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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

102

Chapter 12: Income Tax of Corporations

CHAPTER 12

INCOME TAX OF CORPORATIONS
Problem 12 – 1 TRUE OR FALSE 1. False – for tax purposes, a corporation does not include both general professional partnership and joint venture with a consortium service contract with the government. 2. False – domestic corporations refer only to corporations that are created or organized under Philippine laws. Foreign corporations are also operating in the Philippines but not created under Philippine laws. 3. False – nonresident corporations are taxed based on gross income within. 4. False – Only domestic corporations are to be taxed for income within and without. 5. True 6. True 7. True 8. False – the MCIT is applicable also to resident foreign corporations for their income derived within. 9. True 10. False – Not taxable because the corporation is a foreign corporation. 11. False – 30%, but legally, foreign corporations are not allowed to own real property in the Philippines as provided by anti-dummy law. 12. False – interest income of resident foreign corporation is subject to a final tax of 20%, but interest income of nonresident foreign corporation is subject to normal corporate tax. 13. True Problem 12 – 2 TRUE OR FALSE 1. True 2. True 3. False – MCIT is applicable only to corporation that are subject to normal tax rate. 4. True 5. False – Other fixed or determinable annual, periodic or casual gains, profits and income are not treated as branch profit. 6. True 7. True 8. True 9. True 10. False – exempt from income tax and VAT. 11. False – not imposed also to insurance companies 12. True Problem 12 – 3 TRUE OR FALSE 1. False – the net additions to reserve funds are not part of income but instead deducted from gross income. 2. True 3. False – In general, GOCCs are subject to corporate income tax. 4. True 5. False – royalties received in the active pursuit of business is subject to a normal tax of 30%. 6. True 7. True 8. True 9. True

(PD 715. False – Sale of real property outside the Philippines by a resident foreign corporation is not subject to tax in the Philippines.000. B 7. B 10.000 *This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government.000) 1. C *This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government. A 3. A 13. the income tax rate applicable would be the corporate income tax of 30%.000.000) Gain on sale of warehouse (P3. A 8.000) Business expenses (P5. As a rule. subject to normal tax. B 2. C 11. Letter B Gross income within Business expenses Gain on sale of warehouse (P3. D – Only family-closed corporation is subject to IAET.000. A 13. A* 12. A 7.000 ( 5. Letter C Gross income (P8. D 9.500. A 3. A 8. C 6.000.000 + P3. B Problem 12 – 5 1.000)* Net taxable income Corporate income tax (P4.000.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 103 Chapter 12: Income Tax of Corporations 10.000.000. Hence.000 Income tax due P1.000.000 P4. May 28. False – If the unrelated income of the proprietory educational institution exceeds the related income. B 9. False – 10% based on gross income within Problem 12 – 4 1.000.000. D 5.000. C 2. 11.000 x 30%) Note: The land and warehouse sold is an ordinary asset.000.000 P1. C 11. A 5. foreign corporations are not allowed to own and acquire real properties in the Philippines as provided by the anti-dummy law.200.000.000.000 ( 8.000 P5.000 – P2. D 4. 1975) Problem 12 – 6 1.000. 12. .000.000.000 – P2. A 10.000 + P4.000 Taxable income P12. B 6.000 x 30%) P8.000) 1.000.000) Net taxable income Corporate income tax (P5. 2. 12. A 4.

