Taxation MCQs with answers PDF

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Partnership Choose the letter of the correct answer. 1. Partnership is formed persons for the sole purpose of exercising their profession, no part of the income of which is derived from engaging in any business. a Joint venture b. General professional partnership c. Trading partnership d. Joint acco...

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Partnership --------------------------------QUIZZER……………………...…………… Choose the letter of the correct answer. 1. Partnership is formed by persons for the sole purpose of exercising their profession, no part of the income of which is derived from engaging in any business. a Joint venture b. General professional partnership c. Trading partnership d. Joint accounts •

Answer: B

2. A general professional partnership is exempt from income tax, but is required to file an income tax return a. For statis tical purposes. b. Because the net income of the partnership will be traced into the income tax return of the partners. c. Because all income earners are required to file income tax returns. d. None of the above. •

Answer: B

3. For purposes of taxation, partnership is I. Classified into two major categories, partnership in trade and general professional partnership. II. Partnership in trade is treated as corporate taxpayer. III. General professional partnership is exempt from income tax a. I, II and III c. I and III only b. I and II only d. I only •

Answer: A

4. Statement 1: All partnerships are taxed in the same manner as corporation. Statement 2: The income of a general commercial partnership is also subject Regular Corporate Income Tax whichever is applicable. 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. Statement 1 and 2 are true •

Answer: C

5. Which of the following statements is false? a. Registered general professional partnerships are subject to income tax. b. A partners' share in the net profits of a general professional partnership is not compensation income.

c. A limited partnership is considered, for tax purposes, a corporation and the partnerships thereof likened to stockholders. d. Tax income taxation rules application to corporations likewise apply to informal partnerships. •

Answer: A

6. A taxable partnership may be subject to the following taxes: I. Minimum corporate income tax II. Regular corporate income tax III. Improperly accumulated earnings tax. a l, ll, and III c. I and III only b. I and II only d. I only •

Answer: B

7. 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. •

Answer: A

8. Pedro and Ana contributed money and purchased five (5) hectares of land in 2017. In the same year, they sold the land a higher price. In 2018 they bought a bigger parcel and sold it after three (3) months at double the price. They paid the corresponding capital gains taxes. Q1: Have they formed an unregistered partnership subject to tax? QZ: Are their respective shares in the income taxable to them? a. Yes, Yes c. Yes, No b. No, Yes d. No, No • •

Answer: B The purchase and subsequent sale of subsequent sale of a bigger parcel of land was isolated. Hence, they are taxable on their own capacity as individual taxpayers.

9. When their parents died, Romeo and Juliet inherited five (5) hectares of land in Isabela. They decided to invest capital and developed the land into a subdivision being sold either on installment or cash basis Q1: Is a partnership created by Romeo and Juliet? Q2: Are they subject to final tax on their respective share in the income a. Yes, No c. Yes, Yes b. No, Yes d. No, No • Answer: C 10. Statement 1: A CPA and a Dentist may form a GPP or an ordinary partnership. Statement 2: Partnership and Corporation have separate juridical personalities from the owners. 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 and 2 are true • Answer: C • Statement 1 is false. They can form an ordinary partnership but not a GPP because they have different professions. 11. Statement 1: A Partner of a GPP is not required to include in his personal gross income his share in the distributable income of the GPP Statement 2: Corporations may form a taxable partnership but not a GPP. 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 and 2 are true • • •

Answer: A Statement 1 is false. Share in the income of a GPP is a returnable income or ordinary income which shall be included in the partner's ITR. Partnership is a contract. It is perfected through meeting of the minds. Hence, corporations and other juridical persons cannot form a partnership because they are incapable of giving consent. However, juridical persons may form a joint venture.

