Tax 102 Business Taxation Preliminary Exam Answers PDF

TAX 102 BUSINESS TAXATION: PRELIMINARY EXAMINATION Answers key: 1. Bonus 11. D 21. D 31. D 41. ZERO (0) 2. D 12. B 22. A 32. Bonus 42. P10,500,000 3. D 13. B 23. C 33. D 43...

TAX 102 BUSINESS TAXATION: PRELIMINARY EXAMINATION Answers key: 1. Bonus 11. D 21. D 31. D 41. ZERO (0) 2. D 12. B 22. A 32. Bonus 42. P10,500,000 3. D 13. B 23. C 33. D 43. P9,200,000 4. D 14. B 24. D 34. D 44. P5,500,000 5. C 15. A 25. B 35. B 45. P14,200,000 6. E 16. C 26. C 36. C 7. E 17. D 27. B 37. C 8. B 18. C 28. A 38. A 9. D 19. D 29. A 39. D 10. B 20. A 30. A 40. B TEST I. Instruction: Choose the best answer among the choices given. 1. Which of the following statements is/are false? Statement I: Voluntary heirs inherit only if they are in the will. Statement II: Disinheritance applies only to Voluntary heirs. Statement III: Secondary compulsory heirs succeed together with the primary compulsory heirs. a. Both statement I and statement II are false. b. Both statement I and statement III are false. c. Only Statement III is false. d. Only Statement III is false. e. Both statement II and statement III are false. f. All of the statements are true. 2. Which of the following statements is false? Transfer tax is a. Classified as national tax b. An excise tax c. Imposed upon gratuitous transfers d. None of the above 3. Statement 1: Donation mortis causa takes effect during the lifetime of both the donor and the donee and is subject to donor’s tax. Statement 2: Gratuitous transfers are generally considered as donations therefore subject to donor’s tax. a. Only statement 1 is correct. b. Only statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect. 4. The tax imposed on the privilege to transmit property at the time of death is known as: a. Business tax c. Transfer tax b. Donor’s tax d. Estate tax 5. Statement 1: Decedent is the general term applied to the person whose property is transmitted through succession, whether or not he/she left a will. Statement 2: An heir is a person called to succession either by provision of a will or by operation of law. a. Only statement 1 is correct. b. Only statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect. e. I give up. 6. Statement 1: Estate tax accrues on the same day the obligation to pay arises. Statement 2: The obligation to file and pay the estate tax rests with the estate as juridical person. Statement 3: The right of the State to tax the privilege transmit the estate vests instantly upon death. a. Both Statements 1 and 2 are correct. b. Both Statements 2 and 3 are correct. c. Both Statements 1 and 3 are correct. d. Only Statement 2 is correct. e. Only Statement 3 is correct. 7. All of the following is considered intangible properties situated in the Philippines except: a. Franchise exercised in the Philippines b. Shares or rights in any partnership, business or industry established in the Philippines. c. Shares, obligations or bonds issued by any foreign corporation, 95% of the business of which is located in the Philippines. d. Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired business situs in the Philippines. e. None of the above. 8. The following are general rules on situs of properties, which is not? a. The situs of real property is the place where it is located. b. The situs of intangible personal property is the place where such is actually located at the time of the decedent’s death. c. The situs of the intangible personal property is the domicile or residence of the owner. d. The situs of tangible personal property is the place where such is actually located at the time of the decedent’s death. 9. The common characteristic of transfer taxes is that the transfer of property: a. is being taxed on the act of passing the ownership b. takes effect either during the lifetime of the transferor or upon the death of the transferor. c. is gratuitous d. none of the above 10. Under Absolute Community of Property, which of the following is a community property? a. Jewelry inherited by the decedent during marriage. b. Property bought during the marriage using the salary of the decedent earned before marriage. c. Property inherited by the surviving spouse during the marriage. d. Personal belongings (e.g. clothing, shoes, etc.) bought during the marriage for the exclusive use of the decedent. 11. Which among the following statements is correct? a. Succession and the right of the State to tax the privilege to transmit the estate vests instantly upon death. b. Estate tax accrues as of the death of the decedent. c. Estate taxation is governed by the statute in force at the time of decedent’s death. d. All of statements are correct. 