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CHAPTER 8 TAXATION ON INDIVIDUALS

EXERCISE 8-1 TRUE OR FALSE
1. True 11. True
2. False 12. True
3. True 13. True
4. True 14. False
5. False 15. False
6. False 16. False
7. True 17. True
8. False 18. False
9. True 19. False
10. False 20. True

EXERCISE 8-2 CLASSIFICATION OF INCOME

1. Rent income of apartment – (A) (Y)
2. Gain on sale of commercial building – (B) (N)
3. Gain on sale of residential house – (B) (N)
4. Income as street vendor – (A) (Y)
5. Income as a junk shop owner – (A) (Y)
6. Interest on peso deposit with BPI – (B) (N)
7. Royalty as book author – (B) (N)
8. Night shift differential pay – (C) (N)
9. Interest income on Euro deposit with Metrobank – (B) (N)
10. Share in the net income of a partnership trade – (B) (N)
11. Honorarium of a CPA as a speaker in a CPD seminar – (B) (N)
12. Income received by a CPA as an independent auditor – (C) (N)
13. 13th month pay – (C) (N)
14. Gain on sale of shares of stock (not traded) – (B) (N)
15. Winnings in a lottery sponsored by Philip Morris Philippines – (B) (N)
16. Honorarium received as President and Director of a Corporation – (C) (N)
17. Dividend received as stockholder of a corporation – (B) (N)
18. Travel allowance – (B) (N)
19. Productivity incentive pay – (C) (N)
20. Lotto winnings – (B) (N)

EXERCISE 8-5 DISCUSSIONS PROBLEMS/QUESTIONS

1. Classification of individual taxpayers:
a. NRC, within the Philippines
b. NRA NETB, within the Philippines
c. NRC, within the Philippines
d. RC, within and without the Philippines
e. NRA NETB, within the Philippines
f. NRA ETB, within the Philippines

EXERCISE 8-7
1. A
2. C
3. D
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4. D
5. B

EXERCISE 8-8
1. RC, RA NRC, NRA ETB, NRA NETB
2. RC
3. RC, RA NRC
4. RC
5. RC, RA NRC, NRA ETB, NRA NETB
6. RC
7. RC, RA NRC, NRA ETB, NRA NETB
8. RC
9. RC
10. RC, RA NRC, NRA ETB, NRA NETB

EXERCISE 8-9 MULTIPLE CHOICE QUESTIONS

1. A 6. B
2. B 7. D
3. D 8. B
4. D 9. B
5. B

EXERCISE 8-10 MULTIPLE CHOICE THEORY

1. D
2. A
3. D
4. D
5. C
6. B
7. D
8. D
9. C
10. A
11. A
12. D
13. C
14. D
15. C

EXERCISE 8-11 MULTIPLE CHOICE PROBLEMS

1. A
2. Compensation income, Philippines 120,000
Gross receipts, Philippines 350,000
Gross receipts, Canada (200k x 25) 5,000,000
Cost of services and expenses, Philippines (220,000)
Cost of services and expenses, Canada (150k x 25) (3,750,000)
Taxable income 1,500,000
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Tax on 1.5M 130,000

Additional 30% (1.5M – 800k) 210,000
Tax withheld (10,000)
Income tax payable 330,000 - B

3. Cash dividend (40,000 x 10%) 4,000

Share in the net income (50k x 10%) 5,000
Final taxes 9,000 – C

4. Gross receipts, Philippines 350,000

Gross receipts, Canada 5,000,000
Total 5,350,000
Optimal standard deduction (5.35M x 40%) (2,140,000)
Total 3,210,000
Compensation income 120,000
Taxable income 3,330,000 – D

5. Compensation income, Philippines 120,000

Gross receipts, Philippines 350,000
Cost of services and expenses, Philippines (220,000)
Taxable income 250,000 – C

