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CPA REVIEWTAXATIONBASIC PRINCIPLES OF TAXATION This is an inherent limitaon on the power of taxaon a. The rule inherent limitaon on the power of taxaon b. No law impairing the obligaons of contracts shall be enacted c. Charitable instuons, churches, personages on convents appurtenants thereto, mosqu...

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CPAREVIEW  TAXATION  BASIC PRINCIPLES OF TAXATION 1. This is an inherent limitaon on the power of taxaon a. The rule inherent limitaon on the power of taxaon b. No law impairing the obligaons of contracts shall be enacted c. Charitable instuons, churches, personages on convents appurtenants thereto, mosque and non-profit cemeteries and all kinds of lands, buildings and improvements actually, directly and exclusively used for religious or charitable purposes shall be exempt from taxaon. d. The tax laws cannot apply to the property of foreign governments. 2. Statement 1: Taxes are important because they are the lifeblood of the government and so should be calculated without unnecessary hindrance. Statement 2: The legislature, in adapng measures to implement our tax laws wants to be ensured that taxes are paid and collected without delay. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect 3. Which of the following statements is correct? a. The power of taxaon must first be expressly granted, either by law or by the constuon for the state to validly exercise it. b. The power of taxaon and police power may be exercised simultaneously. c. The Philippine government may subject the land where embassies of foreign Government are located to real estate taxes. d. Government owned and controlled corporaons are exempted from taxes because it would be impraccal for the government to be taxing itself. 4. Raising revenue is the primary purpose of taxaon, which of the following is not one of the secondary purposes of taxaon: a. Reducon of social inequality b. Encourage economic growth by granng incenves and exempons c. Promoons of general welfare d. Protecon of foreign interests 5. Which of the following is a requisite of the validly imposed tax? a. That the subject maer thereof be within the jurisdicon of the state. b. That the assessment and collecon thereof be subject to the due process guarantee of the constuon c. That the tax must not impinge on the inherent and constuonal limitaons on the exercise of taxaon power. d. All of the above 6. Who makes revenue regulaons? a. Secretary of finance b. Commissioner of the bureau of Internal Revenue c. Board of Accountancy d. House of the Representaves

7. The secretary of finance, upon recommendaon of the commissioner of Internal Revenue, Issued a Revenue Regulaon using gross income as the tax base for corporaons doing business in the Philippines. Is the revenue Regulaons valid? a. Yes, the secretary of finance has the power to issue rules and regulaons b. Yes, gross income taxaons over corporaons is valid c. No, secretary of Finance has virtually amended the NIRC d. No, only the Commissioner of the BIR has the authority to make revenue rules and regulaons. 8. Which of the following statements is correct? a. Indirect double taxaon violates the Constuonal provision of uniformity and equal protecon. b. There is direct double taxaon in taxing the income of the corporaon and again subject the poron of that income declared as dividend to final tax. c. Indirect double taxaon is legal as long as there is no violaon of equal protecon and uniformity clauses of the constuon. d. all of the above 9. Which of the following statements is correct? I. Taxes are pecuniary in nature II. It co-exist with the existence of the state III. Imposed on persons and property beyond the territorial jurisdicon of the state a. I only c. I and II only b. II only d. I, II and III INCOME TAX 10. Which of the following statements is correct? a. Self-employed is a sole proprietor or independent contractor (s/he control s/he works for, how the work is done and when it is done) who reports income earned from self employment. b. A Professional is a person formally cerfied by a Professional body belonging to a specific profession by virtue of having completed a required examinaon or course of studies and/or pracce whose competence can usually be measured against an established set of standards. c. A professional also refers to a person who engages in some art or sport for money, as means of livelihood, rather than as a hobby. d. All of the above 11. Minimum Wage Earners (MWEs) receiving” other benefits” exceeding the P90, 000 limit shall be a. Taxable on the excess benefits only b. Taxable on the excess benefits as well as his salaries, wages and allowances just like an employee receiving compensaon income beyond the statutory minimum wage. c. Exempt from income tax d. None of the above 12. The amount of P90, 000 under “other benefits” which are excluded from gross income shall I. Not be applicable to self –employed individual II. Not be applicable to income generated from the conduct of trade or business III. shall be applicable to all types of income a. I only c. I, II and III b. II only d. None of the above 13. “Other Benefits” under revenue regulaons include I. Christmas Bonus II. Producvity incenves bonus III. Loyalty Awards

IV.

