TAXATION (Gross Income)

1. Exclusions from gross income, except:

a Interest on the price of the land covered by the Presidential Decree
on land reformation
b Interest payments on proceeds of life insurance held by the insurer
c GSIS, SSS, Philhealth and PAG-IBIG contributions and Union dues of
individuals
d Gains realized by an inventor upon redemption of shares of stock in
a mutual fund company
2. Which of the following statements is correct?
a The power of taxation reaches even the citizens abroad and their
income earned from sources outside the Philippines
b Priests and religious institutions are exempt from income and
property taxes
c Separation benefits received by eliminated employees resulting a
deadlock in their collective bargaining agreement are exempt from
income tax
d The value of a property received as a gift, or under a will or
testament or through legal succession is exempt from taxation
3. One of the following is taxable income
a Gifts, bequest and devices
b Amounts received as reward for giving information instrumental in
discovery of violation of the Tax Code and seizure of smuggled
goods.
c Proceeds from life insurance
d Separation pay received by an employee due to a cause beyond his
control
4. Which of the following statement is not correct?
a Proceeds of life insurance policies paid to beneficiaries upon the
death of the insured are excluded from gross income regardless of
whether the proceeds are received as a single sum or instalment
b In case of transfer for a valuable consideration by assignment or
otherwise of a life insurance, endowment or annuity contract or any
interest therein, only the actual value of such consideration and the
amount of the premium and the sums subsequently paid by the
transferee are exempt from income tax
c Marriage fees, baptismal offerings, sums paid for saying masses for
the dead and other contributions received by a clergyman,

evangelist or religious worker for the services rendered is taxable

income
d Monetization of leave credits of employees who were unable to go
on leave due to exigencies of the service constitute taxable income
5. Which of the following statements is correct as regards a resident
citizen?
a Income from illegal activities are subject to final tax
b Income tax refunds constitute taxable income to the taxpayer
c Recovery of the debts previously written off is part of taxable
income
d As a rule, contest awards and prizes are subject to 20% final tax if
they amount to more than 10,000, otherwise they will be part of
taxable income
6. Which of the following statement is not correct?
a Minimum wage earners shall be exempt from the payment of
income tax
b Holiday pay, overtime pay, night shift differential and hazard pay
shall be exempt from income tax
c Prizes and awards granted to athletes in local and international
sports competitions and tournaments whether held in the
Philippines or abroad and sanctioned by their national sports
associations are exclusions from gross income
d Benefits received from or enjoyed under the Social Security System
are exclusions from gross income
7. One of the following is part of taxable income subject to schedular rate
a Compensation for damages
b The share of the partner in the undistributed net income of a
general co-partnership
c Living quarters and meals furnished and given to an employee for
the convenience of the employee
d Facilities or privilege of relatively small value offered by the
employee as a means of promoting the health, goodwill,
contentment, or efficiency of the employee
8. Which is not a creditable withholding income tax?
a Expanded withholding income tax
b Withholding income tax at source
c Withholding income tax on passive income
d Withholding income tax on compensation income

9. As a rule, this is not part of taxable income

a Profit sharing
b Hazard pay
10.
a
b
c
d
11.
a
b
c
d
12.
a
b
c
d

13.

c Overtime pay
d 13th month pay

This is a taxable income

Retrenchment pay
SSS/GSIS benefits
Separation pay due to resignation
Refund of the Philippines Income Tax
e
Which of the following is taxable income?
Prizes and awards as an awardee of Ramon Magsaysay Award
Foundation
Damages awarded as a consequence of a libel and slander suits
Interest on Philippine lotto winnings
Amounts received as results of premium
f
Which of the following statements regarding dividends is correct
Exempt from tax if received by a resident citizen from a domestic
corporation
Exempt from tax if received by a resident alien from a domestic
corporation
Taxable subject to year-end tax if received by a resident citizen from
a non-resident corporation
Taxable subject to final tax if received by a non-resident citizen from
a non-resident corporation
g
As a rule, the following are taxable income, except;

a Cash dividend
b Property dividend

c Script dividend
d Stock dividend

e
14.
a
b
c
d
15.
a
b
c
d

The following items are exclusions from gross income, except:

Labor union dues
SSS/GSIS premiums contributions
IOUs
Pag-ibig premiums contributions
f
Which of the following is part of gross income?
PCSO and Phil Lotto winnings
Bank interest on long term deposit
Proceeds of life insurance
Raffle prize not exceeding P10,000
g

16.

