Taxation Quizzer Part 1 PDF

TAXATION QUIZZER PART 1 BASIC PRINCIPLES OF TAXATION 1. Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate and operate it, resulting in its destruction? a. Power to dest...

TAXATION QUIZZER PART 1 BASIC PRINCIPLES OF TAXATION 1. Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate and operate it, resulting in its destruction? a. Power to destroy theory b. Lifeblood theory c. Sumptuary theory d. Symbiotic doctrine 2. The actual effort exerted by the government to effect the exaction of what is due from the taxpayer is known as a. Assessment. b. Levy. c. Payment. d. Collection. 3. 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. 4. An example of a tax where the concept of progressivity finds application is the a. Income tax on individuals. b. Excise tax on petroleum products. c. Value-added tax on certain articles. d. Amusement tax on boxing exhibitions. 5. Ligaya Educational Foundation, Inc., a stock educational institution organized for profit, decided to lease for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and exclusively use the rents for the maintenance of its school buildings, including payment of janitorial services. Is the leased portion subject to real property tax? a. Yes, since Lualhati is a stock and for profit educational institution. b. No, since the school actually, directly, and exclusively used the rents for educational purposes. c. No, but it may be subject to income taxation on the rents it receives. d. Yes, since the leased portion is not actually, directly, and exclusively used for educational purposes. 6. Which among the following concepts of taxation is the basis for the situs of income taxation? a. Lifeblood doctrine of taxation b. Symbiotic relation in taxation  c. Compensatory purpose of taxation d. Sumptuary purpose of taxation DONOR’S TAX 7. Which of the following transactions is deemed a taxable gift? a. Condonation or remission of a debt b. Sale of residential house and lot for less than adequate and full consideration in money or money’s worth c. Both (a) and (b) d. Neither (a) nor (b) 8. Which of the following statements relative to donor’s tax is false? a. The spouses shall file separate donor’s tax returns where the thing donated is common property. b. Each parent shall be entitled to the P10,000 exemption on account of marriage of a child. c. Exemptions and deductions cannot be claimed where the 30% tax rate on stranger is applicable. d. None of the foregoing. 9. The spouses Esme and Carlisle wanted to donate a parcel of land to their son Edward who is getting married in December, 2016. The parcel of land has a zonal valuation of P420,000.00. What is the most efficient mode of donating the property? a. The spouses should first donate in 2016 a portion of the property valued at P20,000, then spread the P400,000 equally for 2017, 2018, 2019 and 2020. b. Spread the donation over a period of 5 years by the spouses donating P100,000 each year from 2016 to 2020. c. The spouses should each donate a P110,000 portion of the value of the property in 2016 then each should donate P100,000 in 2017. d. The spouses should each donate a P100,000 portion of the value of the property in 2016, and another P100,000 each in 2017. Then, in 2018, Esme should donate the remaining P20,000. 10. Exempted from donor’s taxation are gifts made a. For the use of the barangay. b. In consideration of marriage. c. To a school which is a stock corporation. d. To a for-profit government corporation. 11. Caroline donated P110,000.00 to her friend Vicky who was getting married. Caroline gave no other gift during the calendar year. What is the donor's tax implication on Caroline’s donation? a. The P100,000 portion of the donation is exempt since given in consideration of marriage. b. A P10,000 portion of the donation is exempt being a donation in consideration of marriage.  c. Caroline shall pay a 30% donor's tax on the P110,000 donation. d. The P100,000.00 portion of the donation is exempt under the rate schedule for donor's tax. 12. A non-stock, non-profit school always had cash flow problems, resulting in failure to recruit well-trained administrative personnel to effectively manage the school. In 2017, Don Leon donated P100 million pesos to the school, provided the money shall be used solely for paying the salaries, wages, and benefits of administrative personnel. The donation represents less than 10% of Don Leon's taxable income for the year. Is he subject to donor's taxes? a. No, since the donation is actually, directly, and exclusively used for educational purposes. b. Yes, because the donation is to be wholly used for administration purposes. c. Yes, since he did not obtain the requisite NGO certification before he made the donation. d. No, because the donation does not exceed 10% of his taxable income for 2017. 13. What law shall govern the imposition of donor’s tax? a. The law in force at the time of perfection of the donation b. The law in force at the time of completion of the donation c. The law in force at the time of perfection or completion depending upon the agreement of the parties d. None of the choices 14. Andy, married, donated a land commonly owned by him and her spouse worth P500,000 to her friend Joan. Only Andy signed the deed of donation. Joan assumed P200,000 unpaid mortgage on the property. How much is the donor’s tax due? a. P6,000 c. P1,000 b. P90,000 d. P45,000 500k - 200k = 300k x 30% = 90,000 15. Dondie, resident citizen, made the following donations on April 28 of the current year:  To his sister, Donna,P175,000 worth of property situated in Paris, France. The donor’s tax paid is P40,000.  To Dara, his girlfriend in the Philippines, jewelry valued at P225,000.  To International Rice Research Institute, cash amounting to P50,000. The donor’s tax due after tax credit is – a. P69,000 c. P29,000 b. P38,813 d. P5,625  225,000 x 30% = 67,500 + (175,000 - 100,000 x 2% Tabular) = 69,000 - (69,000 x 175k/400k) = 38,813 ESTATE TAX 16. Which of the following is not a part of the gross estate? a. Conjugal property b. Community property c. Exclusive property of the decedent d. Exclusive property of the surviving spouse 17. Who among the following transferors is not liable for estate tax on the property transferred during his lifetime? a. The testator who bequeaths property to his heirs in a last will and testament executed and probated during his lifetime b. The donor who reserves his right to amend or revoke the donation of property in favor of the donee c. The donee of an appointed property who is required under a power of appointment to transfer such property upon death to his eldest child d. The transferor of personal property who sold it for insufficient consideration 18. Which of the following properties of the spouses will be part of common properties under a regime of Conjugal Partnership of Gains? a. Land inherited during the marriage b. Fruits of land inherited c. Jewelry inherited during the marriage d. Building donated before marriage 19. Which of the following items is not considered as a “special deduction” in computing the taxable net estate of the decedent? a. Vanishing deduction b. Medical expenses c. Standard deduction d. Family home allowance 20. When the payment of estate tax will cause undue hardship upon the heirs or the estate which is undergoing judicial settlement before the court, the BIR Commissioner may grant an extension for a period not exceeding: a. 5 years b. 3 years c. 2 years d. 1 year Next three (3) questions are based on the following: Orland, married resident citizen, died on August 20, 2016. The estate reported the following assets and deductions: Conjugal Properties: Fishpond, Bulacan P1,500,000 Family Home, Makati 1,500,000 Cash in bank 900,000  Exclusive Properties of Orland: Land, inherited from his father who P400,000 died on July 20, 2012. The value of land at the time of inheritance was P210,000. The land was mortgaged for P30,000 which was unpaid at the time of death of his father,P10,000 of which was paid by Orland before he died. Land, donated on February 14, 2013 by 600,000 his mother who died on November 2, 2014. The value of the land when donated was P500,000 while upon death of his mother was P400,000. Exclusive Properties of Wife: Farm in Laguna, acquired before 2,000,000 marriage Deductions claimed: Funeral expenses 250,000 Fire loss of apartment (occurred 4 80,000 months after death) Bad debts (represents unpaid receivable 100,000 from Bert, an insolvent) Mortgage on inherited land 30,000 Vanishing deduction on inherited 40,000 land Vanishing deduction on donated land 20,000 Standard deduction 2,000,000 21. The gross estate is: a. P4,000,000 c. P7,000,000 b. P4,710,000 d. P5,000,000 22. The vanishing deduction is: a. P184,000 c. P255,760 b. P220,800 d. P292,560 23. The net taxable estate is: a. P819,200 c. P829,200 b. P804,200 d. P579,200 SOLUTION: Properties Exclusive Conjugal Total Fishpond, Bulacan P1,500,000 1,500,000 Family Home, Makati 1,500,000 1,500,000 Cash in bank 900,000 900,000 Land, inherited from Father died on July 20, 2012. 