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Solution:: Answer More Challenges
Solution:: Answer More Challenges
Solution:: Answer More Challenges
Question 1
A resident citizen, married with 2 qualified dependent children has the following
income and expenses for the year 2014:
SOLUTION:
Interest income, peso bank deposit BPI Manila (20,000 x 4,000
20%)
Interest income, US dollar deposit BPI Manila (50,000 x 3,750
7.5%)
Total 7,750
Tax - Income Tax on Capital Assets, Sales or Exchange of Properties
(Uncategorized)
Question 2
Which of the following is not for the benefit of the taxpayer?
substantiation rule
all events test
cohan rule
Question 3
An employee receiving less than P240,000 per annum and is classified as a
minimum wage earner shall
be allowed to claim the additional deduction of P2,400 for medical insurance
Question 4
Ronald and Bev, husband and wife are both employed in Shell Corporation. After
office hours, they jointly manage an internet shop at the ground of their house.
The internet shop is registered in the name of both spouses.
Which of the following is the correct way to prepare their income tax return?
Ronald will declare his own compensation income and Bev will declare hers.
The income from the internet shop shall be equally divided between them. Each
spouse shall be taxed separately on their corresponding taxable income to be
covered by one consolidated return for the spouses.
Ronald will declare his compensation income and Bev will declare hers. The
income from the internet shop shall be equally divided between them. Ronald will
file one income tax return to cover all the income of both spouses, and the tax is
computed on the aggregate taxable income of the spouses.
Bev will declare the combined compensation income of the spouses, and
Question 5
By specific provisions of law, which of the following need not appear in a public
instrument?
a contract of partnership having a capital of P3,000 or more, in money or
property.
a pledge, describing the thing pledged and the date of the pledge, in order to
Question 6
Mike has inadvertently omitted P100,000 income in his 2014 Income Tax Return.
Upon discovery in 2015, the BIR issued an assessment for deficiency income tax
for P100,000 plus 50% fraud surcharge. Meanwhile, Mike included the omitted
P100,000 income in his 2015 Income Tax Return. What advice will you give
Mike?
any of the answers is correct
amend his 2014 Income Tax Return to reflect the correct amount of income
pay the assessed tax plus surcharge, and thereafter, ask for refund
Question 7
Katie is a thief who is under obligation now to return the car to the owner of Tom.
The car was lost through an accidental fire. The obligation will
not be extinguished because the obligation proceeds from a criminal offense
hence Katie will still have to pay the price of the car.
be extinguished because not all persons can avail of the remedies provided
by law
be extinguished because an accidental fire is always a fortuitous event.
be extinguished because the value of the car will be converted into the
Question 8
Jane, a dealer of jewelry sold one jewelry which she purchased in 2011 at a cost
of P30,000. She sold the car on the following terms:
SOLUTION:
Selling price 120,000
Less: cost 30,000
Ordinary gain 90,000
Gain to be recognized (90,000/120,000 x 30,000
40,000)
Income can be reported in installment because it involves a sale by a dealer of a
personal property.
Tax - Income Tax Individuals (Uncategorized)
Question 9
Jomel has been an employee of San Miguel Corporation for 19 years. On April 1,
2015, Jomel will celebrate his 49th birthday and, on the same day, retire from his
company. Jomel’s retirement benefits will
be tax exempt
Question 10
Cornell obliged himself to give Jeff his motorcycle on January 20, 2014. There
was no delivery until January 30, 2014 when the garage of the motorcycle
collapsed due to a strong typhoon and the motorcycle was totally destroyed. Is
Cornell still liable?
No, even if Cornell was already default, he could plead impossibility of
performance.
No, because there was no demand by Jeff to deliver the motorcycle and the
specific object was lost due to fortuitous event. The obligation is extinguished.
Yes, because the contract is perfected.
