Based on the following information:

Sharon received the following income in 2020:

Business income, Philippines P300,000
Business income, United States 250,000
Expenses, Philippines 200,000
Expenses, United States 125,000
Interest on deposit with Metrobank 3,000
Interest on deposit in U.S. ($1 = P50) $ 500
Cash prize won in a local contest 6,000
Cash prize won in a contest in U.S. 10,000
Winning in lotto 20,000
Winning in lotto in U.S. 50,000
Dividends from SMC, a domestic company 25,000

1. The taxable income if Sharon is a resident citizen, single is –

A. P316,000
B. 331,000
C. P66,000
D. 61,000
Correct Answer: A

Business income, Philippines P300,000

Less: Expenses, Philippines 200,000 P100,000
Business income, U.S. 250,000
Less: Expenses, U.S. 125,000 125,000
Interest on deposit in U.S. ($500 X 50) 25,000
Cash prize, local contest 6,000
Cash prize, U.S. 10,000
Lotto winnings in U.S. 50,000
Taxable income 316,000

Residents citizens are taxable on income derived from sources within and without the Philippines.
The interest on deposit with Metrobank and the dividends from SMC are not part of the taxable income because they
are subject to final tax.
The winnings in lotto in the Philippines is subject to final tax.

2. The gross income if Sharon is a non-resident alien ETB, married with five (5) dependent children –

A. P106,000
B. 56,000
C. P74,000
D. None
Correct Answer: A
Business income, Philippines P300,000
Less: Expenses, Philippines 200,000 P100,000
Cash prize, local contest 6,000
Gross income 106,000

Nonresident alien ETB are taxable on income derived from sources within the Philippines only.
The interest on bank deposit with Metrobank and dividends from domestic corporations are subject to final tax.
Lotto winnings in the Philippines are not taxable to a NRA.

3. The final tax on Sharon assuming she is a nonresident alien NETB, single is
A. P83,500
B. 63,500
C. P18,500
D. 334,000

Correct Answer: A
Business income, Philippines P300,000
Interest, deposit with Metrobank 3,000
Cash prize, local contest 6,000
Dividend from domestic company 25,000
Gross income 34,000
Rate of tax 25%
Income tax (Final Tax) 83,500

Notes:
1. NRA NETB are subject to tax on gross income derived from sources within the Philippines only.

2. The total income from sources within is subject to a final withholding tax of 25%, except the winnings in lotto
because these are tax exempt to NRA.

Elvis and Madonna, husband and wife, have the following data in 2020:

Elvis Madonna
Semi-monthly compensation income P12,000 P8,000
Rent income (net of 5% WT) 76,000
Royalties on books 70,000
Dependent children 6
Withholding tax on the compensation 3,800

During the year, the spouses had self-employment income of P500,000 and expenses of P105,000 which cannot be
identified as solely earned by the wife or the husband.
 4. The income tax payable/overpayment of Elvis under graduated rates is –

A. P3,000
B. 47,825
C. P (5,500)
D. 63,575

Correct Answer: D

Compensation income (P12,000 x 24) P288,000

Rent income (P76,000 / 95%) 80,000
Self-employment income (500,000 – 105,000)/2 197,500
Taxable income 565,500

Tax on P400,000 30,000

165,000 x 25% 41,375

Income tax due 71,375

Less: Withholding tax
On rent (P80,000 – 76,000) P4,000
On compensation income 3,800 7,800
Tax payable 63,575

5. The taxable income of Madonna if she is a minimum wage earner is –

A. P27,500
B. 37,500
C. P11,600
D. None

Correct Answer: D

Compensation income (MWE), not taxable P -

Share in self-employment income 197,500
Taxable income 197,500
Tax on P197,500 Exempt

MWEs are not subject to income tax on compensation income. Moreover, the holiday pay, overtime pay, night shift
differential pay and hazard pay received by a minimum wage earner are exempt also from tax.
However, if the taxpayer is a mixed income earner, the self-employment income (such as income from the conduct of
trade, business or practice of profession, except income subject to final tax) and non-operating income are
returnable/taxable.
 6. The final tax on the passive income is –

A. P14,000
B. 7,000
C. None
D. No answer

Correct Answer: B

Royalty P70,000
Rate of tax 10%
Final withholding tax 7,000

Rodil, married, with two dependent children, had the following income and expenses in 2020:

Salary (October to December), net of WT of P5,000 P155,000

13th month pay 12,900
Gross receipts from profession, net of WT of P1,800 88,200
Rent income, net of 5% withholding tax 57,000
Gross receipts from business 125,000
Professional and business expenses 56,500

