California CSLB Law and Business Examination

Which business structure allows owners to enjoy limited personal liability while having profits pass through directly to the owners' personal tax returns?

• ASole proprietorship
• BLimited liability company
• CC corporation
• DGeneral partnership

What is CSLB's non-refundable original application fee for a license in one classification, and is it the same thing as the initial license fee?

• A$450, and it is a separate charge from the initial license fee paid after the exams are p…
• B$450, and it includes the initial license fee
• C$200, and it includes the initial license fee
• D$650, and no further fee is due before the license issues

To qualify for a California contractor's license, a qualifying individual must demonstrate how many years of journey-level experience within the preceding 10 years?

• A2 years
• B4 years
• C6 years
• D8 years

Under California law, what information must a licensed contractor include in all written advertisements, business cards, and vehicle signage?

• ABusiness phone number only
• BContractor license number
• CFederal tax identification number
• DBond company name

When two licensed contractors form a joint venture to bid a single project, what is required of the joint venture itself?

• ANo license is needed if both partners are licensed
• BThe joint venture must obtain its own separate CSLB license
• COnly the prime partner must be licensed
• DA permit from the city is sufficient

A contractor operates as a corporation and designates a non-owner employee to serve as the qualifying individual. What is this person called?

• AResponsible Managing Employee
• BResponsible Managing Officer
• CQualifying Officer
• DDesignated License Holder

Which CSLB license class is required for a contractor whose work involves specialized trades such as electrical, plumbing, or roofing?

• AClass A — General Engineering
• BClass B — General Building
• CClass C — Specialty
• DClass D — Limited

What is the primary disadvantage of operating a construction business as a sole proprietorship?

• ADouble taxation of profits
• BPersonal unlimited liability for business debts
• CInability to hire employees
• DRequirement to publish annual financial statements

A prime contractor hires a subcontractor to perform framing. If the subcontractor fails to pay its workers, who is ultimately responsible to the workers under California law?

• AOnly the subcontractor
• BThe prime contractor
• CThe workers themselves
• DThe bonding company only

What is the difference between a contractor's license bond and a disciplinary bond?

• AThere is no difference; both are the same bond
• BA license bond is required for all active licenses; a disciplinary bond is required after…
• CA disciplinary bond replaces workers' compensation insurance
• DA license bond covers employee wages only

A corporate license is qualified by a Responsible Managing Officer. Under what condition may the corporation be exempted from filing the Bond of Qualifying Individual?

• AWhen the RMO certifies ownership of 10 percent or more of the corporation's voting stock
• BWhen the RMO has held a California license for at least five years
• CWhen the corporation already carries the $25,000 contractor's bond
• DWhen the RMO works at least 32 hours per week for the corporation

What happens to a contractor's license if it is not renewed before the expiration date?

• AIt is permanently revoked
• BIt expires, and may be renewed within five years of expiration by paying the delinquent r…
• CIt automatically converts to a Class C
• DIt is transferred to CSLB for reassignment

When CSLB's Registrar mails an agreement to arbitrate, within how many calendar days must it be returned?

• A10 calendar days
• B30 calendar days
• C60 calendar days
• D90 calendar days

Which of the following assets would have its depreciation classified as a general and administrative expense rather than a direct job cost?

• AA bulldozer used only on Project A
• BA sales manager's company vehicle
• CLumber purchased for a specific project
• DScaffolding rented for a job

When must a contractor make estimated federal income tax payments?

• AAnnually at year-end
• BQuarterly if the expected tax liability is at least $1,000
• COnly after receiving a notice from the IRS
• DMonthly based on payroll

What is the fundamental accounting equation shown on a balance sheet?

• ARevenue minus expenses equals net income
• BAssets equal liabilities plus owner's equity
• CCash in minus cash out equals profit
• DDebits equal credits

A contractor's budgeted revenue is $500,000 and actual revenue is $470,000. What is the budget variance?

• A$30,000 favorable
• B$30,000 unfavorable
• C$470,000 unfavorable
• D$970,000 favorable

Which accounting method recognizes revenue when earned and expenses when incurred, regardless of when cash changes hands?

• ACash basis
• BAccrual basis
• CHybrid basis
• DTax basis

Which financial statement reports a company's revenues and expenses over a specific period?

• ABalance sheet
• BIncome statement
• CCash flow statement
• DStatement of retained earnings

A project generates $200,000 in revenue and costs $150,000 to complete. What is the profit margin percentage?

