TAX 1 2020 Sol Man Chapter 7 to 10 PDF

Preview

Summary

1 | PageSOLUTIONS MANUALINCOME TAXATION, 2020 editionBy: TABAG & GARCIACHAPTER 7 – CONCEPT OF INCOMEMULTIPLE CHOICE1. C 13. C 25. D 37. C2. D 14. D 26. B 38. D3. B 15. A 27. B 39. D4. A 16. B 28. A 40. C5. D 17. D 29. D 41. C6. D 18. A 30. A 42. C7. A 19. C 31. D 43. D8. D 20. C 32. D 44. A9...

Description

SOLUTIONS MANUAL INCOME TAXATION, 2020 edition By: TABAG & GARCIA

CHAPTER 7 – CONCEPT OF INCOME MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

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

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

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

25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36.

D B B A D A D D B A B B

Supporting Computations: 32. P300,000 4/12 = P100,000 33. Gain on sale of personal property purchased in the Philippines and sold in Hongkong Compensation received for personal services in the Philippines Rent income from real property in Malaysia Gain from sale in the Philippines of shares of a foreign corporation Deductions identified with: Philippine income Foreign income Deductions unidentified with any particular income (P30,000 x 300,000/1,000,000) Philippine Net Income

37. 38. 39. 40. 41. 42. 43. 44.

P200,000 100,000 (80,000) (9,000) P211,000

34. Gross Receipts Rental expenses Salaries expense Basic exemption Taxable income 35.

P600,000 (120,000) (100,000) (50,000) P330,000

(Resident Alien) Gross Income Business expenses Dividend income from foreign corp. (50,000 x 60%) Basic exemption Taxable income

P2,000,000 (1,200,000) 30,000 P830,000

36. 37.

Final Tax Withheld on dividend income from domestic corp. = (P90,000 + 72,000)/ 90% x 10% = P18,000 (Domestic Corp = Taxable on income within and without Gross Income P10,000,000 Allowable deductions (4,000,000) Dividend income from domestic corp. exempt Dividend income foreign corp. (95% from R.P.) 1,000,000 Dividend income foreign corp. (60% from R.P.) 800,000 Dividend income foreign corp. (25% from R.P.) 400,000 Taxable income P8,200,000

38.

(Resident Foreign Corp = Taxable on income from Philippine sources only Gross Income Allowable deductions Dividend income from domestic corp. Dividend income foreign corp. (80% from R.P.) (P1M X 80%=considered from Phil. sources) Dividend income foreign corp. (60% from R.P.) (P800,000 x 60%) Dividend income foreign corp. (25% from R.P.) (entire amount is considered income from sources outside of the Phils.) Taxable income

P10,000,000 (4,000,000) exempt 800,000 480,000 -

P7,280,000

C D D C C C D A

1|P a g e Solutions Manual-Income Taxation(2020 Edition) by Tabag & Garcia

39. DI-Microsoft DI-Intel (P400,000 x 60% x 30%) DI - IBM Interest income – BDO @ 20% FCDS deposit @ 7.5% Royalty income @ 20% Total final taxes on passive income

P72,000 120,000 60,000 20,000 P272,000

DI-Microsoft & Intel @ 30% basic tax DI - IBM Interest income – BDO @ 20% Interest income U.K. @ 30% FCDS deposit @ 15% Royalty income @ 20% Total final taxes on passive income

P270,000 120,000 210,000 120,000 20,000 P740,000

40.

CHAPTER 8 – INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME PROBLEM SOLVING: P8.1 INCOME SUBJECT TO BASIC TAX: Basic salary (P900,000+P300,000) P1,200,000 Director’s fee 200,000 Business income: Retail business 250,000 Apartment rental (P190,000/95%) 200,000 Dividend income from a resident corporation 50,000 Taxable 13th, X’mas and MidYear Bonus 85,000 (P180,000 – 1st 5,000 as de minimis – P90,000 exclusions) Gross Income subject to basic tax (Q#1) P1,985,000 LESS: Business expenses (125,000) Basic exemption Net Taxable income P1,860,000 Income tax due – TRAIN Law (Q#4); [P130k + (P860k x 30%)] P448,000 INCOME SUBJECT TO FINAL TAX: Cash dividend from a domestic corporation @ 10% Interest from savings deposit @ 20% Royalties from book publications @ 10% Prizes from contest won @ 20% PCSO winnings @ 20% (TRAIN Law) Total final taxes on passive income (Q#2) INCOME EXEMPT FROM TAX: Xmas Bonus and other benefits (P5k de minimis + 90,000) Stock dividend from a domestic corporation Damages received from injuries and sickness Proceeds-life insurance coverage of his father Total income exempt from tax (Q#3)

