Income Taxation testbank.pdf

TEST BANK-INCOME TAXATION

CHAPTER 1-GENERAL PRINCIPLES AND CONCEPTS OF TAXATION A.MULTIPLE CHOICE: 1. THE PROCESS BY WHICH THE SOVEREIGN RAISES INCOME TO DEFRAY THE EXPENSES OF THE GOVERNMENT IS CALLED- (RPCPA) A. B. C. D.

SUBSIDY TARIFF TAXATION TRIBUTE

2. ONE OF THE CHARACTERISTICS OF INTERNAL REVENUE TAX IS THAT THEY ARE-(RPCPA) A) B) C) D)

CRIMINAL IN NATURE PENAL IN NATURE POLITICAL IN NATURE GENERALLY PROSPECTIVE IN APPLICATION

3. IN CASE OF CONFLICT BETWEEN THE TAX LAWS AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)-(RPCPA) A) B) C) D)

BOTH TAX LAWS AND GAAP SHALL BE ENFORCED GAAP SHALL PREVAIL OVER TAX LAWS TAX LAWS SHALL PREVAIL OVER GAAP THE ISSUE SHALL BE RESOLVED BY THE COURT

4. WHICH OF THE FOLLOWING HAS NO POWER OF TAXATION?(RPCPA) A) B) C) D)

PROVINCES CITIES BARANGAYS BARRIOS

5. “SCHEDULAR SYSTEM OF INCOME TAXATION” MEANS(RPCPA) A) ALL TYPES OF INCOME ARE ADDED TOGETHER TO ARRIVE AT GROSS INCOME B) SEPARATE GRADUATED RATES ARE IMPOSED ON DIFFERENT TYPES OF INCOME C) CAPITAL GAINS ARE EXCLUDED IN DETERMINING GROSS INCOME

D) COMPENSATION INCOME AND BUSINESS/PROFESSIONAL INCOME ARE ADDED TOGETHER IN ARRIVING AT GROSS INCOME 6. ONE OF THE FOLLOWING IS A PRIMARY PURPOSE OF TAXATION A)PROTECTION OF LOCAL INDUSTRIES AGAINST FOREIGN COMPETITION THROUGH IMPOSITION OF HIGH CUSTOMS DUTIES ON IMPORTED GOODS B)REDUCTION OF INEQUALITIES IN WEALTH AND INCOME BY IMPOSING PROGRESSIVELY HIGHER TAX RATES C) TO SECURE REVENUE FOR THE SUPPORT OF THE GOVERNMENT D) STRENGTHENING OF ANEMIC ENTERPRISES BY GIVING TAX EXEMPTION 7. WHICH OF THE FOLLOWING IS NOT A SECONDARY PURPOSE OF TAXATION? A) TO SERVE AS KEY INSTRUMENT OF SOCIAL CONTROL B) TO EFFECT A MORE EQUITABLE DISTRIB UTION OF WEALTH AMONG PEOPLE C) TO ACHIEVE SOCIAL AND ECONOMIC STABILITY D) TO RAISE REVENUE TO DEFRAY THE NECESSARY EXPENSE OF THE GOVERNMENT 8. WHICH IS THE BEST ANSWER? A TAX REFORM AT ANY GIVEN TIME UNDERSCORES THE FACT THAT-(RPCPA) A) B) C) D)

TAXATION IS AN INHERENT POWER OF THE STATE TAXATION IS ESSENTIALLY A LEGISLATIVE POWER TAXATION IS A POWER THAT IS VERY BROAD THE STATE CAN AND SHOULD ADOPT PROGRESSIVE TAXATION

9. THE LEGISLATIVE BODY CAN IMPOSE A TAX AT ANY AMOUNT UNDERSCORES THE LEGAL DICTUM THAT TAXATION IS – (RPCPA) A) B) C) D)

AN INHERENT POWER OF THE TAX A VERY BROAD POWER OF THE STATE ESSENTIALLY A LEGISLATIVE POWER FOR PUBLIC PURPOSE

10. ALL OF THE FOLLOWING, EXCEPT ONE, ARE BASIC PRINCIPLES OF THE SOUND TAX SYSTEM A) FISCAL ADEQUACY

B) THEORETICAL JUSTICE C) ADMINISTRATIVE FEASIBILITY D) INHERENT IN SOVEREIGNTY 11. UNDER THIS BASIC PRINCIPLE OF SOUND TAX SYSTEM, THE GOVERNMENT SHOULD NOT INCUR A DEFICIT-(RPCPA) A) B) C) D)

THEORETICAL JUSTICE ADMINISTRATIVE FEASIBILITY FISCAL ADEQUACY NONE OF THE ABOVE

12. THE FOLLOWING, EXCEPT ONE, ARE BASIC PRINCIPLES OF A SOUND TAX SYSTEM A) IT SHOULD BE CAPABLE OF BEING EFFECTIVELY ENFORCED B) IT MUST BE PROGRESSIVE C) SOURCES OF REVENUE MUST BE SUFFICIENT TO GOVERNMENT EXPENDITURES AND OTHER PUBLIC NEEDS D) IT SHOULD BE EXERCISED TO PROMOTE PUBLIC WELFARE

MEET

13. WHICH OF THE FOLLOWING IS NOT ONE OF THE CANONS OF A SOUND TAX SYSTEM? A) B) C) D) 14.

QUANTIFIABILITY EQUALITY CERTAINTY CONVENIENCE

THE POWER OF TAXATION CAN ONLY BE EXERCISED BY THE LAWMAKING BODY A) B) C) D)

SUBJECT TO CONSTITUTIONAL AND INHERENT LIMITATIONS EQUALITY OR THEORETICAL JUSTICE LEGISLATIVE IN CHARACTER INHERENT IN SOVEREIGNTY

15. THE PRESIDENT OF THE PHILIPPINES AND THE PRIME MINISTER OF JAPAN ENTERED INTO AN EXECUTIVE AGREEMENTIN RESPECT OF A LOAN FACILITY TO THE PHILIPPINES FROM JAPAN WHEREBY IT WAS STIPULATED THAT INTEREST ON LOANS GRANTED BY PRIVATE JAPANESE FINANCIAL INSTITUTIONS IN THE PHILIPPINES SHALL NOT BE SUBJECT TO PHILIPPINE INCOME TAXES. WHAT BASIC CHARACTERISTIC OF TAXATION HAS BEEN VIOLATED BY THIS AGREEMENT?

A) B) C) D)

INHERENT LIMITATION THEORETICAL JUSTICE LEGISLATIVE IN CHARACTER ADMINISTRATIVE FEASIBILITY

16. WHICH STATEMENT GIVES THE CORRECT ANSWER? THAT A FEASIBILITY STUDY NEEDS OR NEED TO LOOK INTO THE TAXES OF DIFFERENT POLITICAL SUBDIVISIONS OF GOVERNMENT WHICH MAY BE ALTERNATIVE SITES OF BUSINESS BECAUSE-(RPCPA) A) PROVINCES, CITIES AND MUNICIPALITIES MUST HAVE UNIFORM TAXES BETWEEN AND AMONG THEMSELVES B) THE LOCAL TAXES OF A POLITICAL SUBDIVISION NEED NOT BE UNIFORM WITH THE LOCAL TAXES OF ANOTHER POLITICAL SUBDIVISION C) BUSINESSES THAT ARE SUBJECT TO NATIONAL TAXES ARE EXEMPTED FROM LOCAL BUSINESS TAXES D) LOCAL BUSINESS TAXES MAY BE CREDITED AGAINST NATIONAL BUSINESS TAXES 17. STATE,MENT 1:THE POWER OF TAXATION IS INHERENT IN SOVEREIGNTY BEING ESSENTIAL TO THE EXISTENCE OF EVERY GOVERNMENT. HENCE, EVEN IF NOT MENTIONED IN THE CONSTITUTION, THE STATE CAN STILL EXERCISE THE POWER. STATEMENT 2:IT IS ESSENTIALLY A LEGISLATIVE FUNCTION. EVEN IN THE ABSENCE OF ANY CONSTITUTIONAL PROVISION, TAXATION POWER FALLS TO CONGRESS AS PART OF THE GENERAL POWER OF LAWMAKING.-(RPCPA) A) B) C) D)

FALSE, FALSE FALSE, TRUE TRUE, TRUE TRUE, FALSE

18. THOSE RESTRICTIONS ON THE EXERCISE OF THE POWER OF TAXATION THAT AREW FOUND IN THE CONSTITUTION OR IMPLIED FROM ITS PROVISIONS A) B) C) D)

THEORETICAL JUSTICE LEGISLATIVE IN CHARACTER INHERENT LIMITATIONS CONSTITUTIONAL LIMITATIONS

19. WHICH OF THE FOLLOWING STATEMENTS IS NOT CORRECT?-(RPCPA) A) TAXES MAY BE IMPOSED TO RAISE REVENUE OR TO PROVIDE DISINCENTIVES TO CERTAIN ACTIVITIES WITHIN THE STATE B) THE STATE CAN HAVE THE POWER OF TAXATION EVEN IF THE CONSTITUTION DOES NOT NECESSARILY GIVE IT THE POWER TO TAX C) FOR THE EXERCISE OF THE POWER OF TAXATION, THE STATE CANJ TAX ANYTHING AT ANY TIME D) THE POWER OF TAXATION IN THE PHILIPPINE CONSTITUTION ARE GRANTS OF POWER AND NOT LIMITATIONS ON TAXING POWERS 20. ONE OF THE FOLLOWING IS NOT AN INHERENT LIMITATION ON THE EXERCISE OF THE POWER OF TAXATIONA) B) C) D)

INTERNATIONAL COMITY DOUBLE TAXATION NON-DELEGATION OF THE LEGISLATIVE POWER TO TAX TERRITORIALITY

21. THE CITY COUNCIL PASSED AN ORDINANCE IMPOSING AN OCCUPATION TAX ON AN AIRCONDITIONING TECHNICIAN. CONDE IS THE ONLY PERSON WITH SUCH OCCUPATION IN THE CITY. HE CHALLENGED THE VALIDITY OF THE ORDINANCE AS BEING DISCRIMINATORY SINCE HE IS THE ONLY ONE ADVERSELY AFFECTED. A) THE CONTENTION OF CONDE IS TENABLE B) THE ORDINANCE IS UNCONSTITUTIONAL BECAUSE CONDE IS DENIED OF HIS RIGHT TO EQUAL PROTECTION OF LAW C) THE CONTENTION OF CONDE IS NOT JUSTIFIED BECAUSE THE RULE ON UNIFORMITY IS NOT VIOLATED CONSIDERING THAT THE ORDINANCE WOULD ALSO IMPOSE ON ALL AIRCONDITIONING TECHNICIAN WHO MAY COME WITHIN THE JURISDICTION OF THE CITY D) THE ISSUE ON VALIDITY OR INVALIDITY OF THE ORDINANCE SHOULD BE SET ASIDE 22. TREATING PERSONS WHO ARE SIMILARLY SITUATED IN THE SAME MANNERA) B) C) D)

UNIFORMITY OF TAXATION EQUALITY OF TAXATION DUE PROCESS OF LAW NON-DELEGATION OF LEGISLATIVE POWER

23. WHICH OF THE FOLLOWING IS VIOLATIVE OF THE UNIFORMITY RULE IN TAXATION? A) DIFFERENT TAX RATES ON BOARDING STABLES FOR RACEHORSES AND BOARDING HORSES THAT ARE NOT FOR RACING B) WHOLESALE DEALERS IN OIL ARE SUBJECT TO OCCUPATION TAX WHILE WHOLESALE DEALERS IN OTHER ARTICLES SCU AS SUGAR, BACON, COAL, IRON AND OTHER THINGS ARE NOT SO SUBJECT C) A ROAD USERS’ TAX IMPOSED ON ALL MOTOR VEHICLES REGISTERED AND OPERATING IN THE CITY OF MANILA BUT DOES NOT SUBJECT VEHICLES NOT REGISTERED THEREIN BUT ALSO OPERATING TEMPORARILY IN SAID CITY D) A TAX OF P2 PER SQM OR FRACTION THEREOF IS IMPSED ON EVERY BILLBOARD OR SIGN ANYWHERE IN THE COUNTRY 24. THE LUNG CENTER OF THE PHILIPPINES, A CHARITABLE INSTITUTION, IS ERECTED IN THE MIDDLE OF A 12-HECTARE LOT: I.

II. III. IV.

A BIG SPACE AT ITS GROUND FLOOR IS BEING LEASED TO PRIVATE PARTIES, FOR CANTEEN AND SMALL STORE SPACES, AND TO MEDICAL OR PROFESSIONAL PRACTITIONERS WHO USE THE SAME AS THEIR PRIVATE CLINICS FOR THEIR PATIENTS WHOM THEY CHARGE FOR THEIR PROFESSIONAL FEES. THE REST OF THE PORTIONS OF THE BUILDING ARE USED FOR ITS PATIENTS, WHETHER PAYING OR NON-PAYING ALMOST ½ OF THE ENTIRE AREA OF THE LOT ON THE LEFT SIDE OF THE BUILDING IS VACANT AND IDLE A BIG PORTION ON THE RIGHT SIDE IS BEING LEASED FOR COMMERCIAL PURPOSES TO A PRIVATE ENTERPRISE KNOWN AS THE ELLIPTICAL ORCHIDS & GARDEN CENTER

WHICH PORTION IS SUBJECT TO REAL PROPERTY TAX? A) B) C) D)

I ONLY I AND II III AND IV I, III AND IV

25. STATEMENT 1:THE CONSTITUTIONAL EXEMPTION ON INCOME TAXES, PROPERTY TAXES AND CUSTOMS DUTIES IS ALLOWED ON NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS ONLY. STATEMENT 2: A BUILDING BEING LEASED BY ITS OWNER TO A PRIVATE EDUCATIONAL INSTITUTION FOR USE AS CLASSROOMS IS EXEMPT FROM PROPERTY YAX STATEMENT 3: INCOME OF A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION RUN BY THE ARCHDIOCESE IS EXMEPT FROM TAX PROVIDED THAT INCOMES ARE ACTUALLY, DIRECTLY AND EXCLUSIVELY USED FOR EDUCATIONAL PURPOSES WHICH OF THE STATEMENTS ARE CORRECT? A) B) C) D)

STATEMENT 1 ONLY STATEMENTS 1 AND 2 STATEMENT 2 ONLY ALL OF THEM

26. WHICH OF THE FOLLOWING STATEMENTS IS NOT CORRECT?-(RPCPA) A) AN INHERENT LIMITATION OF TAXATION MAY BE DISREGARDED BY THE APPLICATION OF A CONSTITUTIONAL LIMITATION B) THE PROPERTY OF AN EDUCATIONAL INSTITUTION OPERATED BY A RELIGIOUS ORDER IS EXEMPT FROM PROPERTY TAX, BUT ITS INCOME IS SUBJECT TO INCOME TAX C) THE PROHIBITION OF DELEGATION BY THE STATE OF THE POWER OF TAXATION WILL STILL ALLOW THE BIR TO MODIFY THE RULES ON TIME FOR FILING OF RETURNS AND PAYMENT OF TAXES D) THE POWER OF TAXATION IS SHARED BY THE LEGISLATIVE AND EXECUTIVE DEPARTMENTS OF GOVERNMENT 27. ST. BARNABAS COLLEGE (SBC) IS A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION. IT OWNS A 5-HECTARE LOT ½ OF WHICH IS BEING USED AS ITS SCHOOL CAMPUS WHILE THE OTHER HALF IS VACANT. TO COPE WITH THE INCREASING OPERATING COSTS AND TO UPGRADE ITS FACILITIES, SBC PLANS TO DO THE FOLLOWING EFFECTIVE JANUARY 1, 2006; 1). RENT OUT TO A MARKETING FIRM THE VACANT PORTION OF THE LAND; 2) INJCREASE TUITION FEES BY 10% IN ACCORDANCE WITH GOVERNMENT REGULATIONS;.3)IMPORT 20 SETS OF COMPUTERS FOR USE IN ITS COMPUTER COURSES.

WHICH OF THE FOLLOWING QUESTIONS IS ANSWERABLE BY “YES.”? A) IS SBC SUBJECT TO REAL ESTATE TAX ON THE ½ PORTION TO BE RENTED OUT TO A BUSINESS ESTABLISHMENT? B) WILL IT BE EXEMPT FROM INCOME TAX ON ITS RENTAL TO THE MARKETING FIRM? C) WILL THE INCREASE IN TUITION FEES BE SUBJECT TO INCOME TAX IF IT RESULTS TO NET INCOME FROM SCHOOL OPERATIONS? D) WILL IT BE SUBJECT TO CUSTOMS DUTIES ON THE IMPORTATION OF THE COMPUTERS? 28. THE QUEZON SCHOOL OF BUSINESS AND ARTS, A PROPRIETARY EDUCATIONAL INSTITUTION WHICH IS OFFERING PRIMARY, SECONDARY AND TERTIARY EDUCATIONB, IS REGISTERED AND ACCREDITED BY DEPED AND CHED. WHICH OF THE FOLLOWING IS EXEMPT FROM TAX? WHAT KIND OF TAX? A) THE IMPORTATION OF LABORATORY EQUIPMENTS-FROM CUSTOMS DUTIES B) THE SCHOOL BEING RENTED BY THE SCHOOL-FROM REAL PROPERTY TAX C) A PORTION OF THE SCHOOL BUILDING BEING LEASED TO A FASTFOOD CHAIN-FROM REAL PROPERTY TAX D) THE INCOME FROM OPERATION-FROM INCOME TAX 29. IN RELATION TO NO. 28 ABOVE, ASSUMING THAT THE SCHOOL IS A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION, WHICH OF THE FOLLOWING IS SUBJECT TO TAX ? WHAT KIND OF TAX? A) THE SCHOOL BUILDING OWNED BY THE SCHOOL-FROM REAL ESTATE TAX B) THE SCHOOL BUILDING BEING RENTED BY THE SCHOOLFROM REAL ESTATE TAX C) A PORTION OF THE SCHOOL BUILDING BEING LEASED TO A FASTFOOD CHAIN-FROM REAL PROPERTY TAX D) THE INCOME FROM OPERATION-FROM INCOME TAX 30. THE MUNICIPALITY OF SAN FRANCISCO HAS A 10HECTARE CEMETERY OF 4 DIFFRRENT CEMETERIES WHICH ARE OWNED BY DIFFERENT ENTITIES. WHICH OF THE FOLLOWING IS SUBJECT TO REAL ESTATE TAX?

A) CEMENTERIO MUNICIPAL DEL SAN FRANCISCO-A GOV’T CEMETERY OWNED BY THE MUNICIPALITY WHICH WAS ESTABLISHED FOR THE PURPOSE OF USING IT AS BURIAL GROUND OF THE PAUPERS OF SAN FRANCISCO B) SAN FRANCISCO CATHOLIC CEMETERY-OWNED BY THE CATHOLIC CHURCH; PAYMENTS ARE REMITTED TO THE CATHOLIC CHURCH AND FOR THE IMPROVEMENT OF THE CEMETERY C) LAST TRIP MEMORIAL PARK-OWNED BY A CORPOR5ATION WHERE DIVIDENDS ARE DISTRIBUTED TO THE SHAREHOLDERS AT THE END OF THE YEAR D) QUITA-QUITA MEMORIAL PARK-OWNED BY AN ASSOCIATION CONSISTING OF 100 DIFFERENT FAMILIES; EACH FAMILY OWNS SEVERAL SQUARE METERS OF LOT; NOT A SINGLE PORTION IS HELD FOR SALE TO EITHER MEMBER OR NON-MEMBERS OF THE ASSOCIATION 31.ALL APPROPRIATIONS, REVENUE OR TARIFF BILLS, BILLS AUTHORIZING INCREASE OF PUBLIC DEBT, BILLS OF LOCAL APPLICATION, AND BILLS SHALL ORIGINATE EXCLUSIVELY IN THE(RPCPA) A) B) C) D)

OFFICE OF THE PRESIDENT HOUSE OF REPRESENTATIVES SENATE SUPREME COURT

32 WHICH STATEMENT IS WRONG? TAX LAWS-(RPCPA) A) MUST ORIGINATE FROM THE HOUSE OF REPRESENTATIVES AND ON WHICH SAME BILL THE SENATE MAY PROPOSE AMENDMENTS B) MAY ORIGINATE FROM THE SENATE AND ON WHICH SAME BILL THE HOUSE OF REPRESENTATIVES MAY PROPOSE AMENDMENTS C) MAY HAVE A HOUSE VERSION AND SENATE VERSION APPROVED SEPARATELY D) MAY BE RECOMMENDED BY THE PRESIDENT TO CONGFRESS 33.CONGRESSMAN ERIN TANADA OF QUEZON AND SENATOR JUAN PONCE ENRILE SPONSORED A BILL IN THE HOUSE OF REPRESENTATIVES AND THE SENATE, RESPECTIVELY, INCREASING THE PERSONAL EXEMPTIONS OF INDIVIDUAL TAXPAYERS AS WELL AS GRANTING TAX EXEMPTION TO MINIMUM WAGE EARNERS. WHICH OF THE FOLLOWING IS CORRECT?

A) THE SENATE BILL SHOULD BE DISCUSSED AHEAD OF THE HOUSE BILL B) THE SENATE AND HOUSE BILLS MAY BE DISCUSSED AT THE SAME TIME IN BOTH HOUSES C) THE HOUSE BILL SHOULD BE DISCUSSED AHEAD NOF THE SENATE BILL D) NO PRIORITY; EACH BILL CAN BE DISCUSSED AHEAD OF THE OTHER 34.NO LAW GRANTING ANY TAX EXEMPTION SHALL BE PASSED WITHOUT THE CONCURRENCE OF-(RPCPA) A) B) C) D)

MAJORITY OF ALL MEMBERS OF THE CONGRESS 2/3 VOTE OF ALL MEMBERS OF THE CONGRESS ¾ VOTE OF ALL MEMBERS OF THE CONGRESS UNANIMOUS VOTE OF ALL MEMBERS OF THE CONGRESS

35.WHICH OF THE FOLLOWING STATEMENTS IS INCORRECT? A) NO PERSON SHALL BE IMPRISONED FOR NON-PAYMENT OF DEBT OR NON-PAYMENT OF TAXES B) THE PASSAGE OF LAWS GRANTING TAX EXEMPTIONS REQUIRES THE CONCURRENCE BY A MAJORITY OF ALL THE MEMBERS OF CONGRESS C) THE SUPREME COURT’S JURISDICTION OVER TAX CASES CAN NOT BE IMPAIRED D) THE REVENUES AND ASSETS OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS AND DONATIONS FFOR EDUCATIONAL PURPOSES ARE EXEMPTED FROM TAXES AND DUTIES 36.THEY RESTRICT THE EXERCISE OF THE POWER OF TAXATION ALTHOUGH THEY ARE NOT EMBODIED IN THE CONSTITUTION A) B) C) D)

THEORETICAL JUSTICE LEGISLATIVE IN CHARACTER INHERENT LIMITATIONS CONSTUTIONAL LIMITATIONS

37. A TAX MUST BE IMPOSED FOR PUBLIC PURPOSE. WHICH OF THE FOLLOWING IS NOT A PUBLIC PURPOSE?-(RPCPA) A) B) C) D)

NATIONAL DEFENSE PUBLIC EDUCATION IMPROVEMENT OF SUGAR INDUSTRY NONE OF THE ABOVE

38. A FUNDAMENTAL RULE IN TAXATION IS THAT “THE PROPERTY OF ONE COUNTRY MAY NOT BE TAXED BY ANOTHER COUNTRY”. THIS IS KNOWN AS-(RPCPA) A) B) C) D)

INTERNATIONAL LAW INTERNATIONAL COMITY RECIPROCITY INTERNATIONAL INHIBITION

39.QUESTION 1: CAN THE STATE TAX THE ARMED FORCES OF THE PHILIPPINES? QUESTION 2: ARE GOVERNMENT-OWNED CORPORATIONS SUBJECT TO TAX?

AND

CONTROLLED

A)YES, NO B)YES, YES C)NO, YES D)NO, NO 40 DIPLOMATIC OFFICIALS SUCH AS HEADS OF STATES AND AMBASSADORS ARE EXEMPT FROM TAXES AND DUTIES BECAUSE OF A) B) C) D)

INTERNATIONAL COMITY RECIPROCITY PROVISIONS PRINCIPLE OF TERRITORIALITY EXEMPTION IN THE TAX CODE

41. DEALS WITH THE PROVISION OF THE LAW WHICH DETERMINES THE PERSON OR PROPERTY TO BE TAXED, THE SUM OR SUMS TO BE RAISED, THE RATE THEREOF, AND THE TIME AND MANNER OF LEVYINGM RECEIVING AND COLLECTING OF TAXES A) B) C) D)

COLLECTION PAYMENT ENFORCED CONTRIBUTION LEVY

42. CONSTITUTED OF THE PROVISIONS OF LAW WHICH PRESCRIBE THE MANNER OF ENFORCING THE OBLIGATION ON THE PART OF THOSE TAXED TO PAY THE DEMAND THUS CREATED A) B) C) D)

COLLECTION PROPORTIONATE IN CHARACTER ENFORCED CONTRIBUTION LEVY

43.THE AMOUNT REQUIRED IS DICTATED BY THE NEEDS OF THE GOVERNMENT-(RPCPA) A) B) C) D)

LICENSE FEE TAX TOLL TARIFF

44. ONE OF THE CHARACTERISTICS OF A TAX IS A) A TAX IS A PECUNIARY BURDEN AND THE LAW MAY NOT ALLOW PAYMENT IN KIND B) IT IS DEPENDENT UPON THE WILL OR CONTRACTUAL ASSENT, EXPRESS OR IMPLIED, OF THE PERSON TAXED C) IT IS LEVIED BY THE STATE BY VIRTUE OF ITS SOVEREIGNTY D) IT IS COLLECTED FOR PUBLIC AND PRIV ATE PURPOSE 45. ONE OF THE CHARACTERISTICS OF A TAX IS THAT-(RPCPA) A) B) C) D)

IT IS GENERALLY BASED ON CONTRACT IT IS GENERALLY PAYABLE IN MONEY IT IS GENERALLY ASSIGNABLE OPTIONAL

46. WHICH IS NOT AN ESSENTIAL CHARACTERISTIC OF TAX?-(RPCPA) A) B) C) D)

UNLIMITED AS TO AMOUNT PAYABLE IN MONEY PROPORTIONATE IN CHARACTER REGULAR IN PAYMENT

47. NO PERSON SHALL BE IMPRISONED FOR NON-PAYMENT OF-(RPCPA) A) B) C) D)

PROPERTY TAX EXCISE TAX POLL TAX INCOME TAX

48. AN EXAMPLE OF A PROPERTY TAX IS A) ADDITIONAL COMMUNITY TAX ON INCOME OF REAL PROPERTIES B) REAL ESTATE TAX ON REAL PROPERTIES C) ESTATE TAX ON INHERITED PERSONAL AS WELL AS REAL PROPERTIES D) DONOR’S TAX ON DONATION OF PROPERTY

49. WHICH OF THE FOLLOWING IS NOT AN EXAMPLE OF EXCISE TAX? A) B) C) D)

TRANSFER TAX SALES TAX REAL PROPERTY TAX INCOME TAX

50. SHARON, A CPA HAS JUST OBTAINED HER CPA LICENSE. BEFORE SHE CAN LAWFULLY PURSUE HER OCCUPATION, SHE SHOULD PAY(RPCPA) A) B) C) D)

PRIVILEGE TAX(PTR) PERCENTAGE TAX CPA’S INCOME TAX VALUE-ADDED TAX

51. A TAX THAT IS IMPOSED UPON A PERSON WHO IS DIRECTLY BOUND TO PAY ITA) B) C) D)

DIRECT TAX INDIRECT TAX EXCISE TAX POLL TAX

52. ONE IS NOT A DIRECT TAX-(RPCPA) A) B) C) D)

IMMIGRATION TAX TRANSFER TAX INCOME TAX CONTRACTOR’S TAX

53.THE BASIC COMMUNITY TAX OF P5.00 OF AN INDIVIDUAL IS A(AN)\ A) PROPERTY TAX B) DIRECT TAX C) NATIONAL TAX D) AD VALOREM TAX 54. STATEMENT 1: THE VALUE-ADDED TAX IS A PROPERTRY TAX STATEMENT 2: THE ESTATE TAX IS A DIRECT TAX-(RPCPA) A) B) C) D)

THE 2 STATEMENTS ARE CORRECT THE 2 STATEMENTS ARE WRONG STATEMENT 1 IS CORRECT; STATEMENT 2 IS WRONG STATEMENT 1 IS WRONG; STATEMENT 2 IS CORRECT

55.FORMS PART OF THE PURCHASE PRICE OF THE COMMODITY OR SERVICE AND PASSED ON TO CUSTOMERS A) B) C) D)

DIRECT TAX INDIRECT TAX PROPERTY TAX NONE OF THE ABOVE

56. A TAX ON BUSINESS IS-(RPCPA) A) B) C) D)

DIRECT TAX INDIRECT TAX PROPERTY TAX NONE OF THE ABOVE

57. FELIX IS A MINING OPERATOR. HIS MINERAL LANDS ARE NOT COVERED BY ANY LEASE CONTRACT. THE TAX FELIX HAS TO PAY BASED ON THE ACTUAL VALUE OF THE GROSS OUTPUT OR MINERAL PRODUCTS EXTRACTED IS-(RPCPA) A) B) C) D)

MINING TAX ROYALTIES RENTAL AD VALOREM TAX

58.TAX THAT IS IMPOSED SOLELY TO RAISE REVENUE FOR GOV’T EXPENDITURES A) B) C) D)

REVENUE TAX REGULATORY TAX SPECIFIC TAX AD VALOREM TAX

59.TAX LEVIED FOR PARTICULAR OR SPECIFIC PURPOSE IRRESPECTIVE OF WHETHER REVENUE IS ACTUALLY RAISED OR NOT A) B) C) D)

REVENUE TAX REGULATORY TAX SPECIFIC TAX AD VALOREM TAX

60..TAX IMPOSED BY THE NATIONAL GOVERNMENT AND IS EFFECTIVE WITHIN THE ENTIRE JURISDICTION THEREOF A) NATIONAL TAX B) LOCAL TAX

C) PROPORTIONAL TAX D) GENERAL TAX 61. TAXES IMPOSED BY A POLITICAL SUBDIVISION OF THE STATE AND IS EFFECTIVE ONLY WITHIN THE TERRITORIAL BOUNDARIES THEREOF A) B) C) D)

NATIONAL TAX LOCAL TAX PROGRESSIVE TAX REGRESSIVE TAX

62.THE FOLLOWING ARE KINDS OF TAXES AS TO GRDUATION. WHICH ONE IS NOT?-(RPCPA) A) B) C) D)

DIGRESSIVE UNIFORM REGRESSIVE PROGRESSIVE

63.THE POWER OF THE STATE OR THOSE TO WHOM THE POWER HAS BEEN DELEGATED TO TAKE PRIVATE PROPERTY FOR PUBLIC USE UPON PAYING TO THE OWNER A JUST COMPENSATION A) B) C) D)

POWER OF EMINENT DOMAIN POLICE POWER POWER OF TAXATION PEOPLE POWER

64.THERE CAN BE CLASSIFICATION OF THE SUBJECT MATTER BEING REQUIRED TO SHOULDER THE BURDEN. WHICH IS THE EXCEPTION?(RPCPA) A) B) C) D)

TAX LICENSE FEE TOLL EMINENT DOMAIN

65.THE POWER OF THE STATE TO ENACT SUCH LAWS IN RELATION TO PERSONS AND PROPERTY AS MAY PROMOTE PUBLIC HEALTH, PUBLIC MORALS, PUBLIC SAFETY, AND THE GENERAL WELFARE OF THE PEOPLE\ A) B) C) D)

POWER OF EMINENT DOMAIN POLICE POWER POWER OF TAXATION PEOPLE POWER

66. THE FOLLOWING ARE SIMILARITIES OF THE INHERENT POWER OF TAXATION, EMINENT DOMAIN AND POLICE POWER EXCEPT ONE-(RPCPA) A) B) C) D)

ARE NECESSARY ATTRIBUTES OF SOVEREIGNTY INTERFERES WITH PRIVATE RIGHTS AND PROPERTY AFFECTS ALL PERSONS OR THE PUBLIC ARE LEGISLATIVE IN THEIR IMPLEMENTATION

67. WHICH STATEMENT REFERS TO POLICE POWER AS DISTINGUISHED FROM TAXATION?-(RPCPA) A) IT CAN ONLY BE IMPOSED ON SPECIFIC PROPERTY OR PROPERTIES B) THE AMOUNT IMPOSED DEPENDS ON WHETHER THE ACTIVITY IS USEFUL OR NOT C) IT INVOLVES THE TAKING OF PROPERTY BY THE GOVERNMENT D) THE AMOUNT IMPOSED HAS NO LIMIT 68.POLICE POWER AS DISTINGUISHED FROM TAXATION A) JUST COMPENSATION IS RECEIVED BY THE OWNER OF THE PROPERTY B) MAYBE EXERCISED BY PRIVATE INDIVIDUALS C) SUPERIOR TO THE NON-IMPAIRMENT CLAUSE OF THE CONSTITUTION D) PROPERTY IS TAKEN BY THE GOV’T FOR PUBLIC PURPOSE 69 AFTER HAVING BEEN INFORMED THAT SOME MASSAGE PARLORS ARE BEING USED AS FRONTS FOR PROSTITUTION, THE SANGGUNIANG PANLUNGSOD OF MANILA PASSED A TAX ORDINANCE SUBJECTING MASSAGE PARLORS WITHIN ITS JURISDICTION TO SUCH ONEROUS TAXES THAT LEAVE THEM NO OTHER ALTERNATIVE BUT TO STOP OPERATING. THE PASSAGE OF THE ORDINANCE IS A VALID EXERCISE OFA) B) C) D)

TAXATION EMINENT DOMAIN POLICE POWER POLICE POWER AND POWER OF TAXATION

70. STATEMENT 1: THE CONGRESS CAN ENACT TAX LAWS EVEN IN THE ABSENCE OF A CONSTITUTIONAL PROVISION GRANTING SAID BODY THE POWER TO TAX. STATEMENT 2: A TAX MAY BE VALIDLY IMPOSED IN THE EXERCISE OF POLICE POWER AND NOT THE POWER TO TAX.

