TAX Review 4

EASY
1. Statement 1: Partnerships, no matter how created or organized, are taxable as corporation for income tax
purposes.
Statement 2: Association and mutual fund companies, for income tax purposes, are excluded in the definition of
corporations.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both are correct
d. Both are incorrect

2. Which of the following is not a taxable corporation?

a. Ana, Lorna and Fe agreed to contribute their money into a common fund to engage in the business of buying
and selling consumer goods. Their total investment amounted to P300, 000 and they did not bother to
register their business with the DTI and SEC.
b. Pedro, Juan and Luna all certified public accountants, agreed to contribute their money, property and
industry to a common fund with the sole intention of jointly exercising their common profession. They
have registered with the SEC.
c. Victorious Bus Company and California Bus Company owns separate franchises to operate a public utility
covering the area of Northern Luzon. To achieve maximum efficiency of utilizing their assets and to avoid the
negative effects of competition, the two companies agreed to pool their resources together and operate as a
single company.

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d. Rody and Allan, lawyer and certified public accountants, respectively, agreed to contribute their money,

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property and industry to a common fund to render service of business process outsourcing.

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3. Which of the following statement is incorrect? “Joint Stock Companies” are constituted when a group of
individuals, acting jointly, establish and operate business enterprise

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a. Under an artificial name.
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b. With an invested capital divided into transferable shares.

c. An elected board of directors, and other corporate characteristics.
d. Operating with formal government authority.
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4. Statement 1: Joint ventures, regardless of the purpose by they were created, are generally exempt from
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corporate income tax.

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Statement 2: The share of a co-venturer corporation in the net income of tax exempt joint venture or consortium
is subject to corporate income tax.
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a. Only statement 1 is correct

b. Only statement 2 is correct
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c. Both statement are correct

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d. Both statement re incorrect

5. Which of the following statements is correct?

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I. The term “domestic”, when applied to a corporation, means created or organized in the Philippines or
under the laws of a foreign country as a long as it maintains a Philippine branch.
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II. A corporation which is not domestic may be a resident (not engaged in business in the Philippines).
III. Resident foreign corporations are subject to income tax based on net income from sources within the
Philippines.
a. I only c. II and II only
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b. II only d. I, II and III

6. Statement 1: Non-resident foreign corporation applies to a foreign corporation engaged in trade or business
within the Philippines.
Statement 2: Resident foreign corporation applies to a foreign corporation not engaged in trade or business in
the Philippines.
a. Statement 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statement 1 and 2 are true

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 7. A domestic corporation had the following data on income and expenses during the year 2018:
Gross income Philippines P10,000,000
Business expenses, Philippines 2,000,000
Gross income, China 5,000,000
Business expenses, China 1,500,000
Interest income, Metrobank, Philippines 300,000
Interest income, Shanghai Banking Corporation, China 100,000
Rent income, net of 5% withholding tax 190,000
How much was the income tax payable?
a. P3,540,000 c. P3,440,000
b. P3,530,000 d. P2,480,000

8. Hananiah Corporation, a corporation engaged in business in the Philippines and abroad has the following data
for the current year:
Gross Income, Philippines P975,000
Expenses, Philippines 750,000
Gross Income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000
Determine the income tax due if the corporation is
Domestic Res. Foreign Corp. Non-resident Foreign Corp.
a. P116,800 P72,000 P320,000

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b. P109,500 P67,500 P300,000

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c. P312,000 P515,850 P116,800

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d. P109,500 P72,000
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9. The following data were taken from the financial statement of Chen Corporation for 2018:

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Philippines Abroad
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Gross sale P10,000,000 P5,000,000

Sales returns 200,000
Cost of goods sold 3,500,000 2,250,000
Operating expenses 2,800,000 1,100,000
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Interest income from trade receivable 100,000 50,000

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Interest income from BPI deposits-Phils. 100,000 -

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Interest income from BPI deposits-USA - 80,000

Interest income-FCDU 150,000 -
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Income from money market placement 200,000 100,000

Dividend income from domestic corporation 75,000 -
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Dividend income from resident corporation 45,000 -

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Dividend income from nonresident corporation - 30,000

Royalty income – in general 30,000 25,000
Royalty income – books 20,000 -
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Gain on sale of shares of stock of domestic corp. held 120,000 -

As capital assets thru local stock exchange; Selling
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Price–P500,000
Gain on sale of shares of stock of domestic corp. held 150,000 -
As capital assets directly to a buyer Selling Price-
P650,000
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Sale of real property in the Philippines not used

in business. Cost-P4M; FMV-P8M 5,000,000
How much is the income tax due and payable assuming the corporation is:
DC RFC
a. P1,674,000 P2,038,500
b. P2,038,500 P1,093,500
c. P1,674,000 P1,093,500
d. P1,093,000 P1,674,000