400,000 400,000 Land, Donated from Mother on Feb 14, 2013. 600,000 600,000 Claims to Insolvent 100,000 100,000 GROSS ESTATE 1,000,000 4,000,000 5,000,000 Allowable Deductions: Funeral Expenses (200,000) (200,000) Fire Loss (80,000) (80,000) Bad Debts (100,000) (100,000) Mortgage on Land (20,000) (20,000) Vanishing Deductions* (220,800) (220,800) Net Estate before Special Deductions 759,200 3,620,000 4,379,200 Special Deductions: Family Home (1,500,000 x 1/2) (750,000) Special Deduction (1,000,000) Share of Surviving Spouse (1,810,000) NET TAXABLE ESTATE 819,200 *VANISHING DEDUCTIONS: Land Inherited by Father: Value at the time of Death 210,000 Less: Mortgage Paid (10,000) Initial Basis 200,000 Pro rata: 200/5000 x 400,000 (16,000) Final Basis 184,000 Vanishing Rate (4 years but not more 5 yrs) 20% Vanishing Deduction 36,800 Land Donated by Mother: Value at the time of Donation 500,000 Initial Basis 500,000 Pro rata: 500/5000 x 400,000 (40,000) Final Basis 460,000 Vanishing Rate (3 years but not more 4 yrs) x 40% Vanishing Deduction 184,000 TOTAL VANISHING DEDUCTIONS 220,800 **If TRAIN Law is applied the Estate tax is P 49,152 (P819,200 x 6%)  24. Abe, married resident alien, died on January 15, 2017. She left the following properties, expenses and obligations: Community properties, Philippines (including P5,000,000 family home valued at P1,800,000) Community properties, Abroad 2,000,000 Exclusive properties, Philippines 3,000,000 Actual funeral expenses 300,000 Judicial expenses 200,000 Medical expenses (incurred w/in 1yr. before death) 600,000 Devise to National Gov’t 50,000 Legacy to Local Gov’t 70,000 The net taxable estate is: a. P3,780,000 c. P3,580,000 b. P3,680,000 d. P3,530,000 RESIDENT ALIEN Particulars Exclusive Community Total All Properties w/i & w/o 3,000,000 7,000,000 10,000,000 Funeral Expense (200,000) (200,000) Judicial Expense (200,000) (200,000) Transfers (50,000 + 70,000) (120,000) (120,000) Gross Estate 2,880,000 6,600,000 9,480,000 Share of Surviving Spouse (3,300,000) Medical Expenses (500,000) Family Home (1/2 of 1,800,000) (900,000) Standard Deductions (1,000,000) Net Estate 3,780,000 25. Based on the above problem, if the decedent is a non-resident alien, how much is the net taxable estate? a. P2,755,000 c. P5,220,000 b. P2,880,000 d. P5,380,000 NON - RESIDENT ALIEN Particulars Exclusive Community Total All Properties w/i Only 3,000,000 5,000,000 8,000,000 Funeral Expense 200,000 Judicial Expense 200,000 Allowable Deduction 400,000 x 8M/10M (320,000) (320,000) Transfers(50,000 + 70,000) (120,000) (120,000) Gross Estate 2,880,000 4,680,000 7,560,000 Share of Surviving Spouse (2,340,000) Net Estate 5,220,000 26. Arthur, Filipino, married died leaving the following estate: Car acquired before marriage by Arthur P 300,000  Car acquired before marriage by wife 450,000 House and lot acquired during marriage 1,500,000 Jewelries of wife 100,000 Personal properties inherited by Arthur during 250,000 marriage Benefits from SSS 50,000 Retirement benefits 150,000 Proceeds of group insurance taken by his employer 75,000 Land inherited by the wife during marriage 1,000,000 Income earned from the land inherited by wife (25% 200,000 of which was earned after death) 16. How much is the gross estate if the property relationship is conjugal partnership of gains is: a. P2,600,000 c. P1,950,000 b. P3,600,000 d. P2,200,000 Car acquired before marriage by Arthur P 300,000 House and lot acquired during marriage 1,500,000 Personal properties inherited by Arthur during marriage 250,000 Income earned from the land inherited by wife (25% of which was earned after death) 150,000 Gross Estate 2,200,000 27. Based on the preceding number, the gross estate if the property relationship is absolute community of property is: a. P2,600,000 c. P1,950,000 b. P3,600,000 d. P2,500,000 Car acquired before marriage by Arthur P 300,000 Car acquired before marriage by wife 450,000 House and lot acquired during marriage 1,500,000 Jewelries of wife 100,000 Personal properties inherited by Arthur during marriage 250,000 Gross Estate 2,600,000 VAT 28. LBJ made the following sales during the 12-month period: Sales, VAT taxable transactions P1,500,000 Sales, VAT zero-rated transactions 400,000 Sales, VAT exempt transactions 100,000 Total P2,000,000 Which of the following statements is correct? a. LBJ may not register under the VAT system because his sales from VAT taxable transactions did not exceed P1,919,500. b. LBJ may not register under the VAT system because his sales from VAT taxable and zero-rated transactions did not exceed P1,919,500.  c. LBJ is required to register because his total 12-month sales exceeded P1,919,500. d. None of the foregoing. 29. Which of the following is exempt from VAT? a. Common carriers transporting passengers by air within the Philippines b. Common carriers transporting passengers by sea within the Philippines c. Common carriers transporting passengers by land within the Philippines d. Common carriers transporting cargoes by air within the Philippines 30. Which statement is correct about value-added tax on goods or properties sold? a. It is based on gross sales and not on net sales; b. May be due even if the goods or properties were not actually sold; c. Does not cover goods exported; d. It forms part of the selling expense of the trader. 31. For value-added tax purposes, which of the following transactions of a VAT-registered taxpayer may not be zero-rated? a. Export sales b. Foreign currency denominated sales c. Sale of goods to the Asian Development Bank d. Sale of goods to an export oriented enterprise 32. A subdivision developer sold five (5) residential house and lots, each to different vendees, for P3,000,000 per lot, or a total sales of P15,000,000 for the taxable period. These sales shall be classified as: a. 12% VAT transactions b. 0% VAT transactions c. VAT exempt transactions d. None of the foregoing **3,199,000 each is the threshold 33. CP operated a retail business that had been generating sales not exceeding the threshold for VAT exempt persons. However, he desires to be registered under the VAT system for the first time in order to benefit from input tax credits. What benefit may CP be entitled to once he registers under the VAT system? a. Tax refund b. Presumptive input tax credit c. Transitional input tax credit d. None of the foregoing 34. What institution is required to deduct and withhold a final VAT of 5% on the purchase of goods or services subject to VAT? a. National government or any political subdivision thereof b. Government-owned or controlled corporations c. Both (a) and (b) d. Neither (a) nor (b) 35. In the value-added tax on sale of services, the output tax is computed: a. On the billings of the month b. On collections of the month on all billings made c. On the contract price of contracts completed during the taxable period d. Only and strictly on labor performed under the contract for services 36. Which statement is wrong? a. There is a transitional input tax from purchases of goods or properties; b. There is a transitional input tax from purchases of services; c. There is a transitional input tax from purchases of materials; d. There is a transitional input tax from purchases of supplies. 37. Which of the following statements is correct on the inventory balance in the financial statements at any given date of a VAT- registered person? a. Balance, net of input taxes b. Balance, inclusive of input taxes c. Balance on which the transitional input tax is computed annually d. Balance where the VAT thereon may be calculated by multiplying it by 12% 38. Genson Distribution Inc., a VAT taxpayer, had the following data in a month: Cash sales P200,000 Open account sales 500,000 Consignment: 0 to 30 days old (on which there were remittances from consignees of P200,000) 600,000 31 to 60 days old 700,000 61 days old and above 900,000 How much is the output tax? a. P348,000 c. P264,000 b. P216,000 d. P108,000  Cash sales P200,000 Open account sales 500,000 Consignment: 0 to 30 days old (on which there were remittances from consignees of P200,000) 200,000 61 days old and above 900,000 Total VATABLE SALES 1,800,000 VAT RATE 12% OUTPUT VAT 216,000 42. The financial records of Benz Corp., a VAT-registered taxpayer, for the taxable year 2016 disclosed the following: Local sales to private entities 1,500,000 Export Sales 500,000 Local sales to government 800,000 How much is the total sales subject to value-added tax? a. P2,800,000 c. P2,000,000 b. P2,300,000 d. P1,500,000 Local sales to private entities 1,500,000 Export Sales 500,000 Local sales to government 800,000 Total VATABLE SALES 2,800,000 43. Mantika Corp., a VAT-registered Corp., is a producer of cooking oil from coconut and corn. It had the following data for the month of January 2017: Sales, gross of VAT P 784,000 Corn & Coconut, 12-31-16 50,000 Purchases of Corn & Coconut 330,000 Corn & Coconut, 1-31-17 20,000 Purchases from VAT suppliers, VAT included: Packaging Materials 56,000 Supplies 16,800 The value-added tax payable for the month: a. P56,060 c. P60,650 b. P54,900 d. P63,000 Sales, gross of VAT P 784,000 Output TAX 84,000 Purchases of Corn & Coconut (330,000 x4%) (13,200) Purchases from VAT suppliers, VAT included: Packaging Materials 56,000 Supplies 16,800 72,800 x3/28 (7,800) VAT PAYABLE 63,000  44. Bunga Inc., a VAT taxpayer, is engage in the business of processing of fruits. Its data on sales and purchases for the month of August are provided below: Sales P200,000 Purchases: Fresh Fruits 30,000 Raw sugarcane 12,000 Tin Can, gross of VAT 12,320 Paper Labels, net of VAT 5,000 Cardboard for boxes, net of VAT 8,000 Freight, gross of VAT (50% still unpaid) 10,080 How much is the value-added tax payable? a. P20,580 c. P19,380 b. P18,900 d. P20,100 Sales P200,000 Output Tax 24,000 Purchases: Fresh Fruits 30,000 Raw sugarcane 12,000 Tin Can, gross of VAT 12,320 Input Tax (1,320) Paper Labels, net of VAT 5,000 Input Tax ( 600) Cardboard for boxes, net of VAT 8,000 Input Tax ( 960) Freight, gross of VAT (50% still unpaid) 10,080 Input Tax ( 540) VAT PAYABLE 20,580 45. Bahay Kubo Inc. is a real estate dealer. Details of its sales during the year showed the following: Date of sale June 2, 2017 Consideration in the deed of sale P 5,000,000 Fair market value in the assessment rolls 4,800,000 Zonal Value 5,200,000 Schedule of payments: June 2, 2017 1,000,000 June 2, 2018 2,000,000 June 2, 2019 2,000,000 How much is the output tax to be recognized for the June 2, 2018 payment? a. P0 c. P249,600 b. P124,800 d. P624,000 **Zonal Value 5,200,000 x 12% = 624,000 x 2M/5M = 249,600 Output Tax for 2018 46. Assuming that the scheduled payment on June 2, 2017 is P2,000,000, how much is the output tax to be recognized for the June 2, 2019 payment? a. P0 c. P249,600 b. P124,800 d. P624,000  Zero as in 0 for the sale will no longer qualify as Installment Sales. 47. Mr. Karpentero, a vat-registered building contractor, has the following data on gross receipts in a month, any tax not included:  From Mr. A, a private property owner, final payment on the contract price, net of 5% agreed retention fee of P2,850,000  From Mr. B, a payment of 5% retention on the contract price previously made by him P100,000  From Mr. C, for materials used in the construction 500,000 How much is the output tax? a. P414,000 c. P72,000 b. P342,000 d. P62,000 Final Payment on Contracts 2,850,000 Retention 100,000 Materials 500,000 TOTAL Receipts 3,450,000 VAT Rate 12% Output VAT 414,000 48. COC Inc., in its first month of operation, and as a VAT taxpayer, purchased various fixed assets. Purchases of fixed assets in the first month were as follows: Light equipment, with a useful life of 3 years P 300,000 Heavy equipment, with a useful life of 10 years 4,000,000 How much is the input tax available for the month? a. P516,000 c. P480,000 b. P9,000 d. P8,600 Light Equipment 300,000/36 x 12% 1,000 Heavy Equipment 4,000,000/60 x 12% 8,000 Total Input VAT 9,000 49. Kusina Co., had its kitchen assembled by a VAT taxpayer. It took six months for the contractor to finish the work. Kusina Co. purchased materials in July from VAT suppliers at a cost of P500,000, VAT not included. Payment to the contractor in July 2017 on the Construction in Progress, VAT not included was: On contractor’s billing in June P100,000 On contractor’s billing in July 70,000  The input tax available in July is: a. P0 c. P60,000 b. P80,400 d. P20,400 Materials from VAT Supplier 500,000 On contractor’s billing in June 100,000 On contractor’s billing in July 70,000 Total 670,000 VAT Rate 12% Output Tax 80,400 50. Data from the books of accounts of a VAT taxpayer for February: Domestic Exports Sales P 2,000,000 8,000,000 Purchases: From VAT Suppliers: Goods for sale 600,000 2,400,000 Supplies & services 90,000 360,000 From Suppliers Paying percentage tax: Goods for sale 100,000 1,500,000 Supplies & services 20,000 80,000 If the input taxes attributable to zero-rated sales are claimed as tax credit, the net value-added tax refundable is: a. P136,000 c. P145,000 b. P203,924.70 d. P174,000 Output Tax (2,000,000 x 12%) 240,000 Input Tax on Domestic Sales (690,000 x 12%) (82,800) Input Tax on Zero Rated (2,760,000 x 12%) (331,200) Refundable VAT (174,000) INCOME TAXATION 51. C. Lee, Chinese national, arrived in the Philippines on January 1, 2012 to visit his Filipina paramour. He planned to stay in the country until December 31, 2016, by which time he would go back to his legal wife and family in China. C. Lee derived income during his stay here in the Philippines. For the taxable year 2012, C. Lee shall be classified as a: a. Resident alien b. Non-resident alien engaged in trade or business in the Philippines c. Non-resident alien not engaged in trade or business in the Philippines d. Special alien employee 52. The following individual taxpayers are subject to the graduated income tax rates of 5%-32%, except a. Filipino citizens b. Resident aliens c. Non-resident alien engaged in trade or business in the Philippines  d. Non-resident alien not engaged in trade or business in the Philippines 53. In which of the following cases will the dividend income from a foreign corporation be classified as “income without” a. Less than 50% of the foreign company’s gross income for the preceding three (3) years prior to the dividend declaration was derived from sources within the Philippines. b. 50% of the foreign company’s gross income for the preceding three (3) years prior to the dividend declaration was derived from sources within the Philippines. c. More than 50% of the foreign company’s gross income for the preceding three (3) years prior to the dividend declaration was derived from sources within the Philippines. d. Always classified as income without”. 54. D’ Lion, Inc., a Philippine corporation, sold through the local stock exchange 10,000 PLDT shares that it bought 2 years ago. D’ Lion sold the shares for P2 million and realized a net gain of P200,000. How shall it pay tax on the transaction? a. It shall declare a P2 million gross income in its income tax return, deducting its cost of acquisition as an expense. b. It shall report the P200,000 in its corporate income tax return adjusted by the holding period. c. It shall pay 5% tax on the first P100,000 of the P200,000 and 10% tax on the remaining P100,000. d. It shall pay a tax of one-half of 1% of the P2 million gross sales. 55. 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. 56. Winterfell, Inc., bought a parcel of land in 2015 for P7 million as part of its inventory of real properties. In 2017, it sold the land for P12 million which was its zonal valuation. In the same year, it incurred a loss of P6 million for selling another parcel of land in its inventory. These were the only transactions it had in its real estate business. Which of the following is the applicable tax treatment? a. Winterfell shall be subject to a tax of 6% of P12 million. b. Winterfell could deduct its P6 million loss from its P5 million gain. c. Winterfell’s gain of P5 million shall be subject to the holding period. d. Winterfell's P6 million loss could not be deducted from its P5 million gain. 57. Passive income includes income derived from an activity in which the earner does not have any substantial participation. This type of income is a. Usually subject to a final tax. b. Exempt from income taxation. c. Taxable only if earned by a citizen. d. Included in the income tax return. 58. In 2017, Alice earned P500,000 as income from her beauty parlor and received P250,000 as Christmas gift from her aunt. She had no other receipts for the year. She spent P150,000 for the operation of her beauty parlor. For tax purposes, her gross income for 2017 is a. P750,000 c. P350,000 b. P500,000 d. P600,000 59. Which of the following items is not part of gross income to be reported in the income tax return? a. Increase in value of land b. Gambling winnings c. Prize of P10,000 d. Gain from sale of store’s air conditioner 60. Mr. Yu leased his lot to Mr. Uy. The contract calls for Mr. Uy to construct a house which would serve as the residence of the latter, the ownership thereof to be vested in Mr. Yu after the expiration of the lease. When the house was completely constructed, the remaining term of the lease was 10 years. The residential house had an estimated useful life of 15 years. What is the tax implication of the leasehold improvement? a. Mr. Yu derives taxable income on the improvement; Mr. Uy can claim depreciation expense as a deduction from gross income. b. Mr. Yu derives taxable income on the improvement; Mr. Uy cannot claim depreciation expense as a deduction from gross income. c. Mr. Yu does not derive taxable income on the improvement; Mr. Uy cannot claim depreciation expense as a deduction from gross income. d. Mr. Yu does not derive taxable income on the improvement; Mr. Uy can claim depreciation expense as a deduction from gross income. 