Yes, the obligation to deliver the motorcycle is changed to pay the equivalent
Question 11
SIMI, a corporation registered in Australia, has a 50 MW electric power plant in
Mindoro. Aside from SIMI’s income from its power plant, which among the
following is considered as part of its income from sources within the Philippines?
gains from the sale to an Quezon power plant of generators bought from the
US
interests earned on it dollar deposits in a Philippine bank under the Expanded
its engineers
dividends from a 2 year old Australian subsidiary with operations in Kenya but
Question 12
N, R and J solidarily bound themselves to deliver to S a Honda motorcycle valued
at P 60,000. The obligation was not fulfilled through the fault of J. Thereupon, S
filed an action in court against N and the court awarded P 72,000 to S
representing the value of the motorcycle plus damages. Which of the following
situation is valid?
N can refuse to pay the penalty because it should be charged against J, the
guilty party
S has to collect P 24,000 each from N, R and J to satisfy the court’s award of
P 72,000
If S succeeds in collecting the P 72,000 from N, N in turn can collect from R P
Question 13
The signature of Mark was forged as drawer of a check. The check was
deposited in the account of Paul and when deposited was accepted by PNB
Bank, the drawee bank. Subsequently, PNB Bank found out that the signature of
Mark was actually forged. Which statement is most accurate?
The drawee bank can recover from Mark. because he is the drawer even
his account.
Tax - Negotiable Instruments (Uncategorized)
Question 14
Dianne issued a promissory notes which states, “I promise to pay Y or order
P100,000 or 1 unit of Kia Pride.” Which statement is most accurate?
The promissory note is non-negotiable because the option as to which form of
stated.
The promissory note is an invalid instrument because there is more than one
form of payment.
The promissory note can be negotiated by way of delivery.
Question 15
A dealer in securities has the following data for the year 2014:
SOLUTION:
Sales, held as inventory 4,000,000
Less: Cost of shares held as (2,000,000)
inventory
Gross income 2,000,000
VAT rate 12%
Output tax 240,000
Input taxes - supplies (100,000 x (12,000)
12%)
Input taxes - rent (200,000 x 12%) (24,000)
VAT payable 204,000
Tax - VAT (Uncategorized)
Question 16
An individual engaged in business earned net income which is less than his
personal and additional exemptions during the year. Is he required to file an
income tax return?
yes, because he is required to file a tax return notwithstanding such loss
no, because individual taxpayers whose gross income is less than his
yes, because he still incurs income tax liabilities notwithstanding the foregoing
facts
Tax - Income Tax Individuals (Uncategorized)
Question 17
Which is not required to file an income tax return?
Larry, who derived purely compensation income from 2 employers in 2014 for
witholding tax
Adam, a businessman with total earnings of P50,000 for 2014 but who is
married and has 4 children (thus, with personal and additional exemption of
P64,000)
Paul, who derived purely compensation income from just one employer for a
Question 18
The Commissioner of Internal Revenue may abate or cancel the tax liability when
Question 19
Absent any contrary provisions in the agreement, under which of the following
circumstances will a limited partnership be dissolved?
a personal creditor of a general partner obtains a judgment against the
continue
a limited partner dies and his estate is insolvent
Question 20
The NIRC requires that ordinary and necessary deductions should be deducted
in the income tax computation of taxpayers, when
the deduction is both paid and accrued
Question 21
Which of the following shall not be subject to income tax?
Question 22
A taxpayer received a certain sum of money erroneously through the crediting of
his bank account. The taxpayer knew of this error and informed the bank which
did nothing in relation to the said error. The taxpayer then prepared his income
tax return and did not include the amount erroneously received as part of his
income for the year. No mention was made on this matter in his financial
statements or income tax return. The said constitutes
basis for the imposition of donor’s tax
not a basis for fraud because the money was not owned by the taxpayer
Question 23
The taxable income before income tax of Julie Corporation for the current year
was P500,000. During the year, the Corporation received the following refund of
taxes paid in previous years and recoveries of accounts written off, of which were
credited to miscellaneous income:
SOLUTION:
Taxable income before income tax 500,000
Refund of income tax (50,000)
Bad debt recovered (disallowed as (15,000)
deduction)
Adjusted taxable income 435,000
Tax rate 30%
Income tax payable 130,500
Tax - Income Tax Corporation (Uncategorized)
Question 24
As payment for a debt, Arianna issued a promissory note in favor of Joe but the
promissory note on its face was marked non-negotiable. Then Joe instead of
indorsing the promissory note, assigned the same in favor of Henry to whom he
owed some debt also. Which statement is most accurate?
