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INCOME TAX

DLSU Lecture
1.

Will and Nick Company provides the following benefits to each of its rank and file
employees:
i.
ii.
iii.
iv.
v.

Medical cash allowance to dependents of employees amounting to P150 per month.


Rice subsidy of P1,500 per month.
Uniforms and clothing allowance amounting to P5,000 per annum.
Laundry allowance not exceeding P900 per quarter.
Gifts given during Christmas and major anniversary celebrations amounting to
P6,000 per annum.

Which of the above benefits provided by the Company exceeded the de-minimis
benefits?
a.
b.
c.
d.
2.

ii and v
i and v
i, ii, iii and iv
iii and iv

Who among the following individual taxpayers is taxable on income within and outside
the Philippines?
a. Joefel, a native of Baguio City, working as overseas contract worker in China.
b. Kerby Cage, American rockstar, held a 3-day concert in MOA Arena.
c. Mark de la Hoya, Mexican Citizen, a resident of Mexico, spent a one week vacation
trip in Basilan.
d. Emman Ducati, naturalized Filipino citizen and married to a Filipina. He had been
living in Tawi-Tawi since 1960.

3.

Who among the following is a non-resident alien?


a. An alien who has acquired residence in the Philippines.
b. An alien who comes to the Philippines for a definite purpose which in its nature may
be promptly accomplished.
c. An alien who lives in the Philippines with no definite intention as to his stay.
d. An alien who comes to the Philippines for a definite purpose which in its nature would
require an extended stay.

4.

An exemption allowed to taxpayer who has qualified legitimate, illegitimate, or legally


adopted children?
a.
b.
c.
d.

5.

Personal Exemption
Optional Standard Deduction
Additional Exemption
Special Additional Exemption

Kenneth, married, with two dependent children, had the following income and expenses
in 2014:
Salary, net of withholding tax (WT) of P5,000
13th month pay
Gross receipts from profession, net of WT of P7,000
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55,000
5,000
83,000

Rent Income, net of 5% WT


Gross receipts from business
Professional business expenses
Premiums on health insurance

57,000
125,000
56,500
6,000

How much is the income tax payable of Kenneth if he availed of the itemized
deductions?
a.
b.
c.
d.

P 28,125
17,125
17,625
28,625

6.

Which of the following statements is incorrect about fringe benefits?


a. The fringe benefits tax does not apply to rank-and-file employees.
b. The rule on de minimis benefits does not apply to rank-and-file employees.
c. The monetary value received by an official or employee is presumed to be net of the
fringe benefits tax.
d. If the recipient of a fringe benefit is a non-resident alien not engaged in trade or
business, the monetary value shall be divided by 75% in order to arrive at the
grossed-up monetary value.

7.

Which of the following compensation payments to a minimum wage earner is subject to


income tax?
a. Holiday pay
b. Overtime pay
c. Night shift differential pay
d. None of the above

8.

Robocop, Inc. was registered with the Securities and Exchange Commission on
December 5, 2013. However, it was only registered with the BIR on March 1, 2014.
Robocop adopts the calendar year accounting period. When will Robocop be subject to
the 2% minimum corporate income tax (MCIT)?
a.
b.
c.
d.

9.

January 1, 2018
January 1, 2017
March 1, 2018
March 1, 2017

Powerpuff Corporation, a domestic corporation has the following records of income and
expenses in 2011:
Gross income, net of 1% withholding tax
P
Expenses
Rent income, net of 5% withholding tax
Expenses on rent
Dividend from domestic corporation
Royalty
Interest from bank deposit with PNB, gross of tax
Income tax payable by Powerpuff Corporation isa. P236,220
b. 219,320
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1,435,500
756,000
142,500
34,600
25,000
80,000
15,000

c.
d.