61. Assume the same facts in the immediately preceding number, except that at the time of the completion of the residential house, the remaining term of the lease was 15 years while the useful life of the house was 10 years. What is the tax implication of the leasehold improvement? a. Mr. Yu derives taxable income on the improvement; Mr. Uy can claim depreciation expense as a deduction from gross income. b. Mr. Yu derives taxable income on the improvement; Mr. Uy cannot claim depreciation expense as a deduction from gross income.  c. Mr. Yu does not derive taxable income on the improvement; Mr. Uy cannot claim depreciation expense as a deduction from gross income. d. Mr. Yu does not derive taxable income on the improvement; Mr. Uy can claim depreciation expense as a deduction from gross income. 62. Which of the following expenses may be deducted from gross compensation income? a. Depreciation of permanent assets b. Premium payments on health and/or hospitalization insurance c. Bad debts written off d. Optional standard deduction 63. Which of the following items of interest expense may be deducted from gross income? a. Interest on corporation’s preferred stock b. Interest on loan for construction of a rest house c. Interest for delinquency in the payment of percentage tax d. Interest on bank loan to finance petroleum exploration 64. Which of the following taxes may be deducted from gross income? a. Percentage tax on sale of listed stock b. Business permit fee paid to the city government c. Income tax d. Tax on interest on bank deposit 65. Who among the following taxpayers may not claim a tax credit or deduction on income tax paid to foreign countries? a. Resident citizens b. Resident aliens c. Domestic corporations d. General Co-Partnerships 66. The loss from sale or exchange of property is deductible from gross income where the sale or exchange is: a. Between fiduciary of a trust and the fiduciary of another trust if they have the same grantor b. Between fiduciary of a trust and the beneficiary of such trust c. Between an individual and his first cousin d. Between an individual and a corporation if the former owns more than 50% in value of the outstanding capital stock of the latter 67. Anne, claimed a bad debt of P50,000 as a deductible expense in the taxable year 2016. In 2017, Anne was able to recover the P50,000 debt already written off in the preceding year. What is the treatment for tax purposes of the recovery of the bad debt? a. Report the recovery of the bad debt as gross income in 2016. b. Report the recovery of the bad debt as gross income in 2017.  c. Disregard the recovery of the bad debt. d. Amend the 2016 income tax return to rectify the deduction for bad debt claimed. 68. Which of the following assets shall be subject to depletion? a. Machinery b. Land containing ore deposit c. Commercial d. Goodwill 69. Which of the following individual taxpayers may claim basic and additional personal exemptions for income tax purposes? a. Non-resident aliens engaged in trade or business in the Philippines, in the absence of reciprocity b. Non-resident aliens not engaged in trade or business in the Philippines c. Both (a) and (b) d. Neither (a) nor (b) 70. Harry works as financial consultant in an oil firm in Dubai. Aside from his salary thereat, he also maintains a 10-door apartment in Manila which he inherited from his parents when he was already married. On the other hand, Wilma, his wife, is employed as a loan officer at a local bank. Data pertaining to their dependents appear below for the taxable year 2017:  Anton - Son who turned 23 on April 1, 2017; incapable of self-support due to loss of both legs in an accident;  Bunny - 21 year old daughter who is taking up culinary arts in Paris, France;  Charlie - 15-year old adulterous son of Harry living with the couple;  Dina - 12-year old child who died from a vehicular accident on January 1, 2017; and  Evan - 80-year old father of Wilma, supported by her and living with the couple. The basic and additional personal exemptions of Harry for the taxable year 2017 amounts to: a. P50,000 and P100,000, respectively b. P50,000 and P75,000, respectively c. P50,000 and P0, respectively d. P0 and P0, respectively 71. Assume the same facts above, the basic and additional personal exemptions of Wilma for the taxable year 2016 amount to: a. P50,000 and P100,000, respectively b. P50,000 and P75,000, respectively c. P50,000 and P0, respectively d. P0 and P0, respectively 72. Which of the following statements does not characterize a capital asset? a. It may be real or personal property. b. It is not always subject to a holding period. c. It is normally subject to value-added tax when it is sold. d. It is not always subject to a final tax. 73. Which of the following transactions is exempt from capital gains tax? a. The sale of the principal residence of the taxpayer where the entire proceeds is used to purchase a vacation lot at Tagaytay b. The sale of a beach lot of the taxpayer where the entire proceeds is used to construct his principal residence c. The sale of the principal residence of the taxpayer for the second time in ten (10) years to purchase another principal residence d. None of the choices 74. Which of the following transactions is treated as a capital asset transaction for income tax purposes? a. Sale of a residential lot by a subdivision developer b. Sale of a used delivery truck by a retailing company c. Liquidation of partnership business d. Sale of shares of stock by a dealer in securities 75. Which of the following is not an attribute of a deferred-payment sale? a. The initial payments exceed 25% of the selling price in the year of sale. b. The obligations or promissory notes received by the vendor from the vendee are considered as equivalent to cash. c. The tax may be paid in installments. d. The sale involves both real and personal property. 76. The deductible expenses of an estate may consist of: a. Deductible expenses allowed to an individual taxpayer b. Income distributed to beneficiaries c. Both (a) and (b) d. Neither (a) nor (b) 77. Determine which of the following trusts shall the taxable income be consolidated and the income tax thereon computed on the basis of such consolidated income? a. Trust No. 1 and Trust No. 2 have the same grantor and with different beneficiaries. b. Trust No. 1 and Trust No. 2 have the same grantor and the same beneficiary. c. Trust No. 1 and Trust No. 2 have different grantors and the same beneficiary. d. Trust No. 1 and Trust No. 2 have different grantors and the same fiduciary and beneficiary. 78. Inday is a resident citizen of the Philippines. Data for a year: Gross income from business P 700,000 Royalty from books 40,000 Gain on direct sale to buyer of shares of stock of a domestic corporation held as capital asset 70,000 Loss on sale of land in the Philippines held as capital asset with cost of P1,500,000 when the zonal value is P1,200,000 500,000 Business Expenses 300,000 How much is the total income tax expense for the year? a. P177,500 c. P159,500 b. P80,000 d. P156,000 Gross Income from Business 700,000 Less: Business Expense 300,000 Personal Exemptions 50,000 350,000 Net Taxable income 350,000 Tabular Schedule: 1st 250,000 Tax is 50,000 Excess of 250,000 - 350,000 = 100,000 x 30% 30,000 Capital Gains Tax on Shares (70,000 x 5%) 3,500 Royalty Income (40,000 x 10%) 4,000 Loss on Sale (Zonal Value 1.2 x 6%) 72,000 Total Income Tax Expense 159,500 79. Mercy is a citizen and resident of the Philippines. She had a compensation income (net of exclusions) of P200,000 and a net income from business of P700,000 for a year. She made quarterly income tax payments amounting to P237,000 and her employer withheld P25,000 on her compensation income. The income tax payable (refundable) for the year is: a. (P25,000) c. (P42,000) b. P237,000 d. (P37,500) Compensation Income 200,000 Net Income from Business 700,000 Total Income 900,000 Basic Exemptions (50,000) Taxable Income 850,000 1st 500,000 Tax 125,000 Excess of 500,000- 850,000 x 32% 112,000 Total Tax Due 237,000 Less: Taxes Payments Quarterly Payments 237,000 Compensation CWT 25,000 262,000 Refundable /Creditable Tax (25,000)  80. EMT has the following data on his passive income earned during the year 2016: Philippines Abroad Interest income from bank deposits 45,000 25,000 Interest income from FCDU 50,000 -0- Royalties from books 20,000 30,000 Royalties from computer programs 20,000 40,000 Dividend income from a domestic corporation 27,000 13,000 Dividend income from a foreign corporation 33,000 22,000 How much is the final withholding tax if the taxpayer is a resident citizen? a. P21,450 c. P17,700 b. P20,400 d. P36,250 Philippines Interest income from bank deposits 45,000 x 20% = 9,000 Interest income