Income Tax - Midterm - Exam

CVCITC
Cagayan Valley Computer & Information Technology College, Inc.

No. 28 Carreon Street, Centro East, Santiago City, Philippines | Telefax: (078) 305-0139
_________________________________________________________________________________________________________________
COLLEGE OF BUSINESS AND ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY
Name: _____________________________
Income Taxation June 1, 2023
Midterm EXAMINATION
INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. STRICTLY NO
ERASURES ALLOWED.
 TAXABLE INCOME  NON-RESIDENT ALIEN ENGAGED IN

 DIRECT TAX TRADE OR BUSINESS
 PROGRESSIVE TAX  RESIDENT ALIEN
 FISCAL PERIOD  GROSS INCOME
 WITHIN AND WITHOUT THE  SCHEDULAR TAX SYSTEM
PHILIPPINES  INCOME
 COMPENSATION INCOME  FRINGE BENEFIT TAX
 INCOME TAX  DE MINIMIS BENEFITS
 GLOBAL TAX SYSTEM  CAPITAL ASSETS
 RESIDENT CITIZEN  SALARIES AND WAGES
 PASSIVE INCOME
1. It is defined as a tax on all yearly profits arising from property, professions, trades or
offices, or as a tax on a person’s income, emoluments, profits and the like.
2. System employed where the tax system views indifferently the tax base and generally
treats in common all categories of taxable income of the individual.
3. System employed where the income tax treatment varies and is made to depend on the
kind or category of taxable income of the taxpayer.
4. The tax burden is borne by the income recipient upon whom the tax is imposed. It is a
tax demanded from the very person who, it is intended or desired, should pay it.
5. Tax base increases as the tax rate increases. It is founded on the “ability to pay”
principle.
6. It is a period of 12 months ending on the last day of any month other than December
(NIRC, Sec. 22 [Q]).
7. A citizen of the Philippines residing therein.
8. An alien who resides in the Philippines on a more or less permanent basis (must be
actually present in the Philippines for more than 12 months from his arrival to the
country).
9. A resident citizen is taxable on all income derived from sources .
10. Means total income of a taxpayer subject to tax. It means, in its broad sense, all income
from whatever source, derived within or without the Philippines, legal or illegal.
11. Means all wealth which flows into the taxpayer, other than return in capital.
12. Means the pertinent items of gross income specified in the tax code, less the deductions
and/or personal and additional exemptions, if any, authorized for such types of income
by the tax code or other special laws.
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13. This income is arising out of employer-employee relationship.

______ 14. This pertains to goods, services, or other benefits furnished by the employer to the
employees.
15. Who killed Magellan? (bonus Q)
Multiple Choice
1. Which of the following statements is correct?
A. An individual citizens of the Philippines who is working and deriving income from abroad as
an overseas contract worker is taxable on income from sources within and without the
Philippines.
B. A seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of vessel engaged exclusively in
international trade shall be treated as a resident citizen.
C. A non- resident citizen who is not engaged in business in the Philippines is treated as non-
resident alien who is not engaged in business in the Philippines
D. An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources in the Philippines
2. A resident citizen is taxable on all income derived from sources

A. Within the Philippines only
B. Without the Philippines only
C. Partly within and partly without
D. Within and without the Philippines
3. A resident alien is taxable on all income derived from sources

4. A non-resident alien is taxable on all income derived from sources

5. A citizen of the Phils. who works and derives income from abroad is a resident if he stayed
outside the Phils.
A. For less than 180 days
B. For more than 180 days
C. For 183 days or more
D. For less 183 days
6. A citizen of the Phils. Who works abroad and whose employment requires him to be
physically present abroad most of the time during taxable years
A. Taxable on income within and without the Phils.
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B. Taxable on income from without the Phils.

C. Exempt from income tax
D. Taxable income from within the Phils
7. A citizen of a foreign country is considered a non-resident alien engaged in business in the

Phils. If he stayed inside the Phils.
A. For 183 days or more
B. For less than 183 days
C. For more than 180 days
D. For less than 180 days
8. Taxable only on income from sources within the Phil. except

A. Resident citizen
B. Non-resident citizen
C. Resident alien
D. Non-resident alien
9. “Schedular system of income taxation” means:

A. All types of income are added together to arrive at gross income.
B. Separate graduated rates are imposed on different types of income.
C. Capital gains are excluded in determining gross income.
D. Compensation income and business professional income are added together in arriving at
gross income.
10. It is important to know the source of income for tax purposes (i.e., from within or without
the Philippines) because:
A. Some individual and corporate taxpayers are taxed on their worldwide income while
others are taxable only upon income from sources within the Philippines.
B. The Philippines imposes income tax only on income from sources within.
C. Some individual taxpayers are citizens while others are aliens.
D. Export sales are not subject to income tax.
11. Who among the following is a non-resident alien?

A. An alien who comes to the Philippines for a definite purpose which in its nature may be
promptly accomplished.
B. An alien who comes to the Philippines for a definite purpose which in its nature would
require an extended stay.
C. An alien who has acquired residence in the Philippines.
D. An alien who lives in the Philippines with no definite intention as to his stay.
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12. In cases of deduction and exemption on income tax return doubts shall be resolved:
A. Strictly against the taxpayer.
B. Strictly against the government.
D. Liberally in favor of the taxpayer.
C. Liberally in favor of the employer.
13. Income which is constructively received is already taxable income is a rule under this
method of accounting:
A. Cash method.
B. Accrual method.
C. Installment method.
D. Deferred payment method.
14. Gross income is reported partially in each taxable year in proportion to collections made in
such period as it bears to the total contract price refers to:
A. Crop year basis method.
B. Percentage of completion basis method.
C. Accrual method.
D. Installment sales method.
15. Which of the following is a capital asset?