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Problem 12 – 7 D Gross income within Multiplied by normal corporate tax rate Income tax due Problem 12 – 8 Not in the Choices = P2.000 (205.000 + P100.000 60.000.000) Deductions – within .000 (290.000 P15.000 30% P 840.000 6.000.700.000.000.000 – lower limit (P120.000 P445.000 30% P 3.000.000.000 P42.000. P160.000.000 – P4. Actual.000 + P240.000 6.000.000.000 Foreign P445.000 + P75.000 P8.000 P13.000 102.000 30% P 72.000.000) Net income from NAPOCOR (P10.P28.400.000 + P190.000 Income tax still due and payable Supporting computation: Gross income – within – without (P180.000) Multiplied by normal tax rate Income tax due Less: Tax credits: Local Foreign. Letter C Resident foreign corporation Gross income within Deductions within Net income Multiplied by normal corporate income tax Income tax due Less: Local Income tax still due and payable 104 Chapter 12: Income Tax of Corporations P2.000 P2. Letter D Domestic corporation: Total net income (P160.000 5.000 x 240/400) = P72.000 P 8.without (P80.000 P 30.000 Problem 12 – 10 D Net income from PAGCOR (P30.000.000 + P25.000 (205.000 .000) Total net income Multiplied by normal corporate tax rate Income tax due Problem 12 – 11 C Net income from National Power Corporation Net income from National Books Store Total net income Multiplied by corporate normal tax Income tax due .000 30% P120. P60.000 42.000) .700.000 30% P2.000.000) P240.000 P400.000.900.000 Philippines P450.000 30% P2.000.000) P240. Gross income within Less: Allocated operating expenses (P30.000 P18.000) Net income 2.000 P 9.000 x 15/75) Net taxable income Multiplied by normal corporate tax rate Income tax due Problem 12 – 9 1.800.

840.000 940.000.400. Letter A Net income per GAAP Add: Allowance for bad debts Income before incentive to CHED contribution Less: Incentive to CHED contribution (P300.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 105 Chapter 12: Income Tax of Corporations Problem 12 – 12 A Gross profit (P3.000 2% P 1.000 (700.000 Domestic and resident foreign corporation taxed during the taxable year with MCIT cannot enjoy the benefit of NOLCO.000 x 50%) Net taxable income Multiply by normal corporate income tax rate Income tax due 2.000 P5.000 30% P1.600.000 – P1.000.748. lower Actual – P100.000 P5.150. P1. the running of the three (3) year period for the expiry of NOLCO is not interrupted by the fact that such corporation is subject to MCIT.000 P 80.000) .000 30% P 96.500.000 Net taxable income Multiplied by corporate normal tax rate Income tax due Problem 12 – 13 C Operating expenses Less: Net operating loss – 4th year Gross income Multiplied by MCIT rate Minimum corporate income tax (P800.000 P5.000.000 P3. (Rev.000 .000 P 5.000 P85.000 2% P 78.840.000 80.000 P 800.000.000) 1.000.000 150.000.limit (P1.700.400 P4.000 16.000 P320. Letter C Net income per GAAP Add: Operating expenses Gross income Multiply by minimum corporate income tax rate Minimum corporate income tax – higher (P 200.900.000.000 30% P 524.000 x 5%).000 150. 14-2001) Problem 12 – 14 B Operating loss Operating expenses Gross income Multiplied by minimum corporate income tax rate Income tax payable 4th year 5th year net income Multiplied by normal tax rate Income tax due Less: Excess of minimum income tax over normal tax Net income tax payable Problem 12 – 15 1.000 100.000) Capital gains on sale of paintings Operating expenses before charitable contribution P100.000) P1.000 ( 92.000. Nevertheless. Reg.000 – P1.000 2% P 16.000) Net income before charitable contribution Charitable contributions .

000 x 30%) Problem 12 – 16 1 Letter A .500.000 P140.000 x 2%) 2 .000) Total creditable income tax Less: Income tax due Tax refund P2.000.000 P2. Problem 12 – 18 1.000 100.000 (2.000 100.000 30% P 45.000) P 150.000.000 P 40.000 45. Letter C Income tax expense Divided by corporate normal income tax rate Net taxable income P 200.000 Problem 12 – 17 A None. Letter A Income tax payable Divided by MCIT tax rate Gross income 2.000 500. MCIT.000 P1.000/95%) Capital gains Total gross income Operating expenses Net taxable income Multiplied by corporate normal tax Income tax due Excess of MCIT over NCIT Add: Expanded withholding tax (P2.900.900. Letter C Net operating income (P8.000.000 30% 500.000 – P7.000 2% P10.000.000 .000.000. (Rev.000 30% P 300.000.000 The excess of MCIT over NCIT shall be recorded in the corporation’s books as an asset under the account title “Deferred Charges. Income tax payable – current year MCIT (P8. 9-98) Problem 12 – 19 C Rental income (P1.000 P 160.000 P 95. There is no excess corporate MCIT over NCIT in year 3 to be applied on year 4 because the MCIT is not yet applicable for the company as it only has 3 years of operation in year 3. Regs. No.000) Multiplied by normal tax rate Normal tax Less: Excess of MCIT Income tax payable P1.000 P P 150.000 – P1.” This asset account shall be carried forward and may be credited against the normal tax due for a period not exceeding three taxable years immediately succeeding the taxable year(s) in which the same has been paid.000.000 P 200.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 106 Chapter 12: Income Tax of Corporations Normal tax (P5.500.350.