from FCDU 50,000 x 7.5% = 3,750 Royalties from books 20,000 x 10% = 2,000 Royalties from computer programs 20,000 x 20% = 4,000 Dividend income from a domestic corporation 27,000 x 10% = 2,700 Total Withholding Taxes 21,450 81. How much is the final withholding tax if the taxpayer is a resident alien? a. P21,450 c. P17,700 b. P20,400 d. P36,250 SAME COMPUTATION AS RESIDENT CITIZEN 82. How much is the final withholding tax if the taxpayer is a non- resident citizen? a. P21,450 c. P17,700 b. P20,400 d. P36,250 Philippines Interest income from bank deposits 45,000 x 20% = 9,000 Royalties from books 20,000 x 10% = 2,000 Royalties from computer programs 20,000 x 20% = 4,000 Dividend income from a domestic corporation 27,000 x 10% = 2,700 Total Withholding Taxes 17,700 83. How much is the final withholding tax if the taxpayer is a non- resident alien engaged in trade or business? a. P21,450 c. P17,700 b. P20,400 d. P36,250 Philippines Interest income from bank deposits 45,000 x 20% = 9,000 Royalties from books 20,000 x 10% = 2,000 Royalties from computer programs 20,000 x 20% = 4,000 Dividend income from a domestic corporation 27,000 x 20% = 5,400 Total Withholding Taxes 20,400 84. How much is the final withholding tax if the taxpayer is a non- resident alien not engaged in trade or business? a. P21,450 c. P17,700 b. P20,400 d. P36,250 Interest income from bank deposits 45,000 Royalties from books 20,000 Royalties from computer programs 20,000 Dividend income from a domestic corporation 27,000 Dividend income from a foreign corporation 33,000 TOTAL PASSIVE INCOME 145,000 Final Withholding Tax Rate 25% Total Withholding Taxes 36,250 85. Nonoy is an employee of a firm in Quezon City. He is supporting his 4 year old brother who is living with him. Data on his compensation income for the year shows: Regular Salary P 240,000 Thirteenth month pay 20,000 Quarterly bonus 40,000 Payroll Deductions: SSS Premiums 3,000 Philhealth contributions 1,200 Pagibig contributions 4,000 Labor union dues 1,000 Premium payments on hospitalization insurance 3,000 Payment of loan 5,000 86. How much is the taxable income? a. P210,800 c. P208,400 b. P207,800 d. P260,800 Regular Salary P 240,000 Total Income 240,000 Less: Basic Exemption (50,000) SSS Premiums (3,000) Philhealth contributions (1,200) Pagibig contributions (4,000) Labor union dues (1,000) Net Taxable Income 180,800 +30,000 if old laws = 218,000 87. A domestic corporation, in its fifth (5th) year of operations, had the following data for the year: Net sales P 2,000,000 Capital gain on direct sale to a buyer of shares of a domestic corporation for P500,000 200,000 Capital gain on sale thru a real estate broker of land and building outside the Philippines for P5,000,000 1,000,000 Dividend from a domestic corporation 50,000 Interest on bank deposit 40,000 Cost of sales 600,000 Quarterly corporate income tax paid 190,000 Operating expenses 500,000 The income tax payable upon filing of the annual income tax return is: a. P425,000 c. P570,800 b. P380,000 d. P520,800 Net Sales 2,000,000 Cost of Sales (600,000) Operating Expenses (500,000) Net Income from Ordinary Business 900,000 Add Other Income Broker Outside Phils 1,000,000 Total Taxable Income 1,900,000 Corporate Tax Rate 30% Income Tax Due 570,000 Less Quarterly Income Tax Paid (190,000) Income Tax Due and Payable 380,000 88. The Kultura Foundation of the Philippines, a non-stock, non-profit corporation, organized and operated exclusively to preserve and show-case Philippine cultural practices, music, dances, and folk arts, deriving funding from mostly donations, had the following data for the year: Donations received P 20,000,000 Interest income from bank deposit 100,000 Rent income from properties received as donation (net of 5% withholding tax) 475,000 Expenses related to its rent income 30,000 89. How much is the income tax expense of the Corporation for the year? a. P161,000 c. P172,000 b. P136,000 d. P125,600 Rent Income (Gross Up) 500,000 Less: Expenses (30,000) Net Rent Income 470,000  Tax Rate 30% Tax Expense 141,000 Add Interest Income Tax 20,000 Total Income Tax Expense 161,000 90. A tax imposed in the nature of a penalty to the corporation to deter tax avoidance of shareholders who avoid paying the dividends tax on the earnings distributed to them by the corporation. a. Minimum corporate income tax b. Optional corporate income tax c. Improperly accumulated earnings tax d. Capital gains tax 91. First statement: An accumulation of earnings or profits (including undistributed earnings or profits of prior years) is unreasonable if it is not necessary for the purpose of the business, considering all the circumstances of the case. Second statement: The term "reasonable needs of the business" are hereby construed to mean the immediate needs of the business, including reasonably anticipated needs. a. Only the first statement is correct b. Only the second statement is correct c. Both statements are correct d. Both statements are incorrect 92. The Improperly Accumulated Earnings Tax (IAET) is imposed on improperly accumulated taxable income earned starting January 1, 1998 by domestic corporations as defined under the Tax Code and which are classified as closely-held corporations at the rate of: a. twenty percent (20%). c. ten percent (10%). b. fifteen percent (15%). d. five percent (5%). 93. The Improperly Accumulated Earnings Tax shall not apply to which of the following corporations? a. Banks and other non-bank financial intermediaries b. Insurance companies c. Publicly-held corporation d. All of the choices 94. First statement: Once the profits have been subjected to improperly accumulated earnings tax, the same shall no longer be subject to the same tax in later years even if not declared as dividends. Second statement: Profits which have been subjected to improperly accumulated earnings tax when finally declared as dividends shall be subject to tax on dividends. a. Both statements are true b. Both statements are false c. Only the first statement is true d. Only the second statement is true 95. To avoid payment of IAET, when must the dividends be declared and paid or issued? a. Not later than one year following the close of the taxable year b. Not later than the 15th day following the close of the taxable year c. Not later than 60th day following the close of the taxable quarter d. None of the choices TAX REMEDIES 96. Rosalie, a compensation income earner, filed her income tax return for the taxable year 2013 on March 30, 2014. On May 20, 2017, Rosalie received an assessment notice and letter of demand covering the taxable year 2013 but the postmark on the envelope shows April 10, 2017. Her return is not a false and fraudulent return. Can Rosalie raise the defense of prescription? a. No. The 3 year prescriptive period started to run on April 15, 2014, hence, it has not yet expired on April 10, 2017. b. Yes. The 3 year prescriptive period started to run on April 15, 2014, hence, it had already expired by May 20, 2017. c. No. The prescriptive period started to run on March 30, 2014, hence, the 3 year period expired on April 10, 2017. d. Yes. Since the 3-year prescriptive period started to run on March 30, 2014, it already expired by May 20, 2017. 97. On March 30, 2012 Emmett Foods, Inc. received a notice of assessment and a letter of demand on its April 15, 2009 final adjustment return from the BIR. Emmett Foods then filed a request for reinvestigation together with the requisite supporting documents on April 25, 2012. On June 2, 2012, the BIR issued a final assessment reducing the amount of the tax demanded. Emmett Foods was satisfied with the reduction, it did not do anything anymore. On April 15, 2017 the BIR garnished the corporation's bank deposits to answer for the tax liability. Was the BIR action proper? a. Yes. The BIR has 5 years from the filing of the protest within which to collect. b. Yes. The BIR has 5 years from the issuance of the final assessment within which to collect. c. No. The taxpayer did not apply for a compromise. d. No. Without the taxpayer’s prior authority, the BIR action violated the Bank Deposit Secrecy Law. 98. Renesmee, 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 2015. The financial statements of the company show that it has been suffering financial reverses from the year 2016 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 Renesmee, Inc.? a. Renesmee must show it has faithfully paid taxes before 2016. b. Renesmee must promise to pay its deficiency when financially able. c. Renesmee must waive its right to the secrecy of its bank deposits. d. Renesmee must immediately deposit the P500,000 with the BIR. 99. As a rule, within what period must a taxpayer elevate to the Court of Tax Appeals a denial of his application for refund of income tax overpayment? a. Within 30 days from receipt of the Commissioner’s denial of his application for refund. b. Within 30 days from receipt of the denial which must not exceed 2 years from payment of income tax. c. Within 2 years from payment of the income taxes sought to be refunded. d. Within 30 days from receipt of the denial or within two years from payment. 