2019 Income Taxation Solution Manual Rex Banggawan PDF

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####### INCOME TAX SOLUTION MANUAL####### 1#######UniversityThis document is restricted only for tax professors of our partner colleges and universities which adopt our book as their textbook. This manual is specifically encrypted for each college or university. Please do not allow student access.IN...

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Partner with us in ensuring quality tax education in your college. Focus on assessments. Let us take care of the contents. Real Excellence commit itself in ensuring that your students get the most accurate, relevant and updated information in the field.

OTHER TITLES: 1. Business and Transfer Taxation 2. Taxation Reviewer 3. Fundamentals of Accountancy, Business and Management 1 4. Fundamentals of Accountancy, Business and Management 2 5. Applied Auditing by Assuncion, Ngina and Escala

AUTHOR’S CONTACT For any queries, commentaries or anything

University

INCOME TAXATIO SOLUTIO MANUA 2019 TRAIN Editi

for consultation. Please feel free to contact Mr. Rex B. Banggawan at:

INCOME TAX SOLUTION MANUAL

Dear Tax Professors, Greetings in God’s grace! Our taxation system in the Philippines is besmirched by reported abuses in tax pervasive corruption. These disheartened many taxpayers not to properly reflect thei on corrupt government practices. Our solemn duty as academician is to lay the foundation for the future correction o society by providing the best tax education our students deserve. Tax malpractices an limited by adequate public tax education. Most schools fail on their duty in transforming their graduates as agents of change teaching tends to be too basic or too theoretical to be applied. As our mission, let us giv practical knowledge by giving them the totality of taxation. Even if they are not tax ma given the option and the chance to attain high level proficiency in taxation. This could opportunity for them. Teach well and you will live forever! Your influence will forever stay in the minds students. That excellence will multiply. Let us give our students a legacy of true com them the best tax education we can give. Let us give them the type of excellence whic masked, but real. Always remember that your service to fellow man is a service to God. Let us join hand to promote a better tax education. Contact me whenever you need as in the best way I could. God bless you!

MY HUMBLE REQUEST TO MY BELOVED FELLOW PROFESSORS Being a teacher myself, I strongly admit that books are excellent partners in classroom high quality books requires enormous time investments and efforts. I wrote this continuous technical research, tax practice and conceptual refinement through my ac undergrad and in the review. I am not an entrepreneur. Like you, I am a full-blooded teacher. I teach and write boo transform people. I hope and pray that you respect the dignity of my work in the s yours. I am praying that you will NEITHER give the students or reviewees cop manual NOR tolerate the photocopying of my book in your classes. As accountants, w act under our conscience to be true guardians of integrity. Please help stop book p suspected counterfeit books to [email protected]. God bless you!

