Republic of the Philippines

BULACAN STATE UNIVERSITY

COLLEGE OF BUSINESS ADMINISTRATION
City of Malolos, Bulacan
Telephone Number : 7964131 or 919-7800 loc 1058, 1057
Webpage: www.bulsu.edu.ph

DEPARTMENTALIZED FINAL EXAMINATION

Income Taxation
Name: _____________________________________________Year and Section: _______ Date: ______________
USE BALLPEN/MARKER ONLY. STRICTLY NO ERASURE OR ALTERATION OF ANSWERS
Multiple Choice. Shade the letter corresponding to the best answer in the answer sheet provided. Alteration of
answer(s) is (are) not allowed.
1. Congress passed a sin tax law that increased the tax rates on cigarettes by 1,000%. The law was thought to be
sufficient to drive many cigarette companies out of business, and was questioned in court by a cigarette company
that would go out of business because it would not be able to pay the increased tax.
The cigarette company is __________
A. wrong because taxes are the lifeblood of the government
B. wrong because the law recognizes that the power to tax is the power to destroy
C. correct because no government can deprive a person of his livelihood
D. correct because Congress, in this case, exceeded its power to tax
2. Bank A deposit money with Bank B which earns interest that is subjected to the 20% final withholding tax. At
the same time, Bank A is subjected to the 5% gross receipts tax on its interest income on loan transactions to
customers. Which statement below INCORRECTLY describes the transaction?
A. There is double taxation because two taxes – income tax and gross receipts tax are imposed on the interest
incomes described above and double taxation is prohibited under the 1987 Constitution
B. There is no double taxation because the first tax is income tax, while the second tax is business tax;
C. There is no double taxation because the income tax is on the interest income of Bank A on its deposits with
Bank B (passive income), while the gross receipts tax is on the interest income received by Bank A from loans to
its debtor-customers (active income);
D. Income tax on interest income of deposits of Bank A is a direct tax, while GRT on interest income on loan
transaction is and tax.
3. In "Operation Kandado," the BIR temporarily closed business establishments, including New Dynasty
Corporation that failed to comply with VAT regulations. New Dynasty contends that it should not be temporarily
closed since it has a valid and existing VAT registration, it faithfully issued VAT receipts, and filed the proper
VAT returns. The contention may be rejected if the BIR investigation reveals that:
A. the taxpayer has not been regularly filing its income tax returns for the past 4 years.
B. the taxpayer deliberately filed a false and fraudulent return with deliberate intention to evade taxes.
C. the taxpayer used falsified documents to support its application for refund of taxes.
D. there was an understatement of taxable sales or receipts by 30% or more for the taxable quarter.
4. PRT Corp. purchased a residential house and lot with a swimming pool in an upscale subdivision and required
the company president to stay there without paying rent; it reasoned out that the company president must maintain
a certain image and be able to entertain guests at the house to promote the company's business. The company
president declared that because they are childless, he and his wife could very well live in a smaller house.
Was there a taxable fringe benefit?
A. There was no taxable fringe benefit since it was for the convenience of the employer and was necessary for its
business.
B. There was a taxable fringe benefit since the stay at the house was for free.
C. There was a taxable fringe benefit because the house was very luxurious.
D. There was no taxable fringe benefit because the company president was only required to stay there and did not
demand free housing.
5. The payor of passive income subject to final tax is required to withhold the tax from the payment due the
recipient. The withholding of the tax has the effect of:
A. a final settlement of the tax liability on the income.
B. a credit from the recipient's income tax liability.
C. consummating the transaction resulting in an income.
D. a deduction in the recipient's income tax return.
Page 1 of 11
6. Federico, a Filipino citizen, migrated to the United States some six years ago and got a permanent resident status
or green card. He should pay his Philippine income taxes on:
A. the gains derived from the sale in California, U.S.A. of jewelry he purchased in the Philippines.
B. the proceeds he received from a Philippine insurance company as the sole beneficiary of life insurance taken
by his father who died recently.
C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine
corporation.
D. dividends received from a two-year-old foreign corporation whose gross income was derived solely from
Philippine sources.
7. A dealer in securities sold unlisted shares of stocks of a domestic corporation in 2019 and derived a gain of P1
Million therefrom. The gain is:
A. Taxable at 30% regular corporate income tax based on net taxable income;
B. Taxable at 15% capital gains tax based on net capital gain;
C. Taxable at 6/10 of 1% stock transaction tax based on the gross selling price or fair market value, whichever is
higher
D. Exempt from income tax
8. Choose the correct answer. Tax Avoidance -
A. is a scheme used outside of those lawful means and, when availed of, it usually subjects the taxpayer to further
or additional civil or criminal liabilities.
B. is a tax saving device within the means sanctioned by law.
C. is employed by a corporation, the organization of which is prompted more on the mitigation of tax liabilities
than for legitimate business purpose.
D. is any form of tax deduction scheme, regardless if the same is legal or not.
9. Which of the following are NOT usually imposed when there is a tax amnesty?
A. Civil, criminal, and administrative penalties
B. Civil and criminal penalties
C. Civil and administrative penalties
D. Criminal and administrative penalties
10. Which of the following statement is NOT correct?
A. In case of doubt, statutes levying taxes are constructed strictly the government;
B. The construction of a statute made by his predecessors is not binding upon the successor, if thereafter he
becomes satisfied that a different construction should be given;
C. The reversal of a ruling shall not generally be given retroactive application, if said reversal will be prejudicial
to the taxpayer;
D. A memorandum circular promulgated by the CIR that imposes penalty for violations of certain rules need not
be published in a newspaper of general circulation or official gazette because it has the force and effect of law.
11. Although the power of taxation is basically legislative in character, it is NOT the function of Congress to:
A. fix with certainty the amount of taxes.
B. collect the tax levied under the law.
C. identify who should collect the tax.
D. determine who should be subject to the tax.
12. Anion, Inc. received a notice of assessment and a letter from the BIR demanding the payment of P3 million
pesos in deficiency income taxes for the taxable year 2017. The financial statements of the company show that it
has been suffering financial reverses from the year 2018 up to the present. Its asset position shows that it could
pay only P500,000.00 which it offered as a compromise to the BIR. Which among the following may the BIR
require to enable it to enter into a compromise with Anion, Inc.?
A. Anion must show it has faithfully paid taxes before 2018.
B. Anion must promise to pay its deficiency when financially able.
C. Anion must waive its right to the secrecy of its bank deposits.
D. Anion must immediately deposit the P500,000.00 with the BIR.
13. Double taxation in its general sense means taxing the same subject twice during the same taxing period. In this
sense, double taxation:
A. violates substantive due process.
B. does not violate substantive due process.
C. violates the right to equal protection.
D. does not violate the right to equal protection.