Gis in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices a. I only c. I, II and III b. I and II only d. All of the above

14. Which of the following income of an individual tax payer is subject to final tax? a. P10,000 prize in Manila won by resident cizen b. Dividend received by a resident cizen from a resident foreign corporaon c. Share in the net income of a general professional partnership received by a resident cizen d. Dividend received by a non-resident alien from a domesc corporaon. Use the following data for the next four (4) quesons: Ana D. Maunahan, non-vat registered, is a cerfied public accountant. She is praccing her profession offering accounng and Tax services. She also operates a pet shop. The following data were provided by Ana for 2018 taxable year: Accounng and Tax Services: Gross receipts (gross of CWT) 1,150,000 Cost of direct services 120,000 Operang expenses 80,000 Pet Shop Operaons: Gross sales (net) Cost of Sales Operang expenses

P 1, 782,000 600,000 200,000

15. How much is her income tax payable for the year? a. P399, 500 c. P475,000 b. P342, 000 d. P540,000 16. Assuming Ana signified her intenon to be taxed at 8% income tax rate on her inial quarterly income tax return, how much is her income tax payable for the year? a. P216, 000 c. P430,000 b. P140, 500 d. P540,000 17. Ana’s total business taxes shall be: a. P54, 000 c. P88,500 b. P140, 500 d. P192,000 18. Assuming is vat registered, the output Vat shall be: a. P54, 000 c. P88,500 b. P140, 500 d. P192,000 19. The income tax due of a mixed income earner who opted to be taxed at 8% income tax rate shall be: I. The tax due from compensaon, computed using the graduated tax rate. II. The tax due from self-employment and/or pracce of profession, resulng from the mulplicaon of the 8% income tax rate with the total of the gross sales/receipts and other non-operang income. III. The tax due from compensaon and from self-employment and/or and pracce of profession, resulng from the mulplicaon of the 8% income tax rate. a. I only c. III only b. II only d. I and II only

Use the following data for the next two (2) quesons: In 2018, Pedro signified his intenon to be taxed at 8% income tax rate on gross sales in his 1 st quarter income tax return. His total gross sales during the year exceeded the vat threshold of P3M. The following quarterly data were provided by Pedro: Q1 Q2 Q3 Q4/Annual Sales P500,000 P500,000 P2,000,000 P3,500,000 Cost of sales (300,000) (300,000) (1,200,000) (1,200,000) Gross income 200,000 200,000 800,000 2,300,000 Operang expenses (120,000) (120,000) (480,000) (720,000) Net Taxable Income P 80,000 P 80,000 P 320,000 P1,580,000 20. How much is Pedro’s annual income tax payable? a. P220, 000 c. P509,200 b. P289, 200 d. P2,060,000 21. How much is Pedro’s total business tax due for the year? a. P90,000 c. P510,000 b. P195, 000 d. nil 22. a non-resident alien not engaged in trade or business derived P50,000 interest income from his long-term bank deposit in the Philippines. How much is the income tax due of the said alien? a. P10, 000 c. P5,000 b. P12, 500 d. P0 23. What is the correct treatment of overme pay, holiday pay, night shi differenal, and hazard pay received by those whose basic pay is more than the statutory minimum wage (SMW)? a. Exempt from income tax. b. Subject to income tax, and subsequently, to the withholding tax on compensaon income. c. Considered as Fringe benefit subject to fringe benefit tax, provided the employee is holding managerial or supervisory posion. d. None of the above 24. Pedro, single, is a minimum wage earner. In addion to his basic minimum wage of P180, 000 for 2018, he also received the following benefits: ● De miniminis, P140,000(P80,000 over the ceiling) ● 13th month pay and other benefits, P112,000 How much is the income tax due of Pedro in 2018 assuming he also earned P450, 000 derived from his business of buying and selling various consumer products? a. P30, 000 c. P68,000 b. P38,000 d. nil 25. Senior cizens deriving returnable income during the taxable year, whether from compensaon or otherwise, are: a. Required to file their ITR’s and pay the tax as they file the return b. Exempt from compensaon income taxes c. Exempt from business taxes d. Given a special tax at 15% of gross income 26. Person’s with disability (PWD) deriving returnable income during the taxable year, whether from compensaon or otherwise, is: a. Required to file their ITR’s and pay the tax as they file the return b. Exempt from compensaon income taxes c. exempt from business taxes d. Given a special tax at 15% of gross income

