Illustration 24-3

Deductible loss of J. Reyes

Loss on sale of a track used in
business to a cousin 35,000
25-1
Sale on Jan. 15, 2018
Selling price (100 x 80) 8,000
Less: Cost (100 x 100) 10,000
Loss -2,000
25-2
a. not a wash sale
b. Sale proce 400
Cost -800
Loss -400
c. Tax cost = 50 x 5 = 250 (since there is no wash sale)
2. a. wash sale
b. Sale price 400
Less: Cost, June 5 -800
Loss -400
No. od shares sold 100
No. of shares acquired within 50
No. of shares not acquired within 50
Deductible loss
50/100 x 400 = 200
Non-deductible
50/100 x 400 = 200
c. tax basis
Cost of shares (July 20) 250
Add: Wash sale loss 200
Tax cost 450
25-3
1. Wash sales
5-Apr
2. Computation of non-deductible loss
Selling price (1,000 x 3) 3,000
Cost - Jan. 5 shares (1,000 x 5) 5,000
Loss -2,000
400/1000 x 2,000 = 800
Cost of shares (July 20)
Cost of acquisition (400 x 3) 1,200
Add: Wash sale loss 800
Tax basis or cost 2,000
3. Gain or loss for the year
Selling price, April 5 (1,000 X 3) 3,000
Cost - Jan. 5 shares (1,000 x 5) -5,000
Loss -2,000
Less: Non-deductible loss 800
Net loss on April 5 sale -1,200

July 10 sale
Sale price (300 x 8) 2,400
Cost - Feb. 5 (300 x 2) -600
Gain 1,800
Auugst 5 sale
Sale price (400 x 4) 1,600
New basis of shares - April 10 -2,000
Gain -400
Net gain 1,400
Illustration 25-4
Selling price (1,000 x 40) 40,000
Cost - Sept. 23, 2018 (1,000 x 60) -60,000
Loss on sale -20,000

No. of shares sold 1,000

No. of shares acquired within -750
No. of shares not acquired within 250
Non-deductible
750/1000 x 20,000 = 15,000
Deductible
250/1000 x 20,000 = 5,000
3. Sale price (1,000 x 8) 8,000
Cost (1,000 x 9) 9,000
Loss -1,000
No. of shares sold 1,000
No. of shares acquired within -600
No. of shares not acquired within 400
600/100 x 1000 = 600
Cost of shares
Cost of acquisition 4,800
Add: Wash sales loss 600
Basis 5,400
26-1
c. 2018 and 2019
26-2
a. Taxable income for the lessor for 2018 (accrual method)
40,000 x 6 months = 240,000
b. Taxable income for the lessor for 2018 (cash method)
40,000 x 4 months = 160,000
c. deductible expense of the lesser for 2018 (cash method)
40,000 x 4 months = 160,000
d. Deductible expense of the lessee for 2018 (accrual method)
40,000 x 6 months = 240,0000
26-3
360,000
exception to accrual method - report the advance rental or prepaid rent in full in
the year of receipt
26-4
None of the above.
Exception to cash method - prorate or spread over the life of the lease the advance
rental or prepaid rent and deduct as expense for each year of the lease an aliquot
part thereof
26-5
Cash method
Gross income 300,000
Rental income 480,000
Total 780,000
Less: Deductions
Ordinary and necessary expenses 310,000
Premium on insurance of equip. 1,200
Cost of vehicle 12,000 323,200
Taxable net income 456,800
26-6
Gross income from trucking 360,000
Rent income receive on lease 360,000
Share of profit 44,000
Dividend from White Co. 40,000
Total 804,000
Less: Deductions
Ordinary and necessary expenses 280,000
Rentals for lease trucks 50,000 -330,000
Taxable net income 474,000
Problems
5. Income to report = 600,000
Expense to report = 10,000