d.600. Letter D Domestic Corporation: a.500 P 912. Not traded in local exchange: Selling price Cost (P110 x 12.000.000 x 5% Tax on excess (P280.500.000 P 5.000 x 40%) Net income Multiplied by normal tax rate Income tax due Capital gains tax (P1.000. Answer not in the choices = P122. d.000) Less: OSD (P400.320.000 P240.000.200. Dividend from a nonresident foreign corporation is subject to normal tax.000 P 600.500 Dividend from a domestic corporation received by a domestic corporation is tax exempt.000 – P900.000 Note: OSD is not applicable to land sold in Japan because the land is a capital asset.000 P104.000 – P100. (P1.000 x 20%) Interest from a depository bank EFCD (P1.200. c.000 18.000 P122.000 P254. c.000 x 7.000 x 6%) 107 Chapter 12: Income Tax of Corporations P400.000 9.000 200.000 P 23.005) c.000 P 23.200.000 x 6%) Tax advantage using normal tax (P96.000 9.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Problem 12 – 20 A Gross income (P1.000 30% P 72. 2. .000 shares) Capital gain Tax on P100.000 150.5%) Total passive final tax P 23.500.000) x 30% Sale of land – Philippines (P1.000) x 10% b.000 x . Nonresident Foreign Corporation a. b.000 1. Traded in local exchange (P1.800.000) x 30% Total Problem 12 – 22 C Interest from savings deposits (P3.000 72.000 112. Sale of land abroad (P3. d.000 P96.000 – P1.000 P24.000 P 280.000 x 20%) Royalty income (P1.600.000 P1.000 160.000 – P2.000 72.000 90.200. Letter A Resident Foreign Corporation a.000) Problem 12 – 21 1.000 9.000 x 6%) Total 3.600. b.000 – P72.000. (P1.

000 1.000 @ 7. Letter D Letter A Educational income: Tuition and miscellaneous fees Sales of canteen Sales of bookstore Total related income Non-educational income: 200A P4.000 @ 20% Total 2. (P 80.000 P90.000 @ 30%) d.000. Letter B Dividend income .000 24. Exempted b.000 P2. ($20.000 30.000 1.000 30% P 330.000. P100.000 700.000 20.000 200B P6.000 x 10% x P50) 2. P300.000 Problem 12 – 25 Related income Unrelated income Total revenue Operating expenses Net loss Minimum corporate income tax (P2.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 108 Chapter 12: Income Tax of Corporations Problem 12 – 23 1.000 P7.000.000 x 2%) Problem 12 – 26 1 .000 300.000 16.000 P171.000 400.500.100.000) P50.000 ( 900. Problem 12 – 24 1.000 P5.000 @ 20%* d.500. 3.000.000.500. Letter C Interest on Philippine peso loans Operating expenses Taxable income Multiplied by normal corporate tax Income tax due A P1. P 80.000.000 Exempt P15.5% x P50) b. Letter B Domestic Corporation a. (P100.000 @ 30%) c.000 . Letter B = Resident foreign corporation (same as letter 1) Letter C Nonresident foreign corporation a.000 60.000 P144.000 P2.(PCB and Magnolia are both domestic corporations) Interest income on US dollar loans ($3.000.000) (P 500. 2 .000 (3.000) P1. (P300.600.000 @ 30%) Total P75.000 *It is assumed that the royalty income from franchising is a passive income.000 @ 20% c.

