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PRE-WEEK QUIZZERInstruction: Select the best answer to each of the following questions. An exemption allowed to a taxpayer that has qualified legitimate, and/or recognized or legally adopted children: a. Additional exemption. b. Special additional personal exemption. c. Optional standard deduction. ...

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P r e - we e k Q u i z ze r

CPA R Ree v i e w er i n Tax Taxaa t i o n PRE-WEEK QUIZZER

Instruction: Select the best answer to each of the following questions. 1

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An exemption allowed to a taxpayer that has qualified legitimate, and/or recognized or legally adopted children: a. Additional exemption. b. Special additional personal exemption. c. Optional standard deduction. d. Personal exemption.

2

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A feature of ordinary gains as distinguished from capital gains: a. Gains from sales of assets not stock in trade. b. May or may not be taxable in full. c. Sources are capital assets. d. No holding period.

3

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The following, except one, may claim personal exemptions: a. Non-resident alien not engage in trades or business in the Philippines. b. Non-resident alien engage in trade or business in the Philippines. c. Resident alien. d. Citizen.

4

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On capital gain tax on real property, which of the following statements is not true? a. The tax should be paid, if in one lump sum, within 30 days from the date of sale. b. The term “initial payment” is synonymous to “down payment”. c. The installment payment of the tax should be made within 30 days from receipt of each installment payment on the selling price. d. The tax may be paid in installment if the initial payments do not exceed 25% of the selling price.

5

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Which of the following taxpayers whose personal exemption is subject to the law on reciprocity under the Tax Code? a. Non-resident citizen with respect to his income derived outside the Philippines. b. Non-resident alien who shall come to the Philippines and stay therein for an aggregate period more than 180 days. c. Resident alien deriving income from a foreign country. d. Non-resident alien not engage in trade or business in the Philippines whose country allows personal exemption to Filipinos who are not residing but are deriving income from said country.

6

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RDE was retired by his employer corporation in 2003 and paid P1,000,000 as a retirement gratuity without any deduction for withholding tax. The corporation became bankrupt in 2004. can the BIR subject the P1,000,000 retirement gratuity to income tax? 1st answer: Yes, if the retirement gratuity was paid based on a reasonable pension plan were RDE was 50 years old and has served the corporation. 2nd answer: No, if the RDE was forced by the corporation to retire. a. Both answers are wrong. b. Both answers are correct. c. 1st answer is correct, 2nd answer is wrong. d. 1st answer is wrong, 2nd answer is correct.

7

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The widow of your best friend has just been paid P1,000,000 on account of life insurance policy of the decease husband. She asks you whether she should declare the amount for income taxes purposes or for estate tax purposes. 1st advice: The proceeds of life insurance paid to the beneficiary upon the death of the insured are exempt from income tax and need not be declared for income tax purposes. 2nd advise: The proceeds of life insurance would have to be declared for the estate tax purposes if the designation the beneficiary was irrevocable, otherwise it need not be declared. a. Both advises are correct. b. 1st advice correct, 2nd advice are wrong. c. Both advises are wrong. d. 1st advice wrong, 2nd advice correct.

8

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Mr. Juan dela Cruz transferred his commercial land with a cost of P500,0000 but with a fair market value of P 750,000 to JDC Corporation in exchange of the stocks of the corporations with par value of P1,000,000. As a result of the transfer he became the major stockholder of the corporation. As a result of the transfer,

1

P re - w e e k Q u i z z e r

CPA R Ree v i e w er i n Tax Taxaa t i o n

a. The recognized gain is the difference between the fair market value of the shares of stocks and the cost of the land. b. The recognized gain is the difference between the par value of the stock and the fair market value of the land. c. No recognized gain because the land was in exchange or purely stocks and Mr. dela Cruz became the majority stockholders. d. No recognized gain because the land was in exchange of stocks of the corporation. 9

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10

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Gross income is reported partially in each taxable year in proportion to collections made in such period as it bears to the total contract price refers to: a. Crop year basis method. b. Percentage of completion basis method. c. Accrual method. d. Installment sales method. .

“Schedular system of income taxation” means: a. All types of income are added together to arrive at gross income. b. Separate graduated rates are imposed on different types of income. c. Capital gains are excluded in determining gross income. d. Compensation income and business professional income are added together in arriving at gross income.

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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.

12

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In cases of deduction and exemption on income tax return doubts shall be resolved: a. Strictly against the taxpayer. b. Strictly against the government. c. Liberally in favor of the taxpayer. d. Liberally in favor of the employer.

13

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The term “capital assets” includes: a. Stock in trade or other property included in the taxpayer’s inventory. b. Real property not used in the trade or business of taxpayer. c. Property primarily for sale to customers in the ordinary course of his trade or business. d. Property used in the trade or business of the taxpayer and subject to the depreciation.

14

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Lots being rented when subsequently sold are classified as: a. Capital assets. b. Liquid assets. c. Ordinary assets. d. Fixed assets.