12. Statement 1: The distributive share of a partner in the net income of a taxable partnership is equal to each partner's distributive share of the net income declared by partnership for a taxable year after deducting the corresponding corporate tax. Statement 2: If a taxable partnership sustains net operating loss, the partners entitled to deduct their respective shares in the net operating loss from the gross income. 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 and 2 are true • Answer: B 13. Statement 1: For purposes of computing the distributive share of the partners of a general professional partnership, the net income of the partnership shall be computed in the same manner as a corporation. Statement 2: Partners of a taxable partnership are considered as shareholders and profits distributed to them by the partnership are considered as dividends. 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 and 2 are true • Answer: D 14. The partner's share in the profits of a general professional partnership is regarded as received by the partners although not yet distributed. This concept of income reporting under the Tax Code is known as: a. Installment basis of reporting income b. Accrual basis of reporting income c. Constructive receipt basis of reporting income

d. Hybrid method of reporting income • Answer: C 15. Statement 1: If the amount to be distributed to a partner of a GPP is more than P720,000, it is subject to 15% creditable withholding tax. Statement 2: The share of a partner in a GPP is subject to final withholding tax of 10% if the amount is below P720,000. Statement 3: The distributive share of a partner in a commercial partnership is subject to final tax. a. Statements 1, 2 and 3 are false b. Only statement 3 is false c. Only statement 2 is false d. Statements 1, 2 and 3 are true • Answer: C 16. Statement 1: A GPP shall not be subject to Income Tax. Statement 2. Income payments to a GPP shall be considered exempt from withholding tax 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 and 2 are true • Answer: D 17. Which of the following options is correct? Part of distributable income of the partner SHARE IN TNE INCOME OF GGP: a. From its operations b. From its passive income c. From its capital gains subject to CGT. d. From its tax exempt income • • • •

Returnable income of the partner

Subject to CWTx

Yes Yes No

Yes Yes No

No No No

Yes

No

No

Answer: D “A” is wrong. Share in income from GPP's operations is subject to CWT. “B” is wrong. Share from the GPP's passive income is non-returnable income of the partner. “C” is wrong. Share in GPP's capital gains subject to CGT is part of the distributable income of the partner.

18. Which of the following options is correct? Part of distributable income of the partner SHARE IN TNE INCOME OF COMMERCIAL PARTNERSHIP: a. From its operations b. From its passive income c. From its capital gains subject to CGT. d. From its tax exempt income

Yes Yes No Yes

Returnable income of the partner

Subject to FWTx

No No No No

No Yes No No

• • • •

Answer: B “A” is wrong. Share in income from GP's operations is subject to FWT. "C" is wrong. Share from the GP's capital gains subject to CGT shall be part of the distributable income and shall be subject to FWT. "D" is wrong. It shall be subject to FWT

19. Statement 1: The share of the partner in the gross income of the GPP is added to his own gross income. Statement 2: The share of the partner in the net income of a GPP is also considered passive income. 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 and 2 are true • Answer: B • Share in income of a GPP is treated as ordinary income subject to basic tax. Share in income of a GP is treated as a dividend income, a passive money subject to a final withholding tax. 20. Statement 1: Co-ownership and partnership are similar as to taxability, Statement 2: Corporations 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 and 2 are true • • •

Answer: C Statement 1 is false. Co-ownership is non-taxable while a partnership is generally taxable as corporation. Statement 2 is correct. Ordinary partnership or general partnership, for income taxation purposes, is taxable as a corporation.

21. Prior to the effectivity of the TRAIN Law, If the GPP chooses itemized deductions, the partners comprising it must also claim itemized deductions under RR 2-2010, which are in the nature of ordinary and necessary expenses for the practice of profession that were “not claimed by the GPP” during the yea r such as: a. Representation expenses incurred by the partner where the covering receipt or invoice is issued in his name. b. Travelling expenses while away from home which were not liquidated by the partnership c. Depreciation of a car used in the practice of profession where said car is registered in the name of the partner: d. All of the above •

Answer: D

22. Which of the following statements is incorrect assuming the taxable year is prior to 2018? a. If the GPP avails of the OSD in computing its net income, the partners can no longer claim further deductions from their share in the net income of the GPP b. OSD covers or in lieu of the itemized deductions allowed to both the GPP or the “partner(s) c. Both "a" and "b" d. Neither “a” nor “b” •

Answer: D

23. Statement 1: Under RA10963, an individual partner of a GPP applying optional standard deduction is not allowed for any deduction on his distributive shares. Statement 2: Under RA10963, an individual partner of a GPP may avail of 8% tax on his distributive share, in lieu of graduated tax rate. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect •

Answer: A

24. Statement 1: GPP's may claim the 40% OSD in the determination of distributable income. Statement 2: A GPP is subject to income tax. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect • Answer: A Use the following data for the next four (4) questions: Bobadilla, Trinidad and Company (BTC) is a general professional partnership, with Bobadilla, married, and Trinidad, single, participating equally in the income and expenses. The following are the data for the partnership and the partners during 2017 taxable year:

Gross revenue/sales Cost of direct services/sales Expenses

BTC Partnership P1,000,000 400,000 350,000

Bobadilla P400,000 250,000 70,000

Trinidad P350,000 150,000 120,000

Additional information: Bobadilla uses his personal car in going to meetings with various clients. His exp enses to such meetings amounted to P35,000 . The said amount was not included in the expenses claimed by the partnership. 25. The distributive share of Bobadilla from the partnership profit is: a. P300,000 c. P640,000 b. P125,000 d. P30,000 Answer: B Solution: Gross revenue Cost of direct services OPEX GPP's net income Divide Distributive share/partner •

P1,000,000 (400,000) (350,000) P250,000 2 P125,000

26. The taxable income of Bobadilla is: a. P220,000 c. P155,000 b. P120,000 d. P30,000

TRAIN LAW: P170,000 • Answer: B Share in GPP's income Bobadilla's Gross sales Cost of direct services OPEX Additional expenses Basic exemption ** Taxable net income • •

•

P125.000 400,000 (250,000) (70,000) (35,000) (50,000) P120,000

**Personal exemptions are still allowed prior to the effectivity of TRAIN Law. The additional expenses incurred by Bobadilla amounting to P35,000 is allowable deduction f rom the gross income of the partner provided such expenditures were not yet claimed by the GPP and that the GPP is using itemized deductions.

Train law - remove basic exemption (50,000) the answer is, P170,000

27. The taxable income of Bobadilla if the Partnership is engaged in trade or business is: a. P220,000 c. P155,000 b. P120,000 d. P30,000

TRAIN LAW: P80,000 • Answer: D Bobadilla's Gross sales 400,000 Cost of direct services (250,000) OPEX (70,000) Basic exemption** (50,000) Taxable net income P30,000 • The share in income of a GP or commercial partnership is a non-returnable income of the partners. It shall be treated as a dividend income (passive income) subject to FWT. • again, under train law (remove basic exemption) the answer is P80,000 28. The taxable income of Bobadilla if the Partnership opted to use Optional Standard Deduction is: a. P220,000 c. P155,000 b. P120,000 d. P370,000

TRAIN LAW: P170,000 Answer: D Solution: GPP's Gross Income (P1M – 400k) X GPP's net income using OSD Divide •

P600,000 60% P360,000 2

Share in GPP's income per partner Bobadilla's Gross sales X Bobadilla's net income from business Basic exemption Taxable net income

•

• •

P180,000 P400,000 60% *** P240,000 (50,000)

190,000 P370,000

*** Prior to the effectivity of the TRAIN Law, if the GPP chooses itemize d deductions, the partners comprising it must also claim itemized deductions If GPP chooses OSD, the partners shall likewise use OSD. Under the TRAIN Law, the partners may choose between itemized or OSD. OSD is in lieu of itemized deductions (OPEX). OSD is 40% of gross income if the taxpayer is a corporation or partnership However, in case of individual taxpayers or partners of a GPP, the 40% OSD shall be based on gross sales or receipts.

Use the following data for the next five (5) questions: Garcia, Ramos, Toribio and Co., CPAS (GRT & Co.), are partners of an accounting firm. The 2018 financial records of the firm disclosed the following: Service Revenue P4,490,000 Cost of Services 1,610,000 Operating expenses 800,000 Rental income 500,000 Interest income from bank deposit 200,000 Interest income from from FCDS deposit 280,000

