TAXATION: REO FIRST ASSESSMENT

FIRST TAXATION PREBOARD

1. Which is not legally tenable in refusing payment of tax?

a. Absence of benefit from the government
b. The taxing authority has no jurisdiction.
c. The authority’s right to collect has prescribed.
d. All of these

2. 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

3. 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

4. Who is not a resident alien?

a. An alien who stayed in the Philippines for more than 2 years.
b. An alien who married and stayed in the Philippines for 1 year.
c. An alien who stayed in the Philippines for more than 1 year.
d. An alien who established his intention before the CIR to stay in the Philippines for an extended
period of time.

5. Which is an incorrect statement regarding situs of income?

a. Interest income is earned in the residence of the debtor.
b. Royalties is earned where the intangible is employed.
c. Rent is earned in the location of the property.
d. Service income is earned in the domicile of the taxpayer.

6. Jonah Corporation reports on a calendar year. On August 15, 2011, it dissolved business due to
persistent losses. Jonah Corporation’s last income tax return shall cover
a. January 1 to December 31, 2011
b. January 1 to August 15, 2011
c. August 15, 2010 to August 15, 2011
d. August 15 to December 31, 2011

7. Effective March 1, 2011, Beneco, Inc. changed its calendar year to a fiscal year ending every June 30.
An adjustment return shall be filed covering the period
a. March 1 to June 30, 2011.
b. January 1 to June 30, 2011.
c. January 1 to March 1, 2011.
d. January 1 to December 31, 2011.

8. Mr. A sold domestic stocks directly to buyer on October 1, 2020 under the following terms:

Selling price P 500,000

Cost 200,000
Downpayment 10%
Installments in 2020 50,000
TAXATION: REO FIRST ASSESSMENT

Compute the capital gains tax due in 2020.

a. P45,000 c. P 5,500
b. P25,000 d. P 4,500

9. Mr. Norala has the following transactions on the stocks of ABC Co., a domestic corporation, which were
all purchased in 2019:

Date Transaction Gain(Loss)

5/8/2020 Sale P 120,000-
8/5/2020 Sale ( 20,000)
9/8/2021 Sale 40,000-

Compute the capital gains tax in 2020.

a. P24,000 c. P 15,000
b. P18,000 d. P 12,000

10. Anderson Corporation disposed an excess lot temporarily used as a parking lot for P3,000,000. The lot
was valued at P2,800,000 per tax declaration, P3,500,000 by the BIR, P3,200,00 by independent
appraisal. The lot was acquired four years ago for P2,500,000.

Assuming Anderson has no other income and expenses, compute the corporate income tax.
a. P 300,000 c. P 90,000
b. P 150,000 d. P 0

11. What is Anderson Corporations’ donor’s tax in the foregoing problem?

a. P 60,000 c. P 30,000
b. P 45,000 d. P 0

12. Mr. Jericho, a businessman, is reporting his income tax return for the third calendar quarter of 2020.
His return must be filed on or before
a. April 15, 2021. c. November 15, 2020.
b. August 15,2020. d. November 15, 2021.

13. Fringe benefits includes

a. Basic salaries
b. Fees
c. Retirement and separation pay
d. De minimis benefits

14. Mang Juan owns a commercial lot. A nearby private college leased Mang Juan’s lot and built a
building to house additional classroom.

Which is exempt from real property tax?

a. The commercial lot only
b. The building only
c. Both lot and building
d. Neither lot nor building

15. Which of the following is mandatorily required to use the eFPS?

a. A taxpayer who paid P958,000 in documentary taxes in previous years
b. A taxpayer with a P800,000 sales in the previous years
c. A corporate taxpayer with an authorized capitalization of P250,000,000
d. A taxpayer who paid P220,000 VAT in past quarters
TAXATION: REO FIRST ASSESSMENT

16. Statement 1: Substantive due process requires that there must be a valid tax law as a
precondition for the government to collect tax.