• A25%
• B33%
• C50%
• D75%

What is the California use tax?

• ATax on income earned from investments
• BTax on tangible personal property purchased out of state for use in California
• CTax on real estate sales
• DTax on payroll wages

A contractor's taxable income for the year is $80,000. Using a simplified 22% effective tax rate, what is the estimated federal income tax?

• A$8,000
• B$17,600
• C$22,000
• D$35,200

Under federal tax law, contractors with average annual gross receipts above a specified threshold generally must use which method for long-term contracts?

• ACash basis
• BCompleted-contract method
• CPercentage-of-completion method
• DHybrid method

A contractor has current assets of $85,000 and current liabilities of $40,000. What is the working capital?

• A$35,000
• B$45,000
• C$85,000
• D$125,000

Why might a contractor require a down payment from a customer before starting work?

• ATo increase profit on the project
• BTo improve cash flow by funding initial material purchases
• CTo avoid paying taxes
• DTo reduce the contract price

Which IRS form does an employer use to report and pay federal payroll taxes?

• AForm 1040
• BForm 941
• CForm W-2
• DForm 1099

What does a contractor's schedule of values show on a project?

• AThe total contract price only
• BA breakdown of the contract price by work items or phases
• CThe amount of retainage withheld
• DThe list of subcontractors

A contractor budgets $40,000 for labor and spends $46,000. What is the cost variance and its classification?

• A$6,000 favorable
• B$6,000 unfavorable
• C$40,000 unfavorable
• D$86,000 unfavorable

Before hiring a new employee in California, what must an employer obtain from the employee?

• AA signed non-compete agreement
• BA signed I-9 employment eligibility verification and W-4 withholding form
• CA copy of the employee's driver license
• DA union membership card

What is the California minimum overtime pay for non-exempt employees who work more than 8 hours in a day?

• A1.0 times the regular rate
• B1.5 times the regular rate
• C2.0 times the regular rate
• DA flat $10 per hour extra

In California, how frequently must most non-exempt employees be paid?

• AAt least semimonthly
• BMonthly
• CQuarterly
• DAnnually

An employee earns $20 per hour regular pay and works 10 hours in one day. Under California law, what are the day's total wages? (Hours 1-8 at regular, hours 9-10 at 1.5x)

• A$200
• B$220
• C$260
• D$300

An employee earns $25 per hour and works 13 hours in one day. California overtime is 1.5x for hours 9-12 and 2.0x for hours over 12. What is the total pay?

• A$325
• B$400
• C$475
• D$525

Under IRS rules, the deposit schedule for federal payroll tax obligations (Form 941 taxes) is determined by which factor?

• ATotal lookback period payroll tax liability
• BNumber of employees on payroll
• CThe contractor's business license class
• DThe state employment office

What tax funds Social Security and Medicare and is shared equally between employer and employee?

• AFederal income tax withholding
• BFICA tax
• CFederal unemployment tax
• DState disability tax

Which form must a contractor give to an independent contractor to report non-employee compensation of $2,000 or more paid in 2026?

• AForm W-2
• BForm 1099-NEC
• CForm 941
• DForm 940

Which California agency requires employers to maintain a written Injury and Illness Prevention Program (IIPP)?

• AEDD
• BCal/OSHA
• CCSLB
• DDIR Public Works

How long must a California employer retain employee payroll records?

• A1 year
• B3 years
• C7 years
• DIndefinitely

What is the key distinction between an employee and an independent contractor under California's ABC test?

• AThe worker's hourly rate
• BWhether the worker is free from control, performs work outside the hirer's usual course o…
• CThe worker's license number
• DThe length of the engagement

What is the EDD tax that California employers pay on wages up to a defined annual wage ceiling?

• AState income tax withholding
• BUnemployment Insurance (UI) tax
• CSales tax
• DProperty tax

What must an employer post at the worksite to inform employees of their workers' compensation rights?

• AA salary guarantee
• BA workers' compensation notice posting
• CA company vehicle policy
• DA union affiliation form

What document must a California employer provide to a non-exempt employee at hire to disclose pay rate, hours, and job duties?

• AThe job advertisement
• BA written notice of employment details under Labor Code 2810.5
• CThe company website
• DA verbal agreement

A construction employer subject to Cal/OSHA recordkeeping must record each work-related injury on what form?

• AForm W-2
• BForm 300 Log of Work-Related Injuries and Illnesses
• CForm 941
• DForm 1099