1. During 2020, Jackie sent her brother Junnie $2,500 via a telegraphic b. Yes.
b. Yes. Aplets is a non-resident foreign corporation engaged in trade or
transfer through El Banco Prieto. The bank’s remittance clerk made
a mistake and credited Junnie with $250,000 which he promptly
withdrew. The bank demanded the return of the mistakenly credited
excess, but Junnie refused to do so. The BIR entered the picture and
investigated Junnie. Would the BIR be correct if it determines that he
earned a taxable income under the facts?
a. Yes, income is a taxable income regardless of the source
b. No, the funds in excess of $2,500 were in effect donated to her.
c. No, he had no income because he had no right to the mistakenly
credited funds.
d. No, it was not her fault that the funds in excess of $2,500 were credited
to him.
2. Which of the following may not result to a short period filing or tax
return?
a. Newly commenced business
b. Dissolution of a business
c. Death of a taxpayer
d. Change from calendar to fiscal year of an individual
3. Which of the following schemes has the smallest scope in terms of
income taxation?
a. Creditable Withholding Tax
b. Capital Gains Taxation
c. Regular Income Taxation
d. Final Income Taxation
4. One of following is taxed on gross income
a. non-profit cemetery
b. nonresident foreign corporation
c. resident foreign corporation
d. domestic corporation
5. Aplets Corporation is registered under the laws of the Virgin Islands.
It has extensive operations in Southeast Asia. In the Philippines, its
products are imported and sold at a mark-up by its exclusive
distributor, Kim's Trading, Inc. The BIR compiled a record of all the
imports of Kim from Aplets and imposed a tax on Aplets' net income
derived from its exports to Kim. Is the BIR correct?
a. No. The tax should have been computed on the basis of gross revenues
and not net income.
business in the Philippines.
c. No. Aplets is a non-resident foreign corporation not engaged in
trade or business in the Philippines.
d. Yes. Aplets is doing business in the Philippines through its exclusive
distributor Kim's Trading. Inc.
6. Which of the following statements is correct?
a. Husband and wife in different far places may file separate tax returns.
b. An income tax still due from one spouse and an income tax refundable
from the other spouse will give one net income tax due or one net
income tax refundable in one income tax return.
c. Individuals who are self-employed report a taxable income only at
the end of the year.
d. Individuals who are self-employed file three quarterly income tax
returns and an annual income tax return.
7. Jackie, a staff auditor of the Lou and Chan & Co., took and passed
the examination for Certified Internal Auditor (CIA). In the following
year, she resigned from her job and left the Philippines on April 10,
2019 to work as an internal auditor in a big establishment in
Chonburi, Thailand. For income tax purposes, which of the following
statements is correct with respect to Jackie's classification?
a. She shall be classified as nonresident citizen for the year 2020 with
respect to her income derived from sources without from April 10,
2020.
b. Her classification as a nonresident citizen will start in 2021.
c. She shall be classified as nonresident citizen for the year 2020 with
respect to her income derived from sources without from April 11,
2020.
d. She shall be classified as nonresident citizen for the whole year of
2020.
8. Jose sued Mari for breach of promise to marry. Mari lost the duly
paid the court's award that included, among others, P100,000 as
moral damages for the mental anguish Jose suffered. Did Jose earn a
taxable income?
a. He had no taxable income since moral damages are compensatory.
b. He had a taxable income of P100,000 since income is income from
whatever source.
c. He had taxable income since he made a profit.
d. He had no taxable income because it was a donation.
 b. April 1 to June 30
9. Which of the following has a different treatment for cash and accrual c. July 1 to March 31
basis of tax accounting? d. June 30 to March 31
a. Depreciation
b. prepaid expenses 15. The short period return from Item No. 14 is required to be filed on or
c. accrued income before
d. cash sales a. June 15
b. October 15
10. Which of the following is not a characteristic of income? c. September 15
a. Earnings constructively received d. July 15
b. Realization or receipt of gain
c. Return of taxpayer's wealth PROBLEM 1
d. Increase in taxpayer's wealth A company was not able to pay its 2016 annual income tax which was due
on April 15, 2017. As a result of this, it was liable for a surcharge penalty
11. A method of reporting income that is used when collection can be of P86,000. There was no willful neglect on the non-payment. Assume all