Statement 2: Tax exemption cannot be derived from vague inference of the law. It must be clear
and unequivocal.

a. True; True c. False; False

b. True; False d. False; True

17. DEF Corporation established a 100% subsidiary and registered it to the BOI as a pioneer
enterprise with a six year income tax holiday. DEF produces all the materials required by the
subsidiary. The subsidiary process these materials for export.

DEF Corporation sells materials to its subsidiary at a minimal mark-up of 110%. DEF and its
subsidiary reported a sales of P1,100,000 and P4,000,000 respectively. There were no inventories
left at the end of the period. DEF Corporation bills its product 150% of cost on shipments to
unrelated customers.

The BIR discovered the unfair billing and implemented a transfer pricing adjustment.

With the transfer pricing adjustment, DEF Corporation’s gross income is expected to increase by
a. P 0 c. P 400,000
b. P 100,000 d. P 500,000

18. Which of the following income is earned abroad?

a. Services rendered by a foreign firm to a domestic enterprise
b. Gain on sale by a non-resident citizen of his house in the Philippines
c. Interest on money lent by a resident citizen to a non-resident citizen
d. Dividend declared by a domestic corporation to a non-resident foreign corporation

19. A taxpayer with total tax deficiency of P1,100,000 inclusive of P650,000 penalties must seek
approval of the compromise settlement from
a. The National evaluation board
b. The Regional evaluation board
c. The Office of the Commissioner of Internal Revenue
d. Any of these at the discretion of the taxpayer

20. In the immediately preceding problem, assuming that the basis of compromise is other than
financial incapacity and the taxpayer offers to pay only P150,000, the venue for compromise
settlement shall be with
a. The National evaluation board
b. The Regional evaluation board
c. The Office of the Commissioner of Internal Revenue
d. Any of these at the discretion of the taxpayer

21. Which is an item of gross income?

a. Wagering gains
b. Harvested fruits and vegetables
c. Damages for tortuous acts
d. Cash receive by way of gifts

22. Mr. Curimao, a Filipino, arrived in the country on July 18, 2017 after his 10-month tour across the
globe. Which is true?
TAXATION: REO FIRST ASSESSMENT

a. Mr. Curimao is a resident citizen in both year 2016 and 2017

b. Mr. Curimao is non-resident citizen in 2016 but a resident citizen in 2017
c. Mr. Curimao is non-resident citizen in both year 2016 and 2017
d. Mr. Curimao is resident in 2016 but non-resident citizen in 2017

23. The law firm Llama Deve Ceraullo, a general professional partnership, rendered professional
services to High Blood Coffee Company (HBCC) for a monthly retainer of P200,000 a month.
Which is true with respect to withholding taxes?
a. HBCC shall not deduct any withholding tax.
b. HBCC shall deduct a 15% creditable withholding tax.
c. HBCC shall deduct a 10% creditable withholding tax on the professional fees.
d. HBCC shall deduct a 10% final withholding tax on the professional fees.

24. Which of the following is not subject to Philippine income tax filing or withholding requirements?
a. An Government-owned and controlled corporation
b. A government agency
c. A non-profit non stock entity
d. A non-resident foreign corporation

25. Which is subject to final withholding tax?

a. Rental income
b. Prizes of a domestic corporation
c. Winnings of a resident foreign corporation
d. Dividend income of a non-resident foreign corporation

26. The interest income on a foreign currency deposit in a foreign bank account representing
deposits of salary savings by a non-resident Overseas Filipino Worker under the account his
resident spouse is
a. Exempt from final tax
b. Subject to regular tax
c. Subject to 20% final tax
d. Subject to 7.5% final tax

27. A certain taxpayer earned the following income during the calendar year:

Interest income from a resident debtor secured by a property situated in P 120,000

