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CHAPTER 4

GROSS INCOME
Problem 4 1 True or False
Write True if the statement is correct or False if the statement is incorrect.
1. Only the salary received by a statutory MWE is nontaxable but his income from business is taxable.
2. Any amount received by an employee for any cause beyond the control of the employee is tax exempt.
. !aptismal fees "iven to reli"ious officers are not sub#ect to income tax because of the separation of church and
state.
$. %nder the employee stoc& option' the difference bet(een the fair mar&et value and the option price is
compensation.
). The cancellation of a taxpayer*s indebtedness is an income unless such cancellation of indebtedness is a "ift.
+. ,f debt is cancelled due to services rendered' the basis of tax is the value of service rendered.
-. The excess of actual expenses over advances made shall constitute taxable income if such amount is not
returned to the employer.
.. /emuneration for casual labor not in the course of an employer*s trade or business is not considered
compensation.
0. ,n the sale of service' "ross income means "ross receipts less sales returns' allo(ances' discounts and cost of
services.
11. 2ost of services includes but not limited to cost of facilities directly utili3ed in providin" the services such as
depreciation or rental of e4uipment used and cost of supplies.
11. /ental income includes obli"ations assumed by the lessee in behalf of the lesssor.
12. ,f the advanced payment is received from a customer to deliver a commodity' such receipts should be reported
as income (hen received.
1. ,f the advanced rental is a security deposit' (ithout restriction' then such amount is excluded in the
determination of rental income.
Problem 4 2
Write True if the statement is correct or False if the statement is incorrect.
1. The principle of tax benefit considers reduction of taxable income.
2. ,n "eneral' ille"ally obtained income is taxable.
. /ecovery of estimated bad debts is to comprise other source of income.
$. !ad debts (ritten off constitute income (hen recovered in the year of (rite off.
). The tax benefit rule provides reportin" option to the taxpayer for the recovery of bad debts previously (ritten
off.
+. All amounts received from a life insurance annuity are taxable.
-. ,ncome obtained throu"h ille"al means is included in the (ron"doer*s "ross income even thou"h he is obli"ed
to return it (hen discovered.
.. ,ncome that is not reali3ed is taxable.
0. Actual repayment of embe33led fund by the (ron"doer (ill "ive rise to reduction of his "ross income.
11. As a rule' income obtained ille"ally is not taxable if the (ron"doer is obli"ed to return it (hen discovered.
11. ,ncome received by error is not to be reported as part of the "ross income.
12. 5ividends received by a cooperative from a domestic corporation are tax exempt.
1. When stoc&s dividends received are of a different class from shares previously ac4uired' the stoc&s dividends
are taxable income.
1$. As a rule' excess amount of li4uidatin" dividends over cost of shares surrendered is taxable.
1). 5ividend is tax exempt if received by a resident forei"n corporation from a domestic corporation.
1+. Winnin"s are sub#ect to a final tax of 216' except (hen the amount is 711'111 or belo(.
Problem 4 3 Multile C!oi"e
8elect the letter that contains the best ans(er.
1. Which of the follo(in" income is9 are earned throu"h employee : employer relationship;
i. 7rofessional fee
ii. Wa"es
iii. 7ension 7ay
iv. 2apital "ain
2hoices<
a. i' ii' iii only c. ii and iii only
b. i and ii only d. ii only
2. Which of the follo(in" is taxable compensation income;
a. /etirement pay under !,/ approved retirement plan
b. 8eparation pay due to disability
c. 8eparation pay due to resi"nation
d. Terminal pay by fact of death
. 8tatement 1< All vacation leave and sic& leave ta&en (ith pay are taxable compensation income.
8tatement 2< All unused vacation leave converted into cash are taxable
a. !oth statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. !oth statements are incorrect.
