INCOME TAX ON CORPORATION

Case 1

A Corporation, in the second year of operation, had the following data:

Gross income, Philippines P2,000,000
Gross income, foreign 1,000,000
Expenses, Philippines 1,000,000
Expenses, foreign 500,000

1. If the corporation is a domestic corporation, how much is the taxable income?

2. If the corporation is a resident corporation, how much is the taxable income?
3. If the corporation is a non-resident corporation, how much is the taxable?

Case 2.

A domestic corporation, in its fourth year of operation, had the following data for a year:

Net sales P2,000,000

Capital gain on sale at P500,000 of shares of stock of domestic
corporation not listed and traded in a local stock exchange 200,000
Capital gain on sale thru a real estate broker of land and
building outside the Philippines for P5,000,00 1,000,000
Dividend from a domestic corporation 50,000
Interest on bank deposit 600,000
Coat of sales 190,000
Quarterly corporate income tax paid 500,000

1. How much is the normal tax?

2. How much is the minimum corporate income tax?
3. Which is the income tax for the year?
4. How much is the income tax still due for the year?

Case 3.

Given the data: Year 5 Year 6 Year 7 Year 8 Year 9

Normal tax 60,000 80,000 100,000 30,000 120,000
Minimum corporate
Income tax 280,000 40,000 90,000 20,000 80,000

1. Income tax in each of the years?

2. Income tax still due in each year?

Case 4.

The A. Co., a domestic corporation, had the following data (in pesos) at the and each of the first
three quarters, and end, of its sixth table fiscal year.
1st Q 2nd Q 3rd Q Year
Gross income P3,000,000 P4,100,000 P5,100,000 P9,200,000
Expenses 2,000,000 2,200,000 4,900,000 5,700,000

How much is the income tax shown in the:

(a) First quarterly income tax return;
(b) Second quarterly income tax return;
(c) Third quarterly income tax return;
(d) Year-end income tax return.
Case 5.

L. Co a domestic corporation in its seventh year of operation in 2019, had cumulative balance of:

1st Q 2nd Q 3rd Q Year

Gross profit from sales 400,000 780,000 990,000 1,200,000
Business expenses 380,000 600,000 710,000 1,500,000

the computation for the income tax the end of each quarter, and end of the year:

1st Q 2nd Q 3rd Q Year

Gross profit from sales 400,000 780,000 990,000 1,200,000
Business expenses 380,000 600,000 710,000 1,500,000
Taxable income 20,000 180,000 280,000 (300,000)

MCIT at 2% 8,000 15,600 19,800 24,000

NT at 30% 6,000 54,000 84,000 0
Whichever is higher 8,000 54,000 84,000 24,000
Less: Income tax paid-
First quarter (8,000) ( 8,000) ( 8,000)
Second quarter (46,000) (46,000)
Third quarter ______ ______ ______ (30,000)
Due (refundable) 8,000 46,000 30,000 ( 60,000)

What are the journal entries at the end of each of the first three quarter, and at the end of
the year, and when payments on the taxes are made?

Case 6.

A Co., a domestic closely-held corporation, in its tenth year of operations in 2018, had a net
taxable income (no capital gain with capital gain tax, and no passive in come with final tax) of
P1,000,000 ( which is also the net income for the year in the Income Statement prepared by the
Accountant from the books of accounts). Retained earnings at the beginning of the year was
P4,000,000 and paid up capital at the end of that year was P2,000,000. It never distributed profits
to its stockholders.

How much was the IAET for 2020?

Case 7.

