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NAME: _____________________________________________ SECTION: _________________

INCOME TAXATION: QUIZ #5 DATE: ____________________

CAPITAL ASSETS

1. Where the taxpayer is a corporation, which of the following statements is true?

A. The holding period does not apply to corporation, hence, capital gains and losses
are recognized at 50%.
B. The net capital loss can be carried over in the next succeeding year
C. Capital loss is deductible only up to the extent of ordinary gains
D. Ordinary loss is deductible from capital gains

2. - Capital losses are deductible from ordinary gains but net capital loss is not deductible from
ordinary gains.
- Ordinary losses are deductible only to the extent of the capital gains but the net capital loss is
not deductible from ordinary gain.
A. True; True C. False; True
B. True; False D. False; False

3. An individual taxpayer owns a ten (10)- door apartment with a monthly rental of P10,000
each residential unit. He sold this property to another individual taxpayer. Which is not
correct?
A. The seller is not liable to pay the capital gains tax.
B. The property sold is a capital asset.
C. The taxpayer is engaged in business
D. The rental income is subject to income tax using the graduated rates.

1. Holding period is the duration for which the taxpayer held the capital asset. A capital asset
held by the taxpayer for not more than 12 months is said to be
A. short-term C. long-term
B. medium-term D. no-term

2. The following rules as to recognition of capital gains or losses from the disposition of
personal property classified as capital asset apply where the taxpayer is an individual. Which is
the exception?
A. Depending on the holding period, the percentages of gain or loss is 100% if the capital
asset has been held for 12 months or less; and 50% if the capital asset has been held for
more than 12 months.
B. Capital losses are deductible only to the extent of the capital gains; hence, the net capital loss is
not deductible.
C. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted
from ordinary gain.
D. Net capital loss carry over in a taxable year should not exceed the capital gain in the year
the loss was incurred.

6. Where the taxpayer is a corporation, the following rules as to recognition of capital gains or losses
from the disposition of property classified as capital asset shall apply. Which is the exception?
A. The holding period does not apply to corporations, hence, capital gains and losses are
recognized at 100%.
B. Capital losses are deductible only to the extent of capital gains.
C. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted
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from ordinary gain.

D. Net capital loss carry-over should not exceed the net income in the year the loss was
incurred.

7. The term “capital assets” include

A. Stock in trade or other property included in the taxpayer’s inventory.
B. Real property not used in the trade or business of taxpayer.
C. Property primarily for sale to customers in the ordinary course of his trade or business.
D. Property used in the trade or business of the taxpayer and subject to depreciation.

8. A sold his principal residence at a selling price of P5M but with a FMV of P6M. The property sold was
acquired for P3M. He purchased his new principal residence at a cost of P7M. The capital gains tax is
A. P360,000 C. P240,000
B. P300,000 D. P 0

9. How much is the basis (cost) of the new principal residence?

A. P7M C. P5M
B. P6M D. P4M

10. If only P4M out of P5 M was utilized in acquiring his new principal residence, the capital
gain tax is
A. P60,000 C. P300,000
B. P72,000 D. P360,000

11. Using the preceding number, the basis (cost) of the new principal residence?
A. P3.2M C. P2.4M
B. P4M D. P3M

INSTALLMENT METHOD

1. Which of the following statements is not correct? Those who make a casual sale or
disposition of personal property on the installment plan may elect the installment basis of
reporting income if
A. The personal property sold is not of a kind which would be included in the inventory.
B. The selling price exceeds P1,000
C. The sale is in installment
D. The initial payments do not exceed 25% of the contract price.

2. In 2009, Z sold a piece of land which had a cost of P1M for a selling price of P4M. The sale
called for an assumption by the buyer of a mortgage on the land of P1.5M, cash of P500,000
on the date of sale and installment payments of P500,000 every year thereafter. The land is an
ordinary asset. The income to be reported in 2009 under the installment method of reporting
income is
A. P500,000 C. P375,000
B. P750,000 D. P1,000,000

3. An accounting period of twelve (12) months ending on the last day of December.
a. Calendar year
b. Fiscal year
c. Leap year
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d. Sum-of-the-year

4. An accounting period of twelve (12) months ending on the last day of any month other than
December.
a. Calendar year
b. Fiscal year
c. Leap year
d. Sum-of-the-yeaR

5. The taxable income shall be computed upon the basis of the taxpayer’s annual accounting period
(fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly
employed in keeping the books of such taxpayer, but the computation shall be made in accordance with
such method as in the opinion of the Commissioner clearly reflects the income:

I – if no such method of accounting has been so employed.