Page 2 of 11
14. KaTato owns a parcel of land in San Jose, Batangas declared for real property taxation, as agricultural. In 1990,
he used the land for a poultry feed processing plant but continued to declare the property as agricultural. In March
2011, the local tax assessor discovered KaTato’s change of use of his land and informed the local treasurer who
demanded payment of deficiency real property taxes from 1990 to 2011. Has the action prescribed?
A. No, the deficiency taxes may be collected within five years from when they fell due.
B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10 years from March
2011.
C. Yes. More than 10 years had lapsed for the period 1990 up to 2000, hence the right to collect the deficiency
taxes has prescribed.
D. Yes. More than 5 years had lapsed for the collection of the deficiency taxes for the period 1990 up to 2005.
15. Choose the correct answer. Double Taxation
A. is one of direct duplicate taxations wherein two (2) taxes must be imposed on the same subject matter, by the
same taxing authority, within the same jurisdiction, during the same period, with the same kind or character of tax,
even if the purposes of imposing the same are different.
B. is forbidden by law; and therefore, it is a valid defense against the validity of a tax measure.
C. means taxing the same property twice when it should be taxed only once; it is tantamount to taxing the same
person twice by the same jurisdiction for the same thing.
D. exists when a corporation is assessed with local business tax as a manufacturer, and at the same time, value-
added tax as a person selling goods in the course of trade or business.
16. Aleta sued Boboy for breach of promise to marry. Boboy lost the case and duly paid the court's award that
included, among others, Pl00,000 as moral damages for the mental anguish Aleta suffered.
Did Aleta earn a taxable income?
A. She had a taxable income of P100,000 since income is income from whatever source.
B. She had no taxable income because it was a donation.
C. She had taxable income since she made a profit.
D. She had no taxable income since moral damages are compensatory.
17. A corporation may change its taxable year to calendar or fiscal year in filing its annual income tax return,
provided:
A. it seeks prior BIR approval of its proposed change in accounting period.
B. it simultaneously seeks BIR approval of its new accounting period.
C. it should change its accounting period two years prior to changing its taxable year.
D. its constitution and by-laws authorize the change
18. Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in 2010 is:
A. Subject to the 30% income tax based on its net taxable income;
B. Subject to the 20% final withholding tax;
C. Subject to the 7.5% final withholding tax;
D. Subject to 10% final withholding tax.
19. MGC Corp. secured an income tax holiday for 5 years as a pioneer industry. On the fourth year of the tax
holiday, MGC Corp. declared and paid cash dividends to its stockholders, all of whom are individuals.
Are the dividends taxable?
A. The dividends are taxable; the tax exemption of MGC Corp. does not extend to its stockholders.
B. The dividends are tax exempt because of MGC Corp.'s income tax holiday.
C. The dividends are taxable if they exceed 50% of MGC Corp.'s retained earnings.
D. The dividends are exempt if paid before the end of MGC Corp.'s fiscal year.
20. During the audit conducted by the BIR official, it was found that the rental income claimed by the corporation
was not subjected to expanded withholding tax. Accordingly, the claimed rental expense:
A. Is deductible from the gross income of the corporation, despite non-withholding of income tax by the
corporation;
B. Is deductible from the gross income of the corporation, provided that the 5% expanded withholding tax is paid
by the corporation during the audit;
C. Is not deductible from gross income of the corporation due to non-withholding of tax;
D. Is deductible, if it can be shown that the lessor has correctly reported the rental income in his tax return.
21. For income tax purposes, the source of the service income is important for the taxpayer, who is a:
A. Filipino citizen residing in Makati City;
B. Non-resident Filipino citizen working residing in London, United Kingdom;
C. Japanese citizen who is married to a Filipino citizen and residing in their family home located Fort Bonifacio,
Taguig City;
D. Domestic corporation.