12. Which of the following statement is incorrect? A claim against insolvent person, which is not collectible in full: a. Is included in the gross estate b. Is not included in the taxable net estate c. Must be notarized if arising out of a debt instrument of the insolvent. d. Needs no preliminary filing of a case against the insolvent. 13. Guo Hua Ping died on November 1, 2023. Her estate is composed of the following: Cash in Bank P 800,000 Car 2,200,000 Real properties 8,800,000 Intangible personal properties 1,500,000 Sheila is the only heir of the decedent. The executor of Hua Ping’s estate filed the estate tax return and paid the corresponding estate tax on May 15, 2024. The properties left by the decedent were finally distributed to Sheila on August 31, 2024. When will the transfer of ownership from the decedent to the heir take effect? a. May 15, 2024 c. November 1, 2024 b. November 1, 2023 d. August 31, 2024 14. Which of the following will not be included in the gross estate of the resident decedent? a. Intangible personal property situated in the Philippines; his country did not imposed taxes on the intangibles situated in his country which is owned by Filipinos not residing therein  b. Land located outside the Philippines donated inter-vivos to his son c. Proceeds of life insurance where the beneficiary is the decedent’s executor revocable designated. d. Claims against insolvent person, wholly uncollectible 15. A married decedent left the following properties: Vacation house, Cebu (Decedent’s exclusive property) P 8,800,000 Beach House, Catarman (Conjugal Property) 4,200,000 Residential House and Lot, Calbayog (Conjugal Property) 16,000,000 Farm House, Diversion (exclusively of by the surviving spouse) 2,500,000 The decedent resided in Calbayog as certified to by the Barangay Captain in the locality where his residential house and lot were located. For estate tax purposes, what amount of property is to be included in his gross estate and how much is the deduction that can be claimed as family home? Gross Estate Family Home Deduction a. P29,000,000 P8,000,000 b. P29,500,000 P10,000,000 Family home (Conjugal) c. P31,500,000 P10,000,000 P16M/2 = P 8,000,000 d. P31,500,000 P8,000,000 Vacation house, Cebu P8,800,000 Beach house, Catarman 4,200,000 Residential H&L (Family Home) 16,000,000 Gross Estate P29,000,000 For items 16-20 The decedent was a married man with a surviving spouse leaving the following properties: Conjugal real properties (including land value at P500,000 P 5,500,000 transferred inter-vivos by decedent to his son) Exclusive Family home 2,000,000 Other exclusive properties (excluding properties valued at 3,300,000 P200,000 inherited by decedent during marriage) Conjugal ordinary deductions Funeral expenses 150,000 Medical expenses 500,000 Other deductions (including P100,000 unpaid mortgage on 1,300,000 conjugal real properties) 16. How much is the Total Gross Estate? a. P11,000,000 c. P10,500,000 b. P10,800,000 d. P10,000,000 17. How much is the Ordinary Deductions? a. P1,550,000 c. P1,450,000 b. P1,500,000 d. P1,300,000 18. How much is the Special Deduction? a. P6,000,000 c. P7,000,000 b. P10,000,000 d. P2,000,000 19. How much is the taxable Net Estate? a. P2,220,000 c. P700,000 b. P2,200,000 d. P350,000 20. How much is the Estate Tax Due and Estate Tax Payable? a. P21,000; P21,000 c. P21,000; P42,000 b. P42,000; P21,000 d. P133,200; P132,000  Exclusive Conjugal Total Conjugal real properties 5,000,000 P5,000,000 Exclusive family home 2,000,000 Other exclusive properties 3,500,000 5,500,000 Gross Estate P10,500,000 (16) Less: Ordinary Deductions Other deductions (1,300,000) (1,300,000) (17) Net Conjugal Estate P3,700,000 P9,200,000 Less: Special Deductions Standard deductions 5,000,000 Family home 2,000,000 (7,000,000) (18) Net estate before SSS P2,200,000 Less: Share of the surviving spouse (1/2 of conjugal properties) 3.7M/2 (1,850,000) Net taxable estate P350,000 (19) x estate tax rate 6% Estate tax due/payable 21,000 (20) 21. Properties acquired by gratuitous title (inheritance or gift) during marriage are generally classified as: I. Conjugal properties under Conjugal partnership of Gains II. Community properties under Absolute Community of Properties a. Only I is correct c. Both I and II are correct. b. Only II is correct d. Both I and II are incorrect. 