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Tax questions

Bellum de Asphodelia
1. True or False:
The situs of the franchise tax is the state where the franchise operates.
[FALSE]
The situs of the franchise tax is the state where the franchise is granted
2. Omar sold for P 10,000,000 his Baguio rest house with a fair market value of
P 12,000,000 to buy a new principal residence. If Omar utilized P 8,000,000 of
the proceeds of the sale in acquiring a new principal residence, the capital
gains tax payable is
[P 720,000]
3. This principle limits the authority of the government to effectively impose
taxes on a sovereign state and its instrumentalities, as well as on its property
held and activities undertaken in that capacity. [INTERNATIONAL COMITY]
4. A taxpayer is a married non-resident alien engaged in business in the
Philippines with two (2) qualified dependent children. His country gives a nonresident Filipino with income therefrom a basic personal exemption of P
4,000. He is entitled to total personal exemption of
[P 54,000]
50,000 + 4,000 (reciprocity) = 54,000
5. Which of the following statements is/are true regarding the limitation of
taxing power?
Statement 1: Tax exemption of the government is a constitutional limitation.
Statement 2: Non-infringement of religious freedom and worship is
constitutional limitation.
Statement 3: Internal revenue allotment to local government units is an
inherent limitation.
Statement 4: Territoriality or situs of taxation is an inherent limitation
[Statement 2 and 4]
Tax exemption of the government is an inherent limitation
Internal revenue allocation to local government unit is a constitutional
limitation
6. Mia received the following in December:
Thirteenth month pay
Christmas bonus

P
15,000

7,500
Monetized vacation leave for 5 days
10,000
How much is the taxable compensation income of Mia?
[P 0]
7. True or False:
The authority to promulgate all needful rules and regulations of the code is
vested on the Commissioner of Internal Revenue upon the recommendation
of the Secretary of Finance. [FALSE]
The authority to promulgate tax rules is vested on the Secretary of Finance
upon the recommendation of the Commissioner of Internal Revenue.
8. In 2014, Ares Corp., a calendar year corporation contributed P 80,000 to a
qualified charitable organization. Ares 2014 income was P 820,000. In 2014,
what amount can Ares deduct as charitable contribution?
A P 80,000
B P 45,000
C P 41,000
D P 51,000
[B]
(80,000 + 820,000) x .05 = 45,000
Contribution of a corporation which is subject to limit shall be 5% of the
taxable income of the corporation derived from trade or business before
deducting the contributions
9. The least source of tax laws:
A Statutes
B Presidential Decrees
C Revenue Regulations
D Tax treaties or conventions
[C]
10.A domestic corporation made a borrowing from XYZ bank thereby incurring a
business connected interest expense of P 60,000 for taxable year 2014.
During the same year, the corporation earned an interest income subject to
final tax I the amount of P 100,000. The deductible interest is
[P 26,667]
60,000 (100,000 x 33 1/3%) = 26,667
Bellum de Tartarus
1

Kendra operates a convenience store from which gross receipts and


payments on purchases from VAT-registered supplies were as follows:
Sales of processed food items
P 300,000
Sales of non-food items
245,000
Purchases of processed food
120,000

items
Purchases of non-food items
Salaries of helpers
The percentage tax (tax due) is?
[P 16,350)

72,000
36,000

(300,000 + 245,000) x .03 = 16,350


2

The official action of an administrative officer in determining the amount of


tax due from a taxpayer, or it may be a notice to the effect that the amount
stated therein is due from the taxpayer with a demand for a payment of the
tax or deficiency stated therein.
[Tax assessment/Assessment]

A property was transferred mortis causa. The following data were gathered
from the transaction:
Fair market value, time of transfer P620,000
Fair market value, time of death P 470,000
Consideration received when transferred P275,000
How much shall be included in the gross estate?
[P 195,000]

Within how many year/years from the date of sale can the delinquent
taxpayer or anyone from him redeem a property levied upon payment of
taxes, penalties and interest?
[1 year]

5 Sale or lease of goods or properties or the performance of services other than


the transactions mentioned under Sec. 109 (a) to (w) is exempt from VAT if
the gross annual sales and/or receipts do not exceed the amount of?
[P 1,919,500]
6 The minimum compromise rate in case of financial incapacity is ___ of the
basic assessed tax
[10%]
7 Bee, not happy with her present job, resigned and started her owned
business. The business requires her to travel so she used her car for the
purpose. Assume that Bee started her business on April 1 and that she uses
the car for the business 70% of the time, assuming total expenses for the use
of the car is P 300,000, the deductible expense is
[P 157,500]
300,000 x .70 x 9/12 = 157,500
8 JPIAPLM Corporation filed its income tax return for the calendar year 2013 on
April 10, 2015. The return was not false or fraudulent, the last day for the BIR
to collect if without prior assessment is?
A April 10, 2018
B April 15, 2018

