Taxation of Individuals and
Business Entities with correct
questions and answers
usr
[COMPANY NAME] [Company address]
,1. Schedule C tax form used to report taxable income Answer: Sole
Proprietorship
2. Form 1065 tax form used to report taxable income Answer:
Partnerships
3. Form 1120s tax form used to report taxable income Answer: S
corporations
4. Form 1120 tax form used to report taxable income Answer: C
corporations
5. Which of the following choices is INCORRECT when defining the
gross income of a business?
A. Revenues from renting property is included in gross profit for
rental busi- nesses.
B. Gross income from a business includes gross profit from inventory
sales.
C. Gross income for a business may be calculated as sales less
returns and discounts.
D. Gross income for a service business can be calculated as income
from services provided. Answer: C. Gross income for a business may be calculated as sales
less returns and discounts.
6. Gross income for a business may be calculated as Answer: sales less
returns and discounts
7. Which one of the following terms does the Internal Revenue
Code use to describe deductible business expenses?
A. Ordinary
B. Relevant
C. Crucial
D. Important Answer: A. Ordinary
8. Which of the following describes the difference between business
activities and hobbies?
,A. Business activities do not have net losses.
B. Hobbies are not primarily profit-motivated.
C. Business activities require a full-time work schedule.
D. Hobbies do not generate revenue. Answer: B. Hobbies are not primarily profit-
motivated.
9. Which of the following criteria is NOT required for a business
expense to be considered ordinary and necessary?
, A. Conducive to the business activities
B. Helpful to the business
C. Appropriate under the circumstances
D. Repetitive in nature Answer: D. Repetitive in nature
10. Sole proprietorship tax treatment Answer: Revenues and expenses are
reported directly on the owner's tax return and the profit (or loss) is subject to both individual
income and self employment taxes.
11. Partnership tax treatment Answer: Entity reports income on tax forms separate
tax (information) forms, but the profit or loss flows through to owners' individual income tax
returns.
12. C corporation tax treatment Answer: Income is taxed at the entity level rather
than flowing through to the owner(s).
13. Ordinary and necessary business expenses are
deductible only to the extent they are in amount. Answer:
reasonable
14. Which of the following choices constitutes gross income from
a business? (Check all that apply.)
-Income from services provided
-Revenue less business expenses
-Gross profit from inventory sales
-Income from renting property Answer: -Income from services provided
-Revenue less business expenses
-Income from renting property
15. Allison purchased equipment that cost $100,000 for use in
her business. She expects the equipment to be useful for the
business for the next 8 years. Which of the following choices
correctly describes the tax treatment of the cost of the equipment?
A. The equipment should be capitalized and depreciated according
to the tax code.
Business Entities with correct
questions and answers
usr
[COMPANY NAME] [Company address]
,1. Schedule C tax form used to report taxable income Answer: Sole
Proprietorship
2. Form 1065 tax form used to report taxable income Answer:
Partnerships
3. Form 1120s tax form used to report taxable income Answer: S
corporations
4. Form 1120 tax form used to report taxable income Answer: C
corporations
5. Which of the following choices is INCORRECT when defining the
gross income of a business?
A. Revenues from renting property is included in gross profit for
rental busi- nesses.
B. Gross income from a business includes gross profit from inventory
sales.
C. Gross income for a business may be calculated as sales less
returns and discounts.
D. Gross income for a service business can be calculated as income
from services provided. Answer: C. Gross income for a business may be calculated as sales
less returns and discounts.
6. Gross income for a business may be calculated as Answer: sales less
returns and discounts
7. Which one of the following terms does the Internal Revenue
Code use to describe deductible business expenses?
A. Ordinary
B. Relevant
C. Crucial
D. Important Answer: A. Ordinary
8. Which of the following describes the difference between business
activities and hobbies?
,A. Business activities do not have net losses.
B. Hobbies are not primarily profit-motivated.
C. Business activities require a full-time work schedule.
D. Hobbies do not generate revenue. Answer: B. Hobbies are not primarily profit-
motivated.
9. Which of the following criteria is NOT required for a business
expense to be considered ordinary and necessary?
, A. Conducive to the business activities
B. Helpful to the business
C. Appropriate under the circumstances
D. Repetitive in nature Answer: D. Repetitive in nature
10. Sole proprietorship tax treatment Answer: Revenues and expenses are
reported directly on the owner's tax return and the profit (or loss) is subject to both individual
income and self employment taxes.
11. Partnership tax treatment Answer: Entity reports income on tax forms separate
tax (information) forms, but the profit or loss flows through to owners' individual income tax
returns.
12. C corporation tax treatment Answer: Income is taxed at the entity level rather
than flowing through to the owner(s).
13. Ordinary and necessary business expenses are
deductible only to the extent they are in amount. Answer:
reasonable
14. Which of the following choices constitutes gross income from
a business? (Check all that apply.)
-Income from services provided
-Revenue less business expenses
-Gross profit from inventory sales
-Income from renting property Answer: -Income from services provided
-Revenue less business expenses
-Income from renting property
15. Allison purchased equipment that cost $100,000 for use in
her business. She expects the equipment to be useful for the
business for the next 8 years. Which of the following choices
correctly describes the tax treatment of the cost of the equipment?
A. The equipment should be capitalized and depreciated according
to the tax code.
