Tax1101 Midterm Examination Final - PDF 1

FAR EASTERN UNIVERSITY
Institute of Accounts, Business, and Finance

Nicanor Reyes Street, Sampaloc Manila
Midterm Examination
Tax1101: Income Taxation
INSTRUCTION: Choose the best answer.
1. It is important to know the sources 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.
2. 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.
3. Which of the following is not a passive income subject to final tax?

a. Prizes amounting to P10,000.
b. Winnings.
c. Royalty income from copyrights used in the Philippines.
d. Cash dividends received by individuals from domestic corporations.
4. Which of the following passive income is subject to 10% final tax?

a. Winnings from on-line Bingo.
b. Winnings from lotto.
c. Royalty income from patents owned in the Philippines.
d. Royalty income from musical compositions.
5. Which of the following items of income is taxable?

a. Interest income received by a non-resident citizen from a depository bank under the
expanded foreign currency deposit system.
b. Winnings from Philippine Charity Sweepstakes amounting to P10,000.
c. Net income of a general professional partnership.
d. Dividends income received by an individual from a domestic corporation.
6. Which if the following interest income is taxable subject to final tax?

a. Interest income of deposit maintained by nonresident citizens under the expanded foreign
currency deposit system.
b. Interest income earned by resident citizens from notes receivable owned in the Philippines.
c. Interest income earned on government bonds and other securities.
d. Interest income earned by resident citizens form dollar deposits in U.S. banks.
7. Atty. Chel is the administrative officer of Covido-19 Corporation. During the taxable year, he had a
basic monthly salary of P50,000 aside from a fixed monthly allowance of 5,000. In the same y for
representation year, he was allowed to live free of charge in a two (2) bedroom condominium unit
(fair market value of rent is P5,000) near the factory office to enable him to supervise the company
operations more effectively. How much compensation income must be reported by Atty. Chel?
a. P660,000
b. P600,000
c. P665,000
d. P720,000
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8. Covid Bryant, single, received the following income in the year 2019:
1) Dividend income, domestic corp. P40,000

2) Lotto winning in the Philippines 200,000
3) Lotto winning in the U.S.A. 200,000
4) Prizes, received in the Philippines 10,000
5) Interest income from bank deposit in Japan 50,000
6) Leasehold income, Philippines 100,000
7) Winnings on gambling from CASINO 300,000
8) Royalty income as a publisher, Philippines 500,000
9) Royalty income, others – Philippines 60,000
10) Other business income, Japan 200,000
11) Other business income, U.S.A. 1,000,000
Expenses paid:
1) Personal 400,000
2) Business, Philippines 300,000
3) Business, Japan 250,000
4) Business, U.S.A. 700,000
Assuming Covid Bryant is a resident citizen, how much is his taxable income?
a. P64,000
b. P190,000
c. P180,000
d. P290,000
9. Using the same data above, how much is the tax due of Mr. Covid Bryant?
a. P8,000
b. P28,000
c. P48,000
d. Nil
10. Which of the following is subject to fringe benefit tax?

a. Compensation of the rank-and-file employee.
b. Compensation of the supervisory or managerial employee.
c. Fringe benefit of the rank-and-file employee.
d. Fringe benefit of the supervisory or managerial employee.
11. The following statements are true, except:

a. Fringe benefit tax shall be treated as a final income tax on the employee withhold and paid
by the employer on a quarterly basis.
b. The gross-up monetary value of the fringe benefit is the actual amount received by the
employee.
c. The gross-up monetary value of the fringe benefit shall be determined by dividing the
monetary value of fringe benefit by the gross monetary value factor.
d. The person liable for fringe benefit tax is the employer, whether individual, professional
partnership, or a corporation regardless of whatever the corporation is taxable or not, or
the government and its instrumentalities.
12. The determination of the fringe benefit tax would entail the following except:
a. Valuation of the fringe benefit.
b. Determination of the percentage of the benefit subject to the fringe benefit tax.
c. Determination of the manner by which the fringe benefit has been utilized by the employee.
d. Determination of the gross up monetary value of the benefit.
13. The monetary value of the fringe benefit provided as lease on residential property for the use of
employee is:
a. Fair market value multiplied by 50%.
b. Higher of fair market value or zonal value multiplied by 50% and 5%.
c. Rental payments multiplied by 50%.
d. Down payments plus rental payments multiplied by 50% and 5%.
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14. Which of the following fringe benefits is taxable?
a. Housing for military official of the Armed Forces of the Philippines.
b. Housing adjacent within 50 meters of business premises.
c. Temporary housing for an employee who stays in a housing unit for three (3) months.
d. Housing privilege of an alien employee of an offshore banking unit in the Philippines.
15. During the taxable year 2018, Covid-19 Company paid for the annual rental of a residential house
of its branch manager, Ms. Mystica amounting to 300,000. Based on this information, how much
fringe benefit tax must be recorded by the company in 2018? (Rounded off)
a. P80,769
b. P161,538
c. P100,000
d. P160,000
16. In 2018, Mr. Corona (an employer) gave the following fringe benefits, in cash and in kind, to its
employees:
To rank-and-file employees P1,230,000