If refunded, this is taxable:

a Estate tax
b Donors tax

c Special assessment
d Fringe benefit tax

17.
Income tax payment to a foreign country, the case of a resident
citizen maybe claimed as:
a Tax credit and deduction from the gross income
b Tax credit only
c Tax credit or deduction from gross income
d Deduction from gross income only
18.
19.
Dividends paid by a domestic corporation maybe taxable but
subject to final tax, except:
a If received by a resident citizen
b If received by a resident alien
c If received by a non-resident corporation
d If received by another domestic corporation
20.
21.
A works as a minimum wage earner in an advertising firm in
Makati. During the year, she received P10,000 a month as salary or a
total of P120,000. In addition, she also received 13th month pay,
Christmas bonus, productivity bonus, mid year bonus and 14th month
pay amounting to P30,000. The total deductions from her SSS
premiums, Medicare, Pag-ibig and Union dues contributions amounted
to P5,000. As taxable income, if single is:
a P70,000
b P65,000
c P95,000
d -022.
23.
A) PCSO and Phil. Lotto winnings are excluded from gross income
because they are subject to final tax
24.
B) Prizes awards and winnings are excluded from gross income
because they are subject to final tax
a both are true
b both are false
c only the first is true
d only the second is true
25.
26. Which of the following is taxable?
a P100,000 interest on long-term deposit or investment
b P200,000 gain on sale of 10-year bonds
c P12,000 prize in supermarket raffle
d P1M winning in Phil. Lotto

27. Gain realized from the sale or exchange or retirement of bonds,

debentures or other certificate of indebtedness is excluded from gross
income if with a maturity of
a 5 years or more
b More than 7 years

c More than 8 years

d More than 10 years

e
28. Gross benefits received by officials and employees of public and
private entities as 13th month pay and other benefits, such as
productivity bonus, service incentive pay and Christmas bonus shall be
excluded from taxable income up to:
a P20,000
b P30,000

c P40,000
d P50,000

29. Advance rental in the nature of prepaid rental, received by the

lessor under a claim or right and without restriction as to use is
a Taxable income of the lessor in the year received if he is in the cash
basis of accounting
b Taxable income of the lessor in the year received if he is on the
accrual method of accounting
c Taxable income of the lessor in the year received whether he is on
cash or accrual method of accounting
d Taxable income of the lessor up to the amount earned in the year
rental is received
e
30. Which payments made by the lessee under such terms of the lease
contract should be considered as additional rent income of the lessor?
A If a lessee paid directly to the government a real estate tax on the
property of the lessor
B If the amount received by the lessor is in the nature of a security
deposit for the faithful compliance by the lessee of the terms of
contract.
C If the amount received by the lessor is in the nature of a loan
extended by a lessee to the lessor.
f
a Only A
b Only A and C

c Only B and C
d A,B, and C

e
31. Should the lessee make permanent improvements on the property
leased under an agreement that upon the expiration of the lease

contract, the improvements shall belong to the lessor, lessor ay

recognize income from the leasehold improvements
A. As the time when such improvements are completed the fair market
value of such improvements
B. By spreading over the remaining term of the lease the estimated
depreciated value of such improvements at the termination of the
lease and report as income for each year of the lease an aliquot
part thereof
a. A but not B is allowed
b. B but not A is allowed

c. Either A or B is allowed
d. Neither A or B is allowed

32. After 10 years of romantic relationship, A decided to end his

relationship with B which made B very angry. B with anger in her eyes
boxed, kicked and berated A. A tried to pacify B, but B slipped, lost
control and fell to the ground requiring hospitalization, to buy peace, A
decided to shoulder the medical expenses for the injuries suffered by
B. The amount is
a. Taxable income of B
b. Deductible expense of
A

c. Subject to final tax

d. Exempt from income
tax

33. In 2014, A inherited pieces of jewelry from her father with a FMV of
P500,000. Her father acquired the property in 1975 for P200,000. If A
sells these pieces of jewelry in 2014 for P550,000, As gross profit is
a. P350,000
b. P50,000

c. P550,000
d. P300,000

34. Using the preceding no., except that A acquired the property as a
birthday gift from her father the profit is
a. P350,000
b. P50,000
35.