Japan
Dividend income from a resident foreign corporation whose income is 60%
from the Philippines in the last preceding three years 200,000
Dividend income from a domestic corporation 100,000
Interest income from a foreign bank 150,000
Interest income from foreign currency deposits in the Philippines 120,000
Royalty from books published in the Philippines 100,000
Prizes earned from foreign competition 80,000
Gain on sale of agricultural land in the Philippines (cost =P2M) 1,000,000
Gain on sale of residence abroad (cost = P4M) 500,000
Sale of domestic stocks to a friend abroad 200,000
Professional fees from clients in the Philippines 400,000

Compute the total income subject to regular tax if the taxpayer is a resident citizen.
a. P1,550,000 c. P 720,000
b. P1,450,000 d. P 640,000
TAXATION: REO FIRST ASSESSMENT

28. Compute the total income subject to regular tax if the taxpayer is a non-resident citizen.
a. P1,550,000 c. P 720,000
b. P1,450,000 d. P 640,000

29. Compute the final tax on passive income if the taxpayer is resident citizen.
a. P 64,000 c. P 29,000
b. P 38,000 d. P 20,000

30. Compute the final tax on passive income if the taxpayer is a non-resident citizen.
a. P 64,000 c. P 29,000
b. P 34,000 d. P 20,000

31. Compute the total capital gains tax if the taxpayer is a resident citizen.
a. P 210,000 c. P180,000
b. P 195,000 d. P 95,000

32. Compute the total capital gains tax if the taxpayer is a foreign corporation.
a. P 210,000 c. P180,000
b. P 195,000 d. P 15,000

33. A general professional partnership deposited all its collection to a bank account with the Bank of
Philippine Islands. During the month, it earned a total of P2,000 interest. Which is true?
a. The general professional partnership shall include the P2,000 interest in its distributable
income which will be taxable to the partners
b. The general professional partnership shall be subject to 20% final tax on the interest income
c. The P2,000 interest income is non-taxable to the partnership and to the general professional
partnership and the partners
d. The P2,000 interest income shall be subject to 30% corporate income tax

34. Mr. Asuncion wants to move to a bigger office. He sold his office building for P3,000,000 and
bought another one for P3,000,000. The new office which was acquired within a month from the
disposal of the old office is closer to the central business district. The tax basis and fair value of
his old office was P2,000,000 and P3,200,000, respectively. Which is correct with respect to the
disposal of the old building?
a. Mr. Asuncion is exempt from income tax.
b. Mr. Asuncion shall file a capital gains tax and pay P192,000
c. Mr. Asuncion shall report a gain of P1,000,000
d. Mr. Asuncion shall report a gain of P1,700,000

35. Mr. Asuncion, a realty dealer, paid P18,000 documentary stamp tax on the disposal of his
residence. How much capital gains tax must have been paid?
a. P 0, subject to regular tax
b. P 60,000
c. P 72,000
d. P 90,000

36. The Evergreen Corporation is on a fiscal year ending every August 31. It disposed its investment
in bonds for P3,000,000 at a gain of P400,000 on July 1, 2019. The buyer agreed to pay the
bonds at 10% down and the balance in 12 monthly installments starting July 30, 2019.

Compute the gain to be reported for the fiscal year ending August 2019.
a. P 0 c. P100,000
b. P 40,000 d. P 400,000
TAXATION: REO FIRST ASSESSMENT

37. ABC Corporation deposited $100,000 in a 5-year time deposit of the FCDU unit of Northern
Universal Bank. The deposit earned P500,000 interest income during the year. Which is true?
a. ABC Corporation is exempt from final tax
b. ABC Corporation is subject to regular tax on the interest income
c. ABC Corporation is subject to 15% final tax on the interest in foreign currency deposit
d. If ABC is a non-resident foreign corporation, the interest income shall be subject to regular
tax

38. Boy Kape, a security dealer, sold his investment in the stocks of Large Mugs Corporation after
two years of holding. The stocks were previously acquired for P1,200,000 and were sold for
P1,500,000 on April 1, 2019 due on 12 monthly installments starting April 30. Which is true?
a. Boy Kape shall report P225,000 gain for 2019
b. Boy Kape shall report P300,000 gain for 2019
c. Boy Kape shall pay P18,750 in capital gains taxes in 2019
d. Boy Kape shall pay P25,000 capital gains tax in 2019

