TAXATION – TEST BANK

1. Hayden Co, a resident citizen, earned the following interest income

gross of applicable taxes:

Interest income from PNB, a domestic bank P 40,000

Interest income from SVB, a domestic bank* 30,000
Interest income from THE, a non-resident foreign bank* 20,000
Interest income from XHE, a resident foreign bank* 10,000

*in Philippine Peso equivalent

Compute the amount of final tax.

a. P 11,000 c. P 8,000
b. P 10,250 d. P 0

2. If Hayden is an OFW, what compute the amount subject to regular tax.

a. P 40,000 c. P 20,000
b. P 30,000 d. P 0

3. If Hayden is a resident citizen, compute the amount subject to

regular tax.
a. P 50,000 c. P 30,000
b. P 40,000 d. P 20,000

4. Miss Darrelle Joe is a self-published author. She established a

printing press and a marketing distribution business for her books
which sells wildly hot like chili-flavored pizza. She does not know
anything about taxation so she consulted you about what type of
income tax she will pay.

What advice would you give her?

a. You are subject to regular tax not to final tax so file three
quarterly income tax returns every 60 days following the end of
the first three quarters and file an annual consolidated income
tax return on or before April 15 of the following year.
b. You are subject to final tax on your book royalties. There is no
need to file regular tax returns.
c. You should pay regular income tax on your net income and 10%
final tax on your royalties from your books to avoid hassle with
the tax authorities.
d. You are subject to regular tax. You shall file three quarterly
income tax returns on or before before April 15, August 15, and
November 15 respectively and file a consolidated annual income
tax return on or before April 15 of the following year.

5. Which is subject to creditable withholding tax?

a. Winnings
b. Dividends
c. Professional fees
d. Royalties

6. Who is not required to file the quarterly income tax return?

a. Individuals who are purely engaged in business
b. Individuals who are purely engaged in profession
c. Partnerships and corporations
d. Individuals who are purely employed

7. Withholding taxes are the primary liability of the

a. Earner or payee of income
b. Payor of income
c. Payee and payor of income
d. Collecting agency of the government

8. NFC, Inc. is due to pay the following expenses:

TAXATION – TEST BANK

Interest expense – bank loans P 21,000

Royalty expense – from franchisor 40,000
Rent expense – for lease of office building 10,000
Salaries expense – for employees 100,000
Dividends to shareholders 40,000

Which of the following is subject to final withholding tax?

a. None c. Salaries
b. Interest d. Royalties

9. Compute the final tax to be withheld by SPV.

a. P 0 c. P12,000
b. P 4,000 d. P16,200

10. Which is subject to creditable withholding tax?

a. Royalty c. Salaries
b. Dividend d. None of these

11. Mr. Escala is a seaman employed abroad in an international vessel

that operates exclusively in international transport operations.
Wako invested all his earnings abroad in the time deposits of the
Bank of the Philippine Islands. A summary of his investments
follows:

P5,000,000 6-year non-preterminable deposit 10% p.a.

P3,000,000, 3 year deposit 7.5% p.a.
$100,000, 5 year preterminable deposit 10% p.a.
$50,000, 2 year deposit 8% p.a.

The applicable conversion rate is P47:$1.

Compute Wako’s annual final tax.

a. P 94,350 c. P 45,000
b. P 59,100 d. P 16,875

12. Juan Company invested in the stocks of You See Corp. It purchased
10,000 shares of You See on April 2016 for P90 per share. The shares
had a par value of P50/share. You See declared a 20% stock dividend
in July 2016 followed by a P14/share cash dividend in October 10,
2016. In need of working capital, Juan Company sold 5,000 shares for
P100.00 per share on November 12, 2016.

Compute the final tax on Juan’s dividends.

a. P 28,000 c. P 14,000
b. P 16,800 d. P 0

13. Who shall remit any dividend tax to the government? What is the
deadline for such remittance?
a. Juan Company; November 5, 2016
b. You See Corp; November 15, 2016
c. Juan Company; November 10, 2016
d. The BIR; November 10, 2016

14. Compute the capital gains tax due of Juan Company.

a. P7,500 c. P 2,500
b. P 7,406 d. P 2,453

15. What is the deadline on Juan Company’s capital gains tax return?
a. December 5, 2016 c. December 12, 2017
b. December 15, 2017 d. April 15, 2017