A) B) C) D)

FALSE, FALSE FALSE, TRUE TRUE, TRUE TRUE, FALSE

71. WHICH OF THE FOLLOWING MAY NOT RAISE MONEY FOR THE GOVERNMENT-(RPCPA) A) B) C) D)

POWER OF TAXATION POLICE POWER POWER OF EMINENT DOMAIN PRIVATIZATION OF GOVERNMENT’S CAPITAL ASSETS

72. IN THIS POWER OF THE STATE, THE PERSON WHO IS PARTING WITH HIS MONEY OR PROPERTY IS PRESUMED TO RECEIVE A BENEFIT-(RPCPA) A) B) C) D)

TAXATION POLICE POWER EMINENT DOMAIN FORFEITURE POWER

73. WHICH OF THE INHERENT POWERS OF THE GOVERNMENT IS INFERIOR TO THE NON-IMPAIRMENT CLAUSE OF THE CONSTITUTION? A) B) C) D)

TAXATION POLICE POWER EMINENT DOMAIN NONE

74. TAX IS DISTINGUISHED FROM LICENSE FEE-(RPCPA) A) NON-PAYMENT DOES NOT NECESSARILY RENDER THE BUSINESS ILLEGAL B) A REGULATORY MEASURE C) IMPOSED IN THE EXERCISE OF POLICE POWER D) LIMITED TO COVER COST OF OBLIGATION 75. THE DISTINCTION OF A TAX FROM PERMIT OR LICENSE FEE IS THAT A TAX IS-(RPCPA) A) IMPOSED FOR REGULATION B) ONE WHICH INVOLVES EXERCISE OF POLICE POWER C) ONE IN WHICH THERE IS GENERALLY NO LIMIT ON THE AMOUNT THAT MAY BE IMPOSED D) ANSWER IS NOT GIVEN

76. WHICH OF THE FOLLOWING TERMS DESCRIBES THIS STATEMENT “THAT THE STATE HAS COMPLETE DISCRETION ON THE AMOUNT TO BE IMPOSED AFTER DISTINGUISHING BETWEEN A USEFUL AND NON-USEFUL ACTIVITY?”-(RPCPA) A) B) C) D)

TAX LICENSE FEE TOLL CUSTOMS DUTY

77. WHICH OF THE FOLLOWING IS NOT A DISTINCTION OR SIMILARITY OF LICENSE FEE FROM TAX?-(RPCPA) A) B) C) D)

IMPOSED NFOR REGULATION INVOLVES EXERCISE OF POLICE POWER NON-PAYMENT MAKES THE BUSINESS ILLEGAL LEGAL COMPENSATION OR REWARD OF AN OFFICER FOR SERVICES

78. ALL OF THE FOLLOWING, EXCEPT ONE, ARE CHARACTERISTICS OF A TOLL A) B) C) D)

DEMAND OF PROPRIETORSHIP COMPENSATION FOR THE USE OF ANOTHER’S PROPERTY MAY BE IMPOSED BY PRIVATE INDIVIDUALS LEVIED FOR THE SUPPORT OF THE GOVERNMENT

79. THIS IS A DEMAND OF OWNERSHIP-(RPCPA) A) B) C) D)

LICENSE FEE TAX TOLL FRANCHISE

80. ONE OF THE FOLLOWING IS NOT A CHARACTERISTIC OF A SPECIAL ASSESSMENT A) IT HAS SPECIAL APPLICATION ONLY TO A PARTICULAR TIME AND PLACE B) IT IS LEVIED ONLY ON LAND C) MAY BE LEVIED ON BUSINESS D) BASED WHOLLY ON BENEFITS 81. WHICH STATEMENT IS WRONG?-(RPCPA) A) A TAX IS A DEMAND OF SOVEREIGNTY B) A TOLL IS A DEMAND OF OWNERSHIP

C) A SPECIAL ASSESSMENT IS A TAX D) CUSTOMS DUTY IS A TAX 82.WHICH OF THE FOLLOWING IS NOT A CHARACTERISTIC OF DEBT? A) B) C) D)

GENERALLY ARISES FROM CONTRACT PAYABLE ONLY IN MONEY ASSIGNABLE IMPRISONMENT IS NOT A SANCTION FOR NON-PAYMENT

83. ALL FUNDS OR INCOME DERIVED BY THE GOVERNMENT FROM ANY OTHER SOURC E A) B) C) D)

TAX CUSTOMS DUTY REVENUE ORDINARY INCOME

84. IT COMPRISES ALL KINDS OF FUNDS INCLUDING TAXES-(RPCPA) A) B) C) D)

LICENSE FEE INCOME CUSTOMS DUTY REVENUE

85.WHICH OF THE FOLLOWING CONSTITUTE OBJECTIONABLE DOUBLE TAXATION?-(RPCPA) A) A LICENSE FEE AND A TAX IMPOSED ON THE SAME BUSINESS OR OCCUPATION FOR SELLING THE SAME ARTICLES B) A TAX IMPOSED BOTH ON THE OCCUPATION OF FISHING AND ON FISHPOND OPERATION C) PERSONS ENGAGED IN LEASING OR SELLING REAL PROPERTY ARE SUBJECT TO REAL ESTATE DEALERS TAX AND THEIR SALES ARE ALSO SUBJECT TO 12% VAT D) A TAX OF 1% IS IMPOSED FOR BANK RESERVE DEFICIENCY WHILE A PENALTY OF 1/10 OF 1% IS ALSO IMPOSED AS A CONSEQUENCE OF SUCH RESERVE DEFICIENCY 86. WHICH OF THE FOLLOWING IS NOT AN ELEMENT OF DIRECT DUPLICATE TAXATION WHICH IS VIOLATIVE OF THE EQUAL PROTECTIONAND UNIFORMITY CLAUSES IN THE CONSTITUTION? A) SAME PROPERTY IS TAXED TWICE B) SAME TAXING AUTHORITY C) SAME AMOUNT

D) SAME PURPOSE 87. THE FOLLOWING CONSTITUTE DOUBLE TAXATION EXCEPT ONE(RPCPA) A) B) C) D)

BOTH TAXES ARE IMPOSED IN THE SAME AMOUNT BOTH TAXES ARE LEVIED FOR THE SAME PURPOSE BOTH TAXES ARE IMPOSED BY THE SAME TAXING AUTHORITY BOTH TAXES ARE IMPOSED UPON THE SAME PERSON

88. STATEMENT 1: OUR CONSTITUTION DOES NOT PROHIBIT DOUBLE TAXATION STATEMENT 2: IF DOUBLE TAXATION OCCURS, THE TAXPAYER MAY SEEK RELIEF UNDER THE UNIFORMITY CLAUSE OR THE EQUAL PROTECTION GUARANTEE-(RPCPA) A) B) C) D)

CORRECT, WRONG WRONG, CORRECT WRONG, WRONG CORRECT, CORRECT

89. YOUR CLIENT OWNS A ROW OF APARTMENTS. HE COMPLAINS TO YOU THAT HE IS BEING REQUIRED TO PAY FOUR (4) KINDS OF TAXES ON THIS LINE OF BUSINESS ALONE. FROM THE LIST GIVEN BY YOUR CLIENT, WHICH OF THE FOLLOWING TAXES HAS BEEN WRONGLY IMPOSED ON HIM? A) REAL ESTATE TAX ON THE LAND AND BUILDING B) VALUE-ADDED TAX ON THE GROSS RECEIPTS FROM RENT C) COMMUNITY TAX BASED ON THE ASSESSED VALUE OF THE APARTMENT HOUSE D) INCOME TAX ON INCOME FROM RENT 90. ONE OF THE FOLLOWING IS A FALSE STATEMENT ABOUT DOUBLE TAXATION. WHICH IS IT? A) THERE IS NO CONSTITUTIONAL PROHIBITION ON DOUBLE TAXATION B) DIRECT DUPLICATE TAXATION IS A VALID DEFENSE AGAINST A TAX MEASURE IF IT IS VIOLATIVE OF THE EQUAL PROTECTION CLAUSE C) ABSENCE OF ANY OF THE ELEMENTS OF DIRECT DOUBLE TAXATION MAKES IT INDIRECT DUPLICATE TAXATION D) A 20% FINAL WITHHOLDING TAX ON INTEREST INCOME ON BANK DEPOSITS AND A 5% GROSS RECEIPTS TAX ON BANKS IS A DIRECT DUPLICATE TAXATION

91. TRANSFER OF THE TAX BURDEN BY ONE ON WHOM THE TAX IS ASSESSED TO ANOTHER A) B) C) D)

SHIFTING CAPITALIZATION TRANSFORMATION TAX EXEMPTION

92. WHICH OF THE FOLLOWING IS NOT A SCHEME OF SHIFTING THE INCIDENCE OF TAX BURDEN?-(RPCPA) A) THE MANUFACTURER TRANSFERS THE TAX TO THE CONSUMER BY ADDING THE TAX TO THE SELLING PRICE OF THE GOODS SOLD B) THE PURCHASER ASKS FOR A DISCOUNT OR REFUSE TO BUY AT REGULAR PRICE UNLESS IT IS REDUCED BY AN AMOUNT EQUAL TO THE TAX HE WILL PAY C) CHANGING THE TERMS OF THE SALE LIKE FOB SHIPPING POINT IN THE PHILIPPINES TO FOB DESTINATION ABROAD, SO THAT THE TITLE PASSES ABROAD INSTEAD OF IN THE PHILIPPINES D) THE MANUFACTURER TRANSFERS THE SALES TAX TO THE DISTRIBUTOR, THEN IN TURN TO THE WHOLESALER, TO THE RETAILER AND FINALLY TO THE CONSUMER 93. THE REDUCTION IN THE SELLING PRICE OF INCOME-PRODUCING PROPERTY BY AN AMOUNT EQUAL TO THE CAPITALIZED VALUE OF FUTURE TAXES THAT MAY BE PAID BY THE PURCHASER A) B) C) D)

SHIFTING CAPITALIZATION TRANSFORMATION TAX EXEMPTION

94. THE METHOD BY WHICH THE MANUFACTURER OR PRODUCER UPON WHOM THE TAX IS IMPOSED PAYS THE TAX AND STRIVES TO RECOVER SUCH EXPENSE THROUGH LOWER PRODUCTION COST WITHOUT SACRIFICING THE QUALITY OF HIS PRODUCT A) B) C) D)

SHIFTING CAPITALIZATION TRANSFORMATION TAX EXEMPTION

95. THE GRANT OF IMMUNITY TO PARTICULAR PERSONS OR CORPORATION OR TO PERSONS OR CORPORATIONS OF A PARTICULAR CLASS FROM A TAX WHICH PERSONS AND CORPORATIONS GENERALLY WITHIN THE SAME TAXING DISTRICT ARE OBLIGED TO PAY

A) B) C) D)

TAX EXEMPTION TAX EVASION TAX AVOIDANCE TAX AMNESTY

96. STATEMENT 1: A BIR RULING ISSUED BY A COMMISSIONER OF INTERNAL REVENUE WHICH GRANTS TAX EXEMPTION WOULD CREATEA PERPETUAL EXEMPTION IN FAVOR OF THE TAXPAYER STATEMENT 2: A TAX EXEMPTION MAY BE WITHDRAWN ANYTIME AT THE PLEASURE OF THE TAXING AUTHORITY WHICH OF THE ABOVE STATEMENTS IS TRUE? A) B) C) D)

STATEMENT 1 ONLY STATEMENTS 1 AND 2 STATEMENT 2 ONLY NEITHER OF THEM

97. IT IS ALSO KNOWN AS TAX DODGING A) B) C) D)

TAX EXEMPTION TAX EVASION TAX AVOIDANCE TRANSFORMATION

98. IT IS ALSO KNOWN AS TAX MINIMIZATION A) B) C) D)

TAX EXEMPTION TAX EVASION TAX AVOIDANCE TRANSFORMATION

99. WHICH OF AVOIDANCE?

THE

FOLLOWING

STATEMENTS

CONSTITUTE

TAX

A) DELIBERATE FAILURE OF A TAXPAYER TO PAY THE TAXES DUE TO THE GOVERNMENT B) CONNOTES FRAUD THROUGH THE USE OF PRETENSES AND FORBIDDEN DEVICES TO LESSEN OR DEFEAT TAXES C) PUNISHABLE BY LAW D) MAYBE CONTRARY TO THE INTENT OF THE LEGISLATURE BUT NEVERTHELESS DO NOT VIOLATE THE LAW

100. WHICH OF THE FOLLOWING FACTS PERTAIN/S TO TAX AVOIDANCE? I.AFTER STUDYING HIS TAX PROBLEMS, MATALINO DECIDED TO WITHDRAW HIS BANK DEPOSITS AND TO BUY TAX-EXEMPT SECURITIES II.TUSO WHO WISHES TO AVOID THE PAYMENT OF TAXES ASSESSABLE ON THE TRANSACTION MADE IT APPEAR ON THE DEED OF SALE THAT THE SELLING PRICE WAS ONLY P200,000 ALTHOUGH IT WAS ACTUALLY P300,000 III.REFRAINING FROM ENGAGING IN ACTIVITES SUBJECT TO TAX IV.ABUSADO INSURANCE CORPORATION SOLD ITS OFFICE BUILDING TO ADAN FOR P100 MILLION, WHO IN TURN, SOLD THE SAME PROPERTY TO DUGONG-BUGHAW, INC. FOR P200 MILLION. THESE 2 TRANSACTIONS WERE EVIDENCED BTY DEEDS OF ABSOLUTE SALE NOTARIZED ON THE SAME DAY BY THE SAME NOTARY PUBLIC. A) B) C) D)

I ONLY I AND III ONLY I AND IV I, III AND IV

101. IN CASE OF AMBIGUITY, TAX LAWS SHALL BE INTERPRETED A) B) C) D)

STRICTLY AGAINST THE TAXPAYER LIBERALLY AGAINST THE POWER LIBERALLY IN FAVOR OF THE TAXPAYER LIBERALLY IN FAVOR OF THE GOVERNMENT

102. IN CASES OF DEDUCTIONS AND EXEMPTIONS ON INCOME TAX RETURNS, DOUBTS SHALL BE RESOLVED-(RPCPA) A) B) C) D)

STRICTLY AGAINST THE TAXPAYER STRICTLY AGAINST THE GOVERNMENT LIBERALLY IN FAVOR OF THE TAXPAYER LIBERALLY AGAINST THE GOVERNMENT

103. THE FOLLOWING, EXCEPT ONE, ARE EXCEPTIONS TO THE RULE THAT TAX EXEMPTIONS MUST BE STRICTLY CONSTRUED AGAINST THE TAXPAYER A) WHERE THE STATUTE GRANTING THE EXEMPTION PROVIDES FOR LIBERAL INTERPRETATION THEREOF B) IF THE TAXPAYER DOES NOT FALL WITHIN THE PURVIEW OF THE EXCEPTION BY CLEAR LEGISLATIVE INTENT C) IN CASE OF SPECIAL TAXES RELATING TO SPECIAL CASES AND AFFECTING ONLY SPECIAL CLASSES OF PERSONS D) IF EXMPTIONS REFER TO PUBLIC PROPERTY

104. A FRANCHISE CAN BE AMENDED BY-(RPCPA) A) AN AMENDMENT OF SPECIAL LAW, WHICH GRANTED FRANCHISE B) AN AMENDMENT OF A LAW OF GENERAL APPLICATION C) AN AMENDMENT OF A REVENUE REGULATION D) AN AMENDMENT OF TAX LAWS

THE

105. SOME FRANCHISE HOLDERS WHO ARE PAYING THE FRANCHISE TAX ARE BEING REQUIRED BY AN AMENDATORY LAW TO PAY THE VALUEADDED TAX, WHILE OTHERS REMAIN SUBJECT TO FRANCHISE TAX. WHICH OF THE FOLLOWING CONSTITUTIONAL PROVISION MAKES THE LAW UNCONSTITUTIONAL?-(RPCPA) A) NO LAW SHALL BE PASSED IMPAIRING THE OBLIGATION OF CONTRACT B) THE RULE OF TAXATION SHALL BE UNIFORM C) NO PERSON SHALL BE DEPRIVED OF PROPERTY WITHOUT DUE PROCESS OF LAW D) NONE OF THE ABOVE 106. STATEMENT 1: THE POINT ON WHICH A TAX IS ORIGINALLY IMPOSED IS IMPACT OF TAXATION STATEMENT 2: AS A RULE, TAXES ARE SUBJECT TO SET-OFF OR COMPENSATION A) B) C) D)

TRUE, TRUE FALSE, TRUE FALSE, FALSE TRUE, FALSE

107. WHICH OF THE FOLLOWING IS NOT CONSIDERED AS A STEP IN MAKING A REVENUE REGULATION EFFECTIVE? A) RECOMMENDATION BY THE COMMISSIONER OF INTERNAL REVENUE TO THE SECRETARY OF FINANCE B) APPROVAL BY THE SECRETARY OF FINANCE C) LEGISLATION BY CONGRESS D) PUBLICATION IN A NEWSPAPER OF GENERAL CIRCULATION 108. STATEMENT 1: IN CASE OF CONFLICT BETWEEN A REVENUE REGULATION AND THE PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, THE LATTER SHALL PREVAIL

STATEMENT 2: THE REVOCATION OF A REVENUE REGULATION CAN NOT BE MADE RETROACTIVE EVEN IF THE REASON FOR ITS REVOCATION IS THAT IT IS ERRONEOUS OR CONTRARY TO LAW A) B) C) D)

CORRECT, WRONG CORRECT, CORRECT WRONG, CORRECT WRONG, WRONG

109. ALL OF THE FOLLOWING, EXCEPT ONE, ARE SOURCES OF TAX LAWSA) B) C) D)

LEGISLATIONS, TAX TREATIES AND TAX ORDINANCES JUDICIAL DECISIONS OPINIONS OF AUTHORS ADMINISTRATIVE RULES AND REGULATIONS

110. THE LEAST SOURCE OF TAX LAW ISA) B) C) D)

STATUTES COURT DECISIONS CONSTITUTION BIR RULINGS

111. WHEN THE REFUND OF A TAX SUPPOSEDLY DUE TO THE TAXPAYER HAS ALREADY BEEN BARRED BY PRESCRIPTION, AND THE SAID TAXPAYER IS ASSESSED WITH A TAX AT PRESENT, THE TWO CASES MAY BE SET-OFF WITH EACH OTHER. THIS DOCTRINE IS CALLED A) B) C) D)

SET-OFF DOCTRINE DOCTRINE OF RECIPROCITY TAX SPARING DOCTRINE EQUITAB LE RECOUPMENT

112. STATEMENT 1: THE DOCTRINE OF EQUITABLE IS APPLICABLE IN THE PHILIPPINES STATEMENT 2: WHERE TAXES AND THE CLAIM OF THE TAXPAYER ARE FULLY LIQUIDATED, DUE AND DEMANDABLE, SET-OFF OR LEGAL COMPENSATION MAY TAKE PLACE BY OPERATION OF LAW A) B) C) D)

CORRECT, WRONG CORRECT, CORRECT WRONG, CORRECT WRONG, WRONG

113. THE PLACE OR AUTHORITY THAT HAS THE RIGHT TO IMPOSE AND COLLECT TAXESA) B) C) D)

TERRITORIALITY INTERNATIONAL COMITY SITUS OF TAXATION TRANSFORMATION

114. DOMICILE OR RESIDENCE OF THE OWNER IS NOT THE SITUS OF TAXATION IN A) B) C) D)

INCOME TAX COMMUNITY TAX ESTATE TAX BUSINESS TAX

115. WHICH OF THE FOLLOWING IS NOT CORRECT WITH RESPECT TO A TAXPAYER’S SUIT? A) IT MUST PERTAIN TO ILLEGAL DISBURSEMENT OF PUBLIC FUNDS B) IT PERTAINS TO THE PASSAGE OF A SEEMINGLY UNCONSTITUTIONAL MEASURE C) THE FUNDS SOUGHT TO BE DISBURSED MUSTB HAVE BEEN RAISED THROUGH TAXATION D) IT MUST NOT REFER TO AN ENACTMENT OF A TAX LAW

B. TRUE OR FALSE 1. NO PERSON SHALL BE IMPRISONED FOR DEBT OR NON-PAYMENT OF POLL TAX 2. CONGRESS MAY AUTHORIZE THE PRESIDENT TO FIX WITHIN SPECIFIED LIMITS TARIFF RATES, IMPORT AND EXPORT DUTIES, TONNAGE AND WHARFAGE DUES, AND OTHER DUTIES OR IMPOSTS WITHIN THE FRAMEWORK OF THE NATIONAL DEVELOPMENT PROGRAM OF THE GOVERNMENT. 3. A LAW GRANTING TAX EXEMPTION SHOULD BE CONCURRED IN BY A MAJORITY OF ALL MEMBERS OF THE CONGRESS PRESENT. 4. THE PRESIDENT CAN VETO ANY PARTICULAR ITEM IN A REVENUE OR TARIFF BILL, BUT THE VETO SHALL NOT AFFECT THE ITEMS OR ITEMS TO WHICH HE DOES NOT OBJECT 5. THE POWER TO TAX CAN BE DELEGATED TO LOCAL GOVERNMENT UNITS, SUBJECT TO LIMITATIONS THAT MAY BE SET BY LAW.

6. THE POWER OF TAXATION CAN BE DELEGATED TO THE PRESIDENT OF THE PHILIPPINES. 7. THE PRESIDENT OF THE PHILIPPINES IS EMPOWERED TO GRANT TAX EXEMPTION ON CERTAIN CLASS OF TAXPAYERS. 8. NON-PAYMENT OF TAX AND DEBT IS GROUND FOR IMPRISONMENT. 9. THE POWER TO TAX MAY INCLUDE THE POWER TO DESTROY. 10. PROVISIONS IN THE PHILIPPINE CONSTITUTION ARE GRANTS OF POWER. 11. LANDS AND BUILDINGS BEING USED ACTUALLY, DIRECTLY AND EXCLUSIVELY FOR RELIGIOUS AND CHARITABLE PURPOSES BY CHURCHES AND CHARITABLE INSTITUTIONS ARE EXEMPT FROM INCOME AND PROPERTY TAXES. 12. A PORTION OF A SCHOOL BUILDING WHICH IS BEING LEASED TO A MARKETING FIRM FOR COMMERCIAL PURPOSES IS EXEMPT FROM PROPERTY TAX. 13. A NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION IS EXEMPT FROM INCOME TAX ON ITS REVENUES AND FROM REAL PROPERTY TAX ON ASSETS USED ACTUALLY, DIRECTLY AND EXCLUSIVELY FOR EDUCATIONAL PURPOSES. 14. TAX LAWS CAN NEVER HAVE A RETROACTIVE EFFECT. 15. THE GOVERNMENT INSTRUMENTALITIES.

CAN

NOT

TAX

ITS

AGENCIES

AND

16. A TAXPAYER’S SUIT CAN BE FILED BY ANY TAXPAYER IN ANY INSTANCE AGAINST THE GOVERNMENT. 17. IN THE PHILIPPINES, THERE MAY BE DOUBLE TAXATION. 18. A TAX IS GENERALLY UNLIMITED BECAUSE IT IS BASED ON THE NEEDS OF THE STATE. 19. AS A RULE, TAXES ARE SUBJECT TO SET-OFF OR COMPENSATION. 20. RECIPROCITY RULE APPLIES TO CITIZENS OF THE PHILIPPINES AND RESIDENT ALIEN ONLY.

21. THE INHERENT POWERS ARE EXERCISED PRIMARILY BY THE LEGISLATURE. 22. THE RULE OF TAXATION SHALL BE UNIFORM AND EQUITABLE. 23. TAXATION MAY BE USED TO IMPLEMENT THE POLICE POWER OF THE STATE. 24. POLICE POWER IS SUPERIOR TO THE NON-IMPAIRMENT CLAUSE OF THE CONSTITUTION. 25. THE THREE INHERENT POWERS ARE METHODS BY WHICH THE STATE INTERFERES WITH PRIVATE RIGHT. 26. THE SALARY OF THE PRESIDENT OF THE PHILIPPINES AND OF THE JUSTICES OF THE SUPREME COURT IS EXEMPT FROM INCOME TAX. 27. OPINIONS OF LEGAL LUMINARIES ARE SOURCES OF TAX LAWS. 28. THE CONSTITUTION GRANTS EXEMPTION FROM ALL KINDS OF TAXES TO RELIGIOUS AND CHARITABLE ORGANIZATIONS. 29. BECAUSE THE POWER TO TAX IS UNLIMITED, COMPREHENSIVE, PLENARY AND SUPREME, THE POWER TO TAX CAN REACH OVER INTO ANY JURISDICTION TO SEIZE UPON PERSON OR PROPERTY. 30. A PERSON CAN OBJECT OR RESIST THE PAYMENT OF TAXES SOLELY BECAUSE NO PERSONAL BENEFIT TO HIM CAN BE POINTED AS ARISING FROM THE TAX. 31. THE “BENEFIT-PROTECTION THEORY” IS THE SOURCE OF THE “DOCTRINE OF SYMBIOTIC RELATIONSHIP”. 32. A TAXPAYER COMMITS TAX AVOIDANCE WHEN HE DELIBERATELY OMITS TO DECLARE ALL HIS TAXABLE INCOME. 33. THE THEORY OF TAXATION IS BASED ON THE LIFEBLOOD DOCTRINE. 34. A DIRECT TAX CAN BE SHIFTED DIRECTLY TO THE CONSUMERS. 35. A TAX IS A VOLUNTARY PAYMENT OR DONATION TO THE GOVERNMENT. 36. TAXES ARE CONTRACTUAL DEBTS, HENCE A TAXPAYER CANNOT BE IMPRISONED FOR NON-PAYMENT THEREOF.

37. AS A POWER, TAXATION REFERS TO THE INHERENT POWER OF THE STATE TO DEMAND ENFORCED CONTRIBUTION FOR PUBLIC PURPOSE OR PURPOSES. 38. THE GOVERNMENT CANNOT SURVIVE WITHOUT TAXATION. 39. INCOME TAX IS A PROGRESSIVE TAX. 40. TAX LAW CANNOT BE IMPOSED FOR A SPECIAL PURPOSE FOR IT SHOULD ALWAYS BE AIMED AT REVENUE COLLECTION. 41. THE POWER OF THE STATE TO TAX EXISTS BY VIRTUE OF AN EXPRESS PROVISION OF THE CONSTITUTION. 42. AN EXEMPTION FROM TAXATION IS TRANSFERABLE. 43. ADMINISTRATIVE FEASIBILITY MEANS ALSO THAT THE TAX MUST NOT BE DISCOURAGING TO BUSINESS ACTIVITY. 44. FISCAL ADEQUACY MEANS THAT REVENUE SHOULD ALWAYS MEET THE DEMANDS OF PUBLIC EXPENDITURE EVEN DURING ADVERSE ECONOMIC CONDITION. 45. STATUTORY TAX EXEMPTIONS MAY BE REVOKED BY THE CONGRESS. 46. TAX EVASION IN ONE YEAR CAN BE OFFSET BY PAYING MORE TAXES THE FOLLOWING YEAR. 47. NON-PAYMENT OF ADDITIONAL COMMUNITY TAX IS A GROUND FOR IMPRISONMENT. 48. IN CASE OF CONFLICT BETWEEN A TAX LAW AND A REVENUE REGULATION, THE LATTER SHALL PREVAIL. 49. A REVENUE REGULATION CAN EXPAND THE PROVISION OF LAW BY IMPOSING A PENALTY EVEN IF THE LAW THAT IT IMPLEMENTS DOES NOT IMPOSE A PENALTY. 50. REVENUE BILLS SHALL ORIGINATE EXCLUSIVELY FROM THE SENATE.

CHAPTER 11-INCOME TAX OF INDIVIDUALS 1.WHO AMONG THE FOLLOWING IS A NON-RESIDENT ALIEN?-(RPCPA) A) AN ALIEN WHO COMES TO THE PHILIPPINES FOR A DEFINITE PURPOSE WHICH IN ITS NATURE MAY BE PROMPTLY ACCOMPLISHED B) AN ALIEN WHO COMES TO THE PHILIPPINES FOR A DEFINITE PURPOSE WHICH IN ITS NATURE WOULD REQUIRE AN EXTENDED STAY C) AN ALIEN WHO HAS ACQUIRED RESIDENCE IN THE PHILIPPINES D) AN ALIEN WHO LIVES IN THE PHILIPPINES WITH NO DEFINITE INTENTION AS TO HIS STAY 2. ARCHIE, A STAFF AUDITOR OF SGV & CO., TOOK AND PASSED THE EXAMINATION FOR CERTIFIED INTERNAL AUDITOR (CIA). THE FOLLOWING YEAR, HE RESIGNED FROM HIS JOB AND LEFT THE PHILIPPINES ON APRIL 10, 2006 TO WORK AS AN INTERNAL AUDITOR IN A BIG ESTABLISHMENT IN MELBOURNE, AUSTRALIA. FOR INCOME TAX PURPOSES, WHICH OF THE FOLLOWING STATEMENTS IS CORRECT WITH RESPECT TO ARCHIE’S CLASSIFICATION? A) HE SHALL BE CLASSIFIED AS NON-RESIDENT CITIZEN FOR THE WHOLE YEAR OF 2006 B) HIS CLASSIFICATION AS A NON-RESIDENT CITIZEN WILL START IN 2007 C) HE SHALL BE CLASSIFIED AS NON-RESIDENT CITIZEN FOR THE YEAR 2006 WITH RESPECT TO HIS INCOME DERIVED FROM SOURCES WITHOUT FROM APRIL 10, 2006 D) HE SHALL BE CLASSIFIED AS NON-RESIDENT CITIZEN FOR THE YEAR 2006 WITH RESPECT TO HIS INCOME DERIVED FROM SOURCES WITHOUT FROM APRIL 11,2006 3. WHO AMONG THE FOLLOWING INDIVIDUAL TAXPAYERS IS TAXABLE ON INCOME WITHIN AND WITHOUT THE PHILIPPINES? A) ALEX, A NATIVE OF GENERAL SANTOS CITY, WORKING AS OVERSEAS CONTRACT WORKER IN IRAQ B) PHILANDER RODOLFO, NATURALIZED FILIPINO CITIZEN AND MARRIED TO A FILIPINA. HE HAD BEEN LIVING IN OLONGAPO CITY SINCE 1970 C) ALDREDO DE LA HOYA, SPANISH CITIZEN, A RESIDENT OF MADRID, SPAIN, SPENT A ONE WEEK VACATION TRIP IN BORACAY D) MING HONG, TAIWANESE SINGER, HELD A 3-DAY CONCERT IN MANILA

4. WHICH OF THE FOLLOWING TAXPAYERS WHOSE PERSONAL EXEMPTION IS SUBJECT TO THE LAW ON RECIPROCITY UNDER THE TAX CODE?-(RPCPA) A) NON-RESIDENT CITIZEN WITH RESPECT TO HIS INCOME DERIVED FROM OUTSIDE THE PHILIPPINES B) NON-RESIDENT ALIEN WHO SHALL COME TO THE PHILIPPINES AND STAY HEREIN FOR AN AGGREGATE PERIOD OF MORE THAN 180 DAYS DURING ANY CALENDAR YEAR C) RESIDENT ALIEN DERIVING INCOME FROM A FOREIGN COUNTRY D) NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPINES WHOSE COUNTRY ALLOWS PERSONAL EXEMPTION TO FILIPINOS WHO ARE NOT RESIDING BUT ARE DERIVING INCOME FROM SAID COUNTRY 5. THE PERSONAL EXEMPTION OF THE NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES IS EQUAL TO THAT ALLOWED BY-(RPCPA) A) THE INCOME TAX LAW OF HIS COUNTRY TO A RESIDENT CITIZEN OF THE PHILIPPINES NOT RESIDING THERE B) THE INCOME TAX LAW OF HIS COUNTRY TO A CITIZEN OF THE PHILIPPINES NOT RESIDING THERE OR THE AMOUNT PROVIDED BY THE NIRC TO A CITIZEN OR RESIDENT, WHICHEVER IS LOWER C) THE NATIONAL INTERNAL REVENUE CODE TO A CITIZEN OR RESIDENT D) THE INCOME TAX LAW OF HIS COUNTRY ALLOWS TO A CITIZEN OF THE PHILIPPINES NOT RESIDING THERE OR THE AMOUNT PROVIDED BY THE NIRC TO A CITIZEN OR RESIDENT ALIEN, WHICHEVER IS HIGHER 6. THE TAXPAYER IS A MARRIED NON-RESIDENT ALIEN ENGAGED IN BUSINESS IN THE PHILIPPINES WITH TWO QUALIFIED DEPENDENT CHILDREN. HIS COUNTRY GIVES A NON-RESIDENT FILIPINO WITH INCOME FROM THEREFROM A BASIC PERSONAL EXEMPTION (IF MARRIED) OF P20,000 AND ADDITIONAL EXEMPTION OF P4,000. HE IS ENTITLED TO A PERSONAL EXEMPTION OF-(RPCPA) A) B) C) D)

P28,000 P26,000 P24,000 P20,000

7. THE FOLLOWING, EXCEPT ONE, MAY CLAIM PERSONAL EXEMPTIONS(RPCPA) A) NONRESIDENT ALIENS NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES B) NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES C) RESIDENT ALIEN D) CITIZEN 8. AN EXEMPTION PROVIDED BY LAW TO TAKE CARE OF PERSONAL, LIVING AND FAMILY EXPENSES OF THE TAXPAYER AND THE AMOUNT OF WHICH IS DETERMINED ACCORDING TO THE STATUS OF THE TAXPAYERS ARE:-(RPCPA) A) B) C) D)

