NORTHERN CPA REVIEW TAXATION Second Pre-Board Examination PROBLEMS 1. Statement 1: Congress can exercise the power of taxation even without Constitutional delegation of the power to tax. Statement 2: Only the legislature can exercise the power of taxation, eminent domain and police power. Which statement is correct? a. Statement 1 c. Statements 1 and 2 b. Statement 2 d. Neither statement 1 nor 2 2. Which of the following normally pays real property tax? a. Bantay Bata, a non-profit charitable institution b. Jesus Crusade movement, a religious institution c. University of Pangasinan, a private proprietary educational institution d. SM Property Holdings, a registered property development company 3. An educational institution operated by a religious organization was being required by a local government to pay real property tax. Is the assessment valid? a. Yes, with respect to all properties held by such educational institution. b. Yes, with respect to properties not actually devoted to educational purposes. c. No, with respect to any properties held by such educational institution. d. No, with respect to properties not actually devoted to educational purposes. 4. Which of the following violates Constitutional provisions? a. Payment of salaries to priests of the Roman Catholic church employed by the Armed Forces of the Philippines. b. Subjecting the sale of religious literatures to income tax. c. Imposition of license for the sale of religious literatures. d. Authorizing the President of the Philippines to fix the rates of tariffs or imposts. 5. Tax as to incidence is classified as a. Fiscal or regulatory c. National or local tax b. Direct or indirect tax d. Specific or ad valorem tax 6. Which of the following statement is correct? a. In the power of taxation to destroy or not, the Marshall doctrine is unconstitutional hence the Holmes doctrine is followed in practice. b. An ex post facto tax law violates the constitution. c. A tax bill personally drafted by the president shall become a law after approval by congress. d. It is in the public interest that errors of public officials should bind the government. 7. Income tax may be imposed for the following purposes, except a. To provide large amounts of revenues b. To limit corruption c. To offset regressive sales and consumption taxes d. To mitigate the evils arising from the inequalities in the distribution of income and wealth 8. Jen is engaged in business. The following pertains to her transactions during 2011: Sold his personal car which was purchased at P200,000 to a friend who paid only half of the car’s P500,000 current fair value. Sales of merchandise were P800,000 and the cost of goods sold were P600,000. 1
Jen acquired several stocks from the Philippine Stock Exchange for speculation. These stocks have aggregate purchase price of P400,000 but with P700,000 fair value at December 31, 2011. Jen’s house and lot which he acquired for P1,500,000 in 2010 now have current fair value of P2,500,000.
Compute Jen’s total income subject to income tax. a. P1,800,000 c. P250,000 b. P1,550,000 d. P200,000 9. Kate has the following income in 2011: P10,000 interest income from a non-resident Japanese friend P40,000 interest income from Philippine residents P500,000 rent income from a commercial complex located in the USA leased to resident Filipinos P200,000 rent income from a boarding house in Baguio City, Philippines P200,000 professional fees rendered to Chinese clients in Hong Kong P300,000 salary from a resident employer P100,000 gain from sale of merchandise imported and sold to Filipino residents P50,000 gain on sale of merchandise purchased locally and sold during his business travel in Hong Kong P400,000 gain on sale of the boarding house located in Baguio City to a nonresident buyer Compute the Kate’s total income earned from sources within the Philippines? a. P1,800,000 c. P1,140,000 b. P1,430,000 d. P1,040,000 10.Mrs. Julian started business on July 15, 2011. Her 2011 income tax return shall cover which period? a. January 1 to July 15, 2011 b. July 16, 2011 to July 15, 2012 c. July 16, 2011 to December 31, 2011 d. January 1 to December 31, 2011 11.Blitzkrieg Corporation started business on April 5, 2011 and opted to report income tax on a fiscal year ending every October 31. Blitzkrieg’s first income tax return shall cover? a. April 5, 2011 to October 31, 2011 b. April 6, 2011 to October 31, 2011 c. April 5, 2011 to December 31, 2011 d. April 5, 2011 to April 5, 2012 12.Mr. Talipao derived the following income in 2011: Business income P 200,000 Compensation income 300,000 Interest income from 5/6 lending to clients100,000 Interest income from bank deposits 20,000 Royalty income 100,000 Capital gain on sale of personal car 20,000 Capital gain on the sale of stocks directly to buyer Ordinary gain on sale of old office furnitures10,000 Dividend income 50,000 Winnings from PCSO 1,200,000
40,000
Compute the total passive income subject to final tax. a. P1,470,000 c. P270,000 b. P1,370,000 d. P170,000 2
13.Compute the total income subject to regular tax. a. P1,730,000 c. P630,000 b. P1,470,000 d. P530,000 14.Compute the capital gain subject to capital gains tax. a. P70,000 c. P40,000 b. P60,000 d. P 0 15.Juan, a farmer, uses the crop-year method in reporting his income from longterm crops. The following data are relevant to his farming operations in 2011: Sales of crops harvested, P800,000 Expenses on harvested crops, P300,000 Expenses on maturing crops, P200,000 Expenses on newly planted crops, P100,000 Sales of a fully depreciated tractor, P40,000 Juan uses the crop year method in reporting crop income. Compute Juan’s total income subject to tax. a. P540,000 c. P340,000 b. P500,000 d. P240,000 16.Mr. Alvarez has the following income during the year: Gross compensation income including P25,000 13th month pay P 325,000Less: Tardy or absences ( 10,000) Net compensation income P 315,000SSS deductions 12,000PhilHealth deductions 9,000Pag-Ibig deductions 10,000Union dues 5,000Withholding tax 40,000Net pay P 239,000Compute the total exclusions from gross income? a. P36,000 c. P66,000 b. P61,000 d. P71,000 17.Ms. Henson retired from her job after 25 years of service. She joined the company at the age of 23 and was promoted from an accounting clerk to VP Finance. She was paid P2,000,000 total retirement pay from the employer’s contributory pension plan which was duly registered with the BIR. Out of the total proceeds, Ms. Henson contributed P600,000. This was Ms. Henson’s first retirement from employment. How much is not included in gross income. a. P2,000,000 c. P600,000 b. P1,400,000 d. P 0 18.Andres is a lessor of commercial spaces to one client. During the year, he received the following remittance: Rental, net of 5% creditable withholding taxP 1,900,000 Real property tax 50,000 Reimbursement for utilities used by lessees paid by Andres 200,000 How much will be included in gross income subject to regular tax? a. P2,250,000 c. P2,000,000 b. P2,050,000 d. P1,950,000 3
