TAX Rev (Income, Transfer, and Business Taxation Review)

Week 3 and 4: Income Taxation

1. A non-resident alien engaged in trade or business is one whose stay in the Philippines is
A. At least 180 days
B. More than 180 days
C. At least 183 days
D. More than 183 days
2. Seamen are classified as:
A. Resident citizen
B. Non-resident citizen
C. Resident alien
D. Non-resident alien engaged in trade or business

3. If K is a resident citizen and is a dealer in securities, and the shares were sold directly to M, how
much is the capital gains tax due of K from the transaction?
A. 0 subject to regular income tax considering K is a dealer of securities. Shares are presumed
to be ordinary assets
B. 30,000
C. 93,000
D. 123,000

4. The following is presented to you by Mr. Santos, a resident citizen taxpayer, for analysis
Description 2024
Basic Salary 800,000
Overtime, holiday pays, honorarium and other allowances 130,000
Non-taxable compensation (not included above) 90,000
Rental income on apartment for lease 150,000
Royalty earned from the sale and distribution of books- Local 500,000
Dividend earned on stocks from San Mig, Inc., a domestic corporation 30,000
Gross income from a “sideline” store business 70,000
Interest income earned from his bank savings account- Local banks 10,000
Gross income from online selling of plants 90,000
Income from the sale of his old car 40,000
Income from the sale of a farm land he inherited years ago subject to CGT 400,000

5. How much is the total amount of passive income subject to final tax?
A. 690,000
B. 540,000 500,000 + 30,000 + 10,000
C. 530,000
D. 500,000
6. How much is the total amount of active income and other income subject to regular income tax?
A. 1,680,000
B. 1,280,000 800,000 + 130,000 + 150,000 + 70,000 + 90,000 + 40,000
C. 1,240,000
D. 1,150,000

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JANINE LOU M. MUAN, MBA, CPA
TAX Rev (Income, Transfer, and Business Taxation Review)

7. On January 2, 2020, Mega Pacific Inc., a domestic corporation, placed 1,000,000 in the 6-year time
deposit of Bank of Baguio. The placement earns 10% annual interest creditable to the depositor’s
account every end of the year. Mega Specific Inc. pre-terminated the deposit on June 30, 2023.
Compute the final tax to be withheld on pre-termination.
A. 0
B. 10,000 (1M x 10% x 6/12) x 20%
C. 17,500
D. 42,000 If the taxpayer is an individual
8. On October 1, 2023, P inherited properties worth 3,000,000 from her mother. The properties are
earning income of 90,000 a month. How much income is to be declared by P in 2023?
A. 270,000 90,000 x 3 months
B. 3,000,000
C. 3,270,000
D. 3,090,000
9. These are facilities or privileges given or offered by an employer to its employees, provided such
facilities or privileges are of relatively small value and are offered or furnished by the employer
merely as a means of promoting the health, goodwill, contentment, or efficiency of its employees.
A. 13th Month Pay
B. Fringe Benefits
C. Supplementary Compensation
D. De Minimis Benefits

10. Which is false in withholding tax system?

S1: All passive income derived within the Philippines are subject to final withholding tax.
S2: Income payments are generally subject to withholding tax.
S3: If an income is exempted from taxation, it is not subject to withholding.

A. S1
B. S1 and S3
C. S2 and S3
D. S2
11. In the deadline of filing of 2020 Annual Income Tax Returns, which is false?
S1: ABC Corp. employing the fiscal year ending January 31, the deadline is May 15 of the same
year.
S2: ABC Corp. employing fiscal year ending June 30, the deadline is October 15 of the same year.
S3: ABC Corp. employing the fiscal year ending October 31, the deadline is February 15 of the
same year.
S4: ABC Corp. employing calendar, the deadline is April 15 of the following year.
A. S1
B. S2
C. S3
D. S4
12. Which is true in fringe benefits tax?

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TAX Rev (Income, Transfer, and Business Taxation Review)