10. The MCIT shall apply to which of the following resident foreign corporations?
I. International Carrier
II. Offshore Banking Units (OBUs) on their income from foreign currency transactions with
commercial banks
III. Regional Operating headquarters
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a. I only b. I and II only c. I,II and III d. none of the above
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 AVERAGE
11. Le Bron Corporation has the following information for the taxable year 2018:
QUARTER RCIT MCIT CWT
First 200,000 160,000 40,000
Second 240,000 500,000 60,000
Third 500,000 150,000 80,000
Fourth 300,000 200,000 70,000
Additional Information:
 MCIT carry-over from prior year amounts to P60,000;
 Excess tax credits from prior year amounts to P20,000.
How much was the income tax payable for the first quarter?
a. P200,000 c. P120,000
b. P160,000 d. P80,000

12. Which statement is wrong? The gross income tax:

a. Is optional to a qualified corporation
b. Available only if the ratio of the cost of sales does not exceed fifty-five percent of the gross sales or receipts
from all sources
c. The choice shall be irrevocable for three consecutive years that the corporation is qualified under the
scheme
d. Is always computed to compare with the normal income tax and minimum corporate income tax

13. Gross income taxation results to:

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a. Less discretion on the part of the tax examiners

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b. Lower income tax revenues

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c. More graft and corruption eH w
d. More complicated tax computations.

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14. A domestic proprietary educational institution improved its library facilities by adding a new wing to its old
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library building. The capital outlay on library improvement, for income tax purposes, may be:
a. Deducted at full at the time of completion of the improvement
b. Capitalized or expensed outright at the option of the school owners
c. Capitalized and depreciated over the estimated life of the improvement
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d. Capitalized or expensed outright at the option of the Government

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15. Bahala Na College, a proprietary educational institution provided the following data for 2018:
Income from tuition fees P3,000,000
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School miscellaneous fees 250,000

Income from canteen operations 750,000
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Dividend income:
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Domestic corporation 100,000

Foreign corporation 50,000
Rent income (net) 5,700,000
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Operating expenses 4,125,000

Quarterly income tax payments 250,000
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The income tax payable of the school is:

a. P37,500 c. P1,212,500
b. P337,500 d. P1,227,500
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16. Timpuyog Educational Foundation is a non-stock non-profit educational institution. It has the following selected
information for the taxable year 2018:
Tuition fees P15,000,000
Miscellaneous school fees 2,500,000
Operating expenses 7,500,000
Interest on bank deposits 125,000
Rent income, net of CWT 332,500
Rental related expenses 75,000
Additional school building was built and finished on April 1, 2018 at a cost of P2,000,000 with a depreciable life
of 40 years. Tuition and miscellaneous school fees are actually, directly, exclusively used for educational
purposes.
The income tax payable for the year should be:
a. P65,000 c. P344,000
b. P82,500 d. P1,224,000
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 17. H Hospital is a 100-bed hospital organized mainly for non-paying patients. However, out of 100-bed capacity, 40-
beds are allotted for paying patients, while the rest are intended for charity patients. The revenues generated
from these paying patients, however, are being used to improve the facilities of the hospital. Which of the
following statement is correct?
I. H Hospital can claim exemption from real property tax. As a general principle, a charitable institution does not
lose its character as such and its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used together to the private benefit of the persons managing or operating the
institution.
II. H Hospital is subject to 10% on its net income, subject to compliance with the “predominance test”.
a. I only c. I and II
b. II only d. Neither I nor II

18. The following are excluded in the “Gross Philippine Billings” for income tax purposes of an international air
carrier, except:
a. Tickets sold outside the Philippines for passengers originating from outside the Philippines
b. Passage documents sold outside the Philippines for excess baggage originating from the Philippines
c. Tickets sold in the Philippines for passengers originating from the Philippines but are not actually flown
d. Passage documents sold in the Philippines for cargoes originating from the Philippines

19. Hananiah Corporation provided the following data for calendar year ending December 31, 2018: ($1-50):
Philippines Abroad
Gross Income P4,000,000 $40,000

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Deductions P2,500,000 $15,000

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Income tax paid $3,000

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If the corporation is a domestic corporation, its income tax payable is:
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a. P450,000 c. P675,000
b. P1,280,000 d. P825,000

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20. A branch, subsidiary or affiliate of a foreign banking corporation which is duty authorized by the Bangko Sentral
ng Pilipinas (BSP) to transact offshore banking business in the Philippines in accordance with the provisions of
P.D No. 1034 as implemented by CB (now BSP) Circular No. 1389, as amended.
a. Offshore banking unit
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b. Multinational company
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c. Petroleum Service Contractor and Subcontractor

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d. None of the choices

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DIFFICULT
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21. An offshore banking unit, already in its 8 th year in the Philippines, has the following data in its income and
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expenses for the year 2018:

Foreign currency transaction with:
Non-residents 1,800,000
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Local banks 1,200,000

Branches of foreign banks 1,000,000
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Another OBU 500,000

Other residents 800,000
OTHER INCOME:
Rent income 1,000,000
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Miscellaneous income 500,000

Operating expenses 2,380,000
How much is the total income tax for the year?
a. P0 c. P292,500
b. P80,000 d. P372,500

22. NoyPi Bank, domestic corporation has the following data for the year:

Regular Banking Unit:

Interest Income from loans P10,000,000
Interest Income from peso deposit with Bank of Philippines 1,000,000
Islands
Dividend Income from various domestic corporations 1,500,000
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 Foreign Currency Deposit Unit: (Exchange Rate $1=P40)
Interest Income from loans to residents $50,000
Interest Income from loans to nonresidents $12,500

The bank has total operating expenses of P12,000,000.