9. Gross income, business in the PH 500,000

Less: Ordinary and necessary expenses 230,000
Taxable net income 270,000
27-1
Sale price 300,000
Acquisition Cost -100,000
Gain 200,000
27-2
Sale price 650,000
FMV at the time of acquisition -500,000
Gain 150,000
27-3
Sale price 3,500,000
cost 200,000
Gain 3,300,000
27-4
a. DJ shall pay capital gains tax equal to the selling price of the shares (1,500,000) less
the adjusted basis of the shares plus documentary stamp taxes
He shall also pay donor's tax since gibaligya niya on a lesser price (1,500,000 < 4,000,000)
donor's tax - difference between the market value of the shares at the time of sale
and actual consideration received
b. Kathryn's basis in the shares = 1,500,000 (acquisition cost)
The selling of shares subject to capital gains tax = selling price - adjusted basis
5,000,000 - 1,500,000 = 3,500,000
28-1
FMV of shares received 5,000
Cost of shares transferred 1,500
Gain 3,500
b. Gain Is not taxable
c. Cost = 1,500
28-2
a. FMV of A common shares 8,000
FMV of A preferred shares 4,000
Total FMV of shares received 12,000
Cost -18,000
Loss -6,000
b. tax basis of A Co. common and preferred shares
FMV of common shares 12,000 Allocated cost
FMV of preferred shares 6,000 Allocated cost
c. Selling price, common shares 16,000
Less: Allocated cost -12,000
Gain 4,000

Selling price, preferred shares 5,000

Less: Allocated cost -6,000
Loss -1,000
Net Gain = 3,000
28-3
A. Taxable income on the exchange
A Company shares 12,000
Add: FMV of land 13,000
Cash 5,000 18,000
Total 30,000
Less: Cost of B Co. shares transferred -22,000
Gain 8,000
B. Basis of A Co. shares received on the exchange
Cost of B Co. Shares transferred 22,000
Less: FMV of land 13,000
Cash 5,000 18,000
Balance 4,000
Add: Gain to be recognized 8,000
Basis of A Co. shares received 12,000
c. Basis of land received = 13,000
28-4
Substituted basis of 1,000,000
Adjusted basis 500,000
Less: Money transferred 0
Encumbrance on property 0
Liabilities of transferor 0
 FMV of property received 0
Substituted basis 500,000
28-5
Substituted basis 400,000
28-6
Adjusted basis 800,000
Less: Mortgage of land 160,000
Liabilities of transferor 40,000 200,000
Substituted basis 600,000
28-7
Substituted basis of the shares of the transferor
Land 1 (QC)
1,500,000/(1,500,000 + 2,250,000) X 2,000,000 400,000
Substituted basis
Adjusted basis 500,000
Substituted basis 500,000
Land 2 (CC)
2,250,000/(1,500,000+2,250,000) X 1,000,000 600,000
Substituted basis 750,000
28-8
Land 1 (QC)
Step 1: Allocation of shares
1,500,000/(1,500,000 + 2,250,000) x 1,000,000 400,000
Step 2: Allocation of Liability
1,500,000/(1,500,000+2,250,000) x 100,000 40,000
Substituted basis
500,000 - 40,000 = 460,000
Land 2 (Caloocan)
Step 1: Allocation of shares
2,250,000/(1,500,000+2,250,000) X 1,000,000 600,000
Step 2: Allocation of Liability
2,250,000/3,750,000 x 100,000 60,000
Step 3: Substituted basis
750,000 - (60,000 + 300,000) = 390,000

3. common shares 10,000,000

Preference shares 500,000
Total 10,500,000
Cost 5,000,000
Gain 0 because solely in kind
4. Adjusted basis
Common shares
10,000,000/10,500,000 x 5,000,000 = 4,761,905

Preferred shares
500,000/10,500,000 x 5,000,000 = 238,095

5. Sale price 15,000,000

Adjusted basis 4,761,905
Gain 10,238,095
6. Yale Company 100,000
Land of FMV 300,000
Cash 50,000
Total 450,000
Less: Cost 50,000
Gain 400,000
Since boot is less than the gain, dapat 350,000 lang imo irecognize
7. Basis of shares
Adjusted basis 50,000
Land with FMV 300,000
Cash 50,000 350,000
Balance -300,000
Gain 350,000
Basis 50,000
8. Selling price 350,000
FMV -300,000
Gain 50,000
a. Taxpayer is an individual.
Gain on sale of capital asset 110,000
Loss on the sale of capital asset held 15,000
Loss on the sale of capital asset (9 months) 40,000
Net capital gain 55,000
b. Taxpayer is a corporation
Gain on sale of capital asset 110,000
Loss on the sale of capital asset (3 years) 30,000
Loss on the sale of capital asset (9 months) 40,000 70,000
Net capital gain 40,000

29-2
a. taxpayer is an individual
Gain on sale of capital asset 30,000
Gain on sale of capital asset (7 months) 15,000
Total gain 45,000
Loss on sale of capital asset -80,000
Net capital loss -35,000
b. taxpayer is a corporation
Gain on sale of capital asset 60,000
Gain on sale of capital asset (7 months) 15,000
Total gain 75,000
Loss on sale of capital asset -80,000
Net capital loss -5,000