7. The income tax payable by Rodil if he availed of the itemized deductions –

A. P25,700
B. 15,900
C. P44,500
D. 41,360

Correct Answer: B
Salary (P155,000 + 5,000) P160,000
Professional income (88,200 = 1,800) P90,000
Rent income (P57,000 / 95%) 60,000
Business Income 125,000 275,000
Total income 435,000
Less: Expenses 56,500
Taxable income 378,500

On P250,000 Exempt
128,500 x 20% P25,700
Income tax due 25,700
Less: Withholding taxes on-
Salary P5,000
Professional income 1,800
Rent 3,000 9,800
Income tax payable 15,900
 8. The income tax payable by Rodil if he availed of the optional standard deductions-

A. P4,500
B. 15,000
C. Exempt
D. 5,200

Correct Answer: D

Compensation income P160,000

Professional income P90,000
Rent income 60,000
Business income 125,000
Total 275,000
Less: OSD (275,000 x 40%) 110,000 165,000
Taxable income 325,000

Tax on P250,000 Exempt

75,000 x 20% P15,000
Income tax due 15,000
Less: Total withholding taxes 9,800
Income tax due and payable 5,200

Spouses Carlo and Irene, government employees, had the following data in 2019:

Carlo Irene
13th month pay and other benefits P18,949 P8,605.00
SSS, Philhealth & HDMF contributions 24,549 4,559.75
Basic salary (gross of statutory contributions) 310,438 68,465.25
RATA (reimbursable) 96,000
Personnel Economic Relief Allowance 6,000.00
Overtime pay 12,450 4,457.04
Holiday pay 3,000 1,783.25
Hazard pay - 6,000.00
Total amount of taxes withheld 17,046 -

9. The income tax payable on Carlo is –

A. P31.32
B. 17,077.72
C. P363.16
D. None

Correct Answer: D
Basic salary P310,438
Add: Overtime pay 12,450
Holiday pay 3,000
Gross compensation income 325,888
Less: Non-taxable (SSS, Philhealth, Pag-ibig) 24,549

Taxable compensation income 301,438

Tax on P250,000 Exempt
51,330 x 20% 10,267.80
Income tax due 10,267.80
Less: Withholding tax 17,046.40
Income tax payable -

The taxable compensation income of the taxpayer does not include SSS, GSIS, Philhealth, Pag-Ibig contributions
and union dues.
Married individuals shall file a single return for the taxable year to include the income of both spouses, separately
computing their individual income tax based on their respective taxable compensation income.
Where it is impractical for the spouses to file one return, each spouse may file a separate return.
Hazard pay, overtime pay, night shift differential pay and holiday pay of regular/supervisory employees are subject to
withholding tax and consequently income tax.

10. The income tax payable on Irene if she is a minimum wage earner is –

A. P448.29
B. 1,431,45
C. P (983.19)
D. None

Correct Answer: D

Basic salary (minimum wage earner – not taxable)

Hazard pay, overtime pay, night shift differential pay and holiday pay for the minimum wage earners are not subject
to withholding tax and income tax.
11. Mrs. Evangelista owns a residential parcel of land worth P500,000 which she inherited from her father in
2019 when it was worth P300,000. Her father purchased it in 2010 for P100,000. If Mrs. Evangelista
transfers this parcel of land to her wholly owned corporation in exchange for shares of stocks of said
corporation worth P450,000, Mrs. Evangelista’s taxable gain is (RPCPA) –

A. Zero
B. P50,000
C. P150,000
D. 350,000

Correct Answer: A
Value of property acquired P450,000
Less: Value of property given 300,000
Gain on exchange 150,000

The gain on the exchange is not taxable as a gain because the transfer is subject to a capital gains tax of 6%.

12. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The life expectancy
of Mr. Santiago is 12 years. Which of the following will Mr. Santiago be able to exclude from his gross
income? (RPCPA)

A. P100,000
B. 10,000
C. P20,000
D. 120,000

Correct Answer: A

13. Mr. Anakin, an employee of Fuerte Corporation is receiving a monthly salary (net of P233.40 monthly
withholding tax) of P21,766,60. Due to an outstanding accomplishment in July,2019, the corporation gave
him 200 shares of stock of the corporation with a par value of P100 per share and a fair market value at
P150. The fair value on the date of receipt is P152 per share.

How much is the income of Mr. Anakin in 2019?

A. P50,000
B. 294,000
C. P270,000
D. 264,000

Correct Answer: B

Salary (P21,766.60 + 233.40) x 12 P264,000

Shares of stock (200 x P150) 30,000
Gross income 294,000
Whenever the corporation transfers to its employees its own stock as remuneration for services rendered, the
amount of such remuneration is the fair market value at the time the services were rendered.
The income tax withheld is part of the compensation income.

