7-8 - INCOME TAXATION CHAPTER 7-8 SOLMAN WITH QUESTIONS PDF

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CHAPTER 7 Sources from which income is derived I. Labor II. The use of capital III. Prophets derived from sale or exchange of capital assets [ ] All of the above Income for tax purposes I. Means all income from whatever sources legal or illegal unless specifically excluded under the tax code II. Mea...

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CHAPTER 7

9. Which is not a valid definition of income Income is a fund at one distinct point of time

2. Sources from which income is derived I. II. III.

I. II. III. IV.

Labor The use of capital Prophets derived from sale or exchange of capital assets [ ] All of the above 1. Income for tax purposes Means all income from whatever sources legal or illegal unless specifically excluded under the tax code Means all well which flows into the taxpayer other than return of capital Is recognized in the year it is actually or constructively received Refer to the amount of money coming to a person or corporation within a specified time there as payment of services interest or profits from investment [ ] 1 2 3 and 4

3.The sources from which income is derived Labor TRUE Gifts and inheritance FALSE Use of capital TRUE 4. Which of the following is a characteristic of income Increase in taxpayers wealth TRUE Realization of gain TRUE Return on taxpayers wealth TRUE 5. Which of the following is a requisite for an income to be taxable a) There must be a gain b) The game must be realized or received c) The game must be excluded by law from taxation d) All of the above 6. Which of the following is not an income for income tax purposes [ ] Gift received 7. Which of the following is not an income for income tax purposes Collection of loans receivable 8. Which of the following is not a characteristic of income Return of taxpayers wealth

10. Which of the following is considered or construed as an example of constructive receipt Deposits for rentals to answers for damages restricted as to use 11. Constructive receipt occurs when the money consideration and or its equivalent is placed of the control of the person who render the service without restrictions by the payor. The following are examples of constructive receipt except Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered

12. There is a constructive receipt of income when A Payment is credited to payees account B Payment is set aside for the pay or otherwise made available so the pay you may draw upon it at any time or so the pea could withdraw at bean given without substantial limitations Both a and b 13. When different types of income are subjected to common tax rate the tax system is described as Final tax system 14. Situs of taxation on income from the sale of property purchased Place of sale 15. Which of the following tests of source of income is incorrect Interest income residence of the debtor 16. Situs of taxation on income from sale shares of a domestic corporation. a. Always treated as income derived from within the Philippines b. Always treated as income derived from without the Philippines c. May be treated as income within or without the Philippines depending on the place of sale d. May be treated as income within or without the Philippines depending where the shares are kept 17. Situs of taxation on income from sale shares of a foreign corporation. a. Always treated as income derived from within the Philippines b. Always treated as income derived from without the Philippines C. May be treated as income within or without the Philippines depending on the place of sale

d. May be treated as income within or without the Philippines depending where the shares are kept 18. Pedro earned interest income from a promissory note issued to himby Juan, a resident of California, U.S.A. Assuming that Pedro is a nonresident citizen, the interest income is a. Subject to basic income tax b. Subject to final tax c. Not subject to income tax d. Partly subject to scheduler and partly subject to final tax 19. It is important to know the source of income for tax purposes(i.e .,from within or without the Philippines) because: a.Some individual and corporate taxpayers are taxed on their worldwide income while others are taxable only upon income from sources within the Philippines b. The Philippines imposes income tax only on income from sources within C. Some individual taxpayers are citizens while others are aliens d. Export sales are not subject to income tax 20. Situs, for taxation purposes will depend upon various factors, including I. The nature of the tax and the subject matter thereof. Il. The possible protection and benefit that may accrue both to the government and to the taxpayer. IIl. Domicile or residence IV. Citizenship V. Source of income I and V only c. I, III, IV and V I, Ill and IV only d. I, II, III, IV and V

21. Which of the following is NOT true about source of income? a.In case of income derived from labor, source is the place where the labor is performed. b. In case of income derived from use of capital, source is the place where the capital is employed. c. In case of profits from the sale or exchange of capital assets. sourceistheplaceortransaction occurs. d. None of the above. 22. All of the following are correct except one. Which is the exception?