$. Which of the follo(in" is considered as taxable compensation income;
a. Transportation allo(ance paid to ran& and file employee
b. 8ocial security 8ystem !enefits
c. /etirement pay under a duly !,/ approved benefit plan
d. /etrenchment pay
). Which of the follo(in" is not taxable;
a. 72')11 for 11 days sic& leaves actually ta&en
b. 71'2)1 for ) days unused vacation leave converted into cash
c. 71'111 for unused vacation leave received as part of separation pay due to voluntary resi"nation
d. 7)11 vacation leave included as part of as salary not (ithstandin" his absence from (or&
+. Which of the follo(in" is a taxable compensation income;
a. 2ost of livin" allo(ance
b. 5e minimis benefits
c. /etirement benefit under !,/ approved retirement plan
d. /etirement pay
-. 2ompensation income is earned (hen an employee = employer relationship exists. Which of the follo(in"
represents compensation income;
a. >onorarium of the company la(yer as "uest spea&er in company sponsored seminar
b. Emer"ency pay
c. 8ic& leave (ith pay
d. All of the above
.. Which of the follo(in" is not a compensation income;
a. /etirement pay c. Wa"es
b. Allo(ances d. 7rofessional fees
0. Which of the follo(in" (ill result to earnin" of income by the debtor;
a. 2ancellation of existin" payables (ithout any consideration
b. 2ancellation of existin" payables for services rendered to creditor
c. 2ancellation of existin" payable to offset the e4uivalent amount of collectible
d. 2ancellation of existin" payable due ban&ruptcy of the debtor
11. Which of the follo(in" is income to the recipient;
a. 8toc& option c. 7re?emptive stoc& ri"ht
b. 8toc& dividend d. 8toc& (arrant
11. Which of the follo(in" is 9 are not taxable benefits of employee;
i. @od"in" served (ithin the employer*s premises and accepted by the employee as a condition of
employment
ii. @ivin" 4uarter furnished to the employee for the convenience of the employer
iii. @ivin" 4uarter furnished outside the premises of the employee
2hoices<
a. i. only c. ii and iii only
b. i and ii only d. ii only
12. 8tatement 1< /emuneration for casual labor not in the normal course of business is not compensation.
8tatement 2< /emuneration for casual labor performed for a corporation is considered compensation
a. Only the statement 1 is correct.
b. Only the statement 2 is correct
c. !oth statements are correct
d. !oth statements are incorrect
e.
Problem 4 4 Multile C!oi"e
8elect the letter that contains the best ans(er.
1. 2ost of services may be defined as
a. 2ost of services to provide services.
b. 2ost of facilities directly utili3ed to provide services.
c. All direct costs and expenses necessary to provide services.
d. Ao cost involved in providin" services.
2. All of the follo(in" are income (ithin' except
a. 5ividends declared by domestic corporation.
b. 8alaries earned by Filipino overseas contract (or&ers.
c. ,nterest on bonds issued by domestic corporation.
d. ,ncome from business located in the 7hilippines.
. What is the final tax rate or interest income earned from a re"ular savin"s deposit;
a. )6 c. 216
b. 116 d. 2)6
$. Mrs. Bemmarie 7aron" is a minin" operator. >er mineral lands are not covered by any lease contract. The tax
Mrs. 7aron" to pay based on the actual mar&et value of the "ross output or mineral products extracted is
a. Excise tax c. rental
b. /oyalties d. ad ? valorem tax
). ,nsurance premium paid by employer in favor of the insured employee and desi"nate the business of the
employer as the beneficiary.
8tatement 1< The payment of insurance premium is taxable income of the employee.
8tatement 2< The payment of insurance is deductible expense of the employer.
a. Only 8tatement 1 is correct.
b. Only statement 2 is correct.
c. !oth statements are correct.
d. !oth statements are incorrect.
+. The follo(in" are related items to the operation of the sin"le proprietorship business<
i. 7urchases of "oods for sale
ii. Frei"ht in of "oods purchased
iii. 8ale of "oods
iv. Frei"ht out of "oods sold
v. %nsold "oods at the end of the period
Which of the above items are elements of cost of sales;
a. i' ii' iii' iv and v c. i' ii and iv only
b. i' ii' iv and v only d. i' ii' and v only
-. 8tatement 1< 7roperty dividends received by individual from domestic corporation are sub#ect to final
(ithholdin" tax.