19.The proceeds of life insurance received by the wife of the insured is a. Exempt from income tax. b. subject to final tax. c. Eart of taxable income. d. Partly exempt and partly taxable. 20.The following entry were made on the books of ABC Corporation: Fringe benefit expense Fringe benefit tax expense Cash
1,100,000 256,000 1,920,000
The fringe benefit granted to rank and file is. a. P300,000 c. P556,000 b. P432,000 d. P800,000 21.An individual income taxpayer reported the following: Capital loss – current year
P 50,000 200,000 70,000
Capital gain – current year Net capital loss – last year
Compute the total capital loss deductible in the current year. a. P320,000 c. P120,000 b. P200,000 d. P50,000 22.A taxpayer reported the following items of gross income and deductions in 2011: Rent income
P 400,000 200,000 50,000
Service fees Interest income from bank deposits Deductible expenses Non-deductible expenses
800,000 100,000
Compute the NOLCO to be carried out in the next three years. a. P300,000 c. P200,000 b. P250,000 c. P150,000 23.An individual taxpayer showed the following: Gross income Deductible business expenses Net capital gain or (loss)
2011
2012
P 300,000( 360,00 0) ( 50,00 0)
P 400,000( 300,00 0) 70,000-
Compute the 2012 taxable income before personal exemptions. a. P 170,000 c. P 110,000 b. P 120,000 d. P 60,000 24.Mr. Calabarzon reported the following data during 2011: Sales
P 1,000,000 4
Cost of sales Gain on sale of equipments Interest income from bank deposits Deductible expenses Non-deductible expenses
600,000 60,000 40,000 300,000 200,000
Compute the optional standard deduction. a. P440,000 c. P 400,000 b. P 424,000 d. P 160,000 25.Zambales, Inc. made the following contributions during 2011: Contributions to the government in nonpriority activities Contributions to foreign charitable institutions Contribution to accredited non-profit institution Contributions to foreign organizations fully deductible under treaty provision
P 60,000 40,000 30,000 100,000
Zambales, Inc. has net income before contribution expense of P1,000,000. Compute the deductible contribution expense. a. P230,000 c. P180,000 b. P190,000 d. P130,000 26.A VAT taxpayer cannot deduct all of the following as expense, except? a. Philippine income tax b. Donor’s tax c. Value Added Tax d. Interest on tax delinquency 27.Which is not a requisite of a claimable dependent? a. Must be legitimate or legally adopted child b. Must be living with and dependent upon the taxpayer for chief support c. Must not be more than 21 years of age, except when incapacitated d. Must not be married or employed 28.Which of the following occurrences will not cause a change in the amount of claimable personal exemption either in the current or future years? a. Death of a dependent of the taxpayer b. Having new dependent c. Death of the taxpayer d. Marriage of the taxpayer 29.Which of the following may be subject to 15% gross income tax on compensation and hence cannot claim personal exemption? a. Resident citizen employed by a finance institution b. Resident alien employed by a software development company c. Resident citizen employed by an offshore banking unit d. Resident citizen employed by a construction company 30.Which is not subject to special corporate tax rate? a. Proprietary educational institution b. Offshore banking units c. International carriers d. Private hospitals 5
31. PC Repair, business partnership providing services, reported the following: Services fees Salaries of staff, supplies and other direct costs of providing services Interest form bank deposits Gain on sale of land classified as capital assets Gain on sale of used equipment to clients Other deductible business expenses
Compute the income tax due. a. P200,000 b. P250,000
P 2,000,000 1,000,000 50,000 400,000 150,000 500,000
c. P195,000 d. P225,000
32. Iligan, Inc. became subject to MCIT in 2011. Assume Iligan will have the following RCIT and MCIT data: 2011 2012 2013 2014 2015 RCIT P 0 P 500 P 300 P 200 P 400 MCIT 400 600 200 350 350
Compute the income tax payable in 2015. a. P100 c. P150 b. P120 d. P200 33. Green Air, a resident foreign air carrier, reported the following summarized results of its Philippine operations:
Gross receipts Less: Direct expenses Other expenses Net income
Inbound flights P9,000,0 00 4,000,00 0
Outbound flights P8,000,0 00 3,000,00 0
Total P17,000,0 00 7,000,000 4,000,0 00 P 6,000,000
Compute the income tax payable of Green Air. a. P200,000 c. P1,800,000 b. P600,000 d. P1,920,000
34. Makati Trading, Inc. reported the following on its fifth year of operation: Sales Cost of sales Royalties from invention Gain on sale of domestic stocks directly to buyer Rent income Interest from customers’ promissory notes Business expenses
Compute the income tax due. a. P0 b. P20,000
P 4,000,000 2,000,000 250,000 150,000 100,000 50,000 2,000,000
c. P15,000 d. P43,000
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35.Which is included in the gross income of a resident alien decedent? a. Properties held as agent b. Properties held under usufruct c. Properties to be bequeathed to a charitable institution no part of which is to be used for administrative purpose d. House and lot located abroad ---- End of Examination----
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