203,850
220,820

10. Based on the above data, the total final taxes withheld from Powerpuff Corporation is
a. P19,000
b. 33,250
c. 21,500
d.
3,000
11. Which of the following statements is not correct about corporations?
a. Domestic corporations are taxable in the Philippines on income earned from business
operation in the United States.
b. Resident foreign corporations are taxable in the Philippines on income earned in the
United States.
c. Nonresident foreign corporations are taxable in the Philippines on income derived
from sources in the Philippines only
d. Domestic corporations are taxable in the Philippines on income derived from Korea
and Philippine sources.
12. In 2012, Harbour Corporation, a domestic corporation had a net income of P2,000,000.
It paid a corporate income tax of 30% leaving a distributable income of P1,400,000. If a
dividend is declared by the corporation and received by the stockholders, which of the
following statements is false?
a. Nonresident aliens engaged in trade or business are liable to pay 30% final tax
b. Nonresident aliens not engaged in trade or business are liable to pay 25% dividend
tax
c. Resident citizens are liable to pay 10% final tax
d. Resident foreign corporations are exempt from the payment of dividend tax.
13. Leavemealone Corporation is an international carrier doing business in the Philippines.
Its taxable base for income tax purposes is
a.
b.
c.
d.

Regular rates of 30% of its net taxable income


Gross Philippine Billings
Gross Philippine Billings minus deductible expenses
Allocation of income from sources within and without the Philippines, as well as
expenses.

14. BNL Stores has investment in Ivey Corporation. Ivey shares are listed in the Philippine
Stock Exchange (PSE). However, only 8% of its issued and outstanding shares are
listed in the exchange. What will be the tax implication of the sale of Ivey shares by BNL
Stores?
a. The sale will be subject to of 1% percentage tax if sold through the PSE.
b. The sale will be subject to 5%/10% capital gains tax if sold through the PSE.
c. The sale will be subject to of 1% percentage tax regardless of whether sold
through or outside the PSE.
d. The sale will be subject to 5%/10% capital gains tax or of 1% percentage tax,
whichever is higher, if sold through the PSE.

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15. Which of the following expenses may be allowed as income tax deduction for a VATregistered taxpayer?
a. Accrued expenses not yet subjected to withholding tax at year-end but will be
subjected to withholding tax in the subsequent year.
b. Input tax recorded as expense.
c. Advance rentals previously subjected to withholding tax at the time of payment and
recorded as expense in the period incurred.
d. Electricity expense supported by billing statement only.
16. Statement 1: If the quarterly income tax is based on MCIT, the excess MCIT from the
previous taxable year/s shall be allowed to be credited.
Statement 2: Expanded withholding tax, and the MCIT paid in the previous taxable
quarters are allowed to be applied against the quarterly MCIT due.
a.
b.
c.
d.

False, False
False, True
True, False
True, True

17. Which of the following is subject to improperly accumulated earnings tax?


a.
b.
c.
d.

Insurance companies
General Professional Partnerships
Banks
Closely-held Companies

18. Captain Cook Corporation, a closely held corporation, disclosed the following
information:
2013
2014

Gross Income
Expenses
Gross Income
Expenses
Royalty
Dividends Payable

P 3,400,000
3,800,000
3,960,000
3,100,000
340,000
56,000

Assume that Captain Cooks paid-up capital is lower than its unappropriated retained
earnings and it paid improperly accumulated earnings tax in prior years, if any. Also,
Captain Cook has been operating for more than 5 years.
The Income Tax Payable in 2014 is:
a.
b.
c.
d.

P 81,800
P 93,000
P 301,000
P 70,000

19. How much is the improperly accumulated earnings tax in 2014?


a.
b.
c.
d.

P 81,500
P 93,800
P 91,500
None
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20. A feature of ordinary gains as distinguished from capital gains


a.
b.
c.
d.

Gain from sale of assets not stock in trade


May or may not be taxable in full
Sources are capital assets
No holding period

21. Boutique, Inc. maintains a BIR-qualified retirement plan. During the year, it contributed
P100,000 to the retirement plan. However, it recorded retirement expense of P70,000 in
its books in accordance with PAS 19. Based on actuarial valuation for funding, its
normal cost for the year amounts to P80,000. How much is the tax deductible pension
cost?
a.
b.
c.
d.

P100,000
P82,000
P73,000
P70,000

22. Who among the following qualifies as dependent for purposes of additional exemption?
a.
b.
c.
d.

Sister-in law
Grandfather
Step-mother
Illegitimate daughter

23. A native of Naga City, supporting his brother, 18 years old, unmarried, not gainfully
employed, studying Bachelor of Science in Accountancy at the University of Caloocan, is
entitled to a basic personal exemption ofa.
b.
c.
d.

