BSA1202-FS2122-INCOMETAX-03-SOLUTIONx

PROBLEM 1 - MR. F. FICIENTE

Salary for the year (P100,000 x 12 months) P 1,200,000
Productivity bonus (500 shares x P210/sh) P 105,000
13th month pay 100,000
Christmas bonus 75,000
Total 280,000
Less: Exclusion 90,000 190,000

Income to be reported in 2019 P 1,390,000

PROBLEM 2 - MR. D. NATUTO

2018
Face value of note P 200,000
Less: Discount (P200,000 x 20%) 40,000
Income to be reported in 2018 P 160,000

2019
Discount P 40,000
Multiplied by 75%
Income to be reported in 2019 P 30,000

2020
Discount P 40,000
Multiplied by 25%
Income to be reported in 2020 P 10,000

PROBLEM 3 - BENITO
Income Not income
Transportation P 5,400
Hotel accommodation 4,800
Meals 3,500
Photocopying expenses 1,000
Cellphone charges for calls made to main office 1,400
Cellphone charges for calls made to his family P 500
Souvenir items for himself 800
"Pasalubong" to officemates 1,200
Amount not returned 1,400

Total P 3,900 P 16,100

PROBLEM 4 - MR. M. BAJADA

Annual salary P 180,000
Vacation allowance 4,000
Tips received from customers 12,000
Transportation allowance (P2,000 x 12 months) 24,000
Amount not returned 200
13th month pay P 15,000
Less: Exclusion 90,000 -

Income to be reported during the year P 220,200

PROBLEM 5 - MR. N. CANTADO

Bad debt written off P 3,000
Cash 6,000
Groceries 2,000
Share in farm income 30,000

Income to be reported P 41,000

PROBLEM 6 - BAD DEBT RECOVERY

Case A
As reported Should be
Net income before write-off 80,000 80,000
 Bad debt written off (30,000) (10,000)
Taxable income 50,000 70,000

Bad debt recovery P 20,000

Taxable bad debt recovery P 20,000

Case B
As reported Should be
Net income before write-off P (120,000) (120,000)
Bad debt written off 20,000 -
Net loss P (140,000) (120,000)

Bad debt recovery P 20,000

Taxable bad debt recovery P None

Case C
As reported Should be
Net income before write-off P 50,000 P 50,000
Bad debt written off (60,000) -
Taxable income (Net loss) (10,000) 50,000

Bad debt recovery P 60,000

Taxable bad debt recovery P 50,000

PROBLEM 7 - MR. L. DORADO

As reported Should be
Net income before taxes P 80,000 P 80,000
Deductions for taxes
Amusement tax (75,000) (25,000)
Local business tax (35,000) (20,000)

Taxable income (Net loss) P (30,000) P 35,000

Taxable tax refund P 35,000

PROBLEM 8 - MR. C. GURADO

a. Moving average
March 1, 2019 Purchase 1,000 shares @ P110 P 110,000
June 30, 2019 Purchase 1,000 shares @ P130 130,000
Total 2,000 shares @ P120* 240,000
October 1, 2019 Stock dividend (20%) 400 shares -

Total 2,400 shares @ P100* P 240,000

*Adjusted cost per share

December 15, 2019 Sale

Selling price (1,400 shares @ P140) P 196,000
Less: Cost of shares (1,400 shares @ P100) 140,000
Gain on sale P 56,000

b. First-in, first-out (FIFO)

Lot 1
March 1, 2019 Purchase 1,000 shares @ P110 P 110,000
October 1, 2019 Stock dividend (20%) 200 shares -

Total 1,200 shares @ P91.67* P 110,000

*Adjusted cost per share

 Lot 2
June 30, 2019 Purchase 1,000 shares @ P130 P 130,000
October 1, 2019 Stock dividend (20%) 200 shares -

Total 1,200 shares @ P108.33* P 130,000

*Adjusted cost per share

December 15, 2019 Sale

Selling price (1,400 shares @ P140) P 196,000
Less: Cost of shares
From Lot 1 (1,200 shares @ P91.67) 110,000
From Lot 2 (200 shares @ P108.33) 21,666 131,666