16. Compute the documentary stamp tax on the sale of stocks.

TAXATION – TEST BANK

a. P 825.25 c. P 937.50
b. P942.50 d. P 925.00

17. What is the deadline for the documentary stamp tax?

a. December 5, 2016 c. December 12, 2017
b. December 15, 2016 d. April 15, 2017

18. Mr. Digong earned the following prizes from two different
competitions:

Date Event Gross Prize

January 4, 2011 Singing competition P 12,000
February 14, 2011 Painting competition 10,000

Compute the total final tax that should have been withheld from the
above prizes.
a. P5,500 c. P3,000
b. P4,400 d. P2,400

19. Mr. Quito won a gold medal and P50,000 cash prize for chess
competition in the Palarong Pambansa. How much final tax should be
withheld from the prize?
a. P 20,000 c. P5,000
b. P 10,000 d. P 0

20. Tiong Department Store conducted a sales promotion where

customers purchases exceeding P1,000 in one transaction shall be
entitled to a ticket for a chance to win P500,000. Mr. Shing won the
prize.

How much shall Tiong withhold from the grand prize winning?
a. P200,000 c. P 50,000
b. P100,000 d. P 0

21. Mr. Koronadal made the trade sales transactions during the year
in the common stocks of Ipus-ti-Baka Corporation, a domestic listed
company:

Date Transaction Gain(Loss)

5/8/2015 Sale P120,000
8/5/2015 Sale ( 20,000)
9/8/2015 Sale 240,000

Compute the final capital gains tax on April 15, 2016.

a. P29,000 c. P3,000
b. P22,000 d. P 0

22. Mrs. Joson sold a residential lot on July 1, 2014 for P2,000,000.
The property had a zonal value of P2,500,000 and an assessed value
of P1,000,000.

On August 1, 2015, Mrs. Joson was compelled to pay the capital gains
upon the request of the buyer. The compromise penalty was determined
to be P20,000.

Late payment to the capital gains tax is subject to a 25% surcharge

plus interest of 20% p.a. based on the basic tax and compromise
penalties.

Compute the total tax due.

a. P 150,000 c. P 217,500
b. P 180,000 d. P 237,500
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23. Basic Company paid P9,000 documentary stamp tax on the sale of a
real property capital asset. Compute the capital gains tax on the
sale.
a. P 9,000 c. P 36,000
b. P 16,000 d. P 42,000

24. Bentong is employed by Sisiw, Lang, Bebe & Co, CPAs (SLB) as a
senior audit executive. Bentong is assigned a laptop for his office
use. To impress SLB’s clients, Bentong also purchased an iPhone 8
for his office use.

Which is correct?
a. The iphone 8 and the laptop is an ordinary asset of Bentong.
b. The iPhone 8 and the laptop is an ordinary asset of SLB.
c. The iPhone 8 is an ordinary asset to Bentong while the laptop is
an ordinary asset of SLB.
d. The iPhone 8 is a capital asset to Bentong but the laptop is an
ordinary asset of SLB.

25. Mr. Bassit Unay sold a residential land for P4,000,000. The land
had a zonal value of P7,500,000 and an assessed value of P4,000,000.
What is the total income tax and documentary stamp tax due?
a. P 0; P 60,000 c. P400,000; P 112,500
b. P 450,000; P15,000 d. P450,000; P112,500

26. On August 15, 2011, Ms. Mones sold a 500-square meter residential
house and lot for P3,000,000. The house was acquired in 2005 at
P2,000,000. The assessed fair market values of the house and lot,
respectively, were P1,500,000 and P1,000,000. The zonal value of the
lot was P5,000 per square meter.

What is the capital gains tax?

a. P240,000 c. P180,000
b. P210,000 d. P120,000

27. Malena has the following items of income:

Philippines Abroad
Business income P 200,000 P 100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest income-bank 20,000 30,000
Royalty 30,000 10,000

Assuming Malena is a resident citizen, compute the total income

subject to Philippine income tax.
a. P1,420,000 c. P1,030,000
b. P1,180,000 d. P1,390,000

28. Assuming Malena is a resident alien, compute the total income

subject to Philippine income tax.
a. P1,420,000 c. P1,000,000
b. P1,180,000 d. P1,390,000

29. Assuming Malena is a resident corporation, compute the total

income subject to Philippine income tax.
a. P1,420,000 c. P1,000,000
b. P1,180,000 d. P1,390,000

30. Assuming Malena is a domestic corporation, compute the total

income subject to Philippine income tax.
a. P1,420,000 c. P1,030,000
TAXATION – TEST BANK

b. P1,180,000 d. P1,390,000

31. A Japanese who is staying in the Philippines for 183 days is a

a. Resident alien
b. Non-resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business

