7 CPAR CPA Review Schoo! ef the Philippines FIRST PRE-BOARD EXAMINATION Saturday, February 11, 2017 Tesetion ‘8:00 AM to 10:00 AM. {Imeecions: Choose the BEST answer for each of the following items. Mark only one answer for each item on the Special Answer Sheet provided. Strictly no erasure allowed. 1. Which ofthe following i's ise statement? ; a Being an inherent power, the legislature can enact laws to raise revenues even without the grant of ‘said power in the constitution ~~ ’b. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government without being expressly conferred by the people . The constitutional provisions relating to the power of taxation operate as_grants of power of the government T d. The power to tax is a necessary attribute of sovereignty and is essentially a legislative function 7 wx 2. The stages or aspects of taxation, except) a a.Levy or imposition b. Assessment and collection c. Payment by the taxpayer #1. Prescription 3. Atest applied in the realization of income and expenses by art accrual basis taxpayer a.Allevents test b. mmediacy test c, Rational basis test 4, Predominance test) 4. A test applied to determine whether the accumulation of fle {aX profits bY a’domestic or resident foreign __ corporation is really for the reasonable needs of the business All events test b. Immediacy test ¥ Rational basis test d. Pre-dominance test 5. Attest applied to gauge the constitutionality of an assailed law in the face of an equal protection challenge a.Allevents test b. Immediacy test ¢.Rational basis test _d. Pre-dominance test 6. Which of the following is not torrect? ‘2. Gains realized by the investor upon redemption of shares of stock in a mutual fund company are h exempt from income tax coy b. Am individual taxpayer can adopt either the calendar year or fiscal period f6r purposes of income tax ‘c. The capitalization rules may be resorted to by the BIR in order to compel corporate taxpayers to declare dividends to their stockholders regularly 4. Informer’s reward is subject to final withholding tax of 10% 1 Which of the following items ari fot taxable? =. " ‘Income from jueteng ~~~ c. Income taxes paid and subsequently refunded (* t Gains arising from expropriation of property d. Gains on the sale of a car used for personal purposes 8. Which ofthe following are deductible from gross income for income tax purposes? ‘a Interest on loans used to acquire capital equipment or machinery bReserves for bad debts Aiie) mien ¢. Worthless securities which are ordinary assets ( <4Wortles sccuriies which are capital assets 10" 9, An offline international air carrier having a branch office or a sales agent in the Philippines which sells _passage documents for compensation or commission to cover off-line flights of its principal or head office (6 for other ailines covering flights originating from the Philippines ports or off-line flights is ‘a Subject to 2 % % income tax on its gross Philippine billings Subject to 3% common carrier’ tax on gross Philippine billings Not subject 15 2 % gross Philippine billings tax nor to the 3% common carriers tax d Subject to both the 2% gross Philippine billings and to the 3% common carriers tax X10. In Computing net meome, no dedi : rasan, deduction nay cse be allowed in pet of loses fom sles or exchanges 2 Betwoon the fiduciary a siberrst bene assets eee if the same person i the beneficiary Berween the (airy of a ust and the grantor f Beswee the fiduciary a's rust ad the Beefcay of uch ws Between members ofa famly of an indidual which sal incladethe bot ether by the whole or half blood, spouse, ancestors and lineal descendants mee 2 UI A cash dividend of P100,000 received by a ir pee ‘ecived Py.a taxpayer in 2016 fom a domestic corporation whose ineome a Partly tssable if he is resident ctizea ¢ Partly taxable if he is a resident citizen Exempt {ax ifhe is anon resident