To supervisory level employees P1,320,000
The fringe benefit tax is: (Rounded off)

a. P662,307
b. P710,769
c. P1,373,076
d. P1,320,000
17. During 2018, Jeros Corporation gave the following fringe benefits to its employees:
Salaries to rank and file employees P2,000,000

Salaries to managerial employees 1,900,000
De minimis benefits to rank and file employees 84,400
De minimis benefits to managerial employees 87,200
Fringe benefits to rank and file employees 202,000
Fringe benefits to managerial employees 270,000
How much is the fringe benefit tax? (Rounded off)

a. P301,107
b. P254,153
c. P145,384
d. P166,400
18. During 2018, Jeros Corporation gave the following fringe benefits to its employees:
Salaries to rank and file employees P2,000,000

Salaries to managerial employees 1,900,000
De minimis benefits to rank and file employees 84,400
De minimis benefits to managerial employees 87,200
Fringe benefits to rank and file employees 202,000
Fringe benefits to managerial employees 270,000
How much is the total allowable deduction from business income of Jeros Corporation?
(Rounded off)
a. P4,844,707
b. P4,797,753
c. P4,688,984
d. P4,710,000
3
19. In 2018, MB Manes Corporation paid for the monthly rental of the residential house of its branch
manager amounting to P360,000.
How much is the fringe benefit expense for the month?

a. Nil
b. P48,000
c. P360,000
d. P204,000
20. In 2018, MB Manes Corporation paid for the monthly rental of the residential house of its branch
manager amounting to P360,000.
The total allowable deduction from business income of MB Manes Corporation is? (Rounded off)
a. P48,000
b. P456,923
c. P258,923
d. P300,000
21. Ri, a rank and file employee received the following compensation and benefits during 2018:
Basic compensation P960,000

13th month pay 80,000
P1,000 monthly transportation allowance 12,000
Productivity incentive pay 15,000
Christmas bonus 40,000
Uniform allowance 20,000
Actual medical allowance 15,000
Rice subsidy 25,000
How much is the taxable income?

a. P952,000
b. P1,022,000
c. 973,000
d. P1,080,000
22. Yoon, is a minimum wage earner of Crash Landing Airlines. She is earning a minimum wage of
P196,000 and also received the following benefits:
• De minimis, P40,000 (P30,000 over the ceiling)

• 13th month pay and other benefits, P150,000)
Yoon’s taxable income should be:

a. P40,000
b. P42,000
c. P65,000
d. Nil
23. Koko, a private employee who is paid a P500 daily rate, received the following during the year
2018:
Monetized unused vacation leave credits 15 days
Monetized unused sick leave credits 15 days
Medical assistance P15,000
Rice subsidy (P3,000 per month) P36,000
Clothing allowance P10,000
Laundry allowance P 8,000
How much is the taxable amount of de-minimis benefits?

a. P35,400
b. P30,400
c. P23,400
d. P36,400
4
24. Professor Xavier was one of the Hall of Fame awardees of Marvel University. He was granted
P10,000 cash as loyalty award for his 20 years of service. He was also given P5,000 Christmas gift
and an additional P15,000 gift during the institution’s Founding Day Anniversary. Likewise, he was
also given free breakfast meal with a total value of P10,000 during the same year.
How much is the taxable de minimis benefits?

a. P35,000
b. P25,000
c. P20,000
d. P30,000
25. Dole Manufacturing Corporation operates a manufacturing plant in Cavite Economic Zone (a PEZA
registered economic zone). Raymond was assigned to lead the conduct of audit and performance
evaluation of the plant which is estimated to last for a period of 3-4 months. He was provided a free
housing benefit for the duration of the audit in one of the prominent subdivisions in the City. The
zonal value of the Real Property Tax Declaration amounts to P35,000,000.
Determine the fringe benefit expense and the fringe benefit tax expense, respectively.
a. P800,000; P376,470
b. P625,000; P294,118
c. P32,000,000; P15,058,824
d. P0; P0
26. In 2019, RBEG Corporation bought a condominium unit on installment for the use of its executive.
The acquisition cost inclusive of 12% interest is P8,720,000. The fair market value of the property
per Tax Declaration is P6,800,000 while the zonal value is P6,500,000.
How much is the fringe benefit tax?

a. P117,384.61
b. P2,347,692
c. P104,807
d. P2,096,154
27. Which of the following shall qualify as co-ownership?