S1: Supervisory employees are those who, in the interest of the employer, effectively recommend
such managerial actions or the exercise of such authority is not merely routinary or clerical in
nature but requires the use of independent judgment.
S2: Managerial employees are ones who are vested with powers or prerogatives to lay down and
execute management policies and/or hire, suspend, lay-off, recall, discharge, assign or discipline
employees.
S3: Rank-and-file employees are employees who are holding neither managerial nor supervisory
position.
A. S1
B. S2
C. S3
D. All of the above
13. Which is false in fringe benefit tax?
S1: Monetary value of fringe benefit less fringe benefit is equal to fringe benefit tax.
S2: Grossed-up monetary value of fringe benefit less monetary value of fringe benefit is equal to
fringe benefit tax.
S3: Fringe benefits tax plus monetary value of fringe benefit is equal to grossed-up monetary value
of the fringe benefits.
A. S1
B. S2
C. S3
D. All of the above
14. ABC College, a non-stock, non-profit educational institution, operates a canteen, bookstore, and
dormitory inside its campus which are commercial in nature. The income from the sale of goods
and/or services by the canteen, bookstore, and dormitory inside the campus are actually, directly,
and exclusively used for educational purposes. Using the data above, which is false?
S1: Income from related activity is exempt from taxation.
S2: Income from unrelated activity is subject to regular tax.
S3: Income from unrelated activity is exempt from income tax.
A. S1
B. S2 Exempt as long as income shall be used directly or exclusively for educational purposes
C. S3
D. All of the above
15. E, Inc. set up a plan in 2023. The following relate to the fund:
2023 2024

Funding of current service cost 400,000 400,000

Funding of past service cost 300,000 200,000

Total funding 700,000 600,000

Compute the pension expense in 2024.

A. 420,000
B. 430,000
C. 450,000 (300k/10) + (400k + 200k/10)

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TAX Rev (Income, Transfer, and Business Taxation Review)

D. 600,000
16. Mr. R presented the following schedule of his income in 2024:
Rent income, net of 5% withholding tax 617,500
Compensation income 200,000
Interest income from bank deposits FT 10,000
Ordinary gain 50,000
Less: Expenses (including 20,000 estimated tax payments) (150,000)
Net business income 727,500
Compute Mr. R’s tax due under the 8% commuted tax.
A. 33,400 payable
B. 3,500 payable (617,500/.95 + 50,000) x 8% = 56,000 – 32,500, 20,000
C. 500 refundable
D. 16,500 refundable
17. Mr. A disposed his principal residence for 2,000,000 and immediately acquired a new one for
1,800,000. The old residence cost Mr. A 1,000,000 and had a fair market value of 2,500,000 on
the date of sale. Compute the capital gains tax to be deposited in escrow.
A. 0
B. 60,000
C. 120,000
D. 150,000 2,500,000 x 6%
18. AM paid the 27,200 monthly rental of the residence of its managerial employee from January to
May of 2024. Compute the fringe benefit tax for the first quarter and second quarter of 2024.
A. 6,400; 6,400
B. 12,800; 8,533
C. 19,200; 12,800
D. 21,969; 14,646 (27,200 x 50%) x 3 / .65 x .35; 27,200 x 50% x 2 / .65 x .35
19. H Co. reported the following income and dealings in properties:
2023 2024

Net income 90,000 120,000

Short term capital gains 35,000 60,000

Long term capital gains 40,000 25,000

Short term capital loss 60,000 50,000

Long term capital loss 80,000 20,000

Compute his reportable net capital gain (loss) in 2024.

A. (32,500)
B. 15,000
C. 12,500
D. 0 Net capital gain/ (loss) is not applicable to corporations

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JANINE LOU M. MUAN, MBA, CPA
TAX Rev (Income, Transfer, and Business Taxation Review)

20. On July 1, 2021, Ms. Cruz sold shares of stock for 200,000. The shares, acquired on June 1, 2018
at a par value of 150,000, were held as investment, and were sold directly to a buyer under the
following terms:
Down payment, July 1, 2021 30,000
Installment due, October 10, 2021 30,000
Installment due, October 10, 2022 75,000
Installment due, October 10, 2023 75,000
How much is the capital gains tax due in July 1, 2021?
A. 7,500
B. 1,875
C. 1,125
D. None

21. How much was the documentary stamp tax due?

A. 1,500
B. 1,125 150,000/200 x 1.5
C. 563
D. None
22. LB Corp, a domestic manufacturing corporation, had gross sales of 100,000,000 for fiscal year
ending June 30, 2021. It incurred cost of sales of 60,000,000 which includes Direct labor of
20,000,000 and operating expenses of 17,500,000 which include training expenses amounting to
3,000,000. The corporation complied with all the prescribed requirements (e.g. Apprenticeship
Agreement, Certification from DepEd or TESDA or CHED, whichever is applicable). How much is
the corporation’s next taxable income for the year?
A. 22,500,000
B. 21,000,000
C. 20,500,000
D. None of the above

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JANINE LOU M. MUAN, MBA, CPA
TAX Rev (Income, Transfer, and Business Taxation Review)

