Pdfcoffee rex banggawan income taxation PDF

Preview

Summary

Download Pdfcoffee rex banggawan income taxation PDF

Description

CHAPTER 4: INCOME TAX SCHEMES, ACCOUNTING PERIODS AND ACCOUNTING METHODS True or False 1 1. Both active income and passive income do not require direct participation of the taxpayer in earning the income. False (only passive income) 2. There are three types of gross income for taxation purposes. true 3. The three tax schemes are mutually inclusive in coverage. False (They

are mutually exclusive. One excludes the others.) 4. Regular income tax generally covers active income and capital gains.

True (Active income is subject to regular tax. Capital gains are generally subject to regular tax. There are only two types of capital gains that are exceptionally subject to capital gains tax) 5. Final tax generally covers passive income. True (Most types of passive

income are subject to final tax with the exception of rent.) 6. Capital gains arise from the sale, exchange, and other disposition of any assets. False (from capital assets, not any assets) 7. There are only two types of assets for purpose of taxation. True

Correct (two types: ordinary asset and capital asset) 8. An ordinary asset is defined to include all other assets other than capital assets. False (The definition of capital asset is a residual definition.) 9. The technique used to measure income is referred to as an accounting method. The length of time over which income is reported is referred ti as an accounting period. true 10. Regular accounting periods are calendar and fiscal. true 11. Individuals file their income tax returns on or before April 15 of the following calendar year. true 12. All taxpayers can change their accounting period when there is a change in the nature of their business, but the BIR must be notified in all cases. False [Only corporations (and partnerships) can change accounting periods.] 13. The first accounting period of a starting business will more likely be less than 12 months. true 14. The accounting period of a deceased taxpayer shall be terminated on December 31 in the year of death. False (The accounting period shall be terminated

at the point of death.) 15. Accrual basis and cash basis are the most common accounting methods used in practice. true

True or False 2 1. Advanced income is an item of gross income for accrual basis taxpayers. True (Advanced income is taxable upon receipt) 2. Generally, prepayments are non-deductible in the current accounting period. True (Deductible as they are used up or are expired in the business of the taxpayer.) 3. Prepayments are deductible but in the future period they expire or are consumed in the business or trade of the taxpayer. true 4. The use of different methods for different businesses of the same taxpayer is permitted by law. True (The mix of the different methods is referred to as

hybrid method.) 5. Initial payment includes down payment and installments in the year of sale. true 6. Contract price is synonymous with selling price. False (Contract price is the

total amount receivable in money or property from the buyer. This amount is usually the selling price but will differ when there is an encumbrance on the property to be assumed by the buyer.) 7. The crop year method is an accounting method. True (Crop year method is not

an accounting period) 8. Under the percentage of completion method, gross income is reported based on the cash collections from the contract price. False (Based on

percentage of progress of the construction project) 9. The depreciated value of the property upon termination of the lease constitutes income to the lessee. true 10. The withheld taxes on the income payments made by the taxpayers are tax credit against their income tax due. False (These are tax credits of the

recipient of the income.) 11. There are three types of income tax return for each income tax scheme. False (Only capital gains tax and regular income tax has tax returns. Note that final

income tax are withheld at source.) 12. All taxpayers, small or large, are encouraged to file their income tax return through the EFPS system of the BIR. False (Only large taxpayers that

meet certain criteria are required to file through the EFPS. Small taxpayers shall file their returns in their respective Revenue District Office.) 13. Large taxpayers are under the supervision of the BIR Large Taxpayer Service. true

14. Non-filling and / or non-payment of tax is subject to penalties such as surcharges, interest, compromise, and imprisonment. False (The compromise is in lieu of criminal prosecution over a tax violation. It does not apply hand in hand with imprisonment.) 15. The interest on unpaid taxes is computed on the basic tax only excluding the surcharge. True (The imposition of a penalty upon another penalty is

illegal. Hence, the BIR cannot impose the interest to the amount of the surcharge.) 16. Only large taxpayers shall file under eFPS. false 17. Both manual filing and filing through e-BIR forms makes use of manual payment. true 18. eFPS is fully electronic tax compliance. true 19. e-BIR forms makes use of electronic data entry and filing. true 20. eFPS filers may file manually when there is a BIR system downtime. true

