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Taxation 1

Quiz No 5

1. A non-stock, non-profit educational institution argues that is rental income from restaurants/canteens
and bookstores operating within its campus are exempt from income tax considering that such revenues
derived therefrom are used for educational purposes. The BIR argues that under the Tax Code, income
of whatever kind and character of a non-stock and nonprofit educational institution from any of its
properties, real or personal, or from any of its activities conducted for profit regardless of the disposition
made of such income shall be subject to income tax. Is the BIR correct? (5 points)

2. DEG Airways is a foreign airline. While it did not carry passengers and/or cargo to or from the
Philippines, ABC maintains a general sales agent of its tickets in the Philippines. Is the sale of the tickets
taxable as income from sources within the Philippines? (5 points)

3. Joint ventures or consortium formed for the purpose of undertaking construction projects or
consortium agreement under a service contract with the government are not to be considered as a
taxable corporation if complying with conditions as prescribed by BIR regulations. May foreign
contractors be also treated as non-taxable corporation? Explain. (5 points)

Problem Solving
1. Mik Corporation had the following data in 2018:
Gross income, Philippines P 600,000
Gross income, USA 500,000
Expenses, Philippines 300,000
Expenses, USA 300,000
Interest from time deposit 10,000
Interest on money market placement, net of tax 21,000

Required: Compute the income tax due and the final taxes if Mik is a:
a. Domestic Corporation (4 points)
b. Resident Foreign Corporation (3 points)
c. Non-resident foreign corporation (3 points)

2. MM Corporation which was organized on October 16, 2009 has the following data:
2012 2013 2014 2015
Sales P 1,600,000 P 2,200,000 P 3,500,000 P 2,900,000
Cost of Sales 1,100,000 1,200,000 2,300,000 1,940,000
Capital Gain - - 25,000 -
Deductions 495,000 990,000 1,150,000 800,000

In 2013, there was a gain on sale of one of the company’s delivery equipment in the amount of P 30,000.
Since the corporation was organized only in 2009, MCIT application shall only start in 2013.
a. Compute for the income tax payable in 2012, 2013, 2014 and 2015. (4 points)
b. Give the accounting entries to record the transactions. (16 points)
3. The 2018 records of Bravo Corporation, a domestic corporation, show the following:
Gross sales, net of 1% withholding tax P 4,950,000
Cost of goods sold 2,575,000
Expenses 350,000
Taxes paid for the first three (3) quarters 25,000
Royalties, net of 20% final withholding tax 52,000
Dividend from a domestic company 75,000
Gain on sale of business asset 37,500

The corporation suffered a net operating loss of P 125,000 in 2017 which was carried over as a
deduction from gross income in 2018.

Out of the earnings during the year, P 500,000 was paid as dividends to its shareholders (30% of which
are domestic corporations), while P 700,000 was reserved for construction of new building and acquisition
of new equipment.

a. Regular income tax due (after credits) for 2018. (3 points)
b. Additional tax on improperly accumulated earnings. (5 points)
c. Final tax on the dividends declared and issued. (2 points)

4. Ria & Cia organized an accounting firm which they named R & C Co., CPAs. The profit and loss sharing
ratio is 50% for Ria and 50% for Cia. In 2018, the partnership had a gross income of P 380,000 and
expenses (including salary) of P 180,000. During the year, each of them received salary of P 60,000 from
the partnership.
Question 1: Is the partnership subject to income tax? (3 points)
Question 2: Is the partnership required to file an income tax return? (5 points)
Question 3: Assuming no profits were distributed to the partners, how much share in the
partnership income should be reported by the partners in their income tax return?
(4 points)
Question 4: How much share in the income should be reported by the partners in their income
tax returns assuming that Ria and Cia received only P 10,000 each as partial
distribution of their shares in the net income of the partnership? (3 points)