32. A Canadian who is staying in the Philippines for more than one
year is a
a. Resident alien
b. Non-resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business

33. Which is a large taxpayer?

a. A taxpayer with quarterly VAT of P900,000
b. A taxpayer with annual income tax of P900,000
c. A taxpayer with annual excise tax due of P900,000
d. A taxpayer with annual withholding tax remittances of P900,000

34. Which is an incorrect statement regarding situs of income?

a. Interest income is earned in the residence of the debtor.
b. Royalty is earned where the intangible is employed.
c. Service income is earned in the domicile of the taxpayer.
d. Rent is earned in the location of the property.

35. Excellent Company insured the life of its president for

P2,000,000. A total of P500,000 in premiums was paid before the
president died. The company collected the total proceeds.

Compute the return on capital.

a. P2,000,000 c. P500,000
b. P1,500,000 d. P 0

36. A tax that is imposed upon the performance of an act, the

enjoyment of a privilege or the engagement in a profession is known
as
a. income tax. c. excise tax.
b. license. d. transfer tax.

37. Which of the following distinguishes license from tax?

a. Unlimited in imposition
b. Imposed for revenue
c. Does not necessarily renders business illegal in case of non-
payment
d. Pre-activity in application

38. Tax classifications as to object do not include

a. Poll tax c. Regulatory tax
b. Property tax d. Excise tax

39. Mr. A has a tax obligation to the government amounting to

P80,000. Since he is leaving the country, he entered into a contract
with Mr. B, a tax practitioner, wherein Mr. B shall pay the P80,000
tax in his behalf. On due date, Mr. B failed to pay the tax. The BIR
sent a letter of demand to Mr. A which he refused to pay.

Which of the following statements is correct?

a. The government cannot enforce collection charges against Mr. A
since he has validly transferred his obligations to B under the
contract.
TAXATION – TEST BANK

b. The government can no longer run after Mr. A because he is

already outside the Philippine territory.
c. The government should wait until Mr. B becomes solvent again.
d. The government should force Mr. A to pay because taxes are non-
assignable.

40. Which of the following is limited in application?

a. Tax laws c. Tax treaties
b. Revenue Regulations d. BIR Ruling

41. The principles of a sound tax system exclude

a. Economic efficiency c. Theoretical justice
b. Fiscal adequacy d. Administrative feasibility

42. The Bureau of Internal Revenue is authorized to do the following,

except?
a. Assess and collect taxes
b. Issue receipts and clearances
c. Enforce all forfeitures, penalties and fines
d. Mete out sentence of imprisonment for violation of Tariff and
Customs Code

43. The Commissioner of Internal Revenue is not authorized to

a. interpret the provisions of the National Internal Revenue Code
b. promulgate Revenue Regulations.
c. terminate an accounting period.
d. prescribe presumptive gross receipts.

44. The provisions in the Constitution regarding taxation are

a. Grants of the power to tax
b. Limitations to the power to tax
c. Grants and limitations to the power to tax
d. Limitations against double taxation

45. Which of the following violates Constitutional provisions?

a. Payment of salaries to priests or religious ministers employed by
the Armed Forces of the Philippines
b. Imposing tax on properties of religious institutions which are
not directly and exclusively used for religious purposes
c. Imposition of license for the sale of religious literature
d. Authorizing the President of the Philippines to fix the rates of
tariffs or imposts

46. With the country under incessant shortage of sugar, the

Philippine Congress enacted a law providing tax exemptions and
incentives to cane farmers without at the same time granting tax
exemptions to rice farmers who produce the staple food of the
Philippines. Is the new law valid?
a. Yes, since there is a valid classification of the taxpayers who
would be exempted from tax.
b. Yes, since sugar is more important than rice.
c. No, since the grant of exemption is construed in favor of
taxpayers.
d. No, because there is no uniformity in the grant of tax exemption.

47. Which of the following normally pays real property tax?

a. Bantay Bata, a non-profit charitable institution
b. Jesus Crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational
institution
d. UVS Corporation, a registered trading company
TAXATION – TEST BANK

48. The Korean government invested P100,000,000 in a Philippine local

bank and earned P10,000,000 interest. Which is correct?
a. The income is exempt on grounds of territoriality.
b. The income is exempt due to international comity.
c. The income is subject to tax on the basis of sovereignty.
d. The income is subject to tax because the income is earned within
the Philippines.