Page 3 of 11
22. Mr. Ryan was retired by his employer corporation and paid P1,000,000 as a retirement gratuity without any
deduction for withholding tax. The corporation became bankrupt the following year: Can the BIR subject the
P1,000,000 retirement gratuity to income tax?
1st answer: yes, if the retirement gratuity was paid based on a reasonable pension where Mr. Ryan was 50 years
old and has served the corporation for more than 10 years.
2nd Answer: No, if Mr. Ryan was forced by the corporation to retire beyond Mr. Ryan’s control.
A. Both answers are wrong
B. Both answers are correct
C. 1st statement is correct, 2nd statement is wrong
D. 1st statement is wrong, 2nd statement is correct
23. The interest expense of a domestic corporation on a bank loan in connection with the purchase of a production
equipment:
A. Is not deductible from gross income of the borrower-corporation;
B. Is deductible from the gross income of the borrower-corporation during the year or it may be capitalized as part
of cost of the equipment;
C. Is deductible only for a period of five years from date of purchase;
D. Is deductible only if the taxpayer uses the cash method of accounting.
24. The head priest of the religious sect Tres Personas Solo Dios, as the corporation sole, rented out a 5,000 sq. m.
lot registered in its name for use as school site of a school organized for profit. The sect used the rentals for the
support and upkeep of its priests. The rented lot is:
A. not exempt from real property taxes because the user is organized for profit.
B. exempt from real property taxes since it is actually, directly, and exclusively used for religious purposes.
C. not exempt from real property taxes since it is the rents, not the land, that is used for religious purposes.
D. exempt from real property taxes since it is actually, directly, and exclusively used for educational purposes.
25. Which statement is correct? A non-stock, non-profit charitable association that sells its idle agricultural
property is:
A. Not required to file an income tax return nor pay income tax on the transaction to the BIR, provided the sales
proceeds are invested in another real estate during the year;
B. Required to pay the 6% capital gains tax on the gross selling price of fair market value, whichever is higher;
C. Mandated to pay the 30% regular corporate income tax on the gain from sale;
D. Required to withhold the applicable expanded withholding tax rate on the transaction and remit the same to the
BIR.
26. In 2009, Spratz, Inc.’s net profit before tax was P35 million while its operating expenses was P31 million. In
2019, its net profit before tax was P40 million and its operating expenses was P38 million. It did not declare
dividends for 2018 and 2019. And it has no proposed capital expenditures for 2020 and the immediate future. May
Spratz be subject to the improperly accumulated tax on its retained profits for 2018 and 2019?
A. Yes, since the accumulated amounts are reasonable for operations in relation to what it usually needed annually.
B. Yes, since the accumulation is not reasonably necessary for the immediate needs of the business.
C. No, because there is no showing that the taxpayer's 2018 and 2019 net profit before tax exceeded its paid-up
capital.
D. No, because the taxpayer is not shown to be a publicly-listed corporation, a bank, or an insurance company.
27. Basic rules on fringe benefits tax, except
A. Fringe benefits given to rank and file employees are not subject to fringe benefit tax
B. Fringe benefits given to a supervisory or managerial employee are subject to fringe benefit tax
C. De minimis benefits whether given to rank and file employee or to a supervisory or managerial employee are
not subject to fringe benefit tax
D. The fringe benefit tax is a tax imposed on the managerial or supervisory employee