8tatement 2< 2ash dividend received by a resident corporation from another corporation not durin" business in
the 7hilippines is sub#ect to final (ithholdin" tax of )6 (ithout reciprocity.
a. !oth statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. !oth statements are incorrect.
.. Which of the follo(in" is sub#ect to 116 final tax;
a. ,nterest income from savin"s account
b. /oyalty income from franchise
c. /oyalty income from patent
d. /oyalty income from literary (or&s
0. Which of the follo(in" dividends are sub#ect to income tax;
a. /eceived by domestic corporation from another domestic corporation
b. /eceived by a resident corporation from a domestic corporation
c. /eceived by domestic from resident forei"n corporation
d. /eceived by non?resident forei"n corporation from another non?resident forei"n corporation
11. 8tatement 1< Benerally' 7ri3es and (innin"s are taxable income.
8tatement 2< 7ri3es less than 711'111 are taxable the same manner as business income
a. !oth statements are correct.
b. Only statement1 is correct.
c. Only statement 2 is correct.
d. !oth statements are incorrect.
11. Which of the follo(in" is not a taxable income;
a. !ad debts previously deducted as item of expense and partially recovered subse4uently
b. Tax expense previously disallo(ed as deduction from taxable income' fully refunded subse4uently
c. ,ncome from "amblin"
d. ,ncome from usurious financin"
12. 8tatement 1< ,ncome that is not reali3ed is not taxable' but ille"al income is taxable
8tatement 2< ,ncome received under a mista&e of fact or la( is to be included as part of the "ross taxable
income.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. !oth statements are correct.
d. !oth statements are incorrect.
Problem 4 # Gross Ta$able Come%satio%
7amela @antes has earned the follo(in" income in 211x<
8alary as a professor' net of (ithholdin" tax of 721'111 7 2.1'111
,ncome from practice of profession as 27A 211'111
7er diem as a board of director 121'111
Thirteenth month pay )'111
First pri3e in essay (ritin" contest )1'111
What is the amount of "ross taxable compensation income;
a. 7$2)'111 c. 7$.1'111
b. 7$)1'111 d. 7+.)'111
Problem 4 & Come%satio% I%"ome
The follo(in" incomes are reported by 2ute' a 27A<
8alary as an accountant 7 1)1'111
Overtime pay 1'111
1
th
month pay and other bonuses 1)'111
Audit retainer*s fee +1'111
2apital "ains from sale of car 2)'111
The total compensation income from employment is
a. 71.1'111 c. 721)'111
b. 710)'111 d. 72))'111
Problem 4 ' ( Come%satio% I%"ome
The follo(in" are reported by 8exy<
8alary as "uest relation officer 7 121'111
Tips +1'111
Moneti3ed 11?day unused vacation leaves $'111
1
th
month pay 11'111
2ost and livin" allo(ance )'111
Achievement a(ards 21'111
>o( much is the taxable compensation income;
a. 7$.1'111 c. 7)11'111
b. 7$.)'111 d. 7)1)'111
Problem 4 ) Retireme%t Pa*
8ue reported the follo(in" retirement<
First employment for 1 years received at the a"e of )1 7 )11'111
8econd employment for 11 tears received at the a"e of +1 $11'111
Third employment for 11 years at the a"e of -1 11'111
>o( much is the nontaxable retirement pay of 8ue;
a. 7 ? 1 : c. 7$11'111
b. 711'111 d. 7)11'111
Problem 4 + Searatio% Pa*
Bor"eous reported the follo(in" separation pay<
First employment for 21 years at the a"e of $1 : resi"ned 7 11'111
8econd employment for 11 years at the a"e of )1
? /etrenchment 211'111
Third employment for 11 years at the a"e of +1 : retirement 111'111
>o( much is the taxable separation pay;
a. 7 ? 1 ? c. 7)11'111
b. 711'111 d. 7+11'111
Problem 4 1, Sto"- Come%satio%
Which of the follo(in" is the "ross compensation income for 1'111 staoc& certificates received as payment of
services rendered to employer; The share of stoc& is sellin" at 711 per share in the stoc& exchan"e. This has par
value of 7) per share. The shares (ere ac4uired by the employer at cost of 7. per share.
