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NORTHERN CPA REVIEW

TAXATION
Second Pre-Board Examination
PROBLEMS
1. Statement 1: Congress can exercise the power of taxation even without
Constitutional delegation of the power to tax.
Statement 2: Only the legislature can exercise the power of taxation, eminent
domain and police power.
Which statement is correct?
a. Statement 1
c. Statements 1 and 2
b. Statement 2
d. Neither statement 1 nor 2
2. Which of the following normally pays real property tax?
a. Bantay Bata, a non-profit charitable institution
b. Jesus Crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational institution
d. SM Property Holdings, a registered property development company
3. An educational institution operated by a religious organization was being
required by a local government to pay real property tax. Is the assessment valid?
a. Yes, with respect to all properties held by such educational institution.
b. Yes, with respect to properties not actually devoted to educational purposes.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purposes.
4. Which of the following violates Constitutional provisions?
a. Payment of salaries to priests of the Roman Catholic church employed by the
Armed Forces of the Philippines.
b. Subjecting the sale of religious literatures to income tax.
c. Imposition of license for the sale of religious literatures.
d. Authorizing the President of the Philippines to fix the rates of tariffs or
imposts.
5. Tax as to incidence is classified as
a. Fiscal or regulatory
c. National or local tax
b. Direct or indirect tax
d. Specific or ad valorem tax
6. Which of the following statement is correct?
a. In the power of taxation to destroy or not, the Marshall doctrine is
unconstitutional hence the Holmes doctrine is followed in practice.
b. An ex post facto tax law violates the constitution.
c. A tax bill personally drafted by the president shall become a law after
approval by congress.
d. It is in the public interest that errors of public officials should bind the
government.
7. Income tax may be imposed for the following purposes, except
a. To provide large amounts of revenues
b. To limit corruption
c. To offset regressive sales and consumption taxes
d. To mitigate the evils arising from the inequalities in the distribution of income
and wealth
8. Jen is engaged in business. The following pertains to her transactions during
2011:
Sold his personal car which was purchased at P200,000 to a friend who paid
only half of the cars P500,000 current fair value.
Sales of merchandise were P800,000 and the cost of goods sold were
P600,000.
1

Jen acquired several stocks from the Philippine Stock Exchange for
speculation. These stocks have aggregate purchase price of P400,000 but
with P700,000 fair value at December 31, 2011.
Jens house and lot which he acquired for P1,500,000 in 2010 now have
current fair value of P2,500,000.

Compute Jens total income subject to income tax.


a. P1,800,000
c. P250,000
b. P1,550,000
d. P200,000
9. Kate has the following income in 2011:
P10,000 interest income from a non-resident Japanese friend
P40,000 interest income from Philippine residents
P500,000 rent income from a commercial complex located in the USA leased
to resident Filipinos
P200,000 rent income from a boarding house in Baguio City, Philippines
P200,000 professional fees rendered to Chinese clients in Hong Kong
P300,000 salary from a resident employer
P100,000 gain from sale of merchandise imported and sold to Filipino
residents
P50,000 gain on sale of merchandise purchased locally and sold during his
business travel in Hong Kong
P400,000 gain on sale of the boarding house located in Baguio City to a nonresident buyer
Compute the Kates total income earned from sources within the Philippines?
a. P1,800,000
c. P1,140,000
b. P1,430,000
d. P1,040,000
10.Mrs. Julian started business on July 15, 2011. Her 2011 income tax return shall
cover which period?
a. January 1 to July 15, 2011
b. July 16, 2011 to July 15, 2012
c. July 16, 2011 to December 31, 2011
d. January 1 to December 31, 2011
11.Blitzkrieg Corporation started business on April 5, 2011 and opted to report
income tax on a fiscal year ending every October 31. Blitzkriegs first income tax
return shall cover?
a. April 5, 2011 to October 31, 2011
b. April 6, 2011 to October 31, 2011
c. April 5, 2011 to December 31, 2011
d. April 5, 2011 to April 5, 2012
12.Mr. Talipao derived the following income in 2011:
Business income
P 200,000
Compensation income
300,000
Interest income from 5/6 lending to clients100,000
Interest income from bank deposits
20,000
Royalty income
100,000
Capital gain on sale of personal car
20,000
Capital gain on the sale of stocks directly to buyer
Ordinary gain on sale of old office furnitures10,000
Dividend income
50,000
Winnings from PCSO
1,200,000

