Hello Tax Income Taxation True or False

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Hello TAX - income taxation true or false
Intermediate Accounting 1 (Adamson University)
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CHAPTER 1
TRUE OR FALSE 1
1. Eminent domain involves confiscation of prohibited commodities to protect the
well-being of the people.
ANS: FALSE
2. Horizontal equity requires consideration of the circumstance of the taxpayer.

ANS: TRUE
3. Taxes are the lifeblood of the government.

ANS: TRUE
4. Taxation is a mode of apportionment of government costs to the people.

ANS: TRUE
5. There should be direct receipt of benefit before one could be compelled to pay
taxes.
ANS: FALSE
6. The exercise of taxation power requires Constitutional grant.

ANS: FALSE
7. Taxation is inherent in sovereignty.

ANS: TRUE
8. Police power is the most superior power of the government. Its exercise needs to
be sanctioned by the Constitution.
ANS: FALSE
9. All inherent powers presuppose an equivalent form of compensation.

ANS: TRUE
10. The reciprocal duty of support between the government and the people
underscores the basis of taxation.
ANS: TRUE
TRUE OR FALSE 2
1. The Constitutional exemption of religious, charitable, and non-profit
cemeteries, churches and mosques refers to income tax and real property tax.
ANS: FALSE
2. Taxpayers under the same circumstance should be taxed differently.

ANS: FALSE
3. Taxation is subject to inherent and Constitutional limitations.
ANS: TRUE

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4. International comity connotes courtesy between nations.

ANS: TRUE
5. Collection of taxes in the absence of a law is violative of the Constitutional
requirement for due process.
ANS: TRUE
6. The scope of taxation is regarded as comprehensive, plenary, unlimited, and
supreme.
ANS: TRUE
7. No one shall be imprisoned for non-payment of tax.
ANS: FALSE
8. The lifeblood doctrine requires the government to override its obligations

and contracts when necessary.
ANS: FALSE
9. 2/3 of all members of Congress is required to pass a tax exemption law.

ANS: FALSE
10. The government should tax itself.

ANS: FALSE
Multiple Choice - Theory: Part 1
1. The point at which tax is levied is also called

ANS: IMPACT OF TAXATION
2. Which of the following inappropriately describes the nature of taxation?

ANS: Generally for public purpose
3. Which is correct?
ANS: The President of the Philippines can change tariff or imposts
without necessity of calling Congress to pass a law for that purpose.
4. A. The power to tax includes the power to exempt.

B. The power to license includes the power to tax.
Which is true?
ANS: A ONLY
5. International double taxation can be mitigated by any of the following

except
ANS: Entering into treaties to form regional trade blockage against the
rest of the world
6. Which is not an object of taxation?

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ANS: Public properties
7. That courts cannot issue injunction against the government’s effort to collect
taxes is justified by
ANS: the lifeblood doctrine
8. The power to enforce proportional contribution from the people for the support of
the government is
ANS: Taxation
9. This theory underscores that taxes are indispensable to the existence of the state.
ANS: The Lifeblood Doctrine
10. A. Taxation is the rule, exception is

the exemption.
B. Vague taxation laws are interpreted liberally in favor of the government.
Which is false?
ANS: both A and B
11. Select the incorrect statement.

a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favor of the government.
c. Tax statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvements.
12. Which is not a public purpose?
a. Public education
b. Transportation
c. National defense
d. None of these
13. Which does not properly describe the scope of taxation?

ANS: Discretionary
14. All of these are secondary pur

ANS: To raise revenue for the support of the government
15. What is the theory of taxation?

ANS: Necessity
16. A. Taxes should not operate retrospectively.

B. Tax is generally for public purpose.
Which is true?
ANS: A ONLY
17. Which provision of the constitution is double taxation believed to violate?

ANS: EITHER A OR C
18. Which limitation of taxation is the concept of “situs of tax” based?

ANS: TERRITORIALITY

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19. Which tax exemption is irrevocable?

ANS: BOTH A & B / ON CONTRACT & THE CONSTITUTION
20. Which statement is incorrect?

a. Every person
b. The existence of a gov
c. The govt provides
d. ONLY THOSE WHO ARE ABLE TO PAY TAX CAN ENJOY THE
PRIVILEGES AND PROTECTION OF THE GOVT
21. Which is the most incorrect statement regarding taxes?

a. Taxes are nec
b. The obligation to pay
c. There should be personal benefit enjoyed from the govt before one is
req
d. Taxes should be collected
22. Statement 1: In the selection of the objects of taxation, the courts have no power
to inquire into the wisdom
Statement 2: An imposition can be both a tax and a regulation. Taxes may be
levied
Which is correct?
ANS: BOTH STATEMENTS
23. Which of the following acts in taxation is administrative by nature?
ANS: Levy or distraint of taxpayers' property for tax delinquency
24. This refers to the privilege or immunity from a tax burden which others
are subject to:
ANS: Tax holiday
25. Statement 1: The benefit received theory presupposes that some taxpayers
within the territorial jurisdiction of the Philippines will be exempted from paying tax so
long as they do not receive benefits from the government.
Statement 2: The ability to pay theory suggests that some taxpayers may be
exempted from tax provided they do not have the ability to pay the same.
Which statement is true?
a. Only statement 1 c. Both statements 1 and 2
b. Only statement 2 d. Neither statement nor 2
26. Which is not a legislative act?
ANS: Assessment of the tax

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27. Statement 1: Taxation is the rule; exemption is the exception.

Statement 2: Taxation may be used to implement the police power of the
state.
ANS: I and Il are true
28. Which of the following powers of the Commissioner of Internal Revenue

cannot be delegated?
ANS: The power to reverse a ruling of the Bureau of Internal Revenue
29. When exemption from a tax imposition is silent or not clearly stated, which
ANS: Taxation applies since exemptions are construed against the
taxpayer.
30. What is the basis of taxation?

ANS: Reciprocal duties of support and protection
31. When the provisions of tax laws are silent as to the taxability of an item,
which is true?
ANS: Exemption applies since vague tax laws are construed
against the government.
32. Which of the following statements does not support the principle that tax is
not subject to compensation or set-off
ANS: Both tax and debt partake the nature of an obligation.
33. Which is not legally tenable in refusing to pay tax?
ANS: Absence of benefit from the government
34. What is the primary purpose of taxation?
ANS: To raise revenue

1. The Constitutional exemption of religious or charitable institutions refers
only to
ANS: Real property tax
2. The agreement among nations to lessen tax burden of their respective
subjects is called
ANS: International Comity

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3. An educational institution operated by a religious organization was being

required by a local government to pay real property tax. Is the assessment valid?
ANS: Yes, with respect to properties not actually devoted to educational
purposes.
4. Which is not a Constitutional limitation?
ANS: No tax law shall be passed without the concurrence of a majority of all
members of Congress.
5. Which of the following is not an inherent limitation of the power to tax?
ANS: Tax laws shall be uniform and equitable.
6. The following are inherent limitations to the power of taxation except one.
Choose the exception.
ANS: Non-appropriation for religious purpose
7. That all taxable articles or properties of the same class shall be taxed at the
same rate underscores
ANS: Uniformity in taxation.
8. The following are limitations of taxation:

A. Territoriality of taxation
B. Exemption of the government
C. Taxation is for public purpose.
D. Non-impairment of contracts
E. Non-delegation of the power of tax
Which of these are classified as both constitutional and inherent limitations?
ANS: C AND E
9. The provisions in the Constitution regarding taxation are

ANS: Limitations to the power to tax
10. The Constitutional exemption of non-stock, non-profit educational
institutions refers to
ANS: Property tax and income tax
11. Which of the following is violative of the principle of non-delegation?

ANS: Allowing the Secretary of Finance and the BIR to issue regulation or
rulings which go beyond the scope of a tax law
12. Which of the following violates Constitutional provisions?
ANS: Imposition of license for the sale of religious literature
13. In order to phase-out a huge deficit, the President of the Philippines passed
a law offering all taxpayers with previous tax delinquency to pay a minimum tax
in exchange for relief from tax assessment in the period of delinquency. Is this a
valid exercise of taxation power?
ANS: No, because the power of taxation is non-delegated.

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14. Concerned with increasing unemployment rates in the country, the President
of the Philippines encouraged the Philippine Senate to pass a law granting
special tax Privileges to foreign investors who will establish businesses in the
country. The Senate accordingly drafted the bill and passed to Congress for
approval.
ANS: No. Tax bills shall originate from the House of Representatives.
15. Ram is the only practicing lung transplant specialist in Baguio City. The Cit)
Government of Baguio passed a local ordinance subjecting the practice of lur
transplant to 2% tax based on receipts. Ram objected claiming that transplant
specialists in other regions of the country are not subjected to tax.
ANS: No, because the ordinance would cover all transplant specialist who
would practice in Baguio City. The uniformity rule would not be violated.
16. With the country under incessant shortage of sugar, the Philippine Congress
enacted a law providing tax exemptions and incentives to cane farmers without at
the same time granting tax exemptions to rice farmers who produce the staple food
of the Philippines. Is the new law valid?
ANS: Yes, since there is a valid classification of the taxpayers who would be
exempted from tax.
17. Congress passed a law subjecting government-owned and controlled
corporations
ANS: Yes, because GOCCs are not government agencies and are essentially
18. Which ofthe following is not a constitutional limitation of the power to tax?
ANS: Non-delegation of police power
19. The Philippine Congress residents enacted a law requiring foreign banks
to withhold taxes earned by Filipino residents in their country and to remit the
same Philippine government. Is this a valid exercise of taxation power?
ANS: No, as this leads to encroachment of foreign sovereignty.
20. Which of the following normally pays real property tax?

ANS: AM Property Holdings, a registered property
development company
21. Tax exemption bills are approved by
ANS: Majority of all members of Congress

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22. The Japanese government invested P100,000,000 in a Philippine

local bank and earned interest. Which is correct?
ANS: The income is exempt due to international comity.