22. Mr. Guo Hua Ping, a resident married decedent died leaving the following properties: House and lot, Philippines P2,000,000 Land, Thailand 4,200,000 Shares of stocks issued by a corporation, 35% 300,000 of its operation is in the Philippines Shares listed/traded in stock exchange shall be valued at the 10,000 shares in PLDT Corporation traded in arithmetic mean between the highest and lowest quotation at the date nearest the date of death if none is available on the date of the local stock exchange where at the time of death itself death, the following were available: Highest quotation P150 150+110 = 130 Lowest quotation P110 Book value P200 Real properties Assessed value 6,000,000 Zonal value 3,500,000 20,000 unlisted preference shares Par value P15 Real properties - Higher between the assessed Book value P10 value and zonal value Unlisted preference shares are valued at par value per share How much is the total gross estate of the decedent? a. P14,100,000 c. P11,600,000 b. P14,000,000 d. P13,800,000 House and lot, Philippines P2,000,000 Land, Thailand 4,200,000 Shares of stocks 300,000 PLDT Shares 1,300,000 Real properties 6,000,000 Unlisted preference shares 300,000 Total gross estate P14,100,000 23. Rosmar died with an existing collectible of P1,800,000 against Glenda. It was evidenced by an instrument duly notarized by her lawyer. However, Rosmar failed to collect the said amount from Glenda until her  last breath. Glenda then revealed that she was having difficulty in settling her obligations from multiple creditors. Glenda’s financial records show: Available Assets P 800,000 Taxes paid 100,000 Owed to Rosmar 1,800,000 Owed to Rosenda 1,000,000 Other creditors 400,000 The deductible claims against insolvent persons is: a. P450,000 c. P1,350,000 b. P436,364 d. P1,363,636 Debtor′ s Available Assets Collectible portion = x Claim Debtor′ s Liabilities Full collectible = P1,800,000 800,000 Collectible portion = x 1,800,000 Collectible = 450,000 320,000 Uncollectible = 1,350,000 Collectible portion = 450,000 The portion of the claim which is not collectible should be allowed as a deduction from the gross estate. 24. Corry died in 2021. At the time of his death, he owns 50,000 ordinary shares of YG Company. At that time, YG’s outstanding shares were 1,500,000 with P15 par value. His retained earnings and treasury shares amounted to P2,500,000 and P150,000 respectively. What is the correct amount that should be included in the gross estate? a. P838,500 c. P633,500 50,000 ordinary shares b. P578,500 d. P828,500 x 16.57 P828,500 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 P 22,500,000+2,500,000−150,000 BVPS = = = 16.57 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑆ℎ𝑎𝑟𝑒 1,500,000 25. In filing the estate tax return, a CPA certification is required when: a. Gross estate exceeds P2,000,000 b. Gross estate exceeds P5,000,000 c. Gross estate exceeds P3,000,000 d. Gross estate exceeds P10,000,000 26. In case of a resident citizen, the administrator or executor shall register the estate of the decedent and secure a new TIN from the: a. Office of the Commissioner b. RDO where the administrator or executor is registered. c. RDO where the decedent was domiciled at the time of his death. d. Duly authorized treasurer of the city or municipality where the decedent is domiciled at the time of his death. 27. In August 2022, a decedent died leaving properties he inherited 2 ½ years ago which had a fair market value of P8,000,000 at the time of his death (P9,500,000 at the time of inheritance with unpaid mortgage of P500,000 paid by the present decedent). After the inheritance, the decedent mortgages the property for P800,000 and paid the same before his death. Other properties in his gross estate had FMV of P10,000,000. The total expenses, losses, indebtedness, taxes, and transfer for public purpose amounted to P3,000,000 where the expenses amounted to P200,000 for funeral expenses and P400,000 for judicial expenses. How much is the vanishing deduction? a. P3,120,000 c. P2,750,000 b. P3,900,000 d. P3,000,000 Vanishing Deduction Gross Estate Value to take P8,000,000 Property inherited P8,000,000 Less: 1st deduction (500,000) Other properties 10,000,000 Initial Basis 7,500,000 Gross Estate P18,000,000 Less: 2nd deduction [(7.5M/18M) x 2.4M] (1,000,000)  Final Basis P6,500,000 x vanishing rate (2-3 years) 60% Vanishing Deduction P3,900,000 (27) For items 28-29 A non-resident alien died leaving the following properties: With Without Reciprocity Reciprocity House and lot – Philippines, inherited before P 18,000,000 ✔ ✔ marriage Car, acquired during marriage in Batangas 2,500,000 ✔ ✔ Shares of stocks issued by a foreign corporation, 95% 300,000 ✘ ✔ of its operation is in the Philippines Bank deposit with PNB branch in New York, New 500,000 ✘ ✘ York representing income earned during marriage Shares of stock issued by a foreign corporation who 250,000 ✘ ✘ haven’t acquired business situs in the Philippines 5-year, 12% promissory note, received 3.5 years ago, 500,000 ✘ ✔ during marriage. The debtor is a resident of Q.C. 3.5 years interest income (500k x 12% x 