6. B
7. Gross receipts, Philippines 350,000
Expenses, Philippines (220,000)
Taxable income 130,000 – A

8. Answer: 0
9. A
10. Salary (7,000 x 12) 84,000
Withholding tax (300 x 12) 3,600
Taxable income 87,600 – A

11. Gross receipts 150,000

OSD (150k x 40%) (60,000)
Taxable income 90,000 – A

12. Salary (99k + 5k) 104,000

Professional income (83k + 7k) 90,000
Rent income (57k / 95%) 60,000
Gross receipts, business 125,000
Professional and business expenses (56,500)
Total 322,500
Exemption (250,000)
Taxable income 72,500
X 20%
Tax due 14,500
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Salary withholding tax (5,000)

Professional income withholding tax (7,000)
Rent income withholding tax (3,000)
Income tax payable (500) – B

13. B
14. C
15. B
16. B
17. A

18. Salary 310,438.24

SSS, PHIC, Pag-Ibig (14,549.76)
Taxes withheld 27,246.40
Total 323,134.88
Exempt (250,000)
Taxable income 73,134.88
X 20%
Tax due 14,626.98
Taxes withheld (27,246.40)
Income tax payable (12,619.42)

19. C
20. B

EXERCISE 8-12 MULTIPLE CHOICE PROBLEMS

1. Gross income, Philippines 500,000
Gross income, US 300,000
Expenses, Philippines (250,000)
Expenses, US (150,000)
Taxable income 400,000 – B
2. Gross income, Philippines 500,000
Expenses, Philippines (250,000)
Taxable income 250,000 – D

3. Gross income, Philippines 500,000

Expenses, Philippines (250,000)
Taxable income 250,000 – D

4. Gross income, Philippines 500,000

Expenses, Philippines (250,000)
Taxable income 250,000 – D

5. Professional fees 180,000

Allowance as a director 24,000
Salaries of assistants (36,000)
Travelling expenses (20,000)
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Office supplies (4,000)

Rent of office space (36,000)
Taxable income 108,000 - D

6. A
7. Gross receipts-profession 350,000
X 8%
Tax payable 28,000 – B

8. Compensation income 53,000

Gross receipts-profession 350,000
Cost of services and expenses (140,000)
Taxable income 263,000
Exemption (250,000)
Taxable 13,000
X 20%
Tax payable 2,600 – A

9. C
10. D
11. Gross income from restaurant 900,000
Other income subject to income tax 200,000
Passive income (200k x 20%) (40,000)
Deductible business expense 85% (900k x 60%) (459,000)
Taxable income 601,000 – B

12. Basic salary 210,550

Cost of living allowance 6,000
Hazard pay 3,600
Income from practice of profession 156,890
Expenses in the practice of profession (67,500)
Taxable income 309,540
Tax exempt (250,000)
Taxable 59,540
X 20%
Income tax payable 11,908 – C

13. Jan 1 to Apr 30:

Business income, Philippines 40,000
Expenses, Philippines (17,000) 23,000
May 1 to Dec 31:
Gross business income, Philippines 540,000
Business expenses (247,500)
Net income from profession as CPA 22,500 315,000
Total 338,000
Exemption (250,000)
Taxable income 88,000
X 20%
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Tax due 17,600

EXERCISE 8-13 MULTIPLE CHOICE PROBLEMS

1. Salary (8,000 x 6) 48,000
Proceeds of insurance policy 500,000
Premiums paid (5k x 20) (100,000)
Taxable income 448,000 – A

2. Gross income, Philippines 500,000

Tax rate x 25%
Final withholding tax 125,000 – A

3. Amount received 141,000

SSS housing loan 24,000
Premiums payments (3k + 2k) 5,000
Taxable compensation income 170,000 – A
4. A
5. C
6. C
7. B
8. B
9. A

CHAPTER 9 TAXATION OF CORPORATIONS

EXERCISE 9-1 TRUE OR FALSE
1. True 9. True
2. True 10. False
3. False 11. True
4. False 12. False
5. True 13. True
6. True 14. False
7. True 15. True
8. True