49. Which is principally limited by the requirement of due process?

a. Eminent domain c. Taxation
b. Police power d. All of these

50. Which of the following is not an inherent limitation of the power

to tax?
a. Tax should be levied for public purpose.
b. Taxation is limited to its territorial jurisdiction.
c. Tax laws shall be uniform and equitable.
d. Government agencies and instrumentalities are exempt from tax.

51. Which of the following is not within the scope of tax

legislation?
a. Fixing the imposable tax rate;
b. Assessment of the tax;
c. Determining the subject to be taxed;
d. Determining the purpose of the tax.

52. Which of the following is not an inherent limitation of the power

of taxation?
a. International Comity; c. Territoriality;
b. Veto power of the President; d. Public purpose test.

53. Which is not subject to income tax?

a. Harvested fruits
b. Sold crops
c. Offset of indebtedness for services rendered
d. Damages recovered in a patent infringement suit

54. Which is not a tax obligation of an individual taxpayer engaged

in business?
a. File and pay monthly business tax
b. File and pay monthly income tax
c. File and pay annual income tax
d. Withhold and remit any withholding tax on income payments

55. The taxpayer realized P60,000 and P80,000 capital gains

separately on the sale of domestic stocks directly to buyer. A lone
capital loss of P10,000 was sustained during the year. What is the
annual capital gains tax due to be filed through BIR Form 1707A?
a. P 0 c. P 8,000
b. P 1,000 d. P 9,000

56. A dealer in securities made a disposition of real properties for

P6,000,000. The property has a zonal value of P5,000,0000 and
assessed value of P3,000,000. The same property was acquire for
P7,000,000 and has a present appraisal value of P6,500,000 at the
date of sale. What is the capital gains tax to be filed through BIR
Form 1706?
a. P 0 c. P 360,000
b. P 300,000 d. P 390,000

57. The residence of Mang Pedro is being expropriated by the

government to be used in road widening. The property has a zonal
value of P5,000,000. The city’s assessed value on property
TAXATION – TEST BANK

improvement was P2,000,000. Mang Pedro bought the lot for P2,000,000
and incurred P1,500,000 in building his residence. What is the best
alternative for Mang Pedro to save from taxes?
a. He should opt to be taxed at regular tax and claim tax exemption.
b. He should opt to be taxed at capital gains tax and claim tax
exemption.
c. He should enter a contract of lease with the government.
d. He should question the validity of the expropriation law.

58. The Japanese government invested in the stocks of San Miguel

Corporation by purchasing P1,000,000 worth of stocks from the stock
market. Japan later sold the same directly to the Yuchengco group
for P3,000,000 when the stocks were selling at P4,000,000.

Which is correct?
a. The P1,000,000 gain is subject to capital gains tax.
b. The transaction is subject to capital gains tax to the excess of
the higher of fair value and selling price and the cost.
c. This transaction is not subject to tax.
d. This transaction is subject to stock transaction tax.

59. A dealer in securities executed various trades through the

Philippine Stock Exchange and realized thereon a total gain of
P200,000. This transactions is
a. subject to capital gains tax.
b. subject to regular income tax
c. not subject to income tax
d. subject to final tax.

60. Mr. Tinio, not a dealer in properties, made the following

dispositions during the year.

Property Holding period Gain (loss)

Land 5 years P 200,000
Car 1year and 8 months 30,000
Laptop 8 months (8,000)

Compute the net gain to be included in gross income subject to

regular tax.
a. P222,000 as net capital gain
b. P207,000 as net capital gain
c. P200,000 as ordinary gain and P7,000 as ordinary gain
d. P7,000 as net capital gain

61. Ms. Charots, a realty dealer, had the following dealings in

properties in 2015:

Date of Date of
Properties acquisition sale Gain (Loss)
House and lot 2/25/2010 2/27/2015 P 400,000-
Commercial lot 8/12/2011 3/14/2015 ( 100,000)
Personal car 7/18/2014 5/12/2015 80,000-
Personal i-Phone 1/14/2014 7/3/2015 ( 40,000)

Compute the ordinary gain and the net capital gain subject to
regular income tax.
a. P480,000; P0 c. P400,000; P60,000
b. P400,000; P80,000 d. P300,000; P60,000

62. What is the amount of ordinary loss?

a. P 0 c. P 100,000
b. P 40,000 d. P 140,000
TAXATION – TEST BANK

63. Mr. Andonicus, a dealer of household appliances, made the

following dispositions of properties during 2015:

Date of Date of
Properties acquisition sale Gain (Loss)
Leasehold right 12/2/2012 2/27/2015 P 50,000
Taxi franchise 7/10/2010 3/14/2015 100,000
Electric oven 6/15/2015 7/15/2015 80,000
Residence 1/14/2014 7/3/2015 800,000

Compute the net capital gains subject to regular tax.

a. P955,000 c. P 155,000
b. P875,000 d. P 75,000

64. The following relate to the compensation income of a private rank

and file employee during the year:

Annual compensation income P 540,000

13th month pay 45,000
14th month pay 45,000
Total of monthly rice allowances during the year 20,000
Commission from employer 12,000
Christmas gift 8,000

Compute the total non-taxable compensation income including exempt

de minimis benefits.
a. P 0 c. P55,000
b. P23,000 d. P105,000

65. Compute the total supplemental compensation.

a. P28,000 c. P19,000
b. P25,000 d. P13,000

66. Compute the exempt de minimis benefits.

a. P18,000 c. P26,000
b. P23,000 d. P50,000

67. Compute the gross taxable compensation income.

a. P570,000 c. P553,000
b. P565,000 d. P540,000

68. Mr. Cute is a top executive at The Real Company. After years of
dedicated and passionate service, he met the vesting condition of
his employer’s stock option plan (ESOP) where he is entitled to buy
10,000 of his employer’s share at a strike price of P100. Mr. Cute
exercised the option when the share of his employer was selling
P150/share. He eventually sold this to another employee of the
company for P180 per share.

Compute the compensation income.

a. P 0 c. P 500,000
b. P 300,000 d. P 800,000

69. In the immediately preceding problem, compute Cute’s capital

gains tax.
a. P 0 c. P 45,000
b. P 25,000 d. P75,000

70. Markus Ngineus, single, is a managerial employee of Microna &

Softpa Company. He received the following employee benefits in 2014:

Salaries P 4,000,000
Stock bonus 800,000
TAXATION – TEST BANK

Fixed allowances 200,000

Car designated for the use of Markus 2,500,000
House and lot, transferred in the name of Markus 5,000,000

Compute the taxable income of Markus.

a. P12,450,000 c. P 4,950,000
b. P7,450,000 d. P4,750,000

71. In the immediately preceding problem, compute the fringe benefit

tax for the year.
a. P1,176,471 c. P2,470,588
b. P2,352,941 d. P3,529,412

72. The following relate to the net income of the audit firm of Mr.
Trinidad, a single taxpayer with two dependent children:

Professional fees P 500,000

Long-term capital gain 80,000
Short-term capital gain 45,000
Ordinary gain 20,000
Long-term capital loss ( 90,000)
Short-term capital loss ( 30,000)
Ordinary loss ( 40,000)
Other business expenses ( 200,000)
Net income P 285,000

Compute his taxable income.

a. P 290,000 c. P 210,000
b. P 190,000 d. P 235,000

73. Shown below is the summarized result of operations of Mr. Oha’s

business:

Sales P 700,000
Cost of sales 300,000
Gross profit P 400,000
Capital gain on the sale of land 100,000
Total gross income P 500,000
Other deductible expenses 100,000
Contributions expenses:
- Government priority project 50,000
- Non-accredited non-profit institution 45,000
- Foreign foundation 25,000
Net income P 280,000

Compute his taxable income.

a. P 230,000 c. P 170,000
b. P 255,000 d. P 270,000

74. Exempt corporations are nevertheless subject to 30% tax on income

from
a. related activities.
b. unrelated activities.
c. both related and unrelated activities.
d. neither related and unrelated activities.

75. Which is not taxable on unrelated activities?

a. Government agencies
b. Non-profit corporations
c. Government-owned and controlled corporations
d. Non-profit schools
TAXATION – TEST BANK

76. The income from properties of exempt corporations is considered

income from
a. related sources.
b. unrelated sources.
c. either related or unrelated activities at the discretion of the
examiner.
d. either related or unrelated activities depending on the nature of
the properties concerned.

77. The classification rule is not relevant to a

a. cooperative.
b. farmers’ association.
c. government school.
d. profit-oriented agricultural organization.

78. An allocation of common expenses between related and unrelated

activities is made to properly reflect taxable income. This
procedure is required only of
a. domestic corporations.
b. resident foreign corporations.
c. exempt corporations.
d. non-profit hospitals.

