Understanding Construction Bonds and Project Financing: A Detailed Analysis, Exams of Nursing

Download Understanding Construction Bonds and Project Financing: A Detailed Analysis and more Exams Nursing in PDF only on Docsity! AFSB 152 Practice Exam Questions and Answers 2023/2024 A. Because the next highest bid ($1 million) is 25 percent more than the low bid ($800,000), which is greater than a 10 percent difference, the bond underwriter would carefully investigate the differences and may not issue the performance and payment bonds. - ✔C️ontractor A submits a bid of $800,000, Contractor B submits $1 million, Contractor C submits $1.2 million, and Contractor D submits $1.1 million. Which one of the following explains the outcome of applying the 10 percent rule for bids? A. Because the next highest bid ($1 million) is 25 percent more than the low bid ($800,000), which is greater than a 10 percent difference, the bond underwriter would carefully investigate the differences and may not issue the performance and payment bonds. B. Because the difference between the high and low bids is 50 percent more than the low bid of $800,000, which is greater than a 10 percent difference, the bond underwriter would probably decline to issue the performance and payment bonds. C. Because the average of the next two highest bids is 1.05 million, and the difference between this amount and the low bid is 31.25 percent more than the low bid of $800,000, which is greater than a 10 percent difference, the bond underwriter would carefully investigate the differences and may not issue the performance and payment bonds. D. Because the difference between the average of the other bids ($1.1 million) and the low bid is 37.5 percent more than the low bid of $800,000, which is greater than a 10 percent difference, the bond underwriter would probably decline to issue the performance and payment bonds. D. A basic status report shows specific and limited data for a contract. - ✔W️hich one of the following is true regarding types of contact status reports? Select one: A. As comprehensive reports contain cumulative data, analyzing a series of reports is not necessary. B. Only the comprehensive report can prove useful in establishing billing-cost-gross profit relationships. C. Both basic and comprehensive reports provide a complete financial profile. D. A basic status report shows specific and limited data for a contract. D. The parent company's domicile. - ✔S️amuel has been asked to underwrite a contract bond for an entity operating in the U.S. that has an international parent. He is only willing to write the bond through a cooperative underwriting agreement, with indemnity agreements from the foreign parent and the U.S. entity. Under this arrangement, it is important that the indemnification be perfected and enforceable under the laws of A. The state where the project owner is located. B. The location of the project. C. The state where the U.S. entity is located. D. The parent company's domicile. A. Government requirements may require a seal on the plans from a professional engineer or a registered architect, and the design/build contractor may not have a designer on staff. - ✔W️hich one of the following describes a problem a project owner could encounter when using a design/build contractor? A. Government requirements may require a seal on the plans from a professional engineer or a registered architect, and the design/build contractor may not have a designer on staff. B. The design/build contractor charges a separate design fee in addition to the construction overhead and profit, so the overall project cost may be high. C. Increased planning time should be allotted in the project for communication among design professionals, contractors, and the project owner. D. The design/build contractor has no experience with or knowledge of the costs associated with various construction techniques and materials. B. Contractor. - ✔T️he party that directly benefits from an enhanced competitive position in private work because of the surety's assurance that its capacity to perform has been carefully reviewed is the A. Taxpayers. B. Contractor. C. Project owner. D. Architect or engineer. B. Additional compensation and an extension of time. - ✔S️tanton Construction was the general contractor on a construction project for Rowe Industries. The project experienced a delay due to a reorganization at Rowe Industries. Because this was classified as a compensable delay under the construction contract, Stanton Construction was entitled to A. An extension of time only. B. Additional compensation and an extension of time. C. Additional compensation only. D. Terminate the contract without penalty. D. Lenders bond - 25% Complete Total Contract: Contract price $1,100,000 Estimated price 1,000,000 Estimated gross profit $100,000 Cumulative From Inception: Billings to date $300,000 Costs incurred to date 250,000 Billings in excess of cost $50,000 Collections to date $200,000 Costs paid to date 125,000 Collections in excess of payments $75,000 Financial Data is shown above for Construction Company's $1,100,000 contract for its Major Office Complex project. Based on 25 percent completion, what is the recognized/earned gross profit using the cash accounting method? Select one: A. $0 B. $25,000 C. $50,000 D. $75,000 A. In the private sector, owners and architects often select the bidders informally from among their friends and acquaintances. - ✔C️ontractor Roger Ellis is considering taking his construction company in a new direction, planning to transition from working in the public sector to projects in the private sector. Roger will find that one notable difference between construction contracts for public work and those for private work is that A. In the private sector, owners and architects often select the bidders informally from among their friends and acquaintances