1. When a legislative body taxes persons and property, rights and privileges
under the same taxable category at the same rate, this is referred to as
compliance with the constitutional limitation of:
ANS: Uniformity
2. Which is not a legislative act?
ANS: Assessment of the tax
3. The inherent powers of the State arc similar in the following respect, except;
ANS: All are not exercised by private entities.
4. Which is mandatorily observed in implementing police power?
ANS: Public interest
5. Which is considered in the exercise of eminent and domain?
ANS: Both a and b
6. The general power to enact laws to protect the well-being of the people is called
ANS: Police power
7. Which of the following entities will least likely exercise the power of eminent
domain?
ANS: Transportation operators
8. In exercising taxation, the government need not consider
ANS: Just compensation
9. Licensing of business or profession is an exercise of

ANS: Police power
10. Select the correct statement
a. Eminent domain refers to the power to take public property for
private use
b. Police power being the most superior power of the state is not
subject to any
c. Taxation power shall be exercised by Congress even without an
express
d. Taxes may be collected even in the absence of a law since obligation
11. Which is principally limited by the requirement of due process?
ANS: Police power
12. Statement 1: Congress can exercise the power of taxation

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Statement 2: Only the legislature can exercise the power of taxation, eminent
domain, and police power.
Which statement is correct?
ANS: Statements 1 and 2
13. Which power of the state affects the least number of people?
ANS: Eminent domain
14. Select the correct statement

A. The benefit received theory explains that the government is obliged to
serve the people since it is benefiting from the tax collection from its
subjects.
B. The lifeblood theory underscores that taxation is the most superior
power of the State.
C. The police power of the State is superior to the non-impairment clause of
the Constitution.
D. The power of taxation is superior to the non-impairment clause of the
Constitution.
15. Which of the following is not exercised by the government?
ANS: Eminent domain

16. Select the incorrect statement
ANS: Since there is compensation, eminent domain raises money for the
government.
17. The following statements reflect the differences among the inherent
powers except:
ANS: Eminent domain and police power do not require Constitutional
grant, but taxation, being a formidable power, requires constitutional
grant.
18. Statement 1: The Taxation power can be used to destroy if the law is valid.
Statement 2: A tax law which destroys things, business, or enterprises for the
purpose of raising revenue is an invalid tax law.
Which is incorrect?
ANS: Neither statement
19. Select the correct statement.
ANS: The power to tax includes the power to destroy.

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20. Which of the following powers is inherent or co-existent with the creation of
the government?
ANS: All of these
21. Which of the following is not an inherent limitation of the power to tax?
ANS: Tax laws shall be uniform and equitable.

a. The power to tax includes the power to exempt.
b. Exemption is construed against the taxpayer and in favor ofthe government.
c. Tax statutes are construed against the government in case of doubt.
d. Taxes should be collected only for public improvement.
23. Which of the following is not a constitutional limitation of the power to tax?
ANS: Non-delegation of the taxing power
24. Which of the powers of the State is the most superior? Which is most
important?
ANS: police power; Taxation
CHAPTER 2
MULTIPLE CHOICE - THEORY PART 1

1. When tax is collected upon someone who is effectively reimbursed by
another, the tax is regarded as
ANS: INDIRECT
2. All are ad valorem taxes, except one.
ANS: POLL TAX
3. Taxation power can be used to destroy
ANS: AS AN IMPLEMENT OF POLICE POWER
4. Which is not a characteristic of tax?
ANS: IT IS SUBJECT TO ASSIGNMENT
5. Which of the following is a local tax?
ANS: Real property tax
6. Which is not a source of tax law?

ANS: CHED regulations
7. Tax as to purpose is classified as
ANS: Fiscal or regulatory
8. Tax as to incidence is classified as

ANS: National or local tax
9. Tax as to source is classified a

ANS: National or local tax
10. Which is not a nature of tax?

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ANS: Generally payable in kind
11. Taxes that cannot be shifted by the statutory taxpayer are referred to as
ANS: direct taxes.
12. Which is a local tax?
ANS: Professional tax
13. As to subject matter, taxes do not include
ANS: Regulatory tax
14. A tax that is imposed upon the performance of an act, the enjoyment of a
privilege or the engagement in a profession is known as
ANS: Excise tax
15. Which is a national tax?
ANS: Income tax
16. Which of the following distinguishes license from tax?
ANS: Pre-activity in application
17. Which is correct?
a. Taxes may be subject to compensation.
b. Toll, being a demand of ownership, is exercised only by private entities.
c. Dacion en pago and cession in payment are applicable to taxation.
d. Special assessment applies only when public improvement is made.
18. Tax as to determination of amount is classified as

ANS: Specific or ad valorem tax
19. Tax classifications as to object do not include

ANS: Regulatory tax
20. A. Tax must not violate constitutional and inherent limitation.

B. Tax must be uniform and equitable.
C. Tax must be for public purpose.
D. Tax must be levied by the lawmaking body.
E. Tax must be proportionate in character.
F. Tax is generally payable in money.
Which of the above is/are not an essential characteristic of a valid tax?
ANS: None of the above
21. To limit the production of an environmentally harmful commodity, Congress
passed a law subjecting the sales of an environmentally unfriendly commodity to a
PIO/kilo tax but a 5% tax is imposed on sales exceeding PIOO,OOO.
Which is incorrect?
ANS: This is a local tax.
22. Which is not an excise tax?
ANS: Community tax
23. Which is an indirect tax?
ANS: Value added tax
24. Which is not an ad valorem tax?
ANS: Excise tax on cigar
25. A tax that is imposed based on per unit or per head basis is known as
ANS: Specific tax
26. Tax as to rates excludes
ANS: Specific tax

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27. Mr. A has a tax obligation to the government amounting to P80,000. Since he
is leaving the country, he entered into a contract with Mr. B wherein Mr. B shall pa;
the P80,000 tax in his behalf. On due date, Mr. B failed to pay the tax. The BIR set: a
letter of demand to Mr. A which he refused to pay.
Which of the following statements is correct?
ANS: The government should force Mr. A to pay because taxes are
non-assignable.
28. Philippine tax laws are, by nature
ANS: civil
29. Motor vehicles tax is an example of
ANS: Privilege tax
30. Which of the following statements is correct?
ANS: A tax bill personally drafted by the president shall become a law after
31. Tax rulings are issued by the
ANS: Commissioner of Internal Revenue
32. Which of the following is limited in application?
ANS: BIR Ruling
33. Which is not a source of tax law?
ANS: Opinions of tax experts
34. Which issues revenue regulations?

ANS: Department of Finance
35. Which is not an element of tax?
ANS: It must be progressive by nature.
36. Tax as to purpose does not include

ANS: POLL
37. When the impact and inci ence of taxation are merged into the statutory
taxpayer, the tax is known as
ANS: Direct tax
38. Tax as to object includes
a. Personal tax Excise tax
b. Property tax d. All of these

39. Which is not an indirect tax?
ANS: Personal tax
40. A tax that cannot be avoided is
ANS: Direct tax
41. Statement 1: Taxes are voluntary contributions to the government.

Statement 2: Taxes are mandatory contributions to the government.
Which is correct?
ANS: Only statement 2 is correct.
42. Which is an indirect tax?

ANS: Other percentage tax
43. Income tax is not a/an
ANS: Property tax
44. A transfer tax is not a/an
ANS: Regressive tax

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45. Which of the following levy is fiscal or revenue by nature?
ANS: Tax law geared to phase out a deficit balance of the government.

1. Which is not an excise tax?
ANS: Personal tax
2. Which of the following do not relate to tax?

ANS: Intended to cover cost of regulations
3. A levy from a property which derives some special benefit from public
improvement is
ANS: Special assessment
4. A. Government revenue may come from tax, license, toll and penalties
B. Penalty may arise either from law or contracts.
Which is false?
ANS: Neither A nor B
5. What distinguishes tax from license?
ANS: Tax is a post-activity imposition.
6. Which of the following distinguishes license from tax?
ANS: Non-compliance to it will render businesses illegal.
7. The amount imposed is based on the value of the property
ANS: TOLL
8. Which is intended to regulate conduct?
ANS: Penalty
9. Toll exhibits all of the following characteristics, except one. Which is the exception?
ANS: Levied for the support of the government
10. Which of the following is incorrect?
ANS: Tax is the sole source of government revenue.
11. Debt as compared to tax
ANS: It will not cause imprisonment when not paid.
ANS: Special assessment can be imposed on building and other real right
attaching or pertaining to land.
13. Tax as to subject matter does not include
ANS: Regulatory tax
14. What distinguishes debt from tax?
ANS: Arises from contract
Multiple Choice — Theory: Part 3

1. The Commissioner of Internal Revenue is not authorized to
ANS: promulgate Revenue Regulations.

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2. Which is not a power of the Commissioner of Internal Revenue?

ANS: To prescribe assessed value of real properties
3. The principles of a sound tax system exclude
ANS: Economic efficiency
4. Which of the following best describes the effect of tax condonation?
ANS: It only covers the unpaid balance of a tax liability.
5. Which is not an application ofa principle of a sound tax system?
a. Taxes should adjust based on government needs.
b. Taxation should be progressive.
c. Taxation should encourage convenient compliance.
d. None of these
6. By which principle of a sound tax system is the elasticity in tax rates is justified?
ANS: Fiscal adequacy
7. Violation of this principle will make a tax law invalid

ANS: Theoretical justice
8. Which of the following is not an application of the lifeblood doctrine?
ANS: None of these
9. Which one of the following is the BIR not empowered to do?

a. Assess national taxes
b. Collect income, business and transfer taxes
c. Assess and collect local taxes
d. Enforce forfeitures, penalties and fines
10. Which principle demands that tax should be just, reasonable, and fair?
a. Theoretical justice c. Administrative feasibility
b. Fiscal adequacy d. Economic consistency
11. Which among the following powers of the Commissioner of Internal Revenue
can be delegated?
ANS: The power to conduct inventory surveillance
.
12. The Commissioner of Internal Revenue is not empowered to

ANS: Grant amnesty for erring taxpayers.
13. Which is true with tax amnesty?

a. It is unconditional.
b. It covers both criminal and civil liability of the taxpayer.
c. It applies for past and future non-compliance.
d. All of these
14. Which of the following may tax exemption come from?

a. Contract c. Law

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b. Constitution d.¯All of these
15. Exemption based upon which of the following is repealable?