28. Reagan bought a condominium unit under installment basis, to be used as his office in the practice of his
profession and paying P10,000 monthly. For income tax purposes, the P10,000 monthly payments shall be
A. Treated as business rental, hence deductible.
B. Treated as capital expenditure, hence not deductible.
C. Treated as depreciation expense, hence deductible.
D. Treated as ordinary business expense.

29. For income tax purposes, any person or corporation that holds in trust an estate of another person or persons
A. Beneficiary C. Legatee
B. Fiduciary D. Devisee

Page 4 of 11
30. Mr. V was retired by his employer corporation and paid P1,000,000 as a retirement gratuity without any
deduction for withholding tax. The corporation became bankrupt the following year. Can the BIR subject the
P1,000,000 retirement gratuity to income tax?
1st Answer: Yes, if the retirement gratuity was paid based on a reasonable pension where Mr. V was 50 years old
and has served the corporation for more than 10 years.
2ns Answer: No, If Mr. V was forced by the corporation to retire beyond Mr. V’s control.
A. Both answers are wrong
B. Both answers are correct
C. 1st answer is correct, 2nd answer is wrong
D. 1st answer is wrong, 2nd answer is correct
31. 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.
32. Ayer domestic corporation hired Lorenzo, Macapagal and Corilla accounting firm to conduct its annual audit
for the year 2013. Ayer corporation paid LMC & Co., an engagement fees equivalent to Php100 Million. Such
payment to LMC & Co. shall be:
A. Exempt from withholding tax.
B. Subject to 1% withholding tax on its gross payment.
C. Subject to 2% withholding tax on its gross payment.
D. Subject to 5% withholding tax on its gross payment.
33.
Date assessment was received March 8. 2019
Date petition for reinvestigation was filed with the BIR March 28, 2019
Date of filing of documents to support the petition May 8, 2019
Date decision of denial by the BIR was received June 10, 2019
Date petition for reconsideration was filed with the BIR June 18, 2019
Date decision of denial of the petition for reconsideration was June 28, 2019
received
The last day to appeal to the CTA is
A. July 28, 2019 C. July 10, 2019
B. July 20, 2019 D. July 18, 2019
34. Which of the following statements is not correct?
A. Tax burdens shall neither be imposed nor presumed to be imposed beyond what the statute expressly and
clearly states because tax statutes should be construed strictly against the government.
B. Tax exemptions, tax amnesty, tax condonations and their equivalent provisions are not presumed and, when
granted, are strictly construed against the taxpayer because such provisions are highly disfavored by the
government.
C. Exemptions from taxation are highly disfavored in law and he who claims tax exemption must be able to
justify his claim or right.
D. The Bureau of Internal Revenue has the duty and the exclusive power of enacting, implementing and
interpreting tax laws.
35. In case of doubt, tax exemptions are construed
A. Strictly against the government and the taxpayer
B. Liberally in favor of the government and the taxpayer
C. Strictly against the government and liberally in favor of the taxpayer
D. Liberally in favor of the government and strictly against the taxpayer

Page 5 of 11
For numbers 36 to 42. Greg Saclot, a resident citizen of Mabolo, City of Malolos, Bulacan, single with 2
dependents, owns an office supplies store and also employed as an instructor in La Consolacion University
Philippines. The following are information with his store for the year 2018.