700. (P4.500.000 (P400. [Sec.000.000 P28.000) ( 240.000 6.000) ( 500. the tax rate to be used in 200A should be the normal corporate income tax of 30%. 34 (A) (2).700.000 – P5.000 x 10%) Less: CWT from rent 200A (P5.000 P17.000 Note: Gross income means gross receipts.000 109 Chapter 12: Income Tax of Corporations P5.200.500 P10.500. Government educational institutions are tax-exempt. therefore.000) x P3.000) (1.000) ( 320.940.000.500.000 P395. P1.000.520. On the other hand.025) Problem 12 – 29 A Manila to Beijing (P5.120.000 P5.000/P6.000 P5.000 2.500.836.000) Manila – Hong Kong – Beijing (P6.120.000 P1.000 260. it is more advantageous for BCU to treat capital expenditures on depreciable assets as outright expense.000) Total reportable gross income within Multiplied by applicable rate Income tax Problem 12 – 30 A Within Gross receipts Multiplied by special tax rate Philippine income taxes Dragon Films P10.000 20.000. In this case.260.200.576.140. Problem 12 – 28 B Income tax payable (P700.000 (P 800.000 x 2.000) (P5.000 American Aircraft P20.000 ) P6.000. NIRC].000) 200B (P5.000) ( 200.000 25% P 2. [Sec.000 P670.000.000) (1.000 x 4.000 Manila to Hong Kong (P3.500.000) Income tax still due and payable P5.000 A proprietory educational institution has an option to either deduct its capital expenditures on depreciable assets during the year for the expansion of school facilities (outright expense) or deduct allowances for depreciation on such assets. They are not allowed to deduct costs or expenses . NIRC] Problem 12 – 27 D P-0-. The aforementioned resident foreign corporations are subject special tax rates (final taxes).820.000 x 2.5% P 700.000 .000 275.000) P6.000.000 12.000.000 60. The non-educational income in 200A is greater than the educational income.000.000 .000 7 ½% P 1.000 x 0. 27 (B).INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Rent income (net/95%) Sale of scrap materials Total unrelated Costs and expenses: Cost of sales – canteen Cost of books sold Operating expenses Purchase of library books Cost of classroom construction Purchase of school furniture Total costs and expenses Net taxable income 200A Income tax (P6.000) (2.P4.000) .000) (3.000 x 30%) 200B Income tax (P6. a special tax rate of 10% should be used in 200B because the educational income is greater than the non-educational income.225.

Remuneration for technical services.000 x 85%) Dividend income from Pharma Co. (Sec.0 - . Total branch profit remittance P24. royalties.000.000 P27. premiums.400.000 P20. Letter C Income tax due – 2nd quarter [(P792. 4. rents.000 P5.000) x 30% Less: 1% creditable withholding tax (P495. 2.000 Problem 12 – 32 B Income tax (P80. dividends.000 200A excess tax credit used in first quarter 200B Income tax still due and payable – 200B first quarter 2 . Income tax due – 1st quarter [(P495.000) P 12. wages. net of tax (P24.000. emoluments.000 P 6. 27(E) (4). 28 (A) (4) of NIRC provides that the following income within of a foreign corporation shall not be treated as branch profit for tax purposes unless the same are effectively connected with the conduct of the trade or business in the Philippines: 1. they are still subject to final income taxes on interest income. profits.400.000) ( 9.000/99%) – (P495.000/99%) – P700.000) ( 3.000/99%) – P495.000) x 30% Withholding tax – 2nd quarter [(P792. Interest.000 1.600.000 ( 6.000 15% P 3.000) Income tax still due and payable – 2 nd quarter 200B P 30.000. 3. periodic or casual gain. P20.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 110 Chapter 12: Income Tax of Corporations from their gross receipts. Salaries.000) x 30% Income tax due – 1st quarter [(P495. The cost of service is only applicable for MCIT purposes.000/99%) – P480.000 Note: Sec.000 – P1. Problem 12 – 34 B 1 Letter A .000 6. annuities.000/80%) x 20% Note: Although cooperatives are tax-exempt. Problem 12 – 33 A All of the transactions of Unlad Cooperative are exempt from income taxes. Other fixed or determinable annual. NIRC) Problem 12 – 31 A Operating net income after tax Tax rate on branch remittance Branch profit remittance tax Branch profit remittance.000 P . income and capital gains.000/99%) – P480.000/99%) x 1% Remaining excess tax credit – 200A (P10.000 7.

