EXERCISE 7-1. TRUE OR FALSE QUESTIONS
DISCUSSION QUESTIONS/COMPUTATIONS
1. In income taxation, a business partnership is taxable as
a corporation. TRUE
2. The applicable tax rate on nonresident foreign
corporations is generally the same with the tax rate on
domestic corporations. TRUE
3. A corporation is subject to a tax rate of 30% of taxable
income but it may instead be subject to a rate of 2%
gross income. TRUE
4. A corporation which has been registered with the
Bureau of Internal Revenue in 2009 shall be covered by
the minimum corporate income tax (MCIT) effective
January 2012. FALSE
5. Hospitals are exempt from the coverage of the
minimum corporate income tax. FALSE
6. A resident foreign corporation is entitled also to a
claim 40% optional standard deduction. TRUE
7. Interests on peso bank deposit accounts are not
included in the gross income for purposes of
computing the 40% optional standard deduction.
TRUE
8. A proprietary educational institution is subject to an
income tax rate of 10% while a non-profit school is
exempt from income tax. FALSE
9. A private educational institution may deduct as
expense the cost of constructing a school-building in
the year of its completion instead of capitalizing it.
TRUE
10. The Philippine Amusement and Gaming Corporation
(PAGCOR) is subject to income tax. TRUE
11. The Philippine Airlines is classified as an international
carrier because it travels from the Philippines to other
countries in Asia and America. FALSE
12. The bank deposit under the expanded foreign currency
deposit system is protected by the Law on Secrecy of
Bank Deposits. TRUE
13. A non-resident foreign corporation which sells not
listed and traded shares of stock is subject also to the
same tax rate and tax base as a domestic corporation.
TRUE
14. The penalty on improperly accumulated earnings is
10% of net income. FALSE
15. The money reserved by a corporation to pay its loan
amortization is not an improperly accumulated
earning. TRUE
EXERCISE 7-3.
1. Definition of corporation. Indicate the nature of
the business organization and whether it is a
corporation or not.
a. Atienza, Bauzon and Carmona contributed
P100,000 each and opened up a department
store in the downtown. They agreed that
whatever net profit is earned will be
distributed equally to all of them. They did not
bother to register the business organization to
the Securities and Exchange Commission.
Unregistered business partnership;
corporation
b. A group of five entrepreneurs filed and
registered the Articles of Incorporation of
Cojaco Corporation with the Securities and
Exchange Commission. It has an authorized
capital stock of P1,000,000 divided into 10,000
shares each share having a par value of P100
per share.
Joint stock company; corporation
c. Two corporations joined together to construct
Matab-Ang Dam under a service contract with
the government, a multi-billion peso project
that will solve the water and electricity crisis in
Metro Manila and other parts of Luzon. The
construction of the project is expected to last
for two-and-a-half years. After which, the
organization shall be automatically
terminated.
Joint venture; not corporation
d. Gigi and Jayjay, two senior staff auditors of
Sycip, Gorres, Velayo and Company resigned
from their job and organized a new accounting
and auditing firm which they named Gigi,
Jayjay and Associates, CPAs.
General professional partnership; not
corporation
e. Almasco, brioso, Carullo and Damasco formed
a business organization with the following
agreed features: (1) They are deprived of their
general agency to act on behalf of their
ventures; (2) The powers of management are
vested in the Board of Trustees; (3) The
ownership is represented by transferable
 certificates; (4) The business continues for its
fixed term notwithstanding the death of
disability of one of them; and (5) The liability
of the partners is not limited to their
contributions.
Joint stock company; corporation

2. Classification of a corporation. Classify the

following corporations into domestic, resident
foreign and nonresident foreign corporation. Give
the situs of their taxable income and the base in
computing the income tax payable of each.

a. San Miguel Corporation is a corporation

organized under the Corporation Code of the
Philippines and operating in the Philippines. It
also operates branches in Thailand, Malaysia
and Indonesia.
Domestic corporation
Income within – taxable
Income without – not taxable
Base – Taxable income

b. British Overseas Airways Corporation (BOAC)

is a corporation organized and existing under
the laws of Great Britain. It is engaged in
selling and issuing tickets in the Philippines.
Resident foreign corporation
Income within – taxable
Income without – not taxable
Base – taxable income

c. The Singapore Corporation is a corporation

organized and existing under the laws of
Singapore. It operates entirely its business in
that country. Very seldom in a year that it
transacts business in the Philippines.
Nonresident foreign corporation
Income within – taxable
Income without – not taxable
Base – gross income