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Chapter 7 Income Taxation 2021

TRUE OR FALSE I

1. The P250,000 income tax exemption for individuals is designated to be in lieu of their personal
and business expenses.
2. There are two types of regular income tax: proportional income tax for corporations and
progressive income tax for individuals.
3. NRA-NETBs and NRFCs are also subject to regular income tax.
4. All taxpayers are subject to final tax.
5. Taxable income is synonymous to net income.
6. For all taxpayers, taxable income means the pertinent items of gross income subject to capital
gains tax and final tax less allowable deductions.
7. All taxpayers are subject to regular income tax.
8. Employed taxpayers can claim expenses from their employment as deductible against their
compensation income.
9. Items of gross income subject to final tax and capital gains tax are exclusive gross income
subject to regular income tax.
10. Non-taxable compensation are items of compensation that are excluded against gross income.

TRUE OR FALSE II

1. The tax due of corporations is determined by multiplying their gross income by 25%.
2. The taxable compensation income is computed as gross compensation less the non-taxable
compensation income.
3. The deadline of filing the corporate quarterly income tax return is the same with the deadline of
the quarterly income tax return of individuals.
4. Business expenses can be deducted against all types of gross income subject to regular tax.
5. No deduction shall be allowed against taxable income.
6. Only corporations may incur deductions against gross income.
7. The gross income from business is measured as sales or gross receipts less cost of sales or cost
of services.
8. The tax due of individual is determined by means of schedules of tax rates.
9. The deadline of annual income tax return of corporations using the calendar year is similar to
the deadline fixed for individual taxpayers.
10. Every individual taxpayer is exempt from income tax on compensation up to P250,000 annually
but the same exemption does not apply to business income.
MULTIPLE CHOICE THEORY I

1. Which is generally subject to income tax?

a. Compensation income
b. Business income
c. Professional income
d. Passive income

2. The general rule in income taxation is

a. Final income taxation

b. Capital gains taxation
c. Regular income taxation
d. Fringe benefit taxation

3. Active income is subject to

a. Regular tax
b. Capital gains tax
c. Final tax
d. Any of these

4. Question 3 and 4 are based on the following:

A. Regular tax B. Final tax C. Capital gains tax.

Which of the foregoing are passive income subject to?

a. A only
b. B only
c. Both A and B
d. Either A and B

5. Which of the foregoing are capital gains subject to?

a. A only
b. C only
c. Either A or C
d. Both A and C

6. The net amount of regular income subject to regular tax is called

a. Taxable income
b. Compensation income
c. Net income
 d. Gross income

7. What are allowable deductions against gross income?

a. Business expenses
b. Family support
c. Personal expenses by the taxpayer
d. Expenses of employment

8. Deductions are allowed to

a. Employed taxpayers
b. Individual taxpayers only
c. Corporate taxpayers only
d. Taxpayers engaged in business

9. Personal expenses are

a. Non-deductible by employed taxpayers
b. Non-deductible by any taxpayer
c. Deductible by employed taxpayers
d. Deductible by any individual taxpayers

10. Which is not a feature of the regular income tax?

a. Net income tax

b. Final withholding tax
c. Annual tax
d. Creditable withholding tax

11. Which is true with the final withholding tax?

a. Advances to the annual tax due

b. No need to pay further taxes
c. Need to file annual income tax return
d. Applicable to items of regular income

12. Which is not true with the creditable withholding tax?

a. Advances to annual tax due

b. No need to pay further taxes
c. Need to file annual income tax return
d. Applicable to items of regular income
13. Progressive income tax is applicable to

a. Corporate taxpayers
b. Individual taxpayers
c. Compensation earners only
d. Individuals in business only

14. Proportional regular income tax is applicable to

a. Corporations only
b. Compensation earners only
c. Individuals engaged in business
d. Both individuals and corporations

15. Which of the following individual taxpayers is not subject to tax on taxable income?
a. Non-resident citizen
b. Resident alien
c. NRA-NETB
d. Non-resident alien engaged in business

16. Which of the following corporate taxpayers is not subject to tax on taxable income?

a. Domestic corporation
b. Business partnership
c. Non-resident foreign corporation
d. Resident foreign corporation

17. Which is a source of income subject to regular income tax?

a. Employment
b. Casual sales transactions
c. Trade or business or exercise of a profession
d. All of these

18. Which interest income will not be included in the income tax return?

a. Interest income from bank deposits

b. Interest income from lending
c. Interest income from notes
d. Interest income from employees

19. Which is not subject to final tax?

a. Prizes amounting to P11,000
b. Interest income from bank deposits
c. Winnings from the Philippines
 d. Share in the net income of general professional partnership

20. Which of the following is a passive income but nevertheless subject to regular tax by virtue of
exclusion under final income taxation?
a. Prizes amounting to P10,000
b. Service income
c. Merchandising income
d. Dividends from domestic corporation
MULTIPLE CHOICE THEORY II

1. Which is an incorrect statement?

a. Business expenses are deductible by individuals and corporations
b. Purely employed taxpayers are not allowed deductions from gross income
c. Personal exemptions are deductible by individuals, estates and trusts.
d. Deductions are considered in the determination of net income.
2. The following may be relevant in the determination of taxable income
A. Gross income subject to regular tax
B. Gross income subject to final tax
C. Deductions from gross income
D. Exclusion in Gross income

Which is not considered the determination of taxable income?