Multiple Choice- Theory: General Concepts 1. Which is not a scheme in taxing income? a. Ordinary gain taxation b. Regular income taxation c. Capital gains taxation d. Final income taxation 2. Which is correct statement regarding income taxes? a. An item of income subjected to final tax can still be subject to regular tax. b. An item of income exempted from final tax is nevertheless taxable to regular tax. c. An item of income subjected to capital gains tax may be subject to regular income tax. d. An item of income exempted from tax is likewise exempt from capital gains tax and regular income tax. 3. Which is not a feature of final tax? a. Covers certain passive income

b. Covers all capital gains c. Withholding at source d. None of these 4. Which of the following properties when classified as capital asset is subject to capital gains tax? a. Domestic stocks sold directly to buyer b. Real property c. Both a or b d. None of these 5. Capital asset means a. Real properties used in business. b. Personal properties used in business. c. Real properties not used in business. d. Any property, real or personal, not used in business. 6. Which is not an item of passive income? a. Royalties b. Prizes c. Deposit interest income d. Professional income 7. Which of the following accounting method is most consistent with the lifeblood doctrine? a. Crop year method b. Cash basis c. Installment method d. Accrual method 8. These are accounting techniques or conventions used to measure income a. Accounting methods b. Accounting periods c. Accrual basis

d. Cash basis 09. These are distinct and equal time periods which income is measured a. Accounting methods

c. Crop year basis

b. Accounting periods

d. Cash basis

10. Income is recognized when received rather than when earned a. Cash basis

c. Accrual basis

b. Installment basis

d. Deferred payment basis

11. Income is recognized when earned regardless of when received a. Cash basis

c. Installment method

b. Accrual basis

d. Percentage of completion

12. Initial payment means a. Downpayment. b. Total collection within the year the installment sale was made. c. Installment payments, exclusive of downpayment, within the year installment sale was made. d. Total collections within one year from the date the installment sale was made. 13. Income is reported by reference to the extent of project completion in a. Deferred payment method b. Installment method c. Percentage completion method d. Completed contract method 14. Which statement is correct? a. Dealers of real properties can use installment method without limitation. b. Dealers of personal properties can use installment method without limitation. c. Non-dealers of properties can use the installment method if initial payment exceeds 25% of the selling price. d. Dealers of properties can use the installment method only if initial payment does not exceed 25% of the selling price. 15. Leasehold income is recognized over the lease term in

a. Outright method

c. Spread-out method

b. Cash basis

d. Percentage of completion method

16. Statement 1: The excess of mortgage assumed by the buyer over the basis of the properties sold is the amount of gain on the sale. Statement 2: Any collection from an installment contract where the mortgage exceeds the tax basis of the properties received constitutes collection of income. Which statement is true? Statement 1 only

c. Both statements are true.

Statement 2 only

d. Neither statement is true.

17. Which is correct regarding the crop year method? a. Crop year method is an accounting period. b. Crop year method recognizes farming income when the next planting season commenced. c. Crop year method matches cropping expenses with the income upon harvest. d. Crop year method recognizes cropping expenses when incurred and harvest income when realized. 18. Which is an incorrect statement reagarding the use of accounting period? a. Individuals can either choose the calendar year or fiscal year accounting period. b. The regular accounting period for any taxpayer is 12 months. c. Individual taxpayers are not allowed to report income using fiscal accounting period. d. Corporations may opt to use either calendar or fiscal accounting period. 19. Under which of the following will short accounting period not arise? a. Change of accounting period by a corporate taxpayer b. Change of accounting period by an individual taxpayer c. Death of taxpayer d. Dissolution and liquidation of a business 20. Which is not a special feature of regular income taxation? a. Use of accounting methods