79. The following relates to a taxpayer:

Sales P 1,000,000
Less: Cost of sales 450,000
Gross income from operations P 550,000
Add: Non-operating income
Dividend income – domestic 50,000
Interest income – bank 20,000
Gain on sale of domestic stocks 30,000
Gain on sale of office equipment 20,000
Total gross income P 670,000
Less: Expenses
Interest expense P 40,000
Salaries expense 150,000
Depreciation expense 50,000
Contribution expense 80,000
Pension contribution 50,000
Provision for bad debts 15,000
Entertainment expense 10,000
Office supplies 12,000
Loss on sale of patent 40,000
Total P 447,000
Net income P 223,000

Half of the contribution to pension is funding of prior service

cost. There was a write-off receivables totaling P12,000 during the
year. The contribution was made to an accredited civic organization.

What is the total regular allowable itemized deduction?

a. P 354,600 c. P 369,900
b. P 317,910 d. P371,100

80. Compute the taxable income assuming the taxpayer uses OSD.
a. P 620,000 c. P 520,000
b. P 550,000 d. P 570,000

81. Compute the total deductions assuming the taxpayer is a

corporation using OSD.
a. P 220,000 c. P 240,000
b. P 228,000 d. P 268,000
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82. An individual taxpayer with two dependents reported the following

income:

Gross taxable compensation income P 200,000

Gross income from operations 300,000
Ordinary gain 130,000
Interest income from investment in bonds 50,000
Royalty 20,000
Total income P 700,000

Ordinary loss P 60,000

Capital loss 20,000
Contribution to a non-profit organization 70,000
Donation to government’s priority activity 40,000
Rent expense 17,000
Interest expense 10,000
Other deductions 200,000
Total expenses P 417,000
Net income P 283,000

Assuming that the rent expense pertains to the rental of the

residence of the taxpayer, compute the allowable deductions against
gross income?
a. P 327,000 c. P 351,000
b. P 331,000 d. P353,000

83. Assuming that the rent expense pertains to the rental of the
residence of a managerial employee, compute the total deductions.
a. P 312,000 c. P 353,500
b. P 324,500 d. P 306,300

84. Mr. Roger is a managerial employee at Curad International. He is

paid the following benefits during the year:

Salaries, net of P8,000 PhilHealth, P12,000 SSS

and P4,000 HDMF and P10,000 withholding tax P 970,000
Fixed allowances 40,000
13th month pay and other benefits 98,000
Fringe benefits (residential rentals) 102,000

Mr. Roger has a senior citizen mother and a disabled brother who are
dependent upon him for chief support.

Compute the taxable compensation income.

a. P 1,036,000 c. P 961,000
b. P 936,000 d. P 986,000

85. Compute the fringe benefit tax.

a. P 0 c. P 48,000
b. P 72,000 d. P 24,000

86. Assuming Curad International is a regional operating headquarter

of a multinational corporation, compute Mr. Roger’s income tax on
compensation.
a. P 155,400 c. P 117,000
b. P 259,000 d. Indeterminable

87. Using the same facts in the immediately preceding problem,

compute the fringe benefits tax.
a. P 34,000 c. P 17,000
b. P 18,000 d. P 9,000
TAXATION – TEST BANK

88. Which is not subject to final tax to a corporation?

a. Interest income – Foreign currency deposit
b. Royalty
c. Prizes
d. None of these

89. The following data relates to a corporate taxpayer:

Philippines Abroad Global

Gross receipts P 4,000,000 P 3,000,000 P 7,000,000
Direct cost of services 2,000,000 1,500,000 3,500,000
Expenses 1,200,000 1,000,000 2,200,000
Net income P 800,000 P 500,000 P 1,300,000
Income tax paid P 165,000

Compute the income tax still due if the taxpayer is a domestic

airliner.
a. P 390,000 c. P 240,000
b. P 175,000 d. P 0

90. Compute the income tax due if the taxpayer is an international

carrier whose country taxes international carriers 1.5%.
a. P 105,000 c. P 60,000
b. P 100,000 d. P 20,000

91. A non-profit hospital which started operations in 1990 has the

following results of operations in 2016:

Hospital Non-hospital Total

related related
Gross receipts and sales P 300,000,000 P 200,000,000 P 500,000,000
Cost of services and 280,000,000 _140,000,000 420,000,000
sales
Gross income P 20,000,000 P 60,000,000 P 80,000,000
Less: Expenses 40,000,000 20,000,000 60,000,000
Deduction 12,000,000 6,000,000 18,000,000
incentives
Net income (P32,000,000) P 34,000,000 P 2,000,000