a.The source of interest income is the country where the debtor resides. b. The source of interest income is the country where the creditor resides c. Rents the property or royalties is located.are considered derived from the country where d. Income from personal services is considered derived from the county where the services were rendered. 23. Statement 1: A gain from sale of shares of a domestic corporation shall be considered derived from the Philippines regardless of where the shares were sold. Statement2:A gain from a sale of shares of a foreign corporation shall be considered derived from the country where the corporation was created or organized. a Statements 1and 2 are false b. Statement 1 is true but statement2isfalse c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 24. Which of the following is not an income derived from sources within the Philippines for income tax purposes? a. Interests derived from bonds issued by a foreign corporation b. Interest on notes or other interest-bearing obligations of residents C. Both "a" and "b" d. Neither "a" nor "b" 25. A cash dividend of P100,000 received by a taxpayer in 2021 from a resident foreign corporation whose income from Philippine sources was 40% of its total income is Statement 1: partly taxable if he is a resident citizen. Statement 2: Partly taxable if he is a non-resident alien a. Statements 1 and 2 are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 26. Using the above data, which of the following is correct? The cash dividend is a. Exempt from income tax if he is a resident citizen. b. Partly taxable if he is a resident alien. c, Taxable in full if he is a nonresident citizen. d. Exempt from income tax if he is a nonresident alien.

27. A taxpayer is employed by a shipping company touching Philippine and foreign ports. In 2020, he received a gross payment for his services rendered of P300,000. In that year, the vessels on board of which he rendered services had a total stay in Philippine ports of four months, His gross income from the Philippines was: Ans= 100K CHAPTER 8 TRUE OR FALSE T 1. Exclusion refers to income received or earned but is not taxable because it is exempted by law or by treaty. F 2. Tax exempt income and receipts are required to be included in the income tax return. T 3. A government agency or instrumentality performing governmental function is exempt from taxation. F 4. Local government's operation of a public market is exempt from taxation. F 5. All associations or corporations enumerated under Sec. 30 of the NIRC on exempt association are automatically exempt from income tax. T 6. Exemption from tax is privilege views with disfavor by the state. As such a taxpayer, to become exempt must comply with the requirements for tax exemption by laws or regulations. F 7. Stipends received by resident physicians during their intensive training in the residency program of a hospital are subject to basic and final withholding taxes. T 8. Remuneration for services constitutes compensation income even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them. T 9. In general, fixed or variable allowances which are received by a public officer or employee or officer or employee of a private entity, in addition to the regular compensation, fixed for his position or office, is compensation subject to income tax and consequently, creditable withholding tax on compensation income. T 10. Representation and transportation Allowances (RATA) granted under Section 34 of General Appropriations Act to certain officials and employees of the government are considered reimbursements for the expenses incurred in the performance one’s duties rather than as additional compensation. T 11. Excess of RATA, if not returned to the employer, constitutes taxable compensation income of the employee. T 12.COLA of minimum wage earners is exempt from income tax. T 13.Fees received by professionals in their practice of profession are treated as business income.

F 14. Bad debts written off constitute income when recovered in the year of write off. F 15. Refund of "special assessment" is subject to basic tax. F 16. Taxable tax refunds must be reported in the year it was received or in the year the refund was ordered, at the option of the taxpayer. T 17. Prizes less than P10,000 are taxable the same manner as business income F 18. Gifts, bequests and devises are subject to basic tax. F 19. Government owned and controlled corporations are exempt from income tax. F 20.Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise are taxable. F 21.Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, under an agreement to pay interest, only the interest thereon shall be excluded from the gross income. T 22. Indebtedness condoned is taxable income of the debtor if it results to acquisition of something of exchangeable value in addition to what he has before the condonation. F 23. Gain on court-approved debt restructuring is subject to basic tax. T 24. Obligations of the lessor to third persons paid or assumed by the lessee inconsideration of a lease contract is part of the former's taxable rental income. F 25. Advance rentals representing performance option of certain money obligations as well as of security the lessee deposits are considered to ensure faithful part of the lessor's taxable income.