000 x 20%) Final tax on interest income – EFCD (P100.940.000) x 30% Final tax on interest income – peso deposit (P100.120.000 30% P 52.500 P30.000.000 7.500 P 30.000 With the issuance by the BIR of RMC No.tax credit Income tax still due and payable Problem 12 – 37 C Regular tax (P1.000 (704.000. the taxpayers are no longer allowed to change methods (OSD to Itemized Deductions or vice versa) from quarter to quarter within the same taxable year.000 x 30%) Tax on cash dividend from a resident foreign corporation (P100.000.000 x 40%) Net taxable income Multiplied by corporate normal tax rate Income tax due Less: Creditable income taxes paid 1st Qtr.000 30% P 67.940.200 ( 52.cumulative Itemized deductions . 16-2010 in relation to RR No.000 1.000 P 160.800.800) P 14.000 x 20%) Expanded foreign currency deposit (P100.000 x 7.500 P57.000 x 7. Problem 12 – 36 C 3rd Quarter P880. The said RMC provides that the method adopted for the 1st quarter shall be the same method to be applied to the succeeding quarters of the same taxable year as well as in the preparation of the annual ITR of the said taxable year.000) P176.000 (896.000 P90.000/98%) Less: OSD (P3.000/98%) – (P1.000/98%) x 2% Income tax still due and payable – 2 nd Qtr.400 P 30.5%) Total income taxes Problem 12 – 35 A Income tax on interest income from peso savings bank (P100.000 x 30%) Total income tax Interest income earned by nonresident foreign corporation from EFCD is tax-exempt.800 4th Quarter P1.000 x 30%) Tax on cash dividend – domestic corporation (P100.cumulative Net taxable income Multiplied by normal corporate income tax Income tax due Total income tax paid in previous quarters . P3.000 30.000.000 7.500 P 57.000 20.000 20.960.000) x 30% Final income taxes: Interest income on peso savings (P100. 2-2010.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 111 Chapter 12: Income Tax of Corporations Problem 12 – 35 C Gross receipts (P2.000) P 224.200.000 – P900.000 P360.960.5%) Total income tax .000 P1. Problem 12 – 36 C Income tax from ordinary net income (P1.000 30.000/98%) x 60% x 30% 2% creditable tax 2nd quarter’s gross receipts (P2.000 30% P 540.000 Gross income . (P1.000 380.000 – P900.000 20.

000 P 600.000 x 30%) 112 Chapter 12: Income Tax of Corporations P 30.000 40.000 The cash dividend received from a resident foreign corporation is considered income outside the Philippines because its earnings within does not reached 50%.000 P10.000.000 P 30.000) + (P35.000 x 30%) Total income tax Problem 12 – 39 C Cash dividend from a domestic corporation (P100.000 500.000 P1.000.000 P1.000 P10.000 500.000: 5.000 x 30%) Cash dividend from domestic corporation (P100.000 300.000 P1.000 5.000 60.100.000 P4.305. Letter B Gross premium collected Add: Reserve funds release Gross income Less: Operating expenses Net additions to reserve funds Net income P1.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Problem 12 – 38 A Interest income from peso savings bank (P100. beginning Add: Net additions to reserve funds during the year Total Less: Reserve funds.000.750.350.000 60.000 395.000 10% P 135.000 30.600.000 400.000/30%) Passive income (P60.000 P300.700.000 P300.000 450.000.000 . 30.000 P 90.000/20%) Capital gains (P100.000 35.500.000/30%) Add: Passive income (P60.000 P1.000 at 5%.000 300.000 P 5.000 900.000 P1.000 at 10%) Total income Less: Income taxes paid: Income tax per annual tax return Final tax on passive income Capital gains tax Amount subject to 10% surtax Problem 12 – 42 A Net taxable income (P300. Problem 12 – 41 C Income subject to normal tax rate (P300.000/20%) Capital gains (P35.500.600.000 P1.000 400.000 P1.000 x 30%) Cash dividend from a resident foreign corporation with 100% earnings in the Philippines (P100. Letter A Reserve funds.000 30. Problem 12 – 40 D Zero because the earnings of the said resident foreign corporation have no tax situs in the Philippines.000 600. ending Amount of reserve funds released 2.000/10%) Total Less: Income tax per ITR Passive income final tax Capital gain tax IAET base Multiplied by IAET tax rate IAET Problem 12 – 43 1.