100. What is the effect on the tax liability of a taxpayer who does not protest an assessment for deficiency taxes? a. The taxpayer may appeal his liability to the CTA since the assessment is a final decision of the Commissioner on the matter. b. The BIR could already enforce the collection of the taxpayer's liability if it could secure authority from the CTA. c. The taxpayer's liability becomes fixed and subject to collection as the assessment becomes final and collectible. d. The taxpayer's liability remains suspended for 180 days from the expiration of the period to protest. 101. The taxpayer seasonably filed his protest together with all the supporting documents. It is already July 31, 2017, or 180 days from submission of the protest but the BIR Commissioner has not yet decided his protest. Desirous of an early resolution of his protested assessment, the taxpayer should file his appeal to the Court of Tax Appeals not later than a. August 31, 2017. b. August 30, 2017. c. August 15, 2017. d. August 1, 2017. DOCUMENTARY STAMP TAX 102. A newly formed corporation issued shares of stocks to its incorporators for P150,000. The par value of the shares issued is P100,000. How much is the documentary stamp tax? a. P500 c. P750 b. P1,000 d. P1,500 Par Value Divide by 200 x 1 peso = 100,000 / 200 = 500 103. Mr. T invested in shares of stock of Kapisananngmga Sisters Inc. amounting to P100,000 with par value of P80,000. After 2 years, he disposed said shares directly to Mr. B for P230,000. The documentary stamp tax on above transaction is: a. P400 c. P300 b. P1,150 d. P862.50 **80,000 / 200 = 400 x 75% = 300 104. Based on number 97, but assuming the shares are without par value, how much is the documentary stamp tax? a. P500 c. P750 b. P1,000 d. P0.00 **Selling Price - Cost = 230,000 - 80,000 = 150,000 / 200 = 750 105. Continuing number 99, if the shares were subsequently sold for P200,000, how much is the documentary stamp tax? a. P750 c. P1,500 b. P187.50 d. P375 **Doc Stamp Upon Original Issuance 750 x 25% = 187.50 106. Mr. Purisima owns a resthouse in Pampanga acquired by him for P10,750,000. He sold the same to Mr. Apo for P5,000,000. The fair market value at the time of sale per assessor’s office is P10,000,000 while zonal value is P15,000,000. The documentary stamp tax on the transaction is: a. P75,000 c. P150,000 b. P225,000 d. P161,250 **15,000,000/1000 = 15,000 x 15 pesos = 225,000 107. Who is liable to the payment documentary stamp tax? a. Mr. Purisima b. Mr. Apo c. It depends on the agreement of the parties d. It depends on who is benefiting on the transaction  TAXATION QUIZZER PART 2 1. The BIR is assessing deficiency withholding tax on total Repairs and Maintenance claimed by non-stock non-profit organization. The BIR alleges that foundation failed to withhold the correct amount of the 2% expanded withholding tax due on the Repairs and Maintenance expense. As a CPA assisting the foundation in the BIR tax investigation, you can reason that ___. a. The BIR should have considered the 1% expanded withholding tax instead of the 2%in determining the deficiency tax. b. The foundation is exempt from the tax and hence is not liable to the deficiency withholding tax. c. The foundation is exempt from tax and hence is not required to withhold tax on its expenses. d. The BIR should have considered both the 1% and 2% withholding tax in determining the deficiency tax. 2. Which of the following statement is true? a. Taxes are in the nature if contracts between the taxpayers and the government. b. Taxes and debts are similar nature and character. c. As the general rule, no set-off is allowed against the demands for taxes levied for general or local government purposes. d. In taxation, the personal consent of the individual taxpayers is required. 3. Which of the following is not an attribute of tax? a. It is an enforced contribution on a person taxed. b. It is levied by the executive department of the state. c. It is imposed by the state which has jurisdiction over the person, property, or excises. d. It is generally in money 4. Which of the statement below is grammatically correct? a. The imposition of minimum corporate income tax may be suspended if substantial losses are sustained due to a prolonged labor dispute. b. The imposition of minimum corporate income tax maybe suspend if substantial losses are sustained due to prolonged labor dispute. c. The imposition of minimum corporate income tax may be suspended if substantial losses are sustained due to a prolong disputes. d. The imposition of minimum corporate income tax may be suspended. If substantial loss are sustained due to a prolonged labor dispute. 5. Which of the following statements is correct? a. If what is delegated is tax administration, the delegation is invalid. b. If what is delegated is tax administration, the delegation is valid. c. Tariff powers cannot be delegated to the President. d. As a general rule, taxation can be further delegated. 6. The BIR issued a tax assessment against the taxpayer who was not given sufficient time to protest the said assessment. The taxpayer noted that their competitors were issued tax assessments but were given enough time to protest. The BIR violated the _____________ of the constitution. a. Equal protection clause c. Equitability principle b. Due process clause d. Uniformity principle Items 7-10 are based on the following information: On March 30, 2012, XXX, Inc., received a notice of assessment and a letter of demand on its April 15, 2009 final adjustment return from the BIR. XXX, Inc., then filed a request for reinvestigation together with the requisite supporting documents on April 25, 2012. On June 2, 2012, the BIR issued a final assessment reducing the amount of the tax demand. Since XXX, Inc., was satisfied with the reduction, it did not do anything anymore. On April 15, 2017 the BIR garnished the corporation’s bank deposits to answer the liability. 7. Was the BIR action proper? a. No, the taxpayer did not apply for the compromise. b. Yes, the BIR has 5years from the filing within which to collect. c. No, without the taxpayer’s prior authority, the BIR action violated the Bank Deposit Secrecy Law. d. Yes, the BIR has 5 years from the issuance if the final assessment within which to collect. 8. What is the effect of the XXX, Inc.’s failure to file a protest on its assessed deficiency taxes? a. The taxpayer may file a motion for reconsideration to the CIR on the matter. b. The taxpayer may appeal his liability to the CTA since the assessment is a final decision of the Commissioner on the matter. c. The taxpayer’s liability becomes fixed and subject to collection as the assessment becomes final and collectible. d. The BIR could already enforced the collection of the taxpayer’s liability if it could secure authority from the CTA. 9. Which statement is correct? The collection of a deficient tax assessment by distraint and levy: a. May be done only once during the taxable year. b. Must be done successively, first by distrait and then by levy; c. May be repeated, if necessary, until the full amount due, including all expenses, is collected; d. Automatically covers the bank deposits of a delinquent taxpayer. 10. Which of the following is grammatically correct? a. Tax assessment refer to the process of determining the correct amount of tax due in accordance with the prevailing tax laws. b. Tax assessment refer to the process of determining the correct amount of tax due in accordance with the prevailed tax laws.  c. Tax assessment refers to the process of determining the correct amount of tax due in accordance with the prevailed tax laws. d. Tax assessment refers to the process of determining the correct amount of tax due in accordance with the prevailing tax laws. 11. A joker was commissioned in a kiddy party to perform magic. The comic was to be paid P100, 000 for his performance and the parties signed the necessary contract. He then gratuitously assigned his rights under the contract to his son. The son later on collected the P100, 000 talent fee of his father from the contractee. The national internal revenue tax/es payable is/are: a. Income tax only. b. Donor’s tax only. c. Both income and donor’s taxes. d. Neither income tax nor donor’s tax. 12. Which one of the following statements is wrong? a. Income out of the labor of the wife is conjugal property. b. Income out of the separate property of the husband is conjugal property. c. Amount receivable as retirement benefit under R.A. No. 4917 during the marriage is conjugal property. d. Property received is donation when the fair value was P2, 000,000, resulting in a gain of P500, 000. The gain is conjugal property. 