a. A and B
b. C and D
c. A and C
d. B and D only

3. Which is a correct statement regarding exclusion in gross income?

a. They are included in gross income subject to regular income tax
b. They are ignored in the determination of gross income
c. They are presented in gross income but are presented as deductions
d. They are subject to final tax

4. Which of these types of employees may be subject to final fringe benefits tax?
a. Managerial employees
b. Supervisory employees
c. Rank and files employees
d. A and B

5. Which is not considered an operating income?

a. Consignment commission income by a retail store
b. Fees from the rendering of service
c. Interest income from advances to employees
d. Sale of scrap

6. Which is a non-operating income

a. Gain on sale of office building
b. Sale of goods by a retail store
c. Gate receipts of cockpits
d. Gate receipts of cinemas

7. Which of the following will least likely to be considered an operating income of a security
dealer?
 a. Gain on sale of stocks
b. Gain on sale of bonds
c. Dividend income from domestic corporation
d. Interest income from bonds

8. The distinction between operating and non-operating income is not required in the income
taxation of
a. Self-employed individuals in business
b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals

9. The reporting classification of gross income into operating and non-operating is unnecessary for
a. Corporate taxpayers
b. Individual taxpayers
c. Both A and B
d. Neither A nor B

10. Which is not a part of compensation income?

a. Basic pay of rank and file employees
b. Fringe benefits of managerial and supervisory employees
c. Basic pay of managerial or supervisory employees
d. Fringe benefits of rank and file employees

11. Who cannot claim deductions?

a. Employed taxpayers
b. Self-employed taxpayers in business
c. Self-employed professional taxpayers
d. B and C

12. Who are required to file quarterly declaration of income?

a. Individuals engaged in business
b. Corporations and individuals engaged in business
c. Corporations
d. All individuals and Corporations

13. Mr. Peralta wishes to file his 2021 tax income return. To avoid penalty, he must file his return on
or before
a. April 15, 2021
b. April 15, 2022
c. August 15, 2022
d. November 15, 2022

14. An individual taxpayer must file his income tax return for the third quarter of 2021 on or before
 a. April 15, 2022
b. August 15, 2021
c. November 15, 2022
d. November 15, 2021

15. Talisay Corporation is filing its income tax return for the quarter ending February 28, 2021. The
return must be filed on or before
a. April 15, 2021
b. August 15, 2021
c. April 29, 2021
d. March 29, 2021

16. Which of these taxpayers is required to file an income tax return?

a. An employee covered by the substituted filing system
b. A taxpayer deriving purely passive income subject to final tax
c. Aliens classified as NRA-NETBs
d. A resident citizen who derives his entire income from sources outside the Philippines

17. The taxable income of corporate taxpayers is the

a. Net income from business
b. Net income from business less personal exemption
c. Taxable compensation income
d. Taxable compensation income plus net income from the business

18. The taxable income of a pure compensation income earner is the

a. Net income from the business less personal exemption
b. Taxable compensation income plus net income from business
c. Taxable compensation income
d. Net income from business

19. The taxable income of a mixed income earner is the

a. Net income from business less personal exemption
b. Net income from business
c. Taxable compensation income
d. Taxable compensation income plus net income from business

20. The taxable income of pure professional income earner is the

a. Net income from business
b. Taxable compensation income
c. Taxable compensation income plus net income from business
d. Net income from profession less personal exemption

21. Which of the following statements is incorrect with respect to the determination of the taxable
income of individual taxpayers with other income?
 a. The other income of pure compensation earner is included in taxable compensation income
b. The other income of a professional income earner is included as part of non-operating
income and is included in net income
c. The other income of a mixed income earner is also treated as part of non-operating income
and is included in net income.
d. The other income is simply ignored in the computation of taxable income

22. Statement 1: Individuals with higher income are subject to higher tax rates
Statement 2: Corporations with higher income are subject to higher tax rates

Which is correct regarding regular income tax>

a. Statement 1 only
b. Statement 2 only
c. Both statements 1 and 2
d. Neither statement 1 and 2

23. Which is incorrect in the determination of the taxable income of individual taxpayers?
a. Under the TRAIN law, there is no instance where the compensation income of taxpayers
could become zero.
b. A net operating loss is deductible against taxable compensation income
c. The taxable compensation income is added to the net income from business
d. Personal exemption is no longer deductible against compensation income

24. Statement 1: Corporations with the same net income may not have the same tax due
Statement 2: Individuals with the same net income may not have the same tax due

Which is correct regarding regular income tax>

a. Statement 1 only
b. Statement 2 only
c. Both statements 1 and 2
d. None

25. A purely engaged in business individual taxpayer using itemized shall use
a. BIR Form 1701A
b. BIR Form 1701
c. BIR Form 1700
d. BIR Form 1702

26. BIR Form 1701 is not intended for

a. Estate
b. Trust
c. Pure professional income earner under OSD
d. Mixed income earner
27. BIR Form 1700 is intended for
a. Trust
b. Estate
c. Pure compensation income earner
d. Pure business or professional income earner

28. A corporation subject to different tax rates shall use

a. Form 1702-RT
b. From 1702-EX
c. Form 1702-MX
d. Form 1701A

29. A non-profit corporation with a taxable income shall use

a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form1701A

30. A school which is subject to a preferential or special tax rate shall use
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A

31. A coporationthat is subject only to 25% or 20% income tax rate shall use
a. Form 1702-RT
b. Form 1702-EX
c. Form 1702-MX
d. Form 1701A