39. Which of the following is a non-taxable item of compensation income?

a. Contribution of the employee to the employer’s contributory pension fund
b. Contribution of the employee to SSS, PhilHealth and HDMF
c. Contribution of the employee to his Personal Equity Retirement Account
d. Retirement benefits

40. 1st Statement: A minimum wage earner is exempt from his minimum wage and qualified benefits
even if he has other sources of income such as income from business.
2nd Statement: A minimum wage earner may be disqualified as such if he has other items of
taxable compensation income.
a. True, True
b. True, False
c. False, True
d. False, False

41. Which is claimable as tax credit against regular income tax?

A. Final withholding tax
B. Withholding tax on compensation
C. Expanded withholding tax
D. Final withholding tax on capital gains

a. All of these c. A and D

b. None of these d. B and C

42. Who is required to pay the capital gains tax on real property capital asset to the government?
a. Buyer
b. Seller
c. Broker
d. The Registry of Deeds

43. Johnny qualified to the employee stock appreciation plan of his employer wherein he shall be
entitled to buy 100,000 shares of its employer for P10 a share currently worth P25 a share. Johnny
immediately sold the share to a buyer for P27 each, gross of 0.5% broker’s commission on sales.

Compute the amount of supplemental compensation income.

a. P 0 c. P 1,500,000
TAXATION: REO FIRST ASSESSMENT

b. P 200,000 d. P 1,700,000

44. Compute the capital gains tax.

a. P 0 c. P 27,975
b. P 13,650 d. P 163,650

45. Which is a correct de minimis threshold?

a. Rice allowance P2,500/month
b. Uniform and clothing allowance – P 360/month
c. Productivity incentive bonus – P10,000/year
d. Christmas and major anniversary gift – P10,000/year

46. You were asked by your Controller to prepare the 2019 tax return for Netarc Corporation. Netarc
Corporation reported a pre-tax net income of P2,800,000 under the accrual basis of financial
reporting.

The following transactions which transpired during the year may be relevant for your analysis.
1. Receipt P120,000 capital gains on disposal of domestic stocks
2. Receipt of P80,000 gains realized from redemption of investment in a mutual fund
3. Receipt of P100,000 dividends from a subsidiary corporation operating in Japan
4. Receipt of interest of P40,000 from a foreign bank
5. Receipt of P250,000 royalties from franchisees in the Philippines
6. Receipt of P400,000 from the life insurance of the Company president
7. Collection of P100,000 rental income for 2018 from a property in Korea
8. Increase in fair value of derivative financial securities, P90,000

Compute Netarc Corporation’s taxable income.

a. P 2,160,000 c. P 2,040,000
b. P 2,140,000 d. P 1,960,000

47. Assume Netarc is a resident foreign corporation, compute its taxable income.
a. P 1,960,000 c. P 1,810,000
b. P 1,820,000 d. P 1,720,000

48. Atty. Cool had the following dealings in the stocks of Call Boys Corporation:

Date Transaction Shares Amount

April 1, 2019 Purchase 100,000 P 24
June 1, 2019 Stock dividend 20% -
August 15, 2019 Purchase 30,000 18
September 4, 2019 Sale 50,000 17
November 5, 2019 Cash dividend P1.5/share
December 16, 2019 Sale 80,000 25

Jack Wan-ay uses the FIFO method.

Compute the deductible loss on September 4, 2019.

a. P 0 c. P 90,000
b. P 60,000 d. P 350,000

49. Compute the capital gains tax on the sale on December 16, 2019.
a. P 60,000 c. P 52,000
b. P 58,500 d. P 49,500
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50. Compute the final tax on dividends.

a. P 30,000 c. P 15,000
b. P 22,500 d. P 12,000

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