OPTIONAL STANDARD DEDUCTION PERSONAL EXEMPTION ADDITIONAL EXEMPTION SPECIAL ADDITIONAL EXEMPTION

9. AN EXEMPTION ALLOWED TO A TAXPAYER WHO HAS QUALIFIED LEGITIMATE, ILLEGITIMATE, OR LEGALLY ADOPTED CHILDFREN-(RPCPA) A) B) C) D)

ADDITIONAL EXEMPTION SPECIAL ADDITIONAL PERSONAL EXEMPTION OPTIONAL STANDARD DEDUCTION PERSONAL EXEMPTION

10.A MAN HAS THREE WIVES UNDER HIS TRIBAL CUSTOMS AND PRACTICE. HE IS ENTITLED TO PERSONAL EXEMPTION APPERTAINING TO-(RPCPA) A) A SINGLE INDIVIDUAL B) A MARRIED INDIVIDUAL C) A MARRIED INDIVIDUAL PLUS ADDITIONAL EXEMPTION FOR DEPENDENTS PERTAINING TO EACH OF THE 2 EXTRA WIVES D) A HEAD OF THE FAMILY PLUS ADDITIONAL EXEMPTION FOR DEPENDENTS PERTAINING TO EACH OF HIS THREE WIVES 11. AS A RULE, WHO OF THE SPOUSES IS THE PROPER CLAIMANT OF THE ADDITIONAL EXEMPTION WITH RESPECT TO ANY OF THE DEPENDENT CHILDREN? A) THE HUSBAND IF HIS INCOME IS HIGHER THAN THE INCOME OF THE WIFE B) THE SPOUSE WHO HAS A HIGHER INCOME C) THE HUSBAND

D) THE WIFE 12. THE WIFE CAN CLAIM ADDITIONAL EXEMPTION IF-(RPCPA) A) THE HUSBAND’S INCOME IS LOWER THAN HER INCOME B) THE HUSBAND IS A NONRESIDENT CITIZEN WITH INCOME FROM WITHIN AND WITHOUT THE PHILIPPINES C) THE HUSBAND IS A PURE BUSINESS INCOME EARNER D) THE HUSBAND HAS NO INCOME OF HIS OWN 13. THE HUSBAND CAN WAIVE HIS RIGHT TO CLAIM THE ADDITIONAL EXEMPTION IN FAVOR OF HIS WIFE IFA) HE IS A NONRESIDENT CITIZEN WHOSE INCOME IS PURELY WITHOUT THE PHILIPPINES B) HE HAS NO INCOME OF HIS OWN C) HE IS A COMPENSATION INCOME EARNER IN THE PHILIPPINES D) HIS INCOME IS PURELY SUBJECT TO FINAL WITHHOLDING TAX 14. WHO AMONG THE FOLLOWING QUALIFIES AS A DEPENDENT FOR PURPOSES OF ADDITIONAL EXEMPTION? A) B) C) D)

SISTER-IN-LAW STEPMOTHER GRANDFATHER ILLEGITIMATE DAUGHTER

15. NENA, AGED 70 YEARS OLD, WHO LIVES WITH HER UNMARRIED SON MARIO, RECEIVED P60,000 WHICH WAS USED FOR HER SUPPORT DURING THE YEAR. THE SOURCES OF HER SUPPORT WERE AS FOLLOWS: SOCIAL SECURITY BENEFITS MARIO CAROLINE, UNRELATED FRIEND DOUGLAS, SON OF NENA LALAINE, NENA’S SISTER TOTAL

P24,000 20,000 4,000 5,000 7,000 60,000

WHO CAN CLAIM HEAD OF FAMILY STATUS BASED ON NENA’S DEPENDENCY EXEMPTION? A) B) C) D)

MARIO DOUGLAS LALAINE NONE

16. WHO OF THE FOLLOWING IS NOT A QUALIFIED DEPENDENT FOR PURPOSES OF CLAIMING ADDITIONAL EXEMPTION? A) B) C) D)

ILLEGITIMATE CHILD LEGALLY ADOPTED CHILD LEGITIMATE CHILD CHILD BY NATURAL ADOPTION

17. MR. MAASIKASO, SINGLE, HAS THE FOLLOWING DEPENDENTS WHO ARE LIVING WITH AND ENTIRELY DEPENDENT UPON HIM FOR CHIEF SUPPORT: ANDREA, CHILD WITH HIS EX-GIRLFRIEND BARBARA, LEGITIMATE CHILD OF HIS SISTER, LEGALLY ADOPTED BY MR. MAASIKASO CARIDAD, MOTHER, 85 YEARS OLD, WIDOW, BEDRIDDEN DONATA, GODMOTHER, 80 YEARS OLD MR. MAASIKASO CAN CLAIM ADDITIONAL PERSONAL EXEMPTION ONA) B) C) D)

ANDREA ONLY ANDREA AND BARBARA ANDREA, BARBARA AND CARIDAD ANDREA, BARBARA, CARIDAD AND DONATA

18. A NATIVE OF LUCENA CITY, SUPPORTING HIS BROTHER, 18 YEARS OLD, UNMARRIED, NOT GAINFULLY EMPLOYED, STUDYING BS ACCOUNTANCY AT ASIA PACIFIC COLLEGE AT MAKATI CITY, IS ENTITLED TO BASIC PERSONAL EXEMPTION OFA) B) C) D)

P20,000 25,000 50,000 75,000

19. THE ADDITIONAL PERSONAL EXEMPTION ON EVERY QUALIFIED DEPENDENT CHILD ISA) B) C) D)

P8,000 32,000 25,000 50,000

20. REMY MARTIN, SINGLE, SUPPORTING THE FOLLOWING: JOHNNY WALKER, ILLEGITIMATE SON, 16 YEARS OLD, STUDYING IN THE UNIVERSIDAD DE JEREZ, CADIZ, SPAIN, LIVING WITH REMY MARTIN’S DIPLOMATIC BROTHER IN ANDALUCIA, SPAIN. TORRES, FATHER, LIVING WITH HIM. REMY MARTIN IS GIVING 60% OF THE ENTIRE SUPPORT NEEDED, THE OTHER 40% IS BEING FURNISHED BY HIS SISTER, CHEVAS REGAL. REMY MARTIN CAN CLAIM A TOTAL EXEMPTION OFA) B) C) D)

P20,000 75,000 33,000 41,000

21. TAXPAYERS ARE HUSBAND AND WIFE. THE GROSS COMPENSATION OF THE WIFE IS P260,000 WHILE THE GROSS BUSINESS INCOME OF THE HUSBAND IS P200,000. THEY HAVE SIX QUALIFIED DEPENDENT CHILDREN BUT WITHIN THE YEAR ONE CHILD DIED. THEIR TOTAL EXEMPTIONS IS(RPCPA) A) B) C) D)

P200,000 96,000 64,000 NONE

22. LIZA’S HUSBAND DIED IN APRIL 2009 HAVING SEVEN(7) UNMARRIED CHILDREN LIVING WITH AND WHOLLY DEPENDENT ON LIZA FOR SUPPORT. THE AGES OF THE CHILDREN ARE AS FOLLOWS: CHILDREN A B C D E F G

AGES 24 22 19 10 8 6 3

STATUS JOBLESS MENTALLY RETARDED STUDYING IN MANILA STUDYING IN THEIR HOMETOWN STUDYING IN THEIR HOMETOWN STUDYING IN THEIR HOMETOWN TAKEN BY THE GRANDPARENTS AFTER THE DEATH OF THE FATHER

FOR PURPOSES OF TAXABLE YEAR 2009, HOW MUCH EXEMPTION WOULD LIZA BE ENTITLED TO?-(RPCPA)

A) B) C) D)

P150,000 57,000 64,000 73,000

NUMBERS 23 AND 24 ARE BASED ON THE FOLLOWING INFORMATION: 23. IN 2009, PIDOL’S WIFE DIED OF A CAR ACCIDENT. HIS DEPENDENTS ARE AS FOLLOWS: CHILDREN A B C D E F G

STATUS 22 Y/O, EMPLOYED ON JULY 12, 2009 21 Y/O ON JANUARY 2, 2009 18 Y/O, MARRIED ON JANUARY 31, 2009 17 Y/O, GAINFULLY EMPLOYED ON OCTOBER 1, 2009 15 Y/O, AFFLICTED WITH SORE EYES ON MAY 6, 2009 13 DIED OF AN ACCIDENT IN 2009 BROTHER, 28 Y/O PARALYTIC

FOR TAXABLE YEAR 2009, PIDOL CAN CLAIM ADDITIONAL EXEMPTIONS OFA) B) C) D)

P75,000 125,000 100,000 32,000

24. FOR THE YEAR 2010, PIDOL CAN CLAIM ADDITIONAL EXEMPTIONS OFA) B) C) D)

P8,000 16,000 25,000 100,000

25. ANGIE, WIDOW, EARNING AN ANNUAL GROSS COMPENSATION INCOME OF P300,000 HAS THE FOLLOWING DEPENDENT CHILDREN IN 2009: AUBREYBARBARACRISTETADIANAELIZA-

BABY, BORN ON JANUARY 31; CELEBRATED HER 21ST BIRTHDAY LAST JUNE 12; MARRIED ON JANUARY 1; GAINFULLY EMPLOYED EFFECTIVE JULY 1; DIED OF DENGUE FEVER ON SEPTEMBER 30;

ASSUMING ANGIE HAS TWO EMPLOYERS, HER TAXABLE INCOME IN 2009 IS-

A) B) C) D)

P32,000 63,000 150,000 100,000

26. THE TAXABLE INCOME OF ANGIE IN 2010 ISA) B) C) D)

P120,000 225,000 95,000 87,000

27. WHICH OF THE FOLLOWING INCOME DERIVED FROM WITHIN THE PHILIPPINES BY A RESIDENT ALIEN IS NOT SUBJECT TO THE RATES IN SECTION 24(A) OF THE NIRC?-(RPCPA) A) SALARY RECEIVED BY A MANAGING PARTNER OF A GENERAL PROFESSIONAL PARTNERSHIP B) A PASSIVE INCOME IN THE FORM OF A PRIZE WON IN A RAFFLE AMOUNTING TO P4,000 C) A GAIN FROM SALE OF A MOTOR VEHICLE AS ANOTHER INCOME OF A TAXPAYER WHO IS A COMPENSATION INCOME EARNER D) A GAIN ON SALE OF A REAL PROPERTY FOR PRIVATE USE OF THE FAMILY OF THE TAXPAYER 28. WHICH OF THE FOLLOWING INCOME IS SUBJECT TO FINAL TAX IF RECEIVED BY AN INDIVIDUAL TAXPAYER? I. II. III. IV. A) B) C) D)

SHARE OF A PARTNER IN THE NET INCOME OF A BUSINESS PARTNERSHIP CASH DIVIDEND RECEIVED BY A STOCKBROKER FROM A DOMESTIC CORPORATION WINNINGS IN LOTTO RAFFLE PRIZES AMOUNTING TO P6,000 I AND II III AND IV I, II AND IV I, II, III AND IV

29. WHICH OF THE FOLLOWING IS NOT A REQUISITE FOR DEDUCTIBILITY OF HEALTH INSURANCE?

A) THE TOTAL FAMILY INCOME IS NOT MORE THAN P250,000 B) THE MAXIMUM AMOUNT OF PREMIUM DEDUCTIBLE DURING THE YEAR IS P2,400 PER FAMILY OR P200 A MONTH C) IN THE CASE OF MARRIED INDIVIDUAL, THE SPOUSE CLAIMING THE ADDITIONAL EXEMPTION SHALL BE ENTITLED TO CLAIM THE INSURANCE PREMIUMS PAID D) THE TAXPAYER MUST BE A HEAD OF FAMILY 30.STATEMENT 1: HEALTH AND/OR HOSPITALIZATION INSURANCE PREMIUMS PAID BY AN INDIVIDUAL IS DEDUCTIBLE ONLY IF THE TAXPAYER IS A PURE COMPENSATION INCOME EARNER STATEMENT 2: A TAXPAYER WHO HAS PAID A MONTHLY HEALTH INSURANCE OF P400 FOR SIX MONTHS IN A YEAR CAN CLAIM TOTAL DEDUCTIBLE AMOUNT OF P2,400 A) B) C) D)

TRUE, FALSE TRUE, TRUE FALSE, TRUE FALSE, FALSE

31. MAX, SINGLE, SUPPORTING HIS 58-YEAR OLD MOTHER, IS A COMPENSATION INCOME EARNER. DURING THE YEAR, HIS NET INCOME WAS P150,000. HE ALSO PAID A TOTAL PREMIUM OF P3,000 TO AN INSURANCE COMPANY FOR HIS HEALTH INSURANCE. HOW MUCH IS HIS TAXABLE INCOME? A) B) C) D)

P97,600 97,000 122,000 122,600

32. ALL OF THE FOLLOWING, EXCEPT ONE, ARE TAXABLE ON INCOME WITHIN ONLY: A) B) C) D)

RESIDENT ONLY NON-RESIDENT CITIZEN RESIDENT CITIZEN NON-RESIDENT ALIEN

33. IN 2009, RUSTOM, FILIPINO, LEGALLY SEPARATED FROM HIS WIFE, MINA, LEFT FOR THE UNITED STATES WITH HIS DAUGHTER, ROBINA, TO PERMANENTLY RESIDE THEREIN. IN 2009, HE EARNED P2 MILLION AS INCOME FROM HIS BEAUTY APRLON IN THAT COUNTRY.

WHICH OF THE FOLLOWING STATEMENTS IS CORRECT? A) FOR PHILIPPINE INCOME TAX PURPOSES, RUSTOM MAY DEDUCT FROM HIS GROSS INCOME HIS PERSONAL EXEMPTION OF P50,000 OR THE AMOUNT ALLOWED IN THAT COUNTRY, WHICHEVER IS LOWER B) FOR PHILIPPINE INCOME TAX PURPOSES, RUSTOM’S GROSS INCOME IS SUBJECT TO A CREDITABLE WITHHOLDING TAX OF 10% C) RUSTOM’S GROSS INCOME OF P2 MILLION IS NOT TAXABLE IN THE PHILIPPINES D) FOR PHILIPPINE INCOME TAX PURPOSES, HE IS NO LONGER ENTITLED TO CLAIM ADDITIONAL EXEMPTION ON ROBINA BECAUSE HE IS ALREADY CLASSIFIED AS A NON-RESIDENT ALIEN ENGAGED IN BUSINESS IN FOREIGN COUNTRY 34. CASE 1: PEPE, A CPA, HAD SIGNED A LEGALLY ENFORCEABLE AGREEMENT WITH HIS WIFE, PILAR, THAT THE EARNINGS FROM THE EXERCISE OF HIS PROFESSION WOULD BE SHARED EQUALLY BETWEEN THEM FOR PURPOSES OF COMPUTING THE INCOME TO BE REPORTED IN THEIR RESPECTIVE INDIVIDUAL INCOME TAX RETURN. IS THE AGREEMENT VALID? CASE 2: LORENZO ADVISED HIS DAUGHTER, LORENA THAT THE RENT INCOME ON THE DORMITORY OWNED BY LORENZO WILL ACCRUE TO THE LATTER. LORENA COLLECTED THE INCOME AND REPORTED IT ON HER OWN RETURN. WERE THE ACTIONS TAKEN BY LORENZO AND LORENA VALID? A) B) C) D)

YES, NO YES, YES NO, YES NO, NO

ITEMS 35 TO 37 ARE BASED ON THE FOLLOWING INFORMATION: BUSINESS INCOME, PHILIPPINES BUSINESS INCOME, UNITED STATES EXPENSES, PHILIPPINES EXPENSES, UNITED STATES INTEREST ON DEPOSIT WITH METROBANK INTEREST ON DEPOSIT IN U.S.($1=P40) CASH PRIZE WON IN A LOCAL CONTEST CASH PRIZE WON IN A CONTEST IN U.S. WINNINGS IN LOTTO

P300,000 250,000 200,000 125,000 3,000 $500 P6,000 10,000 20,000

WINNINGS IN LOTTO IN U.S. DIVIDENDS FROM SMC, A DOMESTIC COMPANY

50,000 25,000

35. THE TAXABLE INCOME IF SHARON IS A RESIDENT CITIZEN, SINGLE ISA) B) C) D)

P261,000 334,000 291,000 306,000

36.THE TAXABLE INCOME IF SHARON IS A NON-RESIDENT ALIEN ETB, MARRIED WITH FIVE(5) DEPENDENT CHILDRENA) B) C) D)

P243,000 56,000 74,000 NONE

37. THE INCOME TAX DUE ON SHARON ASSUMING SHE IS A NONRESIDENT ALIEN NETB, SINGLE, ISA) B) C) D)

P83,500 63,500 18,500 334,000

NUMBERS 38 TO 40 ARE BASED ON THE FOLLOWING INFORMATION: ELVIS AND MADONNA, HUSBAND AND WIFE, HAVE THE FOLLOWING DATA IN 2009: COMPENSATION INCOME RENT INCOME(NET OF 5% WHT) ROYALTIES ON BOOKS DEPENDENT CHILDREN WHT ON COMPENSATION

ELVIS P125,000 76,000

MADONNA P60,000 70,000

6 10,000

DURING THE YEAR, THE SPOUSES HAD AN INCOME OF P120,000 AND EXPENSES OF P65,000, WHICH CANNOT BE IDENTIFIED AS SOLELY ESRNED BY THE WIFE OR THE HUSBAND. 38. THE INCOME TAX PAYABLE/OVERPAYMENT OF ELVIS IS-

A) B) C) D)

P3,000 10,200 (P5,500) 8,700

39. THE TAXABLE INCOME OF MADONNA ISA) P27,500 B) 37,500 C) 11,600 D) NONE 40. THE FINAL TAX ON THE PASSIVE INCOME ISA) B) C) D)

P14,000 7,000 NONE NO ANSWER

41. THE OPTIONAL STANDARD DEDUCTION ON INDIVIDUAL ISA) 40% OF TAXABLE INCOME B) 40% OF BUSINESS AND/OR PROFESSIONAL COMPENSATION INCOME C) 40% OF BUSINESS AND/OR PROFESSIONAL INCOME D) 10% OF BUSINESS AND/OR PROFESSIONAL COMPENSATION INCOME

INCLUDING EXCLUDING

42.OPTIONAL STANDARD DEDUCTION IS ALLOWED TO A) B) C) D)

RESIDENT ALIEN NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS NON-RESIDENT FOREIGN CORPORATION

NUMBERS 43 AND 44 ARE BASED ON THE FOLLOWING INFORMATION: ROD, MARRIED, WITH TWO DEPENDENT CHILDREN, HAD THE FOLLOWING INCOME AND EXPENSES IN 2009: SALARY, NET OF WHT OF P5,000 13TH MONTH PAY GROSS RECEIPTS FROM PROFESSION, NET OF WHT OF P7,000 RENT INCOME, NET OF 5% WHT GROSS RECEIPTS FROM BUSINESS

P55,000 5,000 83,000 57,000 125,000

PROFESSIONAL AND BUSINESS EXPENSES PREMIUMS ON HEALTH INSURANCE

56,500 6,000

43. THE INCOME TAX PAYABLE BY ROD IF HE AVAILED OF THE ITEMIZED DEDUCTIONSA) B) C) D)

P28,125 17,125 44,500 41,360

44. THE INCOME TAX PAYABLE BY ROD IF HE AVAILED OF THE OPTIONAL STANDARD DEDUCTIONSA) B) C) D)

P4,500 50,225 51,050 51,650

NUMBERS 45 TO 46 ARE BASED ON THE FOLLOWING INFORMATION: SPOUSES CARLOS AND IRENE, GOVERNMENT EMPLOYEES, HAD THE FOLLOWING DATA IN 2009: CARLOS IRENE TH 13 MONTH PAY AND OTHER BENEFITS 18,949.00 8,605.00 SSS, PHIC AND PAG-IBIG 14,549.76 4,559.75 BASIC SALARY 210,438.24 68,465.25 REPRESENTATION AND TRAVEL ALLOWANCE 96,000.00 PERSONNEL ECONOMIC RELIEF ALLOWANCE 6,000.00 OVERTIME PAY 2,450.35 4,457.04 HOLIDAY PAY 1,783.25 HAZARD PAY 6,000.00 ADDITIONAL EXEMPTIONS 50,000.00 TOTAL AMOUNT OF TAXES WITHHELD 17,046.40 45. THE INCOME TAX PAYABLE BY CARLOS ISA) B) C) D)

P31.32 18,277.72 363.16 8,687.85

46. THE INCOME TAX PAYABLE ON IRENE ISA) P448.29

B) 1,431.45 C) (P983.19) D) NONE 47. MRS. EVAN OWNS A PARCEL OF LAND WORTH P500,000 WHICH SHE INHERITED FROM HER FATHER IN 2006 WHEN IT WAS WORTH P300,000. HER FATHER PURCHASED IT IN 1986 FOR P100,000. IF MRS. EVAN TRANSFERS THIS PARCEL OF LAND FOR HER WHOLLY OWNED CORPORATION IN EXCHANGE FOR SHARES OF STOCKS OF SAID CORPORATION WORTH P450,000. MRS. EVAN’S TAXABLE GAIN IS-(RPCPA) A) B) C) D)

ZERO P50,000 150,000 350,000

48. MR. JOHNNY DELA CRUZ TRANSFERRED HIS COMMERCIAL LAND WITH A COST OF P500,000 BUT WITH A FAIR MARKET VALUE OF P750,000 TO JDC CORPORATION IN EXCHANGE OF THE STOCKS OF THE CORPORATION WITH PAR VALUE OF P1,000,000. AS A RESULT OF THE TRANSFER, HE BECAME THE MAJOR STOCKHOLDER OF THE CORPORATION.-(RPCPA) AS A RESULT OF THE TRANSFER: A) THE RECOGNIZED GAIN IS THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE SHARES OF STOCKS AND THE COST OF THE LAND B) THE RECOGNIZED GAIN IS THE DIFFERENCE BETWEEN THE PAR VALUE OF THE STOCKS AND THE FAIR MARKET VALUE OF THE LAND C) NO RECOGNIZED GAIN BECAUSE THE LAND WAS IN EXCHANGE OF PURELY STOCKS AND MR. JOHNNY DELA CRUZ BECAME THE MAJORITY STOCKHOLDER D) NO RECOGNIZED GAIN BECAUSE THE LAND WAS IN EXCHANGE OF STOCKS OF THE CORPORATION. 49. MR. SANTOS PURCHASED A LIFE ANNUITY FOR P100,000 WHICH WILL PAY HIM P10,000 A YEAR. THE LIFE EXPECTANCY OF MR. SANTOS IS 12 YEARS. WHICH OF THE FOLLOWING WILL MR. SANTOS BE ABLE TO EXCLUDE FROM HIS GROSS INCOME?-(RPCPA) A) B) C) D)

P100,000 10,000 20,000 120,000

50.IF AN INDIVIDUAL PERFORMS SERVICES FOR A CREDITOR WHO IN CONSIDERATION THEREOF CANCELS THE DEBT, THE CANCELLATION OF INDEBTEDNESS MAY AMOUNT-(RPCPA) A) B) C) D)

TO A GIFT TO A CAPITAL CONTRIBUTION TO A DONATION INTER VIVOS TO A PAYMENT OF INCOME

51. MR. AGUILA, AN EMPLOYEE OF FUERTE CORPORATION IS RECEIVING A MONTHLY SALARY (NET OF 10% WHT) OF P18,000. DUE TO AN OUTSTANDING ACCOMPLISHMENT IN JULY 2008, THE CORPORATION GAVE HIM 200 SHARES OF STOCK OF THE CORPORATION WITH A PAR VALUE OF P100 PER SHARE AND A FAIR MARKET VALUE OF P150. THE FAIR VALUE AT THE TIME OF RECEIPT IS P152 PER SHARE. HOW MUCH IS THE INCOME OF MR. AGUILA IN 2008? A) B) C) D)

P50,000 270,400 270,000 240,000

52. CARANCHO IS INDEBTED TO DACUYCUY. DUE TO HIS INABILITY TO PAY THE DEBT, HE WAS ASKED TO CLEAN THE PIGGERY OF THE LATTER FOR THREE MONTHS. THEREAFTER, DACUYCUY GAVE HIM P5,000 AND CONDONED THE DEBT AMOUNTING TO P10,000. HOW MUCH INCOME SHOULD BE DECLARED BY CARANCHO? A) B) C) D)

P5,000 10,000 15,000 NONE

53. REWARDS GIVEN TO PERSONS INSTRUMENTAL IN THE DISCOVERY OF VIOLATION OF THE NATIONAL INTERNAL REVENUE CODE ARE SUBJECT TOA) FINAL TAX OF 10% ON REWARDS COLLECTED B) FINAL TAX OF 10% OF P1,000,000 C) FINAL TAX OF 10% OF REWARDS COLLECTED OR P1,000,000, WHICHEVER IS HIGHER D) FINAL TAX OF 10% OF REWARDS COLLECTED OR P1,000,000, WHICHEVER IS LOWER

54. IN 2008, ALMONTE RECEIVED FROM HIS EMPLOYER A PROMISSORY NOTE WITH A FACE VALUE OF P50,000 FOR SERVICES RENDERED. THE NOTE WILL MATURE IN 2009. HOWEVER, IT CAN BE SOLD TO A BANK AT A DISCOUNT OF 25%. THE EMPLOYER PAID THE PROMISSORY NOTE IN 2009. HOW MUCH TAXABLE INCOME IS TO BE DECLARED BY ALMONTE ON THE PROMISSORY NOTE IN 2008 AND 2009, RESPECTIVELY? A) B) C) D)

P50,000, 50,000 12,500, 37,500 37,500, 12,500 NONE, 50,000

55. USING THE SAME DATA IN NUMBER 54 ABOVE, EXCEPT THAT 50% OF THE FACE VALUE OF THE NOTE IS PAYABLE IN 2009 WHILE THE REMAINING 50% IS PAYABLE IN 2010? HOW MUCH INCOME IS TAXABLE TO ALMONTE IN 2008, 2009 AND IN 2010, RESPECTIVELY? A) B) C) D)

P50,000, NONE, NONE 37,500, 6,250, 6,250 12,500, 18,750, 18,750 0, 25,000, 25,000

56. 2008 NET INCOME BEFORE WRITE-OFF OF BAD DEBT LESS: BAD DEBT WRITTEN OFF NET INCOME AFTER BAD DEBT 2009 AMOUNT RECOVERED

CASE1

CASE2

CASE3

CASE4

70,000

70,000

70,000

70,000

40,000

80,000

55,000

85,000

40,000

(10,000)

15,000

(15,000)

40,000

30,000

40,000

85,000

THE TAXABLE AMOUNT ON THE RECOVERY OF BAD DEBT PREVIOUSLY DEDUCTED, RESPECTIVELY, IS – A) B) C) D)

40,000, 30,000, 40,000, 85,000 40,000, 20,000, 40,000, 70,000 30,000, 30,000, 55,000, 85,000 30,000, 60,000, 25,000, 70,000

57.WHICH OF THE FOLLOWING STATEMENTS IS CORRECT WITH RESPECT TO A LEASEHOLD CONTRACT? STATEMENT I: SECURITY DEPOSITS ARE REPORTABLE AS INCOME OF THE LESSOR IN THE YEAR OF RECEIPT STATEMENT II: THE DEPRECIATION ON THE IMPROVEMENT IS TO BE COMPUTED BY DIVIDING THE COST BY THE LIFE OF THE ASSET OR THE REMAINING TERM OF THE LEASE, WHICHEVER IS LONGER STATEMENT III: PREPAYMENT OF RENTALS BY THE LESSEE ARE TO BE RECORDED BY THE LESSOR USING CASH METHOD EVEN IF IT IS ORDINARILY USING ACCRUAL METHOD OF ACCOUNTING A) B) C) D)

I ONLY I AND II II AND III III ONLY

NUMBERS 58 TO 62 ARE BASED ON THE FOLLOWING INFORMATION: BRYAN LEASED A LAND TO JOSE FOR A PERIOD OF 11 YEARS STARTING JANUARY 1, 2006 AT AN ANNUAL RENTAL OF P12,000. OBSERVING THE PROVISIONS OF THE CONTRACT, JOSE CONSTRUCTED A BUILDING WHICH SHALL BECOME THE PROPERTY OF BRYAN AT THE EXPIRATION OF THE LEASE. THE CONSTRUCTION WAS COMPLETED ON JANUARY 1, 2009 AT A COST OF P1,000,000 WITH AN ESTIMATED USEFUL LIFE OF 20 YEARS. IT IS ALSO STIPULATED IN THE CONTRACT THAT THE LESSEE WILL PAY THE P1,500 ANNUAL REAL PROPERTY TAX ON THE LAND. 58. ASSUMING THAT ON JANUARY 1, 2006, JOSE PAID P24,000 TO BRYAN COVERING THE LEASE CONTRACT FOR 2 YEARS, HOW MUCH INCOME IS TO BE REPORTED BY BRYAN IN 2006? A) B) C) D)

P12,000 13,500 24,000 25,500

59. HOW MUCH INCOME IS TO BE REPORTED BY BRYAN IN 2009 UNDER THE OUTRIGHT METHOD? A) P13,500

B) 1,500 C) 1,013,500 D) 1,000,000 60. HOW MUCH INCOME IS TO BE REPORTED BY BRYAN IN 2009 UNDER THE SPREAD-OUT METHOD? A) B) C) D)

P13,500 1,500 1,013,500 88,500

61. HOW MUCH IS THE DEDUCTIBLE EXPENSE OF THE LESSEE IN 2009? A) B) C) D)

P138,500 63,500 125,000 13,500

62. ASSUMING THAT DUE TO THE FAULT OF THE LESSEE, THE LEASE CONTRACT WAS TERMINATED ON JANUARY 1, 2011, HOW MUCH INCOME IS TO BE REPORTED BY THE LESSOR IN 2011? A) B) C) D)

P763,500 750,000 88,500 1,013,500

NUMBERS 63 TO 69 ARE BASED ON THE FOLLOWING INFORMATION: ARTURO LEASED A 216-SQUARE METER OF IDLE LAND TO LEIZZIE COLLEGE OF BUSINESS (LCB), A PROPRIETARY EDUCATIONAL INSTITUTION, FOR A PERIOD OF 20 YEARS EFFECTIVE JANUARY 1, 2006. THE LEASE CONTRACT PROVIDES THAT LCB WILL ERECT A BUILDING THEREON TO BE USED AS A CLASSROOM , WHICH IT DID ON THE LOT OF ARTURO. THE AGREEMENT PROVIDES ALSO THAT THE BUILDING SHALL BECOME THE PROPERTY OF THE LESSOR AT THE END OF THE LEASE. THE BUILDING WAS COMPLETED ON JUNE 30, 2008 AT A COST OF P1,800,000. THE ESTIMATED LIFE OF THE LEASEHOLD IMPROVEMENT IS 30 YEARS. IT WAS FURTHER AGREED THAT LCB WILL PAY THE REAL ESTATE TAX ON THE LAND ASSESSED AT P3,000 ANNUALLY. ON JANUARY 2, 2006, LCB PAID ARTURO P120,000 CONSISTING OF RENTAL COVERING THE 2 YEARS PERIOD(24 MONTHS) FROM 2006 TO 2007.

63. THE RENT INCOME TO BE REPORTED BY ARTURO IN 2006A) B) C) D)

P60,000 123,000 120,000 63,000

64. THE RENT INCOME TO BE REPORTED BY ARTURO IN 2008 UNDER OUTRIGHT METHODA) P60,000 B) 63,000 C) 1,860,000 D) 1,863,000 65. THE INCOME TO BE REPORTED BY ARTURO UNDER SPREAD-OUT METHODA) B) C) D)

P84,429 105,857 81,429 21,429

66. WHICH OF THE FOLLOWING STATEMENTS IS CORRECT? A) EFFECTIVE JANUARY 1, 2006, THE LAND SHALL BE EXEMPT FROM REAL ESTATE TAX B) EFFECTIVE JUNE 30, 2008, THE LAND SHALL BE EXEMPT FROM REAL ESTATE TAX C) EFFECTIVE JANUARY 1, 2009, THE LAND AND THE BUILDING SHALL BE EXEMPT FROM REAL ESTATE TAX D) EFFECTIVE JUNE 30, 2008 THE LAND AND THE BUILDING SHALL BE EXEMPT FROM REAL ESTATE TAX 67. THE DEDUCTIBLE EXPENSE OF LCB IN 2009A) B) C) D)

P165,857 162,857 114, 429 84,429

68. THE INCOME TO BE REPORTED BY ARTURO IN 2009 UNDER SPREADOUT METHOD ISA) P105,857 B) 102,857 C) 114,429

D) 84,429 69. SUPPOSE THE LEASE CONTRACT WAS TERMINATED ON APRIL 1, 2012 DUE TO THE FAULT OF THE LESSEE, THE INCOME TO BE REPORTED BY ARTURO UNDER SPREAD-OUT METHOD ON 2012 ISA) B) C) D)

P1,443,000 1,485,857 1,440,000 1,482,857

70. ON JANUARY 1, 2006, ATO LEASED A LOT TO BENGBENG WITH A BUILDING ERECTED THEREON FOR A PERIOD OF 10 YEARS. THE LEASE CONTRACT PROVIDED THAT BENGBENG WILL PAY THE FOLLOWING: I. II. III.

