Chapter 7

True or False
1. T 6. T 11. T 16. F 21. F (should be MWE) 26. F (should be MWE) 31. T 36. F
2. F 7. F 12. T 17. T 22. T 27. F 32. T 37. F
3. F 8. F 13. T 18. F 23. F 28. F 33. F 38. T
4. T 9. F 14. T 19. T 24. T 29. T 34. F
5. T 10. T 15. T 20. T 25. T 30. T 35. T

Multiple Choice Multiple Choice

Theory Problem
1. A 6. B 11. C 16. D 1. C 6. A 11. B*
2. A 7. B 12. A 17. D 2. D 7. C 12. C**
3. E 8. C 13. E 3. A 8. C
4. D 9. D 14. D 4. B 9. D
5. B 10. D 15. C 5. A 10. D

* Jennifer L.
Income from insurance of father:
Amount received 1,000,000
Less: Cost
Purchase price 400,000
Additional premiums 100,000 500,000 500,000
Income from endowment policy:
Proceeds 2,000,000
Less: Premiums paid 1,600,000 400,000
Proceeds of crop insurance 100,000
Total (11) 1,000,000

** Patrick S. 1 2 3 Total
Net income before write-off 400,000 (72,000) 16,000
Less: Bad debt written off 40,000 10,000 24,000
Taxable income 360,000 (82,000) (8,000)
Bad debt recovery 40,000 10,000 20,000
Income 40,000 - 12,000 (12) 52,000

Problem - Faith Company

Item
Category A Employees
1. Benefits under BIR approved
plan.
2. Gratuitous pay of one-month
for every year of service.
3. Cash equivalent of unused
vacation leave credits.
4. Cash equivalent of unused
sick leave credits.
Subject to (S) or Exempt (E) Reason
E Explicitly excluded from gross income.
Excluded from gross income it being in the
E nature of benefit received on account of
separation due to causes beyond the
employees’ control.
Qualifies as part of separation benefits
E excluded from gross income.
Qualifies as part of separation benefits
E excluded from gross income.

Category B Employees
1. Gratuitous pay of one-month Excluded from gross income it being in the
for every year of service. E nature of benefit received on account of
separation due to causes beyond the
employees’ control.
2. Cash equivalent of unused Qualifies as part of separation benefits
vacation leave credits. E excluded from gross income.
3. Cash equivalent of unused Qualifies as part of separation benefits
sick leave credits. E excluded from gross income.

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Chapter 8
True or False Multiple Choice-Theory
1. T 6. T 11. T 16. T 21. T 1. C 6. F 11. D 16. E 21. E
2. T 7. T 12. T 17. T 22. T 2. D 7. E 12. D 17. A 22. D
3. T 8. T 13. T 18. T 23. T 3. C 8. E 13. C 18. B
4. T 9. T 14. T 19. T 4. A 9. C 14. A 19. A
5. T 10. T 15. T 20. T 5. D 10. A 15. C 20. F

Problems
Thaddeus
1. P94,118 4.1 Fringe Benefit Expense 200,000 4.3 Fringe Benefit Expense 200,000
2. P266,667 Fringe Benefit Tax Expense 94,118 Fringe Benefit Tax Expense 35,294
3. P200,000 Cash 294,118 Cash 235,294
4.2 Fringe Benefit Expense 200,000
Fringe Benefit Tax Expense 66,667
Cash 266,667

Theodore
1. Monthly rental P20,000 2. Acquisition cost P5,000,000 4. Fair value or zonal value
Multiply by: Taxable portion 50% Multiply by 5% (whichever is higher) P6,000,000
Monetary value P10,000 Annual value P 250,000 Less: Cost to Theodore 4,500,000
Divide by: 1998 Factor 66% Multiply by 50% Monetary value P1,500,000
Grossed-up monetary value P15,152 Annual monetary value P 125,000 Divide by: 1999 Factor 67%
Multiply by: 1998 Tax rate 34% 3. Acq. cost or zonal value Grossed-up monetary value P2,238,806
Fringe benefit tax due P5,152 (whichever is higher) P5,500,000 Multiply by: 1999 Tax rate 33%
Divide by: 2000 Factor 68% Fringe benefit tax due P 738,806
Grossed-up monetary value P8,088,235