Compute the income tax due.

a. P 1,600,000 c. P 1,200,000
b. P 600,000 d. P 10,200,000

92. Assuming the above hospital is a government hospital, compute the

income tax due.
a. P 0 c. P 1,600,000
b. P 600,000 d. P 10,200,000

93. A corporate taxpayer had the following income on its fifth year
of operations:

Within the Without the

Phils. Phils. Total
Gross receipts and sales P 300,000,000 P 200,000,000 P 500,000,000
Cost of services and sales _ 180,000,000 100,000,000 280,000,000
Gross income P 120,000,000 P 90,000,000 P 210,000,000
Less: Expenses 114,000,000 40,000,000 154,000,000
Net income P 6,000,000 P 50,000,000 P 56,000,000

Total of BIR Form 2307s P 400,000 400,000

Income tax paid *1,500,000 12,000,000 13,500,000

*Paid through BIR Form 1702Q

TAXATION – TEST BANK

Assuming the corporation is a domestic corporation, compute the tax

still due per BIR Form 1702-RT.
a. P 0 c. P 4,400,000
b. P 2,900,000 d. P 14,900,000

94. Assuming the corporation is a resident foreign corporation,

compute the income tax still due (refundable).
a. P 0 c. P 500,000
b. (P 100,000) d. P 300,000

95. The Calintaan Corporation had the following historical MCIT and
RCIT data:

2013 2014 2015 2016

MCIT P 120,000 P 200,000 P 190,000 P 170,000
RCIT P 110,000 P 220,000 P 0 180,000

Basing solely on the information provided, what is the tax due and
payable respectively in 2013 and 2014?
a. P120,000; P220,000 c. P120,000; P210,000
b. P120,000; P100,000 d. P110,000; P220,000

96. In the immediately preceding problem, what is the tax due and
payable respectively in 2015 and 2016?
a. P190,000; P 0 c. P 0; P 0
b. P190,000; P180,000 d. P170,000; P 0

97. The following relates to Gandabebe Co., a domestic corporation:

Minimum corporate income tax P 164,000

Allowable deductions 7,600,000
Creditable withholding tax 52,000
Estimated income tax payments 87,000

What is the income tax still due to be filed through BIR Form 1702-
RT?
a. P 0 c. P 41,000
b. P 25,000 d. P112,000

98. A corporate taxpayer had the following data on its fifth year of
operation:

Philippines Abroad Total

Sales P 2,000,000 P 3,000,000 P 5,000,000
Less: Cost of services 1,200,000 1,800,000 3,000,000
Gross income from operation P 800,000 P 1,200,000 P 2,000,000
Interest on deposits 50,000 250,000 300,000
Total Income P 850,000 P 1,450,000 P 2,300,000
Less: Business expenses 800,000 1,300,000 2,100,000
Net income P 50,000 P 150,000 P 200,000

What is the tax due assuming the taxpayer is a domestic corporation?

a. P 60,000 c. P45,000
b. P 46,000 d. P40,000

99. In the immediately preceding problem, what is the tax due if the
corporation is a resident foreign corporation?
a. P 0 c. P16,000
b. P15,000 d. P17,000
TAXATION – TEST BANK

100. Hehe Inc., a domestic corporation, was assessed by the BIR for
improperly accumulated earnings tax. Relevant to the determination
of the IAET are the following data:

Gross income P 4,000,000

Allowable deductible expenses 3,200,000
Interest income, net of tax 40,000
Gain on sale of domestic stocks, net of tax 60,000
Dividends declared 400,000
Common stocks, excluding P200,000 share premium 300,000
Retained earnings, end 500,000

What is the improperly accumulated earnings tax?

a. P 36,000 c. P 16,000
b. P 26,000 d. P 20,000

101. La-View Trading Corporation reported the following on its fifth

year of operation:

Sales, net of 1% withholding tax P 4,950,000

Cost of sales 2,000,000
Interest from deposit, net of tax 75,000
Gain on sale of domestic stocks directly to buyer 150,000
Casual rent income, net of 5% creditable withholding tax 95,000
Interest income from advances to employees 50,000
Business expenses 3,100,000
Estimated quarterly tax payments 10,000

Compute the income tax still due or (refundable).

a. P53,000 c. (P2,000)
b. (P50,000) d. P15,000

102. Aleppo Corporation is on its fifth year of business operation

when it was assessed by the BIR for improperly accumulating profits.