MULTIPLE 1. Compensation income is earned when an employer employee relationship exists. Which of the following income represents income earned through employer-employee relationship I. Professional fees II. Wages III. Pension pay IV. Capital gain ANS= 2 & 3 2. Which of the following compensation will be subject to graduated rates? Basic salary only if the employee is not a minimum wage earner 3. Which of the following DOES NOT represent compensation income? I. II.

Honorarium as a guest speaker Emergency leave pay

III. Vacation and sick leave pay IV. Tips or gratuities accounted for by the employee only to the employer None of the above 4. Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are Statement 1: Considered passive income Statement 2: Considered income subject to schedular rate. Statement 3: Subject to creditable withholding tax d. false, true , false 5. Pedro is one of the board of directors of ABC Company. During the current taxable year, Pedro received director's fees amounting to P300,000 from quarterly board meetings he attended. Such fees should b. Form part of Pedro's gross compensation income only if he is at the same time an employee of the corporation 6. Which among the following is part of the taxable compensation income of an employee? I. Insurance premium provided by employer on the life insurance policy of the employee where the designated beneficiary is the relative of the employee. II. Insurance premium paid by employer on the life insurance policy of the employee where the designated beneficiary is the employer. III. The income tax of the employee paid by the employer as part of the employee benefit. IV. The income tax of the employee advanced by the employer, deductible against future income of the employee. 1 & 3 ONLY 7. One of the following compensation income of an individual taxpayer is not an exclusion from gross income: Separation pay of an employee who resigned from his employment 8. Which of the following is taxable? b. Retirement pay received from a benefit plan registered with the BIR where at the time the employee retired, he was 57 years of age, retiring from employment for the first time in his life, and was employed with the employer for 8 years 9. The taxpayer was retired by his employer in 2018 and paid P2,000,000 as a retirement gratuity without any deduction for withholding tax. The corporation became bankrupt in 2020. Can the BIR subject the P2,000,000 retirement gratuity to income tax in 2020?

1st Answer: Yes, if the retirement gratuity was paid based on a reasonable pension where the taxpayer was 50 years old and has served the corporation. 2nd answer: No, if the taxpayer was forced by the corporation to retire. 1st ans is wrong but 2nd ans is correct Annuities 10. This refers to a specified income recipient's payable installment at life, stated in consideration intervals for or in a of fixed a single a or stipulated a contingent premium period, often for the in prior payments paid either payment. Annuity 11. Annuity payments received by a taxpayer represent a part which taxable and not taxable. Which of the following statement is correct? a. If annuity received represents interest, it is a taxable income b. If annuity received represents return of premium,it is not a taxable income. Both statements are correct

12. Pedro purchased a life annuity for P1,000,000 which will pay him P120,000 annually. The life expectancy of Pedrois25 years. Which of the following will Pedro be able to exclude from his gross income? P40,000 a year (computed by dividing P1,000,000by25years) 13. The following data on net income, bad debt, write-off and recovery show: Taxable recovery in 2020 is Case 1 =40K, Case 2 =10K, Case 3= 0 14. Which of the following is NOT A taxable income? Tax expense previously disallowed as deduction from taxable income, fully refunded subsequently. 15. which of the following tax refunds is taxable? Fringe benefit tax 16. During 2020, PNoy received the following income: Interest from Ph treasury Certificates – 40,000 Refund pertaining to the 2019 Income Tax – 5,000 Total amount of interest subject to tax in Pnoy’s 2020 income tax return was d. PO 17. This income of a resident citizen is subject to basic tax C. Winnings from wagering transactions