B. Bidders must usually prequalify with the project owner to win work in the private sector. C. A sealed competitive bid process is used in most private projects. D. Private work is generally bid at a lower price than similar public work. D. Review. - ✔A️ procedure designed to express limited assurance that financial statements conform to generally accepted accounting principles is a(n) A. Compilation. B. Audit. C. Preparation. D. Review. A. Estimating, planning, and managing the work to be performed. - ✔T️he quality of the plans and specifications can greatly influence three tasks that can determine whether the contractor can successfully perform the work. The three tasks are A. Estimating, planning, and managing the work to be performed. B. Determining where, when, and how the project should be built. C. Evaluating the plans, evaluating the contractor's expertise needed for the contract, and noting any errors or omissions. D. Examining the plans and specifications, rejecting any unclear details, and approving the corrected documents. A. Genkins might consider opening a regional office in the new region with the expectation of competing for work there on an ongoing basis. - ✔G️enkins Construction is a general contractor. Because of the highly competitive market in the area surrounding its office, where it typically bids jobs, Genkins began bidding jobs outside its usual territory. Genkins won bids on five projects that are 400 miles west of its normal operating territory in a nearby state. Genkins expects those jobs to continue over the next two years, but development in the area appears promising, so Genkins might bid additional jobs in this new location. Aside from project-specific risk, what other possibility might Genkins consider? A. Genkins might consider opening a regional office in the new region with the expectation of competing for work there on an ongoing basis. B. Genkins might consider extreme differences in the weather conditions between the two general locations when bidding jobs. C. Genkins might consider the effect of bid spreads on those jobs that it negotiates with private owners. D. Genkins might consider subcontracting all five jobs entirely, rather than sending its own employees to that area. A. Financial statement analysis - ✔A️s underwriter Justin examines various forms needed for trend analysis and forecasting, which one of the following will provide a basis for comparing the as- given and as-allowed amounts related to a financial statement? A. Financial statement analysis B. Completed surety application C. Contract status report D. Gross profit comparison A. Soliciting an architect's comments regarding performance of the work - ✔W️hich one of the following best describes the reason for a status inquiry? A. Soliciting an architect's comments regarding performance of the work B. Gaining the underwriter's perspective on a project's performance to date C. Procuring progress status reports from producers while visiting job sites and conversing with contractors D. Confirming the status of a project at the time a contract status report is being furnished D. Second-tier claimant - ✔F️arrell Lighting is involved in the construction of a new government building in Washington D.C. Farrell Lighting is supplying all of the indoor lighting fixtures to Reid Electrical. Reid Electrical is the electrical subcontractor on the job. Under the Miller Act, Farrell Lighting could file a payment bond claim as a A. Mechanic B. Supplier to a supplier C. First-tier claimant D. Second-tier claimant - ✔A️ll of the following are events that must occur before a surety has any obligation to act under its performance bond, EXCEPT: A. The obligee must have performed its obligations under the contract. B. The principal must be in default under the contract. C. The principal must terminate the obligee's right to proceed under the contract. D. The obligee must declare the principal to be in default under the contract. D. A surety needs additional information, such as the contractor's overall capacity and financial capacity, to adequately evaluate the work-backlog risk of granting this bond. - ✔A️ highly-experienced contractor has two low-risk jobs and one medium-risk job in its backlog that are all to begin in the spring. Which one of these statements is accurate with regard to the surety's work-backlog risk analysis? A. A surety needs additional information, such as project-specific risks, which include weather conditions, to adequately evaluate the work-backlog risk of granting this bond. B. A surety's risk analysis of this work backlog would not result in its granting the bond. C. A surety's analysis of this work backlog would result in its granting the bond. D. A surety needs additional information, such as the contractor's overall capacity and financial capacity, to adequately evaluate the work-backlog risk of granting this bond. C. $250,000. - ✔E️astown Contracting's balance sheet shows $100,000 in cash, $300,000 in accounts receivable, $50,000 in equipment, and $150,000 in accounts payable amounts; the contractor's working capital is A. $500,000. B. $300,000. C. $250,000. D. $150,000. C. The contractor is responsible for cost overruns, and the owner and contractor share cost underruns. - ✔W️hich one of the following correctly describes a sharing clause in a construction contract? A. The owner and contractor share cost overruns and cost underruns. B. The contractor is responsible for cost overruns, and the owner receives the benefit of cost underruns. C. The contractor is responsible for cost overruns, and the owner and contractor share cost underruns. D. The owner is responsible for cost overruns, and the contractor receives the benefit of cost underruns. A. The Schedule of construction in progress is one of the most important schedules used by producers and underwriters when analyzing a contractor's