MONTHLY RENTAL OF P10,000 FIRE INSURANCE PREMIUM OF P15,000 PER YEAR REAL PROPERTY TAX OF P5,000 PER YEAR

THE LESSEE WILL CONSTRUCT A CONCRETE FENCE SURROUNDING THE LOT AT A COST OF P1,200,000 WITH A USEFUL LIFE OF 20 YEARS WHICH SHALL BELONG TO THE LESSOR AT THE EXPIRATION OF THE LEASE. THE FENCING WAS FINISHED ON JUNE 30, 2008. IN 2008, ATO SHALL REPORT AS INCOME FROM LEASE (SPREAD-OUT METHOD) AN AMOUNT OFA) B) C) D)

P75,000 740,000 140,000 190,000

71. IN NUMBER 70 ABOVE, THE LESSEE CAN CLAIM A DEDUCTIBLE EXPENSE IN 2008 OFA) B) C) D)

P215,000 220,000 225,000 190,000

72. PROCEEDS OF INSURANCE TAKEN BY A CORPORATION ON THE LIFE OF AN EXECUTIVE TO INDEMNIFY IT AGAINST LOSS IN CASE OF HIS DEATH IS-(RPCPA)

A) B) C) D)

EXEMPT FROM INCOME TAX PART OF TAXABLE INCOME SUBJECT TO FINAL TAX PARTLY EXEMPT, PARTLY TAXABLE

73. CORCOR CORPORATION TOOK TWO LIFE INSURANCE POLICIES ON THE LIFE OF ITS EVP, MRS. LOPEZ. IN ONE POLICY, THE BENEFICIARY IS THE CORPORATION AND THE OTHER, DESIGNATES HER HUSBAND AS THE REVOCABLE BENEFICIARY. THE INSURANCE PREMIUM PAID BY CORCOR CORPORATION IS-(RPCPA) A) B) C) D)

TAX DEDUCTIBLE INSOFAR AS THE FIRST POLICY IS CONCERNED TAX DEDUCTIBLE FOR BOTH POLICIES NOT DEDUCTIBLE FOR BOTH POLICIES FIRST POLICY IS NOT DEDUCTIBLE; SECOND POLICY IS DEDUCTIBLE

74. MRS. LUCAS WAS INSURED UNDER AN ENDOWMENT POLICY WITH A VALUE OF P500,000. TOTAL PREMIUMS PAID BY HER DURING THE TERM OF PREMIUM PAYMENTS ON THE POLICY WAS P490,000 FROM THERE WAS A RETURN OF PREMIUMS OF P40,000.AT THE MATURITY OF THE POLICY, MRS. LUCAS RECEIVED P500,000. THE INCOME OF MRS. LUCAS UNDER THE POLICY IS-(RPCPA) A) B) C) D)

ZERO P500,000 10,000 50,000

NUMBERS 75 AND 76 ARE BASED ON THE FOLLOWING INFORMATION: SOFIA TOOK A LIFE INSURANCE FROM SUNSTAR INSURANCE COMPANY, WITH HER HUSBAND NOLI AS THE BENEFICIARY. UNDER THE POLICY, SUNSTAR WILL PAY SOFIA THE AMOUNT OF P500,000 WHEN THE POLICY MATURES, OR TO HER BENEFICIARY HUSBAND IN CASE SHE DIES BEFORE THE MATURITY. SOFIA WILL PAY P10,000 ANNUALLY FOR 20 YEARS. 75. ASSUMING THAT THE POLICY MATURED WHEN SOFIA REACHED 50 YEARS OLD AND SHE RECEIVED THE ENTIRE P500,000 FROM THE INSURER, HOW MUCH INCOME SHOULD SHE REPORT? A) B) C) D)

P500,000 200,000 300,000 NONE

76. ASSUME THAT SOFIA DIED AFTER 10 YEARS OF PAYING PREMIUM. HOW MUCH INCOME SHOULD BE REPORTED TO THE BIR? A) B) C) D)

P500,000 100,000 400,000 NONE

NUMBERS 77 TO 79 ARE BASED ON THE FOLLOWING INFORMATION: PAUL INSURED HIS LIFE WITH AN INSURANCE COMPANY . UNDER THE CONTRACT, HE WILL PAY A MONTHLY PREMIUM OF P2,000 FOR 10 YEARS. IN CASE OF DEATH BEFORE THE 10 TH YEAR, HIS BENEFICIARY WILL RECEIVE AN INDEMNIFICATION IN THE AMOUNT OF P150,000. IF HE IS STILL LIVING ON THE 10TH YEAR, HE WILL RECEIVE THE FACE VALUE OF P500,000. 77. IF PAUL DIES ON THE 5TH YEAR, HIS BENEFICIARY WILL REPORT AN INCOME OFA) B) C) D)

P500,000 150,000 260,000 EXEMPT

78. SUPPOSE PAUL DIES ON THE 5TH YEAR AND HIS BENEFICIARY WAS OFFERED TO RECEIVE P150,000 IN LUMP SUM OR TO RECEIVE IT AT P20,000 A MONTH FOR TEN(10) MONTHS AND THE BENEFICIARY CHOSE THE 2ND OPTION, HE WILL REPORT AN INCOME OFA) B) C) D)

P500,000 150,000 50,000 EXEMPT

79. SUPPOSE PAUL SURVIVED THE POLICY AND WAS ABLE TO RECEIVE P500,000, HE WILL REPORT AN INCOME OFA) B) C) D)

P500,000 260,000 150,000 NONE

80. ANDRES IS THE OWNER AND BENEFICIARY OF A P500,000 POLICY ON THE LIFE OF HIS FATHER. ANDRES SELLS THE POLICY TO HIS

BROTHER ROLLY FOR P150,000. ROLLY SUBSEQUENTLY PAYS PREMIUMS OF P50,000. UPON HIS FATHER’S DEATH, ROLLY MUST A) B) C) D)

INCLUDE P500,000 IN HIS GROSS INCOME EXCLUDE THE ENTIRE PROCEEDS IN HIS GROSS INCOME INCLUDE P300,000 IN HIS GROSS INCOME INCLUDE P350,000 IN HIS GROSS INCOME

81. MR. BASIL INSURED HIS LIFE WITH HIS ESTATE AS BENEFICIARY.IN 2008, AFTER MR. BASIL HAD PAID P65,000 IN PREMIUM, HE ASSIGNED THE POLICY TO MR. JOSE LLAMADO FOR P60,000, AND MR. LLAMADO CONTINUED PAYING THE PREMIUMS. MR. BASIL DIED AND MR. LLAMADO COLLECTED THE TOTAL PROCEEDS OF P200,000. MR. LLAMADO, AFTER THE ASSIGNMENT AND BEFORE MR. BASIL’S DEATH, PAID TOTAL PREMIUMS OF P80,000. AS A RESULT OF THE ABOBE TRANSACTION, MR. LLAMADO-(RPCPA) A) B) C) D)

MAY CONSIDER THE PROCEEDS OF P200,000 AS EXEMPT FROM TAX DERIVED A TAXABLE INCOME OF P55,000 DERIVED A TAXABLE INCOME OF P60,000 ANSWER NOT GIVEN

82. 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 U.S.$60,000 BY THE SPONSOR OF THE TOURNAMENT. HE WAS ALSO GIVEN P250,000 CASH BY SAN MIGUEL CORPORATION AS PRIZE OR AWARD. 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 U.S. $1 IS P45, BINATA REYES SHOULD REPORT AN INCOME OF – A) B) C) D)

P4,750,000 1,500,000 1,750,000 3,250,000

83. WHILE CROSSING ALONG THE INTERSECTION OF LEGARDA AND RECTO AVENUE, MISS MINA MALAS WAS BUMPED BY A PASSENGER JEEPNEY. AS A CONSEQUENCE OF THE ACCIDENT, SHE WAS HOSPITALIZED FOR 20 DAYS. THE DRIVER AND THE OPERATOR OF

THE PASSENGER JEEPNEY PAID HER A TOTAL AMOUNT OF P135,000 FOR THE FOLLOWING EXPENSES THAT SHE INCURRED: HOSPITAL BILLS COST OF MEDICINES MORAL DAMAGES FOR MENTAL ANGUISH AND OTHERS

P60,000 15,000 60,000

SHE ALSO RECEIVED P20,000 AS SETTLEMENT OF A LIBEL CASE THAT SHE FILED AGAINST A TV STATION WHICH ANNOUNCED THAT SHE WAS PREGNANT AT THE TIME OF THE ACCIDENT AND THAT THE FETUS WAS ABORTED. THE INCOME TO BE REPORTED BY MINA ISA) B) C) D)

ZERO P20,000 60,000 155,000

84. MR. MONTES WAS INJURED IN A VEHICULAR ACCIDENT IN 2008. HE INCURRED AND PAID MEDICAL EXPENSES OF P20,000 AND LEGAL FEES OF P10,000 DURING THE YEAR. IN 2009, HE RECEIVED P70,000 AS SETTLEMENT FROM THE INSURANCE COMPANY WHICH INSURED THE CAR OWNED BY THE OTHER PARTY INVOLVED IN THE ACCIDENT. FROM THE ABOVE PAYMENTS AND TRANSACTIONS, THE AMOUNT OF TAXABLE INCOME OF MR. MONTES IN 2008 IS-(RPCPA) A) B) C) D)

ZERO P40,000 70,000 50,000

85. AN ACCIDENT ATTRIBUTED TO THE NEGLIGENCE OF THE DRIVER OF SUPERMAN LINES RESULTED IN THE DEATH OF RICHARD’S WIFE, PHYSICAL INJURIES TO RICHARD THAT PREVENTED HIM FROM WORKING FOR TWO(2) MONTHS AND THE TOTAL WRECK OF HIS BRAND NEW CAR WHICH HE HAD BOUGHT FOR P450,000. IN AN ACTION FOR DAMAGES, THE COURT AWARDED TO RICHARD THE FOLLOWING: P40,00040,00080,000-

INJURIES TO RICHARD CONSISTING MAINLY IN THE LOSS OF THE LEFT LEG TWO MONTHS SALARY OF RICHARD FOR THE DEATH OF HIS WIFE

100,000600,000-

MORAL DAMAGES FOR THE PHYSICAL SUFFERING AND MENTAL ANGUISH FOR THE LOSS OF HIS CAR, THE VALUE OF WHICH HAD INCREASED

BASED ON THE FOREGOING, RICHARD SHOULD REPORT INCOME OFA) B) C) D)

P190,000 680,000 830,000 240,000

86. LYDIA WAS HIT BY A WAYWARD BUS WHILE ON HER WAY HOME. SHE SURVIVED BUT HAD TO PAY P150,000 FOR HER HOSPITALIZATION. SHE WAS UNABLE TO WORK FOR SIX(6) MONTHS WHICH MEANT THAT SHE DID NOT RECEIVE HER USUAL SALARY OF P10,000 A MONTH OR A TOTAL OF P60,000. SHE SUED THE BUS COMPANY AND WAS ABLE TO OBTAIN A FINAL JUDGMENT AWARDING HER P150,000 AS REIMBURSEMENT FOR HER HOSPITALIZATION, P60,000 FOR THE SALARIES SHE FAILED TO RECEIVE WHILE HOSPITALIZED, AND P250,000 AS MORAL DAMAGES FOR HER PAIN AND SUFFERING. SHE WAS ABLE TO COLLECT IN FULL FROM THE JUDGMENT. HOW MUCH INCOME DID SHE REALIZE WHEN SHE COLLECTED FROM THE JUDGMENT? A) B) C) D)

P460,000 250,000 60,000 400,000

87. SAMSONA WAS INJURED IN A VEHICULAR ACCIDENT IN 2007. SHE INCURRED AND PAID HOSPITAL EXPENSES OF P30,000 AND LEGAL FEES OF P15,000 DURING THAT YEAR. IN 2008, SHE RECEIVED P40,000 AS SETTLEMENT FROM THE INSURANCE COMPANY WHICH INSURED THE CAR OWNED BY DIMAR, THE OTHER PARTY INVOLVED IN THE ACCIDENT. FROM THE ABOVE PAYMENTS AND TRANSACTIONS, THE AMOUNT OF INCOME TAXABLE TO SAMSONA ISA) B) C) D)

P40,000 IN 2008 5,000 IN 2008 5,000 IN 2007 NONE

88. WHICH OF THE FOLLOWING IS A TAXABLE INCOME?-(RPCPA) A) B) C) D)

INCOME FROM QUALIFIED PENSION PLAN COM;PENSATION FOR PERSONAL INJURIES MORAL DAMAGES INTEREST ON MORAL DAMAGES

89. MISS TUAZON HAD RECENTLY JOINED MMC AS SALES EXECUTIVE. SHE WAS ADVISED TO BE RETRENCHED BECAUSE THE COMPANY WAS LOSING HEAVILY, BUT THAT SHE WOULD BE GIVEN A SUBSTANTIAL SEPARATION PAY. THE GENERAL MANAGER, HOWEVER, SUGGESTED TO MISS TUAZON TO FILE A LETTER OF RESIGNATION FROM THE COMPANY, INSTEAD OF HAVING BEEN INVOLUNTARILY SEPARATED AS THE LATTER WOULD HAVE IMPLICATIONS OF INEFFICIENCY ON HER PART. MISS TUAZON CHOSE TO RESIGN FROM THE COMPANY AND RECEIVED THE SUM OF P100,000 AS SEPARATION PAY. THE ABOVE AMOUNT IS-(RPCPA) A) B) C) D)

EXEMPT FROM INCOME TAX TAXABLE IN FULL NON-DEDUCTIBLE EXPENSE ON THE PART OF THE COMPANY PARTIALLY TAXABLE

90. LETTY, AN OFFICIAL OF SAMPAGUITA CORPORATION ASKED FOR AN EARLIER RETIREMENT BECAUSE SHE WAS EMIGRATING TO CANADA. SHE WAS PAID P1 MILLION AS A SEPARATION PAY IN RECOGNITION OF HER VALUABLE SERVICES TO THE CORPORATION. SHANE, ANOTHER OFFICIAL OF THE SAME COMPANY WAS SEPARATED FOR OCCUPYING A REDUNDANT POSITION. SHE WAS GIVEN P500,000 AS SEPARATION PAY. SHEILA WAS SEPARATED DUE TO HER FAILING EYESIGHT. SHE WAS GIVEN P250,000 AS SEPARATION PAY. ALL OF THE THREE(3) WERE NOT QUALIFIED TO RETIRE UNDER THE BIRAPPROVED PENSION PLAN OF THE CORPORATION. Q1: IS THE SEPARATION PAY GIVEN TO LETTY SUBJECT TO INCOME TAX? Q2: HOW ABOUT THE SEPARATION PAY RECEIVED BY SHANE? Q3: HOW ABOUT THE SEPARATION PAY RECEIVED BY SHEILA? A) YES TO ALL QUESTIONS B) YES TO 2ND QUESTION

C) NO TO ALL QUESTIONS D) NO TO 2ND AND 3RD QUESTIONS 91. DURING THE YEAR, BEN RECEIVED A COCONUT LAND FROM HIS MOTHER BY WAY OF AN INTER-VIVOS DONATION. THE LAND HAD A MARKET VALUE OF P700,000 AND EARNING AN AVERAGE ANNUAL INCOME OF P50,000. IN THE SAME YEAR, HIS MOTHER DIED. HE INHERITED A PASSENGER BUS VALUED AT P400,000 AND A RESIDENTIAL HOUSE WORTH P2,000,000. THE BUS EARNED A TOTAL INCOME OF P30,000 IN THE HANDS OF BEN. AS A CONSEQUENCE OF HIS MOTHER’S DEATH, HE RECEIVED P400,000 FROM AN INSURANCE COMPANY AS PROCEEDS OF AN INSURANCE POLICY TAKEN BY HIS MOTHER WHO APPOINTED HIM AS THE BENEFICIARY. THE TOTAL PREMIUMS PAID WAS P150,000. THE INCOME SUBJECT TO TAX ISA) B) C) D)

P3,500,000 3,350,000 330,000 80,000

92. AFTER WORKING FOR 30 YEARS AT STO. DOMINGO CORPORATION, MISS TAPIA RETIRED FROM EMPLOYMENT AT THE AGE OF 60. SHE RECEIVED P600,000 AS RETIREMENT PAY FROM THE PRIVATE RETIREMENT PLAN MAINTAINED BY THE EMPLOYER. OTHER THAN HER RETIREMENT BENEFITS, SHE ALSO RECEIVED HER ENDOWMENT INSURANCE POLICY IN THE AMOUNT OF P400,000 WHICH SHE WAS PAYING FOR 20 YEARS AT AN ANNUAL PREMIUM OF P5,000. HOW MUCH INCOME MUST BE REPORTED BY MISS TAPIA? A) B) C) D)

P300,000 400,000 600,000 NONE

93. ANTONY WAS HIRED AS STAFF AUDITOR OF RGF AND COMPANY IN 1991. IN DECEMBER 1998 HE TRANSFERRED TO BAYAN AND ASSOCIATES. IN 2000, HE RETURNED BACK TO RGF AND COMPANY UNTIL HIS RETIREMENT IN 2006 AT THE AGE OF 55.

QUESTION 1: ARE THE RETIREMENT BENEFITS TAXAB LE TO ANTONY? QUESTION 2: SUPPOSE HE WAS TERMINATED FROM EMPLOYMENT DUE TO DISHONESTY. IS THE SEPARATION PAY TAXABLE TO ANTONY? QUESTION 3: SUPPOSE HE WAS TERMINATED FROM EMPLOYMENT DUE TO THE MERGER OF THE TWO AUDIT FIRMS. WILL THE SEPARATION PAY TAXABLE TO ANTONY? A) B) C) D)

NO, YES, NO NO, YES, YES YES, NO, NO YES, NO, YES

94. ON OCTOBER 1, 2009, GILDA INHERITED PROPERTIES WORTH P3,000,000 FROM HER MOTHER. THE PROPERTIES ARE EARNING INCOME OF P90,000 A MONTH. HOW MUCH INCOME IS TO BE REPORTED BY GILDA IN 2009? A) B) C) D)

P3,090,000 3,000,000 3,270,000 270,000

95. VILLAMOR, AN EMPLOYEE OF A COOPERATIVE WAS REGULARLY RECEIVING A MONTHLY SALARY AND ALLOWANCE OF P3,500 AND P1,000, RESPECTIVELY. ON JUNE 1, 2008, HE WAS RETRENCHED BY THE COOPERATIVE PAYING HIM A SEPARATION PAY OF P125,000. HE DECIDED TO USE THIS MONEY IN BUYING TRIMOBILE. FOR SIX(6) MONTHS, HE EARNED A NET INCOME OF P24,000. HOW MUCH INCOME SHOULD VILLAMOR DECLARE IN 2008 FOR INCOME TAX PURPOSES? A) B) C) D)

P48,750 46,500 173,750 171,000

96. RAMONA MONTERO WAS RETIRED BY HER EMPLOYERCORPORATION IN 2008 AND PAID P2,000,000 AS A RETIREMENT GRATUITY WITHOUT ANY DEDUCTION OF WITHHOLDING TAX. THE CORPORATION BECAME BANKRUPT IN 2007. CAN THE BIR SUBJECT THE P2,000,000 RETIREMENT GRATUITY TO INCOME TAX?-(RPCPA) 1ST ANSWER: NO, IF THE RETIREMENT GRATUITY WAS PAID BASED ON A REASONABLE PENSION PLAN WHERE MONTERO WAS 60 YEARS OLD

AND HAS SERVED THE CORPORATION FOR 9 YEARS. 2ND ANSWER: YES, IF MONTERO WAS FORCED BY THE CORPORATION TO RESIGN DUE TO RETRENCHMENT. A) B) C) D)

BOTH ANSWERS ARE WRONG BOTH ANSWERS ARE CORRECT FIRST ANSWER IS CORRECT, THE SECOND IS WRONG FIRST ANSWER IS WRONG, THE SECOND IS CORRECT.

97. WHICH OF THE CEILINGS ON THE FOLLOWING DE MINIMIS BENEFITS IS CORRECT? A) B) C) D)

RICE SUBSIDY P1,000 1,000 1,500 1,500

UNIFORM ALLOWANCE P3,000 4,000 3,500 4,000

98. 1ST STATEMENT:: LAUNDRY ALLOWANCE NOT EXCEEDING P300 PER MONTH IS NOT EXEMPT DE MINIMIS BENEFIT IF GIVEN TO RANK-AND-FILE EMPLOYEES 2ND STATEMENT: RICE SUBSIDY OF P1,500 PER MONTH IS AN EXEMPT DE MINIMIS BENEFIT REGARDLESS OF WHETHER THE RECIPIENT EMPLOYEE IS OCCUPYING A MANAGERIAL POSITION OR NOT A) BOTH STATEMENTS ARE WRONG B) BOTH STATEMENTS ARE CORRECT C) THE FIRST STATEMENT IS CORRECT; THE SECOND STATEMENT IS WRONG D) THE FIRST STATEMENT IS WRONG; SECOND STATEMENT IS CORRECT 99. AFTER WORKING FOR 3O YEARS AND DUE TO OLD AGE, RAFFY RETIRED FROM HIS EMPLOYMENT ON DECEMBER 31, 2008 AS A RANK-AND-FILE EMPLOYEE OF TUMAGAY CORPORATION. AS A CONSEQUENCE OF HIS RETIREMENT, HE RECEIVED THE FOLLOWING FROM HIS EMPLOYER: SALARY FOR 2008 CHRISTMAS GIFT ANNIVERSARY BONUS LOYALTY AWARD RETIREMENT PAY

P250,000 25,000 2,500 10,000 750,000

BASED ON THE ABOVE DATA, THE AMOUNT SUBJECT TO TAX OF RAFFY ISA) B) C) D)

P250,000 257,500 252,500 1,037,500

NUMBERS 100 AND 101 ARE BASED ON THE FOLLOWING INFORMATION: RICKY HAD THE FOLLOWING DATA FROM HIS EMPLOYMENT IN 2008: MONTHLY SALARY TAXES WITHHELD PAG-IBIG CONTRIBUTIONS UNION DUES PHILHEALTH CONTRIBUTIONS SSS PREMIUMS 13TH MONTH PAY MID-YEAR BONUS ;LOYALTY AWARD

P12,000 8,000 1,500 2,400 720 480 12,000 12,000 5,000

100. THE PORTION OF COMPENSATION WHICH IS EXCLUDED FROM THE GROSS COMPENSATION INCOME IF RICKY IS A RANK-AND-FILE EMPLOYEE ISA) B) C) D)

P5,100 34,100 29,000 NONE

101. A) B) C) D)

THE GROSS COMPENSATION INCOME OF RICKY IN 2008 IS-

P144,000 150,000 109,900 138,900

102. WHICH OF THE FOLLOWING COMPENSATION PAYMENTS TO A MINIMUM WAGE EARNER IS SUBJECT TO INCOME TAX? A) B) C) D)

HOLIDAY PAY OVERTIME PAY NIGHT SHIFT DIFFERENTIAL PAY NONE OF THE ABOVE

103.

THREE(3) TAXPAYERS HAVE THE FOLLOWING DATA:

2009 BASIC PAY MONTHLY BASIC PAY HOLIDAY PAY OVERTIME PAY HAZARD PAY NIGHT SHIFT DIFF PAY TOTAL PAY FOR THE MONTH

ALCANZO P99,048 8,254 435 1,256 -

BARRIENTOS P101,172 8,431 1,459 1,686

CORPORAL P84,368 10,546 2,543 1,000 -

9,945

11,576

14,089

WHO OF THE ABOVE TAXPAYER(S) IS/ARE EXEMPT FROM INCOME TAX? A) B) C) D)

ALCANZO ONLY ALCANZO AND BARRIENTOS ALCANZO, BARRIENTOS AND CORPORAL BARRIENTOS AND CORPORAL

CHAPTER 12- INCOME TAX OF CORPORATIONS MULTIPLE CHOICE 104. FOR PURPOSES OF INCOME TAXATION, WHICH OF THE FOLLOWING IS NOT CONSIDERED AS A CORPORATION? A) B) C) D)

GENERAL PROFESSIONAL PARTNERSHIP BUSINESS PARTNERSHIP UNREGISTERED PARTNERSHIP JOINT STOCK COMPANIES

105. WHICH OF THE FOLOWING BUSINESSES IS NOT TAXABLE AS A CORPORATION? A) ANDREA, BARBIE AND CRISSY CONTRIBUTED P500,000 EACH AND OPENED UP A DEPARTMENT STORE IN THE DOWNTOWN. THEY AGREED THAT WHATEVER NET PROFIT IS EARNED WILL BE DISTRIBUTED EQUALLY TO THEM. THEY DID NOT BOTHER TO REGISTER THE BUSINESS WITH THE SECURITIES AND EXCHANGE COMMISSION B) GIGI AND JAYJAY, TWO SENIOR STAFF AUDITORS OF A BIG ACCOUNTING AND AUDITING FIRM, RESIGNED FROM THEIR JOB AND ORGANIZED A NEW FIRM WHICH THEY NAMED AS GIGI, JAYJAY AND COMPANY, CPAs.

C) LAVINIA, DORINA, ROSA MIA AND CAPICAT FORMED A BUSINESS ORGANIZATION WITH THE FOLLOWING AGREED FEATURES: 1) THEY ARE DEPRIVED OF THEIR GENERAL AGENCY TO ACT ON BEHALF OF THEIR VENTURES; 2) THE POWERS OF MANAGEMENT ARE VESTED ON THE BOARD OF TRUESTEES; 3) THE OWNERSHIP IS REPRESENTED IN TRANSFERABLE CERTIFICATES; 4) THE BUSINESS CONTINUES FOR A FIXED TERM NOTWITHSTANDING THE DEATH OR DISABILITY OF ONE OF THEM AND ; 5) THE LIABILITY OF THE PARTNERS IS NOT LIMITED TO THEIR CONTRIBUTIONS D) A GROUP OF FIVE(5) ENTREPRENEURS HAD ORGANIZED, FILED AND REGISTERED THE ARTICLES OF INCORPORATION OF COJANGKUHA CORPORATION. IT HAS AN AUTHORIZED CAPITAL STOCK OF P10 MILLION DIVIDED INTO 100,000 SHARES EACH SHARE HAVING A PAR VALUE OF P100 106. A) B) C) D)

WHICH OF THE FOLLOWING IS SUBJECT TO INCOME TAX?

SSS AND GSIS PHILIPPINE HEALTH INSURANCE CORPORATION(PHIC) PROFESSIONAL REGULATION COMMISSION(PRC) PHILIPPINE AMUSEMENT AND GAMING CORPORATION(PAGCOR)

107. “TAXABLE NET INCOME RECEIVED DURING EACH YEAR FROM ALL SOURCES” IS THE TAX BASE FOR INCOME PURPOSES OF THIS CLASS OF TAXPAYERS-(RPCPA) A) DOMESTIC CORPORATIONS B) RESIDENT CORPORATIONS C) RESIDENT FOREIGN CORPORATIONS ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES D) RESIDENT FOREIGN CORPORATION NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES 108. A) B) C) D)

ONE OF THE FOLLOWING IS TAXED ON GROSS INCOME-

DOMESTIC CORPORATION RESIDENT FOREIGN CORPORATION NON-PROFIT CEMETERY NON-RESIDENT FOREIGN CORPORATION

109. RGF CORPORATION, A DOMESTIC CORPORATION HAS THE FOLLOWING RECORDS OF INCOME AND EXPENSES IN 2009: GROSS INCOME, NET OF 1% WHT EXPENSES RENT INCOME, NET OF 5% WHT

P1,435,500 756,000 136,800

EXPENSES ON RENT DIVIDEND FROM DOMESTIC CORPORATION ROYALTY INTEREST FROM BANK DEPOSIT WITH PNB, GROSS OF TAX

34,600 25,000 80,000 15,000

THE INCOME TAX PAYABLE BY RGF CORPORATION ISA) B) C) D)

P241,020 219,320 803,400 259,490

110. BASED ON THE DATA IN NUMBER 109 ABOVE, THE TOTAL FINAL TAXES PAYABLE ON RGF CORPORATION ISA) B) C) D)

P19,000 21,500 33,250 3,000

111. LCY CORPORATION, A CORPORATION ENGAGED IN BUSINESS IN THE PHILIPPINES AND ABROAD, HAS THE FOLLOWING DATA IN 2009: GROSS INCOME, PHILIPPINES EXPENSES, PHILIPPINES GROSS INCOME, USA EXPENSES, USA INTEREST ON BANK DEPOSIT

P975,000 750,000 770,000 630,000 25,000

THE INCOME TAX DUE IF THE CORPORATION IS-

A) B) C) D)

DOMESTIC

RESIDENT FOREIGN

NON-RESIDENT FOREIGN

P116,800 127,750 312,000 109.500

P72,000 78,750 515,850 67,500

P320,000 350,000 116,800 300,000

112. FLT CORPORATION, A DOMESTIC CORPORATION HAS THE FOLLOWING RECORD OF INCOME AND EXPENSES DURING THE YEAR:

GROSS INCOME EXPENSES DIVIDEND FROM A RESIDENT FOREIGN CORPORATION ROYALTIES, PHILIPPINES ROYALTIES, USA INTEREST ON TIME DEPOSIT WITH METROBANK INTEREST ON MONEY MARKET PLACEMENT

P1,540,000 654,000 95,000 230,000 175,000 18,000 25,000

THE TAXABLE INCOME ON FLT CORPORATION ISA) B) C) D)

P886,000 1,156,000 641,000 616,000

113. ISA) B) C) D)

THE TOTAL FINAL WITHHOLDING TAX ON FLT CORPORATION

P51,475 72,600 103,120 148,100

NUMBERS 114 TO 117 ARE BASED ON THE FOLLOWING INFORMATION: GCF CORPORATION WHICH STARTED WITH ITS OPERATIONS IN 1990 HAS THE FOLLOWING RECORDS IN 2009: IST QTR P500,000 400,000

GROSS PROFIT EXPENSES DIVIDENDDOMESTIC COMPANY 15,000 INCOME TAX WITHHELD 5,000 RENT INCOME, GROSS OF 5% WHT 36,000

2ND QTR P850,000 770,000

3RD QTR P800,000 640,000

4TH QTR P770,000 575,000

15,000 7,000

20,000 8,000

20,000 6,750

36,000

48,000

48,000

THE COMPANY HAD AN EXCESS PAYMENT OF P12,500 IN 2008 FROM WHICH IT HAD DECIDED TO CLAIM TAX CREDIT 114. THE INCOME TAX PAYABLE AT THE END OF THE FIRST QUARTER ISA) P40,800 B) 36,720

C) 28,300 D) 21,500 115. THE INCOME TAX PAYABLE AT THE END OF THE SECOND QUARTER ISA) B) C) D)

P19,200 28,320 31,800 26,000

116. THE INCOME TAX PAYABLE AT THE END OF THE THIRD QUARTER ISA) B) C) D)

P52,000 62,400 12,640 NONE

117. THE INCOME TAX PAYABLE/REFUND AT THE END OF THE YEAR ISA) B) C) D)

P25,090 63,750 75,900 68,610

118. ABC COMPANY, A DOMESTIC CORPORATION HAS THE FOLLOWING DATA-(RPCPA) INCOME TAX FOR 2008 LESS: TAX CREDITS EXCESS TAX CREDITS

P110,000 125,000 15,000

2009 INCOME NET OF 1% WHT DEDUCTIONS

1ST QTR P495,000 460,000

FOR THE 1ST QUARTER OF 2009, THE CORPORATION WILL REPORT: A) B) C) D)

EXCESS TAX CREDIT OF P6,000 TAX PAYABLE OF P7,000 EXCESS TAX CREDIT OF P8,000 TAX PAYABLE OF P2,000

119.