29-3
Net of income from business 1,400,000
Gain from sale of ordinary asset 300,000
Gain from sale of capital asset (6 years) 200,000
Loss from sale of capital asset (9 months) -600,000
Net capital loss -400,000 0
Net taxable income 1,700,000
29-4
gross income,business 400,000
Less: Ordinary and necessary business expemses -200,000
Net income 200,000
Less: Contributions
Donation to Government 15,000
Donation to Church
Actual 10,000
Limit 20,000 10,000 25,000
Balamce 175,000
Sale of Capital Assets (Personal Property)
1) Selling price 400,000
Cost, 2009 50,000
 Gain 350,000
Long-term (50%) 175,000
2) Selling price 50,000
Cost 100,000
Loss -50,000
Long-term (50%) -25,000
Net capital Gain 150,000
Less: Net capital loss carry-over -130,000 20,000
Total taxable income 195,000

29-5
1) final taxes on the sale of assets
Shares of stock = 200,000 x 0.06 = 1,200
Shares of stock (not traded) = 150,000 - 30,000 = 120,000 x 15% = 18,000
Land (capital asset) = 3,000,000 x 6% = 180,000
2) Tax due
Printing shop 120,000
Rental Income 300,000 420,000
Ordinary gain 80,000
Total Gross Income 500,000
Less: Itemized deductions
Expenses, printing shop 80,000
Depreciation of building 140,000
Real property tax 30,000
Donation to government 30,000
Ordinary loss on truck 30,000 310,000
Net income 190,000
Add: Sale of Car
Selling price 150,000
Cost 40,000
Net capital gain 110,000
Long-term gain 55,000
Taxable income 245,000
Tax on 245,000 0
Less: Credits
Withholding tax on printing shop 1,200
Withholding tax on rent 15,000 16,200
Tax pauable -16,200

29-6
Amount received in liquidation 600,000
Less: Cost of investment 150,000
Undistributed net income 96,000 246,000
Gain 354,000
Taxable gain (50%) 177,000
29-7
US Dollars Pesos
Selling price 102,000 5,100,000
Cost 100,000 4,000,000
Taxable gain 2,000
In reporting such gain for tax purposes, equivalent peso denomination is the peso
equivalent of 2,000 using the exchange rate on the date of the consummation of
the transaction
 2017
Net income 200,000
Gain from sale of capital assets
held for 11 months 25,000
Held for 6 months 45,000
Total 70,000
Loss from sale of capital assets
Held for 3 years 100,000
Held for 21/2 years 50,000
Total 150,000
Net capital loss -80,000 0
Taxable income 200,000
2018
Net income 100,000
Gain from sale of capital assets
Held for 11 months 23,000
Held for 6 months 25,000 48,000
Loss from sale of capital assets
Held for 3 years 10,000
Held for 2 1/2 years 18,000 28,000
Net capital gain 20,000
Less: Net capital loss carry-over 20,000
Taxable income 120,000

10. 2017
Net income 200,000
Gain
held for 11 months 25,000
held for 6 months 45,000 70,000
Loss
Held for 3 years 50,000
Held for 2 1/2 years 25,000 75,000 -5,000
Taxable income 200,000
2018
Net income 100,000
Gain
Held for 11 months 23,000
Held for 6 months 25,000 48,000
Loss
Held for 3 years 5,000
Held for 2 1/2 years 9,000 14,000
Net capital gain 34,000
Less: net capital loss carry-over -5,000 29,000
Taxable income 129,000
1. Can income from the installment sale be reported in installments
Initial payments must not exceed 25% of the selling price
Selling price 600,000
Contract price 600,000
Initial payments 200,000
600,000 X 25% = 150,000
Since initial payments exceeded 25% of the selling price, gain from the installment
sale cannot be reported under the installment method.
2. Amount taxable
Selling price 600,000
Less: Book value
Cost 600,000
Acc. Depreciation 280,000 320,000
Gross profit 280,000
Shall be reported as income in full in 2018, the year of sale

30-2
a. 800,000 x 25% = 200,000
Since 100,000 does not exceed 25% of selling price, the gain can be reported under the installment
method.
b. taxable income
Sellinf price 800,000
Cost, net of Acc. Depreciation -700,000
Gross profit 100,000

