homeowner what, in writing?
CCR section 872: home improvement contractors must disclose in writing whether they carry commercial general liability insurance. If they do, they provide the homeowner with the name and telephone number of the insurance company, in writing, so the homeowner can verify coverage.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.43
34 / 60
Under the accrual basis, which method in the CSLB Law and Business book reports profits and losses regularly based on work accomplished on each job while the job is still in progress?
The CSLB Law and Business book: the percentage of completion method will report profits and losses regularly based on work accomplished on each job. The completed contract method instead reports the gross income and related costs in the year the contract is completed.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.51
35 / 60
A plumber’s total work period for the day is 6 hours. Under Labor Code Section 512, how may the meal period be waived?
Labor Code Section 512: if the total work period per day is no more than six hours, the meal period may be waived by mutual consent of both the employer and the employee.
Source: Labor Code, cited sections LAB 512
36 / 60
A plumbing contractor's workers' compensation coverage lapses while employees are working, and an employee is injured. According to the CSLB Law and Business book, what is the contractor's position?
The CSLB Law and Business book: workers' compensation normally limits the employer's liability, but the harmed parties may sue if an employee is injured when the employer is illegally uninsured.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.44
37 / 60
According to the CSLB Law and Business book, why must a contractor not underestimate the significance of retention?
The CSLB Law and Business book says retention usually exceeds profits and therefore represents a claim on working capital. Because the total project must be accepted before retentions are released, the contractor must often finance those costs through borrowing.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.62
38 / 60
A plumber works on the seventh day of work in one workweek and works 6 hours that day. Under Labor Code Section 510, at what rate must those 6 hours be paid?
Labor Code Section 510: the first eight hours worked on the seventh day of work in any one workweek are paid at no less than one and one-half times the regular rate. Only work in excess of eight hours on the seventh day is paid at no less than twice the regular rate.
Source: Labor Code, cited sections LAB 510
39 / 60
A plumber hires a helper who works on customer jobs under the plumber's direction. Under Labor Code Section 2775, can the helper be classified as an independent contractor?
Labor Code Section 2775: a person providing labor or services for pay is an employee rather than an independent contractor unless the hiring entity shows the person is free from its control and direction, does work outside the usual course of its business, and is independently established. A helper directed by the plumber on plumbing jobs fails at least the first two conditions.
Source: Labor Code, cited sections LAB 2775
40 / 60
What is the primary reason a plumbing contractor would choose an LLC over a sole proprietorship?
The CSLB Law and Business book: a California LLC generally offers liability protection similar to that of a corporation, but is taxed differently; a sole owner is personally liable for any claims against the business.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.41
41 / 60
According to the CSLB Law and Business book, what is the major source of business for the new contractor?
The CSLB Law and Business book says personal contacts represent the major source of business for the new contractor, and small and medium-sized contracting businesses rely on referrals.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.69
42 / 60
A helper signed an agreement to work for less than the legal minimum wage. Under Labor Code Section 1194, what may the helper recover in a civil action?
Labor Code Section 1194: notwithstanding any agreement to work for a lesser wage, an employee paid less than the legal minimum wage or overtime may recover in a civil action the unpaid balance of the full amount, including interest, reasonable attorney’s fees, and costs of suit.
Source: Labor Code, cited sections LAB 1194
43 / 60
On a sewer job, a crew finds an imminent hazard that cannot be immediately abated without endangering employees. Under Title 8 Section 3203, what must the employer’s Injury and Illness Prevention Program procedures require?
Title 8 Section 3203: when an imminent hazard exists which cannot be immediately abated without endangering employees or property, remove all exposed personnel from the area except those necessary to correct the existing condition. Employees necessary to correct the hazardous condition shall be provided the necessary safeguards.
Source: CCR Title 8 outside the Construction Safety Orders (General Industry, Electrical, and other safety orders), cited sections T8 3203
44 / 60
What types of claims does general liability insurance typically cover?
The CSLB Law and Business book: commercial general liability insurance protects the insured contractor from liability to members of the public (other than employees) for bodily injury, property damage, or personal injury. Employee injuries fall under workers’ compensation.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.43
45 / 60
A contractor withholds payroll taxes from employees’ pay but, by mistake, never sends them to EDD. According to the EDD Employer’s Guide (DE 44), what can result?
EDD Employer’s Guide (DE 44): employers must withhold payroll taxes and send them to EDD. Failing to do so, even by mistake, can result in a misdemeanor charge; if convicted, the person or employer can be fined up to $1,000 or jailed for up to one year, or both.