27. Who was the statutory obligaon to pay the fringe benefits tax to the Bureau of Internal revenue? a. Employer b. Employee c. Either “a” or “b” d. Neither “a” or “b” 28. Which of the following income will be taxed in the same manner regardless of the classificaon of the taxpayer? a. Capital gain on sale of land and/or building b. Capital gain on sale of shares of stock of a domesc corporaon c. Ordinary gain on sale of land and/or building d. Ordinary gain on sale of shares of stock of a domesc corporaon Use the following data for the next two (2) quesons: During 2019, Alpha Corporaon gave the following fringe benefits to its employees: Salaries to rank and file employee Salaries to managerial employees De minimis benefits to rank and file employees De minimis benefits to managerial employees Fringe benefits to rank and file employees Fringe benefits to managerial employees 29. How much is the fringe benefit tax? a. P48,000 b. P80,000

P1,000,000 1,800,000 54,400 27,200 102,000 170,000

c. P91,538 d. P166,400

30. How much is the total allowance deducon from business income of Alpha Corporaon? a. P3,153,600 c. P3,245,138 b. P3,233,600 d. P3,271,600 31. The cost of leasehold improvements shall be deducble by the lessee by a. Spreading the cost of the improvements over the life of the improvements or remaining term of the lease, whichever is shorter. b. Spreading the cost of improvements over the life of the improvements or remaining term of the lease whichever is longer. c. Spreading the cost of the improvements over the term of the lease or may be expensed outright in full, at the opon of the lessee. d. Any of the above 32. A tax exclusion is defined as a. An item or amount which the law allows to be deducted from gross income in order to arrive at net income. b. The grants of immunity to parcular persons or corporaons from a tax which others within the same tax and district are obliged to pay. c. Income received but which is not part of gross income as it is exempted by law or by treaty. d. A deducon from income tax due of any amount paid to a foreign country subject to limitaon. 33. The following were taken from the income statement of Domesc Corporaon for the taxable year 2015: Gross profit on sales P800, 000 Less: Deducble expenses P440, 000 Provision for bad debts 80,000 520,000 Net income before tax 280,000 Addional Informaon:

● ●

Accounts wrien-off during the year and charged to allowance for bad debts- P50,000 Recoveries on accounts receivable previously wrien off in 2014 and credited to allowance for bad debts. Allowed as deducon by the BIR- P30, 000. Disallowed by the BIR as deducon- P20, 000

The taxable income of the corporaon is: a. P280,000 c. P330,000 b. P260,000 d. P340,000 34. When will an inherited property be considered as owned by an unregistered partnership? I. When the property remained undivided for more than ten (10) years. II. When no aempt was ever made to divide the same among the co-heirs, nor was the property under administraon proceedings nor held on trust a. Only condion I is required b. Only condion II is required c. Condions I and II are required d. None of the above 35. Which of the following statements is incorrect? a. If the GPP avails of the OSD in compung its net income, the partners can no longer claim further deducons from their share in the net income of the GPP. b. OSD covers or Lieu of the itemized deducons allowed to both the GPP and the “partner(s). c. Both “a” and “b”/ d. Neither “a” nor “b” 36. One of the statements is correct. A choice by an individual of the Oponal Standard Deducons means that: a. His income tax return need not to be accompanied by financial statements b. He need not keep books of accounts c. He need not have records of gross income d. His choice can sll be changed by filling an amended return 37. Which of the following items of interest expense may be deducted from gross income? a. Interest on corporaon’s preferred stock b. Interest on loan for construcon of a rest house c. Interest for delinquency in the payment of taxes d. Interest on bank loan to finance petroleum exploraon 38. The loss from sale or exchange of property is deducble from gross income where the sale or exchange is: a. Between fiduciary of a trust and the fiduciary of another trust if they have the same grantor b. Between fiduciary of a trust and the beneficiary of such trust c. Between an individual and his first cousin d. Between an individual and a corporaon if the former owns more than 50% in value of the outstanding capital stock of the laer 39. Which of the following interest income is not included in the determinaon of gross income? a. Interest income earned and derived from the normal course of trade or business b. Interest income earned or derived from notes receivable c. Interest income derived from investment in government bonds d. None of the above