ANS: Law
16. Select the incorrect statement regarding tax amnesty and condonation.
ANS: Tax condonation operates on the whole balance of the assessed tax;
hence, taxpayer can ask for refund for the paid portion of the tax.
17. Which of the following is a power of the Commissioner Of Internal Revenue?

a. Assessment and collection of taxes
b. Enforcement of all forfeitures, penalties, and fines
c. Interpretation of the provisions of the NIRC
d. Giving effect to and administering the supervisory and police power:
conferred by the NIRC and other laws
18. The Commissioner of Internal Revenue can delegate the power to

a. refund or credit internal revenue tax.
b. recommend rules and regulations to the Secretary of Finance.
c. assign and re-assign revenue officer to establishments of
excisable articles.
d. compromise or abate tax liability.
19. The BIR is under the supervision of
ANS: the Department of Finance.
20. Who is not a large taxpayer?

a. Mining companies c. Banks with P 120M authorized capital
b. Listed companies d. None of these
21. In terms of financial measures, which of the following threshold for

qualification as large taxpayers is incorrect?
ANS: Gross sales exceeding Pl.5B
22. As to tax payments measures, which of the following threshold for the
qualification as large taxpayer is incorrect?
ANS: Annual value added tax payments of PIM

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CHAPTER 3: Introduction to income taxation
MULTIPLE CHOICE - THEORY PART 1

1. Which is not a requisite of gross income?
ANS: Exempted by law
2. Which is taxable item of income?
ANS: Interest on moral damages
3. Which is not subject to income tax?
ANS: Donation
4. The total consideration received from the sale of service constitute
ANS: Return on capital
5. When paid for, which of the following items may involve a return on capital?
ANS: House and lot
6. The total consideration received from the sale of goods at a gain represents
ANS: Both a and b (Return on capital)
7. The total consideration received from the sale of goods at a loss represents
ANS: Return on capital
8. Why is income subject to taxation?
ANS: Income is the best measure of taxpayer’s ability to pay tax
9. Which is not an item of gross income because of the absence of an
undertaking from the taxpayer?
ANS: Forgiveness of indebtedness as an act of gratuity
10. Which is subject to income tax?
ANS: Excess of proceeds over the premium paid received by the
taxpayer
11. Which of the following is exempted from income taxation because of the
absence of ability to pay?
ANS: Unrealized income from investments
12. Income tax may be imposed for the following purposes, except
ANS: To limit corruption
13. Which of the following constitutes taxable income?
ANS: Proceeds of crop insurance
14. Which of the following is not a constructive receipt of income?
ANS: Cash salary of an employee
15. Transfers for insufficient consideration are subject to
ANS: Both a or b (Income tax and Transfer tax)
16. Which is specifically exempted from income taxation by virtue of legal
exemption?
ANS: Minimum wage
MULTIPLE CHOICE - THEORY: PART 2

1. A resident alien naturalized in accordance with Philippine laws is a
ANS: Resident citizen
2. Who is not a resident alien?
ANS: An alien who married and stayed in the Philippines for one year
3. Which taxpayer is not a natural person?
ANS: Taxable estate
4. A Filipino who has been abroad for more than 183 days is classified as
ANS: Non-resident citizen

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5. Which of the following is not an income taxpayer classification?

ANS: General professional partnership
6. An American who showed proof to the satisfaction of the Commissioner of
Internal Revenue of his intention to stay in the Philippines as an immigrant is
classified as a
ANS: Resident alien
7. A Japanese who is staying in the Philippines for 183 days is a
ANS: Non-resident alien engaged in trade or business
8. A Canadian who is staying in the Philippines for more than one year is a
ANS: resident alien
9. An alien who stayed less than one year in the Philippines is classified as a
non-resident alien not engaged in trade or business if he stayed herein for
less than
ANS: 180 days
10. A corporation incorporated according to Philippines laws is a
ANS: Domestic corporation
11. A foreign corporation which is not authorized to conduct business in the
Philippines is a
ANS: Non-resident corporation
12. a foreign corporation which operates a branch in the Philippines is a
ANS: resident corporation
13. A partnership which dominantly operates business abroad is a
ANS: Domestic corporation
14. Which is required to pay income tax?
ANS: Business partnership
15. Which is not an income taxpayer?
ANS: Joint venture engaged in energy operation pursuant to a service
contract with the government
16. Which of the following taxpayers is taxable only on income earned from
sources within the Philippines, except
ANS: resident corporation
17. All of the following are taxable only on income earned from sources within the
Philippines, except
ANS: domestic corporation
18. Which is taxable on world income?
ANS: Resident citizen

1. The place of taxation is
ANS: Situs
2. Which is an incorrect statement regarding situs of income?
ANS: Service income is earned in the domicile of the taxpayer
3. Which statement is correct regarding situs of income?
ANS: The gain on the sale of real property is earned in the location of the
property
4. Pedro, a non-resident citizen, lent money to Shino, a resident Chinese. The
indebtedness was collateralized by a property located in Japan. The interest
income is earned in
ANS: China

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5. Gains on the sale of goods manufactured and sold by the taxpayer within the
Philippines is subject to tax
ANS: within the Philippines only
6. Yvonne, a resident alien, bought a car manufactures in the Philippines and
exported the same at a gain to Carla, a non-resident citizen. Which is correct?
ANS: The gain is taxable abroad because it is sold abroad
7. Juan, a resident alien, and Pedro, a non-resident alien, executed a contract of
sale in Japan whereby Pedro shall purchase the lot owned by Juan in the
Philippines. Juan gains P1,000,000 in the exchange. Which is true?
ANS: The gain is subject to Philippine tax because the property is in the
Philippines
MULTIPLE CHOICE - PROBLEMS

1. Beth negotiated a P1,000,000 non-interest bearing promissory note to Candy.
Candy paid Beth P950,000. On due date, Beth paid Candy P1,000,000. Which is
true?
ANS: Candy earning P50,000 return on capital
2. Andrew received a total sum of P42,000 from his employer consisting of the
following:
● P5,000 reimbursements for employer’s expenses paid by Andrew
● P15,000 payment of Andrew’s computer set purchased by the employer
● P22,000 monthly salary
Andrew’s computer set cost him P12,000. Compute the total return on capital which
can be subjected to income tax.
ANS: P25,000
3. Betty paid P20,000 annual premium on a life insurance contract which would pay
her P1,000,000 in case of her death. After paying for 4 years, Betty assigned the
policy to Carlos for P120,000. Compute the return on capital. P40,000
4. Becky purchased a P1,500,000 life insurance policy for P100,000. During the year,
Becky died and her heirs collected the entire proceeds. How much of the
proceeds is exempt from income tax?
ANS: P1,500,000
5. Dan purchased the P1,000,000 life insurance policy of Ben for P120,000. Dan paid
the P20,000 annual premiums on the policy for 4 years after which Ben died.
Compute the total return on capital for Dan.
ANS: P800,000
6. Carlos paid P20,000 annual premium for a P1,000,000 life insurance policy. After
7 yeays, Carlos surrendered the policy and was paid by the insurance company
P200,000 which represents the cash surrender value of the policy.
Compute the return on capital
ANS: P60,000
7. Alexander Company insured the life of its president for P2,000,000. A total of
P500,000 in premiums was paid before the president died. The company
collected the total proceeds.
Compute the return on capital.
ANS: P0

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8. Onyoc insured his newly constructed building costing P1,000,000. Within a few
days, the building was totally destroyed by a fire. The insurance company
reimbursed Onyoc P1,500,000, which represents the fair value of the building.
Which statement is false?
ANS: P1,500,000 is a return of capital
9. Guilbert is worried that his entire potato plantation which is expected to yield
P400,000 income will be totally devastated by bad weather conditions. He
obtained a P300,000 crop insurance cover for P30,000. Just before harvest, a rare
frost totally destroyed Guilbert’s plantation. The insurance company paid the
policy proceeds.
Compute the total recovery of loss profits to be recognized by Guilbert as
income.
ANS: P300,000
10. Felix sells hot chili-flavored pancakes using a secret formula he patented. He sued
a competing pancake house for alleged patent infringement and claimed a total
indemnity of P1,200,000:
● P1,000,000 for loss of profits from loss of sales
● P200,000 as Attorney’s fee reimbursement
If Felix wins the case and is awarded the total indemnity, compute his total
return of capital.
ANS: P200,000
11. Henson was one of the passengers of a van that fell of a ravine. Henson sued the
bus company and was awarded an indemnity of P800,000 for the following:
● P500,000 for the impairment of his health resulting to the amputation of his
legs
● P200,000 for his loss of salaries during his hospitalization
● P100,000 for his Attorney’s fees
Compute Henson’s return on capital
ANS: P200,000
12. Jake sued an unscrupulous person for derogatory remarks which he considered
to have besmirched his reputation. The court awarded him an indemnity of
P1,000,000 inclusive of P200,000 reimbursement for Attorney’s fees and
P100,000 exemplary damages. Compute Henson’s total return on capital.
ANS: P0
13. Kendrick received the following items during the year:
● P200,000 donation from a girlfriend
● P100,000 service fee from professional services
● P300,000 inheritance from his deceased father
● P100,000 income from illegal gambling
● P50,000 gain on sale of his personal car
● P250,000 profits from his bar restaurant
Compute the total income subject to income tax.
ANS: P500,000
14. Pines corporation has a branch in Manila and a 70%-owned subsidiary, Choco
Hills, Inc. in Davao. The following data shows Pines Corporation’s sales
transactions during the year:

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● Pines Corporation billed the Manila branch P1,500,000 for merchandise

shipped to thee latter at a mark-up of 50% above acquisition cost. The branch
stored the merchandise and did not operate during the year.
● Sold merchandise to unrelated parties at a gain of P800,000
● Sold merchandise to Darrel Asuncion, Pines Corporation’s controlling
stockholder at a gain of P100,000
● Sold various merchandise to Choco hills, Inc. at a gain of P200,000
Compute the total income of Pines Corporation subject to income tax.
ANS: P1,100,000
15. Denver is a supervisory employee of Atlantis Corporation. He had the following
items of gross income during the year:
● Denver was paid P800,000 salaries
● Denver’s P100,000 personal loan was paid by Atlantis Corporation as reward
for his excellent performance
● Etc….
Compute Denver’s total income subject to income tax
ANS: P980,000
16. Jen is engaged in business. The following pertains to her transactions during
2014:
● Sold his personal car which was purchased at P200,000 to a friend who paid
only half of his car’s P500,000 current fair value
● Sales of merchandise was P800,000 and the cost of goods sold was P600,000
● Etc…
Compute Jen’s total income subject to income tax
ANS: P250,000
17. A condominium home owner’s association collects dues from unit holders and
remits the same to service providers on their behalf. Such dues include electricity,
water, security, and maintenance. The association charges unit holders an
additional 2% of their utility bills as service charge.
During the year, the association processed utility bills for unit holders totaling
P5,000,000.
How much taxable income is realized by the association?
ANS: P100,000
18. Kenny used to bet in PCSO lotto. On June 3, 2014, he won the P20,000,000
jackpot prize from the 6/45 lotto. One P20-ticket out of 10 bets took the prize.
How much is Kenny’s total income subject to tax?
ANS: P0
19. An American citizen has been staying in the Philippines since August 15, 2013.
What would be his taxpayer classification for the year 2013 and 2014,
respectively?
ANS: Non-resident alien not engaged in trade or business; resident alien
20. A citizen who left the Philippines on March 1, 2013 would be classified as
ANS: Non-resident for the year 2013
21. An alien received P200,000 compensation income in the Philippines and
P300,000 rental income from abroad. How much will be subject to Philippine
income tax?
ANS: bay dko sure ani kay ang choices kay d,e,c,d huhu