Gain to be reported in 2018

100,000/800,000 x 200,000 = 25,000
Taxable gain (50%) 12,500
Gain to be reported in 2019
100,000/800,000 x 600,000 = 75,000
Taxable gain (50%) 37,500

30-3
Final taxes payable
Lot 1 Lot 2 Lot 3
Selling price 150,000 500,000 800,000
Rate 6% 6% 6%
Final tax 9,000 30,000 48,000
Final taxes payable in 2017
Lot 1: 30,000/150,000 x 9,000 = 1,800
Lot 2: 100,000/500,000 x 30,000 = 6,000
Lot 3: 800,000 x 6% = 48,000 (since it exceeded 25%)
Total final taxes in 2017 = 55,800
Final taxes payable in 2018
Lot 1: 120,000/150,000 x 9,000 = 7,200
Lot 2: 400,000/500,000 x 30,000 = 24,000
Total final taxes in 2018 = 31,200

30-4
Selling price
Cash paid on date for sale 100,000
Amount paid on Jun. 10, 2017 100,000
Installment due on June 10, 2018 600,000
Mortgage assumed by the buyer 200,000
Selling price 1,000,000

Contract Price
Selling price 1,000,000
Less: Mortgage assumed by the buyer -200,000
Balance 800,000
Add: Excess of the mortgage over the cost 50,000
Contract Price 850,000

Initial Payments
Cash paid on date of sale 100,000
Amount paid on 2017 100,000
total 200,000
Add: excess of the mortgage over the cost 50,000
Initial Payments 250,000
1,000,000 x 25% = 250,000
qualified to pay the final tax on installments because it does not exceed 250,000

Computation of final tax

Selling price 1,000,000
Rate of tax 6%
Final tax 60,000
Computation of final tax (payable in 2017)
250,000/850,000 x 60,000 = 17,647.06
Computation of final tax (payable in 2018)
600,000/850,000 x 60,000 = 42,352.94
Total final tax = 60,000
30-5
Final tax Lot 1 Lot 2
Selling price 200,000 500,000
Rate 6% 6%
12,000 30,000
Final tax payable in 2018 (Lot 2)
100,000/500,000 x 30,000 = 6,000
Final tax of shares not traded
Net capital gain = 150,000 - 10,000 = 140,000 x 15% = 21,000
Payable in 2018
30,000/150,000 x 21,000 = 4,200
2. Taxable income
Gross income from business 140,000
Ordinary gain from sale of ordinary asset
Building, ordinary asset
Selling price 200,000
Less: Book value
Cost 120,000
Depreciation 80,000 40,000
Gross profit 160,000
Income reportable under the installment method 40,000
Total gross income 180,000
Less: Operating expense -56,000
Net income operating expenses 124,000
Add: Non-operating income
Sale of Capital asset
Selling price 140,000
Cost 70,000
Gross profit 70,000
Gain reportable under the installment method 15,000
Taxable gain 7,500
Total taxable gain 131,500

30-6
1. installment income for 2017 and 2018
2017
Downpayment 400
Installment - November 180
Installment - December 180
Installments - January to October 2018 1,800
Total installments received 2,560

Unpaid installments
Selling price 4,000
Less: Installments received -2,560
Unpaid installments 1,440

Gross profit
Selling price 4,000
Basis (Cost) -3,000
Gross profit 1,000

Income to be reported in 2017

1,000/4,000 x 760 = 190
Income to be reported in 2018
1,000/4,000 x 1,800 = 450
2. Gain/loss on repossession on 2018
FMV at repossession 1,240
Less: Basis (cost) on repossession
Unpaid installment 1,440
Less: Income portiom (1,000/4,000 x 1,440) -360 -1,080
Gain/loss on repossession 160
3. Gain/loss on resale
Selling price 1,440
Basis -1,240
Gain 200

30-7
deferred payment sale of real property not on the installment plan
Downpayment 3,000,000
Add: FMV of promissory note equal to 80% of face
value of 4,000,000 3,200,000
Selling price 6,200,000
Less: Cost 2,000,000
Gain to be recognized 4,200,000
 2
Selling price 1,000,000
Cost 300,000
Gross profit 700,000
700,000
3
5. Gain to recognize
Selling price 25,000,000
Cost 10,000,000
Gain 15,000,000

15,000,000/25,000,000 x 6,000,000 = 3,600,000

6. Used for business (ordinary gain)
15,000,000
8. 5,000,000 x 6% = 300,000
2016
700,000/3,000,000 x 300,000 = 70,000
2017
2,300,000/3,000,000 x 300,000 = 230,000