A DOMESTIC CORPORATION HAS THE FOLLOWING DATA:

EXCESS TAX CREDITS FROM 2008

P15,000

FOR THE YEAR 2009: INCOME, NET OF 1% WHT DEDUCTIONS

1ST QTR P495,000 460,000

2ND QTR P792,000 700,000

HOW MUCH IS THE INCOME TAX STILL DUE AND PAYABLE IN THE SECOND QUARTER?-(RPCPA) A) B) C) D)

P21,000 14,000 10,400 29,440

120. IF THE GROSS INCOME FROM UNRELATED ACTIVITY EXCEEDS 50% OF THE TOTAL GROSS INCOME DERIVED BY ANY PRIVATE EDUCATIONAL INSTITUTION, THE RATE SHALL BE 30% BASED ON THE ENTIRE TAXABLE INCOME. THIS PRINCIPLE IS KNOWN AS A) B) C) D)

CONSTRUCTIVE RECEIPT TAX BENEFIT RULE END RESULT DOCTRINE PREDOMINANCE TEST

121. IN 2009, RGF UNIVERSITY, A PROPRIETARY EDUCATIONAL INSTITUTION REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) AND COMMISSION ON HIGHER EDUCATION(CHED), SPENT P15,000,000 FOR THE CONSTRUCTION OF A NEW BUILDING. FOR INCOME TAX PURPOSES, THE AMOUNT MAYBE: A) CLAIMED ENTIRELY AS DEDUCTION FROM ITS 2007 GROSS INCOME B) CLASSIFIED AS AN ASSET OR EXPENSED OUTRIGHT, AT THE OPTION OF THE GOVERNMENT C) CLASSIFIED AS AN ASSET OR EXPENSED OUTRIGHT, AT THE OPTION OF THE TAXPAYER D) CLASSIFIED AS AN ASSET AND CLAIM AN ANNUAL DEPRECIATION OVER THE LIFE OF THE BUILDING

NUMBERS 122 AND 123 ARE BASED ON THE FOLLOWING INFORMATION: THE QUEZON SCHOOL OF BUSINESS AND ARTS (QSBA) IS A PRIVATE EDUCATIONAL INSTITUTION RECOGNIZED BY THE GOVERNMENT. THE FOLLOWING ARE THE FINANCIAL DATA FOR THE ITS FISCAL YEAR ENDING JUNE 30, 2009: TUITION FEES MISCELLANEOUS FEES INTEREST ON BANK DEPOSITS RENT INCOME OF SCHOOL FACILITIES TO OUTSIDERS SALARY AND BONUSES, ALL PERSONNEL OTHER OPERATING EXPENSES REPAYMENT OF LOAN QUARTERLY (THREE QUARTERS) INCOME TAX PAID

P12,800,000 1,800,000 12,300 350,000 7,500,000 3,500,000 400,000 48,000

A BUILDING WAS CONSTRUCTED ON APRIL 2, 2009 AT A COST OF P2,000,000 WITH A DEPRECIABLE LIFE OF 50 YEARS. 122. ASSUMING THE COST OF CONSTRUCTION IS TREATED AS AN EXPENSE, THE INCOME TAX PAYABLE BY THE SCHOOL FOR THE YEAR ENDED JUNE 30, 2009 ISA) B) C) D)

P343,000 147,000 576,000 160,000

123. THE INCOME TAX PAYABLE IF THE COST OF BUILDING CONSTRUCTION IS CAPITALIZED: A) B) C) D)

P346,000 147,000 1,203,200 345,667

124. IN 2009, PROSPEROUS CORPORATION, A DOMESTIC CORPORATION, HAD A NET INCOME OF P2,000,000. IT PAID A CORPORATE TAX OF 30% LEAVING A DISTRIBUTABLE INCOME OF P1,400,000. IF A DIVIDEND IS DECLARED BY THE CORPORATION AND RECEIVED BY THE FOLLOWING STOCKHOLDERS, WHICH OF THE FOLLOWING STATEMENTS IS FALSE? A) NON-RESIDENT ALIENS ENGAGED IN TRADE OR BUSINESS ARE LIABLE TO PAY 30% DIVIDEND TAX

B) NON-RESIDENT ALIENS NOT ENGAGED IN TRADE OR BUSINESS ARE LIABLE TO PAY 25% DIVIDEND TAX C) RESIDENT CITIZENS ARE LIABLE TO PAY 10% DIVIDEND TAX D) RESIDENT FOREIGN CORPORATIONS ARE EXEMPT FROM THE PAYMENT OF DIVIDEND TAX 125. DIVIDENDS FROM A DOMESTIC CORPORATION AND/OR SHARE IN THE NET INCOME OF A TAXABLE PARTNERSHIP RECEIVED BY A CITIZEN DURING THE YEAR 2009 IS SUBJECT TO A FINAL TAX OF(RPCPA) A) B) C) D)

ZERO 30% 20% 10%

126. THE TY CORPORATION IS AN INTERNATIONAL CARRIER DOING BUSINESS IN THE PHILIPPINES. ITS TAXABLE BASE FOR INCOME TAX PURPOSES IS-(RPCPA) A) B) C) D)

GROSS PHILIPPINE BILLINGS GROSS PHILIPPINE BILLINGS MINUS DEDUCTIBLE EXPENSES REGULAR RATES OF 32% OF ITS NET TAXABLE INCOME ALLOCATION OF INCOME FROM SOURCES WITHIN AND WITHOUT THE PHILIPPINES, AS WELL AS EXPENSES

127. A RESIDENT INTERNATIONAL CARRIER HAS THE FOLLOWING DATA FOR THE CURRENT YEAR: GROSS INCOME OF P700,000 AND EXPENSES OF P200,000 FROM THE PHILIPPINES; GROSS INCOME OF P500,000 AND EXPENSES OF P100,000 FROM HONGKONG. HOW MUCH IS THE TAX PAYABLE OF THE CORPORATION?-(RPCPA) A) B) C) D)

P288,000 17,500 160,000 30,000

128. A) B) C) D)

ONE OF THE FOLLOWING IS EXEMPT FROM INCOME TAX

PROPRIETARY EDUCATIONAL INSTITUTION PRIVATE CEMETERIES GOVERNMENT EDUCATIONAL INSTITUTIONS MUTUAL SAVINGS BANK

129. ON FEBRUARY 5, 2009, ZORRO CORPORATION DECLARES 20% STOCK DIVIDEND AND ISSUED SHARES OF STOCKS AMOUNTING TO

P100,000. ON MARCH 20, 2009, THE CORPORATION REDEEMED THE STOCK DIVIDEND BY VIRTUE OF WHICH THE STOCKHOLDERS SURRENDERED THEIR STOCK CERTIFICATES IN RETURN FOR THE CASH PAID TO THEM BY ZORRO CORPORATION IN THE AMOUNT OF P100,000. A) THE STOCK DIVIDENDS DECLARED ARE TAXABLE BECAUSE GENERALLY, STOCK DIVIDENDS ARE SUBJECT TO INCOME TAX B) THE DIVIDENDS ARE TAXABLE TO THE STOCKHOLDERS BECAUSE THEY ARE ACTUALLY PROPERTY DIVIDENDS. C) THE REDEMPTION OF THE STOCK DIVIDEND IS ESSENTIALLY EQUIVALENT TO THE DISTRIBUTION OF A TAXABLE DIVIDEND. HENCE, THE AMOUNT SO DISTRIBUTED IN REDEMPTION SHALL BE CONSIDERED AS TAXABLE INCOME D) THE DISTRIBUTION AND THE REDEMPTION OF THE STOCKS ARE NOT TAXABLE BECAUSE STOCK DIVIDENDS ARE EXEMPT FROM INCOME TAX 130. IF A CORPORATION DISTRIBUTES ITS ASSETS TO ITS STOCKHOLDERS UPON DISSOLUTION, THIS KIND OF CORPORATE DISTRIBUTION WILL RESULT IN-(RPCPA) A) B) C) D)

STOCK DIVIDENDS PROPERTY DIVIDENDS CASH DIVIDENDS LIQUIDATING DIVIDENDS

131. IF A CORPORATION TO WHICH THE STOCKHOLDER IS INDEBTED FORGIVES THE DEBT, THE TRANSACTION HAS THE EFFECT OF A PAYMENT OF WHAT KIND OF DIVIDEND?-(RPCPA) A) B) C) D)

STOCK DIVIDEND CASH DIVIDEND LIQUIDATING DIVIDEND INDIRECT DIVIDEND

SPECIAL TOPIC-MINIMUM CORPORATE INCOME TAX 132. ON-

THE MINIMUM CORPORATE INCOME TAX (MCIT) IS IMPOSED

A) 2% OF GROSS INCOME B) 10% OF GROSS INCOME C) 5% OF GROSS INCOME

D) 15% OF GROSS INCOME 133. ON-

THE MINIMUM CORPORATE INCOME TAX (MCIT) IS IMPOSED

A) PROPRIETARY EDUCATIONAL CORPORATIONS TAXABLE AT 10% OF GROSS INCOME B) DEPOSITARY BANKS UNDER THE EXPANDED FOREIGN CURRENCY DEPOSIT SYSTEM C) BUSINESS PARTNERSHIPS D) OFFSHORE BANKING UNITS SUBJECT TO FINAL TAX OF 10% 134. THE IMPOSITION OF MINIMUM CORPORATE INCOME TAX SHALL NOT BE SUSPENDED WHENEVER THE CORPORATION SUFFERS LOSSES DUE TO A) B) C) D)

PROLONGED LABOR DISPUTE FORCE MAJEURE LEGITIMATE BUSINESS REVERSES MISMANAGEMENT

135. A CORPORATION WHICH WAS REGISTERED WITH THE BUREAU OF INTERNAL REVENUE IN MAY, 2002 SHALL BE COVERED BY MCIT IN A) B) C) D)

2005 2006 2008 2009

136. WATCHOUT CORPORATION WHICH COMMENCED BUSINESS OPERATIONS IN 2000 HAS A GROSS INCOME OF P632,000 AND ALLOWABLE DEDUCTIONS OF P610,000 IN 2009. ITS INCOME TAX PAYABLE DURING THE YEAR ISA) B) C) D)

P7,700 7,040 6,660 12,640

137.

MAEKIS CORPORATION HAS THE FOLLOWING DATA:

SALES COST OF SALES OPERATING EXPENSES

2009 1,700,000 1,050,000 615,000

2010 2,300,000 1,425,000 480,000

THE INCOME TAX PAYAB LE IN 2009 ISA) B) C) D)

P13,000 12, 250 35,000 10,500

138. IN NUMBER 137, THE INCOME TAX PAYABLE BY MAEKIS CORPORATION IN 2010 ISA) B) C) D)

P117,750 17,500 116,000 137,500

139. IN NUMBER 137 ABOVE, THE JOURNAL ENTRY IN 2009 TO RECORD EXCESS MCIT ISA) DEFERRED CHARGES-MCIT-(13,000-10,500) INCOME TAX PAYABLE B) DEFERRED CHARGES-MCIT INCOME TAX PAYABLE C) PROVISION FOR INCOME TAX INCOME TAX D) INCOME TAX PAYABLE CASH

2,500 2,500 13,000 13,000 11,200 11,200 13,000 13,000

140. IN NUMBER 137 ABOVE, THE ACCOUNTING ENTRY IN 2010 TO RECORD THE CARRY FORWARD OF EXCESS MCIT AGAINST NORMAL INCOME TAX LIABILITY IN 2009 ISA) DEFERRED CHARGES-MCIT INCOME TAX PAYABLE B) PROVISION FOR INCOME TAX INCOME TAX PAYABLE C) INCOME TAX PAYABLE DEFERRED CHARGES-MCIT D) RETAINED EARNINGS DEFERRED CHARGES-MCIT

1,800 1,800 124,500 124,500 2,500 2,500 1,800 1,800

141. STATEMENT 1:IF THE QUARTERLY INCOME TAX IS BASED ON MCIT, THE EXCESS MCIT FROM THE PREVIOUS TAXABLE YEAR/S SHALL NOT BE ALLOWED TO BE CREDITED

STATEMENT 2: EXPANDED WITHHOLDING TAX, QUARTERLY CORPORATE INCOME TAX PAYMENTS UNDER THE NORMAL INCOME TAX, AND THE MCIT PAID IN THE PREVIOUS TAXABLE QUARTERS ARE ALLOWED TO BE APPLIED AGAINST THE QUARTERLY MCIT DUE. A) B) C) D)

FALSE, FALSE FALSE, TRUE TRUE, FALSE TRUE, TRUE

142. ADY CORPORATION HAS THE FOLLOWING YEAR: 1ST QTR NORMAL INCOME TAX P10,000 MCIT 8,000 TAXES WITHHELD DURING THE QTR 2,000 EXCESS WHT PRIOR YEAR 1,000

DATA DURING THE 2ND QTR 12,000 25,000 3,000

THE INCOME TAX PAYABLE BY ADY CORPORATION FOR THE 1 ST QUARTER ISA) B) C) D)

P7,000 4,000 3,000 2,000

143. IN NUMBER 142, THE INCOME TAX PAYABLE FOR THE 2 ND QUARTER ISA) B) C) D)

P15,000 20,000 27,000 23,000

144. RELLY CORPORATION HAD THE FOLLOWING ITEMS OF INCOME AND EXPENSES DURING THE YEAR: GROSS RECEIPTS COST OF SERVICES DIVIDENDS FROM A DOMESTIC CO. GENERAL AND ADMINISTRATIVE EXPENSES

P1,000,000 850,000 35,000 120,000

THE INCOME TAX DUE ON RELLY CORPORATION ISA) P10,500 B) 3,000

C) 9,000 D) 30,000 145. MASAGANA CORPORATION, A DOMESTIC CORPORATION ORGANIZED IN 2004 HAS THE FOLLOWING RECORDS OF COMPUTATION OF ITS INCOME TAX DURING THE THREE(3) CONSECUTIVE TAXABLE YEARS: 2007 P3,000,000 (1,800,000) 80,000 1,280,000 800,000 480,000 35% 168,000

SALES LESS: COST OF SALES ADD: NET CAPITAL GAIN GROSS INCOME LESS: DEDUCTIONS TAXABLE INCOME TAX RATE NORMAL INCOME TAX MCIT: 2007-NONE 2008-(1,150,000 X 2%) 2009-(2,060,000 X 2%) TAX PAYABLE

2008 P3,600,000 (2,450,000) 1,150,000 925,000 225,000 35% 78,750

2009 P4,300,000 (2,250,000) 10,000 2,060,000 1,945,000 115,000 30% 34,500

23,000 168,000

78,750

41,200 41,200

BASED ON THE ABOVE DATA, WHICH OF THE FOLLOWING STATEMENTS IS FALSE? A) THE MCIT SHALL NOT BE APPLIED ON MASAGANA CORPORATION UNTIL 2007. IT SHALL BE APPLIED EFFECTIVE IN 2008. B) THE EXCESS MCIT IN 2009 CAN BE CARRIED TO THE SUCCEEDING YEAR EVEN IF THE CORPORATION SUFFERS A LOSS IN 2010 C) THE TERM “GROSS INCOME” INCLUDES OTHER INCOME D) THE EXCESS MCIT OF P6,700 IN 2009 CAN BE CARRIED OVER UNTIL 2012 ONLY NUMBERS 146 INFORMATION:

AND

147

ARE

BASED

ON

THE

FOLLLOWING

146. IZA CORPORATION, A DOMESTIC CORPORATION, HAS THE FOLLOWING DATA: 2008 2009 GROSS INCOME P3,500,000 2,400,000 TAXABLE INCOME 125,000 500,000

THE INCOME TAX DUE ON IZA CORPORATION FOR 2008 IS: A) B) C) D)

P43,750 70,000 26,250 40,000

147. IS: A) B) C) D)

THE INCOME TAX PAYABLE BY IZA CORPORATION FOR 2009

P150,000 48,000 148,750 123,750

SPECIAL TOPIC-IMPROPERLY EARNINGS TAX

ACCUMULATED

148. A PENALTY AND A FORM OF DETERRENT TO THE AVOIDANCE OF TAX UPON SHAREHOLDERS WHO ARE SUPPOSED TO PAY DIVIDENDS TAX ON THE EARNINGS DISTRIBUTED TO THEM BY THE STOCKHOLDERS A) B) C) D)

MINIMUM CORPORATE INCOME TAX FRINGE BENEFIT TAX IMPROPERLY ACCUMULATED EARNINGS TAX GROSS INCOME TAX

149. A) B) C) D)

IMPROPERLY ACCUMULATED EARNINGS TAX IS-

10% OF TAXABLE INCOME 10% OF NET INCOME 10% OF IMPROPERLY ACCUMULATED TAXABLE INCOME 10% OF GROSS INCOME

150. WHICH OF THE FOLLOWING IS SUBJECT TO IMPROPERLY ACCUMULATED EARNINGS TAX? A) B) C) D)

INSURANCE COMPANIES BUSINESS PARTNERSHIPS BANKS CLOSELY-HELD COMPANIES

151. ALL OF THE FOLLOWING, EXCEPT ONE, ARE ADDITIONS TO TAXABLE INCOME FOR PURPOSES OF COMPUTING IMPROPERLY ACCUMULATED TAXABLE INCOMEA) B) C) D)

INCOME SUBJECT TO FINAL TAXES RESERVED FOR REASONABLE NEEDS OF THE BUSINESS INCOME EXCLUDED FROM GROSS INCOME NOLCO DEDUCTED IN COMPUTING TAXABLE INCOME

NUMBERS 152 AND 153 ARE BASED ON THE FOLLOWING INFORMATION: LABATIBA CORPORATION, FOLLOWING DATA IN 2009:

A

DOMESTIC

CORPORATION,

GROSS INCOME (GROSS OF WHT OF 1%) BUSINESS EXPENSES GAIN ON SALE OF BUSINESS ASSET INTEREST OF DEPOSIT WITH METROBANK, NET OF TAX SALE OF SHARES OF STOCKS, NOT LISTED AND TRADED: SELLING PRICE P150,000 COST 115,000 DIVIDENDS FROM CASTOR OIL CORP., DOMESTIC CORP. DIVIDENDS PAID DURING THE YEAR RESERVED FOR BUILDING ACQUISITION

HAS

THE

P1,500,000 600,000 60,000 5,000

35,000 120,000 300,000

IN 2008, THE CORPORATION SUFFERED AN OPERATING LOSS OF P130,000. THIS AMOUNT WAS CARRIED FORWARD AND CLAIMED AS DEDUCTION FROM GROSS INCOME IN 2009. 152. A) B) C) D)

THE INCOME TAX PAYABLE IN 2009 IS-

P234,000 265,600 275,500 249,000

153. THE IMPROPERLY ACCUMULATED EARNINGS TAX ISA) P64,415 B) 34,765 C) 36,425 D) 32,275

NUMBERS 154 TO 155 ARE BASED ON THE FOLLOWING INFORMATION: SARADO CORPORATION, A CLOSELY HELD CORPORATION, REVEALS THE FOLLOWING DATA: 2008: GROSS INCOME EXPENSES 2009: GROSS INCOME EXPENSES ROYALTY DIVIDENDS PAYABLE 154. A) B) C) D)

P3,400,000 3,800,000 3,960,000 3,100,000 340,000 56,000

THE INCOME TAX PAYABLE IN 2009 IS-

P81,800 93,000 301,000 70,000

155. HOW MUCH IS THE IMPROPERLY ACCUMULATED EARNINGS TAX IN 2009? A) B) C) D)

P81,500 93,800 91,500 NONE

156. CORPORATIONS CAN CLAIM OPTIONAL STANDARD DEDUCTION IN AN AMOUNT NOT EXCEEDING A) 10% OF GROSS INCOME B) 10% OF GROSS SALES OR GROSS RECEIPTS, AS THE CASE MAYBE C) 40% OF GROSS INCOME D) 40% OF THE GROSS INCOME OR GROSS RECEIPTS, AS THE CASE MAYBE 157. ANA CORPORATION HAS THE FOLLOWING DATA DURING THE YEAR: GROSS SALES COST OF SALES EXPENSES

P1,540,000 645,000 460,460

IF ANA CORPORATION AVAILED OF THE DEDUCTION, THE TAXABLE INCOME SHALL BE-

OPTIONAL

STANDARD

A) B) C) D)

P537,000 434,540 741,000 279,000

CHAPTER 13-INCOME TAX OF PARTNERSHIPS, JOINT VENTURE, ESTATES AND TRUSTS 158. WHEN NINA MATHAY DIED, SHE LEFT REAL PROPERTIES TO HER HUSBAND AND THREE(3) SMALL CHILDREN. THE HUSBAND ADMINISTERED THE PROPERTY, THE RENTAL INCOME OF WHICH HE ACCUMULATED AND LATER USED IN BUYING A PASSENGER BUS. ARE THE INCOME OF THE INHERITED PROPERTIES AND THE BUS SUBJECT TO TAX? A) B) C) D)

INHERITED PROPERTIES YES YES NO NO

BUS YES NO YES NO

159. MAX AND CHOOK CONTRIBUTED MONEY AND PURCHASED FIVE(5) HECTARES OF LAND IN 2008. IN THE SAME YEAR, THEY SOLD THE LAND AT A HIGHER PRICE. IN 2009, THEY BOUGHT A BIGGER PARCEL AND SOLD IT AFTER THREE(3) MONTHS AT DOUBLE THE PRICE. THEY PAID THE CORRESPONDING CAPITAL GAINS TAXES. QUESTION 1: HAVE THEY FORMED AN UNREGISTERED PARTNERSHIP SUBJECT TO TAX? QUESTION 2: ARE THEIR RESPECTIVE SHARES IN THE INCOME TAXABLE TO THEM? Q#1 Q#2 A) YES YES B) NO YES C) YES NO D) NO NO 160. WHEN THEIR PARENTS DIED, CHERRY AND GERRY INHERITED FIVE(5) HECTARES OF LAND IN ANTIPOLO CITY. THEY DECIDED TO INVEST CAPITAL AND DEVELOPED THE LAND INTO A SUBDIVISION WHICH THEY NAMED AS CHERRY-GIL SUBDIVISION., WITH SMALL LOTS BEING SOLD EITHER ON INSTALLMENT OR IN CASH BASIS.

QUESTION 1: IS A PARTNERSHIP CREATED BY CHERRY AND GERRY? QUESTION 2: ARE THEY SUBJECT TO FINAL TAX ON THEIR RESPECTIVE SHARE IN THE INCOME? Q#1 Q#2 A) YES NO B) NO YES C) YES YES D) NO NO 161. Q#1: IS A CO-PARTNERSHIP TAXABLE? NO, BECAUSE THE ACTIVITIES OF THE CO-OWNERS ARE LIMITED TO THE PRESERVATION OF THE PROPERTY AND THE COLLECTION OF INCOME THEREFROM. Q#2: IS THE SHARE OF A CO-OWNER IN THE NET INCOME OF A COOWNERSHIP TAXABLE? YES, BECAUSE EACH CO-OWNER IS TAXED INDIVIDUALLY ON HIS DISTRIBUTIVE SHARE IN THE INCOME OF THE COOWNERSHIP. A) B) C) D)

ANSWERS TO BOTH QUESTIONS ARE CORRECT ANSWER TO Q#1 IS WRONG, ANSWER TO Q#2 IS CORRECT ANSWER TO Q31 IS CORRECT, ANSWER TO Q#2 IS WRONG ANSWER TO BOTH QUESTIONS ARE WRONG

162. THE MEMBERS OF THIS FORM OF BUSINESS ORGANIZATION SHALL BE LIABLE FOR INCOME TAX ONLY ON THEIR INDIVIDUAL CAPACITY, AND THEIR SHARE IN THE PROFITS, WHETHER DISTRIBUTED OR OTHERWISE, SHALL BE RETURNED FOR TAXATION. THIS APPLIES TO-(RPCPA) A) B) C) D)

DULY REGISTERED GENERAL CO-PARTNERSHIP UNREGISTERED GENERAL CO-PARTNERSHIP GENERAL PROFESSIONAL PARTNERSHIP JOINT-STOCK COMPANIES

163. THE SHARE OF A PARTNER IN THE PROFITS OF A GENERAL PROFESSIONAL PARTNERSHIP IS REGARDED AS RECEIVED BY HIM AND THUS TAXABLE ALTHOUGH NOT YET DISTRIBUTED. THIS PRINCIPLE IS KNOWN ASA) B) C) D)

ADVANCE REPORTING OF INCOME ACTUAL RECEIPT OF INCOME ACCRUAL METHOD OF ACCOUNTING CONSTRUCTIVE RECEIPT OF INCOME

164. UNDER THE NIRC, INCOME IS RECEIVED NOT ONLY WHEN IT IS AC TUALLY OR PHYSICALLY TRANSFERRED TO A PERSON BUT EVEN WHEN IT IS CONSTRUCTIVELY RECEIVED BY HIM. AN EXAMPLE OF INCOME CONSTRUCTIVELY RECEIVED IS-(RPCPA) A) RENTAL PAYMENTS REFUSED BY THE LESSOR, WHEN THE LESSEE TENDERED PAYMENT AND THE LATTER MADE A JUDICIAL DEPOSIT OF THE RENTAL DUE B) INTEREST COUPONS NOT YET DUE AND PAYABLE C) INTEREST ON SAVINGS DEPOSIT NOT YET CREDITED TO THE ACCOUNT OF THE DEPOSITOR D) ADVANCE DEPOSIT MADE BY THE LESSEE 165.WHICH OF THE FOLLOWING IS CONSIDERED OR CONSTRUED AS AN EXAMPLE OF CONSTRUCTIVE RECEIPT?-(RPCPA) A) RETIREMENT BENEFITS, PENSIONS, GRATUITIES B) FEES PAID TO A PUBLIC OFFICIAL C) INTEREST COUPONS THAT HAVE MATURED AND ARE PAYABLE BUT HAVE NOT BEEN CASHED D) DEPOSITS FOR RENTALS TO ANSWER FOR DAMAGES, RESTRICTED AS TO USE NUMBERS 166 AND 167 ARE BASED ON THE FOLLOWING INFORMATION: BINGBONG AND COMPANY , A BUSINESS PARTNERSHIP, HAD THE FOLLOWING DATA OF INCOME AND EXPENSES: GROSS INCOME EXPENSES DIVIDEND FROM A DOMERTIC CORP. INTEREST ON BANK DEPOSIT(GROSS OF TAX)

P750,000 200,000 75,000 10,000

PARTNERS BING AND BONG SHARE PROFITS AND LOSSES IN THE RATIO OF 55% AND 45%, RESPECTIVELY. 166.THE INCOME TAX PAYABLE BY BINGBONG AND COMPANY – A) B) C) D)

P218,750 187,500 165,000 192,500

167. THE FINAL TAXES ON THE RESPECTIVE SHARE OF BING AND BONG IN THE PARTNERSHIP INCOMEA) B) C) D)

BING P25,740.00 31,157.50 24,227.50 30,250.00

BONG 21,060.00 25,492.50 19,822.50 55.045.00

NUMBERS 168 AND 169 ARE BASED ON THE FOLLOWING INFORMATION: PING, PONG AND COMPANY, A PARTNERSHIP OF CPAs, HAD A GROSS INCOME OF P220,000 AND EXPENSES OF P85,000 DURING THE YEAR: SHARE IN PROFIT AND LOSS RATIO INCOME FROM OTHER BUSINESSES EXPENSES AMOUNT WITHDRAWN FROM PARTNERSHIP FILING STATUS DEPENDENT CHILDREN

PING 75% P125,000 80,000 30,000 MARRIED NONE

PONG 25% P325,000 190,000 12,500 UNMARRIED 2

168. THE INCOME TAX PAYABLE BY THE PARTNERSHIP ISA) B) C) D)

P72,600 NONE 44,550 45,900

169. THE TAXABLE INCOME OF PING AND PONG ISA) B) C) D)

P69,250 AND P0, RESPECTIVELY 114,250 AND 127,750, RESPECTIVELY 101,250 AND 33,750, RESPECTIVELY 96,250 AND 68,750, RESPECTIVELY

NUMBERS 170 AND 171 ARE BASED ON THE FOLLOWING INFORMATION: PANDAY, SINGLE, AND PANDAK, MARRIED WITH TWO DEPENDENT CHILDREN, ARE PARTNERS IN THE FOLLOWING PARTNERSHIPS: PANDAY HOLDS A 60% INTEREST WHILE 40% INTEREST BELONGS TO PANDAK.

THE PARTNERSHIP’S INCOME AND EXPENSES ARE GIVEN BELOW: PARTNERSHIP

GROSS INCOME

EXPENSES

W/DRAWAL, PANDAY

W/DRAWAL, PANDAK

PROF. PART. A PROF. PART. B BUS.PART. C BUS. PART. D

P400,000 300,000 500,000 200,000

250,000 500,000 200,000 300,000

60,000 40,000 -

40,000 20,000 -

THE PARTNERSHIPS REMITTED TO THE BIR THE CORRESPPONDING WITHHOLDING TAXES ON THE WITHDRAWALS OF PANDAY AND PANDAK. THE PARTNERS’ PERSONAL INCOME AND EXPENSES ARE SHOWN BELOW: PANDAY PANDAK GROSS INCOME FROM SOLE PROPRIETORSHIP P400,000 600,000 BUSINESS EXPENSES 250,000 370,000 OTHER INCOME: RENT , NET OF 5% WHT 57,000 ROYALTY 50,000 DIVIDEND FROM DOMESTIC CO. 30,000 50,000 170. THE INCOME TAX PAYABLE BY PANDAY ISA) B) C) D)

P20,500 18,500 11,500 59,000

171. THE INCOME TAX PAYAB LE B Y PANDAK ISA) B) C) D)

P12,500 48,000 16,500 24,000

172. THE TOTAL FINAL TAXES DUE ON PANDAY ISA) B) C) D)

P3,000 4,000 7,000 22,000

173. THE TOTAL FINAL TAXES DUE ON PANDAK ISA) B) C) D)

P17,000 14,600 22,200 15,200

174. THE PROPERTY, RIGHTS AND OBLIGATIONS OF A PERSON WHICH ARE NOT EXTINGUISHED BY HIS DEATH AND ALSO THOSE WHICH HAVE ACCRUED THERETO SINCE THE OPENING OF THE SUCCESSIONA) B) C) D)

ESTATE LEGACY TRUST WILL

175. AN HEIR WHO INHERITS PERSONAL PROPERTY BY WILL IS CALLEDA) B) C) D)

LEGATEE DEVISEE TRUSTOR BENEFICIARY

176. AN HEIR WHO INHERITS REAL PROPERTY BY WILL IS CALLEDA) B) C) D)

LEGATEE DEVISEE TRUSTOR BENEFICIARY

177. TONYING DIED ON JANUARY 1, 2007. HE LEFT A GROSS ESTATE WITH A COST OF P4,000,000 BUT VALUED AT P3,500,000 UNDER AN ADMINISTRATOR. DURING THE YEAR, THE GROSS INCOME DERIVED FROM THE BUSINESS OF THE ESTATE WAS P400,000 WHILE THE RELATED EXPENSES AMOUNTED TO P150,000. BENEFICIARIES FELIPE AND KHADAFI WERE GIVEN P100,000 EACH. THE INCOME TAX DUE ON THE ESTATE OF TONYING ISA) B) C) D)

P30,000 2,500 5,500 50,000

178. AN ARRANGEMENT UNDER WHICH TITLE TO PROPERTY IS PASSED TO ANOTHER FOR INVESTMENT, WITH THE INCOME AND ULTIMATELY THE

PRINCIPAL TO BE DISTRIBUTED IN ACCORDANCE WITH THE DIRECTION OF THE CREATOR ISA) B) C) D)

A WILL A TRUST AN INHERITANCE PACTO DE RETRO

179. WHICH OF THE FOLLOWING IS NOT SUBJECT TO TAX? A) B) C) D)

ESTATES UNDER JUDICIAL SETTLEMENT IRREVOCABLE TRUST UNREGISTERED PARTNERSHIPS REVOCABLE TRUST

NUMBERS 180 AND 181 ARE BASED ON THE FOLLOWING INFORMATION: DURING THE YEAR, LUCAS CREATED TWO SEPARATE FUNDS FOR HIS SON BARABAS, AND APPOINTED CAIPAS AND JUDAS AS TRUSTEES, THE BUSINESS INCOME OF THE TRUSTS ARE AS FOLLOWS:

NET INCOME INCOME FROM TRUSTS DISTRIBUTED DURING THE YEAR

TRUSTEE CAIPAS

TRUSTEE JUDAS

P120,000

200,000

50,000

75,000

180. THE CONSOLIDATED TAXABLE INCOME OF TRUSTS ISA) B) C) D)

P143,000 23,250 175,000 300,000

181. THE INCOME TAXES PAYABLE BY TRUSTEE CAIPAS AND TRUSTEE JUDAS AREA) B) C) D)

CAIPAS 24,375 24,375 26,000 65,000

JUDAS 24,375 40,625 39,000 23,250

CHAPTER 7-DEALINGS IN PROPERTY 182. THE TERM “CAPITAL ASSETS” INCLUDES-(RPCPA) E) STOCK IN TRADE OR OTHER PROPERTY INCLUDED IN THE TAXPAYER’S INVENTORY F) REAL PROPERTY NOT USED IN THE TRADE OR BUSINESS OF TAXPAYER G) PROPERTY PRIMARILY FOR SALE TO CUSTOMERS IN THE ORDINARY COURSE OF TRADE OR BUSINESS H) PROPERTY USED IN THE TRADE OR BUSINESS OF THE TAXPAYER AND SUBJECT TO DEPRECIATION 183. WHICH OF THE FOLLOWING REAL PROPERTIES IS CLASSIFIED AS A CAPITAL ASSET? A) REAL PROPERTY INITIALLY ACQUIRED BY A TAXPAYER ENGAGED IN REAL ESTATE BUSINESS BUT SUBSEQUENTLY ABANDONED OR BECOME IDLE B) REAL PROPERTY TRANSFERRED THROUGH SUCCESSION OR DONATION TO THE HEIR OR DONEE WHO IS NOT ENGAGED IN THE REAL ESTATE BUSINESS WITH RESPECT TO THE REAL PROPERTY INHERITED OR DONATED, AND WHO DOES NOT SUBSEQUENTLY USE SUCH PROPERTY IN TRADE OR BUSINESS C) REAL PROPERTIES OF THE REAL ESTATE LESSOR, WHETHER LAND AND/OR IMPROVEMENTS, WHICH ARE FOR LEASE OR BEING OFFERED FOR LEASE, OR OTHERWISE FOR USE OR BEING USED IN THE TRADE OR BUSINESS D) REAL PROPERTIES ACQUIRED IN THE COURSE OF TRADE OR BUSINESS BY A TAXPAYER HABITUALLY ENGAGED IN THE SALE OF REAL ESTATE 184. UNDER SECTION 39(B) OF THE TAX CODE, HOW MUCH SHALL BE TAKEN INTO ACCOUNT IN COMPUTING NET INCOME, IF A GAIN IS REALIZED BY AN INDIVIDUAL TAXPAYER FROM THE SALE OR EXCHANGE OF CAPITAL ASSETS( OTHER THAN REAL PROPERTIES AND SHARES OF STOCKS) HELD FOR MORE THAN 12 MONTHS?-(RPCPA) A) B) C) D)

50% OF NET CAPITAL GAIN 5% OF THE CAPITAL ASSETS SOLD P50,000 5,000

185. LOTS BEING RENTED WHEN SUBSEQUENTLY SOLD ARE CLASSIFIED AS-(RPCPA) A) B) C) D)

CAPITAL ASSETS LIQUID ASSETS ORDINARY ASSETS FIXED ASSETS

186. A FEATURE OF ORDINARY GAINS AS DISTINGUISHED FROM CAPITAL GAINS-(RPCPA) A) GAIN FROM SALE OF ASSETS NOT STOCK IN TRADE B) MAY OR MAY NOT BE TAXABLE IN FULL C) SOURCES ARE CAPITAL ASSETS D) NO HOLDING PERIOD 187. WHICH OF THE FOLLOWING TAXPAYERS IS ALLOWED TO OBSERVE “NO HOLDING PERIOD AND NO CARRY OVER OF NET CAPITAL LOSS” A) B) C) D)

INDIVIDUAL ESTATES CORPORATION TRUSTS

188. RULES ON CAPITAL GAINS AND LOSSES OF CORPORATIONS, EXCEPT:(RPCPA) A) CAPITAL GAINS AND LOSSES ARE RECOGNIZED TO THE EXTENT OF 100% REGARDLESS OF THE HOLDING PERIOD B) THE NET CAPITAL LOSS CARRY OVER IS NOT APPLICABLE C) CAPITAL LOSSES ARE DEDUCTIBLE ONLY TO THE EXTENT OF CAPITAL GAINS D) THERE IS A FINAL TAX OF 5% ON REAL PROPERTY SOLD 189. STATEMENT 1: CAPITAL LOSSES ARE DEDUCTIBLE ONLY FROM ORDINARY GAINS STATEMENT 2: CORPORATIONS ARE NOT ALLOWED TO OBSERVE THE HOLDING PERIOD AND TO CARRY OVER NET CAPITAL LOSS A) B) C) D)