14. Carandang is indebted to Dacuycuy. Due to his inability to pay the debt, he was asked to clean the piggery
of the latter for three months. Thereafter, Dacuycuy gave him P5,000 cash and condoned the debt
amounting to P10,000.

How much income should be declared by Carandang?

A. P5,000
B. 10,000
C. P15,000
D. None
Correct Answer: C

Cash payment from Dacuycuy P5,000

Amount of debt condoned 10,000
Gross income
Condonation of debt by the creditor after requiring the debtor to render services to him is a taxable income to the
debtor.

15. In 2018, Alonte received from his employer a promissory note with a face value of P100,000 for services
rendered. The note will mature in 2019. However, it was sold to a financing institution at a discount of 25%.
The employer paid the promissory note in 2019 How much taxable income is to be declared by Alonte on
the promissory note in 2018 and 2019
?
2018 2019
A. P50,000 P50,000
B. 25,000 75,000
C. P75,000 P25,000
D. None 100,000
Correct Answer: C

2018
Face value P100,000
Less: Discount (P100,000 x 25%) 25,000
Taxable income 75,000

2019
Face value P100,000
Less: Income reported in 2018 75,000
Taxable income 25,000

16. Using the same data in the preceding number, except that 50% of the face value of the note is payable in
2019 while the remaining 50% is payable in 2020.
How much income is taxable to Alonte in 2018, 2019 and in 2020?
2018 2019 2020
A. P100,000 None None
B. 75,000 P12,500 P12,500
C. 25,000 37,500 37,500
D. - 50,000 50,000

Correct Answer: B
2018
Face value P100,000
Less: Discount (P100,000 x 25%) 25,000
Taxable income 75,000

2019
Face value 100,000
Less: Amount reported as income in 2018 75,000
Amount reportable in 2019 and 2020 25,000
x Portion paid in installment 50%
Income reportable in 2019 12,500

2020
Amount of reportable in 2019 and 2020 25,000
x Portion paid in installment 50%
Income reportable in 2020 12,500

17. An individual taxpayer had the following data:

2019 Case 1 Case 2 Case 3

Income before write-off of P370,000 P270,000 P370,000
bad debt
Less: Bad debt written off 40,000 80,000 155,000
Income after bad debt 330,000 190,000 215,000

2020
Amount recovered P40,000 30,000 150,000

The taxable amount on the recovery of bad debt previously deducted is

Case 1 Case 2 Case 3

A. P40,000 P30,000 P150,000
B. 40,000 10,000 115,000
C. 30,000 80,000 55,000
D. 30,000 None 150,000

Correct Answer: B

Taxable income of P250,000 and below is not taxable.

 18. Mrs. Lucena was insured under an endowment policy with a value of P500,000. Total premiums paid by her
during the term of premium payments on the policy was P490,000 from which there was a return of
premiums of P40,000. At the maturity of the policy, Mrs. Lucena received P500,000. The income of Mrs.
Lucena under the policy is (RPCPA)

A. Zero
B. P500,000
C. P10,000
D. 50,000

Correct Answer: D

Amount of proceeds received P500,000

Less: Net premiums paid (490,000 – 40,000) 450,000
Income under the policy 50,000

Sonia took a life insurance from Sunstar Insurance Company, with her husband Noli as the beneficiary. Under the
policy, Sunstar will pay Sonia the amount of P500,000 when the policy matures, or to her beneficiary husband in
case she dies before the maturity. Sonia will pay P10,000 annually for 20 years.

19. Assuming that the policy matured when Sonia reached 50 years old and she received the entire P500,000
from the insurer, how much income should she report?

A. P500,000
B. 200,000
C. P300,000
D. None

Correct Answer: C

Proceeds from insurance P500,000

Less: Amount of premiums paid (P10,000 x 20) 200,000
Taxable amount 300,000

The proceeds of life insurance are taxable if the insured outlives the policy. However, the total amount of premiums
paid are to be deducted from the proceeds because they are considered as return of capital.

20. Assume that Sonia died after 10 years of paying premium. How much income should be reported to the
BIR?

A. P500,000
B. 100,000
C. P400,000
D. None
Correct Answer: D

The proceeds of P500,000 is not taxable because it is considered more as an indemnity rather than as gain or profit.

Paulo insured his life with an insurance company. Under the contract, he will pay a monthly premium of P2,000 for 10
years. In case of death before the 10th year, his beneficiary will receive an indemnification in the amount of P150,000.
If he still living on the 10th year, he will receive the face value of P500,000.

21. If Paulo dies on the 5th year, his beneficiary will report an income of

A. P500,000
B. 150,000
C. P260,000
D. Exempt

Correct Answer: D

Whenever the insured in a life insurance policy dies, the entire amount of proceeds received from an insurance
company is exempt from tax.