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22. A non-resident citizen is an international financier who earned P400,000 interest

income from resident debtors and P300,000 from foreign debtors. How much is
subject to Philippine income tax?
ANS: P400,000
23. Sarah has the following items of income:
Philippines Abroad
Business income P200,000 P100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest income 30,000 40,000
1. Assuming Sarah is a resident citizen, compute the total income subject
to Philippine income tax.
ANS: P1,420,000
2. Assuming Sarah is a resident alien, compute the total income subject
to income Philippines tax
ANS: P1,030,000
3. Assuming Sarah is a resident corporation, compute the total income
subject to Philippine income tax
ANS: P1,030,000
4. Assuming Sarah is a domestic corporation, compute the total income
subject to Philippine income tax.
ANS: P1,420,000
CHAPTER 4: Income tax schemes, accounting periods, accounting methods, and reporting
TRUE OR FALSE 1
1. Both active income and passive income do not require direct participation of the
taxpayer in earning the income
ANS: FALSE
2. There are three types of gross income for taxation purposes
ANS: TRUE
3. The three tax schemes are mutually inclusive in coverage
ANS: FALSE
4. Regular income tax generally covers active income and capital gains
ANS: TRUE
5. Final tax generally covers passive income
ANS: TRUE
6. Capital gains arise from the sale, exchange, and other disposition of any assets
ANS: FALSE
7. There are only two types of assets for purposes of taxation
ANS: TRUE (CORRECT NAA SA SOLMAN)
8. An ordinary asset is defined to include all other assets other than capital assets
ANS: FALSE
9. The technique used to measure income is referred to as an accounting method.
The length of time over which income is reported is referred to as an accounting

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period.
ANS: TRUE
10. Regular accounting periods are calendar and fiscal
ANS: TRUE
11. Individuals file their income tax returns on or before April 15 of the following
calendar year
ANS: TRUE
12. All taxpayers can change their accounting period when there is a change in the
nature of their business, but the BIR must be notified in all cases
ANS: FALSE
13. The first accounting period of a starting business will more likely be less than 12
months
ANS: TRUE
14. The accounting period of a deceased taxpayer shall be terminated on December
31 in the year of death
ANS: FALSE
15. Accrual basis and cash basis are the most common accounting methods used in
practice
ANS: TRUE
TRUE OR FALSE 2
1. Advanced income as an item of gross income for accrual basis taxpayers
ANS: TRUE
2. Generally, prepayments are non-deductible in the current accounting period
ANS: TRUE
3. Prepayments are deductible but in the future period they expire or are consumed
in the business or trade of the taxpayer
ANS: TRUE
4. The use of different methods for different businesses of the same taxpayers
permitted by law.
ANS: TRUE
5. Initial payment includes down payment and installments in the year of sale.
ANS: TRUE
6. Contract price is synonyms with selling price
ANS: FALSE
7. The crop year method is an accounting method
ANS: TRUE
8. Under the percentage of completion, gross income is reported based on the cash
collections from the contract price
ANS: FALSE
9. The depreciated value of the property upon termination of the lease constitutes
income to the lessee
ANS: TRUE
10. The withheld taxes on the income payments made by the taxpayers are tax credit
against their income tax due
ANS: FALSE

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11. There are three types of income tax return for each income tax scheme
ANS: FALSE
12. All taxpayers, small or large, are encouraged to file their income tax return
through the EFPS system of the BIR
ANS: FALSE
13. Large taxpayers are under the supervision of the BIR Large Taxpayer Service
ANS: TRUE
14. Non-filing and/or non-payment of tax is subject to penalties such as surcharges,
interest, compromise, and imprisonment
ANS: FALSE
15. The interest on unpaid taxes is computed on the basic tax only excluding the
surcharge
ANS: TRUE
16. Only large taxpayers shall file under eFPS
ANS: FALSE
17. Both manual filing and filing through e-BIR forms makes use of manual payment
ANS: TRUE
18. eFPS is fully electronic tax compliance
ANS: TRUE
19. e-BIR forms makes use of electronic data entry and filing
ANS: TRUE
20. eFPS filers may file manually when there is a BIR system downtime
ANS: TRUE
MULTIPLE CHOICE - THEORY: GENERAL CONCEPTS

1. Which is not a scheme in taxing income?
ANS: Ordinary gain taxation
2. Which is a correct statement regarding income taxes?
ANS: An item of income exempted from tax is likewise exempt from capital
gains tax and regular income tax
3. Which is not a feature of final tax?
ANS: Covers all capital gains
4. Which of the following properties when classified as capital asset is subject to
capital gains tax?
ANS: Both a or b – Domestic stocks sold directly to buyer, Real property
5. Capital asset means
ANS: any property, real or personal, but used in business
6. Which is not an item of passive income?
ANS: Professional income
7. Which of the following accounting methods is most consistent with the lifeblood
doctrine?
ANS: Accrual method
8. These are accounting techniques or conventions used to measure income
ANS: Accounting methods
9. These are distinct and equal time periods over which income is measured
ANS: Accounting periods

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10. Income is recognized when received rather than when earned

ANS: Cash basis
11. Income is recognized when earned regardless of when received
ANS: Accrual basis
12. Initial payment means
ANS: Total collection within the year the installment sale was made
13. Income is reported by reference to the extent of project completion in
ANS: Percentage of completion method
14. Which statement is correct?
ANS: Dealers of personal properties can use the installment method without
limitation
15. Leasehold income is recognized over the lease term in
ANS: Spread-out method
16. Statement 1: The excess of mortgage assumes by the buyer over the basis of the
properties sold is the amount of the gain on the sale
Statement 2: Any collection from an installment contract where the mortgage
exceeds the tax basis of the properties received constitutes collection of income
Which is true?
ANS: Statement 2 only
17. Which is correct regarding the crop year method?
ANS: Crop year method matches cropping expenses with the income upon
harvest
18. Which is an incorrect statement regarding the use of accounting period?
ANS: Individuals can either choose the calendar year or fiscal year accounting
period
19. Under which of the following will short accounting period not arise?
ANS: Change of accounting period by an individual taxpayer
20. Which is not a special feature of regular income taxation?
ANS: Final withholding tax at source
MULTIPLE CHOICE - PROBLEM 4-1: ACCOUNTING PERIOD

1. An individual income taxpayer shall file his or her income tax return on or before
the
ANS: 15th day of the fourth month of the following calendar year
2. Anderson died on March 31, 2017. Which is a correct statement?
ANS: Anderson’s 2017 income tax return shall cover January 1, 2017 to March
31, 2017.
3. Mrs. Julian started business on July 15, 2016. What should be the coverage of her
2016 income tax return?
ANS: July 15, 2016 to December 31, 2016
4. A corporation reporting on a fiscal year ending every March 31 shall file its 2017
income tax return not later than
ANS: July 15, 2017
5. Metersbonwe Corporation started business on April 5, 2016 and opted to report
income tax on a fiscal year ending every October 31. Metersbonwe’s first income
tax return shall cover
ANS: April 5, 2016 to October 31, 2016

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6. Beneco Corporation reports on a calendar year. On August 15, 2016, it stopped

business due to persistent losses. Beneco Corporation’s last income tax return
shall cover
ANS: January 1 to August 15, 2016
7. Effective March 1, 2017, Jonah, Inc. changed its calendar year to a fiscal year
ending every June 30. An adjustment return shall be filed covering the period.
ANS: January 1 to June 30, 2017
8. During 2017, Klein Corporation changed is accounting period to the calendar
year. The adjustment return shall be filed on or before
ANS: April 15, 2018
9. Effective July 2, 2016, Rofelson Company changed its fiscal year ending every
March 31 to another fiscal year ending every August 31. An adjustment return
shall be filed covering the period
ANS: April 1 to August 31, 2016
10. Effective May 15, 2017, Tabuk, Inc. changed its fiscal year ending every April 30 to
the calendar year. An adjustment return shall be filed covering the period
ANS: May 1 to December 31, 2017
MULTIPLE CHOICE - PROBLEMS 4-2: TAX SCHEMES AND ACCOUNTING METHODS

1. Astercor, Inc. reported the following during the year:
● P400,000 proceeds of life insurance of an officer where Antercor is the
beneficiary (P600,000 still uncollected)
● P800,000 interest income, exclusive of P200,000 uncollected and accrued
interest
● P300,000 increase in value of investment in stocks
Compute the gross income under cash basis
ANS: P800,000
2. Compute the gross income under accrual basis: P1,000,000
3. Belin Corp. reported the following data for 2019:
● Total net sales made to customers were P2,000,000 in cash
● Goods purchased for sale totaled P1,200,000 in cash. Beginning and ending
inventory of goods for sale, respectively, were P200,000 and P300,000
● Etc
Using cash basis, compute the total income subject to income tax
ANS: P960,000
4. Using the accrual basis, compute the total income subject to income tax
P970,000
5. Santiago, Inc. has the following receipts during 2018:
From service billings to clients P400,000
Advances from clients 100,000
Total cash collections P500,000
Etc.
Compute the gross income using cash basis
ANS: P500,000
6. Compute the gross income using accrual basis P550,000
7. In 2019, Bright Inc. sold its parking lot for P2,400,000 payable on installment. The
lot was previously acquired for P1,500,000. The buyer has an outstanding unpaid

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balance of P1,800,000 as of December 31, 2019, Bright’s year-end.

