UNIVERSITY OF THE EAST

CALOOCAN CITY

Income Taxation March, 2021

Midterm Examination Instructor: John Bo S. Cayetano

Numbers 1-3:
1. Mr. Talipao derived the following income in 2021:

Business income P 200,000

Compensation income 300,000
Interest income from 5/6 lending to client 100,000
Interest income from bank deposit 20,000
Royalty income 100,000
Capital gain on sale of personal car 20,000
Capital gain on the sale of stock directly to a buyer 40,000
Ordinary gain on sale of old office furniture 10,000
Dividend income 50,000

Compute the total passive income subject to final tax:

A.1,470,000 C. 1,370,000
B.1,370,000 D. 170,000

2. Compute the total passive income subject to regular income tax:

A.1,730,000 C. 630,000
B.1,470,000 D. 530,000

3. Compute the total passive income subject to capital gains tax:

A.70,000 C. 40,000
B.60,000 D. 0

4. Which of the following is subject to fringe benefit tax

A.Fringe benefit of the rank and file employees
B.Fringe benefit of the managerial employees
C.Compensation income of the rank and file employees
D. Compensation income of the managerial employees

5. As a rule, fringe benefit furnished or granted in cash or in kind by an employer to an

individual employee maybe subject to the fringe benefit tax, if given to
I. Rank and file employees
II. Managerial employees
III. Those holding supervisory positions

A.Only I and II C. Only II and III

B.Only I and III D. I, II and III

6. Fringe benefit tax is

I. Imposed on the employer
II. Withheld at source
III. Deductible by the employer

A.Only I and II C. Only II and III

B.Only I and III D. I, II and III

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 7. With regard to the amount on which the fringe benefit tax rate is applied, which
statement is wrong?

The tax benefit rate is applied on

A.The monetary value of the fringe benefit
B.The gross-up monetary value of the fringe benefit
C.The amount deductible by the employer from gross income
D. Both accounts of the fringe benefit and the fringe benefit tax

8. The following fringe benefits are not subject to fringe benefit tax, except
A.If required by the nature of or necessary to the trade, business or profession of the
employer
B.Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plan
C.Benefits given to the rank and file employees
D. If given for the convenience or advantage of the employee

9. Basic rules on fringe benefit tax, except

A.Fringe benefit given to rank and file employees is not subject to fringe benefits tax
B.Fringe benefit given to a supervisory or managerial employee is subject to fringe
benefits tax
C.De minimis benefit whether given to rank and file employee or to supervisory or
managerial employee is not subject to fringe benefit tax
D. The fringe benefit tax is a tax paid by the managerial or supervisory employee

10. Statement 1: Non-resident alien not engage in trade and business are also subject to
regular income tax.
Statement 2: For all taxable, taxable income means the pertinent items of gross income
not subject to capital gains tax and final tax less allowable deductions.

A.True, False C. False, True

B.False, False D. True, True

11. Statement 1: Employed taxpayers can claim expenses from their employment as
deductions against their compensation income.
Statement 2: Items of gross income subject to final tax and capital gains tax are excluded
in gross income subject to regular tax.

A.True, False C. False, True

B.False, False D. True, True

12. Statement 1: The P250,000 income tax exemption for individuals is designed to be in
lieu of their personal and business expenses.
Statement 2: Business expenses can be deducted against all types of gross income
subject to regular tax.

A.True, False C. False, True

B.False, False D. True, True

13. Gain on the sale of goods manufactured and sold by the taxpayer within the Philippines
is subject to tax
A.Within the Philippines C. Either within or without the Philippines
B.Without the Philippines D. Neither within nor without the Philippines

14. Vannah, a resident alien, and Darwin, a nonresident alien, executed a contract in Japan
whereby Darwin shall purchase the lot owned by Vannah in the Philippines. Vannah gains
P1,000,000. Which is true?
A.The gain is exempt since the gain is derived outside the Philippines
B.The gain is not subject to Philippine tax since Vannah is a resident alien.
C.The gain is subject to Philippine tax because Vannah is a resident alien.
D. The gain is subject to Philippine tax because the property is in the Philippines.
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 15. All of the following are ordinary assets to a real property developer except
A.Land currently under development
B.Raw land held for future development
C.Mortgage receivables on property sold
D. Raw and undeveloped land intended to be sold as is

16. Which capital asset is subject to capital gains tax?

A.Domestic stocks held as investments
B.Domestic stocks held for sale
C.Domestic bonds held as investment
D. Domestic bonds held for sale

17. The term “capital assets” includes

A.Stock in trade or other property included in the taxpayer’s inventory
B.Real property not used in the trade or business of the taxpayer
C.Real property primarily used for sale to customers in the ordinary course of business
D. Property used in the trade or business of the taxpayer and subject to depreciation

18. Which of the following accounting assets is not an ordinary asset?

A.Investment property for speculation
B.Inventory
C.Property, plant and equipment
D. Trading securities by a stock brokerage firm

