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Chapt-3 Concepts of Income

Chapt-3 Concepts of Income

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Published by: humnarvios on Jan 28, 2012
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 3: Concept of Income
CHAPTER 3
CONCEPT OF INCOME
Problem 3 – 1 TRUE OR FALSE
1.
False – Some wealth that made to increase the taxpayer’s net worth are gifts andinheritance and these are not taxable income.2.True3.True4.False – Filipino citizen who is not residing in the Philippines is taxable only for incomeearned within.5.False – The basis of tax is the fair market value of the instrument.6.False – Not income for the employee and not subject to income tax because thebeneficiary is the employer.7.False – Accrual reporting reports income when there is earning regardless of collection.8.False – Calendar year basis9.True10.False – This rule applies to individual taxpayers.11.False – There is no rule of 25% initial payment if the sale is made on regular basis of personal goods.12.True13.True14.True
Problem 3 – 2
1. A11. B2. D12. A3. B13. A4. D14. D5. C15. A6. B16. B7. 17. D8. C18. C9. C19. C10. C20. D21. A
Problem 3 3 A
Net assets ending (P300,000 P50,000)P250,000Net assets beg. (P400, 000 P150,000)( 250,000)BalanceP - 0 -Add: Owners drawings 245,000Reportable income (loss)P245,000
Problem 3 4 D
Net assets, end of yearP 100,000Add: Personal drawing 70,000 Total P 170,000Less: Net assets, beginning of year 150,000Business incomeP 20,000
Problem 3 5 C
Net assets ending (P530,000 P130,000)P400,000Net assets beg. ( 250,000)Reportable income (loss)P150,000
Problem 3 6 B
Increase in total assets P 250,000Decrease in total liabilities160,000Drawings 20,000Additional investments ( 50,000) Total incomeP 380,000
Problem 3 7 D
Return of CapitalReturn on Capital Time deposit balanceP250,000P30,000
 
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 3: Concept of Income
Problem 3 8 C
 Year 1Year 2 Year 3Sales 00P1,800,000Cost of sale00( 1,000,000)Disposal cost00( 50,000)Income for each year00P 750,000
Problem 3 9 A
 Taxable IncomeNontaxableIncomeSalary (P260,000/13) x 12P240,000Raffle winnings70,00013
th
month pay (P260,000/13) x 1P 20,000Lotto winnings . 500,000P310,000P520,000
Problem 3 10 D
Within:Taxable IncomeCompensation incomeP180,000Income from grocery store50,000Outside:Compensation income120,000Lotto winnings 100,000 Total income taxable in the PhilippinesP450,000
Note:
Lotto winnings earned outside the Philippines by a resident Filipino citizen are taxablein the Philippines.
Problem 3 11 C
Subject to ITRSubject to Final TaxConsultancy feeP 80,000Salary300,000Prizes in raffle ticketP 20,000Gain on sale of principal residence . 400,000 TotalsP380,000P420,000
Problem 3 12 D
Salary for the first 4 months (P12,000 x 4)P 48,000Remaining months (P15,000 x 8) 120,000Gross compensation incomeP168,000
Problem 3 13 B
Reportable income is the market value of the car receivedP120,000
Problem 3 14 A
Market value of the service receivedP6,000
Problem 3 15 C
Face value of the non-interest bearing noteP30,000Multiplied by the present value factor of 10% annuity 0.909Compensation income present value of the noteP27,270Note: Upon receipt of the note, no interest income yet is to be reported.
Problem 3 16 A
Compensation income P50,000Interest income (P50,000 x 12% x 6/12)P3,000
Problem 3 17 B
Collections during the yearP490,000Expenses actually incurred (150,000)Net income before personal exemption cash basisP340,000
Problem 3 18 A
Gross income (P1,000,000 P600,000)P400,000Actual operating expenses (P200,000 x 80%)(160,000)
 
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 3: Concept of Income
Net income before other incomeP240,000Add: Gain from sale of old furniture 20,000 Taxable incomeP260,000
Problem 3 – 19
1. AReportable income 2006 - casual sale (P12,000 P3,000)P9,000 The sale is considered cash sales because the 2006 initial payments (P1,000 + P1,000 +2,000) exceeds 25% of the selling price; P4,000/P12,000 = 33%2. BReportable income 2006 regular sale (P9,000 x P4,000/P12,000)P3,000Since the personal property is sold in regular basis, installment reporting of income isallowed.
Problem 3 – 20
1. P37,500 = Not in the choicesNet income (P2,000,000 P1,400,000 P100,000)P500,000Income tax (P500,000 x 5/20) x 30%P 37,5002. BIncome tax (P2,000,000 x 6%)P120,000
Problem 3 21 B
 Total revenueP1,000,000Cost of sale( 500,000)Income to be reportedP 500,000
Problem 3 22 D
Contract priceP 1,000,000Less: Cost (P90,000/20%) 450,000Gross profitP 550,000Multiplied by percent of completion 20%Reportable income under percent of completionP 110,000
Problem 3 23 D
Contract priceP1,200,000Less: Total costs (P432,000 + P184,250 + P103,750) 720,000 Total profitP 480,000Less: Previous years’ reported income:Accomplished contract price for 2008 and 2009 (P1,200,000 x85%)P1,020,000Previous years’ actual costs:2008( 432,000)2009( 184,250)403,750Percent of completion 2010 Reportable incomeP 76,250
Problem 3 24 A
 Year 3 sales P 500,000Less: Cost incurred as of year 3:Year 1P 100,000Year 2200,000Year 3 50,000 350,000 Year 3 reportable incomeP 150,000
Problem 3 25C

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