Gain on sale P 64,334

PROBLEM 9 - MR. SAM PALOC

a 2013
Rent income (P10,000 x 12 months) P 120,000
Real property tax (P2,000 x 3 quarters) 6,000
Income to be reported in 2013 P 126,000

b 2014
Rent income (P10,000 x 9 months) P 90,000
Real property tax (P2,000 x 4 quarters) 8,000
Income to be reported in 2013 P 98,000

c 2015
(1) Outright method
Rent income (P10,000 x 12 months) P 120,000
Real property tax (P2,000 x 4 quarters) 8,000
Fair market value (FMV) of leasehold improvements (cost) 12,000,000
Income to be reported in 2015 P 12,128,000 12,128,000

(2) Spread-out method

Rent income (P10,000 x 12 months) P 120,000
Real property tax (P2,000 x 4 quarters) 8,000
Income on leasehold improvements (Schedule 1) 90,000
Income to be reported in 2015 P 218,000

Schedule 1 - Income on leasehold improvements

Cost of leasehold improvements P 12,000,000
Less: Accumulated depreciation at the end of the lease
(P12,000,000/20 years* x 12.5 years**) 7,500,000
Net book value at the end of the lease 4,500,000
Divided by remaining term of lease 12.5 years
Annual income on leasehold improvements P 360,000

Income to be reported in 2015 (P360,000 x 3/12) P 90,000

*Estimated useful life

**Remaining term of the lease

c 2020
Rent income (P10,000 x 3 months) P 30,000
Real property tax - First Quarter 2,000
Income on leasehold improvements (Schedule 2) 7,770,000
Income to be reported in 2020 P 7,802,000

Schedule 1 - Remaining income on leasehold improvements

Cost of leasehold improvements P 12,000,000
Less: Accumulated depreciation at the time of cancellation
of the lease (P12,000,000/20 years x 4.5 years*) 2,700,000
Net book value at the time of cancellation 9,300,000
Less: Income already reported (P360,000 x 4.25 years**) 1,530,000
Remaining income on leasehold improvements P 7,770,000
 *October 1, 2015 to March 31, 2020
**October 1, 2015 to December 31, 2019

PROBLEM 10 - MR. L. LEPANTE

a 2018
Rent income (P30,000 X 12 months) P 360,000
Insurance 5,000
Income to be reported in 2018 P 365,000

b 2019
Rent income (P30,000 x 6 months) P 180,000
Insurance 10,000
Income to be reported in 2013 P 190,000

c 2020
Rent income (P30,000 x 6 months) P 180,000
Insurance 5,000
Income to be reported in 2013 P 185,000

PROBLEM 11 - MR. E. DUCADO

a Accrual method
Inventory, December 31, 2019
Livestock and farm products raised P 50,000
Livestock and farm products purchased 78,000 P 128,000

Add: Sales of livestock and farm products raised 850,000

Sales of livestock and farm products purchased 480,000
Cash received from rental of farm machinery 35,000
Gain on sale of farm equipment (P170,000 - 44,000) 126,000 1,491,000

Total 1,619,000
Less: Inventory, January 1, 2019
Livestock and farm products raised 45,000
Livestock and farm products purchased 60,000
Total 105,000
Cost of livestock and farm products purchased 288,000 393,000

Gross income to be reported P 1,226,000

a Cash method
Sales of livestock and farm products raised P 850,000
Sales of livestock and farm products purchased 480,000
Cash received from rental of farm machinery 35,000
Gain on sale of farm equipment (P170,000 - 44,000) 126,000

Total 1,491,000
Less: Cost of livestock and farm products purchased 288,000

Income to be reported P 1,203,000

Alternative method
Gross income - accrual method P 1,226,000
Less: Increase in inventory
Inventory, December 31 P 128,000
Inventory, January 1 105,000 23,000

Gross income - cash method P 1,203,000

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