19. Which statement is generally true?

Statement 1: A purely employed taxpayer does not have ordinary assets
Statement 2: A self-employed taxpayer does not have capital asset

A.Statement 1 C. Both statement 1 and 2

B.Statement 2 D. Neither statement 1 nor 2

20. Which is an ordinary asset?

A.Accounts receivable C. Notes receivable
B.Investment in stocks D. Gold inventory

21. Which is a capital asset?

A.Inventory of securities C. Parking lot
B.Investment in foreign currencies D. Office building

22. The following data belong to Nasty Corporation for the year 2021:

Education assistance to supervisors and their children P 75,000

Employer’s contribution for the benefit of the employees to retirement,
insurance and hospitalization benefit plans 70,000
Year’s rental for an apartment paid by Nasty for the use of its controller 60,000

Compute the total deductible fringe benefit tax expense

A.49,412 C. 56,538
B.51,692 D. 63,529

23. Flames Company made the following payments in the 3rd quarter of 2021:

To the supermarket in payment of groceries for the company’s manager and P 16,500
family
To a university in payment of the tuition fee of the manager 24,750
Salary of the manager, net of P50,000 withholding tax 350,000

Determine the fringe benefit tax due

A.19,412 C. 22,212
B.20,308 D. 184,118

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 24. After 14 months of holding, Mr. Jones sold several certificates of domestic stocks for
P4,000,000 at a gain of P800,000. Which is true?
A.If Jones is a security dealer, he shall be subject to regular tax on 50% of the gain.
B.If Jones is not a security dealer, he shall be subject to capital gains tax on 50% of the gain.
C.If Jones it not a security dealer, he shall be subject to capital gains tax on the full amount of
the gain.
D. If Jones is a security dealer and the stocks are foreign stocks, he shall be subject to capital
gains tax on the full amount of the gain.

25. Nomi, a resident citizen, had the following casual income in 2021:

In the In abroad
Philippines
Interest income from deposits P 200,000 P 100,000
Compute the total
Royalty from books published 400,000 700,000
Gain on sale of domestic stocks 250,000 150,000 final taxes including
Prizes on dance competition 10,000 200,000 the capital gains tax
Winnings on raffles conducted 40,000 10,000 A. 178,000
C. 148,000
B.127,500 D. 125,500

26. Nomi, a resident citizen, had the following casual income in 2021:

In the In abroad
Philippines
Interest income from deposits P 200,000 P 100,000
Compute Nomi’s
Royalty from books published 400,000 700,000
Gain on sale of domestic stocks 250,000 150,000 taxable income
Prizes on dance competition 10,000 200,000 C. 1,170,000
Winnings on raffles conducted 40,000 10,000
C. 1,020,000
D. 1,160,000 D. 770,000

27. Which is an ordinary asset?

C.Accounts receivable C. Notes receivable
D. Investment in stocks D. Gold inventory

28. Which statement is generally true?

Statement 1: A purely employed taxpayer does not have ordinary assets
Statement 2: A self-employed taxpayer does not have capital asset

C.Statement 1 C. Both statement 1 and 2

D. Statement 2 D. Neither statement 1 nor 2

29. The sale of unlisted shares will may be subjected to

A.60% of 1% percentage tax C. 15% capital gains tax
B.6% capital gains tax D. Regular tax

30. Which of the following when sold may be exempted from the 6% capital gains tax
A.Unused land to the government C. Developed residential properties for sale
B.Residential lot D. Principal residence

31. Statement 1: The sale of exchange must result to an actual gain before the 15% capital
gains tax is imposed.

Statement 2: The sale or exchange must result to an actual gain before the 6% capital
gains tax is imposed.

A.Both statements are true C. Only statement 1 is true

B.Both statements are false D. Only statement 2 is true

32. Statement 1: The capital gains tax on the disposition of capital stock presumes the
existence of gain on the sale transaction.
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 Statement 2: The buyer of real property capital asset shall withhold the tax at source and
remit the same to the government.

Statement 3: Capital gains tax is identified under the NIRC as a form of final tax.

Statement 4: The capital gains tax on the disposition of real property presumes the
existence of gain on the sales transaction.

A.All statements are true C. Only one statement is true

B.All statements are false D. Only one statement is false

33. The sale of real properties which would otherwise be subject to the 6% capital gains tax
may nevertheless be subjected to regular income tax if all of the following conditions are
met, except one. Which is the exception?
A.The seller must be an individual taxpayer
B.The sale involves the principal residence of the taxpayer
C.The buyer is the government
D. The taxpayer opted to be subjected to regular tax

34. Which of these pay the 6% capital gains tax?

A.Security dealer C. Real property developer
B.Real property dealer D. None of these

35. The sale of principal residence is exempt from the capital gains tax if all of the following
conditions are met, except
A.The proceeds is fully utilized in acquiring a new principal residence
B.The reacquisition must be by purchase
C.The reacquisition must have been made within 18 months from the date of sale
D. The capital gains tax must be deposited in escrow

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