a. 7.'111
b. 7)'111
c. 711'111
d. Whichever is the lo(est of a' b or c
Problem 4 11 Come%satio% .rom Sto"- Otio%
An employee received stoc& option ri"ht for 11'111 shares of 711 per common stoc& at option price of 712 per
share for one :year service. At date of "rant' the mar&et price (as 71 per share and at date of exercise and sell of
stoc& option' the mar&et price (as 71).
The compensation income and capital "ain of the employee are
2ompensation income 2apital "ain
a. 71'111 721'111
b. 711'111 721'111
c. 721'111 71'111
d. 711'111 7)1'111
Problem 4 12 Ta$able Come%satio% .rom Sto"- Otio%
C' an officer of D 2orporation (as "iven stoc& portion for 11'111 shares (ith 721 par at option price of 72. The
mar&et price of the share in year 211!' date of "rant (as 72). The option (as exercised in year 2112 (hen the
mar&et value price (as 71.
>o( much (ould be the taxable compensation income of C in year 211! and capital "ain in year 2112;
211! 2112
a 7)'111 7)'111
b. 71'111 7-1'111
c. 721'111 7)1'111
d. 7 ? 1 ? 721'111
Problem 4 13 Ca%"ellatio% o. /ebt
!in"col (or&s as the 2EO of 2o. >is compensation income is 7)1'111 per month. ,n Eanuary 1' 211!' he
borro(ed 711'111 from ! 2o. As a result' his monthly compensation income is reduced by 72)'111 a payment to
his borro(in".
,f on 5ecember 1' 211!' ! 2o. cancelled !in"col*s indebtedness' ho( much is the latter*s compensation income in
5ecember 211!
a. 72)'111 c. 7-)'111
b. 7)1'111 d. 7111'111
Problem 4 14 Ot!er Forms o. Come%satio%
5urin" the year' 8ico has the follo(in" benefits received from his employer<
/ice subsidy of 71'111 per month 712'111
Free housin" as a re4uirement to perform his duty 2$'111
2lothin" allo(ance 1'111
Transportation allo(ance sub#ect to li4uidation +'111
,nsurance premium paid : the beneficiary is 8ico )'111
888 employer*s contribution '111
>o( much is taxable benefits of 8ico;
a. 7 ? 1 ? c. 721'111
b. 7)'111 d. 7$)'111
Problem 4 1# Remu%eratio% .or Casual 0abor
Ana' a sin"le proprietor' employs the follo(in" persons for a short period of time and pays their relative
remuneration
Wor&ers 8ervices rendered 8tatus Amount
W 2leanin" of business e4uipment 1 day (or& 71'111
C /epair service of store 11 day (or& '111
D /epair of home refri"erator day (or& 1')11
F !aby sitter 2asual G1 monthH 2')11
>o( much is the remuneration considered as compensation from casual service received;
a. 7'111 c. 7)')11
b. 7$'111 d. 7.'111
Problem 4 1& Cost o. Goo1s Sol1
5urin" the taxable year' the total purchase of "oods for sale amounted to 7)11'111. Transportation expenses are
7)'111 for "oods purchased and 711'111 for "oods sold. 5urin" the year' total sales amounted to 7))1'111. At the
end of the year unsold "oods amounted to 7$1'111. The cost of "oods sold for the year is
a. 7)1)'111 c. 7$+)'111
b. 7$-)'111 d. 7$+1'111
Problem 4 1( Cost o. Sales
The follo(in" information is available to determine the cost of sale of C
7urchases 7 1'211'111
7urchase discounts 11'111
7urchase returns $1'111
Transportation in )'111
Frei"ht out $'111
,nventory' end )1'111
,nventory' !e"innin" 21'111
>o( much is the cost of sale;
a. 7 0)'111 c. 71'12)'111
b. 71'1.)'111 d. 71'1)'111
Problem 4 1) Cost o. Sales
The follo(in" information pertains to the 2?year operations of a tradin" business<
Dear 1 Dear 2
,nventory' end 7 )1'111 7 1'111
7urchases .)1'111 011'111
Frei"ht in 11'111 1)'111
7urchase discount 21'111 2)'111
