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Chapter 14-C

RESEARCH AND DEVELOPMENT, PENSION TRUST, AND CONTRIBUTIONS

EXERCISE 14-1: Solving Problem (Answers)

A3:G7AA1:G7
1) A. Compensation income 135,000.00
Less: SSS, Philhealth, HDMF 5,000.00
13th month pay 11,000.00
Taxable income 119,000.00

Tax on 119,000 Exempt

B. Basic wage 135,000.00


Additional pay 125,000.00
Compensation Income 260,000.00
Less: SSS, Philhealth, HDMF 5,000.00
13th month pay 11,000.00
Taxable income 244,000.00

Tax on 244,000 Exempt

2) A. Total gross receipts P4,250,000


Less: Cost of service 2,150,000
Gross income P2,100,000
Less: Operating expenses 1,000,000
Taxable income 1,100,000
Tax on 800,000 P130,000
300,000*30% 90,000
Income tax due P220,000

B. Total gross receipts P4,250,000


Less: OSD (4,250,000*40%) 1,700,000
Taxable income P2,550,000
Tax on 2,000,000 P490,000
550,000*32% 176,000
Income tax due P666,000

3)
Total sales/receipt 2,500,000
Less: Cost of sales 1,000,000
Gross income 1,500,000
Non-operating income 100,000
Less: Operating expenses 600,000
Taxable income 1,000,000
Tax on 800,000 P130,000
200,000*30% 60,000
Income tax due P190,000
4) A. Annual Compensation 1,500,000.00
Business Income 2,400,000.00
Total 3,900,000.00
Less: Exemption 250,000.00
Taxable income 3,650,000.00
Rate of tax 8%
Income tax due 292,000.00

B. Annual Compensation 1,500,000.00


Business Income 2,400,000.00
Non-operating income 100,000.00
Total 4,000,000.00
Less: Cost of sales 1,000,000.00
Operating expenses 600,000.00 1,600,000.00
Taxable income 2,400,000.00

Tax on 2,000,000 490,000.00


Excess: 400,000 * 32% 128,000.00
Income Tax due 618,000.00

C. Annual Compensation 150,000.00


Business Income 3,900,000.00
Total 4,050,000.00
Less: Exemption 250,000.00
Taxable Income 3,800,000.00
Rate of tax 8%
Income tax due 304,000.00

5) Annual Compensation 1,200,000.00


Gross sales (Farm) 3,500,000.00
Operating Income 100,000.00
Total 4,800,000.00
Less: Cost of sales 1,000,000.00
Operating Expense 600,000.00
Taxable Income 3,200,000.00

Tax on 2,000,000 490000


Excess 1,200,000 * 32% 384000
Income Tax Due 874000

6) A. Convenience store 1,800,000.00


Bookkeeping services 400,000.00
Total 2,200,000.00
Less: OSD (2,200,000*40%) 880,000.00
Taxable Income 1,320,000.00

Tax on 800,000 130,000.00


Excess: 520,000 * 30% 156,000.00
Income Tax Due 286,000.00
B. Convenience store 1,800,000.00
Bookkeeping services 400,000.00
Total 2,200,000.00
Less: Exemption 250,000.00
Taxable Income 1,950,000.00
Rate of tax 8%
Income tax due 156,000.00

7) A. Total Gross receipts 10,000,000.00


Less: OSD (10,000,000*40%*25%) 1,000,000.00
Taxable Income 9,000,000.00

B. Tax on 8,000,000 2,410,000.00


Excess: 1,000,000*35% 350,000.00
Income tax due 2,760,000.00

EXERCISE 14-2: Multiple Choice Theory (Answers)

1) D.
2) D.
3) C.
4) D.
5) C.
6) B.
7) C.
8) B.
9) B.
10) B.
11) C.
12) D.
13) C.
14) B.
15) A.
16) C.
17) C.
18) C.
19) D.
20) D.
TIONS
s)
EXERCISE 14-3: Multiple Choice Problems (Answers)

1) B
2) B
Solution:
Total Expenses 150,000.00
Multiply by: 70%
Deductible Expense 105,000.00

3) A
4) C
5) C
Solution:
Interest Expense 20,000.00
Less: 33% of interest income 660.00
Deductible Expense 19,340.00

6) D
7) A
Solution:
Gross Income, Philippines 1,000,000.00
Expenses, Philippines 800,000.00 200,000.00
Gross Income, "A" foreign country 400,000.00
Expenses, "A" foreign country 200,000.00 200,000.00
Gross Income, "B" foreign country 300,000.00
Expenses, "B" foreign country 200,000.00 100,000.00 300,000.00
Taxable Income 500,000.00
Rate of Tax 30%
Income Tax Due 150,000.00
Less: Tax Credit
Tax paid "A" foreign Country 80,000.00
Limit (200/500 * 150,000) 60,000.00 60,000.00
Tax paid "B" foreign country 20,000.00 20,000.00
Limit (100/500 * 150,000) 30,000.00
Total credits, 1st limitations 80,000.00
2nd limitation (300/500 * 150,000) 90,000.00
Credit allowed (lower) 80,000
Income Tax Payable 70,000.00