18. This refers to earnings derived from depositing or lending of money. goods or credits.

b. Interest income 26. Lump-sum method b. P2,430,000 19. For individuals (except nonresident aliens not engaged in the Philippines), interest income from long term deposit or investment shall be exempt from income tax provided the following conditions are met, except c. The deposit or investment must have a maturity period of not less than five years and in denominations as may be approved by BSP issued by financial intermediaries. 20. The following interest income are subject to final withholding tax, except d. Interest income received from expanded foreign currency deposit system earned by nonresidents. 21. Which of the following interest income is subject to normal tax? I. Interest income earned or derived from the normal course of trade or business II. Interest income earned or derived from notes Receivable III. Interest income earned or derived from the over-payment of income tax for previous years 1, 2 & 3 ONLY

22. Advance payment in a lease contract by the lessee may be I.A loan to the lessor from the lessee II. An option money for the property III. A security deposit to insure faithful performance of certain obligations of the lessor. IV. Prepaid rent All of the above 23. What is the correct treatment of advance payment made by the lessee to the lessor? If the advance payment representing loan is applied to unpaid rent, the amount is part of the lessor's taxable income. 24. On July 1, 2018, Joseph leased his vacant lot for a period to Ivan. The lease will expire on December 31, 2030 at an annual rate of P2,400,000. Ivan agreed to pay the following on July 1, 2018: Using spread out method, joseph shall report tital income from the lease for 2018 P3,630,000 25. Assume the same data in the preceding number, determine the total gross income to be reported using SPREAD OUT method. 30,000

27. following are the gross royalty income of a resident citizen for the period: Royalty Income as author- 100k Royalty Income from franchising -200k Royalty Income gold mine -500k Royalty Income from the use of its patents- 100k Final tax on royalty income is -d. P170,000

28. Which among the following dividend income is tax exempt? Dividend income received from 1. A domestic corporation by a domestic corporation. 2. A domestic corporation by a resident foreign corporation. 1&2 only 29. Which among the following dividend income is tax exempt? 1&2 I. pure stock dividend II. pure liquidating dividend 30. Which of the following payments made by a corporation to a shareholder is considered dividend income of the latter subject to basic tax? None of the above 31. Which of the following statements regarding "indirect dividend" is correct? C. I and II only I. Indirect dividends are other dividends representing payment or rights, which are in substance, dividends. II. If the shareholder is a debtor of a corporation, cancellation of indebtedness by the creditor-corporation results in indirect dividend distribution. 32. Liquidating dividends are return of shareholders' investments. Which of the following rules on liquidating dividend is incorrect? c. If a shareholder sustains a loss brought about by the liquidating dividend, such loss is not deductible. 33. Share of an individual in the distributable net income after tax shall be subject to 10% if received from I. Partnership other than general professional partnership. Il. Association III. Joint venture IV. Joint venture or consortium 1,2, 3, 4

34. A stock dividend is not taxable a. If there was no resulting change in the proportionate interest of the shareholders in the net assets of the corporation’ b. If there was only one class of stock issued and outstanding at the time of the dividend c. Since it is only capitalization of the accumulated profits d. ALL OF THE ABOVE 35. Which a. of A the stock following dividend statements constitutes is incorrect? C. When a stockholder receives a stock dividend which is taxable income, the measure of the income is the par value of shares of stock received. 36. George was selected as the most outstanding "barrio teacher" in Di Mahanap-hanap town of Tawi-tawi region. His name was submitted by the school principal without his knowledge. He received a trophy and a cash award of 5, 000. The amount he received is: Exempt from income tax

House and Lot won as PBB winner 3,000,000 Philippine and lotto winnings 10,000,000 Gambling winnings 3,000,000 How much is the taxable winnings and prizes? P18,000,000 40.For tax purposes, which among the following rules shall be observed with respect to forgiveness of indebtedness? I. If debtor rendered service in favor of the creditor, forgiveness of debt results in a taxable income to the debtor II. If the debtor did not render service in favor of the creditor, forgiveness of debt results in a taxable indirect gift. III. If the debtor is a shareholder of a corporation, forgiveness of debt by the creditor-corporation results in dividend distribution. I, Il and III

37. Prizes and awards received shall be exempt from inc...