Compute Exquisite’s gross income in 2019 using the installment method.
ANS: P225,000
8. Exquisite Corporation sold its old warehouse with carrying amount (tax basis) of
P600,000 for P1,000,000. A downpayment of 15% was collected on July 1, 2019.
Additional P150,000 installment payments were received as of December 31,
2019.
Compute the gross profit to be reported for the year 2019.
ANS: P400,000
9. Lancelot is a dealer of household appliances. He reported the following in 2019
and 2020.
2019 2020
● installment sales P500,000 P800,000
● cost of installment sales 250,000 440,000
● Collections 300,000 600,000
Etc.
Using the installment method, compute Lancelot’s gross income subject to
income tax in 2020.
ANS: P275,000
10. Using the accrual basis of accounting, compute Lancelot’s gross income subject
to income tax in 2020 P360,000
11. Merville is a dealer in real properties. Merville requires 20% downpaymet, and
the balance is payable over 36 monthly installments starting on the last day of
the month following the month of sale. Merville sold properties in 2019 and 2020
with terms as follows:
● House and Lot No. 1 was sold for P1,350,000 on November 11, 2019
● Etc.
Compute Merville’s gross income subject to income tax in 2019 and 2020,
respectively.
ANS: P120,000;P864,000
12. In 2020, Mr. Marangley, a dealer of car, disposed a brand new sports utility
vehicle (SUV) which costs P800,000 for P1,200,000, inclusive of under the
following terms:
How much gross income is to be reported in 2020?
ANS: P116,667
13. In the immediately preceding problem, assuming Mr. Marangley is not a dealer of
car, how much gross income is to be reported in 2020? How much gross income
is to be reported in 2020? P400,000
14. Luccio accepted a P1,000,000 construction contract in early 2020. As of
December 31, Luccio incurred total construction costs of P600,000 and estimates
additional building is at its 80% stage of completion.
ANS: P200,000
15. Crevar constructs residential properties for clients and reports income by
percentage of completion method. In 2019, Crever started a P2,000,000
construction contract. Details of his 2019 and 2020 construction follow:
● Annual, construction costs P200,000 P800,000
● Estimated cost to finish 800,000 250,000

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● Extent of completion 20% 80%

Compute the construction income in 2019 and 2020.
ANS: P200,000; P400,000
16. Oliver entered into a 40-year lease contract with Berna. Per agreement, Oliver
will construct a building on Berna’s lot and operate the same for 40 years.
Ownership of the building will transfer to Berna upon the termination of the
lease.
ANS: P200,000
17. In the immediately preceding problem, assume that the building was completed
on July 1, 2020, what is the income using outright method P8,000,000
18. Tomas leases an office space from Rafi, Inc. in a non-renewable 10-year lease
contract. Just after the second year of the lease. Tomas renovated the premises
and made improvements at a cost of P1,200,000.
ANS: P50,000
19. Hassan started raising swine for sale by purchasing 5 gilts and a boar at a total
purchase price of P50,000 on January 2020. As of December 31, 2020, Hassan’
herd grew to 15 guilts, 2 boars and 20 piglets. The total herd has a fair value of
P196,000 when sold as is.
ANS: P180,000
20. Pedro, a farmer, uses the crop-year method in reporting his income from
long-term crops. The following data are relevant to his farming operations in
2020:
● Sales of crops harvested, P900,000
● Expenses on harvested crops, P400,000
● Expenses on maturing crops, P200,000
● Etc
Pedro uses the crop year method in reporting crop income. Compute Pedro’s
total income subject to tax.
ANS: P550,000
MULTIPLE CHOICE - PROBLEM 4-3: TAX COMPLIANCE

1. A taxpayer filed his income tax return in October 28, 2018. The deadline for the
return was April 15, 2018. If he has P40,000 net tax due, compute the penalties in
the form of interest.
ANS: P2,578
2. What is the total surcharge penalty?
ANS: P10,000
3. A taxpayer received a notice from the BIR to file his 2016 income tax return not
later than January 15, 2018. The tax due per his return is P100,000. What is the
total surcharge penalty?
ANS: P50,000
4. What is his total interest penalty?
ANS: P14,740
5. Compute the compromise penalty
ANS: P15,000

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6. Mani pakyaw failed to file his income tax return for the year 2019 which should
have been filed on or before April 15, 2020.
ANS: No answer
7. Mr. Pakyaw must pay a surcharge of
ANS: P500,000
8. Rich Goma corporation failed to file its income tax return for the fiscal year
ending August 31, 2019. On June 6, 2020, it filed an income tax return with a
basic tax still due and payable for the fiscal year amounting to P500,000.
Compute the interest penalty to be imposed by the BIR?
ANS: P28,603
9. Compute the total tax assessment to be paid, excluding compromise penalty.
ANS: P653,603
CHAPTER 5: Final Income Taxation
TRUE OR FALSE 1
1. Generally, interest income from non-banks sources is subject to regular

income tax
ANS: TRUE
2. Foreign income is subjected to final tax if the taxpayer is taxable on global

income. ANS: FALSE
3. Items of passive income from abroad are subject to final tax ANS: FALSE
4. Interest income on government securities are subject to final tax ANS: TRUE
5. All items of passive income are generally subject to final tax. ANS: FALSE
6. Final tax is collected at source; hence, there is no need to file an income tax
return. ANS: TRUE
7. Corporations are tax-exempt on inter-corporate dividends from any
corporation ANS: FALSE
8. Individuals and corporations are tax-exempt on interest income on long-term
deposits. ANS: FALSE
9. Dividends from resident corporations are subject to regular tax. ANS: TRUE
10. Dividends from Real Estate Investment Trusts are exempt from final tax.

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ANS: FALSE
11. Stock dividends are always exempt from final tax. ANS: FALSE
12. Corporations are subject to final tax on prizes. ANS: FALSE
13. The share in the net income of a business partnership is subject to a
creditable withholding tax, not to final tax. ANS: FALSE
14. General professional partnerships are subject to final tax but not to regular
tax. ANS: FALSE
15. All non-residents are exempt from final tax on foreign currency deposits.
ANS: TRUE
16. Royalties, active or passive, are subject to regular income tax. ANS: FALSE
17. The tax sparing rule is applicable to resident and non-resident foreign
corporations. ANS: FALSE
TRUE OR FALSE 2
1. A government employee may claim the tax’s informer’s reward. ANS: FALSE
2. The final tax on winnings applies to corporations ANS: FALSE
3. Individuals, except corporations, are subject to final tax on winnings abroad.
ANS: FALSE
4. Winnings which are not more than P10,000 in amount are subject to the
regular income tax ANS: FALSE
5. PCSO or lotto winnings are exempt from all types of income tax. ANS: FALSE
6. Special aliens do not file a regular income tax return on their compensation
income. ANS: TRUE
7. The final tax on interest on tax-free corporate covenant bonds applies only to
resident individual or corporate taxpayers. ANS: FALSE
8. NRA-NETB and NRFC are subject to final tax only to passive income from
sources in the Philippines ANS: FALSE
9. NRA-NETB and NRFCs are not required to file the regular income tax return.
ANS: TRUE
10. Residents shall withhold 10% final tax upon interest on foreign currency loans
of FCDU banks and OBUs under the expanded foreign currency deposit
system. ANS: TRUE
11. A qualified employee trust fund is not subject to final tax. ANS: TRUE
12. The income of FDCU banks from fellow depository banks under the expanded
foreign currency deposit system is subject to 10% final tax. ANS: FALSE

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13. Petroleum service subcontractors are subject to 8% final tax on their income
from petroleum service contractors. ANS: TRUE
14. The final withholding tax return [shall be filed by the withholding agent on or
before 15th day of the month the final taxes were withheld. ANS: FALSE
15. Foreign governments and foreign government-owned and controlled
corporations are exempt from final tax. ANS: TRUE
MULTIPLE CHOICE - THEORY 1
1. Which is correct with regard to the final income taxation?

ANS: Taxpayers need not file an income return
2. Which statement is correct regarding final income tax?
ANS: Final tax applies only on certain passive income earned within
Philippines
3. Interest income from which of the following sources is subject to final income
tax?
ANS: Money Market placements
4. The final tax does no't apply to interest on (select the best answer)
ANS: Promissory notes
5. The exemption on final tax on interest from long-term deposit is not applicable
to
ANS: Corporations
6. Which interest income is not subject to any income tax?
ANS: Imputed interest
7. The final tax rates on pre-termination of long-term deposits is not relevant to
ANS: any corporations
8. Which of the following is subject to 15% final tax on interest from foreign
currency deposits made with Philippine banks?
ANS: Resident alien
9. The following are subject to final tax on all income from sources within the
Philippines. Which is the exception/
ANS: non-resident alien engaged in trade or business
10. The interest income from long-term peso deposits a=made with foreign banks
is

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ANS: Subject to regular tax

11. What is the final tax on interest income on 6-year deposit pre-terminated less
than 2 years before maturity?
ANS: 20%
12. Which of the following recipients is exempt from final tax on dividends?
ANS: Resident corporation
13. A dividend declaration is 2019 is subject to a final tax of
ANS: 10%
14. Dividends declared by a resident corporation is
ANS: subject to regular income tax
15. Between the date of declaration and the date of record, BCD, Inc. sold an
investment representing stock of ABC, Inc., a domestic corporation. Which
statement is correct?
ANS: ABC, Inc. shall withhold 10% dividend tax if the buyer of the sale is
an individual
MULTIPLE CHOICES - THEORY 2
1. Which is covered by final tax?

ANS: Share in the net income of a joint venture
2. Which is not subject to 20% final tax?
ANS: Royalties from musical compositions
3. Which is not subject to 10% final tax?
ANS: Royalties from a business trademark
4. Which of the following is taxable?
ANS: Prize from dance competition abroad
5. Which winnings is taxable to a final tax?
ANS: All of these
6. Prizes from sources abroad is subject to final tax
ANS: under no circumstances
7. The following winnings are exempt from tax, except one. Which is the
exception?
ANS: Jueteng winnings

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8. Which of the following is exempt from final tax?

ANS; Interest income earned by a bank from lending activities
9. Dividend income from domestic corporation is subject to final tax effective
ANS: 1998
10. Prizes arising from sources within the Philippines may be
ANS: Exempt or subject to final tax or regular tax
11. Any royalties earned abroad by a non-resident corporation is
ANS: not subject to Philippine income tax
12. The winnings of a resident alien from abroad is
ANS: not subject to Philippine income tax
13. Royalty income of a domestic corporation from abroad is
ANS: Subject to regular tax
14. Winning from PCSO are generally
ANS: Exempt from any tax
15. The final tax rates on passive income are generally similar to the following
taxpayers, except one. Select the exception.
ANS: Non-resident corporation
16. The tax informer’s reward may be granted to
ANS: Relatives of government employees beyond the 6th degree of
consanguinity
17. Which is not subject to final tax?
ANS: Fringe benefits of rank and file employees
18. Which of the following is exempt from final tax?
ANS: Dividends from a foreign corporation
MULTIPLE CHOICE - PROBLEM 1
1. Winnie, a resident citizen, deposited P2,000,000 in the 180-day time deposit

of Banco de Oro. The deposit pays 8% interest. Compute the final tax on
maturity of the deposit. ANS: P16,000
2. Assume that Winnie is a non-resident alien not engaged in trade or business,
compute the final tax on maturity of the deposit. ANS: P20,000