citizen d Taxable in full ifhe is a non-resident citizen 12. (A cash dividend of P100,000 received by a taxpayer ‘corporation whose incom r from a f rai FPnippine sources 60% of ttl come is =» aie ts all ee a. Exempt from income tax if itis a domestic corporation Exempt from income tax if it isa foreign corporation 13. The following data. €Taxabie in full if he is a resident citizen . Taxable in full if he is a resident alien’ .net income , bad debt, write off and recovery sho ans tar eye Fe tr Cauca” Case Case Net income (loss) before write off + P:80,000 P#40,000 (P20,000) = Less: Bad debts written off and claimed as deduction = 50,000 /_50,000 50,000 ‘Net income (loss) after write-off P 30,000 / (P10,000) (P70,000) a dour 4 ‘Subsequent recovery P50,000~ P 50,000 P 50,000 The taxable recovery is . Case A Case B Case C ‘Case A Case B CaseC = —-PS0,000 ~—PS0,000-——-PS0,000.PS0,000 40,000 PF 20,000 b. P5000 «POPC. P50,000 40,000 PO 14, Using the preceding number, but the subsequent recovery for Case A ~ P30,000; Case B - P30,000 and ‘Case C— P30,000, the taxable recovery is . Case A Case B Case C Case A ~ CaseC a ———-P30,000 30,000 30,000 c:—_—P30,000 000 PO b. —P30,000 30,000 «=P «~.0 «d_~—P20,000 P20,000P20,000 15. The following are characteristics af special assessment, except a. It is levied on lands only / It is based on the improvements introduced by the government . It is based on the benefit derived by the owners of the land ~ It is a personal tiability of the persons assessed \ 4 16. As to scope of legislature power to tax, which of the following is correct? \ : Toe power io tax is supreme, plenary, comprehensive and without any Knit beause the existence of the government is a necessity : b. The dsereon of Congress in imposing taxes extends to the mode, method and kind of tx, even ifthe ‘constitution provides otherwise : ce: Cones has th right wo Tevy atx of any kind at any amount a i ses fit, even in the absence of ny nie Congress, provided the purpose is Prey the purpose for which taxes shall be levied is Congress, , a Tei cal ie oat pe not review the levy of the tax to determine ‘whether or not the purpose is way not review | public bJ NGeNt citizen rece; ate af the - ived a pri Aten ota foun Peon ‘Which of the following statements is correct in connection 10, wi 'S Patt of taxable income while, the remaining P30,000 is subject to 20% final 10,000 shall be subject to 20% final tax x be exempt from tax, the remaining P30,000 is subject to 20% final tax 18. Under thi this system, the amount of i " PRYMENE of the income ne not Wiheld bythe withholding agent is constituted as full and fue from the payee on the said income baat Mb withholding tax” e, Global tax system . Final withholding tax 4. Schedular tax system \Nt one 19.5 \\ ‘an Jon and Company, a business ‘Partnership has the following data of income and expenses for 2015: ae P 750,000 +r Expenses — 200,000 ‘ 1 Dividend Teecved from a domestic comoration—~ 90,000, Interest on deposit (net) — 10,000 > Partners Jun and J , fon share profits and losses in the ratio of 55% and 45%, respectively. The income tax Payable by the partnership is fi $ nS ® P192,500 _b. PI87,000 «.P176,000/ . Exempt a: 9 (20. The final taxes withheld on the respective share of Jun and Jon in the 2015 partnership income are RA a a Jun—P25,162:50 and Jon — P20,587.50 ¢. Jun - P20,212.50 and Jon —P16,537.50 \ b. Jun—P19,662.50 and Jon — P16,087.50 . Jun — P24612.50 and Jon — P20,137.50 21. A domestic proprietary educational institution improved its library facilities by adding a new wing to its old library building. The capital outlay on library improvement, for income tax purposes, may be a. Deducted in full at the time of completion of the improvement 'b. Capitalized or expensed outright at the option oth ara came _ ¢. Capitalized and depreciated over the estimated life’ improvement * d_ Capitalized or expensed outright at the option of the goverment 22, Which of the following special tax rates is ndibghece 2 25% of gross income of non-resident cinematographic film owner, lessor or distributor _. _b. 7% % om gross centals of non-resident owner or lessor of aircraft, machineries and other { ) ‘equipment v4 2% %on gross Phi’ ppine billings of resident international cartier = 4% % on gross re «als of resident owner or lessor of vessels chartered by foreign nhtonals ae 23. X, who is single, maintains Y, 1 common-law wite who is legally separated from her husband Z. X and Y have two children who are un‘\srried minors and ere living with and wholly dependent upon X for support. For income tax purposes, is X considered as head of the tunity? ¢ Answer: Yes, because although the children were born out of wedlock, they are his recognized illegitimate ch 'Idrea living with him and wholly dependent upon him for support. : No, X is not a tiead of the family because his children with Y are presumed to be the legitimate ely ‘deen of ¥ and Z I answer is correct, 2° answer is wrong. Both answers are wrong. b, Both answers are correct 4. 1" answer is wrong, 2" answer is correct 1” 24, Which ofthe following statraemts is Hot correct? a If the taxpayer should he ve adaitional ets during the txable year, he can claim the exeaagtions a wa cierto IL k b. If the taxpayer should d. : during the taxable year, his Ustate may claim the personal exemption as if he ied atthe close of such vas ©. Wa qualified depends sould become 21 years old during the taxable year, the taxpayer may claim fhe personal exemption @ P220,000 b.P89,500°-——¢. PO7,250 4. P115,000 46. A, single, had the following from January 1 to June 30, 2016” af 4 ‘Compensation income(net of payroll deductions) P 180,000“ Deductions made by the employer: SSS housing loan 24,000 SSS premiums contributions 3,600 Philhealth contributions 2,400 Pag-ibig contributions 1,800 Union dues 2200 Premiums payments on Life insurance policy 3,000 Health insurance policy 2,400 ‘The taxable compensation income is, 1 P1S4,000— B.PI1S7,000 sy. P158,200 4. P133,000 47. A domestic corporation has the following data for 2015: Excess MCIT 2014 — —” PI11,000) oo Sor J we Income, net of 1% withholding tax P 495,000“ P792,000 ) Deductions 480,000 700,000 - ‘How much is the income tax still due and payable in the second quarter? 3.0 ee %) a) P3000 b.P7,000f P1300 d. P23,000 fa fy pe) ~ iy o> A ty 48. A, married, died on January 1, 2011. She left an estate with a fair marke 4M) During the year, € had a gross income of P800,000 anc tn ef a hee . ‘to B and another. P200,000 to C, A’s beneficiaries, 50% of the amounts given to B and C came from the income of the estate and the other 50% came from the estate, The net taxable income af the estate in 2011 is a. P50,000b. P80,000 c. P250,000 d. P280,000 49. ABC Corp. concluded its eight year of operations, Its fiscal year ended June 30, 2009. The net income from ee July 1, 2008 to ne 30,2009 amcunied 4 PIM, The pros income for te oee ens eae Bom \ / imcome tax due for the taxable period is a. P350,000 b. P300,000 c. P325,000 d. P400,000 50. Using the above data, but the ninth year of operations from July 1, 2009 to June 30, 2010 shows a net "mcome of P1.2M and gross income of P1SM. The tax due for the period is ) & P360,000 'b. P310,000 ¢. P260,000 4. P285,000 io ~\‘ _ ed bee ‘The following were taken from the income stement of A Corpofation forthe taxable year 2016: Gross profit from sales 1,000,000, |" Less: Business connected expenses P 630,000 (u» _ Provision for bad debts 90,000 720,000 ‘Net income before income tax P 280,000 th Additional information: ‘Accounts written off during the year and charge to allowance.for bad debts. P 60,000 b. Recoveries on accounts receivable previously written off int 2015: ty i. Allowed by BIR as deductions 30,000 ii. Disallowed by BIR as deduction 40,000 «, Refund of taxes paid in 2015 f i. Allowed by BIR as deduction 50,000 (\" ii, Disallowed by BIR as deduction 60,000 vb ‘The taxable income is &.P310,000 b, PA10,000/ ¢. P390,000 _d. P340,000 roy fa ¢ @ Alpresented the following data regarding the items of income he earned during taxable year 2015: <_/ 1. Rental income (gross) ia ‘a. From an apartment unit in USA 24000077 ‘eb. From a parcel of land in Makati TL Royalties from book {8 a. Published in the Philippines “ \°! 