financial statement. - ✔R️ochelle is studying the supplemental data provided in Babcock Builders' financial report. As she does this, which one of the following will she find is correct as to its description? A. The Schedule of construction in progress is one of the most important schedules used by producers and underwriters when analyzing a contractor's financial statement. B. The Schedule of selling, general, and administrative expenses is usually associated with acquisitions and dispositions or refinancing of construction equipment and real estate. C. Detailing of sources of other income and expenses, such as interest income and expense included in the income statement, is found in the Schedule of changes in working capital. D. Itemizing of expenses known as overhead, critical to analyzing a contractor's results and trends, is found in the Schedule of changes in property, plant and equipment. A. An obligation of the principal in a bid bond that is not a manuscript bid bond form is that it must furnish performance and payment bonds with an acceptable surety. - ✔W️hich one of the following statements is a principal's obligation in a bid bond that is not a manuscript bid bond form? A. An obligation of the principal in a bid bond that is not a manuscript bid bond form is that it must furnish performance and payment bonds with an acceptable surety. B. An obligation of the principal in a bid bond that is not a manuscript bid bond form is that it must complete the job for the bid price. C. An obligation of the principal in a bid bond that is not a manuscript bid bond form is that it must enter into a contract with the obligee. D. An obligation of the principal in a bid bond that is not a manuscript bid bond form is that it must hire a certain number of subcontractors. D. May not contain specific penal sums or bond penalties. - ✔U️nlike performance and payment bonds, bid bonds A. Allow contractors to offer their own bid bond form containing a forfeiture clause. B. Offer no alternatives for a contractor. C. Have no standardized forms available. D. May not contain specific penal sums or bond penalties. A. The type, size, and location of work for the past three to five years; the largest previous backlog; and the gross profit or loss on all major jobs completed. - ✔S️o that the underwriter can evaluate the contractor's completed jobs, work programs, and experience, the principal should provide A. The type, size, and location of work for the past three to five years; the largest previous backlog; and the gross profit or loss on all major jobs completed. B. The type, size, and location of work for the past two years; the current backlog; and the gross profit or loss on all major jobs completed. C. The type, size, and location of work for the past three to five years; the backlogs from the past five years; and the gross profit or loss on all jobs completed. D. The type, size, and location of work for the past two years; the largest previous backlog; and the gross profit or loss on all jobs completed. B. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for the past three to five years, including interim statements for the current fiscal year and concurrent statements for all indemnitors. - ✔U️nderwriter Albert of Smithson Insurance and Surety would be most interested in which one of the following groups of financial statements? A. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for the past three to five years, including all concurrent interim statements and current fiscal year statements for all indemnitors. B. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for the past three to five years, including interim statements for the current fiscal year and concurrent statements for all indemnitors. C. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for the past two years, including all concurrent interim statements. D. Balance sheets, income statements, cash flow statements, and supporting notes and schedules for the past two years, including interim statements for the current fiscal year. A. "Current", "noncurrent or secondary", and "fixed." - ✔T️he principal asset classifications in the contractor's balance sheet are commonly termed A. "Current", "noncurrent or secondary", and "fixed." B. "Fixed", "short term", and "long term." C. "Current", "fixed", and "long term." D. "Fixed", "current", and "unclassified." A. Work on the project is completed early in the contract term, and the contract spans multiple years. - ✔T️he payment of retainage held by the contractor is of particular interest in underwriting a subcontractor whose A. Work on the project is completed early in the contract term, and the contract spans multiple years. B. Work on the project is completed throughout the entire contract term, and the contract spans a year or less. C. Work on the project is completed in the last ninety days of the contract term, and the contact spans multiple years. D. Work on the project is completed throughout the entire contract term, and the contract spans multiple years. D. The owner and the architect. - ✔T️he responsibility for presenting project plans and specifications from which bidders can readily determine how the project should be built and its costs is that of A. The contractor. B. The architect. C. The owner and the contractor. D. The owner and the architect. B. That any payments the surety made were in bad faith - ✔V️alley Construction and several of its investors have signed an indemnity agreement with Action Sureties. Which one of the following actions must this principal and indemnitors show to escape their obligation to indemnify the surety? A. That the surety has issued a manuscript contract B. That any payments the surety made were in bad faith C. That the surety did not have standing to request indemnification D. That the surety had previously issued bonds to the principal B. Collateral -