P5,000 4,000 5,000 10,000 10,000 P34,000

P95,000 25,000 85,000 300,000 P505,000

P8.2 1) 2) 3)

P10,000 P15,000 P715,000 computed as follows: Gross profit from sales (P2.5M – P1.5M) Taxable recovery-receivables Taxable tax refunds (P30,000 x 50%) Rent income excluding security deposit Operating expenses excluding bad debts Write-off during the year Taxable income

P1,000,000 10,000 15,000 250,000 (500,000) (60,000) P715,000

P8.3 1) 2) 3) 4)

2018 income = (P240,000 x 2) + 60,000 = P540,000 2019 income = only the annual real property tax of P60,000 2020 income (lump-sum) = P240,000 + 60,000 + P3,000,000 = P3,300,000 2020 income (spread-out) = P400,000 computed as follows: Annual rental P240,000 Annual real property tax 60,000 Annual income from leasehold improvement: Cost P3,000,000 x 5/10 Remaining BV after lease term P1,000,000 Divide by remaining lease term 10 years P100,000 Total income 2018 P400,000

2|P a g e Solutions Manual-Income Taxation(2020 Edition) by Tabag & Garcia

P8.4 Ramon Magsaysay award Athlete of the year award Prize for winning an Olympic Medal Gift from Mayor Erap Gift from Honda Cars Total amount exempt from income tax P8.5 P8.6 P8.7

P50,000 100,000 500,000 250,000 1,000,000 P1,900,000

P0; The P800,000 should be exempt from income tax P1,000,000; The interest income from expanded foreign currency deposit Taxable Proceeds = P1,000,000 – P600,000 = P400,000

P8.8 Salary for the first quarter P180,000 Honorarium as speaker in one of ABC’s team building activities 10,000 Retirement pay; (Taxable; failed to meet the age requirement) 2,500,000 Commissions 30,000 Fee as a member of ABC’s board of directors (compensation income since he 50,000 is at the same time an employee of the company) 10 days monetized vacation leave Exempt Interest income from time deposit FW Tax/E ***Productivity incentive pay and 13th month pay (refer to explanation below) (However, the total of the productivity bonus amounting to P20,000 + 60,000 Exempt bonus is not more than P90,000, hence tax exempt) Total compensation income subject to tax P2,770,000 ***NOTE: for Productivity incentive pay – refer to BIR Ruling No. 293-2015 à If not more than 10k = exempt de minimis à If more than 10k = the entire amount is considered part of “other benefits” subject to P90,000 limit.

P8.9. Change the Problem # from P8.11 to P8.9 INJURIES/DAMAGES DIVIDEND 1. 10% F.Tax 8. Exempt 2. 3. 4. 5. 6. 7.

10% F.Tax Basic Tax Exempt Basic Tax Exempt N.taxable

26. 27. 28. 29. 30.

Final Tax Exempt Exempt Exempt Exempt

9. 10. 11. 12. 13. 14.

Exempt Basic Tax Exempt Basic Tax Exempt Basic Tax

PRIZES/AWARDS 15. Basic tax 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.

Exempt Exempt Exempt Exempt Basic Tax/FWT Depending on the amount Depending on the amount Basic Tax/FWT 20% FWT; TRAIN Law Basic Tax; (“abroad”) 20% final tax (individual taxpayer) Basic Tax (abroad)

VARIOUS PROCEEDS/INCOME

TRUE OR FALSE 1. TRUE 8. TRUE 15. FALSE 22. 2. FALSE 9. TRUE 16. FALSE 23. 3. TRUE 10. TRUE 17. TRUE 24. 4. FALSE 11. TRUE 18. FALSE 25. 5. FALSE 12. TRUE 19. FALSE 6. TRUE 13. TRUE 20. FALSE 7. FALSE 14. FALSE 21. FALSE #7 – should be CWT not FWT #14 – should be upon recovery #20 - if not in single sum (like installment or annuity), it may include an interest, subject to tax #21 – the interest is subject to tax

TRUE FALSE TRUE FALSE

3|P a g e Solutions Manual-Income Taxation(2020 Edition) by Tabag & Garcia

MULTIPLE CHOICE 1. 2. 3. 4. 5. 6.

C B D D B B

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

D* C B C** D C

31. 32. 33. 34. 35. 36.

C C A D C C

46. 47. 48. 49. 50. 51.

D D D B C B

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

B B D A C C C B A

22. 23. 24. 25. 26. 27. 28. 29. 30.

A C C A B D C C D

37. 38. 39. 40. 41. 42. 43. 44. 45.

D D C D B D D D A

52. 53. 54. 55. 56. 57. 58. 59. 60.