Gross income P 2,000,000

Business expense 1,400,000
NOLCO prior years 500,000
Dividend income - domestic 30,000
Gross interest income - bank 50,000
Gain on sale of domestic stocks directly to buyer 200,000
Gain on sale of land classified as capital asset
(Selling price = P2,000,000; fair value = P2,500,000) 500,000
Dividends declared 100,000
Appropriation for treasury stocks 50,000
Appropriation for plant expansion 150,000

Aleppo has P2,000,000 in common stocks, exclusive of P500,000 share

premium, and beginning retained earnings of P1,900,000.

Compute the improperly accumulated earnings tax.

a. P 86,500 c. P 60,000
b. P76,500 d. P 74,500

103. A resident foreign corporation earning purely active income

reported the following since it started operation in 2015:

2015 2016
Profit after tax P 200,000 P 150,000
Remittance 80,000 300,000

Compute the branch profit remittance tax in 2016.

TAXATION – TEST BANK

a. P 12,000 c. P 45,000
b. P 38,000 d. P 40,500

104. Reek Review Center Inc. provides preparatory review services for
professional examinees. Reek had the following expenses:

Salaries of reviewers P 800,000

Administrative staff salaries 80,000
Marketing salaries and other expenses 150,000
Rent expense on review rooms 300,000
Rent on administrative offices 100,000
Printing costs of reviewee handouts 100,000
Classroom & library electricity expense 30,000
Office utilities 40,000
Classroom supplies expense 5,000
Loss on sale of old chairs 15,000
Interest expense 50,000

Compute the amount of direct cost of services to be presented in the

income tax return.
a. P1,230,000 c. P1,235,000
b. P1,325,000 d. P1,285,000

105. Xhelsy Drugstore Inc. recorded a P1,200,000 total deductible

expense and the following sales:

Customers
Regular Senior citizens
Gross sales P 5,000,000 P 1,200,000
Cost of sales 3,000,000 800,000

Xhelsy adopts a policy of giving senior citizens a 25% discount.

Consequently, it granted P300,000 total senior citizens’ discounts
during the period.

Compute the taxable income.

a. P1,200,000 c. P 960,000
b. P1,100,000 d. P 900,000

106. In 2016, Baguio Realty Corporation participated in the “Adopt-a-

School Program” by contributing its services to a public school in
La Trinidad, Benguet. The agreed value fixed in the memorandum of
agreement for the construction of the public school building was
P1,000,000. However, Baguio Realty was able to complete the same at
a total cost of P800,000. The “Adopt-a-School Program” is a priority
program in 2016.

Compute the total allowable deduction from the above contribution.

a. P1,200,000 c. P 1,000,000
b. P 800,000 d. P 900,000

107. An individual taxpayer compiled the following income, expense and

personal exemptions.

2013 2014 2015

Compensation income P 20,000 P 220,000 P 80,000
Business gross income 470,000 400,000 500,000
Deductions 500,000 420,000 420,000
Personal exemptions 50,000 50,000 100,000
TAXATION – TEST BANK

Compute the taxable income in 2014.

a. P170,000 c. P 160,000
b. P150,000 d. P 140,000

108. Compute the taxable income in 2015.

a. P10,000 c. P 70,000
b. P20,000 d. P 60,000

109. A taxpayer had the following interest expense and interest income
in 2016:

Interest expense on bank loan P 100,000

Interest income from time deposit, gross 10,000
Interest income from promissory notes 40,000

Compute the allowable deduction for interest expense.

a. P 96,700 c. P50,000
b. P 83,500 d. P 100,000

110. The Crosby Manufacturing Corporation usually bills its foreign

branch at cost; however, it entered into an advanced pricing
agreement (APA) with the BIR which fixed its cross-border pricing to
its foreign branch at 150% of cost.

Crosby compiled the following costs and sales during the year:

Sales through the foreign branch:

Philippines Branch
Sales P 7,000,000 P 12,000,000
Less: cost of sales 7,000,000 7,000,000
Gross income P 0 P 5,000,000

Sales to unassociated domestic enterprises:

Philippines Branch
Sales P 3,000,000
Less: cost of sales 1,200,000
Gross income P 1,800,000
Total gross income P 5,300,000

Using the advanced pricing agreement, compute the total gross

income subject to Philippine taxation?
a. P 11,300,000 c. P 8,800,000
b. P 7,800,000 d. P 6,800,000