8) B
Solution:
Net Income, Philippines 200,000.00
Net Income, United States 300,000.00
Taxable Income 500,000.00
Rate of Tax 30%
Income Tax Due 150,000.00
Less: Tax Credit
Tax paid, United States 110,000.00
Limit (300/500 * 150,000) 90,000.00
Credit allowed (lower) 90,000.00
Income Tax Payable 60,000.00
9) C
Solution:
Cost 100,000.00
Multiply by:
Depreciation Rate 10%
Remaining Years 4
Book Value 40,000.00

10) A
11) D
Solution:
Book Value 4,000,000.00
Less: Recovery from insurance (2017) 3,500,000.00
Deductible Loss (2017) 500,000.00

12) A
13) A
Solution:
Acquisition cost of land 1,100,000.00
Cost of old building 200,000.00
Demolition Cost 40,000.00
Less: Proceeds from the sale of scrap 15,000.00
Cost of the land 1,325,000.00

14) C
Solution:
Cost 500,000.00
Less: Accumulated Depreciation 300,000.00
Book Value 200,000.00
Replacement cost 300,000.00
Deductible loss (lower) 200,000.00

15) D
Solution:
Gross profit on sales 800,000.00
Add: Recovery on Accounts Receivable 30,000.00
Less: Deductible Expenses 440,000.00
Provisions for Bad 50,000.00 490,000.00
Net Income before income tax 340,000.00
ers)
EXERCISE 14-4: Multiple Choice Problems (Answers)

1) A
2) A
3) D
Solution:
Cost 570,000.00
Less: Scrap Value 70,000.00
Depreciable Amount 500,000.00
Divided by: Useful life 16
Allowable Deduction of Depreciation 31,250.00

4) C
5) C
Solution:
Payment of current pensions 250,000.00
Payment of past pensions
(1,200,000/10 years) 120,000.00
(1,500,000/10 years) 150,000.00
Deductible pension expense 520,000.00

6) D
7) B
8) B
9) B
10) A
Solution:
Sales 1,500,000.00
Cost of Sales (1,500,000 * 40%) 600,000.00
Gross Income 900,000.00
Less: Operating Expense (1,500,000 * 20%) 300,000.00
Net income before other income 600,000.00
Add: Other Income (600,000 * 5%) 30,000.00
Net income before income tax 630,000.00
Rate of Tax 30%
Income tax payable 189,000.00

11) B
Allowances 200,000.00
Business Income 400,000.00
Total 600,000.00
Less: Deductions 150,000.00
Taxable Income 450,000.00
Divided by: 2
Taxable Income (Miravite) 225,000.00
Rate of tax (Tax table) 20%
Income tax payable 45,000.00
12) A
Solution:
2016
Gross Income 420,000.00
Less: Deductions 400,000.00
Income from operations 20,000.00
Less: NOLCO -
Taxable Income 20,000.00

*Rescue Corporation cannot avail of NOLCO in 2016 because it is subject to


MCIT during this year
Taxable Income 20,000.00
Rate of tax 30%
Normal Income Tax 6,000.00
MCIT:
2016 (420000*2%) 8,400.00
Income tax payable (Higher) 8,400.00

13) B
Solution:
2017
Gross Income 380,000.00
Less: Deductions 300,000.00
Income from operations 80,000.00
Less: NOLCO 20,000.00
Taxable Income 60,000.00

*Rescue Corporation can avail of NOLCO in 2017 because it isn't subject to


MCIT during this year
Taxable Income 80,000.00
Rate of tax 30%
Normal Income Tax 24,000.00
MCIT:
2017 (380,000*2%) 7,600.00
Income tax payable (Higher) 24,000.00

14) D
15) D
wers)
EXERCISE 14-5: Problem (Answer)

Sales 1,200,000.00
Less: Cost of Sales 450,000.00
Gross Income 750,000.00
Less: Operating Expense
Salaries and wages 155,000.00
Travelling expenses 12,000.00
Light, heat and power 24,000.00
Entertainment 13,500.00
Depreciation 5,000.00
Interest Expense 2,500.00
Fire Loss 70,000.00 282,000.00
Income before contributions 468,000.00
Less: Contributions
Deductible subject to limit:
Actual 5,000.00
Limit (468,000 * 5%) 23,400.00 5,000.00
Taxable Income 463,000.00
Rate of tax 30%
Income tax due 138,900.00