15

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The following are examples of corporate expenses deductible from gross income, except one: a. Representation expenses designed to promote business. b. Contributions to drum up business, like contributions of soft drinks to barrio fiestas. c. Expenses paid to an advertising firm in order to create a favorable image for the corporation. d. Premiums on life insurance covering the life of an employee if the beneficiary is his heirs.

16

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ABC Corporation took two key men insurance on the life of its President, Mr. X. In one policy, the beneficiary is the corporation to compensate it for its expected loss in case of death of its president. The other policy designates Mr. X’s wife as its irrevocable beneficiary. Question 1 – Are the insurance premium paid by X corporation in both policies deductible? Question 2 – Will the insurance proceeds be treated as income subject to tax by the corporation and by the wife? a. b. c. d.

Yes to 1st and No to 2nd questions. Yes to both questions. No to 1st question and Yes to 2nd question. No to both questions.

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CPA R Ree v i e w er i n Tax Taxaa t i o n

17

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Who among the following is a non-resident alien? a. An alien who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished. b. An alien who comes to the Philippines for a definite purpose which in its nature would require an extended stay. c. An alien who has acquired residence in the Philippines. d. An alien who lives in the Philippines with no definite intention as to his stay.

18

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An exemption provided by the law to take care of personal, living and family expenses of the taxpayer and the amount of which is determined according to the status of the taxpayer are: a. Optional standard deduction. b. Personal exemption. c. Additional exemption. d. Special additional personal exemption.

19

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The personal exemption of the non-resident alien engaged in trade or business in the Philippines is equal to that allowed by: a. The income tax law of his country to a citizen of the Philippines not residing there. b. The income tax law of his country to a citizen of the Philippines not residing there or the amount provided by the NIRC t a citizen or resident, whichever is lower. c. The National Internal Revenue Code to a citizen or resident. d. The income tax law of his country allows to a citizen of the Philippines not residing there or the amount provided by the NIRC to a citizen or resident alien whichever is higher.

20

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If an individual performs services for a creditor who in consideration thereof cancels the debt, the cancellation of indebtedness may amount: a. To a gift. b. To a capital contribution. c. To a donation inter vivos. d. To a payment of income.

21

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Statement 1. A non-resident citizen is taxable on his income from within the Philippines. Statement 2. A non-resident citizen is not taxable on his income from outside the Philippines. Statement 3. A non-resident citizen is taxable on his income from within and outside the Philippines. a. True, true, true. b. False, false, false. c. True, true, false. d. False, false, true.

22

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The following are the general principles of income taxation: a. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. b. A nonresident citizen is taxable on income derived from sources within the Philippines. c. An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines. d. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines. e. A domestic corporation is taxable on all income derived from sources within and outside the Philippines. f. A foreign corporation, whether engaged or not in business in the Philippines, is taxable only on income derived from sources within the Philippines. a. b. c. d.

23

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All the statements are true. All the statements are false. One of the statements is false. Some of the statements are false.

A citizen of the Philippines was a non-resident citizen in 2003. On May 15, 2004, he arrived in the Philippines to reside permanently in the Philippines. His income for the year was: A – From January 1, 2004 to May 14, 2004. B – From May 15, 2004 to December 31, 2004. Which of the following is wrong? a. He is considered a resident citizen on his “B” income. b. He is considered a non-resident citizen on his “A” income. c. He is considered a resident citizen on his “A” and “B” income. d. He is not taxable on his “A” income.

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P re - w e e k Q u i z z e r

CPA R Ree v i e w er i n Tax Taxaa t i o n

24

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Statement 1. If a taxpayer marries or has dependents during the year, or dies during the year, or his spouse dies during the year, he/his estate may claim personal exemption in full for such year. Statement 2. If a dependent child dies within the year, or becomes twenty-one years old within the year, the taxpayer may still claim additional exemption. a. First statement is correct while second statement is wrong. b. First statement is wrong while second statement is correct. c. Both statements are wrong. d. Both statements are correct.

25

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Statement 1. An illegitimate child dependent upon the taxpayer is a unit of additional exemption. Statement 2. A dependent who marries within the year or who becomes gainfully employed during the year is still a dependent with additional exemption for the year. a. True, true. b. True, false. c. False, false. d. False, true.

26

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Which of the following is not an income tax on corporation? a. Normal tax. b. Minimum corporate income tax. c. Gross income tax. d. Stock transaction tax.

27

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The normal tax of an ordinary corporation effective January 1, 2000 is: a. 34%. b. 33%. c. 32%. d. 30%.

28

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The minimum corporate income tax of a domestic or resident trading or manufacturing corporation is: a. 2% of gross income. b. 5% of gross sales. c. 15% of gross income. d. 15% of gross sales.

29

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The minimum corporate income tax of a domestic or resident service corporation is: a. 2% of gross receipts. b. 2% of gross income. c. 15% of gross receipts. d. 15% of gross income.

30

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One of the following statements is correct. Which is it? The minimum corporate income tax of a corporation is computed: a. In the quarterly and annual returns of the corporation. b. In the annual income tax return only of the corporation. c. In the quarterly returns only of the corporation. d. In all the taxable use of operations of the corporation.