REX B. BANGG BANGGAWAN, AWAN, CPA, MBA

INCOME TAX SOLUTION MANUAL

INCOME TAXATION: LAWS, PRINCIPLES AND APPLICATIONS TAX TEACHER’S MANUAL Rex B. Banggawan, CPA, MBA ABOUT TEACHING METHODOLOGY OF THE BOOK Please be advised that the book is not written to impress tax experts. The book is int students for them to understand and master the totality of the income taxation. Becaus prepared in a sequential organization of topics. To optimize understanding and concep may be briefly re-opened for discussion in future chapters of the book. This is no deliberately intended for students to connect and interrelate new concepts with previou The book devised a vertical presentation of income taxation and diverted from the usua approach followed by most tax books. Under the horizontal approach, the tax sch separately for individuals and corporations. It is repetitive, time consuming and res understanding because students do not see the comparison of the two tax schem taxpayers. The vertical approach discusses the tax schemes for both individual simultaneously resulting in efficiency and better accuracy. To maximize the effectiveness of your lecture, please follow the concept organization devise other concept arrangements based on other books. Doing otherwise wil students. Other authors have their own methods. We have ours. The income tax teach the book is long proven in the undergrad and in the professional review to optimize instill mastery. Here is a list of some of the numerous student testimonials regarding our book: 1. “I am thanking you because without your books, siguradong nahirapan po ako sa ta are God’s blessing to me, to us. I hope na marami pa po kayong matulungan na students es - May Anne Reyes from UST Manila (Top 7 in the October 2015 CPA Board Exam) 2. “Aminado pu ako wala akong natutunan sa undergrad sa tax kaya binasa ko po ng mabu during review. Ang galing po ng pagkakaorganize ng topics at yung presentation m maintindihan. Salamat po!” - Ednel Tanhueco Datu, Pampanga 3. “I am a working student, so pagdating ko sa school di na ako masyado nakikinig sa scho Weekend lang po ang time ko mag-aral. Pero sa tuwing binabasa ko ang book niyo, pa eexplain na teacher sa akin… Salamat po! Pinadali ninyo buhay ko.” Francis Reyes R University, Angeles City 4. “Very helpful po ng book niyo sa tax Sir. I’m not a student of yours Sir nor have met y thing is for sure, many students like me owe so much from you for introducing to us  God bless po.” Angelica Balubal, Tuguegarao City 5. Replying to a social media user inquiry of which tax book is best, Paulo Relucio Dula rep Banggawan. Bago lang pero sobrang personal teacherna yung book kapag binabasa 6. “Good day Sir! Just drop by to say thanks for your wonderful masterpiece, Income Taxa simplified, principle-based approach.” – Jhoven Mabaquiao from Divine World College 7. “…. We are using your textbooks both Income and Business and Transfer Taxation. I am ve way the topics are presented and the books help me a lot in understanding our lesso

8.

Joshtien Adorable, BSA student FEU Makati “Good evening Sir. I am an accountancy student from Pampanga. Your book for taxation able to appreciate tax even more…” – Mark Angelo Mallari

INCOME TAX SOLUTION MANUAL In teaching, focus on the basics and main points. Let students take care of the details. D time discussing the details. The book is designed to be self-teaching. It can teach minimal teacher supervision. Students also need some extent of self-learning to devel This is particularly vital to their future professional development.

CHANGES IN THE 2019 EDITION This edition packages all changes introduced by the TRAIN la CONCEPTS TO FOCUS A. Fundamental principles of taxation 1. Theories of cost allocation 2. Tax as a lifeblood to the government (Lifeblood doctrine) 3. Limitations of the taxation power 4. The concept of situs 5. The concept of double taxation and the remedies to double taxation B. The concept of income – discuss what income is taxable under the NIRC 1. The concept of gross income a. The different concepts of capital (with finite and infinite values) b. The meaning of realized benefit – connect this to the ability to pay theory 2. The classification of income taxpayers a. Individuals (RC, NRC, RA, NRA-ETB, NRA-NETB) b. Corporations (DC, RFC, NRFC) 3. The situs of income – students need to know the place of taxation of each type o 4. The difference between active and passive income C. The taxation schemes  Emphasize how income is taxed under the NIRC.  Important: Make sure students well comprehend and mastered the tax scheme D. Concepts of accounting periods and accounting methods 1. Accounting period a. Who uses calendar b. Who uses fiscal year c. When to file income tax return in either type of accounting period 2. Accounting methods a. Accrual basis b. Cash basis c. Installment method E. Exceptional taxation scheme 1. Final income taxation – Important: Emphasize the importance of mastery of final income tax a. The list of passive income subject to final tax and their final tax rates

b. Taxpayers subject to final taxation and their final tax rates Please refer the students to Appendix 1 for the comprehensive list of final taxes.