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3. Renz received P42,000 interest from short-term deposits. Compute the final
tax withheld on the interest. ANS: P10,500
4. On January 1, 2014, Mr. Albuera invested P2,000,000 in the six-year time
deposit of Sulu Unibank which pays 10% annual interest. COmpute the final
tax to be withheld by Sulu Unibank on December 31, 2014. ANS: P0
5. Assume Mr. Albuera pre-terminated the time deposit on July 1, 2018; compute
the final tax to be withheld on pre-termination ANS: P45,000
6. Boy, a resident citizen, received the following interest income:
● P80,000 from short-term Peso time deposit
● P16,000 from a five-year bonds issued by a commercial bank
● P24,000 from 5/6 lending to market vendors
How much final tax must have been withheld from Boy's interest income?
ANS: P20,000
7. Jake Corporation, a domestic corporation, deposited P1,000,000 in the
five-year time deposit of Banco Pilipino which pays 10% annual interest.
Compute Jake Corporation's net interest income in the first year of the
deposit. ANS: P80,000
8. Assume Jake Corporation is a non-resident corporation; compute the final tax
on interest income. ANS: P30,000
9. On January 2, 2011, Quezon, Inc. placed P 1,000,000 in the 5-year time
deposit of Bank of Laguna. The placement earns 10% annual interest.
Quezon, Inc. pre-terminated the deposit on June 30, 2014. Compute the final
tax to be withheld on pre-termination. ANS; P10,000
10. Francis, a resident citizen, invested P1,000,000 in a debt instruments (deposit
substitute) issued by UniBank. The debt instruments pay 10% annual interest
Payable every quarter. How much final tax should UniBank withhold in the first
quarter of the issue? ANS: P5,000
11. Cyndrell, a resident citizen, deposited in a non-resident foreign depositary
bank which pays 12% annual interest. How much final tax shall be withheld in
the first year? ANS: P0
12. Rodrigo, a non-resident citizen, deposited his $2,000,000 savings in a
two-year time deposit in Blue Bank, a depositary bank under the expanded
foreign currency deposit system. The deposit pays 8% annual interest.
Compute the final tax to be withheld in dollars in the first year. ANS: P0
13. Vernon is a non-resident citizen working abroad. He invested his $1,000,000
personal savings in a FCDU bank under a joint account with his resident wife.
The bank pays 8% annual interest. Compute the final tax to be withheld on
one year. ANS: S6,000

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14. Yvonne, a non-resident alien not engaged in trade or business, made a

$5,000,000 deposit to an FCDU Bank. The deposit pays 80% annual interest.
Compute Yvonne's final tax in the first year. ANS: $0
15. Gerry, a resident alien, deposited $1,000,000 in a depositary bank under the
expanded foreign currency deposit system. The five-year savings deposit
pays 10% annual interest. Assuming a P45:$1 exchange rate, how much final
tax on interest would be withheld in the first year? ANS: P675,000
MULTIPLE CHOICE - PROBLEM 2
1. Kendrick Inc., a domestic corporation, was credited $46,250 interest income

on its depositary in an FCDU Bank. How much final tax was withheld?
ANS: $6,937.50
2. Assuming Kendrick Inc. is a resident foreign corporation, how much final tax
was withheld? ANS: $6,937.50
3. Tuzan Corporation declared P1,000,000 dividends in 2014. 40% of its
outstanding shares is held by its only corporate investor, Abdul, Inc. Compute
the amount of dividends tax to be withheld on declaration. ANS: P60,000
4. Mr. Neis, a resident alien, owns 40% of the shares of CoCo Corporation, a
resident corporation. Coco declared P200,000 dividends in 2014. How much
final tax should be withheld from Mr. Neis’ dividend income? ANS: P0
5. Carrots, Inc. owns 20% of the stocks of Cabbage Corporation. Carrots and
Cabbage are both domestic corporations. Cabbage declared P120,OOO
dividends in 2014. How much dividend income after any applicable tax will
Carrots receive? ANS:P24,000
6. Mr. Siegfried, a resident citizen, received P 100,000 dividend income from

Vodka, Inc., a domestic corporation. How much final tax must have been
withheld by Vodka, Inc.? ANS: P11,111
7. Ms. Gina owns 40% of the capital and profits of Cebu Ventures, a business
partnership engaged in the trade of tourist souvenirs. Cebu Ventures reported
P200,000 net income in 2014. Compute the total final tax to be withheld by
the partnership on Gina's profit sharing. ANS: P8,000
8. Raymond owns 20% of the capital and profits of a general professional
partnership. The partnership reported P500,000 profits in 2014. How much
final tax will be withheld from Raymond? ANS: P0
9. Teddy is a venturer sharing 50% in the profits of Wise Ventures, an
unincorporated joint venture, engaged in the trading of home appliances.
Wise Ventures reported P200,000 profits for 2014. How much final tax will be
withheld by Wise Ventures? ANS: P20,000

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10. Zamboanga Corporation, a resident corporation, is a venturer in Southern

Philippine Ventures (SPV), an incorporated joint venture formed under
Philippine laws. Zamboanga owns 30% interest in SPV. During 2014, SPV
reported P3,000,000 profit and declared P1,000,000 in dividends. How much
final tax will be withheld from the dividend distribution to Zamboanga
Corporation? ANS: P0
11. Petrodrill Ventures is a joint venture which operates under a service contract
with the government. Petrodrill is 30% owned by individual investors. The rest
is owned by corporate oil exploration companies. Petrodrill reported
P2,000,000 profit which was to be distributed. How much final tax will
Petrodrill withhold? ANS: P0
12. Mr. Bayugan published his book abroad for the international market. During
the first quarter, he earned a gross royalty of P1,000,000. How much final tax
will be withheld by the foreign publisher? ANS: P0
13. Sison Inc. is the only corporate shareholder of Surigao Inc. owning 60% of its
outstanding voting shares. During the year, Surigao Inc. declared a P
1,000,000 dividend. Compute the final income tax to be withheld by Surigao.
ANS: P40,000
14. Mr. Tuao won an P800,000 prize in a national dancing competition. The
organizer of the event declared that the P800,000 grand prize was "tax free."
How much final tax must be remitted by the organizer to the BIR?
ANS; P200,000
15. Mr. Crocodile owns a mining property in Prosperidad. He allowed a mining

company to operate under a condition that he will be paid 10% royalty on the
gold production. The mining company produced P8,000,000 worth of gold
during the year. How much net royalties will be paid to Mr. Crocodile?
ANS: P640,000
MULTIPLE CHOICE - PROBLEMS 3
1. Mr. Aguak earned the following prizes from two different competitions:
DATE EVENT GROSS PRIZE

January 4 2017 Singing competition P12,000
Feb 14, 2017 Painting compe P10,100
Compute the total final tax that should have been withheld from above
ANS: P4,420
2. Mr. Rems Orayt participated in two different events in January 4, 2020:
DATE EVENT COMPETITION GROSS PRIZE

January 4 2020 Ang mahiwagang boses Singing P10,000

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Jan 4, 2020 Sexy body founda Dancing P11,000

Compute the total final tax that should have been withheld from the above
prizes. ANS: P0
3. Mr. Conrado won the P50,000,000 6/49 Superlotto Jackpot of the Philippine
Charity Sweepstakes Office. How much final tax will be withheld? ANS: P0
4. Ms. Matti won a gold medal and P50,000 cash prize for chess competition in
the Palarong Pambansa. How much final tax should be withheld from the
prize? ANS: P0
5. Tiong Sang Department Store conducted a sales promotion where customer
purchases exceeding P 1,000 in one transaction shall be entitled to a ticket for
a chance to win P500,000 raffle prize. Mr. Shing won the prize. How much
shall Tiong Sang withhold from the grand prize? ANS: P100,000
6. Tacurong, a resident citizen, won $1,000,000 from the US lottery. The lottery
winning is ANS: subject to regular tax
7. Mr. Curandang submitted a sworn statement regarding the alleged tax
evasion practices of Chitie Corporation. This led the BIR to recover
P20,000,000 unpaid taxes, How much net tax informer's reward shall be paid
to Mr. Curandang? ANS: P900,000
8. A concerned government employee furnished the BIR a statement detailing
the improper tax practices of a corporate taxpayer. The information was
instrumental to the collection of P500,000 tax. How much informer's tax
reward after tax shall be released to the informant? ANS: P0
9. Roy invested in the "tax-free" corporate bonds of RBC corporation. The bond
pays 8.75% interest annually net of any taxes. How much final tax must RBC
Corporation withhold from the annual interest payment to Roy? ANS: P37,500
10. A taxpayer wants to manually file his Monthly Remittance Return of Final
Income Tax Withheld for the month of February 2017. What is the deadline for
the return? ANS; March 10, 2017
11. In reviewing its tax compliance, Rang-ay Banco noted that it failed to remit the
P90,000 final taxes it withheld for the month of February 2017. Compute the
total amount of taxes due including the penalties if Rang-ay Banco settles the
obligation on March 20, 2017. ANS: P128,000
12. Bangko Illustrado failed to withhold the final tax on the P 1,200,000 interest
expense which was credited to various accounts of individual depositors in the
month of April 2016. It wants to settle the unpaid final withholding tax on June
10, 2017. Compute the surcharge and interest penalty due. ANS: P64,000

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CHAPTER 6 - Capital Gains Taxation

TRUE OF FALSE 1
1. A vacant and unused lot is an ordinary asset to a real estate dealer. TRUE
2. For taxpayers not engaged in business, assets shall cease to be ordinary

assets when they are discontinued from active use for more than two years.
TRUE
3. Real and other properties acquired are ordinary assets to banks even if they
are not engaged in the realty business. TRUE
4. Capital assets will not become ordinary assets when used in business.
FALSE
5. An ordinary asset becomes automatically become a capital asset when it is

withdrawn from active use. FALSE
6. The sale of real property capital assets will never be subject to regular income
tax. FALSE
7. Donated assets become ordinary assets even if the donee do not employ the
same in business. FALSE
8. An ordinary asset continues to be an ordinary asset even if idled for more

than two years if the taxpayer is engaged in realty business. TRUE
9. The real properties used by exempt corporations in their exempt operations

are capital assets. TRUE
10. Dealers in realties are subject to the regular tax on their sale of properties.
TRUE
11. Capital gains from assets other than domestic stocks and real properties are
subject to regular income tax. TRUE
12. Dealers in securities are not subject to the stock transaction tax but are
subject to the regular income tax on gains realized upon the sale of stocks
through the Philippine Stock Exchange. TRUE