C D D D C B B B C

*the P40,000 is subj. to FWT; refund of “income tax” is not considered as taxable gross income **should be from banks only Supporting Computations (Multiple Choice): No. 13. Case A P120,000 40,000 P40,000 P40,000

2018 Income(loss) before write-off Write-off 2019 Recovery TAXABLE RECOVERY-2019

Case B P60,000 40,000 P10,000 P10,000

No. 16. Interest from Philippine Currency Certificate = subject to 20% final tax; non-returnable income Refund of income tax = not an income No. 24. Rent for 2017 and 2018 (prepaid rent is taxable yr. of receipt regardless of accounting method) Annual real property tax Income from leasehold improvement Total taxable income-2017

P3,600,000 30,000 P3,630,000

2018: Rent (already recognized in 2017) Annual real property tax Income from leasehold improvement Total taxable income-2018

P0 30,000 P30,000

No. 25. Spread out Method Rent – 2019 Annual real property tax Income from leasehold improvement Total taxable income-2019

P2,400,00 30,000 P2,430,000

Annual Rent Advance rent Annual real property tax Income from improvement [(P36M x **5/15) / 10] Total annual income

2017 P1,200,000 2,400,000 P30,000

2018 Recognized in 2017 30,000

P3,630,000

P30,000

2019 P2,400,000

30,000 None; completed only end of 2019 P2,430,000

Lease Term: 12.5 years Remaining Lease term after completion of the improvement: 10 years Useful life of the improvement: 15 years Remaining useful life of the improvement after termination of the lease: 5 years**

Lump Sum Method; 2020 taxable year Rent - 2020 Annual real property tax Income from leasehold improvement Total taxable income-2020

P2,400,00 30,000 36,000,000 P38,430,000

Case C (P40,000) 50,000 P50,000 P0

4|P a g e Solutions Manual-Income Taxation(2020 Edition) by Tabag & Garcia

Spread Out Method; 2020 taxable year Rent - 2020 Annual real property tax Income from leasehold improvement (P36M/10 remaining lease term); shorter term Total taxable income-2020

P2,400,00 30,000 3,600,000 P6,030,000

No. 27. Royalty – as an author @ 10% Other royalties x Total final tax on royalty income

P10,000 P800,000 20%

160,000 P170,000

No. 46. Proceeds from the taxpayers life insurance Less premiums paid (P15,000 x 25) Rent income from inherited properties Taxable income

P2,000,000 (375,000)

P1,625,000 200,000 P1,825,000

CHAPTER 9– DEALINGS IN PROPERTIES PROBLEM SOLVING P9.1 Question #1 Gross income P760,000 Business expenses (380,000) Add: Net capital gains Short term capital loss (@100%) (60,000) Long term capital gain (@100%) 40,000 Net Capital Gain (Loss) (20,000) Net Taxable Income in 2019 P380,000 *capital losses are deductible only from capital gains. *holding period and capital loss carry-over are not applicable to corporate taxpayers. P9.1 Question #2 2019 Gross income P500,000 Business expenses (350,000) Net Capital Gain Short term capital gain (@ 100%) 80,000 Capital loss (@ 100%) (20,000) 60,000 Net Taxable Income in 2020 P210,000 *holding period and capital loss carry-over are not applicable to corporate taxpayers. *capital losses are deductible only from capital gains. P9.1 Question #3 Gross income Business expenses Short term capital loss (@100%) Long term capital gain (@50% ) Net capital loss 2019 Net Taxable Income in 2019

P760,000 (380,000) P(60,000) 20,000 (P40,000)

P380,000

P9.1 Question #4 Gross income P500,000 Business expenses (350,000) Add: Net capital gains Short term capital gain (@100%) 80,000 Long term capital loss (@50%) (10,000) Net capital loss carry over (NCLCO) from 2019 (40,000) 30,000 Net Taxable Income in 2020 P120,000 ***NCLCO must not exceed the taxable income during the year the net capital loss was incurred. Capital loss is deductible only to the extent of capital gain (NCL 2018 was P9.2 Taxable income exclusive of capital gains and losses Add(Deduct): Ordinary gains(loss) Gain on sale of land used in business, for 3 years Loss on sale of machinery used in business, for 8 months Add: Net capital gains Loss on sale of securities held for 3 years (8,000) Loss on sale of securities held for 3 months (6,000) Taxable income for Royale, Inc. *capital losses are deductible only from capital gains *holding period and capital loss carry-over are not applicable to corporate taxpayers.

P400,000 P50,000 (26,000)

P424,000

5|P a g e Solutions Manual-Income Taxation(2020 Edition) by Tabag & Garcia...