Henry can claim payment from Joe because under the Negotiable Instrument
promissory note.
Henry cannot claim payment from Arianna on the basis of the promissory
negotiable.
Tax - Negotiable Instruments (Uncategorized)
Question 25
Gil worked for a manufacturing firm. Due to business reverses, the firm offered a
voluntary redundancy program in order to reduce overhead expenses. Under the
program, an employee who offered to resign would be given separation pay
equivalent to his 3 months basic salary for every year of service. Gil accepted the
offer and received P400,000 as separation pay under the program.
After all the employees who accepted the offer were paid, the firm found its
overhead still excessive. Hence, its adopted another redundant program. Various
unprofitable departments were closed. As a result, Gil was separated from the
service. He also received P400,000 as separation pay. Which among the
following statements is correct?
Gil’s separation pay is not subject to income tax
SOLUTION:
Choice d. Gil was separated fro a reason beyond his control which is redundancy.
The amount he received is excluded from gross income. As a result choice c is
not correct. Choices a and b. Gil voluntarily resigned, hence the separation pay
he received, not being for a cause beyond his control, is not excluded from gross
income. Furthermore, the separation pay is not also considered as tax-free
retirement because there is no showing that he is 50 years or over, that he has
rendered at least 10 years service with his employer, and he has not previously
availed of the tax-free retirement.
Tax - Uncategorized (Uncategorized)
Question 26
Roger Company is exempt from VAT under Section 109 because its gross
receipts never exceeded P1,500,000. It is subject to the 3% percentage tax under
Section 116 of the Tax Code. It files a “Notice of Availment of the Option to pay
the tax through withholding process.” It furnishes a copy of the notice to its
withholding agents payors and its RDO as well as the RDOs of its withholding
agents payors. The following selected data are made available by Roger
Company.
SOLUTION:
Amount
Gross receipts (10,000+15,000) 25,000
Tax rate 3%
Percentage tax due 750
Less: Withholding percentage tax (10,000 x 300
3%)
Stocks transactions tax 450
Tax - Percentage Taxes (Uncategorized)
Question 27
Among the nature of taxation is that it is an inherent power being an attribute of
sovereignty. Which among the following is not among its manifestation as such
inherent power?
the State has the right to select the subjects and objects of taxation
SOLUTION:
Question 28
The BIR is allowed only to conduct of examination for unpaid taxes for each type
of taxes paid by the taxpayer except in which circumstances below:
when the BIR fails to complete its investigation within the prescribed period of
5 years
when determined by the BIR as beneficial to the national government
when the taxpayer failed to file a return or files a fraudulent return which is
Question 29
A promissory note which does not have the words “or order” or “or bearer” will
render the promissory note non-negotiable, and therefore
the note can still be assigned and the maker made liable
the promissory note can just be delivered and the maker will still be liable.
Question 30
Properties passing through a power of appointment is not includible in the estate
of the decedent:
when the decedent-grantor retains possession of the property with transfer
transmit the property, its possession and profits, at any point in time with a clause
excluding the designation by the 3rd person of the decedent-grantor as a
recipient of the property or it profits.
when the decedent grantor delegates to a 3rd person the right to transfer or
transmit the property, its possession and profits, at any point in time.
when the decedent-grantor receives profits from the said properties which will
Question 31
Michelle Corporation, registered with BIR in 2006, has the following data for the
year 2014:
SOLUTION:
Gross receipts 1,000,000
Discounts (100,000)
Returns and allowances (150,000)
Net receipts 750,000
Cost of services
Salaries of personnel (300,000)
Consultant fees (50,000)
Rental equipment (70,000)
Gross income 330,000
Less: Optional standard deduction (40% x 330,000) 132,000
Net operating income 198,000
RCIT (30% x 198,000) 59,400
MCIT (330,000 x 2%) 6,600
Tax due and payable (higher) 59,400
Tax - Income Tax Corporation (Uncategorized)
Question 32
“A” is a single and gainfully employed, She is the only child of “B” who is already
of an advanced age and depends solely on “A” for sustenance. “A” has a live-in
partner in the person of “X” who had a child out of wedlock with another woman.