13. Amount receivable by the estate of the deceased, his executor or administration as a beneficiary under life insurance policy taken by the decedent upon his own life is: a. Excluded from gross state. b. Part of gross state if the beneficiary is revocable. c. Excluded from gross state if the beneficiary is irrevocable. d. Part of gross state whether the beneficiary is revocable or irrevocable. 14. The following journal entry was made in the purchases journal of a VAT-registered taxpayer: Purchases xxx Cash or Accounts Payable xxx The journal entry signifies that: a. Purchases were from a non-VAT supplier. b. Purchases were from a VAT-registered supplier. c. Purchases were either from non-VAT or VAT-registered supplier. d. Input tax has been taken as part of the cost of purchase. 15. A common carrier by land is engaged in the transport of passengers, goods and cargoes. He is not VAT-registered. What business tax or taxes is he liable to pay? a. 12% value-added tax b. 3% common carrier’s tax  c. 12% VAT on gross receipts from transport of goods and cargoes and 3% common carrier’s tax on gross receipts from transport of passengers. d. 3% tax on VAT-exempt persons on gross receipts from transport of passengers. 16. Statement 1. As to the property of the state, exemption is the rule and taxation the exception. Statement 2. As of the property of the taxpayer, taxation is the rule and exemption the exception. a. Both statements are correct b. Both statements are incorrect. c. Statement 1 is correct while statement 2 is incorrect. d. Statement 1 is incorrect while statement 2 is correct. 17. Foreign income taxes paid by the resident citizen or domestic corporation. a. May be claimed only as tax credit. b. May be claimed only as tax deduction. c. Do not qualify either as a tax credit or as a tax deduction. d. May be claimed either as a tax credit or as a tax deduction at the option of the income taxpayer. 18. Statement 1. Government agencies performing essential governmental functions are subject to tax unless expressly exempted. Statement 2. Government agencies performing propriety function are exempt from tax unless expressly taxed. a. Both statements are correct. b. Both statements are incorrect. c. Statement 1 is true while statement 2 is false. d. Statement 2 is true while statement 1 is false. 19. Statement 1. Tax avoidance or tax minimization is the use by the taxpayer of legally permissible methods in order to reduce tax liability. Statement 2. Tax evasion or tax dodging is the use by the taxpayer of illegal means to defeat or lessen the payment of tax. a. Both statements are correct. b. Both statements are incorrect. c. Statement 1 is correct while statement 2 is incorrect. d. Statement 2 is correct while statement 1 is incorrect. 20. Which one among the following items below is included in the gross state? a. Revocable transfer. b. Transfer with reservation of certain rights. c. Transfer under general power of appointment. d. Transfer in contemplation of death which is onerous. 21. Which of the following statement is correct? a. The final tax on compensation of special kind of non-resident aliens is 25% of the gross income. b. Interest income from a foreign currency deposit unit in the Philippines of a non resident alien is not subject to final tax. c. Informer’s reward is subject to final tax of 10% based on the 10% of the value of tax assessed or P1, 000,000 whichever is higher. d. Prizes exceeding P10,000 derived by non-resident alien not engage in trade or business here in the Philippines is subject to a final tax of 20% 22. The power to decide disputed assignment, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereof, or other matters arising other the tax code or other laws or portions thereof administered by the BIR is vested in the: a. Secretary of Finance b. Commissioner of Internal Revenue c. Court of Tax Appeals d. Regional Trial Court 23. The commissioner of the Internal Revenue (CIR) is prohibited by law to look into the bank accounts of taxpayer, except when: a. Taxpayer is accused of heinous crime b. Taxpayer did not invoke his right to privacy during the tax audit. c. Taxpayer applies for compromise on tax obligation on account of financial incapacity. d. The CIR has reason to believe that taxpayer has filed a false or fraudulent return. 24. A VAT-registered realty company sells real property in the course of its business. On April 30, 2016, it has sold a lot under the following items (VAT excluded). Selling Price P4,000,000 Down payment, 4/30/16 400,000 1st Installment, 4/30/17 600,000 2nd Installment, 4/30/18 1,000,000 3rd Installment, 4/30/19 1,000,000 4th Installment, 4/30/20 1,000,000 Interest and other charges of 10% On unpaid balance per installment The zonal value of the lot at the time of sale is P4, 800,000. The output VAT for the installment received on April 30, 2017, is: a. P43,200 b. P86,400 c. P115,200 d. P129,600  Output Tax (4,800,000 x 12%) = 576,000 Principal 600,000 / 4,000,000 x 576,000 = 86,400 Interest 3,600, 000 x 10% x 12% = 43,200 Total 129,600 25. Counting No. 24, the output VAT on April 30, 2020, is: a. P132, 000 b. P144,000 c. P156,000 d. P228,000 4,800,000 x 12% = 576,000 out put tax Principal 1,000,000 / 4,000,000 x 576,000 = 144,000 Interest 1,000,000 x 10% x 12% = 12,000 Total 156,000 26. Assuming that the real property in No. 24 is the residential lot sold for cash of P1, 750,000 (VAT not separately blend in the sales document) on April 30, 2016. Zonal value of the lot at the time of sale is P1, 900,000. The output VAT on the sale is: a. P187,500 b. P210, 000 c. P228,000 d. None, as it is exempt the VAT. 27. The lease of real or personal property is subject to: i. 7% gross receipt tax (GRT) if the lessor is the bank. ii. 3% percentage tax or 12% value-added tax (VAT) if the lessor is not a bank. a. No to I and II b. Yes to I and II c. Yes to I only d. Yes to II only 28. Ayala Land, Inc. (ALI) bought a parcel of land in 2014 for P7 million as part of its inventory of real properties. In 2016, it sold the land for P12 million which was its zonal valuation. In the same year, it suffered a loss of P6 million for selling another parcel of land from its inventory. These were the only transactions ALI had in its real estate business. Which of the following is the applicable tax treatment? a. ALI shall be subject to a tax of 6% of P12 million. b. ALI’s gain of P5 million shall be subject to holding period. c. ALI could deduct its P6 million loss from its P5 million gain. d. ALI’s P6 million loss could not be deducted from its P5 million gain. 29. This is an inherent limitation on the power of taxation: a. The rule of taxation shall be uniform and equitable. b. No law impairing the obligations of contacts shall be enacted.  c. Tax laws can not apply to the property of foreign governments. d. Charitable institutions, churches, parsonages, convents and all lands, buildings and improvements, actually, directly, and exclusively used for religious, charitable or educational purposes shall be exempt for taxation. 30. X took a life insurance policy of P5 million where the monthly premium is P10, 000. The proceeds will be paid to X after 25 years to the X’s estate should X die before completing the equivalent of 25 years payment. If the X outlived the policy, which of the following is correct? a. The proceeds will be part of X’s gross estate. b. The proceeds will be part of X’s taxable income. c. The proceeds will be party taxable estate and partly exempt. d. The proceeds will be party taxable income and partly exempt. 31. Containing the preceding number, except that after paying the equivalent of ten years premium, X transferred the policy to Y for P1.5 million and Y continued paying the monthly premium as they mature. After 10 years, X died. Which of the following is correct? a. The proceeds will be part of X’s gross estate. b. The proceeds received by Y is part of his taxable income. c. The amount received by X from Y is part of X’s taxable income. d. The amount received by the X from Y and the proceeds received by Y are partly taxable income and partly exempt. 