Illustrative Tax Computations

MULTIPLE CHOICE

1. XYZ Corporation manufactures glass panels and is almost at the point of insolvency. It has no
more cash and all it has are unsold glass panels. It received an assessment from the BIR for
deficiency income taxes. It wants to pay but due to lack of cash, it seeks permission to pay in kind
with glass panels.

Should the BIR grant the requested permission?

a. It should grant permission to make payment convenient to taxpayers.
b. It should not grant permission because a tax is generally a pecuniary burden.
c. It should grant permission, otherwise, XYZ Corporation would not be able to pay.
d. It should not grant permission because the government does not have the storage facilities
for glass panels.
ANS: B REF: iCPA TOP: Tax Remedies

2. Deltoid Motors hit on the idea of setting up a wholly owned subsidiary, Gonmad Moters, and of
selling its assembled cars to Gonmad at a low price so it would pay a lower tax on the first sale.
Gonmad would then sell the cars to the pubic at a higher price without paying any sales tax on this
subsequent sale.

Characterize the arrangement

a. The plan is a legitimate exercise of tax planning and merely takes advantage of a loophole
in the law.
b. The plan is legal because the government collects taxes anyway.
c. The plan is improper; the veil of corporate fiction can be pierced so that the second sale
will be considered the taxable sale.
d. The government must respect Gonmad’s separate juridical personality and Deltoid’s
taxable sale to it
ANS: C REF: iCPA TOP: Tax Remedies

3. PRT Corporation purchased a residential house and lot with a swimming pool in an upscale
subdivision and required the company president to stay there without paying rent; it reasoned out
that the company president must maintain a certain image and be able to entertain guests at the
house to promote the company’s business. The company president declared that because they are
childless, he and his wife could very well live in a smaller house.

Was there a taxable fringe benefit?

a. There was no taxable fringe benefit since it for the convenience of the employer and was
necessary for its business.
b. There was a taxable fringe benefit since the stay at the house was for free.
c. There was a taxable fringe benefit because the house was very luxurious.
d. There was no taxable fringe benefit because the company president was only required to
stay there and did not demand free housing.
ANS: A
SOL:
NIRC Section 33; RR No. 3-98

REF: iCPA TOP: Tax Remedies

Compiled by: Accounting Notebook

4. Ms. Allyza is employed in JBC Corporation. She receives the following for the current year:

Statutory minimum wage, inclusive of the 13th month pay P175,000

Overtime pay 40,000
Night-shift differential 25,000
Commission from the same employer 20,000
Total P260,000

How much is the exempt amount?

a. 260,000
b. 240,000
c. 20,000
d. None of the choices
ANS: B
SOL:
Basic statutory minimum wage P175,000
Overtime pay 40,000
Night-shift differential 25,000
Total P240,000

REF: RESA First Preboard May 2019 TOP: Income Tax Individuals

5. Ginoo is the CEO of Mahusay Corporation and received as compensation income (net of all
exclusions) the amount of P5,000,000 in 2018. He did not give up though his modest business
venture being an MBA graduate. In 2018, his total sales from his fast growing business amounted
to P3,000,000 for the first three quarters and P3,500,000 in the 4th quarter. Details of his business
operations in 2018 follow:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,500,000)
Operating expenses (120,000) (120,000) (480,000) (520,000)
Taxable income P80,000 P80,000 P320,000 P1,480,000

The total income tax for 2018 is:

a. 478,000
b. 1,450,000
c. 1,928,000
d. 2,077,200
ANS: D
SOL:
What if Ginoo signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return he filed? The total income tax due and payable (after tax credit) for
2018 is: P387,200

REF: CRC Final Preboard October 2018 TOP: Income Tax Individuals

Compiled by: Accounting Notebook

6. Dyango is a professional with gross receipts of P2,000,000 and deductible expenses of P1,200,000,
for the calendar taxable year 2018. How much will be the income tax to be paid for 2018 by taking
into account your best recommendation as tax adviser on the most economical option to avail of in
taxing his self-employment income?
a. 110,000
b. 130,000
c. 140,000
d. 160,000
ANS: B
SOL:
The most economical option you recommended to Dyango in order for him to save on income tax
payment for his 2018 self-employment income is: Graduated income tax rates of from 0% to 35%