000) (200. however. 37 (A). DA (C-101) dated October 17.000.000 300.000/P500.000) P300.000 vs.000 Allowed.000 30. Letter B Franchise fee Less: Pre-operating and training costs Gross income Less: OSD (P4.000 ( 90.000. 2008) Problem 12 – 45 Year 201A Within Gross income: Philippines USA Japan Deductions: Philippines USA Japan Net income Multiply by tax rate Income tax payable Tax credit allowed – see supporting computation Income tax still due P1. P30.000 x 2%) Income tax still due and payable P10.000 90. 129. Rev.000 30% P 720. Sec. lower (P300.600.000 P 4.000 (200. that the released reserve be treated as income for the year of release. No.000/P500.000) .000 200. NIRC. lower P 60. required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts may be deducted from their gross income: Provided.000 (800. Letter D Franchise fee Less: Creditable withholding tax (P10.000 vs.000 P 2.000) x P150. P100. the net additions. P 200.000) P 60.000 When royalties are received in active pursuit of business.000 P 400.000 Allowed.000 6.000 x 40%) Net taxable income Multiplied by normal tax rate Income tax due Less: Creditable withholding tax (P10.000 Without Total P1.000) (200.000.000 400. if any.000 200.000 P 520.000) x P150.000 = P30. whether domestic or foreign doing business in the Philippines.000 vs.000) x P150.000.000 P90. these are generally subject to 20% final tax.000 300.000. P80.000 = P90.000) (200.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 113 Chapter 12: Income Tax of Corporations In the case of insurance companies. (BIR Ruling No. it is subject to 30% regular corporate income tax.000 Allowed.400.000.000 . lower (P100.000 P90.000.000 1. Regs.800.000 = P60.000 30% P 150. [Sec. If royalties are derived from passive income.000) P 500.000/P500.000 (800.000 x 2%) Net amount of franchise fee 2.000.000 Supporting computation: US Japan Total Tax credits: (P200. 2] Problem 12 – 44 1.000 P10.000 P 9.000.

000 ( 10.200 24.000 P10.500 P10.000 30% P 1.000 30% P 114.000) Adjusted income subject to corporate income tax Multiply by normal corporate income tax Correct amount of income tax Total reported income before tax Less: Normal corporate income tax Total accounting income after tax 114 Chapter 12: Income Tax of Corporations P 600.PCI Bank ($30.800 .000 P 900.000 170.000 112.000 x 30%) Total final passive income taxes Problem 12 – 47 Reported income before tax Add: Loss from sale of shares of stock outside stock market Total Less: Gains subject to final income tax: (1) Gain from sale of stock in the stock market (2) Gain from sale of short-term debt securities (3) Gain from sale of real property (P9.000.000.000 P150.035.000 P 14.500 150.630.000 Problem 12 – 48 Total revenue Operating expenses Service charge – credit card (P1.000.000 Problem 12 – 50 Tuition fees Miscellaneous fees Income from rents Net income.000 350.000 P10.689.000 P 5.000 200.000 200.400.070.311.000/5%) x 3% Net income Multiplied by normal corporate tax Income tax due Less: Creditable expanded withholding tax (P1.000 5.000 P1.000 1.000 50.5%) Dividends from Zerxes.000/5%) x ½ % Income tax still due and payable Problem 12 – 49 Taxable income (normal tax) Add: Income subject to final tax Income exempt from tax Income excluded from gross income Amount of NOLCO deducted Total Less: Dividends Income tax paid for the year Improperly accumulated income Multiply by tax rate Tax on improperly accumulated income P1.000 P 8.005.000. a resident foreign corporation (P500.000 5.000 P 720.000 50.600 60.689.000 x 20%) Royalty income – Philippine Mining Company (P1.000.000.000 10.000 x P50 x 7.000 10% P 72.000 P 25. school canteen Net income.062. book store P2.100 362.000 5.000 36.000) ( 600.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Problem 12 – 46 Interest from savings deposit – Metrobank (P3.000 P1.000.000.000 – P4.000 100.000 10.400.843.000 P 60.000) P 380.000 x 20%) Interest from a depository bank under expanded foreign currency deposit .