Gregory's Office Supplies

Trial Balance
For the Year Ended December 31, 2018

Account Titles Debit Credit

Cash on Hand 50,000.00
Cash in Bank 524,000.00
Accounts Receivables 484,200.00
Merchandise Inventory 483,000.00
Land 1,000,000.00
Building 1,013,000.00
Accumulated Depreciation - Building 506,500.00
Transportation Equipment 750,000.00
Accumulated Depreciation - Transportation Equipment 375,000.00
Office Equipment 430,000.00
Accumulated Depreciation - Office Equipment 215,000.00
Office Furniture and Fixtures 225,000.00
Accumulated Depreciation - Office Furniture and Fixtures 112,500.00
Accounts Payable 941,920.00
Income Tax Payable 26,380.00
6% Mortgage Payable 2,000,000.00
Saclot, Capital 400,000.00
Gross Sales 2,585,790.00
Sales Returns and Allowances 27,500.00
Sales Discounts 42,750.00
Purchases 1,264,000.00
Purchases Returns and Allowances 56,400.00
Purchases Discounts 21,360.00
Transportation In 82,360.00
Salaries and Wages Expense 396,000.00
Transportation Out 57,400.00
Store Supplies Expense 12,040.00
Insurance Expense 13,800.00
Utilities Expense 48,000.00
Depreciation Expense - Building 101,300.00
Depreciation Expense - Transportation Equipment 75,000.00
Depreciation Expense - Office Equipment 43,000.00
Depreciation Expense - Office Furniture and Fixtures 22,500.00
Interest Income 24,000.00
Interest Expense 120,000.00
Total 7,264,850.00 7,264,850.00

Additional information for 2018:

 Beginning and Ending Inventory for the year are P528,000 and P483,000 respectively.
 Mortgage Payable was made on January 1, 2018
 Interest Income recorded was from the bank and was net of withholding tax
 Salaries and Wages expense was gross of withholding tax of P15,000
 Insurance was recorded in expense method, unexpired insurance was P3,800
 Merchandise amounting to P1,000,000 were sold to BebeKo Corporation (one of the Top 20,000
Corporations listed by the Bureau of Internal Revenue)
 Income tax paid for the first three quarters totaled P50,000, income tax payable amounting to P26,380 was
only computed by Greg based on his discretion.

Page 6 of 11
Other Activities of Greg Saclot:

Greg has an apartment with two units, the 1st unit was occupied from January to November and the 2nd unit was
occupied throughout the year. Monthly rentals per unit is P5,000 and were paid by the tenants on time. Greg’s
apartment business was not registered with the Bureau of Internal Revenue and therefore the monthly rentals were
not able to be subjected for withholding taxes.

Greg has also investment with CBA Corporation, a domestic corporation, 20,000 shares costing him P200,000
purchased on May 16, 1992. In 2018, CBA Corporation declared and paid cash dividends of P2 per share. After
receiving such dividends, Greg sold all 20,000 shares to Shuai Liu for P2,000,000.

Greg has won the championship of MTAP challenge with a total prize of P10,000 on January 15, 2018.

With great luck, Greg won in Singaporean Lottery, on February 14, 2018, for the amount of SGD150,000
equivalent to P500,000.

With his best effort and resources, in 2018, Greg use his personal property to bet in PCSO Lottery costing him
P300,000, and won P1,000,000 in 6/45 segment of PCSO Lottery.

Greg is an accounting software savvy and create an accounting system called “Greggy”. A full implementation of
ERP System. In 2018, he installed Greggy to CICT Corporation and make adjustments and maintenance for
troubleshooting. Unfortunately, only royalties from the CICT Corporation are received by Greg based on 2% of
annual sales of CICT Corporation. CICT Corporation has P2,000,000 sales during 2018.

Greg loaned Barnie, P500,000 with a simple interest rate of 1% per month on January 1, 2018, orally. Barnie paid
Greg all of the interest incurred to him. By 2019, Barnie will pay Greg the loaned amount with corresponding
interest.

In 1990, Greg bought a parcel of lot costing him P500,000, the land was then planned to construct his residential
house but then did not happen. In 2018, the lot was sold for P5,000,000 to CIT Corporation to construct its own
building that will serve as ordinary asset of CIT Corporation.

In 2018, during his employment with La Consolacion University Philippines, Malolos, Bulacan branch, Greg
earned a regular compensation of P20,000 per month net (P21,000 per month gross) of SSS, PHIC and HDMF
Contribution premiums. La Consolacion University Philippines gave Greg Saclot only 13th and 14th month. La
Consolacion University University Philippines did not withheld any tax from Greg because Greg’s annual
compensation income will not exceed P250,000 even if his salary is greater than the statutory minimum wage.