40,000

Compute the total passive income subject to final tax.


a. P1,470,000
c. P270,000
b. P1,370,000
d. P170,000
2

13.Compute the total income subject to regular tax.


a. P1,730,000
c. P630,000
b. P1,470,000
d. P530,000
14.Compute the capital gain subject to capital gains tax.
a. P70,000
c. P40,000
b. P60,000
d. P 0
15.Juan, a farmer, uses the crop-year method in reporting his income from longterm crops. The following data are relevant to his farming operations in 2011:
Sales of crops harvested, P800,000
Expenses on harvested crops, P300,000
Expenses on maturing crops, P200,000
Expenses on newly planted crops, P100,000
Sales of a fully depreciated tractor, P40,000
Juan uses the crop year method in reporting crop income. Compute Juans total
income subject to tax.
a. P540,000
c. P340,000
b. P500,000
d. P240,000
16.Mr. Alvarez has the following income during the year:
Gross compensation income
including P25,000 13th month pay P 325,000Less: Tardy or absences
(
10,000)
Net compensation income
P 315,000SSS deductions
12,000PhilHealth deductions
9,000Pag-Ibig deductions
10,000Union dues
5,000Withholding tax
40,000Net pay
P 239,000Compute the total exclusions from gross income?
a. P36,000
c. P66,000
b. P61,000
d. P71,000
17.Ms. Henson retired from her job after 25 years of service. She joined the
company at the age of 23 and was promoted from an accounting clerk to VP
Finance. She was paid P2,000,000 total retirement pay from the employers
contributory pension plan which was duly registered with the BIR. Out of the total
proceeds, Ms. Henson contributed P600,000. This was Ms. Hensons first
retirement from employment.
How much is not included in gross income.
a. P2,000,000
c. P600,000
b. P1,400,000
d. P 0
18.Andres is a lessor of commercial spaces to one client. During the year, he
received the following remittance:
Rental, net of 5% creditable withholding taxP 1,900,000
Real property tax
50,000
Reimbursement for utilities used
by lessees paid by Andres
200,000
How much will be included in gross income subject to regular tax?
a. P2,250,000
c. P2,000,000
b. P2,050,000
d. P1,950,000
3

19.The proceeds of life insurance received by the wife of the insured is


a. Exempt from income tax.
b. subject to final tax.
c. Eart of taxable income.
d. Partly exempt and partly taxable.
20.The following entry were made on the books of ABC Corporation:
Fringe benefit expense
Fringe benefit tax expense
Cash

1,100,000
256,000
1,920,000

The fringe benefit granted to rank and file is.


a. P300,000
c. P556,000
b. P432,000
d. P800,000
21.An individual income taxpayer reported the following:
Capital loss current year

P
50,000
200,000
70,000

Capital gain current year


Net capital loss last year

Compute the total capital loss deductible in the current year.


a. P320,000
c. P120,000
b. P200,000
d. P50,000
22.A taxpayer reported the following items of gross income and deductions in 2011:
Rent income

P
400,000
200,000
50,000

Service fees
Interest income from bank
deposits
Deductible expenses
Non-deductible expenses

800,000
100,000

Compute the NOLCO to be carried out in the next three years.


a. P300,000
c. P200,000
b. P250,000
c. P150,000
23.An individual taxpayer showed the following:
Gross income
Deductible business
expenses
Net capital gain or (loss)

2011

2012

P
300,000( 360,00
0)
(
50,00
0)

P
400,000( 300,00
0)
70,000-

Compute the 2012 taxable income before personal exemptions.