ONLY THE FIRST STATEMENT IS CORRECT ONLY THE SECOND STATEMENT IS CORRECT BOTH STATEMENTS ARE CORRECT BOTH STATEMENTS ARE INCORRECT

190. JOAHNA CORPORATION REALIZED AN ORDINARY GAIN OF P400,000. ITS CAPITAL ASSET TRANSACTIONS DURING THE YEAR ARE AS FOLLOWS:

CAPITAL GAIN CAPITAL GAIN CAPITAL LOSS CAPITAL LOSS

HOLDING PERIOD 6 MONTHS 2 YEARS 12 MONTHS 10 YEARS

AMOUNT P50,000 45,000 23,000 28,000

WHAT IS JOAHNA CORPORATION’S TAXABLE INCOME? A) B) C) D)

P484,000 444,000 435,500 447,000

191. JOSE SIO, SINGLE, HAD THE FOLLOWING DATA LOSSES: 2008 ORDINARY BUSINESS INCOME P56,700 INTEREST ON TIME DEPOSIT WITH PNB 2,000 SHORT-TERM CAPITAL GAIN 5,000 LONG-TERM CAPITAL GAIN 3,600 SHORT-TERM CAPITAL LOSS 8,000 LONG-TERM CAPITAL LOSS 4,400

ON INCOME AND 2009 P60,800 3,000 8,500 5,200 2,900 -

IN 2008, THE TAXABLE INCOME BEFORE PERSONAL EXEMPTION OF JOSE SIOA) B) C) D)

P58,700 53,300 36,700 56,700

192. IN 2009, THE TAXABLE INCOME OF JOSE SIO ISA) B) C) D)

P15,600 69,000 36,000 45,600

193. SANTINO QUALIFIED AS HEAD OF A HOUSEHOLD FOR 2008 TAX PURPOSES. SANTOS’ 2009 TAXABLE INCOME WAS P200,000 EXCLUSIVE OF CAPITAL GAINS AND LOSSES. SANTINO HAD A NET LONG-TERM LOSS OF P8,000 IN 2009. WHAT AMOUNT OF THIS CAPITAL LOSS CAN SANTINO OFFSET AGAINST 2009 ORDINARY INCOME?-(RPCPA)

A) B) C) D)

ZERO 3,000 4,000 8,000

NUMBERS 194 AND 195 ARE BASED ON THE FOLLOWING INFORMATION: 194. ROSE, SINGLE, HAD THE FOLLOWING DATA ON INCOME AND LOSSES: NET INCOME CAPITAL GAINS CAPITAL LOSSES

2008 P25,000 8,000 40,000

2009 P95,000 40,000 5,000

THE TAXABLE INCOME IN 2008 ISA) B) C) D)

P5,000 ZERO P(25,000) (57,000)

195. THE TAXABLE INCOME IN 2009 ISA) B) C) D)

P78,000 55,000 115,000 10,000

196. ALL OF THE FOLLOWING, EXCEPT ONE, RESULTS TO A CAPITAL GAIN OR LOSS A) B) C) D)

GAIN ON SHORT SALES OPTION LOSS WORTHLESS SECURITIES ORDINARY GAINS

197. A TRANSACTION IN WHICH THE SPECULATOR SELLS SECURITIES WHICH HE DOES NOT OWN (HE MERELY BORROWS THE STOCK CERTIFICATES THROUGH OR FROM HIS STOCK BROKER) IN ANTICIPATION OF A DECLINE IN ITS PRICE, AND WITHIN A REASONABLY SHORT PERIOD OF TIME BUYS OR COVERS THE STOCK TO COMPLETE THE TRANSACTION A) WASH SALE B) SHORT SALE C) AUCTION SALE

D) RESCISSIBLE SALE 198. ABC BOUGHT FROM XYZ CORPORATION TEN SHARES OF STOCK. SIXTY DAYS THEREAFTER, THE CORPORATION WAS ADJUDGED BANKRUPT AND ITS STOCK AS WORTHLESS. THE LOSS OF ABC TO BE REPORTED FOR INCOME TAX PURPOSES IS CLASSIFIED AS:-(RPCPA) A) B) C) D)

A WAGERING LOSS NON-DEDUCTIBLE LOSS FOR INCOME TAX PURPOSES SHORT-TERM CAPITAL LOSS CASUALTY LOSS

199. ON CAPITAL GAINS TAX ON REAL PROPERTY, WHICH OF THE FOLLOWING STATEMENTS IS NOT CORRECT?-(RPCPA) A) THE TAX SHOULD BE PAID, IF IN ONE LUMP SUM, WITHIN 30 DAYS FROM THE DATE OF SALE B) THE TERM “INITIAL PAYMENT” IS SYNONYMOUS TO “DOWNPAYMENT” C) THE INSTALLMENT PAYMENT OF THE TAX SHOULD BE MADE WITHIN 30 DAYS FROM RECEIPT OF EACH INSTALLMENT PAYMENT ON THE SELLING PRICE D) THE TAX MAY BE PAID IN INSTALLMENT IF THE INITIAL PAYMENTS DO NOT EXCEED 25% OF THE SELLING PRICE 200. VIOLETA SOLD HER PRINCIPAL RESIDENCE FOR P5,000,000 WHEN ITS FAIR MARKET VALUE WAS P6,000,000. THE HOUSE WAS PURCHASED FIVE(5) YEARS AGO FOR P3,000,000. OUT OF THE PROCEEDS OF P5,000,000, VIOLETA UTILIZED THE P4,000,000 FOR THE PURCHASE OF A NEW RESIDENTIAL HOUSE. THE CAPITAL GAINS TAX ON THE SALE ISA) B) C) D)

P360,000 300,000 72,000 60,000

201. BASED ON THE PROBLEM IN NUMBER 200 ABOVE, WHAT IS THE COST BASIS OF THE NEW RESIDENCE? A) B) C) D)

P3,000,000 2,400,000 4,000,000 5,000,000

NUMBERS 202 AND 203 ARE BASED ON THE FOLLOWING INFORMATION: 202. MARIA HAS THE FOLLOWING DATA IN 2008: SALE OF PROPERTY

HOLDING PERIOD

GAIN/LOSS

APARTMENT HOUSE RESIDENTIAL HOUSE VACANT LOT JEWELRY FOR PERSONAL USE JEWELRY IN A JEWELRY STORE CAR FOR PERSONAL USE TRANSPORTATION EQUIPMENT

10 YEARS 6 YEARS 12 YEARS 6 MONTHS 2 MONTHS 4 YEARS 12 MONTHS

P35,000 120,000 72,500 4,200 8,000 (20,000) (10,000)

DURING THE YEAR, MARIA HAD A NET INCOME FROM BUSINESS (OTHER THAN THE SALE OF THE PROPERTIES ABOVE) IN THE AMOUNT OF P5,000. THE TAXABLE INCOME BEFORE PERSONAL EXEMPTION OF MARIA IN 2008 ISA) B) C) D)

P32,000 38,000 22,200 42,200

203. ASSUMING THAT THE NET INCOME OF MARIA IN 2009 WAS P130,000 WHICH INCLUDES A CAPITAL GAIN OF P6,000. THE TAXABLE INCOME BEFORE PERSONAL EXEMPTION IN 2009 ISA) B) C) D)

P125,000 130,000 124,200 120,000

NUMBERS 204 TO 205 ARE BASED ON THE FOLLOWING INFORMATION: ON AUGUST 15, 2009, MR. CRUZ SOLD A 500 SQUARE METER RESIDENTIAL HOUSE FOR P3,000,000. THE HOUSE WAS ACQUIRED IN 2000 FOR P2,000,000. ON THE DATE OF SALE, THE FAIR MARKET VALUE OF THE HOUSE AS SHOWN IN THE REAL PROPERTY DECLARATION WAS P2,500,000 AND THE ASSESSED VALUE AMOUNTED TO P2,200,000. THE ZONAL VALUE WAS P7,000 PER SQUARE METER.

204. THE CAPITAL GAINS TAX ISA) B) C) D)

P180,000 120,000 150,000 210,000

205. THE CAPITAL GAINS TAX OF MR. CRUZ IF THE PROCEEDS OF SALE WAS UTILIZED IN ACQUIRING A NEW RESIDENCEA) B) C) D)

P210,000 150,000 180,000 ZERO

206. THE AMOUNT TO BE DEPOSITED IN ESCROW IF THE PROCEEDS OF THE SALE SHALL BE UTILIZED IN ACQUIRING A NEW RESIDENCEA) B) C) D)

P210,000 150,000 180,000 ZERO

207. THE CAPITAL GAINS TAX PAYABLE ASSUMING THAT MR. CRUZ WILL UTILIZE ONLY P1,500,000 OF THE PROCEEDS IN ACQUIRING A NEW RESIDENCE? A) B) C) D)

P90,000 210,000 ZERO 105,000

208. MR. LEX CANLAS IS NOT ENGAGED IN REAL ESTATE BUSINESS. HE SOLD A 1,000 SQUARE METER RESIDENTIAL LAND FOR P300,000 ON MARCH 15, 2009. THE LAND WAS ACQUIRED BY PURCHASE ON MARCH 5, 2006 FOR P120,000. AFTER ACQUISITION, THE LAND WAS FENCED AT A COST OF P30,000. A COMMISSION OF 5% OF THE SALES PRICE WAS PAID TO THE SALES AGENT.-(RPCPA) HOW MUCH IS THE CAPITAL GAINS TAX DUE? A) B) C) D)

P18,000 18,900 7,200 9,000

209. LITO HAS THE FOLLOWING RECORDS OF TRANSACTIONS: CAPITAL GAINS(SHORT TERM) ON SALE OFDOMESTIC SHARES LISTED AND TRADED\ IN THE STOCK EXCHANGE VACANT LOT, THRU A BROKER, LOCATED IN MANILA(MARKET VALUE-P700,000) RESIDENTIAL HOUSE IN NEW YORK CITY CAPITAL LOSS(LONG-TERM) ON SALE OFLAND IN VANCOUVER, CANADA FAMILY CAR

P22,400 150,000 100,000 125,000 50,000

THE NET CAPITAL GAIN/(LOSS) OF LITO ISA) B) C) D)

P12,500 (75,000) 148,500 (25,000)

210. ATTY. MOISES PADILLA SOLD TO JESS ABALUYAN NOT TRADED SHARES OF STOCKS FOR A CONSIDERATION OF P200,000. AT THE TIME OF SALE, ITS FAIR MARKET VALUE IS P500,000. ATTY. PADILLA SHOULD PAYA) B) C) D)

CAPITAL GAINS TAX DONOR’S TAX DOCUMENTARY STAMP TAX ALL OF THE ABOVE

211. IN THE PRECEDING PROBLEM, IF LATER ON JESS ABALUYAN SELLS THE SAME SHARES OF STOCKS TO ED DEL ROSARIO FOR P400,000, THE GAIN SUBJECT TO TAX SHALL BE DETERMINED BY DEDUCTING THEA) B) C) D)

P200,000 FROM THE P500,000 200,000 FROM THE 400,000 400,000 FROM THE 500,000 400,000 FROM THE 200,000

212. ROCKY SOLD 1,500 SHARES OF STOCKS OF ACHIEVERS CORPORATION. THE PAR VALUE PER SHARE WAS P85 BUT WERE ACQUIRED BY HIM AT P90. ON THE DATE OF SALE, THE SHARES HAD A SELLING PRICE OF P120 PER SHARE. THE CAPITAL GAINS TAX ON THE SALE IF THE SHARES ARE NOT LISTED AND TRADED IN THE PHILIPPINES STOCK EXCHANGE ISA) P2,250 B) 2,625 C) 14,000

D) 11,375 213. ROLLY SOLD 1,000 NOT LISTED AND TRADED SHARES OF STOCKS. THE DATA OF WHICH ARE AS FOLLOWS: SELLING PRICE FAIR MARKET VALUE EXPENSES ON THE SALE PURCHASE PRICE EXPENSES UPON ACQUISITION

P600,000 620,000 10,000 440,000 3,000

THE CAPITAL GAINS TAX DUE ISA) B) C) D)

P13,000 14,000 9,700 12,850

214. NARDA SOLD THE FOLLOWING SHARES OF STOCKS DURING THE YEAR:

SELLING PRICE COST DATE SOLD

LISTED & TRADED P1,500,000 1,230,000 01-02-02

NOT LISTED & TRADED 630,000 570,000 03-16-02

LISTED & & TRADED 210,000 170,000 11-14-02

THE CAPITAL GAINS TAX PAYABLE ISA) B) C) D)

P3,000 32,000 11,550 3,150

NUMBERS 215 INFORMATION:

THRU

218

ARE

BASED

ON

THE

FOLLOWING

DATE OF SALE

DATE OF ACQUISITION

COST

SELLING PRICE

FEB 13, 2009 APRIL 5, 2009 JULY 20, 2009 OCT 13, 2009

JAN 18, 2007 NOV 30, 2008 SEPT 3, 2007 AUG 7, 2009

P80,000 256,000 175,000 144,500

P135,000 360,000 115,000 150,000

215. THE CAPITAL GAINS TAX ON THE FEB. 13, 2009 SALE ISA) B) C) D)

P2,750 1,375 675 55,000

216. THE CAPITAL GAINS TAX ON THE APRIL 5, 2009 SALE ISA) B) C) D)

P10,400 5,400 5,200 ZERO

217. THE CAPITAL GAINS TAX/REFUND ON THE JULY 20, 2009 SALE ISA) B) C) D)

P3,000 (3,000) 1,500 ZERO

218.THE FINAL CAPITAL GAINS TAX/REFUND IN THE 2009 TRANSACTIONS ISA) B) C) D)

TAX PAYABLE OF P1,350 TAX REFUND OF P1,350 TAX PAYABLE OF P2,725 TAX REFUND OF P2,725

219. ON DECEMBER 1, 2007, MAT OBESE WHOSE TAXABLE YEAR IS THE CALENDAR YEAR, PURCHASED 100 SHARES OF COMMON STOCK OF MICHELLE COMPANY FOR P10,000. ON DECEMBER 16, 2007, HE PURCHASED 100 ADDITIONAL SHARES FOR P9,000. ON JANUARY 3, 2008, HE SOLD THE 100 SHARES PURCHASED ON DECEMBER 1, 2007 FOR P9,000. WHICH OF THE FOLLOWING STATEMENTS IS CORRECT ON MAT OBESE? A) B) C) D)

HE CAN CLAIM A DEDUCTIBLE LOSS OF P1,000 IN 2008 HE MUST REPORT A TAXABLE CAPITAL GAIN OF P1,000 IN 2008 HE MUST REPORT A TAXABLE CAPITAL GAIN OF P9,000 IN 2008 HE IS NOT ALLOWED TO CLAIM A DEDUCTIBLE LOSS ON THE LOSS ON SALE IN 2008

220. MISS BEAUTY, WHOSE TAXABLE YEAR IS THE CALENDAR YEAR, HAD THE FOLLOWING STOCK TRANSACTIONS:

• • • •

ON SEPTEMBER 20, 2008 PURCHASED 100 SHARES OF THE COMMON STOCK OF UGLY COMPANY FOR P5,000 OR AT P50 PER SHARE ON DECEMBER 11, 2008, SHE PURCHASED 50 SHARES OF SUBSTANTIALLY IDENTICAL STOCK FOR P2,750 OR AT P55 PER SHARE ON DECEMBER 26,2008, SHE PURCHASED 25 ADDITIONAL SHARES OF SUCH STOCK FOR P1,125 OR AT P45 PER SHARE ON JANUARY 2, 2009, SHE SOLD FOR P4,000 THE SHARES PURCHASED ON SEPTEMBER 20 OR AT P40 PER SHARE

HOW MUCH IS THE DEDUCTIBLE LOSS AND NON-DEDUCTIBLE LOSS ON JANUARY 2, 2009 SALES? A) B) C) D)

DEDUCTIBLE P1,000 0 125 250

NON-DEDUCTIBLE P0 1,000 0 750

NUMBERS 221 AND 222 ARE BASED ON THE FOLLOWING INFORMATION: MAUI HAS THE FOLLOWING DATA IN 2009: CAPITAL LOSS ON 2 WEEKS OPTION CONTRACT______ CAPITAL GAIN ON SALE OF BONDS(HOLDING PERIOD: 6 MOS.)_____ LOSS ON SALE OF DELIVERY TRUCK HELD FOR 3 ½ YEARS____ GAIN ON SALE OF PERSONAL CAR HELD FOR 5 YEARS______ CAPITAL GAIN ON DIRECT SALE TO BUYERS OF SHARES OF STOCKS___ SALE OF 2-YEAR OLD RESIDENTIAL HOUSE (COST:P540,000)____

P5,000 6,000 40,000 16,000 4,000 550,000

IN 2008, MAUI HAD A NET INCOME OF P5,000 AND A CAPITAL LOSS OF P7,500 221. THE NET CAPITAL GAIN/CAPITAL LOSS (BEFORE CARRY-OVER) IN 2009 ISA) B) C) D)

P17,000 9,000 2,000 (7,000)

222. THE NET CAPITAL LOSS CARRY-OVER FROM 2008 ISA) B) C) D)

P7,500 ZERO 9,000 5,000

223. IN COMPUTING GAIN OR LOSS FROM THE SALE OR OTHER DISPOSITION OF PROPERTY ACQUIRED AS GIFT OR DONATION, THE BASIS OF COST SHALL BE-(RPCPA) A) B) C) D)

THE FAIR MARKET VALUE AS OF THE DATE OF ACQUISITION THE PURCHASE PRICE PLUS EXPENSES OF ACQUISITION THE LATEST INVENTORY VALUE THE SAME AS IT WOULD BE IN THE HANDS OF THE DONOR

224. PAULO RECEIVED A RESIDENTIAL HOUSE VALUED AT P2,500,000 FROM HIS PARENTS AS A GIFT. AFTER A MONTH, HE SOLD IT TO RUDY FOR P2,000,000 ONLY. HOW MUCH IS THE TAX LIABILITY ON THE SALE? A) B) C) D)

P150,000 120,000 100,000 ZERO

225. IT IS IMPORTANT TO KNOW THE SOURCE OF INCOME FOR TAX PURPOSES (I.E. FROM WITHIN OR WITHOUT THE PHILIPPINES) BECAUSE(RPCPA) A) SOME INDIVIDUALS AND CORPORATE TAXPAYERS ARE TAXED ON THEIR WORLDWIDE INCOME WHILE OTHERS ARE TAXABLE ONLY UPON INCOME FROM SOURCES WITHIN THE PHILIPPINES B) THE PHILIPPINES IMPOSES INCOME TAX ONLY ON INCOME FROM SOURCES WITHIN C) SOME INDIVIDUAL TAXPAYERS ARE CITIZENS WHILE OTHERS ARE ALIENS D) EXPORT SALES ARE NOT SUBJECT TO INCOME TAX 226. MR. SHOLI, A NON-RESIDENT ALIEN STOCKHOLDER, RECEIVED A DIVIDEND INCOME OF P300,000 IN 2009 FROM A FOREIGN CORPORATION DOING BUSINESS IN THE PHILIPPINES. THE GROSS INCOME OF THE FOREIGN CORPORATION FROM WITHIN AND WITHOUT THE PHILIPPINES FOR THREE YEARS PRECEDING 2009 ARE AS FOLLOWS(RPCPA) \

SOURCES OF INCOME

2006

2007

2008

FROM W/IN THE PHIL. FROM W/OUT THE PHIL.

16,000,000 8,000,000

12,000,000 14,000,000

14,000,000 16,000,000

HOW MUCH OF THE DIVIDEND INCOME RECEIVED BY MR. SHOLI IS CONSIDERED INCOME FROM SOURCES WITHIN THE PHIL.? A) B) C) D)

ZERO P157,500 150,000 300,000

227. THE WIDOW OF YOUR BEST FRIEND HAS JUST BEEN PAID P1,000,000 ON ACCOUNT OF THE LIFE INSURANCE POLICY OF THE DECEASED HUSBAND. SHE ASKS YOU WHETHER SHE SHOULD DECLARE THE AMOUNT FOR INCOME TAX PURPOSES OR FOR ESTATE TAX PURPOSES-(RPCPA) 1ST ADVICE: THE PROCEEDS OF LIFE INSURANCE PAID TO THE BENEFICIARY UPON THE DEATH OF THE INSURED ARE EXEMPT FROM INCOME TAX AND NEED NOT BE DECLARED FOR INCOME TAX PURPOSES 2ND ADVICE: THE PROCEEDS OF LIFE INSURANCE WOULD HAVE TO BE DECLARED FOR ESTATE TAX PURPOSES IF THE DESIGNATION OF THE BENEFICIARY WAS IRREVOCABLE, OTHERWISE IT NEED NOT BE DECLARED A) B) C) D)

BOTH ADVICE ARE CORRECT 1ST ADVICE IS CORRECT, 2ND ADVICE IS WRONG BOTH ADVICE ARE WRONG 1ST IS WRONG, 2ND ADVICE IS CORRECT

CHAPTER 8-DEDUCTIONS FROM GROSS INCOME 228. AN ORDINARY AND NECESSARY EXPENSE WHICH IS FULLY DOCUMENTED AND SUPPORTED BY RECEIPTS MAY BE FULLY DEDUCTED FOR INCOME TAX PURPOSES OVER AND ABOVE THE LIMIT SET BY LAW(RPCPA) A)MEDICAL EXPENSES B)CONTRIBUTION C)REPRESENTATION D)HIGH SCHOOL FEE

229. LANGHAP CORPORATION INCURRED THE FOLLOWING EXPENSES. WHICH OF THESE EXPENSES IS NON-DEDUCTIBLE? A) B) C) D)

INSURANCE PREMIUMS ON THE BUILDING SALARIES OF THE OFFICIALS AND EMPLOYEES ENTERTAINING PROSPECTIVE CUSTOMERS GIFTS GIVEN TO PUBLIC OFFICIALS WHO FAVORED LANGHAP CORPORATION’S CONTRACT WITH THE GOVERNMENT

230. WHICH OF THE FOLLOWING IS A DEDUCTIBLE EXPENSE FOR INCOME TAX PURPOSES?-(RPCPA) A) SALARIES OF DOMESTIC SERVANTS B) ORDINARY REPAIR OF THE PERSONAL CAR C) PROVISION FOR DOUBTFUL ACCOUNTS D) NONE OF THE ABOVE 231. ONE OF THE FOLLOWING EXPENSES IS DEDUCTIBLE FROM GROSS INCOME A) PERSONAL, LIVING AND FAMILY EXPENSES B) AMOUNT PAID OUT FOR NEW BUILDING OR FOR PERMANENT IMPROVEMENT OR BETTERMENT, MADE TO INCREASE THE VALUE OF ANY PROPERTY OR ESTATE C) PREMIUMS PAID ON A LIFE INSURANCE POLICY COVERING THE LIFE OF THE EMPLOYEE WHEN THE MEMBERS OF THE FAMILY OF THE EMPLOYEE ARE THE DIRECT BENEFICIARY UNDER SUCH POLICY D) ANY AMOUNT EXPENDED IN RESTORING PROPERTY OR IN MAKING GOOD EXHAUSTION THEREOF FOR WHICH AN ALLOWANCE IS OR HAS BEEN MADE 232. ALL OF THE FOLLOWING, EXCEPT ONE, ARE NOT DEDUCTIBLE FROM GROSS INCOME A) TUITION FEES AND OTHER EXPENSES OF THE TAXPAYER’S CHILDREN B) REPLACEMENT OF THE ROOF OF THE OFFICE BUILDING C) PREMIUMS PAID IN INSURING THE LIFE OF THE CORPORATE PRESIDENT, APPOINTING THE CORPORATION AS THE BENEFICIARY OF THE POLICY D) PREMIUMS PAID ON A LIFE INSURANCE OF A RANK-AND-FILE EMPLOYEE WITH THE LATTER’S CHILDREN AS THE APPOINTED BENEFICIARY .

233. IN 2009, AZKAL CORPORATION PAID THE FOLLOWING PREMIUMS TO AN INSURANCE COMPANY IN INSURING THE LIFE OF ITS OFFICIALS AND EMPLOYEES: OFFICIAL/EMPLOYEE

BENEFICIARY

PREMIUMS PAID

RANK-AND-FILE PERSONNEL MANAGER TREASURER GENERAL MANAGER BOARD CHAIRMAN

CHILDREN PARENTS CORPORATION CORPORATION CORPORATION

P5,000 10,000 15,000 15,000 15,000

THE DEDUCTIBLE EXPENSE ON THE INSIURANCE PREMIUMS PAID BY THE CORPORATION ISA) B) C) D)

P60,000 45,000 5,000 15,000

234. THE FOLLOWING ARE EXAMPLES OF CORPORATE EXPENSES DEDUCTIBLE FROM GROSS INCOME, EXCEPT ONE(-RPCPA) A)REPRESENTATION EXPENSES DESIGNED TO PROMOTE BUSINESS B) CONTRIBUTIONS TO DRUM UP BUSINESS LIKE CONTRIBUTION OF SOFT DRINKS TO BARRIO FIESTAS C) EXPENSES PAID TO AN ADVERTISING FIRM IN ORDER TO CREATE A FAVORABLE IMAGE FOR THE CORPORATION D) PREMIUMS ON LIFE INSURANCE COVERING THE LIFE OF AN EMPLOYEE IF THE BENEFICIARY IS HIS HEIRS 235. FLOR CORPORATION TOOK TWO KEYMEN INSURANCE ON THE LIFE OF ITS PRESIDENT, MR. CHAN. IN ONE POLICY, THE BENEFICIARY IS THE CORPORATION TO COMPENSATE IT FOR ITS EXPECTED LOSS IN CASE OF DEATH OF ITS PRESIDENT. THE OTHER POLICY DESIGNATES MR. CHAN’S WIFE AS ITS IRREVOCABLE BENEFICIARY.-(RPCPA) Q#1: ARE THE INSURANCE PREMIUMS PAID BY FLOR CORPORATION IN BOTH POLICIES DEDUCTIBLE? Q#2: WILL THE INSURANCE PROCEEDS BE TREATED AS INCOME SUBJECT TO TAX BY THE CORPORATION AND BY THE WIFE? A) YES TO Q#1 AND NO TO Q#2 B) YES TO BOTH QUESTIONS C) NO TO Q#1 AND YES TO Q#2

D) NO TO BOTH QUESTIONS NUMBERS 236 INFORMATION:

THRU

238

ARE

BASED

ON

THE

FOLLOWING

IN 2009, LEXUS CORPORATION MADE SOME REPAIRS ON A BUILDING BEING LEASED TO LESLIE, TO WIT: MINOR REPAIRS(EXPENSED) MAJOR REPAIRS

P30,000 60,000

THE MAJOR OR EXTRAORDINARY REPAIR DID NOT ADD VALUE TO THE PROPERTY BUT APPRECIABLY PROLONGED ITS USEFUL LIFE BY FIVE(5) YEARS. 236. THE ENTRY IN THE BOOKS OF LEXUS TO RECORD THE EXPENSES INCURRED FOR MINOR REPAIRS ISA) BUILDING P30,000 CASH B) LEASE EXPENSE-LESLIE 30,000 CASH C) REPAIRS EXPENSE 30,000 CASH D) NO ENTRY

P30,000 30,000 30,000

237. THE ENTRY IN THE BOOKS OF LEXUS TO RECORD THE EXPENSES INCURRED FOR MAJOR REPAIR ISA) BUILDING CASH B) REPAIRS EXPENSES CASH C) ALLOWANCE FOR DEP’N CASH D) NO ENTRY

P60,000 P60,000 60,000 60,000 60,000 60,000

238. SUPPOSE THE MAJOR REPAIR INCREASED THE VALUE NBY P40,000 AND IT ALSO PROLONGED THE LIFE OF THE ASSET, THE ACCOUNTING ENTRY TO RECORD THE REPAIR IN THE BOOKS OF LEXUS CORPORATION ISA) ALLOWANCE FOR DEPRECIATION CASH B) BUILDING CASH

P60,000 P60,000 40,000 40,000

C) BUILDING ALLOWANCE FOR DEPRECIATION CASH D) NONE OF THE ABOVE

40,000 20,000 60,000

239. CHOOSE THE BEST ANSWER: RGF COLLEGE, INC. A PROPRIETARY EDUCATIONAL INSTITUTION, SPENT P10 MILLION FOR THE CONSTRUCTION OF A NEW SCHOOL BUILDING. THE AMOUNT SPENT FOR THE CONSTRUCTIONA) MUST BE CLAIMED AS EXPENSE IN THE YEAR OF COMPLETION B) CAPITALIZED AND CLAIM ANNUAL DEPRECIATION OVER THE LIFE OF THE BUILDING C) CAPITALIZED OR EXPENSE OUTRIGHT AT THE OPTION OF THE SCHOOL D) CAPITALIZED OR EXPENSE OUTRIGHT AT THE OPTION OF THE BIR 240. RELAX CORPORATION IS ENGAGED IN SALE OF GOODS AND SERVICES WITH NET SALES/NET REVENUE OF P400,000 AND P200,000, RESPECTIVELY. THE ACTUAL ENTERTAINMENT, AMUSEMENT AND RECREATION EXPENSE FOR THE TAXABLE QUARTER AMOUNTED TO P6,000. RELAX CORPORATION CAN CLAIM AN ENTERTAINMENT, AMUSEMENT AND RECREATION EXPENSE ON THE SALE OF GOODS AND SERVICES, RESPECTIVELY OFA) B) C) D)

P4,000 AND P4,000 4,000 AND 2,000 2,000 AND 4,000 2,000 AND 2,000

INTEREST EXPENSE PROBLEMS: 241. WHICH OF THE FOLLOWING ITEM IS CORRECT? A) INTEREST INCURRED ON LOAN FROM A BROTHER IS DEDUCTIBLE B) INTEREST EXPENSE INCURRED ON UNPAID VALUE-ADDED TAX IS REDUCED BY 42% OF INTEREST INCOME SUBJECTED TO FINAL TAX C) INTEREST PAYABLE WHICH HAD ALREADY PRESCRIBED IS DEDUCTIBLE IF PAID VOLUNTARILY BY THE TAXPAYER D) INTEREST INCURRED TO ACQUIRE A BUSINESS ASSET MAY BE ADDED TO THE COST OF THE PROPERTY

242. INTEREST ON BUSINESS IS DEDUCTIBLE FOR INCOME TAX PURPOSES. HOWEVER, ONE OF THE FOLLOWING IS NOT DEDUCTIBLE-(RPCPA) A) INTEREST ON DELINQUENCY TAX B) INTEREST ON INDEBTEDNESS INCURRED TO PURCHASE DELIVERY EQUIPMENT C) INTEREST ON INDEBTEDNESS SECURED TO PURCHASE A TAXEXEMPT SECURITY D) NONE OF THE ABOVE 243. WHICH INTEREST IS DEDUCTIBLE? A) INTEREST INCURRED ON UNPAID VALUE-ADDED TAX B) INTEREST ON LOAN BY AN INDIVIDUAL FROM A CORPORATION IF 60% OF THE OUTSTANDING STOCK OF THE LATTER IS OWNED INDIRECTLY BY SUCH INDIVIDUAL C) INTEREST ON LOAN BETWEEN MEMBERS OF A FAMILY D) INTEREST ONN LOAN BY A FIDUCIARY OF A TRUST AND A BENEFICIARY OF SUCH TRUST 244. A DEDUCTIBLE INTEREST EXPENSEA) INTEREST ON LOAN BETWEEN MEMBERS OF A FAMILY B) INTEREST ON LOAN THAT WAS USED TO FINANCE THE CONSTRUCTION OF THE TAXPAYER’S RESIDENTIAL HOUSE C) INTEREST ON TAX DELINQUENCY D) INTEREST ON INDEBTEDNESS TO FINANCE PETROLEUM OPERATIONS 245. ON JANUARY 2, 2009, MANG OTANG CONTRACTED A 1-YEAR P100,000 LOAN FROM METROBANK FOR THE PURCHASE OF COMPUTERS. THE EQUIPMENTS WHICH HAD A DEPRECIABLE LIFE OF EIGHT(8) YEARS WERE ACQUIRED ON APRIL 1, 2009. THE INTEREST EXPENSE FOR ONE(1) YEAR AMOUNTED TO P15,000. IN THE SAME YEAR, HIS BANK DEPOSIT WITH PNB EARNED AN INTEREST INCOME OF P2,000. DURING THE YEAR, HE INCURRED AN INTEREST EXPENSE ON UNPAID BUSINESS TAX OF P600. THE DEDUCTIBLE INTEREST EXPENSE OF MANG OTANG IN 2009 ISA) B) C) D)

P14,240 14,760 13,600 14,940

246. IN NUMBER 245, THE DEDUCTION OF MANG OTANG IN 2008 ASSUMING THAT THE INTEREST ON LOAN WAS CAPITALIZEDA) B) C) D)

P14,375 15,000 10,781.25 NONE

247. IN DECEMBER 2006, A TAXPAYER DONATED TO HIS SON 3,000 SHARES OF STOCK OF SAN MIGUEL CORPORATION. FOR FAILURE TO FILE A DONOR’S TAX RETURN ON THE DONATION WITHIN THE STATUTORY PERIOD, THE TAXPAYER WAS ASSESSED THE SUM OF P100,000, AS DONOR’S TAX PLUS 25% SURCHARGE OR P25,000 AND 20% INTEREST OR P20,000 WHICH HE PAID JANUARY 2009. ON JUNE 20, 2009, HE FILED HIS INCOME TAX RETURN FOR 2008 CLAIMING, AMONG OTHERS, A DEDUCTION FOR INTEREST AMOUNTING TO P1,500. ON JUNE 5, 2009, THE TAXPAYER FILED AN AMENDED INCOME TAX RETURN FOR THE SAME CALENDAR YEAR 2008, CLAIMING THEREIN AN ADDITIONAL DEDUCTION IN THE AMOUNT OF P20,000 REPRESENTING INTEREST PAID ON THE DONOR’S TAX. A CLAIM FOR REFUND OF ALLEGED OVERPAID INCOME TAX FOR TAXABLE YEAR 2008 WAS FILED WITH THE CIR WHICH WAS SUBSEQUENTLY DENIED. THE CIR POINTED OUT THAT A TAX IS NOT INDEBTEDNESS AND THAT THERE IS A FUNDAMENTAL DISTINCTION BETWEEN A “TAX” AND A “DEBT”. ACCORDING TO THE CIR, THE DEDUCTIBILITY OF INTEREST ON INDEBTEDNESS FROM A PERSON’S INCOME TAX CANNOT EXTEND TO INTEREST ON TAXES. Q#1: IS THE INTEREST ON THE DONOR’S TAX DEDUCTIBLE? Q#2: IS THE INTEREST ON THE INCOME TAX DEDUCTIBLE? A) B) C) D)