36.

c. P550,000
d. P300,000

One of the following may be taxable income for a resident individual

a. Property received as a gift
b. Cash received as inheritance
c. Interest on Phil. Lotto winnings
d. Benefits from SSS and GSIS
e.
One of the following represents taxable income:
a. Refund of overpaid rental expense in prior year
b. Refund of donors tax in prior year

c. Refund of income tax in prior year

d. Refund of special assessment paid in prior year
e.
37. Cash allowance of P125 per month given to Central Bank employees
to cover the medical expenses of their dependents shall be:
a. Included as part of the gross compensation income
b. excluded as part of the gross compensation income
c. partly included partly excluded as part of the gross
compensation income
d. subject to final tax
e.
38. At the testimonial dinner for new CPAs, C, reviewer, was requested
to sing he theme song of the movie Ghost. A was so delighted that
she feels that she is falling in love with C so she decided to cancel Cs
indebtedness to her. As a result,
a. C realized a taxable income as compensation for services
b. If C accepts the cancellation, he will pay donors tax
c. C received a gift from A and therefore not part of his taxable
income
d. The amount of indebtedness cancelled is partly taxable, partly
exempt
e.
39.
A, was adjudged the best boxer in the recently concluded Asian
games. In recognition of his splendid performance, he was awarded a
trophy and a cash prize of P1M. as a result,
a. The value of the trophy and the cash prize are part of the taxable
income
b. Only the value of the trophy is taxable
c. Only the cash prize is taxable
d. Both are exempt from income tax
e.
40. A purchased a life annuity for P1,000,000 which will pay him
P100,000 a year. The life expectancy of A is 12 years. Which of the
following will A be able to exclude from his income?
a. P1,000,000
b. P1,200,000

c. P200,000
d. P100,000

e.
41. If an individual performs a service for a creditor who in
consideration thereof cancels the debt, the cancellation of
indebtedness may result to
a. A gift

b. A donation inte-vivos

c. A capital contribution

d. A payment of income

e.
42. A transferred his commercial land with a cost of P600,000 and with
a fair market value of P900,000 to ABC corp. in exchange of the stock
of the corporation with par value P800,000. As a result of the transfer A
gained control over the corporation. As a result
a.
b. The gain is the difference between the par value of the shares of
stock and the cost of the land
c. The loss is the difference between the FMV of the land and the
par value of the stocks
d. No gain because the land was in exchange of purely shares of
stock and A becomes the majority stock holder
e. No loss because the par value of the shares is greater than the
cost of the land
f.
43. This is not part of gross compensation income
a. Salary of P10,000 a month of an employee
b. Fringe benefits of P10,000 a month
c. Salary of P10,000 a month of a partner in a general professional
partnership
d. Honorarium and allowances of P10,000 of a member of the board
of directors of a corporation
e.
44. Mr. A, a farmer, had the following date for the year:
a.
Sales of livestock and farm products raised
P270,000
b.
Sales of livestock and farm products purchased
160,000
c.
Cost of raising livestock and farm products
190,000
d.
Cost of livestock and farm products purchased and
sold
140,000
e.
Rental Income from farm equipment
105,000
f.
Inventory of livestock and farm products, Jan 1
110,000
g.
Inventory of livestock and farm products, Dec 31
113,000
h.
A. Using the cash method of accounting, the income is:
i. P205,000

j. P208,000

k. P395,000

l. P202,000

B. Using accrual method, the income is

a. P205,000
b. P208,000

c. P395,000
d. P202,000

45.