II – if the method employed does not clearly reflect the income.

a. Both I and II
b. Neither I and II
c. I only
d. II only

6. The taxable income shall be computed on the basis of the calendar year under which of the
following?
a. If the taxpayer’s annual accounting period is other than a fiscal year.
b. If the taxpayer has no annual accounting period, or does not keep books.
c. If the taxpayer is an individual.
d. All of the choices.

7. Which of the following may with the approval of the Commissioner of Internal Revenue first
secured, file their returns and compute their income tax on a fiscal year basis?
a. Corporations
b. Associations
c. Partnership
d. All of the choices

8. First statement: For the taxable year, amounts ‘paid or accrued’ or ‘paid or incurred’ shall be
deducted depending on the accounting method used in computing the net income unless deductions
are taken as of a different period in order to clearly reflect the income.
Second statement: In the case of the death of a taxpayer, there shall be allowed as deductions for the taxable
period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise
properly allowable in respect of such period or a prior period.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

9. Persons whose gross income is derived in whole or in part from building, installation or
construction.Construction contracts covering a period in excess of one (1) year shall report such
income upon the basis of:
a. Completed contract.
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b. Percentage of completion.
c. Accrual.
d. None of the choices.

10. Which of the following instances does not give rise to short accounting period?
a. When the corporation is newly organized and is using fiscal year
b. When a corporation is dissolved
c. When a corporation changes accounting period
d. When the taxpayer dies

11. Which one of the following is not an essential of an acceptable accounting period?
a. There should be distinction between revenue and capital expenditures.
b. Expenses to restore property or prolong its useful life should be added to the property account or
charged against depreciation.
c. In all cases in which production, purchase or sale of merchandise is an income producing factor,
inventories at the beginning and at the end of the accounting period should be considered.
d. The accounting method should adhere strictly to generally accepted accounting principles.

12. Which of the following statements is correct?

Income which is credited to the account of or set apart for a taxpayer and which may be withdrawn upon by
him at any time is subject to tax for the year during which so credited or
a. set apart, although not then actually reduced to possession.
b. To constitute constructive receipt, the income must be credited to the taxpayer without any
substantial limitation or restriction as to the time or manner of payment or condition upon which payment
is to be made.
c. The doctrine of constructive receipt of income is designed to prevent the exclusion from taxable
income of items, the actual receipt of which could, at the option of a taxpayer on the cash basis, be deferred
or indefinitely postponed.
d. All of the choices.

13. One of the following is not an example of constructive receipt of income:

a. Partner’s distributive share in the profit of a partnership.
b. Interest credited to the account of a taxpayer and which he may withdraw at any time.
c. Interest coupons which have matured.
d. Corporation contingently credited stock bonus, but the stock is not available to the employee until
some future date.

14. A method of accounting which applies to a farmer who is engaged in producing crops which take more
than a year from the time of planting to the time of gathering and disposing. The entire cost of
producing crop must be taken as a deduction in the year in which the gross income from the crop is
realized.
a. Cash basis
b. Accrual basis
c. Crop basis
d. Installment basis

15. First statement: A taxpayer who changes the method of accounting employed in keeping his books
shall secure the consent of the Commissioner of Internal Revenue before computing his income upon
such new method for purposes of taxation.
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Second statement: If for any reason the basis of reporting income subject to tax is changed, the taxpayer
shall attach to his return a separate statement setting forth for the taxable year and for the preceding year
the classes of items differently treated under the two systems, specifying in particular all amounts duplicated
or entirely omitted as a result of such change.
a. True, True
b. False, False
c. True, False
d. False, True

16. First statement: Dealers of personal property who regularly sell or otherwise dispose of personal property
on an installment plan may report under installment method only if the initial payments do not exceed
25% of the selling price.
Second statement: Persons who made a casual sale or casual disposition of personal property may report
income under the installment method regardless of the selling price of such personal property.
a. True, True
b. False, False
c. True, False
d. False, True

17. Which of the following is not a condition for reporting income under installment method by a casual seller
of personal property?
a. The selling price of property exceeds P1000.
b. The initial payments must not exceed 25% of the selling price.
c. The property sold is not a kind which would be includible in the inventory if on hand at the close
of the taxable year.
d. The seller is a natural person.