c. Annual payment of income tax

b. Use of accounting period

d. Final withholding tax at source

Multiple Choice-Problem 4-1: Accounting period 1. An individual income taxpayer shall file his or her income tax return on or before the 15th day of the fourth month of the same calendar year. 15th day of the fourth month of the following calendar year. 15th day of the fourth month of the same fiscal year. 15th day of the fourth month of the following fiscal year. 2. Anderson died on March 31, 2017. Which is a correct statement? a. Anderson’s 2017 income tax return shall cover January 1, 2016 to December 31, 2017. b. Anderson’s 2017 income tax return shall cover January 1, 2017 to December 31, 2017. c. Anderson’s 2017 income tax return shall cover January 1, 2017 to March 31, 2017. d. Anderson’s 2017 income tax return shall cover April 1, 2017 to December 31, 2017. 3. Mrs. Julian started business on July 15, 2016. What should be the coverage of her 2016 income tax return? a. January 1 to July 15, 2016 b. July 15, 2016 to December 31, 2016 c. July 16, 2016 to July 15, 2017 d. January 1 to December 31, 2016 4. A corporation reporting on a fiscal year ending every March 31 shall file its 2017 income tax return not later than a. April 15, 2017

c. July 15, 2017

b. June 15, 2017

d. April 15, 2018

5. Metersbonwe Corporation started business on April 5, 2016 and opted to report income tax on a fiscal year ending every October 31. Metersbonwe’s first income tax return shall cover a. April 6, 2016 to October 31, 2016 b. April 5, 2016 to October 31, 2016 c. April 5, 2016 to December 31, 2016 d. April 5, 2016 to April 5, 2017

6. Beneco Corporation reports on calendar year. On August 15, 2016, it stopped business due to persistent losses. Beneco Corporation’s last income tax return shall cover a. January 1 to December 31, 2016 b. Janaury 1 to August 15, 2016 c. August 15, 2013 to August 15, 2016 d. August 15 to December 31, 2016 7. Effective March 1, 2017, Jonah, Inc. changed its calendar year to a fiscal year ending every June 30. An adjustment return shall be filed covering the period a. March 1 to June 30, 2017 b. Janaury 1 to June 30, 2017 c. January 1 to March 1, 2017 d. January 1 to December 31, 2017 8. During 2017, Klein Corporation changed its accounting period to the calendar year. The adjustment return shall be filed on or before a. April 15, 2017

c. April 15, 2018

b. July 15, 2017

d. July 15, 2018

9. Effective July 2, 2016, Rofelson Company changed its fiscal year ending every March 31 to another fiscal year ending every August 31. An adjustment return shall be filed covering the period a. April 1 to July 2, 2016

c. April 1 to August 31, 2016

b. April to July 1, 2016

d. July 3 to August 31, 2016

10. Effective May 15, 2017, Tabuk, Inc. changed its fiscal year ending every April 30 to the calendar year. An adjustment return shall be filed covering the period a. May 1 to December 31, 2017 b. January 15 to December 31, 2017 c. January 1 to April 30, 2017 d. April 30 to December 31, 2017 Multiple Choice-Problems 4-2: tax schemes and accounting methods 1. Astercor, Inc. reported the following during the year: P400,000 proceeds of life insurance of an officer where Antercor is the beneficiary (P600,000 still uncollected.)

P800,000 interest income, exclusive of P200,000 uncollected and accrued interest P300,000 increase in value of investment stocks Compute the gross income under basis. P800,000 P1,000,000

c. P1,200,000 d. P1,400,000

2. Compute the gross income under accrual basis. a. P800,000

c. P1,200,000

b. P1,000,000

d. P1,400,000

3. Berlin Corp. reported the

following data for 2019:

Total net sales made to customers were P2,000,000 in cash. Goods purchased for sale totalled P1,200,000 in cash. Beginning and ending inventory of goods for sale, respectively, were P200,000 and P300,000. 1-year advanced rent of P30,000 to apply for 2020 was received from a sublease contract. P40,000 total interest income from customers promissory note earned P30,000 of this was collected. Unrealized foreign exchange gains from foreign currency receivable totaled P60,000. Using cash basis, compute the total income subject to income tax. P990,000

c. P750,000

P960,000(P2M – P1.1M COGS + P30K + P30K)

d. P690,000

4. Using accrual basis, compute the total income subject to income tax. a. P1,060,000

c. P960,000

b. P1,000,000

d. P970,000 (P2M – P1.1M COGS + P30K + P40K)

5. Santiago, Inc. has the following receipts during 2018: From service billings to client

P400,000

Advances from clients

100,000

Total cash collection

P500,000

The P100,000 advances refer to services which will be rendered next year. Total uncollected billing increased from P100,000 on December 31, 2017 to P150,000 on December 31, 2018. Compute the gross income using cash basis.