Give the income tax due (refund) for the taxable year:
a. A, a resident alien, single ha the following during the year:
1. Salaries (net of payroll deductions), P200,000
2. Allowances P25,000
3. 13th month pay, P26,000
4. Christmas cash gift of P5,000
5. 14th month pay, P26,000
6. Payroll deductions
e.
a. withholding tax on salary. P16,500
f.
b. Contributions for SSS, PHIC, PAG-IBIG and labor
Union dues, P16,000
g.
c. Advances/loan, P30,000
7. Prem. Om health and hospitalization insurance, P2,750
8. Bank interest Income
h.
b. A, a resident citizen, single had the following during the year:
i.
Gross compensation income
P220,000
j.
Deductions from compensation income:
k.
SSS contributions
P
3,600
l.
Pag-ibig contribution
1,200
m.
Philhealth contributions
1,800
n.
Union dues
2,400
o.
Premium payments on health insurance (250/month)
3,000
p.
Other income
q.
Prizes and awards received as best athlete
r.
in the Palarong Pambansa
10,000
s.
Prizes and awards received for the silver medal
t.
In South East Asian Games
25,000
u.
Prize won in a supermarket raffle
10,000
v.
Prize won as a lucky home winner
20,000
w.
13th month pay
14,000
x.
Christmas cash gift
10,000

46.

y.
Mid year bonus
14,000
z.
Interest on bank deposit (net of 20% wt)
16,000
aa.
Interest on foreign currency deposit (net of
7.5%wt)
10,000
ab.
c. D, a resident citizen, married with 2 qualified dependent children,
had the following:
ac.
Professional fees
P400,000
ad.
Gross income from rental of conjugal property
600,000
ae.
Expenses connected with profession
180,000
af.
Expenses connected with rental properties
200,000
ag.
Tax withheld on professional fees
40,000
ah.
Tax withheld on rental properties
30,000
ai.
d. D, married with 4 qualified dependent children, had the
following:
aj.
ak. Compensation income, net of P19,000
al.
SSS, Philhealth and Pag-ibig contributions
P305,000
am.
13th month pay
27,000
an.
Premium payments on health insurance
27,000
ao.
Productivity bonus
2,400
ap.
Personal, family and living expenses
200,000
aq.
A leased her lot as follows:
ar.
Lessee
X
as.
at.
au.
av.
aw.

Agreed annual rental

Start lease
Rental received by the lessor
On 1-1-12 (3 years rent)
Security deposit

P200,000
1 1 14
600,000
200,000

ax.
Improvements introduced by the lessee
ay.
(will belong to the lessor upon expiration)
10M
az.
Estimated useful life of improvements
25 years
ba.
Date of completion of improvements
11
14
bb.
Term of lease
20 years
bc.
bd. Determine the:
1. a) Income to be reported by the lessor in 2014 and 2015
assuming he will spread his income on the improvement over
the term of the lease
be.
b) Deductible expense of X.
bf.
2. Suppose the lease was terminated thru the fault of the lessee
at the start of thhe 19th year. Determine the:
a) Income to be reportedbythe lessor on the improvements
b) Deductible expense of lessee X
bg.
3. Suppose the improvements were destroyed by fire on January
1 of the 15th year of the lease, determine the deductible loss
of the lessor on the improvement if salvage value is P50,000.
bh.
47. A holds 1000 common shares of ABC, a domestic corporation
acquired at P110 per share. Later, he received a 10% stock dividend in
common shares and thereafter sold directly to a buyer 500 shares at
P120 per share. Determine the gain or loss assuming the shares are
ordinary assets.
bi.
48. B had 1000 shares of common shares of ABC, a domestic corp.
acquired at P150 per share. On January 6, 2009, B received a 50%
stock dividend in preferred shares. FMV of the shares at the time of
dividend were P160 per common share and P80 per preferred share.
The common and preferred shares were later sold at P150 and P72 per
share, respectively. Assuming the shares are ordinary assets,
determine the gain or loss of B on the sale of (a) Common shares and
(b) Preferred shares
bj.
bk.
bl. Tax Rates

bm. On citizens, resident aliens, non-resident aliens engaged in

business in the Phils.
1. On compensation, business and other income
bn.
Over
But not over
Excess
bo.
P 10,000
5%
---bp.
P 10,000
30,000
10%
10,000
bq.
30,000
70,000
15%
30,000
br.
70,000
140,000
20%
70,000
bs.
140,000
250,000
+ 25%
140,000
bt.
250,000
500,000
+ 30%
250,000
bu.
500,000
34%
500,000
bv.The top marginal rate to be reduced to
1999
bw.
thereafter.

-------------+

2500 +

8,500 +

22,500

50,000

125,000+

32% - effective Jan. 2000 and

by.

bz.

cb.

500

33% - effective Jan.

bx.

ca.

-The End-