FINAL EXAMINATION IN INCOME TAXATION

Name: ________________________________ Date: _____________ Year: ________

Instruction: Choose the letter that corresponds to the correct answer.

1. Which item of gross income is not subject to regular tax?

a. Interest income from foreign bank deposits
b. Capital gain on the sale of bonds with more than 5 years maturity
c. Gain on sale of domestic stocks by a security dealer
d. Capital gain on sale of patent

2. Which is not subject to income tax?

a. Gain on sale of shares in mutual funds by the investor
b. Prizes in recognition of civic, religious, and artistic achievements
c. PCSO lotto winnings, not exceeding P10,000
d. All of these

3. Which is an item of gross income subject to regular tax?

a. Gain on sale of lot by a realty dealer
b. Interest income from bank deposits
c. Passive royalty income
d. Capital gain on the sale of domestic stocks

4. Which is not an item of gross income subject to final tax?

a. Dividends from domestic corporation
b. Prizes in excess of P10,000 by an individual
c. Share in the income of general professional partnership
d. Winnings

5. Which of these employee benefits is subject to final tax?

a. Fringe benefits to rank and file employees
b. Regular pay of supervisory and managerial employees
c. Fringe benefits to supervisory and managerial employees
d. Regular pay of rank and file employees

6. All of these are items of gross income subject to regular tax except one. Select the exception.
a. Compensation income
b. Interest income from long-term bank deposits
c. Ordinary gain on sale of properties
d. Interest on notes receivables

7. Which is an income exempt from income tax?

a. Income from general professional partnership
b. Foreign dividends
c. Taxes collected by the government
d. Income of government-owned and controlled corporations

8. All of these are subject to regular income tax, except

a. Professional fees
b. Wages and commissions
c. Business income
d. Capital gain from the sale of real property located in the Philippines

9. Which is exempt from regular tax?

a. Income from construction
b. Income from qualified pension plans
c. Income from merchandising or trading
d. Income from financing or leasing

10. Which is not part of compensation income subject to regular tax?

a. Director’s fees
b. Bonuses and fixed allowances
 c. Portion of salary contributed to SSS
d. Portion of salary used to pay salary loans

11. Which is included in the gross income subject to regular tax of a resident alien?
a. Gross income from the sale of goods abroad
b. Interest income from promissory notes to resident clients
c. Interest income from relatives abroad
d. Gain from the sale of domestic stocks directly to a buyer

12. Which of the following deductions from gross compensation income is included as part of gross income subject
to regular tax?
a. Pag-ibig contribution c. Philhealth contribution
b. Contribution to union d. withholding tax dues

13. Which interest income is not subject to regular tax?

a. Interest income from notes
b. Interest income from lending
c. Interest income from trading account margins
d. All of these

14. Dividends subject to regular tax includes

a. Foreign dividends
b. Domestic dividends
c. Both a and b
d. Neither a nor b

15. Statement 1: all prizes earned abroad are subject to regular tax
Statement 2: all prizes in the Philippines are subject to final tax
Which statement is generally correct?
a. Statement 1 c. both statements
b. Statement 2 d. neither of the statements

16. Which is an item of gross income subject to regular tax?

a. Lottery winnings from abroad
b. Imputed interest income
c. Advanced rent representing security deposit for contingency which may or may not happen
d. Leasehold improvements with useful life not extending beyond the lease term

17. Which of the following is not subject to regular tax of a domestic corporation or resident citizen?
a. Deposit interest income from abroad
b. Prize not exceeding P10,000 from Philippines
c. Income from abroad exempt under treaty
d. Royalties from abroad

18. Which is subject to regular tax to a non-resident foreign corporation or non-resident alien not engaged in trade
or business?
a. Business income from the Philippines
b. Capital gain from the sale of stocks directly to a buyer in the Philippines
c. Dividends from domestic corporation
d. None of these

19. The proceeds of life insurance received by the wife of the insured is:
a. Exempt from income tax
b. Subject to final tax
c. Part of taxable income
d. Partly exempt and partly taxable

20. Which of the following will not be reported in gross income?

a. Receipt of inheritance
b. Share in the net income of a foreign partnership
c. Royalties from foreign sources
d. Income distribution from a taxable estate
21. The proceeds of an insurance policy received by the corporation as beneficiary on the life insurance of its
officer is:
a. A gift c. an inheritance
b. A taxable income d. exempt from income tax

22. A policy holder who outlived the policy and received a cash surrender value in excess of premiums paid is
exempt upon:
a. The amount representing a return of premiums
b. The entire amount received
c. The excess of the amount received over the premiums paid
d. None of these

23. The assignment of an insurance policy at an amount in excess of the premiums paid on the policy is subject to:
a. Donor’s tax c. estate tax
b. Income tax d. any of these