Therese
1. P500,000
2. Acq. cost, exclusive of interest P450,000 3. Cost shouldered by employer P300,000
Divide by 5 years Divide by: 2000 Factor 68%
Monetary value P 90,000 Grossed-up monetary value P441,176
Divide by: 1999 Factor 67%
Grossed-up monetary value P134,328
Multiply by: 1999 Tax rate 33%
Fringe benefit tax due P 44,328

Dominique, Daniel & Daphne

Fair market value P5,000,000 3. Fair market value P5,000,000 4. Fringe benefit expense 100,000
Less: Acquisition cost 3,500,000 Multiply by 5% Fringe benefit tax expense 117,647
1. Amortization base P1,500,000 Annual value P 250,000 Income constructively
Divide by: Est. useful life 15 years Divide by: 2007 Factor 68% Realized 100,000
2. Annual amortization P 100,000 Grossed-up monetary value P 367,647 Cash 117,647
Multiply by: 2007 Tax rate 32%
Fringe benefit tax expense P 117,647

Chapter 9
Multiple Choice Multiple Choice
True or False Theory Problem
1. T 6. T 11. T 16. T 21. F 1. D 6. E 11. A 1. C * 6. C 11. B (P100,000 x 50%)
2. T 7. T 12. F 17. F 22. F 2. E 7. D 12. B 2. B 7. C 12. C 16. A***
3. F 8. T 13. T 18. F 23. T 3. E 8. A 13. E 3. A 8. A 13. B 17. C
4. F 9. T 14. T 19. F 24. T 4. E 9. D 14. A 4. D 9. C 14. C 18. A****
5. F 10. T 15. F 20. T 25. T 5. D 10. D 5. B 10. A 15. C** 19. D*****
26. F 20. B******

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*Albert F. **Beauty Corp.
Capital gains: Capital gain tax on shares
Jewelry (P69,000 x 50%) 34,500 Of domestic corp.:
M. Benz (P30,000 x 50%) 15,000 On P100,000 5% 5,000
Refrigerator (P1,000 x 100%) 1,000 50,500 20,000 10% 2,000 7,000
Less: Capital loss-Volks (P8,500 x 100%) 8,500 Capital gain tax on land
Net capital gain (1) 42,000 (P1,000,000 x 6%) 60,000
Total (15) 67,000

***Beauty Corp. ****Mr. Bening

Gross profit from sales 2,000,000 Selling price (P100 x 1,400) 140,000
Less: Business expenses 1,100,000 Less: Cost
Normal tax taxable income 900,000 Lot 1 – 600 shares 40,000
Multiply by normal tax rate 30% Lot 2 – 450 shares 36,000
Normal tax (16) 270,000 Lot 3 – 300 shares 28,000
Lot 4 – 50 shares
(P15,000/150 shs. x 50 shs.) 5,000 109,000
Gain on sale (18) 31,000

*****Truman Corp. ******Thora B.

Sale 3 Selling price (P110 x 110 shares) 12,100
On P100,000 5% 5,000 Less: Cost from Lot 1
90,000 10% 9,000 14,000 (P12,000/120 shares x 110 shares) 11,000
Sale 4 (P50,000 x 5%) 2,500 Capital gain 1,100
Total (19) 16,500 Multiply by: 5%
Capital gain tax (20) 55