made over a relatively long periods of time with a strong possibility the liabilities are paid today.
that full collection will not be made.
a. Installment method 16. How much is the total amount due, exclusive of the compromise
b. Long-term construction contract method penalty?
c. Percentage of completion method
Correct Answer: 648,087
d. Deferred payment method
PROBLEM 2
12. If an individual renders services for a creditor who in consideration
thereof cancels his existing debt, the cancellation of indebtedness may During the year, Ben Company received a total of P870,000 from its
amount to a customer, P60,000 of which was applicable to prior year's revenue and
a. Capital contribution P50,000 of which was applicable to services to be rendered in the future.
b. Payment of income Revenues related to services already rendered but not yet collected as of
c. Donation intervivos yearend totaled P40,000.
d. Gift Depreciation for the year was P80,000. The Prepaid Expense account was
credited by P25,000 during the year. The Accrued Expense account was
13. The proceeds received under a life insurance endowment contract is debited by P20,000 for payments made during the year and credited by
not considered part of gross income P35,000 for unpaid amounts as of yearend. Cash payments applicable to
a. where payment is made as a result of the death of the insured current year's expenses were P380,00
b. where the beneficiary was not the one who took out the endowment
contract 17. How much is the net income using the tax cash basis?
c. if it is so stated in the life insurance endowment policy
d. if the price for the endowment policy was not fully paid Correct Answer: 365,000
18. How much is the net income using the tax accrual basis?
14. A company previously using a fiscal year ending June 30 changes to a
fiscal year ending in March 31. The short period adjustment return Correct Answer: 330,000
will cover
a. April 1 to July 1
PROBLEM 3
Jackie Company leased a parcel of land to Junnie Company for a lease
term of 25 years starting January 1, 2018. Junnie immediately started to
construct a building on the leased land which was finished and made
available for use starting July 1, 2020. The ownership of the building will
be transferred to Jackie Company after the end of the lease term. The
monthly rentals on the land is P25,000. The total cost of the building is
P2,700,000 and had a useful life of 40 years.
19. Assuming the use of the spread-out method, how much is the total
taxable income of Jackie from the lease to be reported in 2020?
Correct Answer: 3,000,000
20. Assuming the use of the outright method, how much is the total
taxable income of Jackie from the lease to be reported in 2020?
Correct Answer: 326,250
PROBLEM 4
On June 1, 2019, Joy inherited properties worth P3,000,000 from her
mother. The properties are earning income of P90,000 a month.
21. How much income is to be reported by Joy in 2019?
Correct Answer: 630,000
PROBLEM 5
During the year, Clarissa earned the following.
Correct Answer: 1,570,000
23. If Clarissa is a resident alien, how much is her total income liable to
income tax?
Correct Answer: 990,000
PROBLEM 6
Suri Company is a dealer of real properties. On June 30, 2020, it sold a
parcel of land with a tax basis of P1,600,000. A cash down payment of
P200,000 was made. The buyer agreed to shoulder the mortgage attached
to the land amounting to P1,700,000. In addition, nine payments of
P100,000 are to be made every last day of each calendar quarter after the
sale.
24. How much is the gross income to be reported in 2020 using the
instalment method, if applicable?
Correct Answer: 500,000
PROBLEM 7
Tibker Company entered into a four-year P5,000,000 construction
contract which was completed in 2023. Percentages of completion as of
each year are as follows: 2020 - 10%, 2021 - 45%, 2022 - 85% and 2023 -
100%. Construction expenses incurred in each year are as follows: 2020 -
P300,000, 2021 - P700,000, 2022 - P800,000 and 2023 - P800,000.
25. Determine the highest reportable gross income in a single year
throughout the period of construction.

• Compensation income from a domestic employer, P240,000. Correct Answer: 1,200,000

• Fees for professional services rendered to an American company,
P80,000.
• Increase in the fair value of domestic stocks, P10,000.
• Rent received in the Cubao for properties in New Zealand, P500,000.
• Gain on sale of technical gadgets stored in Tokyo, P100,000. The sale
was perfected in Tagaytay.
• Business income of a service business in Cebu, P600,000.
• Interest income from a resident debtor collected whilst on business
travel in Bangkok, P50,000.

22. If Clarissa is a resident citizen, how much is her total income liable to
income tax?