INCOME TAX SOLUTION MANUAL Notes for non-accountancy classes The following specialized and complex and concepts may be dispensed wi time consuming not to mention their circumstantial relevance in practice:  Wash sales rule  Tax free exchanges F. Regular income tax 1. Introduction Important concepts to emphasize: a. Regular tax gross income includes all income that qualifies the gross incom but is not subject to tax under Chapter 5 and Chapter 6 b. Deductions are deductible from gross income from business only c. Personal exemptions are deductible from compensation income but a neg income is deductible to other income d. Tax reporting of compensation income (highlight the exceptional treatment this serves as a preliminary introduction to Chapter 11) e. Tax reporting of business or professional income f. Determination of taxable income 2. Exclusions – discusses income not subject to any income tax schemes 3. Inclusions – discusses income that are subject to regular income tax a. Compensation income b. Fringe benefits c. Dealings in properties 4. Compensation income vs. Fringe benefits a. Items of non-taxable compensation b. Components of compensation income c. Treatment of fringe benefits (those subject to regular tax vs. those subject to 5. Deductions – discusses expenses of business that are deductible from gross inco a. Itemized deductions 1. Cost of sales or cost of services 2. Regular allowable itemized deductions 3. Special allowable itemized deductions 4. Net operating loss carry-over b. Optional standard deduction – in lieu of itemized deductions 6. Determination of taxable income a. Individual income taxpayers b. Corporate income taxpayers G. Taxation of individual taxpayers 1. Personal exemption 2. Determination of tax due and tax payable a. Revisit the computation of individual income tax due in Chapter 7 b. Review the computation of foreign tax credits in Chapter 13-A, foreign tax c

H. Taxation of corporate taxpayers 1. Special corporations l

INCOME TAX SOLUTION MANUAL

TEACHER’S SOLUTION MANUAL CHAPTER 1: INTRODUCTION TO TAXATION Exercise Drill 1. 2.

C and I (This is non-delegation) I

11. 12.

3. 4. 5. 6. 7. 8. 9. 10.

I N (real property tax not income tax) C C and I C C N (Non-payment of tax = imprisonment) C

13. 14. 15. 16. 17. 18. 19. 20.

C I (“properties” excludes it from b Constitutional limit) C N (A principle but not a limitatio C C I C N (A principle but not a limitatio N (Should be non-imprisonment

TRUE OR FALSE 1 1. False (This is police power.) 2. True 3. True 4. True 5. False (The receipt of benefit is conclusively presumed.) 6. False (Taxation power is inherent to the State.) 7. True 8. False (It is inherent power not requiring Constitutional mandate.) 9. True 10. True TRUE OR FALSE 2 1. False (Property tax only) 2. False (Different taxpayers warrants different tax treatments.) 3. True 4. True 5. True (It will result to violation of substantive due process) 6. True 7. False (The constitutional guarantee for non-imprisonment applies to debt not tax) 8. False (The Constitution guarantees the sanctity of contract by its non-impairment c 9. False (The Constitution requires the majority of all members of congress to pass a ta 10. False (It will not produce additional benefit if the government taxes itself.)

MULTIPLE CHOICE Theory: Part 1 1. A 13. C 2. D 14. C 3 D 15 B

25. B 26. C 27 C

INCOME TAX SOLUTION MANUAL MULTIPLE CHOICE – Theory: Part 2 1. A 10. 2. B 11. 3. B 12. 4. A 13. 5. C 14. 6. D (B is non-delegation) 15. 7. C (There is taxpayer class) 16. 8. C 9. B

C D C C D C A (different taxpayer warrants different treatment.)

17. B 18. D 19. C (Viol territor 20. D 21. A 22. B

MULTIPLE CHOICE – Theory: Part 3 10. 1. B (i.e. category) 2. A 11. 12. 3. C 4. A 13. 14. 5. C 15. 6. A 16. 7. D 17. 8. B 18. 9. A

C B C B C C A B D

19. 20. 21. 22. 23.