Chapter 10
True or False True or False Multiple Choice-Theory
1. F 6. T 11. T 16. T 21. T 1. T 6. T 1. D 6. B 11. D 16. A
2. T 7. T 12. T 17. F 22. T 2. T 7. T 2. B 7. B 12. C 17. C
3. F 8. F 13. F 18. T 23. T 3. T 8. T 3. E 8. A 13. D
4. F 9. F 14. T 19. T 24. F 4. T 9. T 4. A 9. E 14. A
5. T 10. T 15. T 20. T 25. F 5. T 10. T 5. C 10. C 15. B

Multiple Choice-Problem
1. A 6. B 11. A*** 16. C
2. A* 7. A 12. B 17. D
3. D* 8. D 13. C**** 18. D
4. B** 9. C 14. B**** 19. C
5. D** 10. B*** 15. B****

*West Central College

Gross income: Gross income 11,230,000
Tuition fees 9,500,000 Deductions:
Miscellaneous fees 1,200,000 Salary, allowances and bonus 6,400,000
Income from book store 350,000 Other operating expenses 2,600,000
Income from school canteen 180,000 11,230,000 Capital expenditures
Deductions: Additional classrooms 1,300,000
Salary, allowances and bonus 6,400,000 Library furniture & eqpt. 400,000 10,700,000
Other operating expenses Taxable income 530,000
(depreciation on capital expend- Multiply by 10%
iture assumed included) 2,600,000 9,000,000 Income tax (3) 53,000
Taxable income 2,230,000
Multiply by 10%
Income tax (2) 223,000

13
**Central Luzon University
Gross income: Gross income 14,900,000
Tuition fees 12,800,000 Deductions:
Miscellaneous fees 2,100,000 14,900,000 Salary and bonus 8,500,000
Deductions: Other operating expenses 3,750,000
Salary and bonus 8,500,000 Capital expenditure
Other operating expenses School building 2,150,000 14,400,000
(depreciation on capital expend- Net income from school activities 500,000
iture assumed included) 3,750,000 12,250,000 Add: Net income from school canteen 120,000
Net income from school activities 2,650,000 Taxable income 620,000
Add: Net income from school canteen 120,000 Multiply by 10%
Taxable income 2,770,000 Income tax 62,000
Multiply by 10% Less: Quarterly income tax paid 36,000
Income tax 277,000 Income tax still due (5) 26,000
Less: Quarterly income tax paid 36,000
Income tax still due (4) 241,000

***Domestic Corp. ****Mr. A

2006 2009 Selling price 6,000
Gross profit from business 600,000 Gross profit from business 850,000 Less: Cost 7,000
Business expenses 700,000 Business expenses 900,000 Indicated loss 1,000
Net operating loss (100,000) Net operating loss (10) (50,000) Loss not recognized
2007 2010 (P1,000 x 60/100) (13) 600
Gross profit from business 500,000 Gross profit from business 920,000
Business expenses 470,000 Business expenses 620,000 Purchase price 6,500
Net operating income 30,000 Net operating income 300,000 Add: Loss not recognized 600
Less: NOLCO from 2006 30,000 Less: NOLCO from 2009 50,000 Basis of shares acquired
Net income 0 Net income (11) 250,000 on June 22 (14) 7,100
2008
Gross profit from business 900,000 Selling price 8,000
Business expenses 850,000 Less: Basis of shares received 7,100
Net operating income 50,000 Gain on sale (15) 900
Less: NOLCO from 2006 50,000
Net income 0

Chapter 11
True or False Multiple Choice-Theory
1. T 6. T 11. T 1. B 6. E 11. A
2. F 7. T 12. F 2. F 7. D 12. C & D
3. T 8. T 13. T 3. D 8. D
4. T 9. F 14. T 4. D 9. F
5. F 10. T 15. F 5. D 10. C

Chapter 12
True or False Multiple Choice
Theory Problem
1. T 6. T 1. A 1. 145,000
2. T 7. T 2. E 2. 50,000
3. T 8. T 3. C 3. 35,000
4. T 9. T 4. D 4. 15,667
5. T 10. T 5. 19,333

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