GROSS INCOME

Inclusions and Exclusions

WEEK 4
Rex B. Banggawan, MBA, CPA

1.) Which is false with respect to the regular income tax?

A.) It is an annual tax on net income.
B.) It is imposed as a progressive tax for every taxpayer.
C.) Tax is paid in advance by creditable withholding tax or estimated quarterly tax.
D.) It generally covers income not exempted nor subjected to final tax or capital gains tax.

2.)
Statement 1: Exclusions are exempt income but not all exempt income are exclusions.
Statement 2: The amounts of deductions are included in gross income but not exclusions.
Statement 3: Deductions are allowed only against gross income from business or profession.
A. False; False; False C. True; True; True
B. False; True; False D. True; True; False

3.) The following pertains to an individual taxpayer:

Gross compensation P 800,000

Non-taxable compensation 100,000
Gross receipts 1,000,000
Cost of services 400,000
Allowable deductions 700,000
Compute the taxable income:
A.) P 1,000,000 C. P 600,000
B.) P 700,000 D. P 450,000

4.) Which is not a regular income tax form?

A.) BIR Form 1700
B.) BIR Form 1701A
C.) BIR Form 1701C
D.) BIR Form 1702

5.) Who is not required to file BIR Form 1700?

A.) A taxpayer whose taxable income does not exceed P250,000.
B.) A taxpayer whose income tax has been correctly withheld by the taxpayer.
C.) An individual whose sole income has been subjected to final withholding tax.
D.) A minimum wage earner who is exempt from income tax.
6.) Who will not be covered by BIR Form 1700 – pure compensation income earner?
A.) resident citizen on compensation income derived from all sources
B.) resident alien on compensation income from all sources
C.) non-resident citizen with respect to compensation from within the Philippines
D.) All of these are covered by Form 1700.

7.) BIR Form 1701 shall be used under which of the following scenario?
A.) A resident citizen engaged in trade, business, or practice of profession within and without the
Philippines.
B.) A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or
practice of profession within the Philippines.
C.) A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in
any fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or
business.
D.) An individual receiving compensation income as well passive income subject to final tax.

8.) Which is correct with respect to Form 1701A?

I.) It shall be used by those subject to graduated income tax rates and availed of the optional standard
deduction as method of deduction, whose sales or receipts do not exceed P3M.
II.) It shall be used by those who availed of the 8% flat income tax rate whose sales/receipts and other
non-operating income do not exceed P3M.
A.) I only C.) I and II
B.) II only D.) None of these

9.) Which is incorrect?

A.) The proceeds of life insurance received by the heirs of the insured upon his death is excluded in gross
income.
B.) The amount received in excess of the premium paid in an insurance contract constitutes an item of
gross income.
C.) Prizes awarded upon the condition that the recipient shall render specified future services is an item
of gross income.
D.) The gain on the sale of long-term bonds with a maturity of five years is an exclusion in gross income.

10.) Mr. Jagna earned a gross compensation income of P200,000, exclusive of P20,000 non-taxable
compensation income, and gross business income of P500,000 before expenses of P200,000. He also
earned book royalties of P10,000 and P8,000 interest income from clients’ promissory notes. Mr. Jagna
has personal expenses of P170,000 during the year.
What is Mr. Jagna’s taxable compensation income?
A.) P 30,000 C.) P 200,000
B.) P 180,000 D.) P 220,000
11.) Mr. Buguey was insured in a life insurance with his daughter, Ybon, as the irrevocable beneficiary.
Ybon was paid the entire proceeds when Mr. Buguey died.

The proceeds constitute

A.) a taxable inheritance.
B.) a taxable gift.
C.) a taxable income.
D.) an exclusion from gross income.

12.) A widow who collected the life insurance proceeds of her decease husband is
A.) exempt to the entire amount of the proceeds.
B.) taxable to the excess of the proceeds over the premiums paid by the husband.
C.) taxable to the excess of the proceeds over the premiums paid by the widow.
D.) exempt with respect to the portion of the proceeds representing returns of premium.

13.) The policyholder of a life insurance contract outlived his insurance policy. He was paid P300,000
upon maturity of the policy. He paid P250,000 total premium. What is the inclusion in gross income?
A.) P300,000 C.) P50,000
B.) P250,000 D.) P 0

14.) Which is not a requisite of exemption of a retirement benefit plan?

A.) 10 years of employment
B.) The employer maintains a reasonable pension benefit plan.
C.) The retiree must be a senior citizen.
D.) First time availment of retirement exemption

15.) Which is not an acceptable ground for exemption of termination pay?

A.) Mass employee lay-off
B.) Closure of employer’s business
C.) Grave misconduct and neglect of duty
D.) Retrenchment of employer’s business

16.) Mr. Philip collected the P1,000,000 insurance proceeds of Mr. Gerald which he bought from the
latter for P400,000. Before the death of Mr. Gerald, Mr. Philip paid total premiums of P200,000.
Determine respectively the exclusion in gross income and the inclusion in gross income.
A.) P1,000,000; P0 C.) P400,000; P600,000
B.) P0; P1,000,000 D.) P600,000; P400,000

17.) Mr. Adrian insured his crops for a P1,000,000 insurance cover against calamities. He paid and
expensed P100,000 insurance premium.
How much will be included in gross income?
A.) P900,000 C.) P100,000
B.) P1,000,000 D.) P 0
18.) Mr. Lozada purchased a life annuity for P100,000 which will pay him P10,000 a year. The life
expectancy of Mr. Lozada is 12 years. Which of the following can Mr. Lozada exclude from his gross
income?
A.) P 10,000 C.) P 120,000
B.) P 20,000 D.) P 100,000

19.) Which item of gross income is not subject to regular tax?