36. Compute for the gross income to be reported by Greg Saclot in his income tax return
A. P0.00 B. P2,116,940.00 C. P2,066,940.00 D. P2,166,940.00

37. Compute for the deductions from gross income to be reported by Greg Saclot in his income tax return
A. P0.00 B. P875,340.00 C. P877,320.00 D. P885,240.00

38. Compute for the income tax due for the year 2018 of Greg Saclot
A. P0.00 B. P277,480.00 C. P244,510.00 D. P261,886.00

39. Compute for the income tax still due for the year 2018 of Greg Saclot
A. P0.00 B. P194,510.00 C. P201,886.00 D. P217,480.00

40. Compute for the total final tax withheld for all passive income of Greg Saclot
A. P0.00 B. P210,000.00 C. P220,000.00 D. P230,000.00

41. Compute for the total capital gains tax due to Greg Saclot
A. P0.00 B. P540,000.00 C. P570,000.00 D. P600,000.00

42. If Greg will file his income tax return on April 16, 2019, how much is the income tax still due for the year
2018 [excluding compromise penalty (if any)]?
A. P0.00 B. P271,921.50 C. P252,423.87 D. P243,201.45

Page 7 of 11
For numbers 43 to 50. CBEA Corporation started its hardware operations on January 1, 2015 and had the
following information during 2019 (amounts in Philippine Peso):

2019
Particulars
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Net Sales 1,000,000.00 2,000,000.00 3,000,000.00 4,000,000.00 10,000,000.00
Cost of Sales (250,000.00) (500,000.00) (750,000.00) (1,000,000.00) (2,500,000.00)
Gross Profit 750,000.00 1,500,000.00 2,250,000.00 3,000,000.00 7,500,000.00
Operating Expenses:
Salaries and Wages Expense 100,000.00 100,000.00 100,000.00 100,000.00 400,000.00
Representation Expense 12,500.00 20,000.00 35,000.00 45,000.00 112,500.00
Fuel and Oil 7,500.00 8,000.00 8,500.00 9,000.00 33,000.00
Interest Expense 10,000.00 12,500.00 15,000.00 17,500.00 55,000.00
Taxes and Licenses 10,500.00 10,000.00 10,000.00 10,000.00 40,500.00
Rent Expense 50,000.00 25,000.00 25,000.00 25,000.00 125,000.00
Uncollectible Accounts Expense 10,000.00 20,000.00 30,000.00 40,000.00 100,000.00
Depreciation Expense - Building 25,000.00 25,000.00 25,000.00 25,000.00 100,000.00
Depreciation Expense - Transportation Equipment 25,000.00 25,000.00 25,000.00 25,000.00 100,000.00
Depreciation Expense - Office Equipment 15,000.00 15,000.00 15,000.00 15,000.00 60,000.00
Donations and Contributions 25,000.00 50,000.00 75,000.00 100,000.00 250,000.00
Total Operating Expense 290,500.00 310,500.00 363,500.00 411,500.00 1,376,000.00
Net Income 459,500.00 1,189,500.00 1,886,500.00 2,588,500.00 6,124,000.00

Additional Information
 Salaries and wages are paid to employees, withholding taxes are filed and remitted to the BIR on time.
 Representation expense includes P2,500 facilitation expense per quarter, all other representations are
supported with receipts and 3rd party documents
 Interest Expense is from loan payable with Banko de Peligro, a registered bank with SEC and BSP
 Taxes and Licenses include real property tax, mayor’s permit, cedula and annual registration fee with BIR
amounting to P500.
 Rent Expense was recorded using expense method, P25,000 recorded in the first quarter represents rental
deposit to the lessor
 CBEA Corporation adopt direct write-off method in recording bad debts.
 Transportation Equipment purchased on January 1, 2019 amounted to P2,500,000 depreciated using
straight-line method and the only transportation equipment used by CBEA
 Donations made to “Bahay-Guya” a charitable institution for children with special needs, by CBEA
amounted to P5,000 per month, all other contributions are given to Department of Trade and Industry for
the development of SMEs in the Philippines which is included in the Priority Plan of the government
authored by NEDA for economic development.
43. Compute for the total expenses, for the 1st quarter, allowed for deductions from gross income
A. P208,000.00 B. P233,000.00 C. P0.00 D. P207,500.00
44. Compute for the total expenses, for the year 2019, allowed for deductions from gross income
A. P908,500.00 B. P1,101,000.00 C. P0.00 D. P938,500.00
45. Compute for the income tax still payable for the 1st quarter of 2019
A. P155,250.00 B. P155,100.00 C. P0.00 D. P147,600.00
nd
46. Compute for the income tax still payable for the 2 quarter of 2019
A. P354,600.00 B. P367,350.00 C. P0.00 D. P368,700.00
47. Compute for the income tax still payable for the 3rd quarter of 2019
A. P582,450.00 B. P565,950.00 C. P0.00 D. P579,450.00
48. Compute for the income tax still payable to be reported in the annual income tax return for the year 2019
A. P796,050.00 B. P776,550.00 C. P0.00 D. P791,550.00
49. If the annual income tax return (1st three quarters are paid) for the year 2019 will be filed and paid on April 15,
2021 because the BIR sent CBEA notice to file the income tax return on March 15, 2021, compute for the total
additions to tax excluding compromise penalty (if any).
A. P481,461.00 B. P493,551.00 C. P0.00 D. P490,761.00
50. Using the preceding number, compute for the total taxes still due
A. P1,282,311.00 B. P1,289,601.00 C. P0.00 D. P1,258,011.00