YES, YES NO, YES YES, NO NO,NO

248. IF A STOCKHOLDER RECEIVES A TAXABLE STOCK DIVIDEND, WHAT IS THE MEASURE OF INCOME APPLICABLE TO HIM?-(RPCPA) A) PAR VALUE OF THE SHARES ON THE DATE HE RECEIVES THEM B) FAIR MARKET VALUE OF THE SHARES ON THE DATE OF DECLARATION

C) THE ADJUSTED COST OF THE OLD SHARES AND THE NEW SHARES OF THE CORPORATION D) THE BOOK VALUE OF THE SHARES OF THE PRECEDING CALENDAR YEAR 249. GENERALLY, SALES OF REAL PROPERTY ARE SUBJECT TO TAX. WHICH OF THE FOLLOWING SALES OF LAND IS NOT ALLOWED BY THE LAW TO BE SUBJECTED TO TAX?-(RPCPA) A) B) C) D)

LAND SOLD BY THE CHURCH LAND FORECLOSED BY THE BANK LAND SOLD TO GOVERNMENT CORPORATIONS NONE OF THE ABOVE

TAX EXPENSE/TAX CREDIT PROBLEMS: 250. ONE IS NOT A DEDUCTIBLE TAX-(RPCPA) A) B) C) D)

BUSINESS TAX VALUE-ADDED TAX PRIVILEGE TAX OCCUPATION TAX

251. ONE IS A DEDUCTIBLE TAX-(RPCPA) A) B) C) D)

ESTATE TAX FRANCHISE TAX DONOR’S TAX SPECIAL ASSESSMENT

252. ONE IS ENTITLED TO TAX CREDIT FOR TAXES PAID TO FOREIGN COUNTRY-(RPCPA) A) RESIDENT ALIENS B) DOMESTIC CORPORATION C) NON-RESIDENT ALIENS WITH RECIPROCITY D) NON-RESIDENT CITIZENS 253. ONE IS ENTITLED TO TAX CREDIT FOR TAXES PAID TO FOREIGN COUNTRY-(RPCPA) A) NON-RESIDENT ALIENS B) FOREIGN CORPORATIONS C) RESIDENT ALIENS WITH INCOME DERIVED SOLELY FROM SOURCES WITHIN THE PHILIPPINES D) BENEFICIARIES OF THE ESTATES AND TRUSTS

254.THE FOLLOWING TAXPAYERS CAN CLAIM TAX CREDIT EXCEPT ONE(RPCPA) A) B) C) D)

DOMESTIC CORPORATIONS MEMBERS OR BENEFICIARIES OF PARTNERSHIP OR TRUST RESIDENT FILIPINO CITIZENS NON-RESIDENT ALIENS

255. IN 2009, VICTOR CO., A DOMESTIC CORPORATION HAS NET INCOME FROM WITHIN THE PHILIPPINES, P200,000 AND FROM THE U.S.A., P300,000. INCOME TAX PAID ON INCOME FROM THE U.S.A. IS P95,000. THE TAX CREDIT ON INCOME TAX PAID TO U.S. GOVERNMENT IS-(RPCPA) A) B) C) D)

P105,000 60,000 90,000 110,000

256. GLOBAL CORPORATION, A DOMESTIC CORPORATION , HAS THE FOLLOWING DATA FOR THE CALENDAR YEAR. THE CORPORATION SIGNIFIED ITS INTENTION TO CLAIM TAX CREDITS ON INCOME TAXES PAID TO THE FOREIGN COUNTRIES: COUNTRY

GROSS INCOME

ALLOWABLE DEDUCTIONS

TAX PAID

PHIL. U.S.A. JAPAN

1,000,000 400,000 300,000

800,000 200,000 200,000

P80,000 25,000

THE INCOME TAX PAYABLE BY GLOBAL CORPORATION IS: A) B) C) D)

P75,000 65,000 60,000 72,000

257. PENNY GARCIA , SINGLE HAS THE FOLLOWING DATA DURING THE YEAR: GROSS INCOME, PHIL. GROSS INCOME, USA EXPENSES, PHIL. EXPENSES, USA TAX PAID IN THE STATE OF CALIFORNIA FEDERAL INCOME TAX PAID

P120,000 200,000 80,000 160,000 40,000 8,500

IF THE FOREIGN TAX PAID IS CLAIMED AS DEDUCTION, THE INCOME TAX DUE ISA) B) C) D)

P51,500 5,725 12,800 1,650

258. IN NUMBER 257, IF YOU ARE THE TAXPAYER, WILL YOU OPT TO CLAIM THE FOREIGN TAX PAID AS TAX CREDIT OR AS A DEDUCTION? A) TAX CREDIT BECAUSE THE TAX LIABILITY WOULD BE P1,250 ONLY B) TAX CREDIT BECAUSE THE TAX LIABILITY WOULD BE P2,500 ONLY C) DEDUCTION BECAUSE THE TAX LIABILITY WOULD BE P2,150 ONLY D) DEDUCTION BECAUSE THE TAX LIABILITY WOULD BE P7,000 ONLY

CHAPTER 9-LOSSES 259. ONE IS NOT A DEDUCTIBLE LOSS-(RPCPA) A) LOSS DUE TO REMOVAL OR DEMOLITION OF OLD BUILDING, THE SCRAPPING OF OLD MACHINERY OR EQUIPMENT INCIDENT TO RENEWAL OR REPLACEMENT B) LOSS DUE TO REMOVAL OF BUILDING OR REAL ESTATE PURCHASED WHEN THE PURCHASE WAS FOR THE ACQUISITION OF THE LAND AND WITHOUT INTENDING TO USE THE BUILDING C) LOSS IN VALUE OF SECURITIES OF SUCH EXTENT THAT THE SECURITIES HAVE BECOME WORTHLESS AND ARE WRITTEN OFF D) LOSS IN USEFULNESS IN BUSINESS OF AN ASSET SO THAT THE BUSINESS IS DISCONTINUED OR THE ASSET IS DISCARDED 260.MAX AND JESS ARE BUSINESS COMPETITORS. MAX PURCHASED A LAND BESIDE THE BUSINESS PREMISES OF JESS WITH THE INTENTION OF ERECTING A NEW 4-STOREY BUILDING. THE LAND WHICH WAS VALUED AT P1,000,000 HAD AN ALMOST DILAPIDATED BUILDING THEREON ASSESSED AT P150,000. HE SPENT P40,000 FOR ITS DEMOLITION AND SOLD ITS SCRAP FOR P25,000. THE CONSTRUCTION OF THE NEW BUILDING COST HIM P10,000,000. WHEN JESS KNEW THE INTENTION OF MAX, HE DECIDED ALSO TO DEMOLISH HIS 20-YEAR OLD BUILDING AND TO PUT UP A NEW ONE. THE DEMOLITION COST HIM P80,000 BUT RAISED P35,000 FROM THE SCRAP, AND THE CONSTRUCTION COST OF THE NEW 6-STOREY BUILDING WAS P15,000,000.

AS BETWEEN MAX AND JESS, WHO IS ENTITLED TO CLAIM LOSS AS DEDUCTION FROM GROSS INCOME? A) B) C) D)

MAX ONLY JESS ONLY BOTH OF THEM NEITHER OF THEM

261. DELTA COMPANY PURCHASED A PIECE OF LAND WITH A BUILDING THEREON FOR P1,500,000 ALLOCATED UNDER A CONTEACT OF SALE AT P1,000,000 FOR THE LAND AND P500,000 FOR THE BUILDING. IT HAD NO USE FOR THE BUILDING AT THE TIME OF PURCHASE AND IT WAS ITS INTENTION TO REMOVE THE BUILDING IN ORDER TO BUILD ITS FACTORY. IT INCURRED DEMOLITION COST OF P50,000. IT SOLD ITS SCRAP FOR P15,000. THE CONSTRUCTION OF THE NEW BUILDING COST THE COMPANY P2,500,000. THE TOTAL VALUE OF THE LAND ISA) B) C) D)

P1,000,000 2,615,000 1,615,000 1,535,000

262. DINA COMPANY HAD AN OLD WAREHOUSE WHICH HAD A COST OF P1,200,000. THE COMPANY DEMOLISHED THE WAREHOUSE WHEN IT HAD A BOOK VALUE OF P200,000 IN ORDER TO CONSTRUCT A NEW AND BIGGER WAREHOUSE. THE DEMOLITION COST AMOUNTED TO P25,000 WHILE THE SCRAP VALUE WERE SOLD FOR P10,000. IN ITS ACCOUNTING ENTRY, DINA COMPANY SHOULD DEBIT A LOSS ON RETIREMENT OF OLD BUILDING OF A) B) C) D)

NONE P200,000 185,000 215,000

263. A BUILDING WAS PARTIALLY DESTROYED BY FIRE IN 2008. IT HAD A BOOK VALUE OF P4,000,000. THE INSURANCE COMPANY WAS WILLING TO PAY P3,000,000 WHICH WAS REFUSED BY THE OWNER OF THE BUILDING. FINALLY, THE CLAIM WAS SETTLED IN 2009 FOR P3,500,000. THE P3,500,000 PROCEEDS IS-(RPCPA) A) B) C) D)

EXEMPT FROM INCOME TAX TAXABLE IN FULL SUBJECT TO FINAL TAX PARTLY TAXABLE, PARTLY EXEMPT

264. REFER TO ITEM 263 DATA. THE TAXPAYER CAN CLAIM S DEDUCTIBLE LOSS OF-(RPCPA) A) B) C) D)

P1,000,000 IN 2008 1,000,000 IN 2009 500,000 IN 2008 500,000 IN 2009

265. IN 2008, POPOY’S RESIDENCE WAS TOTALLY DESTROYED BY FIRE. THE PROPERTY HAD AN ADJUSTED BASIS AND A FAIR MARKET VALUE OF P130,000 BEFORE THE FIRE. DURING 2008, POY RECEIVED INSURANCE REIMBURSEMENT OF P120,000 FOR THE DESTRUCTION OF HIS HOME. POPOY’S 2008 ADJUSTED GROSS INCOME WAS P70,000. POPOY HAD NO CASUALTY GAINS DURING THE YEAR.. WHAT AMOUNT OF THE FIRE LOSS WAS POPOY ENTITLED TO CLAIM AS AN ITEMIZED DEDUCTION ON HIS 2009 TAX RETURN?-(RPCPA) A) B) C) D)

ZERO 8,500 8,600 10,000

266. IN 2007, VIOLETA CONSTRUCTED AN OFFICE BUILDING WORTH P2,000,000. IN 2009 WHEN IT HAD AN ACCUMULATED DEPRECIATION OF P72,000 THE BUILDING WAS TOTALLY DESTROYED BY FIRE. ASSUMING THAT THE AMOUNT RECOVERABLE FROM STAN INSURANCE COMPANY IS P500,000, THE DEDUCTIBLE LOSS OF VIOLETA ISA) B) C) D)

P1,928,000 2,000,000 ZERO 1,428,000

267.BASED ON THE DATA IN NO. 266 ABOVE, THE ACCOUNTING ENTRY IN THE BOOKS OF VIOLETA A) FIRE LOSS BUILDING B) FIRE LOSS ALLOWANCE FOR DEPRECIATION BUILDING C) FIRE LOSS RECEIVABLE FROM INS. CO.

2,000,000 2,000,000 1,428,000 72,000 1,500,000 500,000 500,000

D) RECEIVABLE FROM INS. CO. ALLOWANCE FOR DEPRECIATION FIRE LOSS BUILDING

500,000 72,000 1,428,000 2,000,000

268. THE FOLLOWING PROPERTIES WERE BURNED IN A FIRE WHICH BROKE OUT IN THE COMPANY PREMISES: TYPE OF LOSS COST ACCUM. DEP’N INSURANC RECOVERY REPLACEMENT COST OF DAMAGED PORTION

PROPERTY A TOTAL 800,000 550,000 200,000

PROPERTY B PARTIAL 1,200,000 600,000 150,000

-

500,000

THE DEDUCTIBLE LOSS ON PROPERTY A ISA) B) C) D)

P250,000 800,000 50,000 600,000

269. BASED ON THE DATA IN NUMBER 268 ABOVE, THE DEDUCTIBLE LOSS ON PROPERTY B ISA) B) C) D)

P600,000 350,000 500,000 1,200,000

270. KATRINA CONSTRUCTION CORPORATION, A DOMESTIC CORPORATION HAD THE FOLLOWING DATA: YEAR 2008: GROSS INCOME FROM SERVICES P3,200,000 OPERATING EXPENSES 3,450,000 RENT INCOME OF HEAVY EQUIPMENTS 70,000 DIVIDEND RECEIVED FROM JOHNA CORP. 36,500 CAPITAL GAIN ON SALE OF SHARES OF STOCKS (NOT LISTED) 12,250 YEAR 2009: GROSS INCOME FROM SERVICES OPERATING EXPENSES

3,560,000 1,250,000

IN 2009, KATRINA CORPORATION INCURRED THE FOLLOWING LOSSES:

FIRE LOSS OF A COMPANY BUILDING: TOTAL LOSS COST P5,000,000 ACCUM. DEP’N 3,000,000 AMOUNT RECOVERED FROM INSURANCE CO. 750,000 SCRAP(TAKEN AWAY BY THE INS. CO.) 5,000 ACCIDENT LOSS OF A COMPANY DUMP TRUCK: PARTIAL LOSS COST OF DUMP TRUCK P500,000 ACCUM. DEP’N 250,000 RESTORATION COST 150,000 AMOUNT RECOVERED FROM INS. CO. 65,000 271. HOW MUCH IS THE NET OPERATING LOSS CARRY-OVER TO 2009? A) B) C) D)

(P131,250) (119,000) (180,000) (250,000)

272. HOW MUCH IS THE CASUALTY LOSS IN 2009? A) B) C) D)

P1,335,000 2,150,000 1,400,000 1,435,000

273. HOW MUCH IS THE INCOME TAX DUE IN 2009? A) B) C) D)

P238,500 278,250 130,462.50 97,387.50

274. JOE, A SALES AGENT ON COMMISSION BASIS OF CONTRADE ENTERPRISES WHICH IS ENGAGED IN THE SALE OF PAPER AND PAPER PRODUCTS, WHILE IN THE COURSE OF HIS TRAVEL TOWARDS BICOL REGION WAS APPREHENDED BY MEMBERS OF THE NEW PEOPLE’S ARMY (NPA) UNDER MELITO GLOR COMMAND ALONG QUEZON PROVINCE. HIS SERVICE CAR OWNED BY CONTRADE ENTERPRISES WAS SEIZED. THE NEXT DAY, HE LEARNED THAT THE NPAS AND THE MEMBERS OF THE PHIL. ARMY UNDER 51ST BRIGADE HAD A CHANCE ENCOUNTER. USING HEAVY WEAPONS, THE MILITARY FIRED AT THE NPAS THAT TRIED TO ESCAPE WITH THE USE OF HIS CAR. ALL THE MEMBERS OF THE NPA WERE KILLED AND THE CAR WAS A TOTAL WRECK. IS THE VALUE OF THE CAR DEDUCTIBLE AS CASUALTY LOSS?

A) YES. IT IS DEDUCTIBLE TO JOE BEING IN POSSESSION OF THE CAR AT THE TIME IT WAS SEIZED B) YES. IT IS DEDUCTIBLE TO CONTRADE ENTERPRISES PROVIDED THAT THE OTHER REQUISITES FOR DEDUCTIBILITY MUST BE SATISFIED C) NO. CASUALTY LOSS REFERS ONLY TO FIRE, EARTHQUAKE, VOLCANIC ERUPTION AND OTHER NON-MAN MADE CALAMITIES D) NO, BECAUSE IT WAS INTENTIONALLY WRECKED BY THE MEMBERS OF THE PHIL. ARMY 275. QUENNIE COMPANY ACQUIRED MACHINERY AT A PURCHASE PRICE OF P500,000. FREIGHT AND INSTALLATION COST AMOUNTED TO P20,000. AT A DATE IN A TAXABLE YEAR WHEN THE ACCUMULATED DEPRECIATION WAS P300,000, QUENNIE COMPANY RETIRED THE MACHINERY FROM THE BUSINESS BECAUSE THE INCREASE IN THE COST OF PRODUCTION AND THE CHANGE OF MANUFACTURE OF THE PRODUCT TO WHICH THE MACHINERY IS EXCLUSIVELY DEVOTED MADE ITS CONTINUED PROFITABLE USE IMPOSSIBLE. THE SCRAP VALUE OF THE MACHINERY WAS P10,000. THE LOSS ON THE RETIREMENT OF THE MACHINERY ISA) B) C) D)

P220,000 280,000 200,000 210,000

276. FLORENCIO HAD THE FOLLOWING RECORDS OF INCOME, EXPENSES AND LOSSES DURING THE YEAR: WAGERING GAINS(WAGERING LOSSES, P50,000) TEMPORARY DECLINE IN VALUE OF STOCKS OF TY CORP SALE OF TYPEWRITERS WHICH WERE RENDERED OBSOLETE BTY COMPUTERS(BOOK VALUE:P115,000)

P30,000 12,500 80,000

HOW MUCH WAS THE LOSS IS DEDUCTIBLE BY FLORENCIO? A) B) C) D)

P97,500 35,000 55,000 110,000

277. ALL OF THE FOLLOWING, EXCEPT ONE, ARE REQUISITES IN THE CARRY-OVER OF NET OPERATING LOSS

A) THERE MUST BE NO SUBSTANTIAL CHANGE IN THE OWNERSHIP OF THE BUSINESS B) CARRY-OVER IS NOT ALLOWED IF THE CORPORATION IS SUBJECT TO MCIT DURING THE TAXABLE YEAR C) EVEN IF THE CORPORATION PAID TAX BASED ON MCIT, THE RUNNING OF THE PRESCRIPTION PERIOD IS NOT INTERRUPTED D) THE CARRY-OVER IS GOOD ONLY FOR ONE(1) YEAR 278. STATEMENT 1: THE TERM “NET OPERATING LOSS” SHALL MEAN THE EXCESS OF ALLOWABLE DEDUCTION OVER GROSS INCOME OF THE BUSINESS IN A TAXABLE YEAR. STATEMENT 2: NON-RESIDENT FOREIGN CORPORATIONS ARE NOT ENTITLED TO DEDUCT NOLCO FROM THEIR GROSS INCOME STATE,MENT 3: THE NOLCO WHICH HAD NOT BEEN OFFSET AS DEDUCTION FROM GROSS INCOME SHALL BE CARRIED OVER AS A DEDUCTION FROM GROSS INCOME FOR THE NEXT TAXABLE YEAR IMMEDIATELY FOLLOWING THE YEAR OF SUCH LOSS WHICH OF THE ABOVE STATEMENTS IS/ARE FALSE? A) B) C) D)

STATEMENT 1 ONLY STATEMENTS 1 AND 2 STATEMENT 3 ONLY NONE

NUMBERS 279 TO 281 ARE BASED ON THE FOLLOWING INFORMATION: THE FOLLOWING ARE THE RECORDS OF BRIDGET COMPANY: GROSS SALES COST OF SALES DIVIDEND-RESIDENT FOREIGN CORP. INTEREST INCOME ON NOTES RECEIVABLE CAPITAL GAIN CAPITAL LOSS

2007 P3,300,000 2,400,000

2008 2,340,000 1,070,000

2009 825,000 380,000

140,000

-

32,000

28,000 20,000

16,400 13,000 -

18,500 22,000

279. THE TAXABLE INCOME/OPERATING LOSS IN 2007 ISA) (P575,000) B) (407,000)

C) (427,000) D) 1,068,000 280. IN QUESTION 279, THE TAXABLE INCOME/OPERATING LOSS IN 2008 ISA) B) C) D)

ZERO 274,400 (132,600) 254,400

281. THE NET OPERATING LOSS CARRY-OVER IN 2009 ISA) B) C) D)

P18,000 ZERO 170,600 18,000

NUMBERS 282 AND 283 ARE BASED ON THE FOLLOWING INFORMATION: THE FOLLOWING ARE THE RECORDS OF BETTY, SINGLE, RESIDENT CITIZEN: 2008 2009 GROSS SALES P2,560,000 1,920,000 COST OF SALES 1,360,000 895,000 DIVIDEND FROM\ \ RESIDENT FOREIGN CORP. 41,200 INTEREST INCOME ON NOTES REC’BLE 12,500 INTEREST FROM DEPOSIT WITH CHINABANK 2,350 1,680 CAPITAL GAIN 11,450 13,650 CAPITAL LOSS 17,800 DEDUCTIONS 1,160,000 458,350 ADDITIONAL INFORMATION: A. IN 2007, THE TAXPAYER HAD AN OPERATING LOSS OF P300,000 B. IN 2009, THE TAXPAYER AVAILED OF OPTIONAL STANDARD DEDUCTION 282. THE TAXABLE INCOME/OPERATING LOSS IN 2008 ISA) B) C) D)

P261,400 ZERO 274,400 1,286,400

283. THE TAXABLE INCOME/OPERATING LOSS IN 2009 OF BETTY ISA) B) C) D)

P190,700 939,580 248,200 232,500

284. HOLY WORD COMPANY PURCHASED SHARES OF STOCK OF NUEVA CACERES COMPANY FOR P60,000 AND OF ATENEO COMPANY FOR P30,000. AT THE END OF THE TAXABLE YEAR, IT ASCERTAINED THAT ITS NUEVA CACERES COMPANY STOCK WAS WORTHLESS BECAUSE OF THE COMPLETE INSOLVENCY OF THE CORPORATION, AND ITS ATENEO COMPANY HAD DECLINED OIN VALUE OF P28,000. HOLY WORD COMPANY SHOULD RECOGNIZE A LOSS ON ITS INVESTMENT IN NUEVA CACERES AND ATENEO COMPANY SHARES OFA) B) C) D)

ZERO P62,000 60,000 90,000

285. NINI COMPANY WAS MERGED INTO OTOY COMPANY. NINI COMPANY TRANSFERRED ALL ITS PROPERTIES WITH A BOOK VALUE OF P4,000,000 TO OTOY COMPANY FOR WHICH IT RECEIVED SHARES OF THE LATTER WITH A FAIR MARKET VALUE OF P3,600,000. SANKO WAS A STOCJHOLDER OF NINI COMPANY (WHICH HE ACQUIRED AT A COST OF P500,000) WHEN THE MERGER WAS EFFECTED AND RECEIVED SHARES OF OTOY COMPANY WITH A FAIR MARKET VALUE OF P360,000. THE AMOUNT OF LOSS DEDUCTIBLE BY NINI COMPANY ISA) B) C) D)

P400,000 4,000,000 140,000 ZERO

286. IN NUMBER 285 ABOVE, THE AMOUNT OF LOSS DEDUCTIBLE BY OTOY ISA) B) C) D)

P400,000 140,000 500,000 ZERO

287. KIRING-KING COMPANY TRANSFERRED PROPERTY TO RAYRAY COMPANY. AS A RESULT OF THE TRANSFER, KIRING-KING COMPANY ACQUIRED CONTROL OVER RAYRAY COMPANY. THE PROPERTY HAD A

BOOK VALUE OF P1,000,000 TO KK COMPANY. AS A CONSIDERATION, IT RECEIVED SHARES OF STOCK OF RR WITH A FAIR MARKET VALUE OF P960,000. AS A CONSEQUENCE OF THE TRANSACTION, KK COMPANY SHALL CLAIM A DEDUCTIBLE LOSS OFA) B) C) D)

P1,000,000 960,000 40,000 ZERO

288. SHASHA, SINGLE, HAS THE FOLLOWING DATA IN 2008 AND 2009: 2008 NET INCOME BEFORE PERSONAL EXEMPTION AND BAD DEBT LESS: BAD DEBT WRITTEN OFF NET INCOME AFTER BAD DEBT 2009 BAD DEBT RECOVERED

CASE1

CASE2

CASE3

50,000

50,000

50,000

70,000

68,000

30,000

(20,000)

(18,000)

20,000

70,000

60,000

30,000

IN 2009, THE TAXABLE AMOUNTS BEFOREW PERSONAL EXEMPTION ARE: CASE1 CASE2 CASE3 A) 50,000 50,000 50,000 B) 50,000 42,000 30,000 C) 70,000 68,000 30,000 D) (20,000) (8,000) 20,000 289. THE FOLLOWING WERE TAKEN FROM THE INCOME STATEMENT OF ABC CORPORATION FOR THE TAXABLE YEAR 2009:-((RPCPA) GROSS PROFIT ON SALES LESS: DEDUCTIBLE EXPENSES PROVISION FOR BAD DEBTS NET INCOME BEFORE INCOME TAX

P800,000 440,000 80,000

520,000 280,000

ADDITIONAL INFORMATION: A. ACCOUNTS WRITTEN OFF DURING THE YEAR AND CHARGED TO ALLOWANCE FOR BAD DEBTS-P50,000 B. RECOVERIES ON ACCOUNTS RECEIVABLE PREVIOUSLY WRITTEN OFF IN 2008 AND CREDITED TO ALLOWANCE FOR BAD DEBTS

ALLOWED AS DEDUCTION BY BIR=P30,000 DISALLOWED BY BIR AS DEDUCTION=P20,000 THE NET INCOME BEFORE INCOME TAX OF ABC CORPORATION ISA) B) C) D)

P280,000 260,000 330,000 340,000

290. WHICH OF THE FOLLOWING METHODS OF DEPRECIATION IS NOT EXPRESSLY ALLOWED UNDER THE LAW? A) B) C) D)

OUTPUT OR PRODUCTION METHOD SUM-OF-YEARS DIGITS METHOD STRAIGHT LINE METHOD DECLINING BALANCE METHOD

291. WHICH OF THE FOLLOWING ASSETS IS SUBJECT TO DEPRECIATION FOR INCOME TAX PURPOSES?-(RPCPA) A) B) C) D)

INVENTORIES OR STOCK IN TRADE GOODWILL EQUIPMENT USED IN BUSINESS RESIDENTIAL HOUSE

292. A STORE BUILDING WAS CONSTRUCTED ON JANUARY 2, 2004 WITH A COST OF P570,000. ITS ESTIMATED USEFUL LIFE IS 16 YEARS WITH SCRAP VALUE OF P70,000 AFTER 16 YEARS. IN JANUARY 2009, REPLACEMENT OF SOME WORN-OUT PARTS OF THE BUILDING COSTING P50,000 WAS SPENT. AFTER THE RAPAIRS, THE BUILDING WAS APPRAISED WITH A FAIR MARKET VALUE OF P770,000. THE ALLOWABLE DEDUCTION FOR DEPRECIATION FOR THE YEAR 2009 IS-(RPCPA) A) B) C) D)

P35,795.45 43,750 49,431.82 31,250

CHARITABLE CONTRIBUTION PROBLEMS: 293.WHICH OF THE FOLLOWING IS DEDUCTIBLE FROM GROSS INCOME EVEN IF THE PAYMENT IS NOT CONNECTED WITH BUSINESS?

A) CONTRIBUTION OF THE EMPLOYER TO THE PENSION TRUST OF THE EMPLOYEE B) CHARITABLE CONTRIBUTIONS C) INCOME TAX PAID IN FOREIGN COUNTRY D) TRAVELLING EXPENSES 294. THE AMOUNT OF CHARITABLE CONTRIBUTION OF PROPERTY OTHER THAN MONEY SHALL BE BASED ON A) B) C) D)

FAIR MARKET VALUE BOOK VALUE LOWER OF COST OR MARKET ACQUISITION COST

295. ANGELO IS A CASH BASIS, SELF-EMPLOYED AIR-CONDITIONING REPAIRMAN WITH 2009 GROSS BUSINESS RECEIPTS OF P200,000. ANGELO’S CASH DISBURSEMENT WERE AS FOLLOWS:-(RPCPA) AIR CONDITIONING PARTS YELLOW PAGES LISTING ESTIMATED NATIONAL INCOME TAXES ON SELF-EMPLOYMENT INCOME BUSINESS LONG-DISTANCE TELEPHONE CALLS CHARITABLE CONTRIBUTIONS

P25,000 20,000 10,000 4,000 2,000

WHAT AMOUNT SHOULD ANGELO REPORT AS SELF-EMPLOYMENT INCOME BEFORE PERSONAL EXEMPTION? A) B) C) D)

P151,000 149,000 141,000 139,000

296. WHAT WOULD BE THE ALLOWABLE DEDUCTION FOR P10,000 CONTRIBUTION MADE BY A RESIDENT CITIZEN TO A CHARITABLE INSTITUTION, FROM HIS P60,000 NET INCOME BEFORE CONTRIBUTION? A) B) C) D)

P6,000 7,000 3,000 10,000

297.NOTRADAMUS CORPORATION HAD THE FOLLOWING DATA IN 2009: GROSS INCOME DEDUCTIONS(EXCEPT CONTRIBUTIONS)

P500,000 400,000

DONATIONS TO CULTURAL CENTER OF THE PHIL. DONATIONS TO REHABILITATION OF VETERANS, INC. DONATION TO ROMAN CATHOLIC CHURCH DONATIONS TO VICTIMS OF PAYATAS TRAGEDY THE TAXABLE INCOME OF THE CORPORATION ISA) B) C) D)

3,000 2,000 1,500 5,000

P92,000 93,500 88,500 100,000

298. DOMINGO HAD THE FOLLOWING DATA DURING THE YEAR: GROSS INCOME FROM BUSINESS P1,000,000 CAPITAL GAIN 50,000 CAPITAL LOSS 20,000 DEDUCTIONS 400,000 DONATION TO ACCREDITED NGO 30,000 DONATION TO CHURCH 20,000 THE TAXABLE INCOME OF DOMINGO IF HE IS AN INDIVIDUAL TAXPAYER, SINGLE, WITH A COMPENSATION INCOME DURING THE YEAR OF P40,000A) B) C) D)

P550,000 600,000 560,000 570,000

299. IN NUMBER 299 DATA, HOW MUCH IS THE TAXABLE INCOME IF DOMINGO IS A CORPORATION (DISREGARD COMPENSATION INCOME)A) B) C) D)

P670,000 640,000 580,000 570,000

300. SANDY MADE A CONTRIBUTION OF P15,000 TO ST. JUDE PARISH CHURCH. HE HAD A GROSS INCOME FROM BUSINESS OF P500,000 AND DEDUCTIONS (EXCLUDING CONTRIBUTION) OF P400,000. FROM THIS CONTRIBUTION, HOW MUCH WILL HE BE ALLOWED AS DEDUCTION FROM HIS GROSS INCOME? A) B) C) D)

P15,000 ZERO 10,000 100,000

301. AN INDIVIDUAL TAXPAYER MADE THE FOLLOWING CONTRIBUTIONS: TO FATIMA CATHOLIC CHURCH TO BEGGARS TO POLYTEHCNIC UNIVERSITY OF THE PHIL. TO BGY TIKAPO

P20,000 500 25,000 10,000

THE AMOUNT OF CONTRIBUTIONS DEDUCTIBLE SUBJECT TO 10% LIMITATION ISA) B) C) D)

P20,000 30,000 55,000 55,500

302. THE CANCER HOSPITAL OF THE PHILIPPINES IS A CHARITABLE INSTITUTION. MR. BIGLANG-AWA VISITED THE HOSPITAL ON HIS 60 TH BIRTHDAY. HE DONATED P500,000 TO THE HOSPITAL AND P10,000 TO A CANCER VICTIM WHO IS ONLT TEN(10)YEARS. HE ALSO BROUGHT WITH HIM A CHAIN RESTAURANT MASCOT THAT PLAYED WITH THE CHILDREN PATIENTS WHILE EATING THE POPULAR PRODUCT OF THE RESTAURANT. IT HAD COST HIM P15,000. WHICH OF THE ABOVE CONTRIBUTIONS IS QUALIFIED AS DEDUCTION FROM THE GROSS COMPENSATION INCOME OF BIGLANG-AWA IF HE IS A NEWLY RETIRED GOVERNMENT OFFICIAL WHO IS NOT ENGAGED IN BUSINESS? A) B) C) D)

ONLY THE P500,000 THE P500,000 AND THE P10,000 THE P500,000, P10,000 AND P15,000 NONE OF THEM

OPTIONAL STANDARD DEDUCTION PROBLEMS: 303. THE TAXPAYER HAD THE FOLLOWING DATA IN 2009: GROSS RECEIPTS COST OF SERVICES DEDUCTIONS CAPITAL GAIN CAPITAL LOSS

P1,450,000 565,300 325,800 25,500 6,000

IF THE TAXPAYER IS SINGLE, WITH ONE DEPENDENT CHILD, THE TAXABLE INCOME IF HE AVAILED OF THE OPTIONAL STANDARD DEDUCTION IS-

A) B) C) D)

P870,000 814,500 475,320 503,400

305. IN NUMBER 304, THE TAXABLE INCOME IF THE TAXPAYER IS A CORPORATION ISA) B) C) D)

P550,320 814,500 542,520 889,500

ACCOUNTING METHODS PROBLEMS: 306. A HYBRID METHOD OF ACCOUNTING ISA)THE METHOD UNDER WHICH EXPENSES IN THE PRODUCTION OF CROPS ARE DEDUCTED IN THE YEAR IN WHICH THE GROSS INCOME FROM THE CROP HAS BEEN REALIZED B)A METHOD UNDER WHICH THE TAXPAYER REPORTS HIS INCOME AND EXPENSES BY EMPLOYING THE COMBINATION OF CASH AND ACCRUAL METHOD C)ALSO KNOWN AS CASH RECEIPTS AND DISBURSEMENTS METHOD D)A METHOD IN WHICH THE TAXPAYER REPORTS INCOME IN THE YEAR IT IS EARNED 307. TAXPAYER IS REQUIRED TO REPORT INCOME FOR THE TAX YEAR IN WHICH PAYMENTS ARE ACTUALLY OR CONSTRUCTIVELY RECEIVED WHILE EXPENSES ARE DEDUCTED IN THE YEAR PAID A) B) C) D)