32. An owner of several warehouses for rent, which used to be VAT- exempt because its annual gross receipts never exceeded P1,919,500 decided to register under the VAT system on January 2, 2016. The following data were from the first quarter ending March 31, 2016: Rental from warehousing services, net of VAT P 672,000 Purchases of supplies, gross of VAT 224,000 Inventory of supplies, January 1, 2016 201,600 Actual VAT paid on the inventory of supplies, January 1, 2016 21,600 The value added tax payable for the quarter is: a. P23,520 b. P35,040 c. P41,088 d. P52,608 VAT on rental (672,000 x 12 %) 80,640 VAT on purchase of supplies (224,000 x 12/112) (24,000) Transitional Input Tax(higher) (21,600) VAT Payable 35,040  33. Assuming that one vacant warehouse in the preceding number was rented out for the whole month of April 2016 and received P107, 000 as rent, gross of VAT but net of the applicable creditable withholding income tax (expanded). The output VAT on the rental receipt is: a. P12,000 b. P12,240 c. P12,840 d. P13,440 107,000/107% = 100,000 x 12% = 12,000 Numbers 34 to 42 are based on the following information: Dina Cabangon, a citizen and resident of the Philippines, died on November 1, 2016. Her marriage was under the system of absolute community of property. The following properties and obligations were left: Property received by Dina as inheritance on February 1, 2015 (during the marriage) P2,000,000 Real property acquired through the labor of both Dina and her Husband during the marriage (family home) 4,000,000 Property owned by Dina before marriage 300,000 Property owned by Dina’s Husband before marriage 200,000 Funeral expenses 300,000 Unpaid mortgage on property inherited 200,000 Judicial expenses for the settlement of the estate 80,000 Unpaid obligations (excluding the unpaid mortgage) 40,000 The property received as inheritance was part of the gross estate of the prior decedent at a fair market value of P1,100,000. At the time of inheritance, it was mortgage for P300,000. Dina was able to pay P100,000 before she passed away. 34. The total community property is: a. P6,500,000 c. P4,000,000 b. P4,500,000 d. P2,300,000 35. The total exclusive property is: a. P4,200,000 c. P2,300,000 b. P2,500,000 d. P2,000,000 36. The total ordinary community deduction is: a. P200,000 c. P420,000 b. P320,000 d. P445,000 37. The total ordinary exclusive deduction (excluding vanishing deduction) is: a. P400,000 c. P200,000 b. P300,000 d. P100,000  38. The deduction for family home is: a. P0 c. P2,000,000 b. P1,000,000 d. P4,000,000 39. The amount of vanishing deduction is: a. P0 c. P736,000 b. P816,000 d. P656,000 40. The total special deduction is: a. P0 c.P2,000,000 b. P1,000,000 d.P4,000,000 41. The taxable net estate is: a. P1,154,000 c. P3,154,000 b. P2,154,000 d. P4,244,000 SOLUTION: Separate Common Total 2,000,000 4,000,000 300,000 200,000 Gross Estate 2,000,000 4,500,000 6,500,000 Funeral Expenses: Actual 300,000 Limit (6.5 x 5%) 325,000 Threshold 200,000 Whichever is lower (200,000) Judicial Expenses (80,000) Indebtedness (200,000) (40,000) Vanishing Deductions* (736,000) Net Estate After Ordinary Deductions 1,064,000 4,180,000 5,244,000 Family Home (1,000,000) Standard Deductions (1,000,000) Share of Surviving Spouse 1/2 x 4,180,000 (2,090,000) Taxable NE 1,154,000 *Vanishing Deduction: Lower FMV 1,100,000 Mortgage Assumed and Paid (100,000) Initial Basis 1,000,000 Pro Rated Deductions: 1,000,000/6,500,000 x 520,000 (80,000) Final Basis 920,000 Vanishing Rate _ 80%__ Vanishing Deductions 736,000 42. Going back to the original problem, except that the marriage of Dina Cabangon to her spouse was under the system of conjugal partnership of gains. The taxable net estate would be: a. P3,206,032 c. P1,206,032 b. P2,206,033 d. P1,154,000  Separate Common Total 2,000,000 4,000,000 300,000 Gross Estate 2,300,000 4,000,000 6,300,000 Funeral Expenses: Actual 300,000 Limit (6.5M x 5%) 325,000 Threshold 200,000 Whichever is lower (200,000) Judicial Expenses (80,000) Indebtedness (200,000) (40,000) Vanishing Deductions** (733,968) Net Estate After Ordinary Deductions 1,366,032 3,680,000 5,046,032 Family Home (1,000,000) Standard Deductions (1,000,000) Share of Surviving Spouse 1/2 x 4,180,000 (1,840,000) Taxable NE 1,206,302 **Vanishing Deduction: Lower FMV 1,100,000 Mortgage Assumed and Paid (100,000) Initial Basis 1,000,000 Pro Rated Deductions: 1,000,000/6,300,000 x 520,000 (82,540) Final Basis 917,460 Vanishing Rate 80% Vanishing Deductions 733,968 43. In March 2016, Imelda, who is fond of jewelries, bough the following: diamond ring for P750, 000; bracelet for P250, 000; necklace for P500, 000; and a brooch for P500, 000. Imelda drives income from the exercise of her profession as a topnotch Interior Designer. In October 2016. Imelda sold her diamond ring, bracelet and necklace for only P1.25 million, incurring a loss of P250, 000. She used the P1.25 million to buy a solo diamond ring in November 2016 which she sold for P1.5 million in September 2017. Imelda had no other transaction on jewelry in 2017. Which among the following best describes the tax implications arising from the aforesaid transactions? a. Imelda may carry over and deduct her 2016 loss only from her 2017 gain. b. Imelda may deduct her 2016 loss from both her 2017 professional income. c. Imelda may not deduct her 2016 loss from both her 2017 professional income and her gain. d. Imelda may carry over and deduct her 2016 loss from her 2017 professional income as well as from her gain.  44. Taxation could be exercise by the following except one. Which one? a. Judiciary b. Legislative c. Local government unit d. President of the Philippines, in certain cases. 45. Stages, aspects or processes in taxation. a. Levy of the tax b. Collection of the tax. c. Payment of the tax by the taxpayer. d. All of the above. 46. Statement 1. Onerous donations are subject to donor’s tax. Statement 2. Gratuitous donations are not subject to donor’s tax. a. Both statement s are true b. Both statements are false c. Only statement 1 is true but not statement 2. d. Only statement 2 is true but not statement 1. 47. Which of the following statements are correct? a. Gift-splitting is a form of tax dodging. b. The uncle who is the brother of the donor’s mother-in-law is a non-stranger to the donor for purposes of the donor’s tax. c. A gift made to a relative in January 2016 is to be added to the gift made to the same relative in December 2015 in determining the gift tax. d. Renunciation by an heir including the surviving spouse of his/her share in the hereditary estate left by the decedent is subject to donor’s tax if done in favor of identified heirs to the exclusion or disadvantage of the other co-heir/s in the hereditary estate. 48. Mistah, single and sales executive of a leading pharmaceutical firm (RiteMed), received in 2016 the following from his employer: Salary, net of P267,000 withholding tax P 683,000 Allowances and benefits received:  Rent paid by RiteMed on the house which Mistah occupies for residential purposes, net of 5% withholding 129,200  Entertainment allowance subject to liquidation (P75,000 was duly receipted in the name of RiteMed and used to entertain RiteMed’s customers and the balance of P25,000 was used to purchase a late model mobile phone for the personal use of Mistah) 100,000  Reimbursement of entertainment expenses paid by Mistah (P17,500 was used to entertain Mistah’s boyhood pals and the balance of P22,500 was used to promote RiteMed’s businesses.) 40,000   Fixed yearly allowance for entertainment 85,000 The fringe benefit tax is: a. P50,400 b. P52,000 c. P84,000 d. P92,000 Gross Rent on Housing 129,200/95% = 136,000 x 50% = 68,000 Expense Account (CP & Pal Exp) 25,000 + 17500 42,500 Total 110,500 110,500/68% 162,500 162,500 x 32% 52,000 49. Continuing number 48, the income tax payable by Mistah is: a. P13,200 old law b. P27,760 c. P29,200 d. P43,360 Compensation(683,000 + 267,000) 950,000 Fixed Year Allowance 85,000 Personal Exemptions (50,000) Taxable Income 985,000 Income Tax per Tabular (OLD LAW) up to 500,000 125,000 Excess (485,000 x 32%) 155,200 Withholding Tax (267,000) Income Tax Payable 13,200 Income Tax per Tabular (TRAIN LAW) up to 800,000 130,000 Excess (185,000 x 30%) 55,500 Withholding Tax (267,000) Income Tax Payable (Refund) (81,500) Numbers 50 to 56 are based on the following information: Domestic Export Sales to private entities P500,000 P500,000 Sales to the government 500,000 Sales of exempt goods 500,000 Input taxes passed on by VAT-registered suppliers on: Sales to private entities 30,000 20,000 Sales to the government 25,000 Sales of exempt goods 10,000 Purchase of depreciable capital goods not attributable to any specific activity (monthly amortization for 60 months) 120,000 The sales to the government were subjected to the automatic deduction of the 1% creditable withholding tax (CWT) on its purchases from domestic suppliers. 50. The value-added tax payable on the domestic sales to private entities is: a. Zero b. (P10,000) c. P60,000 d. P70,000 51. The total input taxes attributable to zero-rated sales is: a. P20,000 b. P30,000 c. P50, 000 d. P60, 000 52. If the input taxes attributable to zero-rated are claimed as tax credit, the net input value-added tax refundable is: a. Zero b. P40,000 c. P50,000 d. P60,000 53. The actual input taxes attributable to the domestic sales to the government is: a. P25,000 b. P30,000 c. P55,000 d. P65,000 54. The value-added tax payable on the domestic sales to the government which was withheld as final withholding VAT is: a. P5,000 b. P25,000 c. P30,000 d. P35,000 55. The journal entry to take up the domestic sales to the government is: a. Cash/AR 560,000 Sales 560,000 b. Cash/AR 560,000 Sales 500,000 Output tax 60,000 c. Cash/AR 535,000 Final withholding VAT 25,000 Sales