75,000
50,000
25,000
20,000

24. The following are some of B Corporations (a domestic corporation) Income Statement
items for the year 2014:
Sales
Cost of Goods Sold
Interest Income Subject to 20% Final Tax
Dividend Income from Domestic Corporation
Miscellaneous Income

P3,756,738.00
1,265,799.00
35,879.00
6,567.00
53,498.00

How much is the Companys Optional Standard Deduction based on the figures given
above?
a.
b.
c.
d.

P 1,017,774.80
P 996,375.60
P 1,034,753.20
P 1,020,401.60

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25. Which of the following cannot be claimed by the taxpayer as credits against its regular
corporate income tax liability for the year?
a.
b.
c.
d.

Unexpired and unutilized excess MCIT over RCIT from prior years
Unexpired and unutilized NOLCO from prior years
Creditable taxes withheld (CWT) in the current year
Prior years excess CWTs

26. The personal exemption of the non-resident alien engaged in trade or business in the
Philippines is equal to that allowed by:
a. The income tax law of his country to a citizen of the Philippines not residing there or
the amount provided by the NIRC to a citizen or resident, whichever is lower.
b. The National Internal Revenue Code to a citizen or resident
c. The income tax law of his country allows to a citizen of the Philippines not residing
there or the amount provided by the NIRC to a citizen or resident, whichever is
higher.
d. The income tax law of his country allows to a citizen of the Philippines not residing
there.
27. Which of the following income is subject to final tax if received by an individual taxpayer?
I.
II.
III.
IV.
a.
b.
c.
d.

Share of a partner in the net income of a business partnership


Cash dividend received by a stockholder from a domestic corporation.
Winnings in lotto
Raffle prizes amounting to P6,000
I only
I and II
I, II and III
I, II and IV

28. Installment basis of reporting income is not allowed to be used under which of the
following circumstances?
a. Sales by a dealer of personal property on installments;
b. Casual sale of personal property (other than inventory) on installments where initial
payments do not exceed P1,000 in the year of sale;
c. Sale of real property where the initial payments do not exceed 25% of the selling
price; and
d. Sale by individuals of real property, considered as capital asset, if initial payments do
not exceed 25% of the selling price.
29. Which of the following is correct?
a. Additional capital received by a corporation from shareholders in the form of
additional-paid-in-capital, without the issuance by the corporation of additional shares
of stock, is taxable to the corporation as income.
b. A non-resident owner or lessor of machinery is subject to a final tax of 7% on gross
rentals derived from the use of such machinery in the Philippines.
c. A domestic corporation deriving royalty income from Philippine sources from the
active pursuit of its business is subject to income tax at the rate of 35% on such
royalty income.
d. Exempt corporations (i.e., non-stock corporations or associations, business leagues,
civic leagues) are exempt from tax on all their income.
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30. Rules on capital gains and losses of Corporations, except:


a. Capital gains and losses are recognized to the extent of 100% regardless of the
holding period
b. The net capital loss carry over is not applicable
c. Capital losses are deductible only to the extent of capital gains
d. There is a final tax of 5% on real property sold
31. Under the NIRC, income is received not only when it is actually or physically transferred
to a person but even when it is merely constructively received by him. An example of
income constructively received is
a. Rental payments refused by the lessor, when the lessee tendered payment and the
latter made a judicial deposit of the rental due
b. Interest coupons not yet due and payable
c. Interest on savings deposit not yet credited to the account of the depositor
d. Advanced deposit made by the lessee.
32. Bugs Bunny, a corporation organized and existing under the laws of Great Britain
established a branch in the Philippines. During the year, Bugs Bunny allocated
expenses to its Philippine Branch for the expenses incurred in connection with
maintaining such branch and also a pro-rated expense of the head office. Who is entitled
to claim these deductions?
a. The Head Office
b. The Philippine Branch
c. Neither. These deductions cannot be claimed because the taxing authorities cannot
determine the existence of these expenses.
d. It depends on the agreement of the Head Office and the Philippine Branch.
33. Which of the following institutions is exempt from income tax?
a.
b.
c.
d.

Offshore banking units


Hospitals
Non-stock, non-profit educational institutions
Regional operating headquarters

34. Nautica Corporation received a Letter of Authority (LOA) from the BIR on April 1, 2014.
Subsequently, it received Preliminary Assessment Notice (PAN) on May 31, 2014.
Nautica believes that certain tax assessments contained in the PAN are disputable.
Nautica should send its protest letter protesting the PAN until a.
b.
c.
d.