The cost of sales for year 1 and year 2 are
Dear 2 Dear 1
a. 7021'111 7.01'111
b. 7011'111 7-01'111
c. 7-01'111 7011'111
d. 7.+1'111 7-01'111
Problem 4 1+ I%"ome .rom Ma%u.a"turi%2 3usi%ess
A manufacturin" business reported the follo(in" for its first operation<
7urchases of ra( materials 7 )$1'111
Frei"ht in 21'111
/a( materials' endin" inventory 11'111
5irect labor $11'111
Factory overhead 211'111
Wor&? in :process' endin" inventory 111'111
Finished "oods' endin" inventory )1'111
8ales 1'2-)'111
Frei"ht out 12'111
8ales return 2)'111
,ts business income is
a. 72.'111 c. 722.'111
b. 72)1'111 d. 71..'111
Problem 4 2, Ser4i"e I%"ome
!efore startin" to render his service' C collected an advance payment of 72'111 for the acceptance of the #ob
contract. When the re4uired service from C (as completed' C received 7.'111 cash service fee after deductin" the
72'111 advanced payment' plus an office machine (ith cash price value of 7'111 and 72')11 cost to the seller.
The "ross service income of C is
a. 71)'111 c. 711'111
b. 71'111 d. 711')11
Problem 4 21 Gross Ser4i"e I%"ome
From the follo(in" data compute the "ross business of a servicin" business<
7rofessional fee' accountin" services 7)11'111
8alaries of accountin" staff 1)1'111
8alaries of office assistant +1'111
Accountin" supplies 11'111
Beneral supplies )'111
a. 7$1'111 c. 72.1'111
b. 7)'111 d. 72-)'111
Problem 4 22 Tele2ra! a%1 Cable Ser4i"e I%"ome
>o( much is the follo(in" receipts of a forei"n corporation (ould be reported as "ross income for 7hilippine
,ncome Tax computation;
8ervice char"es for messa"es<
Ori"inatin" from outside of the 7hilippines sent to the 7hilippines 7)11'111
Ori"inatin" from the 7hilippines 1)1'111
2ollection abroad of collect messa"es ori"inatin" from the 7hilippines +1'111
2ollection in the 7hilippines of collect messa"es ori"inatin" outside the 7hilippines 11'111
a. 71+1'111 c. 7)+1'111
b. 7211'111 d. 7)21'111
Problem 4 23 Re%tal I%"ome
>o( much of the follo(in" amount received in 211! (ill be included in the tax return for the year 211!;
/ent for year 211A 7 .1'111
/ent for year 211! $.1'111
/ent for year 2112 $1'111
/efundable deposit 121'111
a. 7-21'111 c. 7)+1'111
b. 7211'111 d. 7)21'111
Problem 4 24 Re%tal I%"ome
For the year' the follo(in" amounts (ere received from the lessee<
/ent income 7+1'111
For the year*s real property tax assumed by the lessee 11'111
For the year*s insurance' reimburse to lessee 21'111
%nrestricted advanced rent +1'111
>o( much is the taxable "ross receipts;
a. 7$)1'111 c. 7$21'111
b. 7$1'111 d. 7-1'111
Problem 4 ' 2# I%"ome .rom 0ease!ol1 Imro4eme%ts
The lease dated Eanuary 1' 211- provided for construction of improvements at the cost of the lessee' and the
o(nership (ill belon" the lessor at the end of ) year contract. The construction of improvements (hich (as
completed at the end of the
rd
month of the contract amounted to 72$1')11. the improvement has an economic life
of . years and estimated scrap value of 7)+1. The rent income on improvements for year 1 under each method is
Outri"ht 8pread : Out
a. 72$1')11 710'+-2
b. 71$-'+21 722'1$
c. 720'0$1 71$'-)$
d. 72$1')11 71)'$-0
Problem 4 ' 2& I%"ome .rom 0ease!ol1 Imro4eme%t
The follo(in" information are available related to a 11?year lease contract (hich commenced on Eune 1' 211!<
2ost of improvement put up by the lessee 71.1'111
Estimated useful life of the improvement 12 years
5ate completed 5ecember 1' 211!