C April 10, 2020


D April 15, 2020
[B]
The power of the state to assess (investigate/audit) taxpayer shall prescribe
after THREE (3) years from the date the return is due (required by law) of
filed whichever is later.
9 The records of Sunshine Corporation, a domestic corporation organized I 2003
show:
2013
2014
Gross Income
P
P
2,000,00
2,200,00
0
0
Deductions (5% represents bad debts
written off)
1,900,000 2,000,00
0
Net Income (loss)
100,000
200,000
The income tax payable for 2013 is?
[P 40,000]
MCIT (2% of GI) 2000,000 x .02 = 40,000
NT (30% of NI) 100,000 x .30 = 30,000
Income tax payable is higher of MCIT and NT thus, P 40,000
10 The tax rate
A 2 % of
B 2 % of
C 4 % of
D 4 % of
[A]

for resident international carriers is:


gross Philippine billings
net Philippine billings
gross Philippine billings
net Philippine billings

Bellum de Elysium
1. An individual whose residence is within the Philippines and who is not a
citizen thereof. [Resident Alien] (ET)
2. A taxpayer engaged in business incurred a partial loss of property as follows:
Book value of the asset at the time of loss
P
350,000
Cost to restore the property back to its normal operating condition
250,000
Insurance recovery
40,000
Salvage value
30,000
The deductible loss for the asset is?
[P 180,000] (AP)

Lower of the book value and cost to restore less insurance recovery and
salvage value
250,000 40,000 30,000 = 180,000
3. Identify whether the following statements are true/false:
Statement 1: A protest must be filed within 60 days from receipt of
assessment
Statement 2: Supporting documents shall be submitted within 60 days from
the date of the filing of the protest
Statement 3: Claim for refund must be within 3 years from the date of
payment
Statement 4: The states shall prescribe within 5 years from assessment or
within period for collection agreed upon in writing before expiration of the 5year period
[FALSE, TRUE, FALSE, TRUE] (DT)
4. On May 2014, Cha gave a piece of land to Evette, her best friend who passed
the board examination. The land has a fair market value of P 120,000 and
had an unpaid tax of P 15,000 which was assumed by the done. How much
was the donors tax due?
[P 31,500] (EP)
(220,000 15,000) x .30 = 31,500
5. Refers to the mass of properties left by a deceased person. [Estate] (ET)
6. A retailer of goods, whose accounting method is under the accrual basis, has
gross sales of P 2,750,000 with a cost of sales amounting to P 2,440,000. The
tax payer opted to use OSD as deductions. Assuming the taxpayer is an
individual, how much is his taxable income?
[P 1,600,000] (AP)
(2,750,000 x .60) 50,000 = 1,600,000
7. True or false:
Non-resident aliens engaged in trade or business in the Philippines cannot
avail deductions from gross income. [FALSE]
Non-resident alien not engaged in trade or business in the Philippines may be
entitled to personal exemptions subject to reciprocity. [FALSE] (AT)
Only NRA-NETB cannot avail deductions from gross income.
NRA-ETB may be entitled to personal exemptions subject to reciprocity
8. Arthur is a mining engineer employed by Goldie Co., a mining firm. The
companys mine is in Mindanao. Arthur was provided by the company with
living quarters at the mind site which fair value is P 25,000 a month.
Determine the fringe benefit tax due.
[P 0] (AP)

The living quarters is necessary for the conduct of the business, thus, no
fringe benefit tax is due.
9. True or False:
Statement 1: Commissions and honorarium are taxable incomes of minimum
wage earners.
Statement 2: Minimum wage earners are still required to file income tax
returns
[TRUE, FALSE] (ET)
10.In 2013, MG Co., a domestic corporation has net income from within the
Philippines of P 450,000 and from the USA, P 360,000. Income tax paid on
income from USA is P 102,000. The tax credit on income tax paid to US
government is
[P 102,000] (DP)
Net income, Philippines
Net income, USA
Taxable income
Income tax (30%)
Tax paid in USA
Limit (360/810) x 243,000
Tax credit (lower)