ACCRUAL BASIS CASH BASIS OR CASH RECEIPTS AND DISBURSEMENTS METHOD HYBRID METHOD CROP YEAR BASIS

308. UNDER THIS METHOD OF ACCOUNTING, INCOME IS REPORTED IN THE YEAR IT IS EARNED A) B) C) D)

CASH BASIS CROP YEAR BASIS CONSTRUCTIVE RECEIPT OF INCOME ACCRUAL METHOD

309. ESTRELLA USES ACCRUAL METHOD OF ACCOUNTING. SHE OWNS A LAND WHICH SHE LEASED TO GORDON FOR 2 YEARS AT AN ANNUAL RENTAL OF P100,000. ON JULY 1, 2007, SHE RECEIVED P200,000 FROM GORDON REPRESENTING THE RENTAL COVERING THE PERIOD JULY 1, 2007 TO JUNE 30, 2009. IN 2007, ESTRELLA WILL REPORT AN INCOME SUBJECT TO TAX OF – A) B) C) D)

P50,000 200,000 100,000 150,000

310. BASED ON THE DATA IN NO. 309 ABOVE, GORDON, USING CASH METHOD CAN DEDUCT AN EXPENSE OFA) B) C) D)

P50,000 200,000 100,000 150,000

311. ALL OF THE FOLLOWING, EXCEPT ONE, ARE CONSIDERED AS “CONSTRUCTIVE RECEIPTS” FOR INCOME TAX PURPOSES. WHICH IS THE EXCEPTION? A) THE SHARE OF THE PROFITS OF THE PARTNER IN A GENERAL PROFESSIONAL PARTNERSHIP B) INTEREST CREDITED ON BANK SAVINGS DEPOSIT C) BOND INTEREST COUPONS WHICH HAVE MATURED BUT WHICH HAVE NOT BEEN REDEEMED D) PROPERTY BORROWED BY THE TAXPAYER 312. UNDER THIS METHOD OF REPORTING INCOME, THE TAXPAYER REPORTS A PERCENTAGE OF THE GROSS INCOME FROM A LONG-TERM CONTRACT BASED ON THE PORTION OF WORK THAT HAS BEEN COMPLETED A) B) C) D)

ACCRUAL BASIS CASH BASIS PERCENTAGE OF COMPLETION METHOD HYBRID METHOD

313. GROSSS INCOME IS REPORTEDLY PARTIALLY IN EACH TAXABLE YEAR IN PROPORTION TO COLLECTIONS MADE IN SUCH PERIOD AS IT BEARS TO THE TOTAL CONTRACT PRICE REFER TO-(RPCPA)

A) B) C) D)

CROP YEAR BASIS METHOD PERCENTAGE OF COMPLETION BASIS METHOD ACCRUAL METHOD INSTALLMENT SALES METHOD

314. ALL OF THE FOLLOWING, EXCEPT ONE, ARE NOT TAKEN INTO ACCOUNT IN DETERMINING THE CORRECT AMOUNT OF INITIAL PAYMENTS A) B) C) D)

COMMISSIONS OTHER SELLING EXPENSES INSTALLMENT PAYMENTS IN THE YEAR OF SALE GROSS PROFIT

315. UNDER INSTALLMENT METHOD OF REPORTING INCOME TAX, THE AMOUNT OF TAX PAYABLE IN THE YEAR OF SALE OF A VACANT LOT IS COMPUTED BY APPLYING THE FOLLOWING FORMULA: A) B) C) D)

(DOWNPAYMENT/CONTRACT PRICE) X FINAL TAX DUE (INITIAL PAYMENT/SELLING PRICE) X FINAL TAX DUE (FINAL TAX DUE/SELLING PRICE) X COLLECTION (INITIAL PAYMENT/CONTRACT PRICE) X FINAL TAX DUE

NUMBERS 316 TO 318 ARE BASED ON THE FOLLOWING INFORMATION: ALONSO OWNS A PERSONAL CAR WHICH HE SOLD IN INSTALLMENT ON NOVEMBER 1, 2008 AS FOLLOWS: DATE OF ACQUISITIONACQUISITION COSTTERMS OF PAYMENT: DOWNPAYMENTDUE ON DUE ONDUE ON-

MARCH 20, 2006 P300,000 NOVEMBER 1, 2008 DECEMBER 1, 2008JANUARY 1, 2009FEBRUARY 1, 2009-

316. THE INITIAL PAYMENT IN 2008 ISA) B) C) D)

P50,000 100,000 300,000 400,000

P50,000 50,000 150,000 150,000

317. THE AMOUNT OF GAIN TO BE REPORTED IN 2008 ISA) B) C) D)

P50,000 25,000 37,500 12,500

318. THE AMOUNT OF GAIN TO BE REPORTED IN 2009 ISA) B) C) D)

P50,000 25,000 37,500 12,500

NUMBERS 319 TO 323 ARE BASED ON THE FOLLOWING INFORMATION: MARLYN SOLD A VACANT LOT TO HER SISTER MICA. THE DETAILS OF WHICH ARE AS FOLLOWS: ACQUISITION COST OF LAND, MARCH 5, 2006 CASH PAYMENTS: DATE OF SALE, DEC. 15, 2008 P100,000 PAYMENT, JANUARY 15, 2009 100,000 MORTGAGE ASSUMED BY MICA 500,000 319. THE INITIAL PAYMENT ISA) B) C) D)

P100,000 250,000 150,000 200,000

320. THE SELLING PRICE OF THE PROPERTY ISA) B) C) D)

P150,000 550,000 700,000 250,000

321. THE CONTRACT PRICE ISA) B) C) D)

P150,000 550,000 700,000 250,000

P450,000

322. THE FINAL TAX PAYABLE IN 2008 ISA) B) C) D)

P42,000 25,200 9,000 NONE

323. THE FINAL TAX PAYABLE IN 2009 ISA) B) C) D)

P42,000 25,200 16,800 NONE

NUMBERS 324 AND 325 ARE BASED ON THE FOLLOWING INFORMATION: ABUNDA SOLD HIS WAREHOUSE BUILDING TO ABELINDE. THE PROPERTY WAS ACQUIRED BY HIM IN 2001 FOR P250,000. AT THE TIME OF SALE, ITS ACCUMULATED DEPRECIATION AMOUNT TO P50,000. THE TERMS OF THE SALE ARE AS FOLLOWS: CASH PAID, JUNE 1, 2008 INSTALLMENT, SEPT 1, 2008 INSTALLMENT, DEC 1, 2008 INSTALLMENT, MARCH 1, 2009 INSTALLMENT, JUNE 1, 2009

P50,000 20,000 20,000 155,000 155,000

324. THE INCOME TO BE REPORTED BY ABUNDA IN 2008 ISA) B) C) D)

P45,000 90,000 200,000 NONE

325. THE INCOME TO BE REPORTED BY ABUNDA IN 2009 ISA) B) C) D)

P200,000 155,000 45,000 NONE

326. JOSEPH SAN JOSE SOLD A COMMERCIAL BUILDING ON OCTOBER 15, 2008 FOR P2,000,000. THE COST OF THE PROPERTY WAS P1,200,000 WHILE THE ACCUMULATED DEPRECIATION WAS P400,000. THE TERMS OF THE SALE WERE:

DOWN PAYMENT P300,000 BALANCE IS PAYABLE IN MONTHLY INSTALLMENTS OF P100,000 BEGINNING NOVEMBER 15, 2008 UNTIL FULLY PAID. THE INCOME TO BE REPORTED IN 2008 – A) B) C) D)

P75,000 300,000 45,000 30,000

SPECIAL TOPIC-FRINGE BENEFIT TAX 327. THE FRINGE BENEFIT TAX IS NOT IMPOSED ONI) J) K) L)

RANK AND FILE EMPLOYEE SUPERVISORY EMPLOYEE MANAGERIAL EMPLOYEE ALL EMPLOYEES

328.FRINGE BENEFIT TAX IS IMPOSED ONA) B) C) D)

RANK AND FILE EMPLOYEE DE MINIMIS BENEFITS SUPERVISORY AND MANAGERIAL EMPLOYEES FRINGE BENEFITS GRANTED FOR THE CONVENIENCE OF THE EMPLOYER

329. WHICH OF THE FOLLOWING IS SUBJECT TO FRINGE BENEFIT TAX?(RPCPA) A) COMPENSATION OF THE RANK AND FILE EMPLOYEE B) COMPENSATION OF THE SUPERVISORY AND EMPLOYEE C) FRINGE BENEFIT OF THE RANK AND FILE EMPLOYEE D) FRINGE BENEFIT OF THE SUPERVISORY OF EMPLOYEES

MANAGERIAL MANAGERIAL

330. THE FOLLOWING EARNINGS ARE SUBJECT TO FRINGE BENEFIT TAX, EXCEPT:-(RPCPA) A) SALARY OF RANK AND FILE EMPLOYEE B) HOUSING NECESSARY FOR THE TRADE AND FOR THE CONVENIENCE OF THE EMPLOYER

C) FOOD ALLOWANCE FOR THE CONVENIENCE OF THE EMPLOYER AND NECESSARY IN THE CONDUCT OF THE BUSINESS D) ALL OF THE ABOVE ITEMS 331 AND 332 ARE BASED ON THE FOLLOWING INFORMATION: 331. DITSO IS EMPLOYED BY HOLY CROSS HOSPITAL AS AN AMBULANCE DRIVER WITH A SALARY OF P4,000 A MONTH. IN ADDITION, HE IS GIVEN MEALS WITH A MONTHLY VALUE OF P1,500 AND LIVING QUARTERS WITHIN THE HOSPITAL COMPOUND WITH AN EQUIVALENT VALUE OF P1,000 A MONTH THE MONTHLY COMPENSATION INCOME OF DITSO ISA) B) C) D)

P6,500 4,000 5,000 5,500

332. IF THE BENEFITS GIVEN TO DITSO IN NUMBER 331 ABOVE IS FURNISHED BY HIS EMPLOYER SO THAT HIS SERVICES COULD EASILY BE AVAILED OF WHENEVER SOME PATIENTS WILL NEED THE URGENT SERVICES OF AN AMBULANCE, HIS MONTHLY COMOENSATION INCOME ISA) B) C) D)

P6,500 4,000 5,000 5,500

333. THE FOLLOWING STATEMENTS ARE TRUE, EXCEPT:-(RPCPA) A) FRINGE BENEFIT TAX SHALL BE TREATED AS A FINAL INCOME TAX ON THE EMPLOYEE WITHHELD AND PAID BY THE EMPLOYER ON A QUATERLY BASIS B) THE GROSSED-UP MONETARYVALUE OF THE FRINGE BENEFIT IS THE ACTUAL AMOUNT RECEIVED BY THE EMPLOYEE C) THE GROSSED-UP MONETARY VALUE OF THE FRINGE BENEFIT SHALL BE DETERMINED BY DIVIDING THE MONETARY VALUE OF THE FRINGE BENEFIT BY THE GROSS MONETARY VALUE FACTOR D) THE PERSON LIABLE FOR FRINGE BENEFIT TAX IS THE EMPLOYER, WHETHER HE IS INDIVIDUAL, PROFESSIONAL PARTNERSHIP OR A CORPORATION REGARDLESS OF WHETHER THE CORPORATION IS TAXABLE OR NOT OR THE GOVERNMENT AND ITS INSTRUMENTALITIES

334. STATEMENT 1: A FRINGE BENEFIT THAT IS EXEMPT FROM BENEFIT TAX IS LIKEWISE EXEMPT FROM ANY OTHER FORM OF INCOME TAX STATEMENT 2: ANY AMOUNT GIVEN BY THE EMPLOYER AS DEMINIMIS BENEFITS TO ITS EMPLOYEES, SHALL NOT CONSTITUTE AS DEDUCTION UPON SUCH EMPLOYER A) B) C) D)

STATEMENT 2 STATEMENT 1 STATEMENTS 1 AND 2 NEITHER STATEMENTS

335.SARAH BUKAS, MARRIED WITH THREE(3) QUALIFIED DEPENDENT CHILDREN, A REGULAR EMPLOYEE OF CONFEDERATE, INC., RECEIVES ON JULY 6, 2009 P30,000 AS REGULAR MONTHLY SALARY AND HALF OF HIS 13 TH MONTH PAY AMOUNTING TO P15,000 PLUS OTHER BENEFITS SUCH AS RICE ALLOWANCE FOR JULY OF P2,000, INCENTIVE PAY OF P20,000, HAZARD PAY OF P1,000, OVETRTIME PAY OF P4,000 AND NIGHT SHIFT DIFFERENTIAL OF P2,000. COMPUTE THE INCOME SUBJECT TO WITHHOLDING TAX IN JULY A) B) C) D)

P57,000 30,000 45,500 72,500

336. MAYAMAN COMPANY OWNS A FLEET OF MOTOR VEHICLES. IN 2008, ONE OF THE CARS WHICH WAS ACQUIRED AT A COST OF P400,000 WAS ALLOWED AS SERVICE VEHICLE BY ONE OF ITS OFFICIALS. DURING THE YEAR, ITS BOOK VALUE AMOUNTED TO P375,000. HOW MUCH WAS THE FRINGE BENEFIT TAX DUE THEREON? A) B) C) D)

P96,969 18,823 17,767 88,235

337. BASED ON THE DATA IN NUMBER 336 ABOVE, SUPPOSE MAYAMAN COMPANY IS JUST LEASING THE CAR THAT IS BEING USED PARTLY FOR PERSONAL AND FOR BUSINESS PURPOSES AND IS PAYINH AN ANNUAL RENTAL OF P100,000. THE ANNUAL FRINGE BENEFIT TAX ISA) P28,229 B) 23,529 C) 73,529

D) 25,760 338. IN MAY 2008, A NON-STOCK, NON-PROFIT UNIVERSITY PROVIDED A 3DAY VACATION TRIP TO BORACAY ISLAND TO THE UNIVERSITY’S EVP. THE TOTAL EXPENSES INCURRED BY THE SCHOOL WAS P20,000. THE FRINGE BENEFIT TAX ISA) B) C) D)

P6,400 9,412 10,303 NONE

ITEMS 339 AND 340 ARE BASED ON THE FOLLOWING DATA: 339. XYZ CORPORATION ASSIGNED MR. PASSO ONE OF THE EMPLOYEES IN THE HEAD OFFICE IN MANILA TO MANAGE THEIR BRANCH OFFICE IN DAGUPAN. THE COMPANY PROVIDED FOR THE RESIDENTIAL HOUSE OF THE MANAGER PAYING A MONTHLY RENTAL OF P34,000. THE MONTHLY FRINGE BENEFIT TAX THEREON ISA) P16,000 B) 10,880 C) 25,000 D) 8,000 340. BASED ON THE SAME DATA IN NO. 339 ABOVE, THE DEDUCTIBLE EXPENSE FROM THE GROSS INCOME OF XYZ CORPORATION ISA) B) C) D)

P8,000 25,000 42,000 34,000

NUMBERS 341 AND 342 ARE BASED ON THE FOLLOWING INFORMATION: 341. EXTRA CORPORATION FURNISHED AND GRANTED THE USE OF ITS CONDOMINIUM UNIT TO ITS EVP. THE FAIR MARKET VALUE OF THE PROPERTY IS P4,800,000 WHILE THE ACQUISITION COST IS P3,000,000. THE MONTHLY FRINGE BENEFIT TAX DUE ISA) P2,941.18 B) 4,705.88 C) 88,235

D) 58,823.53 342. BASED ON NUMBER 341 ABOVE, THE DEDUCTIBLE EXPENSE FROM THE GROSS INCOME OF EXTRA COPORATION ISA) B) C) D)

P14,705.88 4,705.88 12,132.35 2,941.18

343. BRAVO COMPANY PROVIDED FRINGE BENEFIT TO ITS MANAGERIAL EMPLOYEES IN THE AMOUNT OF P136,000 AND TO ITS RANK AND FILE EMPLOYEES AMOUNTING TO P50,000. THE DEDUCTIBLE EXPENSE BY BRAVO COMPANY ISA) B) C) D)

P186,000 136,000 50,000 250,000

344. THE CORPORATION GAVE A BRAND NEW CAR TO ITS SALES MANAGER. THE FRINGE BENEFIT GIVEN ISA) SUBJECT TO FRINGE BENEFIT TAX BASED ON THE PROVISIONS OF THE TAX CODE B) SUBJECT TO FRINGE BENEFIT TAX BECAUSE IT WAS GIVEN TO A RANK-AND-FILE EMPLOYEE C) EXEMPT FROM THE FRINGE BENEFIT TAX BECAUSE IT IS REQUIRED BY THE NATURE OF OR NECESSARY TO THE TRADE OR BUSINESS OF THE EMPLOYER D) EXEMPT FROM THE FRINGE BENEFIT TAX BECAUSE IT WAS GIVEN FOR THE CONVENIENCE OF THE EMPLOYER 345. FRANCINE CORPORATION GAVE THE FOLLOWING FRINGE BENEFITS TO ITS EMPLOYEES: TO SUPERVISORY EMPLOYEES TO MANAGERIAL EMPLOYEES TO RANK-AND-FILE EMPLOYEES

P220,000 120,000 60,000

THE ENTRY TO RECORD THE ABOVE TRANSACTION ISA) FRINGE BENEFITS TAX FRINGE BENEFIT EXPENSE CASH FRINGE BENEFIT TAX PAYABLE

56,471 400,000 400,000 56,471

B) FRINGE BENEFIT TAX FRINGE BENEFIT TAX PAYABLE

400,000 400,000

C) FRINGE BENEFITS TAX 560,000 FRINGE BENEFIT TAX PAYABLE 560,000 D) FRINGE BENEFIT TAX EXPENSE 160,000 FRINGE BENEFIT EXPENSE 400,000 CASH 400,000 FRINGE BENEFIT TAX PAYABLE 160,000 346. IVY CORPORATION HAS THE FOLLOWING JOURNAL ENTRY ON FRINGE BENEFITS: FRINGE BENEFITS EXPENSE P186,000 FRINGE BENEFIT TAX EXPENSE 64,000 CASH FRINGE BENEFIT TAX PAYABLE

186,000 64,000

BASED ON THE ABOVE ACCOUNTING ENTRY, THE AMOUNT OF FRINGE BENEFIT GIVEN TO RANK AND FILE EMPLOYEESA) B) C) D)

P64,000 50,000 186,000 250,000

347. ADRIAN, A SUPERVISORY EMPLOYEE OF BOGBOG CORPORATION BORROWED P50,000 FROM THE COMPANY PAYABLE IN FOUR MONTHS THRU SALARY DEDUCTION. IF THE CORPORATION IS CHARGING 4% INTEREST PER ANNUM ON THE LOAN, THE FRINGE BENEFIT TAX EXPENSE ISA) P2,000 B) 666.67 C) 627.45 D) 313.73

CHAPTER 2-TAX ADMINISTRATION, TAX RETURNS, FILING AND PAYMENT 348. WHICH OF THE FOLLOWING STATEMENTS IS FALSE? A) INDIVIDUAL TAXPAYERS SHALL FILE THEIR INCOME TAX RETURNS ON OR BEFORE APRIL 15 OF EACH YEAR

B) EXTENSION OF TIME FOR FILING INCOME TAX RETURNS MAY BE GRANTED BY THE COMMISSIONER OF INTERNAL REVENUE(CIR) C) SECOND INSTALLMENT IN THE PAYMENT OF INCOME TAX MUST BE PAID ON OR BEFORE JULY 15 OF THE SAME YEAR D) IN PLACES WHERE THERE ARE NO ACCREDITED BANKS, THE RETURN CAN BE FILED WITH THE MUNICIPAL TREASURER WHERE THE PLACE OF BUSINESS IS LOCATED 349. THE INCOME TAX RETURN MUST BE FILED IN-(RPCPA) A) B) C) D)

DUPLICATE TRIPLICATE QUADRUPLICATE QUINTUPLICATE

350. ONE OF THE FOLLOWING IS NOT AN ATTACHMENT TO THE INCOME TAX RETURN OF A COMPANY WHOSE GROSS QUARTERLY SALES IS P1,500,000. A) B) C) D)

CERTIFIED BALANCE SHEETS PROFIT AND LOSS STATEMENTS SCHEDULE OF INCOME PRODUCING PROPERTIES SUMMARY OF TAXES PAID DURING THE TAXABLE YEAR

351. THE INCOME SUBJECT TO THIS WITHHOLDING TAX IS NOT INCLUDIBLE IN THE COMPUTATION OF TAXABLE INCOMEA) B) C) D)

WITHHOLDING TAX ON COMPENSATIONN INCOME CREDITABLE WITHHOLDING TAX FINAL WTHHOLDING TAX ALL OF THE ABOVE

352. WHICH OF THE FOLLOWING INDIVIDUAL TAXPAYERS IS NOT REQUIRED TO FILE AN INCOME TAX RETURN? A) A CITIZEN RECEIVING COMPENSATION AND BUSINESS INCOME B) AN EMPLOYEE WHOSE SALARY GRADE IN THE GOVERNMENT IS 2 C) AN EMPLOYEE RECEIVING PURELY COMPENSATION INCOME FROM TWO EMPLOYERS D) AN INDIVIDUAL RECEIVING PURELY COMPENSATION INCOME FROM ONE EMPLOYER, THE INCOME TAX OF WHICH HAS BEEN WITHHELD CORRECTLY, BUT WHOSE SPOUSE IS REQUIRED TO FILE AN INCOME TAX RETURN 353. ONE OF THE FOLLOWING INDIVIDUALS IS NOT SUBJECT TO WITHHOLDING TAX ON COMPENSATION

A) AN INDIVIDUAL WHO DERIVES COMPENSATION FROM TWO OR MORE EMPLOYERS AT ANY TIME DURING THE TAXABLE YEAR B) AN INDIVIDUAL WHO HAS COMPENSATION AND BUSINESS INCOME C) AN INDIVIDUAL WHOSE GROSS INCOME IN A YEAR IS MORE THAN P220,000 D) AN INDIVIDUAL WHOSE MONTHLY GROSS COMPENSATION INCOME IS P8,000 354. THE SIGNATURE OF THE FOLLOWING PERSONS MUST APPEAR IN THE INCOME TAX RETURN OF A CORPORATION, EXCEPT:-(RPCPA) A) B) C) D)

PRESIDENT GENERAL MANAGER TREASURER INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

355. THE BOOKS OF ACCOUNTS OR RECORDS OF THE TAXPAYER MUST NOT BE KEPT IN THE FOLLOWING LANGUAGEA) B) C) D)

FILIPINO CHINESE ENGLISH SPANISH

356. ONE OF THE FOLLOWING IS REQUIRED TO ISSUE RECEIPTS A) THOSE WHOSE SALES ARE VALUED AT P25 OR MORE B) MARKET VENDORS SELLING ECLIUSIVELY VEGETABLES, DOMESTIC MEAT, FRUITS AND OTHER FOOD PRODUCTS C) WHEN THE VALUE OF THE MERCHANDISE SOLD IS P5 D) VENDORS GIVEN EXEMPTION BY THE COMMISSIONER OF INTERNAL REVENUE 357. STATEMENT 1: WHERE DONOR’ S TAX HAS BEEN PAID ON PROPERTY RECEIVED BY A MINOR FROM A LIVING PARENT, INCOME ON SUCH PROPERTY SHALL BE INCLUDED IN THE INCOME TAX RETURN OF THE PARENT STATEMENT 2: THE INCOME TAX RETURN OF A DISABLE PERSON MAY BE MADE BY A PERSON CHARGED WITH THE CARE OF HIS PROPERTY STATEMENT 1 A) TRUE B) FALSE C) FALSE

STATEMENT 2 TRUE FALSE TRUE

D) TRUE

FALSE

358. HOW LONG MUST THE BOOKS OF ACCOUNT BE KEPT? A) UNTIL THE DEADLINE FOR FILING INCOME TAX RETURN B) FROM THE CURRENT TO THE LAST DAY OF THE NEXT TAXABLE YEAR C) FOR A PERIOD BEGINNING FROM THE LAST ENTRY IN EACH BOOK UNTIL THREE YEARS D) FOR A PERIOD BEGINNING FROM THE LAST ENTRY IN EACH BOOK UNTIL THE LAST DAY PRESCRIBED WITHIN WHICH THE COMMISSIONER IS AUTHORIZED TO MAKE AN ASSESSMENT 359. BEAUTY CORPORATION HAD A NET INCOME PER BOOKS ON DECEMBER 31, 2008 OF P220,000. INCLUDED IN THE NET INCOME ARE THE FOLLOWING ITEMS: -DIVIDEND INCOME FROM A DOMESTIC CORPORATION, P50,000 -INTEREST ON BANK DEPOSIT (NET OF TAX), P5,000 AND -PROVISION FOR BAD DEBTS, P35,000 THE TAXABLE INCOME OF THE CORPORATION FOR THE YEAR ENDED DECEMBER 31, 2008A) B) C) D)

P130,000 200,000 220,000 165,000

360. THE FOLLLOWING 2009 DATA PERTAINS TO ANALYN COMPANY, A DOMESTIC CORPORATION: NET SALES COST OF GOODS SOLD GROSS PROFIT SUNDRY INCOME GROSS INCOME OPERATING EXPENSES AND OTHER CHARGES NET INCOME PER BOOKS

P1,850,000 1,025,000 825,000 70,250 895,250 260,000 635,250

ADDITIONAL INFORMATION: 1.INCLUDED IN THE SUNDRY INCOME ARE THE FOLLOWING: -DIVIDENDS FROM DOMESTIC CORPORATION -DIVIDENDS RECEIVED FROM RESIDENT FOREIGN CORP -PROCEEDS FROM SALE OF COMPANY ASSETS

P42,500 15,000 4,750

2.INCLUDED UNDER OPERATING AND OTHER CHARGES: -DONATION TO TYPHOOIN VICTIMS -PROVISION FOR DOUBTFUL ACCOUNTS -LOCAL TAXES AND LICENSES -PREMIUMS PAID ON INSURANCE OF BUILDINGS

P12,000 17,500 8,620 4,500

3.THE COMPANY WROTE OFF IN 2008 AGAINST ALLOWANCE FOR BAD DEBTS UNCOLLECTIBLE RECEIVABLES AMOUNTING TO P15,000 WHICH WAS ALLOWED AS DEDUCTION FROM GROSS INCOME. THIS AMOUNT WAS RECOVERED IN 2009. 4. IN OCTOBER 2008, ONE OF THE COMNPANY’S BUILDINGS WAS TOTALLLY DESTROYED BY FIRE WHEN THE BOOK.VALUE WAS P260,000. THE LIABILITY OF THE INSURANCE COMPANY WAS SETTLED IN 2009 AND ANALYZE COMPANY WAS PAID P150,000. THE INCOME TAX PAYABLE IN 2009 BY ANALYN CORPORATION ISA) B) C) D)

P158,320 184,537.50 35,763.50 158,175

361. THE INCOME TAX RETURN(ITR) OF JANET, SINGLE, FOR TAXABLE YEAR 2009, REPORTED A TAXABLE INCOME OF P520,240. A CAREFUL SCRUTINY REVEALED THAT SOME ITEMS INCLUDED AS INCOME AND EXPENSES ARE THE FOLLOWING: INCOME: COMPENSATION INCOME CASH DIVIDEND STOCK DIVIDENDS PROPERTY DIVIDENDS GAMBLING WINNINGS DONATION RECEIVED GAIN ON SALE OF CAPITAL ASSETS-15 MONTHS GAIN ON SALE OF HIS VACANT LOT INCOME ON RICE LAND TOTAL

P180,000 122,800 73,500 27,000 23,100 16,000 8,000 120,000 60,000 630,400

EXPENSES: REAL ESTATE TAX COMMUNITY TAX SURCHARGE FOR LATE FILING OF 2008 ITR

P3,500 945 12,000

INTEREST ON PERSONAL LOAN GAMBLING LOSSES PERSONAL AND LIVING EXPENSES LOSS ON SALE OF CAPITAL ASSETS-8.5 MONTHS LOSS ON CROPS DUE TO FLOOD TOTAL

24,000 32,000 50,000 5,000 27,250 154,695

THE CORRECT AMOUNT OF JANET’S TAXABLE INCOME ISA) B) C) D)

P246,940 236,840 66,040 256,840

TRUE OR FALSE QUESTIONS 1.THE BASIC PERSONAL EXEMPTION IS P50,000 REGARDLESS OF WHETHER THE INDIVIDUAL TAXPAYER IS SINGLE, MARRIED OR HEAD OF THE FAMILY. 2.A BENEFACTOR OF A SENIOR CITIZEN CAN CLAIM A BASIC PERSONAL EXEMPTION OF P25,000. 3.CORPORATIONS ARE ALLOWED TO CLAIM OPTIONAL STANDARD DEDUCTION. 4.THE OPTIONAL STANDARD DEDUCTION ON INDIVIDUAL IS 40% OF GROSS INCOME. 5. THE MINIMUM CORPORATE INCOME TAX (MCIT) IS 2% OF GROSS INCOME ON SALES. 6. A SALE OF SHARES WHICH ARE LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE IS SUBJECT TO INCOME TAX. 7. IN COMPUTING THE CAPITAL GAINS OR LOSSES ON A SALE OF SHARES OF STOCK WHICH WERE ACQUIRED THROUGH PURCHASE, THE COST BASIS SHALL BE THE ACTUAL PURCHASE PRICE PLUS ALL COSTS OF ACQUISITION SUCH AS COMMISSIONS, DOCUMENTARY STAMP TAXES, TRANSFER TAXES, ETC. 8. THE WASH SALE PROHIBITION DOES NOT APPLY IN THE CASE OF A DEALER IN STOCK IF THE SALE OR OTHER DISPOSITION OF STOCK IS MADE IN THE ORDINARY COURSE OF THE BUSINESS OF SUCH DEALER.

9. PERSONS DERIVING CAPITAL GAINS FROM THE SALE OR EXCHANGE OF LISTED SHARES OF STOCK NOT TRADED THROUGH THE LOCAL STOCK EXCHANGE SHALL FILE A RETURN WITHIN 30 DAYS AFTER EACH TRANSACTION 10. THE CEILING OF DE MINIMIS BENEFITS ON RICE ALLOWANCE IS ONE SACK OF 50 KILOGRAMS RICE OR CASH OF P1,200 PER MONTH. 11. AN EMPLOYEE IN THE PUBLIC SECTOR RECEIVING COMPENSATION INCOME EQUIVALENT TO SALARY GRADE 5 AND BELOW ARE EXEMPT FROM WITHHOLDING TAX ON WAGES. 12. MINIMUM WAGE EARNERS ARE NOT REQUIRED TO FILE AN INCOME TAX RETURN. 13. HOLIDAY PAY, OVERTIME PAY, NIGHT SHIFT DIFFERENTIAL PAY AND HAZARD PAY RECEIVED BY AN EMPLOYEE WHO IS RECEIVING A MONTHLY BASIC PAY OF P20,000 ARE EXEMPT FROM INCOME TAX. 14. THE COST OF CONSTRUCTION OF ADDITIONAL FACILITIES MAY BE CAPITALIZED OR DEDUCTED AS AN EXPENSE BY A PROPRIETARY EDUCATIONAL INSTITUTION, AT THE OPTION OF THE BIR. 15. FOR PURPOSES OF HEALTH AND/OR HOSPITALIZATION INSURANCE, THE TERM “TOTAL FAMILY INCOME” INCLUDES PRIMARY INCOME AND OTHER INCOME FROM SOURCES RECEIVED ALL MEMBERS OF THE NUCLEAR FAMILY, I.E. FATHER, MOTHER, UNMARRIED CHILDREN LIVING TOGETHER AS ONE HOUSEHOLD OR A SINGLE PARENT WITH CHILDREN. A SINGLE PERSON LIVING ALONE IS CONSIDERED AS A NUCLEAR FAMILY. 16. OTHER BENEFITS SUCH AS 13TH MONTH PAY AND PRODUCTIVITY INCENTIVE PAY ARE NOT INCLUDED IN THE COMPUTATION OF MINIMUM WAGE. 17. FRINGE BENEFITS RECEIVED BY MANAGERIAL EMPLOYEES ARE NOT SUBJECT TO INCOME TAX BUT THEY ARE SUBJECT TO FRINGE BENEFIT TAX. 18. THERE IS AN INCOME TAX ON A SALE OF A VACANT LOT (CAPITAL ASSET) EVEN IF THERE IS A LOSS ON THE SALE OF THE PROPERTY. 19. AS A RULE, STOCK DIVIDENDS ARE SUBJECT TO INCOME TAX. 20. EXPENSES FOR THE ORGANIZATION OF CORPORATION SUCH AS INCORPORATION FEES, ATTORNEY’S FEES, AND ACCOUNTANT’S FEES ARE DEDUCTIBLE FROM GROSS INCOME.

21. COMPENSATION INCOME EARNERS ARE ALLOWED TO USE FISCAL YEAR AS ACCOUNTING PERIOD. 22. VALUE-ADDED TAX IS DEDUCTIBLE FROM GROSS INCOME. 23. DEFERRED PAYMENT METHOD OF REPORTING INCOME IN INSTALLMENT IS AVAILABLE TO A TAXPAYER IF THE INITIAL PAYMENTS DO NOT EXCEED 25% OF THE SELLING PRICE. 24. PROCEEDS OF LIFE INSURANCE ARE EXEMPT FROM INCOME TAX IF THE DESIGNATED BENEFICIARY IS IRREVOCABLE. 25. TAX SPARING CREDIT APPLIES ONLY TO RESIDENT FOREIGN CORPORATIONS.