The reportable income from leasehold improvement for year 211! is
Outri"ht Method 8pread?Out Method
a. 71.1'111 71'0-$
b. 71.1'111 7'-)1
c. 71.1'111 7 ? 1 :
d. 71.1'111 7'0$-
Problem 4 2( Pre'Termi%ate1 0ease Co%tra"t
The follo(in" data are pertainin" to a )?year lease contract (hich started October 1' 2110<
2ost of improvement put up by the lessee 711'111
Estimated useful life of the improvement + years
5ate completed March 1' 2111
The income from leasehold improvement (as reported by the lessor usin" the spread : out method. Assumin" that
the lease contract (as pre?terminated on 5ecember 1' 2112' ho( much (ould be the additional income in 2112
from the pre?termination of contract;
a. 71-')11 c. 7121'111
b. 71)'$)) d. 7 $2')11
Problem 4 2) Passi4e I%"ome
Which of the follo(in" is sub#ect to 116 final tax;
a. 711'111 (innin"s
b. 721'111 pri3es
c. 7)1'111 cash dividend received by an individual
d. 7111'111 property dividend received by a domestic corporation from another domestic corporation
Problem 4 2+ I%terest I%"ome
The follo(in" are the income of a resident citi3en for the period<
,nterest income from an investment in a 11?year bond 7$1'111
,nterest income from )?year time deposit in 7hilippine ban& )1'111
,nterest income from expanded forei"n currency deposit +1'111
>is taxable income is
a. 71)1'111 c. 7$1'111
b. 7111'111 d. 7 ? 1 :
Problem 4 3, I%terest I%"ome
C is a beneficiary for 7111'111 payable in e4ual payments at 126 interest per year. The 7111'111 is payable in
the follo(in" annuity table<
Dear Annual pays ,nterest 7rincipal !alance
7111'111.11
1 7$1'+) 712'111.11 720'+).11 -1'+).11
2 $1'+) .'$$..1 '101.21 -'1-..1
$1'+) == $'$+1.21 -'1-..1 ? 1 ?
Total 72$'01).11
The income earned by the beneficiary in year is
a. 7$1'+).11 c. 72$'01).11
b. 7-'1-..1 d. 7 $'$+1.21
Problem 4 31 Ro*alt* I%"ome
The follo(in" are the "ross royalty income of a resident for the period<
/oyalty income as author 7111'111
/oyalty income from franchisin" 211'111
/oyalty income from "old mine )11'111
The total final tax on royalty income is
a. 7 .1'111 c. 711'111
b. 7111'111 d. 71)1'111
c.
Problem 4 32 Ro*alt* I%"ome
C' a resident citi3en received 7)1')11 from his royalties' net of final taxes of 7')11 for boo& copyri"hts and 7)'11
for exclusive patent. There transactions are correctly summari3ed as
2opyri"ht 7atent
a. Bross income of 71-')11 7)1'111
b. ,ncome after tax of 71')11 7$)'111
c. Bross income of 7)'111 721'111
d. ,ncome after tax of 71')11 721'111
Problem 4 33 /i4i1e%1 I%"ome
A domestic corporation received 7)11'111 cash dividend from a forei"n corporation the earnin"s of (hich are -16
earned in the 7hilippines. The taxable dividend income of the domestic corporation is
a. 7)11'111 c. 7 1)1'111
b. 7)1'111 d. 7111'111
Problem 4 34 Proert* /i4i1e%1
A' a domestic corporation' invested 71'111'111 in 11'111 common shares of stoc& of !' another domestic
corporation. The investment represents 216 of the outstandin" shares of !. 5urin" the year' ! declared property
dividend of 21'111 common shares of investment in common stoc& of 2 2orporation.