Ramos is also engaged in business with the following data for the year: Sales P2,500,000 Cost of Services 1,250,000 Operating 550,000 Expenses 29. How much is the distributable income of the GPP? a. P992,667 c. P2,578,000 b. P1,019,333 d. P2,978,000 • Answer: D Net income of the firm firm (4,490k-1,610k-800k+500) Interest income from bank deposit, net (P200,000 x 80%) Interest income from FCDS transaction, net (P280,000 x 85%) Total distributable income of the GPP Divide Distributive share/partner

P2,580,000 160,000 238,000 P2,978,000 3 P992,667

30. How much is the distributive share of each partner in the total income of the GPP? a. P992,667 c. P2,578,000 b. P1,019,333 d. P2,976,000 •

Answer: A

31. How much is the taxable income of Ramos in 2018? a. P860,000 c. P1,560,000 b. P1,510,000 d. P2,580,000 Answer: C Solution: Net income from GPP's operations Divide by Share in GPP's ordinary income per partner Add: Ramos' own net income (2.5M-1.25M-550k) Taxable net income of Ramos •

•

P2,580,000 3 P860,000 700,000 P1,560,000

The partners' share in the other income of the GPP (i.e., subj. to FWT and CGTs) are non-returnable income of the partners.

32. How much is the taxable income of Ramos in 2018 assuming GRT & Co. opted to use Optional Standard deduction? a. P1,376,000 c. P1,692,000 b. P1,426,000 d. P1,860,600 Answer: A Solution: GPP's Gross Income (4,490K-1,610k+500k) X GPP's net income under OSD Divide Share of Ramos in the ordinary income of the GPP Add: Ramos' own net income (2.5M-1.25M-550k) Taxable net income of Ramos •

• •

P3,380,000 60% P2,028,000 3 P676,000 700,000 P1,376,000

Under the TRAIN Law, the partner may use either itemized deduction or OSD. Under the TRAIN Law, apply OSD only if the taxpayer indicated the same in its ITR. Hence, unless clear, itemized deduction must be applied.

33. How much is the taxable income of Ramos in 2018 assuming the GPP and the partner opted to use Optional Standard deduction? a. P1,376,000 c. P1,692,000 b. P1,426,000 d. P2,176,000 •

Answer: "D"

Solution: GPP's Gross Income (4,490K-1,610k+500k) X GPP's net income under OSD Divide Share of Ramos in the ordinary income of the GPP Add: Ramos' own net income using OSD (P2.5M X 60%) Taxable net income of Ramos •

P3,380,000 60% P2,028,000 3 P676,000 1,500,000 P2,176,000

The basis of OSD for individual taxpayers is either Gross Sales or Receipts

34. TGT & Co. is a general partnership in trade and on its fifth year of operations. During current taxable year, it had a gross profit from sales and business expenses P2,000,000 and P1,000,000, respectively. T, G, and T share equally in the profits a losses of the partnership. The income tax due of the partnership is: a. P 40,000 c. P640,000 b. P300,000 d. P 0 • Answer: B GP's Gross Income P2,000,000 OPEX (1,000,000) Net income P1,000,000 x 30% Income Tax Due P300,000 35. The income tax payable of the partners as a consequence of being a partner in the Partnership is: a. P 0 c. P77,000 b. P68,000 d. P70,000 • Answer: A Partners' share in the net income of a GP is treated as dividend income, subject to FWT. Hence, the amount received by the partners are net of the applicable tax on the income they received. Final tax withheld constitute full payment of the tax due. 36. TG Partnership reported for a year net profit from trading amounting to P800,000. The other income included interest income of P8,000, net of 20% final withholding tax, and dividend income from domestic corporation of P20,000. Assuming T and G share profits and losses equally, how much is the final withholding tax on the distributive share of T in the earnings of that partnership? a. P28,700 c. P28,000 b. P28,600 d. P29,400 • Answer: D GP's net profit, net of RCIT (P800,000 x 70%) Interest income net of FWT Dividend income (tax exempt) Total distributable income Divide Share in income of the GP (per partner) x tax rate Income Tax Due

P560,000 8,000 20,000 P588,000 2 P294,000 10% P29,400

37. Juan and Ponce are partners in a business partnership sharing profits and losses in the ratio of 55:45. The following data on income and expenses of the partnership for 2018 show: Gross income

P750,000

Expenses

200...