MIDTERM QUIZ 1: GROSS INCOME (INTRODUCTION, INCLUSIONS AND EXCLUSIONS)

INSTRUCTOR: ALESSA JOY CRUZ, CPA

Name: ______________________________________________________
Schedule: ______________________________________________________

I. CLASSIFICATION OF TAXPAYERS. MULTIPLE CHOICE: Identify the classification

of the citizens mentioned in the situations below and place the letter of
your answer on the blanks provided. (5 points)

a. Resident Citizen
b. Non-Resident Citizen
c. Resident Alien
d. Non-resident Alien Engaged in Trade or Business
e. Non-resident Alien Not Engaged in Trade or Business

Situation 1: Erel Trinity, a Filipino, arrived in the Philippines on November

8, 2019. She was previously employed as an Accountant in United Kingdom for 5
years. Upon her arrival, she decided to reside permanently in the Philippines
as she has saved enough money. She has opened up a new real estate business in
her home country to sustain herself and her family for the coming years. For
Philippine tax purposes, how will Erel Trenity be classified for her income for
the period:

1. January 1, 2019 – November 7, 2019? ____________________

2. November 8, 2019 – December 31, 2019? ____________________

Situation 2: Maria Hannah, a native from Sweden and Erel’s boss in United
Kingdom, arrived in the Philippines on October 5, 2019. She was assigned in the
Philippines to put up the Philippine Branch of their company. Approximately, it
is expected that she will stay in the Philippines for 2 years. For Philippine
tax purposes, how will Maria Hannah be classified on her income for the period:

3. January 1, 2019 to October 4, 2019? ____________________

4. October 5, 2019 to December 31, 2019? ____________________

Situation 3: Kristy Therese, a Mexican actress, was contracted by a Philippine

television company to do a project in the Philippines. She arrived in the
country on February 14, 2020 and returned to Mexico 3 months later upon
completion of the project.

5. For Philippine tax purposes, how will she be classified as an individual

taxpayer? ____________________

II. INCLUSIONS AND EXCLUSIONS OF GROSS INCOME. Problem Solving (10 points)
Compute for the income of the following taxpayers. Show your solutions on
the space provided. No solutions will be given zero credit.

1. Gwyneth earns franchise fees from her Hot Burger franchise. She also deals
in various properties. From her businesses, she realized the following
income in 2020: (2 points)

a. P500,000 royalty fees from local Hot Burger outlets

b. P200,000 royalty fees from foreign Hot Burger outlets
c. P100,000 gain from sales of equipment to foreign franchisees
d. P200,000 gain from sales of equipment to local franchisees
e. P40,000 gains from sale of investments in foreign stocks to Filipino
investors.

Required: Compute for the total income earned from sources

1. Within the Philippines
2. Without the Philippines
2. Ara Mae, a resident alien, single, had the following during the year:

a. Salaries (net of payroll deduction) P 200,000

b. Allowances 25,000
c. 13th Month Pay 26,000
d. Christmas Gift (Gift Certificate) 10,000
e. 14th Month Pay 26,000
f. Payroll Deductions:
a. Withholding Tax on Compensation 16,500
b. Contributions for SSS, PHIC, PAG-IBIG 16,000
c. Advances/Loans 30,000
g. Premium on Health and Hospitalization Insurance 2,750
h. Bank Interest, net of 20% withholding tax 1,400

Required: Compute for the total income to be recognized. (3 points)

3. Mark Gil, 55 years old, resigned in 2015 after 12 years of service. He

had the following income during the year:

a. Salary (net of 80,000 withholding tax) P 480,000

i. SSS 20,000
ii. PHIC 18,000
iii. 13TH Month Pay 40,000
b. Separation Pay 1,000,000

Required: Compute for the gross income subject to progressive (regular)

tax. (1 points)

4. Cherry Mae, leased her land as follows:

Lessee “A”
Agreed annual rental P 200,000
Start of Lease January 1, 2020
Rentals received by Cherry Mae 800,000
Security Deposit 200,000
Improvements introduced by the lessee (will belong
to Cherry Mae upon expiration/termination) 1,000,000
Estimated Useful Life of Improvements 25 years
Date of Completion of Improvements June 7, 2020
Term of Lease 20 years

Required:

a. Income to be reported by Cherry Mae for the year 2020 assuming she
will spread her income on the improvement over the lease term. (1
point)
b. Deductible Expense of lessee A in 2020. (1 point)

*Suppose the lease was terminated thru the fault of the lessee at the
start of the 19th year, determine the:

a. Income to be reported by Cherry Mae on the improvements (1 point)

b. Deductible expense of lessee A (1 point)