30,000 b. Published in USA 20,000 4 TIL Interest income earned on notes receival 2 , a. From a debtor who resides im USA ~ 15,000 Neb. Froma debtor who resides in Manila 25,000 IV. Net profit from sales, merchandising business: a ‘From Philippine outlet 300,000 b_ From USA outlet 200,000 V. Dividend income from two domestic corporations. The gross income from the Philippines for the past 3 years ‘a. 60% of its world income Yeo 60,000 - 'b, 85% of its world income ~ 80,000 ~ ‘VI Dividend income from two resident foreign corporations. e gross income from the the Philippines for the past 3 years was equivalent to: ee | & 40% ofits world income 40,000 b. 60% of its world income 20,000 | VIL Prizes received from Supermarket raffle: ‘A. From the Philippines, rR 1. ABC Supermarket ae ean ~—te 8,000 co 2) DEF Superstore yal be 7 12,000 B. From USA 1, UVW Supermarket y 6,000 \y TL XYZ Supersevers 14,000 Yi, wining ont ‘A. Philippine otto 7> 200,000 B. USA loo -- 100,000 ‘The total income from sources within te Philippines is 2. P903,000 “b.P7031000 ¢,7895,000, 4. P907,000 (( 53. Using the above dats, the total incognetrom sources outside the Philippines is NO? e35,qp0 b. B525,000 Pot 000 . P629,000 ‘54, Using data in number 51, assume instead that A is a resident citizen, single, his net taxable income subject fo graduated rates is ‘a P1,118,000°8 b.PI,018,000 ¢ P997,000—d. P938,000 | 55, Using data in nuraber $1, assume instead that A if.a non-resident citizen, single, his net taxable income ‘subject to graduated rates is ‘a P495,000 > —b. P4750 PA70,000 —d. P4B7,000oe fi Ylendar year 2015, | $6, XYZ Corporation, a domestic corporation had the following data during the calend year ‘ Gross income ano Business connected expenses : ‘Dividends from: ‘ease x Domestic corporation b Foreign corporation, 90% of the gross income ‘was derived from the Philippines 400,000 ¢. Foreign corporation, 60% of the gross income ae was derived fom the Philipines . 4. Forcign corporation, 30% of the gross in Wwns derived from the Philippines 40,000 ‘The taxable income is 1. P920,000 , P820,000 ©. P748,000 d. P750,000 pals i ly found in the 37 wer to tax i8 not without limitations. Such limitations may be constitutional (expressly t! \ di tal ‘or implied in its provisions) or inherent (restrict the power although they are not embodied in the constitution), Which of the following is an inherent limitation? a. No imprisonment for non-payment of a poll tax, 'b. Equal protection of the laws. ¢. « pate from tration of government entities. ~ WEE YVT : 4. Exemption of religious, charitable, and educational entities, non-profit cemeteries, and churches from property taxation 58, Which of the following 6 not algondition imposed by the Constitution for the exercise of the power of eminent domain? 0. Theconsent of the owner of the private property to sell the same to the government. } b. ‘The payiment of jst compensation, \ ©. The observance of due process in taking of private property. 