3.5/5) 42,000 ✘ ✔ 28. Assume there is no reciprocity, what is the correct value of the Gross Estate? a. P21, 342,000 c. P22,050,000 b. P21,300,000 d. P22,092,000 29. Assume there is reciprocity, what is the correct value of the GE? a. P20,500,000 c. P21,842,000 b. P21,042,000 d. P21,342,000 30. A resident died leaving the following estates: Net estate, Philippines P 5,000,000 Net estate, Singapore 2,000,000 Net estate, Canada 4,000,000 Estate tax paid, Singapore 100,000 Estate tax paid, Canada 200,000 How much is the estate tax payable? a. P360,000 c. P660,000 b. P300,000 d. P600,000 31. The following are exclusions from the gross estate, which is not? a. The merger or usufruct in the owner of the naked title b. Transfers under Special Power of Appointment c. The transmission or delivery of the inheritance or legacy by the fiduciary heir legatee to the fideicommisary d. Transfers under General Power of Appointment 32. Mr. Guo Hua Ping Abello 30,000 ordinary shares of Black Label Company at the time of his death. At the time of his death, Black Label’s outstanding shares were 500,000 with P 50 par value; Retained Earnings amounting to P 3,000,000; and 1,000 Treasury Shares at P10 per share. The shares are not traded in the stock exchange. What the correct amount to be included in the gross estate of the decedent?  a. P1,680,000 c. P1,530,000 P1,679,400 b. P1,500,000 d. P1,830,000 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 P 25,000,000+3,000,000−10,000 BVPS = = = 55.98 x 30,000 shares 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑆ℎ𝑎𝑟𝑒𝑠 500,000 33. In March 2023, Jisoo sold for P3,000,000 a building to Lisa. At the time of sale, the property had a prevailing market value of P6,000,000. A year later, Jisoo died. At the time of her death, the prevailing market value of the building increased by P 3,000,000 compared to the prevailing market value when it was sold. What amount should be included in the gross estate of the decedent? a. P3,000,000 c. P 9,000,000 b. P 5,000,000 d. P 6,000,000 FMV at the time of sale P6,000,000 Consideration 3,000,000 Transfer for insufficient consideration ✔ FMV at the time of death P9,000,000 Consideration 3,000,000 Included in the gross estate P6,000,000 34. The following is subject to the rule of reciprocity, which is not? a. Shares in a Philippine domestic corporation owned by a nonresident alien decedent b. Investment in bonds in a US corporation that have acquired business situs in the Philippines owned by a non-resident alien decedent. c. Share in a Philippine partnership owned by a nonresident alien decedent d. Investment in stock in a US corporation 80% of the business of which is in the Philippines owned by a non-resident alien decedent. (should be 85%) 35. A resident citizen died on July 15, 2021. The court appointed an administrator on August 15, 2021 to settle the decedent’s estate. The decedent left a lot of properties that the administrator only finished determining his total estate on December 15, 2021. To avoid penalties, the estate tax return shall be filed on or before: a. July 15, 2021 c. January 15, 2022 b. July 15, 2022 d. August 15, 2022 36. One of the following is not a distinction between donation inter vivos and donation mortis causa: a. Donation inter vivos takes effect during the lifetime of the grantor while donation mortis causa takes effect after the death of the grantor. b. Donation inter vivos is subject to donor’s tax while donation mortis causa is subject to estate tax. c. Donation inter vivos requires a public document while donation mortis causa may not require a public document. d. Donation inter vivos is valued at fair market value at the time the property is given while donation mortis causa is valued at the fair market value at the time of the death of the grantor. 37. Which of the following shall be included in the decedent’s gross estate? I. Share in the common/conjugal properties of the surviving spouse. II. Capital/Paraphernal property of the surviving spouse. (exclusive property) III. Properties outside the Philippines of a non-resident citizen decedent. IV. Intangible personal property in the Philippines of a non-resident alien without reciprocity a. I only c. I, III, and IV only b. I and III only d. I, II, III, and IV Exclusive property of the surviving spouse should be excluded in the gross estate of the decedent because these properties are not owned by him upon his death. 38. Which of the following is not a characteristic of a donation mortis causa?  