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 51. CPA University, a proprietary institution organized in 2006, had the following data for 2018.
Tuition Fees P850,000
Rental Income (net of 5% cwt) 142,500
School related Expenses 820,000
The income tax still due for 2018 is
A. P54,000 B. P10,500 C. P18,000 D. P46,500

52. CPA College, a proprietary educational institution organized in 2006, had the following data for 2018.
Tuition fees P480,000
Rental Income (net of 5% cwt) 494,000
School Related Expenses 945,000
The income tax still due for 2018 is
A. P16,500 B. (P 9,500) C. (P6,000) D. P20,000
53. CPA Airlines, a resident foreign international carrier has the following records of income for the period.
(the income represents gross billings.)
A. Continuous flight from Manila to Tokyo = 1,000 tickets at P2,000 per ticket
B. Flight from Manila to Taipei; transfer flight (on CPAR Airlines) from Taipei to Tokyo = 2,000 tickets
at P2,000 per ticket
C. Continuous flight from Manila to Taipei = 3,000 tickets at P1,000 per ticket
The income tax due is
A. P225,000 B. P125,000 C. P100,000 D. P175,000
Corporation has the following data for the year 2018:

Gross Income, Philippines P1,000,000

Gross Income, USA 500,000
Gross Income, Japan 500,000
Expenses, Philippines 300,000
Expenses, USA 200,000
Expenses, Japan 100,000

Other Income:
Dividend from San Miguel Corp. 70,000
Dividend from Ford Motors, USA 120,000
Gain, sale of San Miguel shares directly to buyer 150,000
Royalties, Philippines 50,000
Royalties, USA 100,000
Interest income ( other than from bank deposit) 60,000
Rent, land in USA 250,000
Other rental income (Phils.) 100,000
Prize, contest in Manila 200,000
Interest income ($ deposit in BDO) 50,000

54. The total tax liability as a domestic corporation is:

A. P709,000 B. P669,000 C. P679,750 D. P0
55. Based on the above problem, its total tax liability if it is resident foreign corporation is
A. P318,000 B. P341,750 C. P328,750 D. P0
56. And if it is a non-resident foreign corporation, its total tax liability is
A. P433,500 B. P443,500 C. P338,500 D. P0

57. Dencio died on January 2, 2018, survived by his wife and four qualified dependent children. He left a net
estate of P80,000,000 which is in the hands of an executor. In 2018, 2019, 2020, the estate had identical
gross receipts of P7,000,000, cost of sales of P4,000,000 and business expenses of P2,200,000. The net
taxable incomes of the estate in 2016,2017 and 2018 are:
D. P650,000; P780,000; P800,000
E. P650,000; P650,000; P650,000
F. P0; P0; P0
G. P800,000; P800,000; P800,000

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A Taxpayer had the following in 2014:

Gross Income:
Philippines 800,000.00
USA 600,000.00
Business connected expenses:
Philippines 500,000.00
USA 400,000.00
Dividend Received:
From domestic corporation (net):
60% of its income come from Philippine Source 36,000.00
40% of its income come from Philippine Source 9,000.00
From resident foreign corporation (gross):
60% of its income come from Philippine Source 27,000.00
40% of its income come from Philippine Source 5,000.00
Bank interest income:
From Philippine bank
Philippine currency (net) 8,000.00
Foreign currency (converted to peso, net) 4,000.00
From USA bank
Foreign currency (converted to peso, gross) 2,000.00