The child is a minor and is physically incapacitated and since “X” was not
employed, both depend on “A” for survival. “X” subsequently dies leaving “X”s
child an orphan but in the physical custody of “A”. How much is “A”s personal
exemption?
P75,000 because “B” qualifies as dependent but not the child
living with the taxpayer and is below 21 years of age hence the child of “X” who
now lives with “A” is a dependent.
P100,000 because both “B” and the child qualify as dependents
Question 33
In instances wherein the tax or any portion thereof appears to be unjustly or
excessively assessed or where the administration and collection costs involved
do not justify the collection of the amount due, the commissioner may:
compromise the payment of the internal revenue tax
corporation even though he signed all the loan documents, because the loan was
authorized by the Board.
Because Philip was personally acting in behalf of the Corporation, he can be
Joey Bank can choose as to who it wants to hold liable for the loan.
Question 35
The proposed amendments to the VAT has spawned a lot of controversy.
However, the issue of validity of the imposition of VAT is not one of the first
impression. Tolentino vs. Secretary of Finance, ruled that the VAT law was valid
for various reasons. Which among the following statements is not among the
reasons mentioned in the decision for upholding the validity of the VAT law?
It is equitable because it is imposed only on the sale of goods and services by
exempt from the VAT so that the costs of basic food and other necessities are
expected to be relatively lower and within the reach of the general public.
There was no improper delegation of the legislative authority to tax when
applied similarly on all goods and services and to the public which are not
exempt, at the constant rate of 0% to 12%
Tax - VAT (Uncategorized)
Question 36
The provisions of the family code require the transfer of the share of the guilty
spouse of his/her share in the community property in favor of the innocent
spouse, in effect causing a transfer of the property. The said transfer is
subject to Philippine donor’s tax due to the donative intent
subject to Philippine donors tax because there was a transfer of property for
inadequate consideration
not subject to the Philippine donor’s tax due to lack of donative intent
not subject to the Philippine donor’s tax due to a provision of the Family Code
Question 37
A Filipino citizen maintains a bank in the UK. She earns passive income of 3%
per annum at the end of the taxable year, she declared an interest income
amounting to 1,000 Euro that said account. What applicable tax should be
imposed on the said income?
final tax rate of 7.5%
none, it is exempt from income tax since it is not derived from sources within
the Philippines
final tax rate of 20%
Question 38
Minyong Corporation and Aris Corporation have agreed to be merged into one
corporation. To facilitate the merger, both corporations agreed that the merger be
made effective on May 31, 2014. SEC approved the Articles of Merger on June
30, 2014. Which statement is most accurate?
The stockholders and the Board of Directors can set the effective date of the
Question 39
Jonas Joson, a manager in Splash Corporation, is given a free trip to the US with
his wife and family. The Company paid for all of the expenses of the said trip. He
would be compelled to report the trip in his personal income tax return as
additional compensation income
professional fees
both the trip and the fringe benefits tax paid would be recorded in his ITR
no item of the trip and the tax paid should be reported in his ITR
Question 40
Payment made to a third person is valid to extinguish the obligation of the debtor
to the creditor in the following cases, except
After payment to the creditor, the third person acquires the creditor’s right
When through the creditor’s conduct, the debtor was led to believe that the
Question 41
A gets a loan of P 1,000,000 from B which becomes due on October 1, 2008 and
mortgaged his house as security for the debt. On June 30, 2008, the mortgaged
house completely destroyed the fire through the fault of C. A week later, B
demanded payment from A. Is B’s demand valid?
