ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Examination  Week 6

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-801A: SOURCES OF INCOME

4. Exercise

A corporation has the following income and expenses for CY 2021:

Gross income, Philippines P1,600,000
Gross income, USA 400,000
Business expenses, Philippines 500,000
Business expenses, USA 200,000
Unallocated business expenses 150,000
Interest expense, USA 50,000
Interest expense, Philippines 100,000
Unallocated interest expense 80,000

Compute the tax payable assuming the above corporation:

a. Resident foreign corporation.

b. Nonresident foreign corporation.
c. Domestic corporation.

Suggested Answers/Solutions:

a. Resident foreign corporation

Gross income, Philippines P1,600,000

Less: Business expenses, Philippines 500,000
Unallocated expenses (1,600,000/2,000,000 x 150,000) 120,000
Interest expense, Philippines 100,000
Unallocated interest expense (1,600,000/2,000,000 x 80,000) 64,000 784,000
Taxable net income 816,000
Tax rate 25%
Tax due and payable P 204,000

b. Non-resident foreign corporation

Gross income, Philippines P1,600,000

Tax rate 25%
Withholding tax due P 400,000

c. Domestic corporation

Gross income, Philippines P1,600,000

Gross income, USA 400,000
Total gross income 2,000,000
Less: Business expenses, Philippines 500,000
Business expenses, USA 200,000
Unallocated expenses 150,000
Interest expense, Philippines 100,000
Interest expense, USA 50,000
Unallocated interest expense 80,000 1,080,000
Taxable net income 920,000
Tax rate 25%
Tax due and payable P 230,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-801A
Week 6: SOURCES of INCOME

6. Exercises

a. A corporation manufactures goods in the Philippines, which are sold exclusively in foreign countries.
The following data are taken from the records of the corporation:
Gross sales, without P5,000,000
Gross income from sales, without 3,000,000
Operating expenses 2,100,000
Value of properties, Philippines 300,000
Value of properties, without 600,000

Determine the taxable income within and without.

Suggested Answers/Solutions:

Gross income from sales P3,000,000

Less: Operating expenses 2,100,000
Taxable income P 900,000

Income within : 900,000/2 x 300,000/900,000 P150,000

Add: 900,000/2 x 0/5,000,000 0
Income within P150,000

Income without: 900,000/2 x 600,000/900,000 P300,000

Add: 900,000/2 x 5,000,000/5,000,000 450,000
Income without P750,000

b. An individual taxpayer has the following data on income and expenses in CY 2021:
1) Gross income, Philippines P220,000
2) Rent on building, Philippines, net of 5% withholding tax 95,000
3) Rent on commercial building, USA 70,000
4) Interest income, debtor resides in Hongkong 10,000
5) Dividends from Ford Motors, foreign company, declared in 2021 60,000

Note: Gross income of Ford Motors follows:

Within Without
2018 P300,000 P500,000
2019 400,000 100,000
2020 500,000 200,000
2021 350,000 150,000

6) Royalties received from Ford Motors for use of patents in USA 30,000
7) Dividend from Walmart Corp., USA, declared in 2021 80,000
Note: Gross income of Walmart for the preceding 2 years prior to declaration of
dividend follow: Within Without
2019 P400,000 P600,000
2020 400,000 400,000

8) Gain on sale, Philippines, land located in Japan 300,000

9) Gain on sale, Philippines, car purchased in Japan 40,000
10) Expenses:
a) Business expenses, Philippines 100,000
b) Depreciation building in Philippines 20,000
c) Depreciation building in USA 10,000
d) Expenses, sale of car in the Philippines 10,000
e) Expenses, sale of land in the Philippines 50,000
f) Unallocated expenses 60,000

REQ: a. Classify income into income within and income without.

b. Determine the taxable income assuming the individual taxpayer is:
1) NRA- ETB
2) NRA-NETB
3) RC

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-801A
Week 6: SOURCES of INCOME

Suggested Answers/Solutions:

Classification of income into income within and income without

Income within Income without

Gross income, Philippines P 220,000 P
Rent on building, Philippines (95,000/95%) 100,000
Rent on commercial building, USA 70,000
Interest income, debtor resides in Hongkong 10,000
Dividends from Ford Motors, foreign company, declared
in 2021 60,000
(1.2M/2M = 60%, this is more than 50%, hence, apply the general rule, the entire
amount is within PH)
Royalties received from Ford Motors for use of patents
in USA 30,000
Dividend from Walmart Corp., USA, declared in 2021
(0.80M/1.80M = 44.44%, this is less than 50%, hence, 44.44% is within PH, 55.55%
is from without PH)
800,000/1,800,000 x 80,000 35,556
1,000,000/1,800,000 x 80,000 44,444
Gain on sale, Philippines, land located in Japan 300,000
Gain on sale, Philippines, car purchased in Japan 40,000 -
Total P455,556 454,444

a. 1) Non-resident alien engaged in trade or business

b.
Gross income, Philippines P220,000
Other income
Rent income 100,000
Dividend income, Ford Motors, USA 60,000
Dividend from Walmart 35,556
Gain from sale of car, Philippines 40,000 235,556
Total gross income 455,556
Less: Business expenses, Philippines 100,000
Depreciation building in Philippines 20,000
Expenses, sale of car in the Philippines 10,000
Unallocated expenses (455,556/910,000 x 60,000) 30,037 160,037
Taxable net income P295,519

2) Non-resident alien not engaged in trade or business

Gross income, Philippines P220,000

Other income
Rent income 100,000
Dividend income, Ford Motors, USA 60,000
Dividend from Walmart 35,556
Gain from sale of car, Philippines 40,000 235,556
Total taxable gross income P455,556

3) Resident citizen

Total gross income (within and without) P910,000

Less: Deductions (within, without and unallocated) 250,000
Taxable net income P 660,000

END

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