a. P 170,000
c. P 110,000
b. P 120,000
d. P 60,000
24.Mr. Calabarzon reported the following data during 2011:
Sales

P
1,000,000
4

Cost of sales
Gain on sale of equipments
Interest income from bank
deposits
Deductible expenses
Non-deductible expenses

600,000
60,000
40,000
300,000
200,000

Compute the optional standard deduction.


a. P440,000
c. P 400,000
b. P 424,000
d. P 160,000
25.Zambales, Inc. made the following contributions during 2011:
Contributions to the government in nonpriority activities
Contributions to foreign charitable
institutions
Contribution to accredited non-profit
institution
Contributions to foreign organizations
fully
deductible under treaty provision

P
60,000
40,000
30,000
100,000

Zambales, Inc. has net income before contribution expense of P1,000,000.


Compute the deductible contribution expense.
a. P230,000
c. P180,000
b. P190,000
d. P130,000
26.A VAT taxpayer cannot deduct all of the following as expense, except?
a. Philippine income tax
b. Donors tax
c. Value Added Tax
d. Interest on tax delinquency
27.Which is not a requisite of a claimable dependent?
a. Must be legitimate or legally adopted child
b. Must be living with and dependent upon the taxpayer for chief support
c. Must not be more than 21 years of age, except when incapacitated
d. Must not be married or employed
28.Which of the following occurrences will not cause a change in the amount of
claimable personal exemption either in the current or future years?
a. Death of a dependent of the taxpayer
b. Having new dependent
c. Death of the taxpayer
d. Marriage of the taxpayer
29.Which of the following may be subject to 15% gross income tax on compensation
and hence cannot claim personal exemption?
a. Resident citizen employed by a finance institution
b. Resident alien employed by a software development company
c. Resident citizen employed by an offshore banking unit
d. Resident citizen employed by a construction company
30.Which is not subject to special corporate tax rate?
a. Proprietary educational institution
b. Offshore banking units
c. International carriers
d. Private hospitals
5

31. PC Repair, business partnership providing services, reported the following:


Services fees
Salaries of staff, supplies and other direct costs of
providing services
Interest form bank deposits
Gain on sale of land classified as capital assets
Gain on sale of used equipment to clients
Other deductible business expenses

Compute the income tax due.


a. P200,000
b. P250,000

P
2,000,000
1,000,000
50,000
400,000
150,000
500,000

c. P195,000
d. P225,000

32. Iligan, Inc. became subject to MCIT in 2011. Assume Iligan will have the following
RCIT and MCIT data:
2011
2012
2013
2014
2015
RCIT
P
0
P 500
P 300
P 200
P 400
MCIT
400
600
200
350
350

Compute the income tax payable in 2015.


a. P100
c. P150
b. P120
d. P200
33. Green Air, a resident foreign air carrier, reported the following summarized results of
its Philippine operations:

Gross receipts
Less: Direct
expenses
Other
expenses
Net income

Inbound
flights
P9,000,0
00
4,000,00
0

Outbound
flights
P8,000,0
00
3,000,00
0

Total
P17,000,0
00
7,000,000
4,000,0
00
P
6,000,000

Compute the income tax payable of Green Air.


a. P200,000
c. P1,800,000
b. P600,000
d. P1,920,000

34. Makati Trading, Inc. reported the following on its fifth year of operation:
Sales
Cost of sales
Royalties from invention
Gain on sale of domestic stocks directly
to buyer
Rent income
Interest from customers promissory
notes
Business expenses

Compute the income tax due.


a. P0
b. P20,000

P
4,000,000
2,000,000
250,000
150,000
100,000
50,000
2,000,000

c. P15,000
d. P43,000

35.Which is included in the gross income of a resident alien decedent?


a. Properties held as agent
b. Properties held under usufruct
c. Properties to be bequeathed to a charitable institution no part of which is to
be used for administrative purpose
d. House and lot located abroad
---- End of Examination----