The par value of 2*s share is 711 per share. At time of declaration' the fair mar&et value of the share (as 71) per
share but (hen A received the property dividend' the fair mar&et value (as 71+.
>o( much is the taxable dividend income of A;
a. 7 ?1 : c. 7+1'111
b. 7$1'111 d. 7+$'111
Problem 4 3# Pri5es a%1 6i%%i%2s
Which of the follo(in" (innin"s and pri3es received by a citi3en is not sub#ect to 216 final tax;
a. 7.'111 pri3e (on in a TI pro"ram
b. 721'111 (innin"s in a local boxin" exhibition
c. 7)'111 (innin"s in a bicycle race payin" 7)11 entry fee
d. 7)1'111 pri3e (on in a raffle dra(
Problem 4 3& Pri5es a%1 6i%%i%2s
C received the follo(in" pri3es and (innin"s<
First pri3e : raffle dra( Gcost of tic&et' 71'111 H 7 )1'111
7hilippine lotto (innin"s 1'111'111
Bamblin" (innin"s 11'111
!eauty contest (innin"s 111'111
>o( much is the taxable pri3es and (innin"s;
a. 7 )1'111 c. 7$0'111
b. 711'111 d. 7$$0'111
Problem 4 ' 3( 3a1 /ebts Re"o4er*
Dear 1 Dear 2 Dear
,ncome GlossH before bad debts (ritten off
excludin" bad debts recovery 7111'111 G721'111H 7)1'111
!ad debts (ritten off 2)'111 11'111 )'111
7revious year*s (rite off' recover this year 1'111 .'111

For year ' the total taxable income (ould be
a. 7$2'111 c. 7$.'111
b. 7$)'111 d. 7)1'111
Problem 4 3) 3a1 /ebt Re"o4er*
The follo(in" led"er postin"s are available<
Allo(ance for !ad 5ebts Accounts /eceivable
Eanuary 1' balance 71')11 Eanuary 1' Dear 1 7111'111
Dear 1 (rite off 7 .11 Dear 2 sales Dear 1 (rite 7.11
5ecember 1' balance 1'11 on account 111'.11
For year 1' net operatin" income of 7)11 (as reported. ,n year 2' 7+11 of year 1 bad debts (ritten off (as collected.
The income from bad debt recovery to be reported (ould be
Dear 1 Dear 2
a. 7.11 7+11
b. 7+11 7+11
c. Aone 7)11
d. Aone 7+11
Problem 4 3+ Ta$ Re.u%1
,n tear 1' A 2ompany*s net operatin" income reported (as 721'111. The amount is net of 7111'111 operatin"
expenses. 7art of the operatin" expenses is 72)'111 local taxes.
,n year ' 7)'111 of year 1 local tax and 72'111 income tax (ere refunded. What amount of tax refund should be
reported as part of year taxable income;
a. 7.'111 c. 7+'111
b. 7-'111 d. 7)'111
Problem 4 4, Ta$ Re.u%1
5urin" the year' the follo(in" tax refunds (ere received by the taxpayer <
/eal property tax deducted as expense in the previous year 711'111
,ncome tax paid in the previous year )'111
7ercenta"e on shares sold last year 2'111
@ocal taxes paid for the previous year )11
The income tax from tax refund to be reported should be
a. 71-')11 c. 711')11
b. 712')11 d. 711'111
Problem 4 41 A%%uit*
Mr. Aormal received 721'111 as annuity of life insurance from Malayan @ife. The annuity received includes a 116
interest. >o( much is the amount of taxable annuity;
a. 721'111 c. 71'.1.