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13. Unit of participations in golf, polo, and similar clubs are considered domestic
stocks. TRUE
14. The excess premium on the re-issuance of treasury stocks is subject to

capital gains tax. FALSE
15. The issuance of shares of stock for property is subject to capital gains tax.
FALSE
16. The sale of foreign stock directly to a buyer is subject to capital gains tax.
FALSE
17. The two-tiered final tax cannot apply unless and until there is a gain on the
sale, exchange and other disposition of stocks directly to a buyer. TRUE
18. The stock transaction tax on the sale of stocks through the PSE cannot apply
unless there is a gain on the transaction. FALSE
19. The 6% capital gains tax cannot apply unless there is a gain on the sale of
real property. FALSE
20. The sale of real properties located abroad is subject to the 6% capital gains
tax. FALSE
TRUE OF FALSE 2
1. The annual capital gains tax return is simultaneously due with the annual
regular income tax return. TRUE
2. The basis of properties received by way of inheritance is the basis in the

hands of the last owner who did not acquire the same by donation. FALSE
3. When specific identification is impossible, the cost of the stocks sold is

determined by the weighted average method. FALSE
4. The basis of the stocks received in tax-free exchanges is the basis of the
shares given. FALSE
5. The transactional capital gains tax return is required to be filed within 30 days
from the date of sale. TRUE

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6. The gain on the sale of stocks for stocks pursuant to a plan of merger and
consolidation is exempt if it resulted in the transferor acquiring corporate
control over the absorbed corporation. TRUE
7. Installment payment of capital gains tax is allowed if the ratio of downpayment

over the selling price of the sale does not exceed 25%. FALSE
8. The selling price is used to determine the propriety of using the installment
method but the contract price is used to determine the capital gains tax
payable in installment. TRUE
9. The excess of mortgage over the basis assumed by the buyer constitutes an
indirect receipt which is part of the initial payment and the selling price.
FALSE
10. Wash sales occur when there is a repurchase of shares within 30 days before
and 30 days after the date of disposal of securities at a loss. TRUE
11. Control means more than 50% ownership in the voting power of a
corporation. TRUE
12. The sale of delisted stocks is subject to stock transaction tax and not to
capital gains tax. FALSE
13. Gain and loss in a share-for-share swap pursuant to a plan of merger or

consolidation shall be recognized up to the extent of the cash and other
properties received. TRUE
14. The sale by the National Housing Authority of commercial lots is subject to
capital gains tax. TRUE
15. If the assessor's fair value is lower than the selling price, then the fair value of
the property is the zonal value. FALSE
16. Title to a property shall not be registered by the Registry of Deeds unless the
Commissioner or his representatives has certified that the tax on the transfer
has been paid. TRUE
17. Domestic corporations are exempt from capital gains tax on the sale,
exchange, and other disposition of real properties. FALSE

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18. The sale of land pursuant to the Agrarian Reform Program is exempt from
capital gains tax. TRUE
19. Foreign corporations are required to pay capital gains tax on the sale of
domestic stocks and on the sale of real property capital assets. FALSE
20. The alternative taxation on an expropriation sale is not applicable to corporate
taxpayers. TRUE
1. Which is an ordinary asset?

ANS: Principal residence of the taxpayer
2. Which is not an ordinary asset?

ANS: Personal laptop of the taxpayer
3. Which is a capital asset to a realty developer?

ANS: Vacant lot held for future development
4. Which is an ordinary asset?

ANS: Office supplies
5. Which of the following assets, if not used in business, is subject to regular

tax? ANS: Taxpayer's personal car
6. Which is a capital asset for a security dealer?

ANS: Real property held for speculation
7. Which is subject to the 5% - 10% capital gains tax?

ANS: sale of domestic stocks directly to a buyer within or outside the
Philippines
8. Who is not subject to capital gains tax on the sale of domestic stocks directly
to a buyer
ANS: Dealer of securities
9. Which of the following, when sold, is not subject to capital gains tax?
ANS: Boarding house and warehouse
10. Which is not subject to the 6% capital gains tax?

ANS: Donation of property

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11. statement 1: Capital gains may arise from sale, exchange, and other
disposition of movable properties used in business.
statement 2: Ordinary gains may arise from sale, exchange, and other
disposition of real properties not used in business. Which is true?
ANS: Both statements are false.
12. Statement 1: The gain on sale of domestic stocks directly to a buyer is

presumed.
Statement 2: The gain on sale of real properties is presumed.
Which of the following is correct?
ANS: Only statement 2 is true.
13. Which of the following properties when sold may be subject to capital gains
tax?
ANS: Domestic stock
14. Statement 1: Only depreciable assets of business qualifies as ordinary assets.

Statement 2: Land used in business is a capital asset since it is not subject to
depreciation. Which of the following correct?
ANS: Statement 1 is false. Statement 2 is false. Both statements are
false. (most correct technical answer)
15. Statement 1: Ordinary gains may arise from sale, exchange, and other
dispositions of real properties used in business.
Statement 2: Capital gain may arise from sale, exchange, and other
dispositions of real properties not used in business. Which is false
ANS: Both statements are false
1. Which of the following properties, when sold, may be covered by regular

income tax? ANS: Promissory Notes
2. Which of the following assets may be subject to capital gains tax upon
disposal? ANS: Farm lot
3. The sale of an office building will be subject to ANS: regular tax
4. The term “other disposition” covers ANS: Any of these
5. Which of the following sales of domestic stocks is subject to capital gains tax?
ANS: Sale of domestic stocks directly to a buyer

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6. The sale of listed shares will never be subjected to

ANS: 6% capital gain tax
7. The sale of non-listed shared may be subjected to

ANS: 15% capital gains tax only
8. Which of the following when sold may be exempted from the 6% capital gains
tax? ANS: Principal residence
9. Statement 1: The sale or exchange must result to an actual gain before the
capital gains tax is imposed.
Statement 2: The sale or exchange must result to an actual gain before the
capital gains tax is imposed.
ANS: Only statement 1 is correct
10. When the annualized capital gains tax exceeds the transactional capital gains
tax, the excess is a
ANS: Tax payable
11. 1st statement: Properties acquired by real estate dealers are ordinary assets.
2nd statement: Properties of real estate dealers continue to be classified as
ordinary assets even if they change the nature of their business.
ANS: Both statements are correct
12. 1st statement: When realty businesses discontinue use of assets for more than
two years, the same shall be reclassified as capital assets.
2nd statement: When realty businesses discontinue use of assets for more than
two years, the same shall be reclassified as capital assets.
ANS: Both statements are correct
13. Which is an incorrect statement?

ANS: The capital gains tax on the disposition of capital stock presumes the
existence of gain on the sales transaction.
14. Which of these shall pay the two-tiered capital gains tax?
ANS: A real property developer and A dealer in stocks
15. The sale of real properties which would otherwise be subject to the 6% capital
gains tax may nevertheless be subject to regular income tax if all of the following
conditions are met, except one. Which is the exception?
ANS: the sale involves the principal residence of the taxpayer

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

ANS: Security dealer
17. The sale of a principal residence is exempt from the capital gains tax if all of the
following conditions are met exempt:
ANS: The reacquisition must be by purchase

1. The transactional 15% capital gains tax is to be paid
ANS: Within 30 days from the date of sale or exchange.
2. The annual 15% capital gains tax return is due

ANS: on or before the 15th day of the fourth month following the taxpayer's
year-end.
3. Capital gains tax that is not payable on installment basis is due

ANS: within 30 days from the date of sale or exchange.
4. Installment payments of the 6% capital gains tax is due

ANS: Within 30 days from the date of each installment payment
5. The installment payment of capital gains tax is applicable to the

ANS: NEITHER 15% capital gains tax only NOR 6% capital gains tax only (
Neither A nor B)
6. The installment payment of capital gains tax is applicable to

ANS: Individual taxpayers only and corporate taxpayers only
7. Which of these capital gains is subject to capital gains tax?

ANS: Gain on sale of stock rights
8. Paulo indicated in his return his intent to avail of the exemption from the 6%
capital gains tax. Under what condition Will he be exempted?
ANS: When the acquisition price of the new property exceeds the proceeds of
the old property sold
9. Partial taxation under the 6% capital gains tax will result when
ANS: The proceeds of the old property exceeds the acquisition price of the
new property regardless of the tax basis, zonal value, and Assessor's fair
value of the old property.

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10. The transactional capital gains tax on domestic stocks is

ANS: creditable to the annual capital gains tax due.
11. The 15% capital gains tax does not apply to

ANS: Resident citizen dealers of stocks
12. The documentary stamp tax on the sale of domestic stocks directly to a buyer is
based on
ANS: Par value
13. The documentary stamp tax on the sale of real property is based on
ANS: Selling price or Fair value, whichever is higher
14. The 6% capital gains tax does not apply to

ANS: Foreign corporations
15. Who shall file the capital gains tax return for the sale, exchange, and other
disposition of real property
ANS: seller
MULTIPLE CHOICE - PROBLEMS: PART 1
1. Mr. Diosnisio sold domestic stocks directly to a buyer at a mark-up on cost of

P200,ooo. He paid P5,ooo broker's commission and P8,ooo documentary stamp
tax on the sale. Compute the capital gains tax. ANS: P 28,050
2. Mr. Abdul, a non-resident alien, sold domestic stocks directly to a buyer at a bet
gain of P 70,000. Compute the capital gains tax. ANS: P 10,500
3. Mr. Panay, a non-resident citizen, sold domestic stock rights directly to a buyer at
a net gain of P 320,000. Compute the capital gains tax. ANS: P 48,000
4. Mr. Digos sold shares of a resident foreign corporation directly to a buyer. The
shares were purchased for PIOO,OOO and were sold at a net selling price of
P210,000. Compute the capital gains tax. ANS: P0

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5. Grace sold domestic shares directly to buyer. The following relates to the sale:
Fair market value of shares P400,000

Selling price 300k
Cost 150k
Compute the capital gains tax.
ANS: P 22,500
6. Texas Inc. exchanged its investments representing domestic shares for a piece
of land owned by Eagle, Inc.
Fair market value of shares P 400,000
Fair market value of land 500,000
Par value of shares 300,000
Cost of shares 350,000
Compute the capital gains tax. ANS: P22,163
7. Digong Inc. exchanged its share investment from Bee Inc., as payment of its
P350,000 long outstanding loan from the latter. Digong acquired the shares for
P300,000 ignoring documentary stamp tax, compute the capital gains tax on the
transaction.
ANS: P7,500
8. On January 5, 2020, Mercy, a stock dealer, disposed the following shares

directly to a buyer:
Shares Selliping Price Cost
Stock rights P200,000 P170,000
Common stocks 100,000 110,000
Ignoring the documentary stamp tax, the capital gains tax payable on the sale is
ANS: P0

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9. Kidapawan, Inc., a domestic service company, has the following transactions on

the sale of another domestic corporation:
Assuming the first-in, first-out method, compute the capital gains tax on the sale.
ANS: P0
10. Assuming the moving average method, compute the capital gains tax on the
sale. ANS: P400
11. Koron Company, a trading company, made the following transactions during the
year involving the stocks of Xurpas, a domestic corporation:
Date Transaction Shares Net price
6/15/2020 Purchase 10k P30
9/30/2020 Sale 8k 28
10/3/2020 Purchase 15k 25
12/7/2020 Sale 10k 32
Koron uses the FIFO method in costing the Xurpas stocks.
Compute the deductible loss on the September 30 sale.
ANS: P0
12. Compute the taxable gain on the December 7 sale.