How much was the normal income tax for this year?
a. P0 c. P500,000
b. P400,000 d. P600,000

23. Which of the following statement is correct?

a. Any profit remitted by a branch office of a multinational corporation to its head office is subject to 15% final
tax based on total profits applied or earmarked for remittance without deduction for the tax component.
b. Branch profit for purposes of branch remittance tax shall include interests, dividents, rents, royalties,
including remuneration for technical services, salaries, wages, premiums, annuities, emoluments or other
fixed or determinable annual, periodic or casual gains, profits, income and capital gains received during each
taxable year from all sources within the Philippines.
c. For purposes of branch profit remittance, income items which are not effectively connected with the conduct
of its trade or business in the Philippines are not considered branch profits.
d. All of the above

24. JC Corp, a domestic corporation had the following data for 2017 taxable year:
Sales P5,000,000
Cost of goods sold 2,000,000

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General selling and administrative expenses 500,000

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Interest income from Philippine bank deposit 100,000

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Rental income (net of % withholding tax)
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Dividend Income:
From domestic corporation 60,000

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From foreign corporation 50,000
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Capital gains from sale of domestic shares of stocks sold

Directly to buyer 75,000
Dividend declared and paid during the year 500,000
Retained earnings, 12/31/2016 1,000,000
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Par value of outstanding shares, 12/31/2017 500,000

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Appropriation for future plant expansion 800,000

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The Improperly accumulated earnings tax assuming the taxable year as 2018:
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a. P105,125 c. P212,875
b. P108,125 d. P213,625
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25. The following information were taken from the records of ABC Inc., a domestic corporation already in its 5 th year
of operations:
Gross profit from sales P3,100,000
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Capital gain on sale directly to buyer of shares in a domestic 100,000

Corporation
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Dividend from:
Domestic corporation
Resident foreign corporation 20,000
Resident foreign corporation 10,000
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Interest on: 20,000

Bank deposit
Trade receivable 50,000
Business expenses ( 2,100,000 )
Income tax withheld 115,000
Quarterly income tax payments 160,000
Income tax payable prior year ( 10,000 )

The income tax payable at the end of the year:

a. P33,000 c. P63,000
b. P43,000 d. P318,000

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 26. Na Dhale Corporation, a domestic corporation, had the following selected data:
YEAR GROSS INCOME EXPENSES
2014 P1,000,000 P1,200,000
2015 2,000,000 1,900,000
2016 3,000,000 2,950,000
2017 1,000,000 1,100,000
2018 980,000 500,000
The taxable income in 2018 was:
a. P380,000 c. P100,000
b. P0 d. P50,000

27. Pacific Airlines, an international air carrier showed the following gross receipts for 2018:
Point of Origin Destination Gross receipts
Philippines U.S.A P8,000,000
U.S.A U.K 4,000,000
U.S.A Philippines 3,750,000
U.K Philippines 2,100,000
Additional information:
 Forty percent (40%) of the shipments from the Philippines to the United States were later shipped to the
United Kingdom.
 25% of all its revenues were from transport of cargoes and goods.
The Income tax payable for 2018 is

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a. P127,500 c. P170,000

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b. P150,000 d. P200,000

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28. China Airlines Inc., a resident foreign corp. has the following data for the taxable year 2018:

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Passengers airfare from China to Philippines P1,800,000
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Passengers airfare from Philippines to China 1,500,000
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Airfare for cargoes from China to Philippines 700,000

Airfare for cargoes from Philippines to China 1,300,000
How much was the income tax payable?
a. P39,000 c. P70,000
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b. P60,000 d. P84,000
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29. Offshore Banking Units (OBUs) are tax exempt on income derived from
i. Foreign currency transactions with local commercial banks.
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ii. Foreign currency transactions with branches of foreign banks authorized by BSP.
iii. Interest income derived from foreign currency loans granted to residents.
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a. I only c. I and II only

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b. II only d. II and III only

30. A taxpayer received a Preliminary Assessment Notice (PAN). He disagrees with the findings or deficiency of tax.
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What will he receive next?

a. Another PAN
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b. Formal Letter of Demand (FLD) and Final Assessment Notice (FAN)

c. Warrant of distraint and levy
d. Notice of forfeiture of property
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