31

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One of the following is wrong. Which is it? The gross income tax on corporation is: a. Applicable to domestic corporations. b. Not applicable to resident corporation. c. Applicable to non-resident corporation. d. May begin only beginning 2000.

32

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Which statement is wrong? The gross income tax: a. Is optional to a qualified corporation. b. Available only if the ratio of cost of sales does not exceed fifty-five per cent of gross sales or receipts from all sources. c. The choice shall be revocable for three consecutive years that the corporation is qualified under the scheme. d. Is always computed to compare with the normal income tax and minimum corporate income tax.

33

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Which statement is wrong? The gross income tax of the corporation is: a. 15% of gross income. b. 15% of gross sales. c. 15% of gross profit from sales. d. 15% of gross receipts.

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P re - w e e k Q u i z z e r

CPA R Ree v i e w er i n Tax Taxaa t i o n

34

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One of the following statements is wrong. Identify. The improperly accumulated earnings tax imposed on corporations: a. Is calculated to force corporations to pay out dividends. b. Is computed on improperly accumulated income over several years. c. Is based on the net income per books after income tax. d. Is based on a statutory formula for improperly accumulated income.

35

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All, except one, of the following, are not subject to the improperly accumulated earnings tax. Which is the exception?: a. Publicly-held corporations. b. Banks and other nonbank financial intermediaries. c. Insurance companies. d. Service enterprises.

36

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The following, except one, give rise to the presumption that a corporation is improperly accumulating profits. Identify the exception: a. The corporation is a mere holding company. b. The corporation is an investment company. c. The corporation permits its profits to accumulate beyond the reasonable needs of the business. d. The corporation is a service enterprise.

37

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Which of the following is not treated as a corporation? a. General partnership and trade. b. General professional partnership. c. Mutual fund company. d. Regional operating headquarters of multi national company.

38

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Which of the following statements is wrong? a. A general partnership in trade is not taxable as a corporation. b. A joint venture for undertaking construction projects is not taxable as a corporation. c. A consortium for energy operations pursuant to an operating consortium agreement under a service contract with the government is not taxable as a corporation. d. A co-ownership where the activities of the co-owners are limited to the preservation of property and collection of income from the property is not taxable as a corporation.

39

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As a general rule, proceeds of insurance are not taxable because they only constitute a return of capital (of what was lost). Which is the exception? a. Proceeds of life insurance. b. Proceeds of accident or health insurance. c. Proceeds of property insurance. d. Proceeds of crop insurance.

40

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Which of the following is taxable? a. Separation pay received by a 50-year old employee due to the retrenchment program of the employer. b. Retirement pay received from a benefit plan registered with the Bureau of Internal Revenue where at the time the employee retired he was 55 years of age, retiring from employment for the first time in his life, and was employed with the employer from whom retiring for 6 years prior to retirement. c. Social security benefit received by a balikbayan from employer abroad at the age of 35. d. SSS and GSIS benefit.

41

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Which of the following is taxable? a. Agricultural land inherited. b. Cash received as gift. c. Philippine Charity Sweepstakes winnings. d. Interest on government bonds.

42

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Which of the following is taxable? a. Prize won in as essay contest. b. The Nobel prize. c. Prize won as member mythical team in the PBA. d. Award for being a model employee.

43

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Which of the following items that reduce salaries of employees is not an exclusions from gross income? a. GSIS or SSS contributions. b. Pagibig contributions. c. Labor union dues. d. IOU’s.

5

P re - w e e k Q u i z z e r

CPA R Ree v i e w er i n Tax Taxaa t i o n

44

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Which of the following is taxable? a. Interest on long-term deposit on banks of individuals. b. Gain on sale of 10-year bond. c. Prize exceeding P10,000. d. Lotto winning.

45

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Which of the following is not gross compensation income? a. Salary of P20,000 of an employee. b. Bonus of P20,000 of an employee. c. Salaries of P20,000 of a partner of a general partnership in trade. d. Honorarium of P20,000 of an employee who is a member of the board of directors of a corporation.

46

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Which of the following tax refunds constitutes income? a. Refund of Philippine income tax. b. Refund of estate tax. c. Refund of donor’s tax. d. Refund of percentage tax.

47

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Statement 1. Only business expenses may be deducted from the gross income of taxpayers. Statement 2. Itemized deductions from gross income should be duly supported by vouchers or receipts. a. First statement is true while second statement is false. b. First statement is false while second statement is true. c. Both statements are true. d. Both statements are false.

48

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Statement 1. Interest paid or incurred in the acquisition of fixed assets may be capitalized to the asset account. Statement 2. On individual on the cash basis of accounting shall deduct interest paid in advance in the year that the principal is paid. a. Statement 1 is correct while statement 2 is wrong. b. Statement 1 is wrong while statement 2 is correct. c. Both statements are correct. d. Both statements are wrong.

49

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One of the following is not correct for deductibility of losses from gross income: a. It must arise from fire, storm, or other casualt...