24. A widow who collected the life insurance proceeds of her deceased husband is:
a. Exempt to the entire amount of the proceeds
b. Taxable to the excess of the proceeds over the premiums paid by the husband
c. Taxable to the excess of the proceeds over the premiums paid by the widow
d. Exempt with respect to the portion of the proceeds representing returns of premium

25. The policy holder of a life insurance contract outlived his insurance policy. He was paid P300,000 upon
maturity of the policy. He paid P250,000 total premium. What is the inclusion in gross income?
a. P300,000 c. P50,000
b. P250,000 d. P0

26. Which is not a requisite of exemption of a retirement benefit plan?

a. 10 years of employment
b. The employer maintains a reasonable pension benefit plan
c. The retiree must be a senior citizen
d. First time availment of retirement exemption.

27. The termination benefits are exempt from income tax provided that the reason for termination is:
a. Beyond the employee’s control
b. Within the employer’s control
c. Within the employee’s control
d. Beyond the employer’s control

28. Which is not an item of exclusion from gross income?

a. SSS benefits
b. Income of the government and its political subdivision
c. Income of government-owned and controlled corporation
d. Income of foreign governments
29. Which is not an acceptable ground for exemption of termination pay?
a. Mass employee lay-off
b. Closure of employer’s business
c. Grave misconduct and neglect of duty
d. Retrenchment of employer’s business

30. Which is subject to income tax?

a. Gain on sale of 6-year bonds
b. Gain on sale of shares in mutual fund
c. Interest income on long-term bonds with a maturity period exceeding five years
d. Interest income on long-term deposits by individual taxpayers

31. Which is subject to 15% capital gains tax?

a. Sale of domestic stocks directly to a buyer within or outside the Philippines
b. Sale of domestic bonds directly to a buyer within the Philippines
c. Sale of domestic stocks through the Philippine Stock Exchange
d. All of the above
32. The sale of an office building will be subject to:
a. 60% of 1% percentage tax
b. 6% capital gains tax
c. 15% capital gains tax
d. Regular tax

33. The transactional 15% capital gains tax is to be paid

a. Within 30 days from the date of sale or exchange
b. Within 30 days from the end of month of sale
c. On the 15th day of the 4th month following the close of the quarter when the sale was made
d. On the 15th day of the 4th month following the taxpayer’s year-end

34. Which is an ordinary asset?

a. Personal car
b. Delivery truck
c. Principal residence of the taxpayer
d. Wedding ring of the taxpayer

35. Which of the following when sold may be exempted from the 6% capital gains tax?
a. Unused land to the government
b. Residential lot
c. Developed residential properties for sale
d. Principal residence

36. Binata Reyes won the international Billiard Championship held in Madrid, Spain. The tournament was
sanctioned by a national sports association which is recognized by the Philippine Olympic Committee. He was
awarded $60,000 by the sponsor of the tournament. He was also given a cash prize of P250,000 by San Miguel
Corporation.
In the same year, he entered into a contract with the same company to advertise their product for
P1,500,000.
If the exchange rate of every $1 is P50, Binata Reyes would report an income of:
a. P4,750,000 c. P1,750,000
b. P1,500,000 d. P3,370,000

37. An accident attributed to the negligence of the driver of Super Lines resulted in the death of Richard’s wife,
physical injuries to Richard that prevented him from working for 2 months, and the total wreck of his brand new
car which he had bought for P1,650,000.
In an action for damages, the court awarded to Richard the following:
P140,000 Injuries to Richard consisting mainly in the loss of his left leg
80,000 Two month’s salary of Richard
120,000 For the death of his wife
100,000 Moral damages for the physical suffering and mental anguish
1,800,000 For the loss of his car, the value of which had increased
Based on the foregoing, Richard should report income of –
a. P190,000 c. P230,000
b. P680,000 d. P240,000

Items 38 to 40 are based on the following information:

Sharon received the following income in 2022:
Business income, Philippines P300,000
Business income, United States 250,000
Expenses, Philippines 200,000
Expenses, United States 125,000
Interest on deposit with Metrobank 3,000
Interest on deposit in US ($1 = P50) $500
Cash prize won in a local contest P6,000
Cash prize won in a contest in US 10,000
Winnings in lotto 20,000
Winnings in lotto in US 50,000
Dividends from SMC, a domestic company 25,000
38. The taxable income if Sharon is a resident citizen, single is –
a. P316,000 c. P66,000
b. P331,000 d. P61,000

39. The gross income if Sharon is a non-resident alien ETB, married with five dependent children
a. P106,000 c. P74,000
b. P56,000 d. none

40. The final tax on Sharon assuming she is a nonresident alien NETB, single is:
a. P83,500 c. P18,500
b. P88,500 d. P334,000