Practice Problems

AEC 52 Income Taxation

Computation of Regular Income Tax

1. Roxanne, a Filipino, had been employed as a manager at a local firm for several years. In
February 2020, she received an offer to be employed at an international firm. She resigned from
in April 2020 and left the Philippines in May 2020 to work. The following data is available during
2020:

Interest income from her payroll bank account in PNB, the

account from her first job ₱5,000
Salaries from her previous employer 80,000
Salaries from her current employer 240,000
Interest income from her payroll bank account in the US
for her second job 2,000
Separation bonus upon resigning 30,000
Vehicle purchased by the local firm in Roxanne’s name 1,000,000
Educational assistance from the local firm for the tuition of
Roxanne’s children for the first semester of the year 60,000
Proceeds from insurance for her destroyed car in March
2020. The car was valued at 150,000 230,000
Premiums paid on the insurance for the car, being paid by
her local employer. No minimum is imposed by law 12,000
Selling price of her extra lot in Makati to help finance her
extradition, cost of 600,000 1,000,000
Selling price of an old grill in her home in Muntinlupa, cost
of 190,000 240,000

a. Determine the gross income

b. Determine the allowable deductions
c. Determine the amount of regular income tax due
2. Brawly is a Filipino. He went to Hong Kong for a vacation in May 2020, and returned home by
June 2020. During the year 2020 he had the following transactions:

Interest income from a Hong Kong bank deposit during

his one month stay ₱1,000
Interest income from notes receivable, for long-term
credit sales from his customers 10,000
Dividends from a non-resident foreign corporation 20,000
Stock dividends from CEPALCO 5,000
Interest expense from borrowings to be used on
business expansion 80,000
Interest income from a dollar deposit in the Philippines 30,000
Winnings from the PCSO scratch cards 5,000
Proceeds from life insurance 500,000
Cost of first-class plane tickets to Hong Kong 90,000
Cost of hotel stay in Hong Kong, 20 days. Php50:USD1 100,000
Sales 1,900,000
Cost of sales 560,000
Doubtful accounts expense 80,000
Depreciation on family home 120,000
Depreciation on business equipment 250,000
Recoveries on bad debts written off last year 100,000
Value added tax paid during the year 140,000
Value of damage to business equipment partially
damaged due to fire 110,000
Value of inventory lost in the fire 80,000
Restoration cost on business equipment 75,000
Salaries of store clerk 120,000

a. Determine the gross income

b. Determine the allowable deductions
c. Determine the amount of regular income tax due (under itemized deductions)
d. Determine the amount of regular income tax due (under OSD)
3. Hoenn Corporation is a Domestic Corporation. It started operations last year. It has the
following non-cumulative data for 2020.

1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter
Sales 1,500,000 1,800,000 2,500,000 2,600,000
Sales discounts 80,000 85,000 65,000 110,000
Cost of sales 600,000 675,000 1,450,000 1,900,000
AR written off 40,000 45,000 52,000 69,000
Depreciation 120,000 100,000 160,000 200,000
Salaries of business’ employees 400,000 440,000 500,000 800,000
Gain on sale of equipment 80,000
Loss on theft of inventory 35,000
Interest expense 120,000 120,000 150,000 120,000
Creditable withholding taxes on sales 15,000 18,000 25,000 28,000

a. Determine the gross income

b. Determine the allowable deductions
c. Determine the amount of regular income tax payable in the 4th quarter (under itemized
deductions)
d. Determine the amount of regular income tax payable in the 4th quarter (under OSD)
e. Which method of deduction would be more beneficial to the taxpayer?
f. If the corporation used the itemized deductions for the year, and had a taxable income of
250.000 in the 1st quarter of 2021, how much is the tax payable for the 1 st quarter of 2021?

4. Devon Corporation, a domestic corporation, had the following (non-cumulative) transactions in

2020. 2020 is the corporation’s fourth year of operations.

1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter
Sales 2,432,600 2,371,080 2,661,240 2,792,500
Sales discounts 100,000 90,000 100,000 85,000
Cost of sales 1,235,000 1,209,100 1,528,300 1,580,500
Gain on sale of ordinary assets ─ 40,000 ─ ─
Entertainment Expense 11,000 16,500 10,000 10,000
Interest expense 120,000 120,000 120,000 120,000
Doubtful accounts expense 115,000 120,000 85,000 140,000
Advertising expense 250,000 260,000 230,000 380,000
Depreciation 180,000 180,000 180,000 180,000
Salaries of employees 520,000 520,000 520,000 560,000
Loss on theft of inventory 100,000
Creditable withholding taxes on sales 4,500 3,000 3,800 4,000

a. Determine the amount of income tax payable each quarter using itemized deductions
Following from the above data, in 2021, the corporation had the following transactions:

1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter
Sales 3,200,000 3,465,010 3,358,200 3,650,750
Sales discounts 100,000 90,000 125,000 85,000
Cost of sales 1,718,500 2,357,000 1,775,800 1,985,500
Interest expense 120,000 120,000 160,000 200,000
Interest income from bank deposits 15,000 20,000 17,000 15,000
Advertising expense 300,000 330,000 320,000 380,000
Writeoff of AR 31,000 45,000 150,000 100,000
Depreciation 180,000 225,000 250,000 300,000
Salaries of employees 550,000 550,000 550,000 600,000
Creditable withholding taxes on sales 5,600 4,300 3,800 3,500

b. Compute the income tax payable each quarter using itemized deductions.

Following from the previous data, in 2022, Devon corporation had the following transactions:

1st 2nd
Quarter Quarter
Sales 3,495,000 3,265,010
Sales discounts 100,000 90,000
Cost of sales 1,950,250 2,057,000
Interest expense 100,000 100,000
Advertising expense 300,000 300,000
Depreciation 300,000 300,000
Salaries of employees 500,000 500,000
Creditable withholding taxes on sales 7,400 7,500

c. Compute the income tax payable in each quarter using itemized deductions.