By 2020 B Co. a domestic corporation, a closely-held corporation, was in its fifteenth year of
operations. It had a Retained Earnings at the beginning of 2020 of P3,000,000 (from a profit in
years prior to 2020). Even as there was a net loss in 2019 of P200,000. The Bureau of Internal
Revenue was imposing the improperly accumulated profits tax on the accumulated profits. The
paid-in capital at the end of 2020 was P3,500,000. For 2020, the corporation had:
Net sales P4,200,000
Cost of sales 1,200,000
Business expenses 800,000
Dividend from domestic corporation 200,000
Quarterly income tax paid, first, second and third quarters 510,000
Income tax due, end of the year 90,000
Dividend declared, 2019* 500,000
*Paid in 2020

For the year, the taxable income and income tax of the corporation would have been
computed, as follows:
Net sales P4,200,000
Less Cost of sales 1,200,000
Gross profit from sales 3,000,000
Less: Business expenses P800,000

Net operation loss carry-over from 2019 200,000 P1,000,000

Taxable income P 2,000,000

Minimum corporate income tax (P3,000,000 x 12%) p 60,000

Normal income tax (P2,000,000x30%) P6,000,000

Whichever is higher P 600,000

Less: Quarterly income tax paid 510,000
Income tax still due 90,000

How much is the improperly accumulated tax?

Case 5.

L. Co a domestic corporation in its seventh year of operation in 2019, had cumulative balance of:

1st Q 2nd Q 3rd Q Year

Gross profit from sales 400,000 780,000 990,000 1,200,000
Business expenses 380,000 600,000 710,000 1,500,000

the computation for the income tax the end of each quarter, and end of the year:

1st Q 2nd Q 3rd Q Year

Gross profit from sales 400,000 780,000 990,000 1,200,000
Business expenses 380,000 600,000 710,000 1,500,000
Taxable income 20,000 180,000 280,000 (300,000)

MCIT at 2% 8,000 15,600 19,800 24,000

NT at 30% 6,000 54,000 84,000 0
Whichever is higher 8,000 54,000 84,000 24,000
Less: Income tax paid-
First quarter (8,000) ( 8,000) ( 8,000)
Second quarter (46,000) (46,000)
Third quarter ______ ______ ______ (30,000)
Due (refundable) 8,000 46,000 30,000 ( 60,000)

In the books of account, the journal entry at the end of each quarter records an income tax
expense, whether such tax be the normal tax or the minimum corporate income tax,

Case 6

AB Partnership (assumed data):

Gross income P800,000
Less: Itemized deductions* 400,000
Net income P400,000
Income tax P 0
Partner A Partner B
Gross income- Share in AB net
Income (1/2 of P400,000) P200,000 P200,000
Gross receipts from business- own 90,000 100,000
Total P290,000 P300,000

Less:
Optional Standard deduction
40% of P90,000 (own) ( 36,000)
40% of P100,000 (own) ( 40,000)
Taxable income P254,000 P260,000
Case 7

From assumed data:

For a general professional partnership:
Gross income of the general professional partnership P500,000
Less: Optional Standard deduction (40% of P500,000) 200,000
Distributable net income (income is not subject income tax) P300,000

For Partner A:
Share in partnership distributable net income at
(1/2 of P300,00) P150,000
Own gross income
(from gross sales of P600,000) P288,000
Less: Own itemized deductions 180,000 108,000
Taxable income P258,000

Case 8

Messers. A and B, brothers, inherited an income-producing property. They have their own
separate practice of their profession and their interest on the property is only to preserve the
property and collect the income from the property. Mr. A. being the elder brother, was in charge
of the property. In a calendar year:

On the joint property:

Gross income P500,000
Expense 100,000
Mr. B:
Gross income from profession, net of a 10% withholding tax 522,000
Expenses on the practice of profession 150,000

1. Income tax of the co-ownership?

2. Taxable income of Mr. B?

Case 9

Messers. A and B, brothers, citizen and residents of the Philippines, invested P5,000,000 each in
buying a sugarcane plantation. The land is registered in the names of A and B, as co-owners. In
2020, with their joint efforts from planting to harvesting, to milling, they had a gross income of
P16,000,000 and expenses of P10,5000.