EXERCISE 9-3
1. Definition of corporation
a. Business partnership, corporation
b. Joint stock companies, corporation
c. Joint ventures, not a corporation
d. GPP, not a corporation
e. Joint stock companies, corporation
2. Classification of a corporation
a. Domestic, within and without the Philippines, taxable income
b. Resident foreign, within the Philippines, taxable income
c. Non-resident foreign, within the Philippines, gross income
3. Computation of income tax
a. Sales, domestic 3,000,000
Sales, abroad 7,000,000
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COGS (5,000,000)
Expenses, domestic sales (1,000,000)
Expenses, abroad sales (2,000,000)
Taxable income 2,000,000
X 30%
Income tax payable 600,000

b. Sales, domestic 3,000,000

Expenses, domestic (1,000,000)
Taxable income 2,000,000
X 30%
Income tax payable 600,000

c. Sales, domestic 3,000,000

X 30%
Income tax payable 900,000

4. Minimum corporate income tax

a. 2017
b. Yes

EXERCISE 9-4 MULTIPLE CHOICE

1. B
2. D
3. D
4. B
5. C
6. D
7. Sales (2,968,000 / 112%) 2,650,000
COGS (1,725,000)
Expenses, inclusive of vat (386,400 / 112%) (345,000)
Expenses, exclusive (450,000)
Taxable income 130,000
X 30%
Income tax payable 39,000 – A

8. A
9. D
10. D
11. C
12. A
13. C
14. C
15. A
16. Gross income 632,000
Deductions (610,000)
Taxable income 22,000
X 30%
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Income tax payable 6,600 – B

17. Gross income, 2018 2,950,000

Expenses (1,750,000)
NOLCO (300,000)
Taxable income 900,000
X 30%
Income tax payable 270,000 – B

18. Taxable income 900,000

NOLCO 300,000
Dividend from domestic corporation 75,000
Interest on bank deposit (16,000/80%) 20,000
Insurance proceeds 1,200,000
Income tax on 2018 income (270,000)
Dividends paid (500,000)
Tax on interest on bank deposits (20k – 16k) (4,000)
Improperly accumulated taxable income 1,721,000
X 10%
Improperly accumulated earnings tax 172,100 – D

19. D
20. D

EXERCISE 9-5 MULTIPLE CHOICE

1. C
2. Tuition fees 9,500,000
Miscellaneous fees 1,200,000
Income of bookstore 350,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Income from related activities 2,050,000

Interest on bank deposits 70,000

Income of school canteen 180,000
Cash dividend from domestic corporations 80,000
Income from unrelated activities 330,000

Percentage of unrelated activities to gross income = 330,000 / (2.05M + 330k) = 13.87%

Applicable tax rate = 10%

Tuition fees 9,500,000

Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
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Taxable income 2,230,000

X 10%
Income tax due 223,000 - A

3. Tuition fees 9,500,000

Miscellaneous fees 1,200,000
Income of bookstore 350,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Income from related activities 2,050,000

Interest on bank deposits 70,000

Income of school canteen 180,000
Cash dividend from domestic corporations 80,000
Allowance for depreciation (48,750 + 10k) (58,750)
Income from unrelated activities 271,250

Percentage of unrelated activities to gross income = 271,250 / (2.05M + 271.25k) = 11.69%

Applicable tax rate = 10%

Tuition fees 9,500,000

Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
*Allowance for depreciation (48,750 + 10k) (58,750)
Taxable income 2,171,250
X 10%
Income tax due 217,125 – C

*computation of allowance for depreciation:

Facility = 1.3M / 20 x 9/12 = 48,750
F & Equipment = 400k/20 x 6/12 = 10,000
Allowance for depreciation 58,750

4. B
5. B
6. C
7. A
8. D
16. D
17. C
18.

EXERCISE 9-6
1. A
2. 150,000 X 30% = 45,000 – D
3. 2.8M – 1.3M X 30% = 450,000 – B
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4. 2,583,000 x 30% =
5. 400,000 x 30% = 120,000 – C
6. 1.2M x 30% = 360,000 – D
7. 1.2M x 2.5% = 30,000 – A
8. 1.2M x 15% = 180,000 – D
9. 400k x 15% = 60,000 – B
10. 1.2M x 25% = 300,000 – B
11. 1.2M x 4.5% = 54,000 – B
12. A
13. C
14. 40M x 15% = 6,000,000 – B
15. 40M + 3.5M + 4M = 47,500,000 – A
16. D
17. D
18. A
19. C
20. C