I. Succession by several heirs to an undivided estate, the estate is not under
administration
II. Donation of property to two or more beneficiaries
a. Both I and II
b. Neither I nor II
c. I only
d. II only
28. Statement 1: Co-ownership is taxable because the activities of the co-owners are for the
preservation of the property and they collect income from such preservation.
Statement 2: The share of co-owner is taxable because each co-owner is taxed individually on their
distributive share in the income of the co-ownership.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
29. Statement 1: Co-owners are taxed collectively on their distributive share in the income of the co-
ownership.
Statement 2: If co-owners invest the income of the co-ownership in business profit, they are
taxable as corporation.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
5
30. It is composed of all the property, rights, and obligations of a deceased person which are not
extinguished by his death, including those which have accrued thereto since the opening of
succession.
a. Devisee
b. Legatee
c. Estate
d. Testator
31. Income received by the estate during the period of administration or settlement of the estate, for
tax purposes is known as
a. Income of the estate
b. Income of the heirs
c. Income of the trustee
d. Income of the testator
32. Complete sentence: When an individual taxpayer dies, future income on his property will be taxed
to
a. Those who inherit the property after they receive the property.
b. The estate itself, after the heirs have received the property.
c. The individual himself.
d. None of the above.
33. Statement 1: the income of the estate distributed to the beneficiary during the year is subject to
final withholding tax of 15%.
Statement 2: the withholding tax on the income distributed to the beneficiary is creditable against
the total tax liability of the beneficiary.
a. Statements 1 & 2 are false.
b. Statement 1 is true but statement 2 is false.
c. Statement 1 is false but statement 2 is true.
d. Statements 1 and 2 are true.
34. Statement 1: Where prior to the settlement of the estate, the executor or administrator sells
property of a decedent’s estate for more than the appraised value at the time of decedent’s death,
the excess is income taxable to the heirs.
Statement 2: Where the devisee, legatee, or heir sells the property after the settlement, the devisee,
legatee, or heir is taxable individually on any profit derived.
a. Statements 1 & 2 are false.
b. Statement 1 is true but statement 2 is false.
c. Statement 1 is false but statement 2 is true.
d. Statements 1 and 2 are true.
35. An agreement created by will or an agreement under which title to property is passed to another
for conservation or investment with the income therefrom and ultimately the corpus to be
distributed in accordance with the directives of the creator as expressed in the governing
instrument.
a. Estate
b. Trust
c. Fiduciary
d. Beneficiary
36. Estates and trust are

a. Treated as separate taxable entities
b. The tabular rates of tax prescribed under Section 24A for individuals shall be used in
computing the income tax of trusts or estates.
c. Personal exemption of P50,000 is no longer allowed beginning January 1, 2018.
d. All of the above.
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37. The income distributed to the beneficiaries of estates and trust, except income subject to final
withholding tax and income exempt from tax, is subject to:
a. Creditable withholding tax of 10%.
b. Creditable withholding tax of 15%.
c. Final withholding tax of 20%.
d. Neither final nor creditable withholding tax.
38. Which is true? Pre-tax income by a trust

a. Is taxed to the beneficiary if such income is retained by the trust.
b. Is taxed to the trust if such income is distributed.
c. Is taxed depending on who is in current possession of the income.
d. All of the above.
39. Chel, Florin and Bam are heirs of Digong who died on November 1, 2018. The properties of Digong
comprised solely of real property valued at P150,000,000 at the time of his death. The property is
subject to lease earning rental income. During 2019, the property remained undivided and it
derived at net rental income of P30,000,000.
For income tax purposes, the heirs will be tax on net rental income from the inherited property for
the year 2019 as:
a. Partners in a commercial partnership.
b. Partners in a general professional partnership.
c. Partners in an unregistered co-partnership.
d. Co-owners.
What amount should be reported as taxable income of the co-ownership in 2019?

a. P50,000,000
b. P15,000,000
c. P14,980,000
d. P0
What amount should each heir report in their individual returns as their share in the net rental
income of the property they inherited in 2019?
a. P30,000,000
b. P20,000,000
c. P15,000,000
d. P10,000,000
42. Nicanor Enrile died in 2017 leaving an estate worth P100,000,000. The estate is under
administration. In 2018, the properties in the estate earned a gross income of P900,000 and the
estate incurred expense of P350,000. In 2018, Duque, one of the heirs, received P320,000 from the
estate.
The income tax payable of estate in 2018 is