22. Suppose Paulo dies on the 5th year and his beneficiary was offered to receive the P150,000 in lump sum or
to receive it at P20,000 a month for ten (10) months and the beneficiary chose the 2nd option, he will report
an income of

A. P500,000
B. 150,000
C. P50,000
D. Exempt

Correct Answer: C

Total amount to be received (20,000 x 10) P200,000

Less: Face value 150,000
Taxable amount / Interest 50,000
Less: Face value 150,000
Taxable amount / Interest 50,000

23. Suppose Paulo survived the policy and was able to receive P500,000, he will report an income of –

A. P500,000
B. 260,000
C. P150,000
 D. None

Correct Answer: B

Amount of proceeds P500,000

Less: Premiums paid 240,000
Taxable amount 260,000.

24. An accident attributed to the negligence of the driver of Superman Lines resulted in the death of Richard’s
wife, physical injuries to Richard that prevented him from working for two (2) months, and the total wreck of
his brand new car which he had bought for P1,650,000.

In an action for damages, the court awarded to Richard the following

P140,000 – Injuries to Richard consisting mainly the loss of his left leg/
80,000 – Two months’ salary of Richard.
120,000 – For the death of his wife.
100,000 – Moral damages for the physical suffering and mental anguish.
1,800,000 – For the loss of his car, the value of which had increased.

Based on the foregoing, Richard should report income of –

A. P190,000
B. 680,000
C. P230,000
D. 240,000

25. Frances Corporation gave the following fringe benefits to its employees:

To supervisory employees P220,000

To managerial employees 170,000
To rank and file employees 60,000

The entry to record the above transaction is –

A. Fringe benefits tax P157,500

Fringe benefit expense 450,000
Cash P450,000
Fringe benefit tax payable 157,000

B. Fringe benefits tax 210,000

Fringe benefit tax payable 210,000

C. Fringe benefits tax 650,000

Fringe benefit tax payable 650,000
 D. Fringe benefit tax expense 210,000
Fringe benefit expense 450,000
Cash 450,000
Fringe benefit tax payable 210,000

Correct Answer: D

26. After working for 30 years and due to old age, Rufino retired from his employment on December 31, 2020 as
rank-and-file employee of Tumagay Corporation. As a consequence of his retirement, he received the
following from his employer:

Basic salary for 2020

13th month pay
Anniversary bonus
Loyalty award
Retirement pay

Based on the above data, the amount subject to tax is –

A. P250,000
B. 257,500
C. P252,500
D. 1,037,500

Correct Answer: A

Salary P250,000
Add: Taxable other benefits
13th month pay P25,000
Anniversary bonus 2,500
Loyalty award 10,000
Total other benefits 37,500
Less: Exemption 90,000 ______
Taxable amount 250,000

Mulry had the following data from his employment in 2019:

Monthly salary, at gross P24,000

Taxes withheld 8,000
Pag-ibig fund contributions 1,500
Union dues 2,400
Philhealth contributions 720
SSS premiums 4,480
13th month pay 24,000
Mid-year bonus 12,000
Loyalty award 5,000
 27. The non-taxable compensation income if Mulry is a rank-and-file employee is

A. P5,100
B. 50,100
C. P29,000
D. None

Correct Answer: B

Pag-ibig fund contributions P1,500

Union dues 2,400
Philhealth contributions 720
SSS premiums 4,480
Other benefits:
13th month pay P24,000
Mid-year bonus 12,000
Loyalty award 5,000 41,000
Non-taxable compensation income 50,100

28. The gross compensation income of Mulry in 2019 Is –

A. P144,000
B. 150,000
C. P329,000
D. 138,900

Correct Answer: C

Basic salary (P24,000 x 12) P288,000

Other benefits 41,000
Gross compensation income 329,000

29. The taxable compensation income is

A. P247,000
B. 278,000
C. P329,000
D. 138,900

Correct Answer: B

Basic salary P288,000

Less: Mandatory contributions 9,100
Taxable compensation income 278,900
 30. Three taxpayers have the following data:

Alcanzo Barrientos Corporal

Monthly basic pay P7,254 P6,431 P20,546
Holiday pay 435 - -
Overtime pay 1,256 1,459 2,543
Hazard pay - - 1,000
Night shift differential pay - 1,686 -
Total pay for the month 8,945 9,576 24,089

Who of the above taxpayers is/are exempt from income tax?

A. Alcanzo only
B. Barrientos and Corporal
C. Alcanzo and Barrientos
D. Corporal only

Correct Answer: C

The basis of the computation of the minimum wage rates prescribed by law shall be the normal working hours which
shall not be more than eight (8) hours a day.