18. First statement: Persons who sell or otherwise dispose of real property, not considered as capital asset,
the initial payments on which do not exceed twenty-five percent (25%) of the selling price may use the
installment method to report the gain on the sale.
Second statement: An individual who sells or disposes of real property, considered as capital asset, and
is otherwise qualified to report the gain under installment method may pay the capital gains tax in
installments under rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
a. True, True
b. False, False
c. True, False
d. False, True

19. The payment received in cash or property excluding evidence of indebtedness due and payable in
subsequent years (e.g. promissory notes, mortgage given) by the purchaser during the taxable year in
which the sale or other disposition is made.
a. Initial payment
b. Selling price
c. Contract price
d. Fair market price

20. The total amount or price of the sale including the cash or property received and including all notes of
the buyer or mortgages assumed by him.
a. Initial payment
b. Selling price
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c. Contract price
d. Fair market price

21. The amount which the purchaser contracts to pay the seller in cash.
a. Initial payment
b. Selling price
c. Contract price
d. Fair market price

22. A company engaged in hauling sold a hauling truck in installment on July 1, 2011. The following data
were presented in connection with the sale:
Cost of the truck, January 2009 P950,000
Accumulated depreciation, July 1, 2011 350,000
Terms of sale:
Down payment, July 1, 2011 225,000
Installment due, July 1, 2012 225,000
Installment due, July 1, 2013 450,000

How much is the taxable income in 2011?

a. P300,000
b. P150,000
c. P75,000
d. P50,000

23. Ms. Ayeen Tuazon owns a car, which she bought for P700,000 on January 2, 2009. She uses the car
for personal purposes. On December 1, 2011, she sells the car for P800,000 under installment. The
following terms are agreed upon by Ms. Tuazon and the buyer:
Down payment, December 1, 2011 P100,000
Amount paid, December 15, 2011 100,000
Installment due, December 1, 2012 300,000
Installment due, December 1, 2013 300,000

The accumulated depreciation of the car as of December 1, 2011 is P408,333.

How much is the taxable income in 2011?

a. P100,000
b. P18,750
c. P12,500
d. P10,000

24. Ms. Oline Rosales, a real estate dealer, sold a real estate for P2,000,000 on November 29, 2011. The
cost of the property was P1,500,000. The terms of the sale were as follows:
Down payment P400,000
Balance, payable in monthly installment on
P100,000 beginning December 29,2011
Until fully paid 1,600,000

How much was the income in 2011?

a. P300,000
b. P125,000
c. P75,000
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d. None. Subject to 6% final tax

25. Ms. Achie Dizon sold a personal property, a capital asset, for P600,000 on March 27, 2011 payable as
follows:
Down payment P100,000
Installment due, 2012 200,000
Installment due, 2013 200,000

The property was purchased on May 19, 2010 at a cost of P270,000. It was mortgaged with a balance of
P100,000, which was to be assumed by the buyer. The commission on the sale was P30,000.

How much was the returnable capital gain of Ms. Dizon in 2011?
a. P90,000
b. P60,000
c. P30,000
d. P15,000

26. Ms. Jam Ranillo, a real estate dealer, sold a real property for P200,000 on October 29, 2011 in
installment. The cost of property was P150,000. The terms of the sale agreed upon by Ms. Ranillo and
the buyer were:
Down payment P40,000
Balance is payable in monthly installments
Of P10,000 beginning November 29,2011
Until fully paid 160,000

How much was the taxable income in 2011?

a. P50,000
b. P15,000
c. P12,500
d. P12,000

27. This method is based on the accounting formula that an increase in net worth plus non-deductible
disbursements minus non-taxable receipts equal net income.
a. Installment method
b. Accrual method
c. Cash method
d. Net worth method