P 450,000
360,000
810,000
243,000
P 102,000
108,000
P 102,000

11.Indicate whether the following statements are true or false:


Statement 1: Corporate Income Tax maybe availed only by domestic
corporation
Statement 2: Corporate Income Tax maybe availed by resident foreign
corporations
Statement 3: Corporate Income Tax maybe availed by non-resident foreign
corporations
Statement 4: Gross Income tax maybe availed by domestic, resident foreign
and non-resident corporations
[FALSE, TRUE, FALSE, TRUE] (DT)
Corporate Income Tax maybe availed by domestic and resident foreign
corporations.
12.Leo sold his warehouse building to Jason. The property was acquired by him
in 2010 for P 520,000. At the time of sale, its accumulated depreciation is P
135,000. The terms of the sale are as follows:
Cash paid, June 1, 2013
P 80,000
Installment, September 1, 2013
20,000
Installment, December 1, 2013
20,000
Installment, March 1, 2014
190,000
Installment, June 1, 2014
190,000
The income to be reported by Leo in 2013 is
[P 27,600] (DP)
Initial payment rate (120,000/500,000)

24%

Selling price
500,000
Less: Book Value
Cost
520,000
Accumulated depreciation
135,000
385,000
Gross profit
115,000
Income to be reported in 2013:
(120,000/500,000) x 115,000 = 27,600
13.Indicate whether the following statements are true or false:
Statement 1: The nature of the excess minimum tax over the normal tax is a
deferred asset.
Statement 2: Any excess of MCIT over NIT can be carried forward on a
quarterly or annual basis as the case maybe
[TRUE, TRUE] (ET)
14.Britney died in USA with the following properties:
Condominium unit in Seattle
Shares of stock in a foreign corporation
Interest in a partnership, domestic
Bank deposit in New York City bank
Car in Davao, donated inter vivos to son

P 3,000,000
750,000
500,000
250,000
650,000

If the decedent was a non-resident alien (with reciprocity), how much is the
gross estate?
[P 0] (AP)
When the decedent is a non-resident citizen, real and personal properties
which situs is in the Philippines are included in the gross estate. However,
since there is reciprocity, properties situated in the Philippines will not be
included in the computation of gross estate.
15.
Profits of a corporation that are permitted to accumulate instead of
being distributed by a corporation to its shareholders for the purpose of
avoiding income tax with respect to its shareholders or the shareholders of
another corporation.
[Improperly Accumulated Earnings] (ET)
16.Rap, a farmer, had the following data for a year:
Sales of livestock and farm products raised
Sales of livestock and farm products purchased
Cost of raising livestock and farm products
Cost of livestock and farm products purchased and sold
Gain on sale of farm equipment
Proceeds from crop insurance
Inventory of livestock and farm products:
January 1
15,000
December 31
12,000
The gross income under accrual method is?
[P 267,000] (DP)

P 200,000
80,000
75,000
35,000
5,000
20,000

Sales of livestock and farm products raised


200,000
Sales of livestock and farm products purchased
80,000
Cost of livestock and farm products purchased and sold
(35,000)
Gain on sale of farm equipment
5,000
Proceeds of crop insurance
20,000
Inventory, December 31
12,000
Inventory, January 1
(15,000)
Gross income
267,000
17.
One of the following is an indirect tax
A Income tax
B Value added tax
C Estate tax
D Real estate tax
[B] (ET)
18.Laura donated cash to his son on account of marriage on October 2012 as
follows:
January 15, 2013
P 25,000
March 10, 2013
20,000
July 15, 2013
50,000
September 10, 2013
100,000
The donors tax due on September 10, 2013 donation is
[P 1,700] (DP)
Gross gift
Add: Prior gifts
January 15 (25,000- 10,000)
March 10
July 15
Total Gifts
On P 100,000
On P 85,000 (85,000 x .02)
Gift tax due

100,000
15,000
20,000
50,000
185,000
0
1,700
1,700

85,000

19.Donors tax as distinguished from state tax.


First distinction: The rates for donors tax are lower than those of estate tax,
in all cases.
Second distinction: In donors tax, the exemption is P 200,000 while in estate
tax it is P 100,000
A Both distinction are correct
B Both distinctions are wrong
C First is correct, second is wrong
D First is wrong, second is correct
[B] (AT)
20.What theory in taxation states that without taxes, a government will be
paralyzed because of lack of power to activate and operate it resulting to its
destruction?

[Lifeblood theory] (AT)