Florida General Contractor Practice Exam

If a contractor has assets of 21,000 and equity of 11,200, what is the contractor's liability?

1. 9,800

2. 6,800

3. 10,500

4. 11,200

The correct answer is: 9,800

To determine the contractor's liability, one can employ the accounting equation, which states that assets equal liabilities plus equity. This equation can be rearranged to solve for liabilities, showing that liabilities can be calculated by subtracting equity from assets. In this scenario, the contractor's assets are valued at 21,000 and equity is 11,200. Therefore, to find the liabilities, you subtract the equity from the assets: Liabilities = Assets - Equity Liabilities = 21,000 - 11,200 Liabilities = 9,800 This calculation clearly demonstrates that the contractor's liability is 9,800. Thus, the correct answer is the option that reflects this calculation. Understanding this fundamental accounting principle is crucial, as it allows you to analyze a contractor's financial position by looking at the relationship between assets, liabilities, and equity.