P400,000

c. P500,000

P450,000

d. P550,000

6. Compute the gross income using accrual basis. P400,000

c. P500,000

P450,000

d. P550,000 [(P400K+P150KP100K)+P100K]

7. In 2019, Bright Inc. sold its parking lot for P2,400,000 payable on installment. The lot was previously acquired for P1,500,000. The buyer has an outstanding unpaid balance of P1,800,000 as of December 31, 2019, Bright’s year-end. Compute Exquisite’s gross income in 2019 using the installment method. P900,000

c. P225,000 [P900K GP x (P600K/P2.4M)]

P675,000

d. P112,500

8. Exquisite Corporation sold its old warehouse with carrying amount (tax basis) of P600,000 for P1,000,000. A downpayment of 15% was collected on July 1,2019. Additional P150,000 installment payments were received as of December 31, 2019. Compute the gross profit to be reported for the year 2019. P60,000

c. P400,000 (P 1M-P600K)

P120,000

d. P450,000

9. Lancelot is a dealer of household appliances. He reported the following in 2019 and 2020: 2019

2020

P500,000

P800,000

Cost of installment sales

250,000

440,000

Collections

300,000

600,000

Installment sales

Lance’s 2020 collection is inclusive of P100,000 accounts from 2019. Using the installment method, compute Lancelot’s gross income subject to income tax 2020. P360,000

c. P250,000

P320,000

d. P275,000 [(P250K 2015GP x20%) + (P360K 2016GP

x62.5%)] 10. Using the accrual basis of accounting compute Lancelot’s gross income subject to income tax in 2020. P360,000

c. P275,000

P320,000

d. P250,000

11. Merville is a dealer in real properties. Merville requires 20% downpayment, and the balance is payable over 36 monthly instalments starting on the last day of the month following the month of sale. Merville sold properties in 2019 and 2020 with terms as follows: House and Lot No. 1 was sold for P1,350,000 on November 11, 2019. House and Lot No. 2 was sold for P1,800,000 on July 5, 2020. Both properties were sold at a gross profit rate of 40% based on the selling price. Compute Merville’s gross income subject to income tax in 2019 and 2020, respectively. P120,000;P720,000

c. P540,000;P720,000

P120,000;P846,000 [P540K 2015GP x (P300K/P1.35M)];[(P540 K 2015GP x P360K/P1.35M)+P720K 2016GP] d. P540,000;P846,000 12. In 2020, Mr. Marangley, a dealer of car, disposed a brand new sports utility vehicle (SUV) which costs P800,000 for P1,200,000, inclusive or under the following terms: July 1, 2020-as down payment

P100,000

Monthly installment thereafter

50,000

Mr. Marangley will choose whichever favourable permissible income reporting method for him. How much gross income is to be reported in 2020? P400,000

c. P116,667 (350K/1.2M x 400K)

P250,000

d. P108,219

13. In the immediately preceding problem, assuming Mr. Marangley is not a dealer of car, how much gross income is to be reported in 2020? How much gross income is to be reported in 2020? P400,000

c. P116,667

P250,000

d. P108,219

14. Luccio accepted a P1,000,000 construction contract in early 2020. As of December 31, Luccio incurred total construction costs of P600,000 and estimates additional P200,000 to bring the project to completion. Per independent appraisal, the building is at its 80% stage of completion. Compute Luccio’s 2020 construction income using the percentage completion method. P40,000

c. P160,000

P200,000 (80% x P1M – P600K)

d. P400,000

15. Crevar constructs residential properties for clients and reports income by the percentage of completion method. In 2019, Crevar started a P2,000,000 construction contract. Details of his 2019 and 2020 construction follow: 2019 Annual construction costs

2020

P200,000

P800,000

800,000

250,000

20%

80%

Estimated cost to finish Extent of completion

Compute the construction income in 2019 amd 2020. P200,000;P560,000

c. P400,000;P400,000

P200,000;P400,000

d. P400,000;P560,000

16. Oliver entered into a 40-year lease contract with Berna. Per agreement, Oliver will construct a building on Berna’s lot and operate the same for 40 years. Ownership of the building will transfer to Berna upon the termination of the lease. The lease will not commence until the building is completed. O...