B D C D D (Bes inheren 24. B

CHAPTER 2: TAXES, TAX LAWS AND TAX ADMINISTRATION EXERCISE DRILL NO. 1 1. Percentage tax 2. Donor’s tax 3. Regressive tax 4. Indirect tax 5. Ad valorem tax 6. Fiscal/General/Revenue tax 7. National tax 8. Excise tax* or sin tax 9. Estate tax 10. Community tax or residency tax 11. Proportional tax 12. Specific tax 13. Direct tax 14. Regulatory tax 15. Excise tax or privilege tax *This is different with excise tax as a privilege tax

EXERCISE DRILL NO. 2 1. Revenue 2. Tax 3. Special assessment or Special levy 4. Customs duties

6. Tax 7. Debt 8. Toll 9. Penalty

EXERCISE DRILL NO. 3

--- 2019 INCOME TAXATION SOLUTION MANUAL --MULTIPLE CHOICE – Theory: Part 1 1. 2. 3. 4. 5.

B A C C B (best answer, RPT is local tax as to collection) A A B C D A B B C C

16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31.

D D D C D D B A B B A D B B C D

32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45.

D C A C D B D D A B A D A A

MULTIPLE CHOICE – Theory: Part 2 1. C 6. 2. C 7. 3. A 8. 4. D 9. 5. D 10.

C C A D B

11. 12. 13. 14.

C D D A

D C A A D B D C

16. 17. 18. 19. 20. 21. 22.

D C A C D D B

6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

MULTIPLE CHOICE – Theory: Part 3 1. B 2. C (LGU for assessed value.) 3. A 4. A 5. D 6. B 7. B

8. 9. 10. 11. 12. 13. 14. 15.

CHAPTER 3: INTRODUCTION TO INCOME TAXATION EXERCISE DRILL NO. 1: Return of capital and Return on capital Consideration For the loss of Return OF Capital Return ON C P 1,000,000 1. P 1,000,000 Health 2. P 500,000 P400,000 car P 400,000 P 3. P 300,000 P350,000 building P 300,000 P0 P 4. P 600,000 Income 5. P 1,200,000 Health P 1,200,000

EXERCISE DRILL NO. 2: Income tax and transfer tax Transaction Income Tax 1 Barter of properties 

Transfer Tax

--- 2019 INCOME TAXATION SOLUTION MANUAL --EXERCISE DRILL NO. 3: The tax concept of income Item 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Winnings from gambling Income from swindling Indemnity for moral damages Harvest of fruits from an orchard Compensation income Interest income Amount received by the insured in excess of insurance premiums paid Proceeds of life insurance received by the heirs of the insured Gain on sale of goods by the home office to its branch Gain on sale of goods and services between relatives Gain on sale of goods by a parent corporation to a subsidiary corporation Appreciation in the value of land Birth of animal offspring Income of a registered Barangay Micro-Business Enterprise Cancellation of debt out of gratuity of the creditor Cancellation of debt by the creditor in exchange of services rendered by the debtor Matured interest from coupon bonds Receipt of bank loan Salaries of a minimum wage earner PCSO or lotto winnings Benefits from GSIS, SSS, Pag-Ibig or PhilHealth Discovery of hidden treasure (taxable only when sold)

Taxable  

  

 

 



*This are unrealized income taxable upon realization by sale or disposition

EXERCISE DRILL NO. 4: Income taxpayer classification Person or Entity 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

A fat Mexican tourist An overseas Filipino worker An expatriate employee A Filipino who is privately employed in the Philippines An unemployed Filipino residing in the Philippines A Chinese businessman who have his domicile in the Philippines for 6 months A Japanese who married a Filipina and residing in the Philippines for 2 years A 2nd year Korean college student studying in the Philippines A corporation incorporated under Philippine law A foreign corporation doing business in the Philippines Donation of a property in trust designated by the donor as irrevocable Donation of a property in trust designated by the donor as revocable A business partnership (Partnership are classified as corporations

Class NRA

NR

d th NIRC ti if il t d ti ) 14. A joint venture organized under a foreign law and is not operating in the Philippines