June 15, 2014


June 30, 2014
July 15, 2014
July 30, 2014

35. Assuming that Nautica sent its protest letter disputing the assessment on June 10, 2014,
when is the deadline for the issuance of the Formal Letter of Demand (FLD)/Final
Assessment Notice (FAN) by the BIR? Assuming the BIR issued the FLD/FAN on the
deadline, until when should Nautica protest the FLD/FAN?

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a.
b.
c.
d.

June 25, 2014; July 25, 2014


July 10, 2014; August 24, 2014
June 25, 2014; July 10, 2014
July 10, 2014; July 25, 2014

36. What are the powers of the Commissioner of Internal Revenue?


a. Enter into compromise
b. To abate/remove/cancel tax as assessed
c. To inquire bank deposit
d. All of the above
37. Compromise penalties is not allowed for:
a. Failure to preserve or keep books of accounts and accounting records
b. Keeping two (2) sets of books of accounts or records
c. Failure to keep books of accounts or records in a native language or in English
d. Failure to have books of accounts audited and have financial statements attached to
income tax return certified by an independent CPA
38. Aaron, a resident citizen, single with 4 qualified dependent illegitimate children had the
following during the calendar year (in Pesos):
Gross compensation income
250,000
Expenses related to his employment
120,000
SSS Premium Contribution
3,600
Philhealth Contribution
2,400
Pag-ibig Contribution
2,000
Union Dues
1,000
Premiums on Health Insurance
4,000
The taxable income before personal and additional exemption is
a. P 237,000
b. P 117,000
c. P 241,000
d. P 238,000
39. Which is not subject to final tax if received by an individual taxpayer?
a. Interest on bank savings deposit
b. Interest on foreign currency under the expanded foreign currency deposit system
c. Interest on bonds of the Bangko Sentral Ng Pilipinas
d. Interest on loans receivable with maturity of more than five years
40. Which of the following is taxable?
a. Separation pay received by a 50-year old employee due to the retrenchment
program of the employer
b. Retirement pay received from a benefit plan registered with the Bureau of Internal
Revenue where at the time the employee retired he was 55 years of age, retiring
from employment for the first time in his life, and was employed with the employer
from whom retiring for 6 years prior to retirement
c. Social security benefit received by a balikbayan from employer abroad at the age of
35
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d. SSS and GSIS benefits


41. Statement 1: A net operating loss is the excess of allowable deductions over the gross
income from business or practice of profession for a taxable year.
Statement 2: A net operating loss which had not previously been deducted from gross
income shall be carried over as a deduction only in the next year immediately following
the year of such loss.
a. True, True
b. False, False
c. True, False
d. False, True
42. What is the meaning or RATE?
a. Run Against Tax Evaders
b. Rally Against Tax Evasion
c. Rigid Application for Tax Exemptions
d. Run Against Tax Evaders

43. A program implemented by the BIR to temporarily shut down the business
establishments on specific grounds (i.e., failure to issue receipts, failure to file VAT
return, failure to register, etc.)?
a. Run Against Tax Evaders
b. Oplan Kandado Program
c. Tax Compliance Verification Drive
d. Taxpayers Reconciliation System
44. Mel Antonio Yang (Mr. MAY) owns a vacant parcel of land. He leased the land to Ms.
Rose for ten years at a rental of P20,000 per year. The condition was that Ms. Rose can
make improvements on the land which will become the property of Mr. MAY at the end of
the lease without compensation or reimbursement for the value of the property. Ms. Rose
constructed a building. Upon completion, the building had a fair market value of
P2,000,000. At the end of the lease the building had a depreciated value of P1,000,000.
The income of Mr. MAY from the constructed building is
a. P0
b. P1,000,000
c. P2,000,000
d. None of the above
45. Jose and Mary, both employed by the same company, got married in January of the
year. Within the year a child was born. Which of the following is not correct?
a. The basic personal exemption of the wife is P50,000
b. The additional exemption of the wife is P0
c. The total personal exemptions of the husband is P75,000
d. The total personal exemptions of the wife is P75,000

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