ANS: P60,000
13. Mr. Trinidad has the following transactions during the year on the common stocks
of Philippine Pines, a domestic non-listed company:
ANS: P22,000
14. Mr. Kalibo shows the following transactions in the shares of Aklan Corporation, a
closely held corporation
ANS: P260,000
15. Mrs. Aurora, a resident citizen, purchased 100,000 shares of PhilHotdogs, a

domestic listed company. The shares were acquired at P200,OOO. She disposed
the shares through the Philippine stock Exchange at a fair value of P250,000.
Compute the capital gains tax. ANS: P0

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16. Mr. Bosun disposed various stocks at a total consideration of P400,OOO and
paid thereon stock transactions tax of P2,000. Aggregate gains realized totaled
P98,OOO after the stock transaction tax. What is the capital gains tax?
ANS: P0

1. A certain taxpayer shows the following over-the-counter transactions in the shares of a
domestic corporation:
Date Transaction Quantity Net Price
2/8/2020 Purchase 10,000 P112,000
4/5/2020 Sale 10,000 100,000
5/1/2020 Purchase 8,000 80,000
6/7/2020 Sale 5,000 60,000
compute the capital gain on June 7, 2020 that is subject to capital gains tax.
ANS: P4,000
2. An investor sold domestic stocks directly to a buyer on October 1, 12019 under the
following terms:
Selling price 500,000

Cost 200,000
Downpayment 10%
Installments in 2019 50,000
Compute the total capital gains tax in 2019. ANS: P9,000
3. ABC realized the following gains or losses in selling various securities:
Gain on sale of domestic stocks P 300,000

Par value of domestic stocks sold 200,000
Gain on the sale of interest in a partnership 200,000
Gain on the sale of stocks of foreign corporations 150,000
4. Compute the documentary stamp tax in the preceding problem.

ANS: P1,500

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5. Awash sale of domestic shares wherein 20,000 Shares were disposed at a loss of
P40,OOO were subsequently covered up within the 30-day period by a purchase of
15,000 shares for P12/share. The deductible capital loss against capital gain on the wash
sale is ANS: P10,000
6. What is the 15,000 shares acquired in the preceding problem ? ANS: P190,000
7. Isidro sold 1,500 shares of stocks of Achievers Corporation directly to a buyer. The
share's par value per shares was P85. Isidro purchased the shares for P90 each. On the
date of sale, the shares had a selling price of P120 per share. What is the capital gains
tax on the sale? ANS: P6,607
8. Mr. Palangdan purchased domestic stocks which were priced at 150% above their par
values. After two years, he sold the stocks when their fair value doubled. He paid
P7,500.00 documentary stamp and PIO,OOO in commission expenses on the sale.
Compute the selling price of the stocks. ANS: P3,000,000
9. Compute the capital gains tax. ANS: P222,375
10. On June 20, 2019, Mr. Lito filed the capital gains tax return involving the sale of domestic
stocks on February 20, 2019. The net gain was P 140,000. Compute the total amount
due including penalties except compromise penalty. ANS: P26,880
1. A taxpayer purchased a building to be used as a Future plant site. The building remained
unused for 3 years due to a significant decline in customer's demand in product of the
taxpayer. The taxpayer eventually disposed the property. What is the classification of the
property? ANS: Ordinary asset
2. Assuming the same data in the preceding number except that the property was not
disposed of but the same was used as a sales outlet after which it became vacant for
more than two years. What is the classification of the property? ANS: Capital asset, if
the taxpayer is not engaged in real estate business
3. Anderson disposes a vacant lot for P3,000,000. The lot has an Assessor's fair value of
P2,800,000, a zonal value of P3,200,000, and an appraisal value of P3,500,000. What is
the capital gains tax? ANS: P192,000
4. Puerto Princesa Company sold its parking lot for P2,000,000. The lot has a zonal value
of P2,500,000 and appraisal value of Pl,800,000. The capital gains tax on the sale of the
lot is ANS: 0
5. Mr. Antonio disposed his principal residence for and immediately acquired a new one for
P 1,800,000. The old residence cost Mr. Antonio P1,000,000 and had a fair market value
of P2,500,000 on the date of sale. Compute the capital gains tax to be deposited in
escrow. ANS: 150,000
6. What would be the tax basis of Mr. Antonio's new residence? ANS: P900,000

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7. How much of the capital gains tax will be released to the taxpayer? ANS: P135,000
8. On August 15, 2020, Ms. Mones sold a 500-square meter residential house and lot for
P3,000,000. The house was acquired in 2005 at P2,000,000. The Assessor's fair market
values of the house, and. lot, respectively, were and P 1,000,000. The zonal value of the
lot was P5,000 per square meter. What is the capital gains tax? ANS: P240,000
9. Manny, a resident Filipino citizen, sold his principal residence (house and lot) at its
original purchase price of P11,000,000. The property had a P 13,000 00 fair value at
that time.
If the proceeds of the sale were not invested in the new principal residence but, instead,
new funds of were used to construct it, the capital gains tax is ANS: P780,000
Mr. Pepito sold his residential land in Manila with fair market value of P12,000
10. If Mr. Pepito utilized all of the P10,000,000 in buying a house and lot to be used as his
new principal residence, the final tax due from him is ANS: P720,000
11. If Mr. Pepito utilized only P7,000,000 from the proceeds of the sale in acquiring a new
residence, the final tax due from him is ANS: P720,000
12. The documentary stamp tax due on the sale is ANS: P180,000
1. Mr. Quirino exchanged his stock investment in Carmen Corporation for the shares of
stock of Dingalan Corporation. The stocks acquired by Mr. Quirino represent 60% of the
stocks of Dingalan Corporation.
Basis of the stocks given P3,000,000

Fair market value of stocks given 5,000,000
Fair market value of stocks received 4,500,000
What is the capital gains tax? ANS: P0
2. In the immediately preceding problem, what is the basis of the stocks received by Mr.
Quirino? ANS: P3,000,000
3. Mr. Eller exchanged his DEF shares for the shares of EFG pursuant to a plan of merger.
Mr. Eller bought his shares for P 1,000,000. The shares had a fair value of P1,500,000 on
the date of exchange. Mr. Eller received EFG shares with a fair value of plus cash of
P200,OOO. Compute the capital gains tax. ANS: P30,000
4. What is the basis of the shares received by Mr. Eller? ANS: P1,000,000
5. What is the basis of the DEF shares received by EFG Company? ANS: P1,200,000

lOMoARcPSD|31637852
6. Raymund exchanged his A Company shares pursuant to a plan of consolidation where A

Company will be integrated with B Company. The following relates to the exchange:
Basis of A Company shares given P1,200,000

Fair value of A Company shares given 1,300,000
Fair value of B Company shares received 1,100,000
Fair value of other properties received 250,000
7. What is the tax basis of the B Company received by Raymund? P1,100,000

8. What is the basis of the "bod' or the other properties received by Raymund? P250,000
9. What is the basis of the A Company shares received by B Company? P1,350,000
10. Mrs. Joson sold a residential lot on June 1, 2019 for P2,000,000. The property hada
zonal value of P2,500,000 and an Assessor's market value of P 1,000,000.
On July 1, 2020, Mrs. Joson was compelled to pay the capital gains upon the request of
the buyer. The compromise penalty was determined to be P20,000. ANS: NO ANWERS
11. Basic Company paid P9,000 documentary stamp tax on the sale of a real property capital
asset. Compute the capital gains tax on the sale. ANS: P36,000
12. Mr. Bassit Unay sold a residential land for P4,000,000. The land had a fair value of
P3,500,000 and an Assessor’s fair value of P2,000,000. What is the total income tax and
documentary stamp tax due? ANS: P300,000

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Hello TAX - income taxation true or false

Intermediate Accounting 1 (Adamson University)

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2. Horizontal equity requires consideration of the circumstance of the taxpayer.

3. Taxes are the lifeblood of the government.

4. Taxation is a mode of apportionment of government costs to the people.

6. The exercise of taxation power requires Constitutional grant.

7. Taxation is inherent in sovereignty.

9. All inherent powers presuppose an equivalent form of compensation.

2. Taxpayers under the same circumstance should be taxed differently.

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4. International comity connotes courtesy between nations.

8. The lifeblood doctrine requires the government to override its obligations

9. 2/3 of all members of Congress is required to pass a tax exemption law.

10. The government should tax itself.

Multiple Choice - Theory: Part 1

1. The point at which tax is levied is also called

2. Which of the following inappropriately describes the nature of taxation?

4. A. The power to tax includes the power to exempt.

5. International double taxation can be mitigated by any of the following

6. Which is not an object of taxation?

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ANS: Public properties

10. A. Taxation is the rule, exception is

11. Select the incorrect statement.

13. Which does not properly describe the scope of taxation?

14. All of these are secondary pur

15. What is the theory of taxation?

16. A. Taxes should not operate retrospectively.

17. Which provision of the constitution is double taxation believed to violate?

18. Which limitation of taxation is the concept of “situs of tax” based?

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19. Which tax exemption is irrevocable?

20. Which statement is incorrect?

21. Which is the most incorrect statement regarding taxes?

23. Which of the following acts in taxation is administrative by nature?

ANS: Levy or distraint of taxpayers' property for tax delinquency

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27. Statement 1: Taxation is the rule; exemption is the exception.

28. Which of the following powers of the Commissioner of Internal Revenue

30. What is the basis of taxation?

33. Which is not legally tenable in refusing to pay tax?

ANS: Absence of benefit from the government

34. What is the primary purpose of taxation?

ANS: To raise revenue

Multiple Choice - Theory: Part 2

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3. An educational institution operated by a religious organization was being

8. The following are limitations of taxation:

9. The provisions in the Constitution regarding taxation are

11. Which of the following is violative of the principle of non-delegation?

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ANS: Non-delegation of police power

ANS: No, as this leads to encroachment of foreign sovereignty.

20. Which of the following normally pays real property tax?

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22. The Japanese government invested P100,000,000 in a Philippine

Multiple Choice - Theory: Part 3

9. Licensing of business or profession is an exercise of

ANS: Police power

12. Statement 1: Congress can exercise the power of taxation

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