A.) Interest income from foreign bank deposits
B.) Capital gain on the sale of bonds with more than 5 years maturity
C.) Gain on sale of domestic stocks by a security dealer
D.) Capital gain on sale of patent

20.) Which of these is subject to Philippine regular income tax to a foreigner?

A.) Rent income on properties located abroad
B.) Dividend income from a domestic corporation
C.) Interest income on a deposit abroad
D.) Interest income from domestic bonds

21.) If not covered by the substituted filing system, employed individual taxpayers shall report their
regular income
A.) monthly. C.) quarterly.
B.) annually. D.) quarterly and annually.

22.) Corporations and individuals engaged in business or in the exercise of a profession are required to
report their regular income
A.) monthly. C.) annually.
B.) quarterly. D.) quarterly and annually.

23.) Which of the following is included in gross income subject to regular tax?
A.) Sub-contract income from petroleum service contractors
B.) Interest income from government securities
C.) Share in the net income of a taxable co-ownership
D.) Farming income

24.) Which is subject to regular tax to a resident foreign corporation?

A.) Service fees abroad
B.) Gain from sale of real property capital assets in the Philippines
C.) Dividends from a domestic corporation
D.) Gain from dealings in properties abroad

25.) Which is subject to regular tax to a non-resident foreign corporation or non-resident alien not
engaged in trade or business?
A.) Business income from the Philippines
B.) Capital gain from the sale of stocks directly to a buyer in the Philippines
C.) Dividends from domestic corporations
D.) None of these

26.) Which is an item of gross income subject to regular tax?

A.) Lottery winnings from abroad
B.) Imputed interest income
C.) Advanced rent representing security deposit for contingency which may or may not happen
D.) Leasehold improvements with useful life not extending beyond the lease term

27.) Mr. Jordan had the following data in 2021:

Compute the taxable income if Mr. Jordan is a resident citizen.
A.) P 4,480,000 C.) P 2,040,000
B.) P 4,520,000 D.) P 2,000,000

28.) Ms. Ace received a condominium including its accrued income as inheritance from her deceased
grandfather on April 1, 2021. The following data relates to the property:

How much of the above income will be included in the gross income of Mr. Ace and in the gross income
of the decedent?
A.) P6,040,000; P4,060,000 C.) P4,060,000; P6,040,000
B.) P6,000,000; P4,000,000 D.) P4,000,000; P6,000,000

29.) Mrs. Moses retired from the government after 30 years of service at the age of 55. He received a
total retirement pay of P1,800,000 plus P400,000 GSIS benefits.
How much will be excluded in gross income?
A.) P 0 C.) P2,200,000
B.) P400,000 D.) P1,800,000

30.) Aldrin, employed, derived the following income during the year:

Gross salaries P 900,000

13th month pay and other benefits 140,000
SSS, PhilHealth, and Pag-Ibig contributions 20,000
Deductions for loans repayments 50,000
Deductions for withholding tax 60,000
Compute the taxable compensation income to be reported in the annual income tax return.
A.) P940,000 C.) P980,000
B.) P930,000 D.) P990,000
31.) Mr. Eman won P500,000 in a local chess competition that was sanctioned by a sports organization
that is currently applying for accreditation from the national sports association. Is the P500,000 prize
inclusion in gross income subject to regular tax?
A. No, because the prizes is subject to final income tax.
B. Yes, because the chess competition is not an international competition.
C. No, because the sport competition is a local competition.
D. Yes, because the organizer is not an accredited sports organization.

32.) In 2020, Ms. Rose invested P8,000,000 in the 10-year bonds of Compostela Mining Corporation. She
disposed the investment in 2016 for a total consideration of P8,500,000 inclusive of the P400,000
accrued interest. What are respectively the inclusion in gross income and the exclusion in gross income?
A.) P500,000; P0 C.) P400,000; P100,000
B.) P100,000; P400,000 D.) P0; P500,000

33.) In 2021, an accrual basis taxpayer received a cash refund for an income tax assessment which he
paid in 2017 consisting of the following:
Basic tax P 40,000
Surcharge 10,000
Interest 4,000
Total taxes paid P 54,000
How much must be reverted back to gross income in 2021?
A.) P 0 C.) P10,000
B.) P4,000 D.) P44,000

34.) Mr. Buaya, with 14 dependent children, had the following data for his income tax return in 2021:

What is the net income?

A.) P 170,000 C.) P 100,000
B.) P 290,000 D.) P 20,000
35.) A corporation had the following gains from dealings in properties:
Sale of delivery truck P 150,000
Sale of domestic stocks 50,000
Sale of 3-year corporate bonds 12,500
Sale of 6-year corporate bonds 7,500
What is the total amount of gain to be included in gross income?
A.) P 150,000 C.) P 170,000
B.) P 162,500 D.) P 212,500

36.) fA taxpayer collected the following passive income during the year:

What is the amount to be reported in gross income if the taxpayer is a resident citizen?
A.) P 900,000 C.) P 1,500,000
B.) P 1,100,000 D.) P 2,000,000

37.) In 2021, the taxpayer received the following prizes and winnings:

What is the reportable item of gross income if the taxpayer respectively is a resident citizen and a non-
resident citizen?
A.) P 500,000; P 0 C.) P 0; P 500,000
B.) P 510,000; P 10,000 D.) P 910,000; P 410,000