A. Inventory for sale.
B. Real property held form rent.
C. Equipment used in business.
D. Investment Property.
16. Which of the following is false?

A. A capital asset may be an asset connected or not connected with the trade or business of
the taxpayer.
B. An asset used in business which is subject to amortization is an ordinary asset.
C. Inventory is an ordinary asset.
D. An asset held in business as investment is ordinary asset.
17. Which of the following may result to capital gain or loss?

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A. sale of investment in bonds

B. Receipt of liquidating dividend
C. Both “a” and “b”
D. Neither “a” and “b”
18. The fringe benefit tax by nature is a

A. tax on passive income of managerial or supervisory employees
B. final tax
C. tax to the employer of managerial or supervisory employees.
D. tax to all employees on their fringe benefits.
19. Which is not part of de minimis benefits?

A. Clothing allowance c. Monetized unused vacation leaves credits
B. Actual medical benefits d. 13th month pay
Problem Solving
Problem 1
Maria Clara presented to you the following income for 2022:
Basic Salary (net of withholding tax) 900,000

Withholding tax on basic salary 300,000
Director’s Fee 200,000
Business Income:
Retail Business 200,000
Apartment Rental (net) 190,000
Business expenses 125,000
Cash Dividend
From a Domestic Corporation 50,000
From a resident Corporation 50,000
Stock dividend from a domestic corporation 25,000
Interest from savings deposit 20,000
Royalties from book publications 50,000
Prizes from contest won 50,000
PCSO winnings 50,000
13th month pay 50,000
Christmas bonus 30,000
Mid-year bonus 50,000
Damages received from injuries and sickness 85,000
Proceeds from the life insurance coverage of 150,000
his deceased father
Determine the following :

1. Gross Income subject to graduated rate (5points)
2. Total income not subject to tax. (5points)
3. Total income subject to final tax. (5 points)
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(show your computation)

Problem 2
Magellan took out a life insurance policy for P 1,000,000.00 naming his son as beneficiary.
Under the terms of the policy, the insurer, Malayan Insurance Corporation will pay Magellan the
amount of P 1,000,000.00 after the 25th year of the policy, and his beneficiary, should she die
from that date. Magellan outlived the policy and received the proceeds. The premiums paid on
the policy was P 600,000.00.
Required: How much of proceeds from the insurance policy is taxable? (3 points)
Problem 3
Ibarra, a national athlete, received the following during 2022:
Ramon Magsaysay award 50,000
Athlete of the year award 100,000
Price – KFC raffle 5,000
Prize from winning an Olympic Medal 500,000
Gift from Mayor Aggabao 250,000
Car from Honda cars Philippines, as a gift 1,000,000
Winnings – Philippine’s lotto 100,000
Gambling winnings 500,000
Required: Determine the total amount of exempt from income tax. (3 points)
Problem 4
Mr. Bean reports the following items of income and expenses as of December 31, 202A:
Cash salary, net of withholding tax ₱25,000 and SSS, ₱3,000

302,000
Dividend from San Magnolia Corporation 30,000
Cancellation of her debt from San Magnolia Corporation 50,000
Living quarters and meals allowances, within the employer's premises 40,000
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income tax paid by the employer 5,000

One year note Receivable from the employer, net of discount P 1,000 (maturity June 30,
202A) 19,000
Gross income from business 400,000
Allowable expenses 250,000
Prepaid rent income 50,000
Interest from bank deposit, net of withholding tax 18,000
Bad debt recovery (60% previously written) 38,000
Gambling winnings 20,000
Gambling Losses 30,000
Income tax Refund 8,000
Household Expenses 200,000
Donation from relatives 150,000
Winnings 10,000
Stock Dividend from Asia Brewery at Fair Market Value 4,000
Required: Compute the taxable Income subject to normal tabular tax (10 points)

Income Tax - Midterm - Exam

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CVCITC

Cagayan Valley Computer & Information Technology College, Inc.

COLLEGE OF BUSINESS AND ACCOUNTANCY

 TAXABLE INCOME  NON-RESIDENT ALIEN ENGAGED IN

13. This income is arising out of employer-employee relationship.

2. A resident citizen is taxable on all income derived from sources

3. A resident alien is taxable on all income derived from sources

4. A non-resident alien is taxable on all income derived from sources

B. Taxable on income from without the Phils.

7. A citizen of a foreign country is considered a non-resident alien engaged in business in the

8. Taxable only on income from sources within the Phil. except

9. “Schedular system of income taxation” means:

11. Who among the following is a non-resident alien?

15. Which of the following is a capital asset?

16. Which of the following is false?

17. Which of the following may result to capital gain or loss?

A. sale of investment in bonds

18. The fringe benefit tax by nature is a

19. Which is not part of de minimis benefits?

Basic Salary (net of withholding tax) 900,000

Determine the following :

(show your computation)

(show your computation)

Cash salary, net of withholding tax ₱25,000 and SSS, ₱3,000

Dividend from San Magnolia Corporation 30,000

Cancellation of her debt from San Magnolia Corporation 50,000

income tax paid by the employer 5,000

Gross income from business 400,000

Allowable expenses 250,000

Prepaid rent income 50,000

Interest from bank deposit, net of withholding tax 18,000

Bad debt recovery (60% previously written) 38,000

Gambling winnings 20,000

Gambling Losses 30,000

Income tax Refund 8,000

Household Expenses 200,000

Donation from relatives 150,000

Stock Dividend from Asia Brewery at Fair Market Value 4,000

(show your computation)

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