40. What is the correct treatment of advance payment made by the lessee to the lessor? I. If the advance payment represents loan, the amount is the part of the lessor’s taxable income. II. If the advance payment represents security deposit, the amount is part of the lessor’s taxable income. III. If the advance payment represenng loan is applied to unpaid rent, the amount is part of the lessor’s taxable income IV. Prepaid rent must be reported in full in the year of receipt, a. All of the above b. None of the above c. I, II, and III only d. III and IV only 41. Which of the following is not correct? The oponal gross income tax for corporaon: a. Is oponal to a qualified corporaons b. Is available if the rao of cost of sales to gross sales or receipts from all sources do not exceed 55% c. Shall be irrevocable for three consecuve taxable years that the corporaon is qualified under the scheme. d. Is compared with the normal income tax and minimum corporate income tax 42. Mabuhay, Inc., a Philippine corporaon, sold through the local stock exchange 10,000 PLDT shares that it bought 2 years ago. In 2018, Mabuhay sold the shares for P2 million and realized a net gain of P200, 000. How shall it pay tax on the transacons? a. It shall declare a P2 million gross income in its income tax return, deducng its cost of acquision as an expense b. It shall report the P200, 000 in its corporate income tax return adjusted by the holding period. c. it shall pay a tax of ½ of 1% of the P2 million gross sales d. it shall pay a 6/10 of 1% of the P2 million gross sales 43. Which of the statements is correct? I. A minimum corporate income tax(MCIT) of 2% of gross income as of the end of the taxable year is imposed upon any domesc corporaon beginning the 4th taxable year immediately following the taxable year in which such corporaon commended its business operaons. II. MCIT shall be imposed whenever such corporaon has zero or negave taxable income , or when the amount of MCIT is greater than normal income tax due from such corporaon III. The computaon and the payment of MCIT, shall likewise apply at the me of filing the quarterly corporate income tax. a. I only c. I and II only b. II only d. I , II and III Use the following data for the next two (2) quesons: LEARN PA MORE UNIVERSITY is a proprietary educaonal instuon. It has the following selected informaon for the taxable year 2018: Tuion fees P7, 600,000 Miscellaneous fees 2,400,000 interest on the peso bank deposits (net) 15,000 Interest on dollar deposits under FCDS (net) 11,100 Rent income 3,250,000 Dividend income from a domesc corporaon 80,000 Direct cost of services 4,500,000 (Including CAPEX for the newly built school building) Capital gain on sale of shares of a domesc corporaon 125,000 directly to a buyer Other operang expenses 8,250,000 Quarterly income tax payments 25,000

Addional school building was built and finished on April 1, 2018 at a cost of P2, 000,000 with a depreciable life of 20 years. 44. Assuming the University opted to claim the cost of construcon as an outright expense, the income tax payable is: a. P25, 000 c. P150,000 b. P50, 000 d. P190,000 45. Assuming the University opted to Capitalized the cost of building construcon, the income tax payable is: a. P217, 500 c. P213,500 b. P242, 500 d. P188,500 Use the following data for the next two (2) quesons: A non profit domesc hospital has the following data during the year 2018: Gross income from hospital operaons P2, 000,000 Operang expense (excluding depreciaon for the new hospital building) 500,000 Rent income of commercial space, hospital ground floor, net of 5% withholding taxes 190,000 Interest on bank deposit, net of 20% withholding tax 40,000 Dividend income from a domesc corporaon 100,000 Addional hospital building was built and finished on June 30, 2018 at a cost of P4,000,000 with a depreciable life of 25 years. 46. The income tax payable in 2018 is: a. P152,000 c. P476,000 b. P162,000 d. P486,000 47. Assume the hospital was organized for profit, the income tax sll due and payable in 2018 is a. P396,000 c. P476,000 b. P406,000 d. P486,000 48. The except: a. b. c. d.

following are excluded in the “Gross Philippine Billings” for income tax purposes of an internaonal air carrier, Tickets sold outside the Philippines for passenger originang from outside the Philippines Passage documents sold outside the Philippines for excess baggage originang from the Philippines Tickets sold in the Philippines for passengers originang from the Philippines but are not actually flown. Passage documents sold in the Philippines for cargoes originang from outside the Philippines

49. Statement 1: co- ownership and partnership are similar as to taxability Statement 2: Corporaons and ordinary partnerships are similar as to taxability a. Statements 1 & 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 & 2 are true 50. Statement 1: Under RA10963, an individual partner of a GPP applying oponal standard deducon is not allowed for any deducon in his distribuve shares. Statement 2: Under RA10963, an individual partner of a GPP may avail of 8% tax on his distribuve share, in lieu of graduated tax rate. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements is correct d. Both statement is incorrect

Use the following data for the next two (2) quesons: in 2018, Louie and Floyd are partners in the following partnership: Business Partnership Gross i...