b. 7 2'111 d. 7 ? 1 :
Problem 4 42 A%%uit*
C received an annuity of 7)'..1' includes of 126 interest as part of the insurance plan entered into by C. What
amount of this annuity is taxable a"ainst C;
a. 7)'..1 c. 7 -1+
b. 7)'2)1 d. 7 +1
Problem 4 43 Ille2all* Obtai%e1 I%"ome
Mr. C received a letter from Mr. D' his brother' to (ithdra( J1'111 from the 7A!. The teller of 7A!' ho(ever'
issued J11'111 to Mr. C in (hich the latter too& the entire money and spent the J0'111 immediately. Assumin" that
the exchan"e rate is 7)1 per J1' ho( much is the reportable income received by error of Mr. C;
a. 7 )1'111 c. 7)11'111
b. 7$)1'111 d. 7 ? 1 :
Problem 4 44 Ille2all* Obtai%e1 I%"ome
Bolan" received a salary of 7)'111 per month as a conductor of 7hilippine @apid. Aside from his salary' he also
obtain some money from the chan"es of bus clients (hich he intentionally ne"lect to return (ith a monthly avera"e
of 7$'111 per month. ,f the !,/ assessed Bolan" usin" the net (orth method' and net increase in net asset is
determined at 71)1'111' ho( much of the ille"ally obtained income (ould be taxable;
a. 711.'111 c. 7 $.'111
b. 7 +1'111 d. 7 $2'111
Problem 4 4# Gross I%"ome 7Ser4i"i%28
A?1 !arber 8hop 8ho(s a total receipts of 7$2)'111 from its hair cut and massa"e services in 211!. The follo(in"
expenses (ere incurred by the barbershop in providin" services<
GaH 2ommission "iven to the barbers (as +)6 of the total receipts.
GbH /ental expense of barbershop apace' 7'111 per month.
GcH 5epreciation of furniture and tools used in renderin" service' 7)'111
GdH ,nterest expense for buyin" furniture' 72'111K and ointment used 71'-)1
Re9uire1: For income tax computation' (hat is the correct amount of "ross income of A?1 !arber 8hop
Problem 4 4& Come%satio% I%"ome
Atty. Orville Thomas is employed as a corporate?la(yer of F@7' ,nternational. ,n 211!' he received the follo(in"
from his employment<
8alary 711'111
One thousand corporate shares of stoc& for special
service rendered in October 211A <
Fair mar&et value per share : 211A 111
Fair mar&et value per share : 211! 12)
2ancellation of debt in lieu of service rendered )1'111
,nsurance Gthe company is the beneficiaryH 21'111
7rofit sharin" $1'111
Re9uire1: 2ompute for the "ross taxable compensation income of Mr. Thomas for year 211!
Problem 4 4( Comre!e%si4e Problem
Mrs. /o(ena Borospe reports the follo(in" items of income and expenses as of 5ecember 1' 211!<
2ash salary' net of (ithholdin" tax' 72)'111 and 888' 7'111 712'111
5ividend from 8an Ma"nolia 2orporation 1'111
2ancellation of her debt from 8an Ma"nolia 2orporation )1'111
@ivin" 4uarters and meals allo(ances' (ithin the employer*s premises $1'111
,ncome tax paid by the employer )'111
One year note receivable from the employer' net of discount
71'111 Gmaturity Eune 1'211!H 10'111
Bross income from business $11'111
Allo(able expenses 2)1'111
7repaid rent income )1'111
,nterest from insurance proceeds' net of (ithholdin" tax 1.'111
!ad debt recovery G+16 previously (ritten offH .'111
Bamblin" (innin"s 21'111
Bamblin" losses 1'111
,ncome tax refund .'111
>ousehold expenses 211'111
5onation from relatives 1)1'111
Winnin"s 11'111
8toc& dividends from Asia !re(ery at fair mar&et value $'111
Re9uire1: 2ompute the taxable income sub#ect to normal tabular tax before personal exemptions.