58. If the taxpayer is a resident citizen, his taxable income before personal exemption is
A. P579,000 B. P534,000 C. P547,000 D. P591,000

59. If the taxpayer is a resident alien, his taxable income before personal exemption is
A. P318,200 B. P300,000 C. P316,200 D. P337,800

60. If the taxpayer is a non-resident citizen, his taxable income before personal exemption is
A. P318,200 B. P300,000 C. P316,200 D. P337,800

61. If the taxpayer is a domestic corporation, its taxable income subject to corporate tax rate is
A. P532,000 B. P579,000 C. P534,000 D. P502,000

62. If the taxpayer is a resident foreign corporation, its taxable income subject to corporate tax rate is
A. P300,000 B. P316,200 C. P318,200 D. P332,000

63. The following are agents and deputies for collection of National Internal Revenue taxes, except:
A. The Commissioner of Customs and his subordinates with respect to the collection of National Internal
Revenue Taxes on imported goods.
B. The head of the appropriate government office and his subordinates with respect to the collection of
energy tax.
C. Banks duly accredited by the commissioner with respect to receipts of payments of internal revenue
taxes authorized to be made thru banks.
D. City treasurer with regard to collection of real estate tax.

64. What are the means employed in the assessment of taxes, EXCEPT?
A. Examination of tax returns (tax- audit);
B. Inventory taking surveillance and use of presumptions gross sales re receipts;
C. Prescription of real property values;
D. Examination of bank deposits.

65. Statement 1: An individual may employ either calendar year or fiscal year as basis for filing its annual
income tax return.
Statement 2: The return of any individual shall be filed on or before the 15th day of April of each year
covering income for the preceding year.
A. True; false B. True; true C. False; true D. False; false

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 66. The following are the reasons which necessitates the filing of an administrative claim for refund with the
BIR, except:
A. To afford the Commissioner an opportunity to consider the claim.
B. To give the Commissioner a chance to correct the errors of subordinate officers.
C. To notify the Government that such taxes have been questioned and the notice should be borne in mind
in estimating the revenue available for expenditures.
D. To give ample time to the Commissioner in preparing the cash to be distributed for the taxpayer’s
refund.
67. I. Police power regulates both liberty and property while the power of eminent domain and the power of
taxation affect only property rights.
II. Police power and the power of taxation may be exercised only by the government while the power of
eminent domain may be exercised by some private entities.
III. The property taken in police power is destroyed while the property taken under the power of eminent
domain and power of taxation is not destroyed.
IV. In the power of taxation, the compensation received is the protection of the state afforded to its citizens;
in police power, a higher standard of living is enjoyed by the citizens; and in the power of eminent domain,
a citizen receives just compensation for the property taken from him.
A. All true B. All false C. Half true D. None of the above
68. The following fringe benefits are not subject to fringe benefits tax, except
A. If required by the nature of or necessary to the trade, business, or profession of the employer
B. Contribution of the employer for the benefit of the employee to retirement, insurance and hospitalization
benefit plans
C. Benefits given to rank and file employees
D. If give for the convenience or advantage of a managerial/supervisory employee
69. Gian worked for a manufacturing firm but due to business reverses, the firm offered a voluntary redundancy
programing order to reduce overhead expenses. Under the program, an employee who offered to resign
would be given separation pay equivalent to his 3 months’ basic salary for every year of service. Gian
accepted the offer and received P800,000 as separation pay under the program. After all the employees
who accepted the offer were paid, the firm found its overhead still excessive. Hence, it adopted another
program, where various unprofitable departments were closed. As a result, Carlo was separated from the
service, Carlo also received P800,000 as separation pay. At the time of separation both Gian and Carlo
have rendered at least 10 years of service but Gian was 55 years old while Carlo was only 45 years old. As
a result,
A. Both amounts are exempt from income tax
B. Both amounts are subject to income tax
C. Only Mr. Gian is subject to income tax
D. Only Mr. Carlo is subject to income tax
70. A GPP may claim OSD and its partner may claim OSD.
A GPP may claim OSD and its partner may claim OSD on his own income only.
A. True; true
B. True; false
C. False; true
D. False; false
End of the Midterm Examination. Good Luck!
For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of man. 2 Corinthians 8:21
To do what is right and just is more acceptable to the Lord than sacrifice. Proverbs 21:3

Prepared by: Noted by:

Bernard R. Salonga Jr., CPA Dr. Emerlita S. Naguiat

Program Chair, BS Accountancy Dean

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