Yes, the debt becomes demandable unless A can give another security
equally satisfactory
No, the obligation is one with a definite period which is deemed intended for
Yes, the debt becomes demandable even if A can give another security
equally satisfactory
Tax - Obligations (Uncategorized)
Question 42
Jones acted as an accommodation party in signing as a maker of a promissory
note. Which phrase best completes the sentence. This means that Jones is liable
on the instrument to any holder for value.
for as long as Jones did not receive any consideration for acting as
accommodation party.
for as long as the holder does not know that Jones is only an accommodation
party
provided Jones received consideration for acting as accommodation party.
even though the holder knew all along that Jones is only an accommodation
party
Tax - Negotiable Instruments (Uncategorized)
Question 43
Which of the following renunciation is not subject to donor’s tax?
Question 44
Joan, a Filipino citizen engaged in the real estate business, filed his 2011 income
tax return on March 15, 2012. On December 2012, he left the Philippines as an
immigrant to join his family in Canada. After investigation of said return, the BIR
issued a notice of deficiency income tax assessment on April 15, 2014. Joan
returned to the Philippines as a balikbayan on December 8, 2014. Finding his
name as a delinquent taxpayer, he filed a protest against the assessment on the
ground that he did not receive the notice of assessment and that the assessment
had prescribed.
Will the protest of Joan prosper?
No.e right of the government to make a tax assessment -prescriptible,
April 15, 2014, which is within the reglementary period of 3 years from the time
the return should have been filed on April 15, 2012.
Yes. The assessment had prescribed because it was issued by the BIR on
April 15, 2014, which is already beyond the reglementary period of 3 years from
the time the return was filed on March 20, 2012.
Yes. In the instant case, the suspension of the running of the prescriptive
period applies because the assessment notice was issued by the BIR beyond the
3 years prescriptive period.
Tax - Tax Remedies (Uncategorized)
Question 45
The following are basic principles of a sound tax system
fiscal adequacy, economic feasibility and theoretical justice
Question 46
Statement 1 Symbiotic relation is the reason why the government could impose
taxes on the incomes of resident citizens derived from sources outside
the Philippines
Statement 2 Jurisdiction is the reason why citizens must provide support to the
state so the latter could continue to give protection.
Both statements are true
SOLUTION:
Both of the statements are false. Statement 1 refers to jurisdiction while
statement 2 refers to the symbiotic relation.
Tax - General Principles of Taxation (Uncategorized)
Question 47
Henry, subscribed 15,000 shares in the capital stocks of Joel Corporation. He
paid 50% of the 15,000 shares. Henry asked the Corporate Secretary to issue
him the corresponding stock certificate representing the 50% of what he already
paid. The Corporate Secretary of the corporation refused. Was the Corporate
Secretary correct?
The Corporate Secretary cannot refuse because it is his legal duty to issue a
issued provided it is indicated in the certificate the actual percentage of what has
been paid.
Tax - Corporation Law (Uncategorized)
Question 48
The optional standard deduction is applicable under the National Internal
Revenue Code which provides that taxpayers shall be allowed the following as an
optional deduction in lieu of the itemized deduction.
10% optional standard deduction based on gross income for both individual
and corporations
40% optional standard deduction for both individuals and corporations with
and corporation
Tax - Income Tax Individuals (Uncategorized)
Question 49
Jane, Erik and Matet are partners in buying and selling cars. Jane, by the
partner’s agreement, was authorized to buy only in cash. One day, Jane bought
on credit a car from Joanne, a client, who did not know of Jane’s lack of authority.
Jane’s purchase was made in the name of the partnership. Is the partnership
bound in the sale?
It is bound because Joanne was in good faith and the act of Jane was
of business.
It is bound if it ratifies the contract of sale by acceptance of benefits.
income.
The benefits received by category A employees from the BIR approved plans
are excluded from gross income the ex gratia payment of 1 month for every year
of service should be included in their gross income.
Only the employees who are at least 50 years of age and has 10 years of
SOLUTION:
The separation, due to the economic situation, is one which is beyond the
employees’ control, hence excluded from gross income and not subject to income
taxation. The age of the employee, and his years of service does not matter.
Tax - Uncategorized (Uncategorized)