000 4th year P2. It is assumed that the educational institution opted to treat the capital expenditures as outright expense to avail of a lower tax.019.000 .000) Total Less: Income tax paid Net income after income tax Multiplied by surtax rate IAET = Surtax P1.500. Problem 12 – 51 (1) Taxable income from operation (P1050.850 10% P 30.700.000. Sales Cost of sales Rent income Gross income 3rd year P1.000 500.A.425.000 30.000 P1.600.000 + P250.000 P1.000.000 (1.000 250.000 P500.000 3.400.000.000 (2. before tax (2) Tax on income from operation (P1.500.200.350.500.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Gross income Less: Allowable deductions: Payroll and administrative salary Other operating expenses Interest expense Outright expense of capital expenditures for new six rooms Taxable income Multiply by the applicable tax rate Income tax 115 Chapter 12: Income Tax of Corporations P3.000 – P5.000.500.000 P2.000) Total income tax paid (3) GAAP income Less: Total income tax (see 2) Net income after tax – GAAP (4) Taxable income from operation Add: NOLCO Income subjected to final tax (P150.850 P306.000 x 30%) Tax on interest income (P150.000 ) 100.326.000 6th year P5. 9337 specifically requires that the interest expense is to be reduced by 33% of the interest income subjected to final tax during the taxable year.000 (2.330 82.000 P 600.000 – P230.000 P1.000 Problem 12 – 52 1.000 x 20%) Tax on capital gain (P250.000 100.000 150.100 750.000 P2.000 10% P 150.000 P100.000 400.000 ( 600.000 ) 300.000.000 P2.000 5th year P4.000 P2.000) 200.000 500.000 P450.685 Note: The tax differential on interest income shall now be used because under R.000 P1.500.700.420 762.000 ) 50.700 P1.000.000/70%) Add: NOLCO deducted Interest income (P120.000 500.000)/90% Total income for GAAP reporting.500.000 P1.000/80%) Capital gain (P230.000 20.

000 ) P 80.000 80% P170.000 ) P 70.000 20% P 25.000 30% P 90.800 P2.000 P2.000 – (P32.000 ) P 300.000 6.000 300.000.000 P1.000/80% x 33%) Net taxable income per ITR ( 300.000 ) P 60. Final withholding tax paid (P32.000 80% P125.000 30% P 255.000 P 4.800 1.000 ( 20.960 P1.000 P4.000 200.000.000 6th year P 40.INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Operating expenses allowed Net taxable income Multiplied by NCIT rate Income tax due Quarterly tax paid Income tax still due and payable 2.000 (1.000 P136. 4.000 80% P 80.000 ) P 215.000/80%) x 20% Net income before tax per GAAP Less: Income tax (P2.000.000 ( 40.400.000 36.000 80% P240.000 P192. • Losses on investment in securities is not deductible – capital loss 3. net of tax Interest income.000. Gross profit Less: Operating expenses: Salaries Depreciation Supplies Interest expense [P50. Sales Less: Cost of sales Reportable gross income per ITR 2.000 32.000 4th year P160.000 P100.200.000 24.000 738.000 116 Chapter 12: Income Tax of Corporations (1.463.000 5th year P120.000 20% P 34. net of tax Divide by Total gross passive income Multiplied by final tax rate Final taxes Problem 12 – 53 1.000 3rd year P 80. Royalty income.000 ( 30.461.536.300.000 30% P 90.000 20% P 48.200 Note: • Interest income is subject to final tax of 20% • Inter-corporate dividend is tax-exempt. net of tax Total passive income.000 30% P 90.000 ( 10.500.000 P10.000 ) P 850.000 P 64.000 (1.000 ) P 300.000 20.000 ) P 300.000 20% P 16.463.040 .000 16.000.200 x 30%) Net income P 8.