1. How much is the income tax of the co-ownership

2. The income tax of each co-owner from his share in the co-ownership net income?

Case 10

A Co. a domestic corporation, with common stock outstanding before a stock dividend in the
hands of five stockholders with one hundred shares each, declared a (10%) stock dividend
payable in common shares to all. The stock dividend is not income because, after the stock
dividend, the proportionate interests of the shareholders in the net assets of the corporation
remained the same.

Stock- Before Dividend Stock After Dividend

holder Shares % Dividend Shares %
A 100 20 10 110 20
B 100 20 10 110 20
C 100 20 10 110 20
D 100 20 10 110 20
E 100 20 10 110 20
500 100 50 550 100

TAX REFUND
Case 1 Case 2 Case 3
Taxable income before deducting the tax 200,000 200,000
Net loss before deducting the tax (P200,000)
Less:
Real property tax paid 10,000 - 10,000
Income tax paid\Taxable income after deducting the tax P190,000 P200,000 -
Net loss after write off (P210,000)
 1. Would the refund of the property tax in Case 1 be income?
2. Would the refund of the income tax in Case 2 be income?
3. Would the refund of the property tax in Case 3 be income?

Case 11

A taxpayer, in trading or manufacturing business, has:

Sales P200,000
Cost of sales
800,000
How much is the Optional Standard Deduction if
(a) The taxpayer is an individual?
(b) The taxpayer is a corporation?

Case 12

A taxpayer, a service provider, has:

Gross receipts from services P2,200,000

Direct cost of services 1,200,000

How much is the Optional Standard Deduction if:

(a) The taxpayer is an individual?
(b) The taxpayer is a corporation?

Case 13

Mr. A, a resident citizen of the Philippines, had:

Gross compensation income (net of exclusions) P 200,000
Gross income from trading (from gross sales of (P2,000,000) 1,000,000
Business expenses 400,000

How much is the taxable income?

Statement 1. The taxpayer must signify in the income tax return the choice of the Optional
Standard Deduction.
Statement 2. If a taxpayer is taking the Optional standard Deduction, his capital gains will be
reported. Since the Optional Standard Deduction takes the place of expenses and
losses, capital losses will not go into the computation of the base for the Optional
Standard Deduction.

Which Statements are correct?

Case 14

A Co. acquired a machine at a cost of P380,000. Scrap value was placed at PO, and the useful
life was estimated at twenty-five years. Depreciation was computed on the straight-line method.

1. How much was the annual deduction for depreciation?

2. How is the deduction taken up in the books of account?

Case 15

In the preceding illustration on A Co., if after depreciation the asset for twenty years. It was
determined that the remaining life of the asset is not five years but ten years.

How much be the new annual deduction for depreciation?

Case 16.

If the previous illustration on A Co., after depreciating the asset for twenty years, it was
determined that the remaining life the asset is not five years but two years,

How much is the new deduction for depreciation?

Case 17

A building was being depreciated on a cost of P5,000,000 and life of 50 years. At the beginning
of the eleventh year from completion of the building, it was reappraised, and the value in the
books increased to P10,000,000.

1. How much was the annual deduction for depreciation before the appraisal
increase?
2. How much will be the annual deduction at the end of the fifth year and thereafter
after recording the appraisal increase?

Case 18

CD Partnership had a net income of P500,000 before bonus to partner D. As agreed upon
between the partners, D Partner is entitled a bonus of 10% of net income before bonus.

How much is the bonus?

Case 19

Messrs. S. T and U, partners in a partnership, have agreed to provide bonus at 10% of net income
after bonus, to Mr. U, the managing partner. At that year-end the partnership had a net income of
P80,000 before providing for the bonus.

How much is the bonus?

Case 20

Partners A and B, are sharing equally in the partnership net income or loss. In addition, Partner A
is entitled to a bonus at 10% if affordable, from net income after all expenses, including bonus
and tax expenses.

Bonus can be determined only after deducting all expenses, including the income tax expense;
But income tax expense can be computed only after the bonus expense is deducted. So that, an
algebraic computation is required-