a. P97,500
b. P67,500
c. P37,500
d. Nil
7
43. Nicanor Enrile died in 2017 leaving an estate worth P100,000,000. The estate is under
administration. In 2018, the properties in the estate earned a gross income of P900,000 and the
estate incurred expense of P350,000. In 2018, Duque, one of the heirs, received P320,000 from the
estate.
Assume that Duque also earned net income of P400,000 from his trading business. What amount
should Duque report as tax due for 2018?
a. P85,000
b. P110,000
c. P55,000
d. P42,500
44. Mr. Pernia created a trust naming his eldest son, Nograles as beneficiary. If the eldest son could not
abide with the terms provided in the trust instrument, Mr. Pernia has the power to cancel the trust
agreement.
For the current taxable year (2018), the trust earned a net income before personal exemptions of
P5,000,000. On the other hand, the grantor earned a compensation income of P2,500,000 and
business income of P1,500,000. The taxable income of the trust is.
a. P8,000,000
b. P7,500,000
c. P5000,000
d. Nil
45. Mr. Pernia created a trust naming his eldest son, Nograles as beneficiary. If the eldest son could not
abide with the terms provided in the trust instrument, Mr. Pernia has the power to cancel the trust
agreement.
For the current taxable year (2018), the trust earned a net income before personal exemptions of
P5,000,000. On the other hand, the grantor earned a compensation income of P2,500,000 and
business income of P1,500,000. How much is the taxable income of Mr. Nograles?
a. P8,000,000
b. P7,500,000
c. P5000,000
d. Nil
46. On January 1, 2018, Roque established a trust fund for the benefit of his dear friend, Panelo. Mr.
Roque appointed Atty. Jeoff as the trustee. The property transferred to the trust is a piece of land
with a dormitory earning rental income.
During the year, the trust earned P80,000,000 revenues and incurred expenses of P30,000,000.
Out of the trust’s income, Atty. Jeoff gave Mr. Panelo P25,000,000 cash. In the same year, Mr.
Panelo earned compensation income of P5,000,000.
The tax due of the trust is

a. P10,500,000
b. P17,500,000
c. Nil
d. P8,750,000
47. On January 1, 2018, Roque established a trust fund for the benefit of his dear friend, Panelo. Mr.
Roque appointed Atty. Jeoff as the trustee. The property transferred to the trust is a piece of land
with a dormitory earning rental income.
During the year, the trust earned P80,000,000 revenues and incurred expenses of P30,000,000.
Out of the trust’s income, Atty. Jeoff gave Mr. Panelo P25,000,000 cash. In the same year, Mr.
Panelo earned compensation income of P5,000,000.
8
The tax due of Mr. Panelo is
a. P8,750,000
b. P1,750,000
c. P10,500,000
d. P11,450,000
48. In 2018, Leni created two (2) trusts for her minor son, Isko, of which corresponding income taxes
were paid. During the year, the two trusts earned net income as follows:
Trust 1 P5,500,000
Trust 2 P7,500,000
How much is the consolidated tax due of the Trust?

a. P4,160,000
b. P4,610,000
c. P4,010,000
d. P3,152,200
49. In 2018, Leni created two (2) trusts for her minor son, Isko, of which corresponding income taxes
Trust 1 P5,500,000
Trust 2 P7,500,000
How much is the additional income tax due of Trust 1?

a. P105,000
b. P96,000
c. P150,000
d. P114,000
50. In 2018, Leni created two (2) trust for his minor son, Isko, of which corresponding income taxes
Trust 1 P5,500,000
Trust 2 P7,500,000
How much is the additional income tax due of Trust 2?

a. P105,000
b. P96,000
c. P150,000
d. P114,000
* * *
Tax table:
But Not Of Excess

Over Tax Plus
Over Over
- 250,000 -
250,000 400,000 - 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000
***Nothing Follows***
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FAR EASTERN UNIVERSITY

Institute of Accounts, Business, and Finance

INSTRUCTION: Choose the best answer.

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

3. Which of the following is not a passive income subject to final tax?

4. Which of the following passive income is subject to 10% final tax?

5. Which of the following items of income is taxable?

6. Which if the following interest income is taxable subject to final tax?

1) Dividend income, domestic corp. P40,000

10. Which of the following is subject to fringe benefit tax?

11. The following statements are true, except:

To rank-and-file employees P1,230,000

The fringe benefit tax is: (Rounded off)

Salaries to rank and file employees P2,000,000

How much is the fringe benefit tax? (Rounded off)

Salaries to rank and file employees P2,000,000

How much is the fringe benefit expense for the month?

Basic compensation P960,000

How much is the taxable income?

• De minimis, P40,000 (P30,000 over the ceiling)

Yoon’s taxable income should be:

How much is the taxable amount of de-minimis benefits?

How much is the taxable de minimis benefits?

How much is the fringe benefit tax?

27. Which of the following shall qualify as co-ownership?

36. Estates and trust are

38. Which is true? Pre-tax income by a trust

What amount should be reported as taxable income of the co-ownership in 2019?

The income tax payable of estate in 2018 is

The tax due of the trust is

How much is the consolidated tax due of the Trust?

How much is the additional income tax due of Trust 1?

How much is the additional income tax due of Trust 2?

But Not Of Excess

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