MCGRAW HILLS TAXATION OF
INDIVIDUALS AND BUSINESS ENTITIES
CERTIFICATION EVALUATION EXAMS SET
FULL QUESTIONS AND COMPLETE
SOLUTION
●● Form 1065 tax form used to report taxable income
Answer: Partnerships
●● Form 1120s tax form used to report taxable income
Answer: S corporations
●● Form 1120 tax form used to report taxable income
Answer: C corporations
●● 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
businesses.
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.
●● Gross income for a business may be calculated as
Answer: sales less returns and discounts
●● 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
●● 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.
●● 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
●● 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.
●● 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.
INDIVIDUALS AND BUSINESS ENTITIES
CERTIFICATION EVALUATION EXAMS SET
FULL QUESTIONS AND COMPLETE
SOLUTION
●● Form 1065 tax form used to report taxable income
Answer: Partnerships
●● Form 1120s tax form used to report taxable income
Answer: S corporations
●● Form 1120 tax form used to report taxable income
Answer: C corporations
●● 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
businesses.
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.
●● Gross income for a business may be calculated as
Answer: sales less returns and discounts
●● 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
●● 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.
●● 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
●● 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.
●● 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.