23. CL Corporation secured a 2018 bank loan for its business expansion, and incurred interest expense
of 2,000,000 in calendar year 2020 on the said loan. In the same year, it likewise earned interest
income of 300,000 subjected to final tax of 20% and royalties of 100,000 subjected to 20% final
tax. For calendar year 2020, its gross income amounted to 20,000,000. Its gross assets, including
the 20,000,000 value of the land where its building and plant are situated, is 120,000,000. Its
operating expenses amounted to 15,000,000, inclusive of the interest expense of 2,000,000. How
much is the allowable interest expense?
A. 1,894,000
B. 1,934,000
C. 1,920,500
D. 1,950,500

Old interest arbitrage: 33%

New interest arbitrage: 20%

The Gross Assets excluding land is 100M (120M -20M). Net Taxatble Income is 5M (20M-
15M). Thus, the domestic corporation corporate income tax rate is 20%. For the last six
months of 2020, no arbitrage limit is to be used since final tax on interest is 20% and the
new interest arbitrage is 20% as well.
Interest Expense 2,000,000
Less: Interest Arbitrage
300k / 2 x 33% (Jan. 1 to June 30) 49,500
300k/ 2 x 0% 0 49,500
Allowable interest expense 1,950,500

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JANINE LOU M. MUAN, MBA, CPA
TAX Rev (Income, Transfer, and Business Taxation Review)

If in case the domestic corporation’s corporate income tax rate applicable is 25% (did not
qualify with the Asset and Net Income rule), here is the answer:

24. A nonresident citizen arrives in the Philippines on July 31, 2023 to reside here permanently after
many years of living abroad. The following data for the year 2023 on his income are available:
Gross income, foreign sources (in Philippine
pesos)
January 1 to July 31 500,000
Gross income, Philippine sources, August 1 to 300,000
December 31
Gross income, foreign sources (in Philippine
pesos)
August 1 to December 31 400,000
For Philippine income tax purposes, how much is his taxable gross income?
A. 800,000
B. 700,000
C. 400,000
D. 300,000
25. A non-individual taxpayer made available the following financial information covering 2021:
Assets 20,000,000 Gross Receipts 5,000,000
Liabilities 15,000,000 Cost of service 3,000,000
Stockholder’s equity 5,000,000 Expenses 1,000,000
Assuming the taxpayer is a domestic corporation, the income tax due is how much?
A. 200,000 1M x 20%
B. 300,000
C. 250,000
D. 0
26. Assuming the taxpayer is a resident foreign corporation, the income tax due is how much?
A. 200,000
B. 300,000
C. 250,000 1M x 25%
D. 0
27. Assuming the taxpayer is a regional operating headquarter of a multinational company, the
income tax due is?
A. 200,000
B. 300,000
C. 250,000
D. 100,000 1M x 10%

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JANINE LOU M. MUAN, MBA, CPA
TAX Rev (Income, Transfer, and Business Taxation Review)

Rate is 10% until 2021. By january 1, 2022, the tax rate is 25%

28. Mr. S was on his way to deliver merchandise ordered by his customer when another driver lost
control over his truck and rammed it against the truck of Mr. S. As a result, S sustained injuries,
his truck was severely damaged, and all the merchandise were destroyed. Negotiations with the
other party went smoothly and Mr. S was paid the total amount of 3,150,000 for the following:
Repair and replacement of truck parts 900,000
Total selling price of merchandise destroyed 1,700,000
(at 1,000,000 cost)
Hospitalization and medical expenses for 300,000
injuries sustained
Reimbursement for other expenses incurred in 250,000
relation to the incident
Total 3,150,000

A. 3,150,000
B. 1,950,000
C. 1,700,000
D. 700,000 (1.7M – 1M)
29. A taxpayer uses the accrual basis of accounting. He reported the following:
Depreciation expense 15,000
12-month prepaid supplies (5 months used) 36,000
Rent expense incurred but unpaid 50,000
Utilities incurred and paid 18,000
Expenses paid but not yet incurred 12,000

How much shall be total deductible expense using the accrual method?

A. 131,000
B. 119,000
C. 98,000 (15k + 36k x 5/12 + 50k + 18k)
D. 48,000
30. D Corp., a domestic corporation doing business in and out of the country, presented the following
for your evaluation. The corporation wants to know how much of its gross income is earned within
and without the Philippines respectively:
Description Amount of Gross Income
Goods purchased and sold outside the country 3,500,000
Goods purchased outside the country and sold 2,900,000
in the country

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JANINE LOU M. MUAN, MBA, CPA
TAX Rev (Income, Transfer, and Business Taxation Review)

Goods purchased and sold in the country 4,200,000

Goods purchased in the country and sold 1,400,000
outside
A. 12,000,000; 0
B. 6,400,000; 5,600,000
C. 4,900,000; 7,100,000
D. 7,100,000; 4,900,000

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JANINE LOU M. MUAN, MBA, CPA