Source: California Employer’s Guide (DE 44) p.69
46 / 60
A homeowner owes a plumbing contractor money and will not settle. According to the CSLB Law and Business book, the contractor may get a monetary judgment in small claims court of up to what amount?
The CSLB Law and Business book says that although you cannot foreclose on a mechanics lien in small claims court, you may get a monetary judgment of up to $12,500.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.71
47 / 60
Under Civil Code Section 1668, what is the status of a contract clause that exempts a contractor from responsibility for their own fraud, willful injury, or violation of law?
Civil Code Section 1668: all contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for their own fraud, willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.
A plumber’s on-the-job cut requires medical treatment beyond first aid. The employer is insured. Under Labor Code Section 6409.1, by when must the employer file the occupational injury report with the insurer?
Labor Code Section 6409.1: every employer files a complete report of each occupational injury that results in lost time beyond the date of the injury or requires medical treatment beyond first aid, with the Department of Industrial Relations or, if insured, with the insurer, within five days after the employer obtains knowledge of the injury.
Source: Labor Code, cited sections LAB 6409.1
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Actual job costs are running well above the estimate. According to the CSLB Law and Business book, what are management controls established to do?
The CSLB Law and Business book: controls are established to inform the manager when the actual business outcome is different from what was expected, and should be designed to warn the manager before the differences become too great.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.39
50 / 60
If materials cost $100 and you add a 50% markup, what is the selling price?
Selling price = cost x (1 + markup): $100 x (1 + 50%) = $150.
Source: Arithmetic from the question
51 / 60
Under Business and Professions Code Section 7071.5, whom does a contractor's license bond benefit?
Business and Professions Code Section 7071.5: the contractor's bond is for the benefit of, among others, a homeowner contracting for home improvement on their residence who is damaged as a result of a violation of the license law by the licensee. The CSLB Law and Business book gives the contractor license bond amount as $25,000.
Source: Business and Professions Code, Division 3, Chapter 9 (Contractors State License Law) BPC 7071.5
52 / 60
A contractor has total current assets of $270,000 and total current liabilities of $180,000. According to the CSLB Law and Business book, what is the current ratio?
The CSLB Law and Business book says to calculate the current ratio, divide total current assets by total current liabilities: $270,000 / $180,000 = 1.5, so there is $1.5 of current assets for each $1 of current liabilities.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.60
53 / 60
According to the CSLB Law and Business book, what is "retention" on a contractor's balance sheet?
The CSLB Law and Business book defines retention as a specified amount, usually 10 percent, withheld from progress payments to the contractor pending satisfactory completion and final acceptance of the project. The contractor has already earned it even though it has not been paid.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.54
54 / 60
A contractor has total current assets of $200,000, including $80,000 of inventories, and total current liabilities of $150,000. According to the CSLB Law and Business book, what is the quick ratio?
The CSLB Law and Business book finds quick assets as total current assets minus inventories, then divides by current liabilities: ($200,000 - $80,000) / $150,000 = 0.8.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.60
55 / 60
According to the CSLB Law and Business book, which partner runs the business in a limited partnership?
The CSLB Law and Business book: a limited partnership must have at least one general partner who runs the business and remains fully responsible for the liabilities of the business; the limited partner risks only their original investment.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.40
56 / 60
According to the CSLB Law and Business book, which item is usually the largest single expense item on a contractor's income statement?
The CSLB Law and Business book says materials used includes the cost of all materials used on the job and is usually the largest single expense item on the income statement, so purchasing should be carefully controlled.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.58
57 / 60
According to the CSLB Law and Business book, which of these is a common bidding pitfall that a contractor can avoid?
The CSLB Law and Business book lists common pitfalls: bidding on projects whose plans and specifications are not completely understood, insufficient planning, overextending the company's resources, and bidding against the competition and not on the job itself. The other choices are steps the book recommends.
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.65
58 / 60
Under Labor Code Section 226, how often must an employer furnish each employee an accurate itemized wage statement in writing?
Labor Code Section 226: an employer, semimonthly or at the time of each payment of wages, shall furnish each employee an accurate itemized statement in writing, either as a detachable part of the check or separately if wages are paid by personal check or cash.
Source: Labor Code, cited sections LAB 226
59 / 60
A plumbing contractor has $100,000 revenue and $35,000 in material costs. What is the gross profit?
According to the CSLB Law and Business book, what does the revenue amount on a contractor's income statement reflect?
The CSLB Law and Business book: the revenue amount reflects all the billings made to customers for completed projects, as well as work in progress (an example of the accrual basis).
Source: Contractors State License Law & Reference Book, 2026 (B&P, CCR Title 16 Division 8, related codes) (2026) p.57