N

--- 2019 INCOME TAXATION SOLUTION MANUAL --EXERCISE DRILL NO. 5: General Income Tax Rule Taxpayer 1. Non-resident citizen 2. Resident alien 3. Non-resident alien engaged in trade or business 4. Resident foreign corporation 5. Resident citizen 6. Non-resident alien not engaged in business 7. Non-resident foreign corporation 8. Domestic corporation 9. Taxable trusts established by a Filipino citizen in the Philippines (treated as RC) 10. Taxable estate of a non-resident citizen judicially administered abroad

World income

Philippine income    

     

EXERCISE DRILL NO. 6: Location and situs of income Income description Within 1. Rey earned P100,000 interest income. 40% of these were from non-resident debtors. P 60,000 2. A finance company earned P1,000,000 royalties from a franchise; 40% of these were derived abroad. P 600,000 3. Raymond earned P100,000 rent from OFWs in his apartment in the US. He also earned P40,000 rent from his P 40,000 Philippine condominium unit. 4. Chester, a resident citizen, works home online and submits P 120,000 (situs is where his output to clients. He collected P100,000 service fee from rendered) foreign clients and P20,000 from resident clients. 5. Mark rendered audit services to client in Afghanistan for P0 P500,000. The services were paid in Afghanistan. 6. Jun has a store in a tourist park in Baguio City, Philippines. P 40,000 (stitus is place of sale) He earned a total of P40,000 gain from selling souvenir items. 40% were from foreign tourists. 7. Don Mariano sold to his friend abroad a commercial building P2M (situs is location) located in Quezon City, Philippines at a gain of P2,000,000. 8. John sold his stocks in a domestic corporation to a foreign P 50,000 investor at a gain of P50,000. 9. Manso received P20,000 dividends from a domestic P 20,000 corporation and P30,000 dividend income from a nonresident foreign corporation. 10. Andrew received P40,00 dividend from a resident foreign P 24,000 corporation 60% of its historical income is from the (60% x P40,000) Philippines. 11. CDO, Inc. manufactures in the Philippines and sells to P 100,000 unaffiliated export clients. A total of P100,000 gross income

were earned during a period 12. ABC manufactures abroad and sells to its Philippines branch at

market prices Production cost abroad were P200 000 Billings to

P 150,000

--- 2019 INCOME TAXATION SOLUTION MANUAL --MULTIPLE CHOICE – Theory: Part 1 1. 2. 3. 4. 5. 6.

C D A A A D

7. 8. 9. 10. 11. 12.

B B B B B B

13. 14. 15. 16.

C D D A

9. 10. 11. 12. 13.

A A C B A (The partnership is presumed organized herein if silent.) 14. D

15. 16. 17. 18.

C A D C

4. B 5. D 6. D

7. D

Problem 3-9: C (P30K is expense) Problem 3-10: D Problem 3-11: C Problem 3-12: D Problem 3-13: D Problem 3-14: C Problem 3-15: A Problem 3-16: D Problem 3-17: C

Problem 3Problem 3Problem 3Problem 3Problem 3Problem 31. D 2. C 3. B 4. D

MULTIPLE CHOICE – Theory: Part 2 1. 2. 3. 4. 5. 6. 7. 8.

A B B C D B C A

MULTIPLE CHOICE – Theory: Part 3 1. B 2. A 3. A MULTIPLE CHOICES – Problems Problem 3-1: B Problem 3-2: C (22 + 15-12) Problem 3-3: C (120 – P80) Problem 3-4: A Problem 3-5: C [1M – 120K – (20Kx4)] Problem 3-6: C (200 – 20x7) Problem 3-7: A Problem 3-8: C

MULTIPLE CHOICES – Case Problems Case Problem 1 Within    

P10,000 interest income from a non-resident Japanese friend P40,000 interest income from Philippine residents ...