Midterm Examination - PCMA 412 Tax Management

Midterm Examination - PCMA 412 Strategic Tax Management

• Test I: True or False (25 Items): Tax avoidance is the legal use of tax laws to minimize tax liability, while tax evasion involves illegal actions. Tax management is the process of complying with tax laws.

• TRUE 1: Tax avoidance is the legal use of tax laws to minimize tax liability.

• FALSE 2: Tax evasion implies the illegal use of benefits of the law

• TRUE 3: Tax Management aims to comply with legal formalities.

• FALSE 4: Claiming personal expenses as business expenses is tax evasion, not avoidance.

• TRUE 5: Tax planning involves legally planning income to maximize exemptions and deductions.

• TRUE 6: Keeping two sets of books and making false entries is an example of tax evasion.

• TRUE 7: Investing in a Public Provident Fund to reduce tax payable is an example of tax planning.

• FALSE 8: Installing an air conditioner in a director's residence (treating it as factory equipment for depreciation purposes) is a form of tax avoidance.

• TRUE 9: Maintaining accurate business records is crucial for tax compliance.

• TRUE 10: Local government codes in the Philippines are not self-executing.

• FALSE 11: National taxes are collected by the Bureau of Internal Revenue (BIR), not local governments.

• FALSE 12: Real property tax is collected by the local, not the national government.

• TRUE 13: Net losses can't be carried forward or backward for financial reporting purposes.

• FALSE 14: Net losses can't be carried forward for tax purposes.

Test II: Multiple Choice (20 Items)

• Question 1: Gift Tax is a transfer of property not related to business.

• Question 2: Capital losses can be carried back 3 years and forward 5 years if they exceed capital gains.

• Question 3: The entity and ability-to-pay principles relate to tax implications for corporations.

• Question 4: The principles of entity, pay-as-you-go, all-inclusive income, and ability-to-pay are involved in taxation.

• Question 5: Managing tax implications related to new machinery acquisition or replacement in advance is a strategy.

Test III: Identification & Enumeration (10 Items)

• Item 1: Basic Community Tax for corporations in the Philippines is P500.00.

• Item 2: The TRAIN Law increased exempt benefits ceiling to P90,000.00

• Item 3: Gifts above P250,000 are taxed.

• Item 4: Compensation is a systematic approach to providing monetary value for work.

• Item 5 & 6: Two mandatory benefits for employees in the Philippines, likely in relation to labor laws, are missing.

• Item 7-10: Employer-employee relationships, including the power to select, hire, pay wages, dismiss, and control, are missing.

Test IV: Practical Examination (30 Points):

• Problem 1: Calculate annual interest expense and its impact on a company's income considering a loan of $500,000 at 8% per year with a 30% corporation tax rate.

• Problem 2: Calculate the total tax credit for R&D expenses and effect on taxable income when $200,000 in R&D is incurred, with $50,000 in regular expenses, given a 20% R&D credit and 25% corporate tax rate.

• Problem 3: Calculate post-money valuation and percentage of ownership dilution for existing shareholders. Then, calculate the tax liability on a $1.5 million taxable income with a 21% tax rate.

• Problem 4: Calculate annual depreciation ($300,000 investment, straight-line method, 5-year useful life; corporate tax rate = 25%). Also determine total tax shield over 5 years.

• Problem 5: Calculate intrinsic value of stock options, ordinary income at exercise, total cost, capital gain, and capital gains tax for 1500 stock options at $40, with market value increasing to $85 over 2 years, and sale at $95 after a year.

• Problem 6: Calculate the current year employee and employer contributions to the pension fund (monthly salary PHP 60,000, employee contribution = 5%, employer contribution = 10%) in the Philippines.

• Problem 7: Consider investment options for machinery and new product development: calculate annual depreciation, annual net income before tax, tax liability and net income after tax.

Test your knowledge on strategic tax management concepts with this quiz. Determine whether statements about tax avoidance, evasion, and management are true or false. It's a great way to prepare for your midterm examination in PCMA 412.