0 4. ‘The existence of public use forthe taking ofa private property, pes, Crm hy* > <—¢ co @ ad 200 con of PIMYA sold the property on Janiiaty-2;-2016 fer a>, 5 the FMV is5M. Within 18 months, A hased his. ipal residence vo cost of P7M, Tow much is the ayial aes tox? — —— caper ie ba 300,000 b.P240,000¢. P75,000 POT KO (Woped tye ly 6, Amounts receivable by the «sind of the decease his exec i ins saad ; policy taken by the deceden’ pon his own eS aor au . life is > a. Excluded from gross ) b, Part of gross income if the beneficiary is revocable | )& Part of gross income it she bencticiary is irrevocuble 4. Part of gross income wiicther the beneficiary is revocable or irrevocable 61. This is not a requisite for business expense to be deductible 4. It must be reasonable , It must be paid during the taxable year ¢. The withholding tax otlierwise required ha eggs iene ro We been deducted and remitted to the BIR. ) 62. Asarule, which ofthe following i subject b.10% fax on net income a. Dividend received by a resident citizen from a domestic i ._ Royalty income from musical composition roes ek D * Rasy mnt iy as d. Proprietary educational institutionsFee as a member of the 4 board of director 0,000 iia leave Payments (vacation leave) i200 eeet — a from time deposit 3,007 ¢¢ TH Bross compensation income ofA is ae ®-P167,000 b.P217,000 ©. PLI7,000 .P67,000 64.0, married Lt ie following transactions: Taxable income from business P17, | Dividends received from oa | Resident corporation 3,000 | Non-resident corporation 1,000 ~ Interest from bank deposit 10,000 Interest from trade receivable 4,000" Capital gain on assets held for 6 months - ?". 24,0005) Capital loss on assets held for 10 months ve 70,000 | salt 2012 Taxable income from business d 140,000 Capital gains on capital assets held for 18 months 46,000 2 > | Capital loss on assets held for 9 months 6,000 (2/?, | Amount received as liquidating dividend (cost = P100,000) rea held for 20 months 150,000 FO 2< (~ | The taxable income before personal exemption in 2012 is . P140,000 . P132,000 ©. P186,000 ——d.P254,000 65. ising the above data, if the taxpayer is a corporation, taxable income in 2012 is k a. P194,000 b.P230,000-S~ ¢. P330,000 4. P294,000 of the following are elements of impact of taxation? T Levy TL Imposivon HL Assessment TV. Collection Ww a.Tand It bo, Mand a I and IV 41,11, Wand IV 67. Which of the aspects of taxation is (are) administintive in nature? PIKE ~ 1. Levy IL Assessinent_/ OT Collection ~ ei (a Tonly bb and © Wond i only 68. Which of the following stat-msnté is correct? — a. The power of taxation must first be exoteay (ane) ether bby law or by the constitution for the State to validly exercise it ET parr T b, The power of taxatio. and police porver may be exercised simultancously ¢. The Philippine govemment may subject the land where émbussits of foreign governments are Y located to real estate sxes Eisner ae cael D d. Government owned and controlled corporations are exempted from taxes because it would be impractical for the geverrunent to be taxing itself (uc C 69. Which of the following is corsect? Wy han ines ie Cav heen le &.A Filipino who stayed in USA for more is a non-resident citizen . An American who stayed she Philippi ore than 180 days is a resident alien who is engaged in business in the Philipines : ¢. A Filipino who stayed mn the Philippines for more than 180 days isa resident citizen d. An American who stayed in the Philippines for an agayegate period of;183 days during the calendar year isa non-resident alien engaged in business in the Philippines LaDy70. A, reported the following for the year 2015:-~ Gross Income P 5,000,000 Cost of Sales 3,000,000 Salaries of employees, net of 100,000 withholding tax and 50,000 SSS, Medicare and Pag-lbig premiums contributions 800,000 Fringe benefits given to rank and file employees 300,000 Fringe benefits given to managerial employees 136,000 Representation and entertainment expenses (all business connected) «100,900. Rent expense 120,000 Donation to religious and charitable institutions — 500,000 ) The amount that A will report as.net income before exemptions is ) 4. P2,894,000 b. P2,997,000 ~ €. P3,054,600d. P3,051,000,/ ‘The Endl! x OU