REF: CRC Final Preboard October 2018 TOP: Income Tax Individuals

7. A closely-held domestic corporation had the following data in 2018:

Gross income from business P3,000,000

Dividend from domestic corporation 100,000
Capital gain on sale of idle land on a selling price of
P3,600,000, but with a zonal valuation of P4,000,000 1,000,000
Capital gain on direct sale to buyer of shares of stock of
domestic corporation 200,000
Interest on Philippine currency bank deposit 100,000
Business expenses 2,000,000
Net operating loss in 2017 250,000
Income taxes paid for the first three quarters of the year 150,000
Dividend declared and paid within the year 500,000
Appropriation of retained earnings for additional working
capital purposes 800,000
Retained earnings at the start of the year 900,000
Paid-in capital 1,000,000

The income tax still due and payable in 2018 is

a. 60,000
b. 75,000
c. 150,000
d. 225,000
ANS: B
SOL:
Improperly accumulated earnings tax: P51,000

REF: CRC Final Preboard October 2018 TOP: Income Tax Corporation

Compiled by: Accounting Notebook

 8. A domestic corporation’s 2018 computed NCIT and MCIT and creditable income taxes withheld at
source and excess MCIT and excess withholding tax from prior year follow: :

NCIT P520,000
MCIT 550,000
Taxes withheld at source 125,000
Excess MCITR over NCIR (2 years ago) 30,000
Excess withholding income tax prior year 10,000
Quarterly income taxes paid 250,000

The income tax still due and payable at the end of the year is
a. 165,000
b. 135,000
c. 115,000
d. 105,000
ANS: A REF: CRC Final Preboard October 2018 TOP: Income Tax Corporation

9. Taxpayer is a domestic corporation:

Taxable income before income tax

Philippines P3,000,000
Foreign country 2,000,000
Quarterly income taxes paid, Philippines 400,000
Income tax paid, foreign country 800,000

How much is the income tax still due if the taxpayer is claiming a deduction for the foreign income
tax paid?
a. 500,000
b. 860,000
c. 1,260,000
d. 1,500,000
ANS: B
SOL:
How much is the income tax still due if the foreign income tax paid is claimed, instead, as tax
credit against the Philippine income tax due? P500,000

REF: CRC Final Preboard October 2018 TOP: Income Tax Corporation

10. Ruth Leslie is employed in Lab Corporation and is also a part-time real estate agent for a real
estate broker. In addition to the SMW of P180,000 she received from her employer, she likewise
received P75,000 as commission from her real estate dealings for the year 2018.

How much is the income tax due if she is under the 8% income tax regime?
a. 20,400
b. 6,000
c. 0
d. some other amount

Compiled by: Accounting Notebook

ANS: B
SOL:
Total income received P255,000
Less: Statutory minimum wage 180,000
Taxable income, commission 75,000
Tax due (P75,000 x 8%) P6,000

How much is the income tax due if she is under the graduated income tax regime?
Total income received P255,000
Less: Statutory minimum wage 180,000
Taxable income, commission 75,000
Tax due (first P250,000) Exempt

Taxpayer’s income as minimum wage earner does not exceed P250,000; hence, not subject to
income tax and the withholding tax.

Since taxpayer is a mixed income earner and has received income from other sources in addition to
her compensation income, the commission received during the taxable year is subject to income
tax and consequently, to withholding tax.

In his instance, if the taxpayer selected the graduated income tax regime, her commission income
is subject to income tax at 0% since it did not exceed P250,000 and she is also subject to business
tax. However, if she selected the 8% income tax regime, she is liable for income tax amounting to
P6,000, but this is in lieu of the graduated income tax and the percentage tax under Section 116 of
the Tax Code.

Likewise, minimum wage earners receiving other income from other sources in addition to
compensation income, such as income from other concurrent employers, from the conduct of trade,
business, or practice of profession, except income subject to final tax, are subject to income tax
only to the extent of income other than Statutory Minimum Wage, holiday pay, overtime pay, night
shift differential pay, and hazard pay earned during the taxable year.

REF: RESA Final Preboard October 2018 TOP: Income Tax Individuals
018 TOP: Other taxes

Compiled by: Accounting Notebook