a. The transfer to the done is irrevocable while the donor is alive. b. The is no conveyance of title or ownership to the done before the death of the donor. c. The transferor retains the full control and ownership of the property while alive. d. The transfer should be void if the donor should survive the done. 39. In August 2022, a resident decedent, single and head of family, left the following: Personal properties, outside the Philippines P10,000,000 Real properties, Philippines (excluding family home valued at 13,500,000 P12,500,000) Deductions claimed (including actual funeral expenses of 3,250,000 P250,000, and medical expenses of P700,000) How much was the taxable net estate? a. P17,750,000 c. P16,200,000 b. P23,700,000 d. P18,700,000 Personal properties P10,000,000 Real properties 13,500,000 Family home 12,500,000 Gross Estate 36,000,000 Less: Ordinary Deductions (2,300,000) Estate after ordinary deductions 33,700,000 Less: Special Deductions Standard deduction P5,000,000 Family Home 10,000,000 (15,000,000) Net Taxable estate 18,700,000 (39) 40. In February 2021, Alice, head of the family died unexpectedly. Prior to her death, she executed a will and appointed an executor the distribute her estate once she dies. After 3 months, it was determined that her existing properties include: Cash in bank, Metrobank, Calbayog P 1,500,000 Cash in Bank, BDO, Calbayog 3,000,000 Car, Catarman 2,500,000 Family home, Gandara 9,000,000 Debt to Win 550,000 Funeral Expenses 200,000 Medical Expenses 450,000 Losses beyond settlement period 150,000 Unpaid taxes 250,000 Retirement benefits received from GSIS 300,000 What is the Net Distributable Estate? a. P16,200,000 c. P 14,700,000 b. P 14,628,000 d. P 16,000,000 Solution: Cash in bank, Metrobank, Calbayog P1,500,000 Cash in Bank, BDO, Calbayog 3,000,000 Car, Catarman 2,500,000 Family home, Gandara 9,000,000 Retirement benefits received from GSIS 300,000 Gross Estate P16,300,000 Less: Allowable deductions Claims against the estate (Debt to Win) P550,000  Unpaid taxes 250,000 Losses 150,000 Funeral expenses 200,000 Medical Expenses 450,000 Estate tax due/payable* 72,000 (1,672,000) NET DISTRIBUTABLE ESTATE (40) P14,628,000 ESTATE TAX DUE/PAYABLE* Cash in bank, Metrobank, Calbayog P1,500,000 Cash in Bank, BDO, Calbayog 3,000,000 Car, Catarman 2,500,000 Family home, Gandara 9,000,000 Gross Estate P16,000,000 Less: Ordinary deductions Indebtedness (550k+250) (800,000) Estate after ordinary deductions P15,200,000 Less: Special Deductions Standard deduction 5,000,000 Family Home 9,000,000 (14,000,000) Net Taxable Estate P1,200,000 x estate tax rate 6% Estate tax due P72,000 Test II. Give the correct answer: 41. Sara died leaving a total gross estate of P18,000,000. The composition of her gross estate includes a collectible amounting to P900,000 from Lenny. Sara exercised all possible remedies to demand payment from Lenny but failed to do so despite Lenny being capable of paying the said amount. Hence, the said collectible was still existing at the time of death. How much is the deduction as claims against insolvent persons from the gross estate of Sara? Answer: ZERO (0). Because the debtor is not insolvent, hence, not allowed to be claimed as a deduction. For items 42-45 The decedent was married at the time of death. He was survived by his wife and children. *FMV Cash owned by the decedent before marriage P 5,000,000 Real property owned by the decedent during marriage 6,000,000 Personal property received by the wife as gift before marriage 400,000 Property acquired by decedent with cash owned before marriage 600,000 Personal effects of the decedent purchased with the exclusive money of the wife 500,000 Jewelry purchased before marriage using cash of the surviving spouse earned 1,000,000 Property unidentified when and by whom acquired 1,200,000 Cash representing income received during marriage from exclusive property 2,000,000 Property acquired before marriage by the decedent who has legitimate 3,000,000 descendants by a former marriage *Fair market values (FMV) are at the time of death 42. Determine the exclusive properties assuming the property relation is Conjugal Partnership of Gains. P 10,500,000 43. Determine the conjugal properties assuming the property relation is Conjugal Partnership of Gains. P 9,200,000  44. Determine the exclusive properties assuming the property relation is Absolute Community of Property. P 5,500,000 45. Determine the common properties assuming the property relation is Absolute Community of Property. P 14,200,000 ✔ ✔ Item #5. Personal effects of the decedent purchased with the exclusive money of the wife. CPOG. Exclusive – property of the wife. Property acquired using exclusive fund is exclusive under CPOG. ACOP. Exclusive – “Personal effects/belongings for personal and exclusive use of either spouse are considered exclusive regardless of what was used/whose money was used to acquire the property”