WORD Problems Taxation Mavod PDF

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Based on the following information:Sharon received the following income in 2020: Business income, Philippines P300, Business income, United States 250, Expenses, Philippines 200, Expenses, United States 125, Interest on deposit with Metrobank 3, Interest on deposit in U. ($1 = P50) $ 500 Cash prize ...

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Based on the following information: Sharon received the following income in 2020: Business income, Philippines Business income, United States Expenses, Philippines Expenses, United States Interest on deposit with Metrobank Interest on deposit in U.S. ($1 = P50) Cash prize won in a local contest Cash prize won in a contest in U.S. Winning in lotto Winning in lotto in U.S. Dividends from SMC, a domestic company

P300,000 250,000 200,000 125,000 3,000 $ 500 6,000 10,000 20,000 50,000 25,000

1. The taxable income if Sharon is a resident citizen, single is – A. P316,000 B. 331,000 C. P66,000 D. 61,000 Correct Answer: A Business income, Philippines Less: Expenses, Philippines Business income, U.S. Less: Expenses, U.S. Interest on deposit in U.S. ($500 X 50) Cash prize, local contest Cash prize, U.S. Lotto winnings in U.S. Taxable income

P300,000 200,000 250,000 125,000

P100,000 125,000 25,000 6,000 10,000 50,000 316,000

Residents citizens are taxable on income derived from sources within and without the Philippines. The interest on deposit with Metrobank and the dividends from SMC are not part of the taxable income because they are subject to final tax. The winnings in lotto in the Philippines is subject to final tax. 2. The gross income if Sharon is a non-resident alien ETB, married with five (5) dependent children – A. P106,000 B. 56,000 C. P74,000 D. None Correct Answer: A

Business income, Philippines Less: Expenses, Philippines Cash prize, local contest Gross income

P300,000 200,000

P100,000 6,000 106,000

Nonresident alien ETB are taxable on income derived from sources within the Philippines only. The interest on bank deposit with Metrobank and dividends from domestic corporations are subject to final tax. Lotto winnings in the Philippines are not taxable to a NRA. 3. A. B. C. D.

The final tax on Sharon assuming she is a nonresident alien NETB, single is P83,500 63,500 P18,500 334,000

Correct Answer: A Business income, Philippines Interest, deposit with Metrobank Cash prize, local contest Dividend from domestic company Gross income Rate of tax Income tax (Final Tax)

P300,000 3,000 6,000 25,000 34,000 25% 83,500

Notes: 1. NRA NETB are subject to tax on gross income derived from sources within the Philippines only. 2. The total income from sources within is subject to a final withholding tax of 25%, except the winnings in lotto because these are tax exempt to NRA.

Elvis and Madonna, husband and wife, have the following data in 2020:

Semi-monthly compensation income Rent income (net of 5% WT) Royalties on books Dependent children Withholding tax on the compensation

Elvis P12,000 76,000

Madonna P8,000 70,000

6 3,800

During the year, the spouses had self-employment income of P500,000 and expenses of P105,000 which cannot be identified as solely earned by the wife or the husband.

4. The income tax payable/overpayment of Elvis under graduated rates is – A. B. C. D.

P3,000 47,825 P (5,500) 63,575

Correct Answer: D Compensation income (P12,000 x 24) Rent income (P76,000 / 95%) Self-employment income (500,000 – 105,000)/2 Taxable income

P288,000 80,000 197,500 565,500

Tax on P400,000 165,000 x 25%

30,000 41,375

Income tax due Less: Withholding tax On rent (P80,000 – 76,000) On compensation income Tax payable

71,375 P4,000 3,800

7,800 63,575

5. The taxable income of Madonna if she is a minimum wage earner is – A. B. C. D.

P27,500 37,500 P11,600 None

Correct Answer: D Compensation income (MWE), not taxable Share in self-employment income Taxable income Tax on P197,500

P 197,500 197,500 Exempt

MWEs are not subject to income tax on compensation income. Moreover, the holiday pay, overtime pay, night shift differential pay and hazard pay received by a minimum wage earner are exempt also from tax. However, if the taxpayer is a mixed income earner, the self-employment income (such as income from the conduct of trade, business or practice of profession, except income subject to final tax) and non-operating income are returnable/taxable.

6. The final tax on the passive income is – A. B. C. D.

P14,000 7,000 None No answer

Correct Answer: B Royalty Rate of tax Final withholding tax

P70,000 10% 7,000

Rodil, married, with two dependent children, had the following income and expenses in 2020: Salary (October to December), net of WT of P5,000 13th month pay Gross receipts from profession, net of WT of P1,800 Rent income, net of 5% withholding tax Gross receipts from business Professional and business expenses

P155,000 12,900 88,200 57,000 125,000 56,500

7. The income tax payable by Rodil if he availed of the itemized deductions – A. B. C. D.

P25,700 15,900 P44,500 41,360

Correct Answer: B Salary (P155,000 + 5,000) Professional income (88,200 = 1,800) Rent income (P57,000 / 95%) Business Income Total income Less: Expenses Taxable income On P250,000 128,500 x 20% Income tax due Less: Withholding taxes onSalary Professional income Rent Income tax payable

P160,000 P90,000 60,000 125,000

275,000 435,000 56,500 378,500 Exempt P25,700 25,700

P5,000 1,800 3,000

9,800 15,900

8. The income tax payable by Rodil if he availed of the optional standard deductionsA. B. C. D.

P4,500 15,000 Exempt 5,200

Correct Answer: D Compensation income Professional income Rent income Business income Total Less: OSD (275,000 x 40%) Taxable income Tax on P250,000 75,000 x 20% Income tax due Less: Total withholding taxes Income tax due and payable

P160,000 P90,000 60,000 125,000 275,000 110,000

165,000 325,000

Exempt P15,000 15,000 9,800 5,200

Spouses Carlo and Irene, government employees, had the following data in 2019:

13th month pay and other benefits SSS, Philhealth & HDMF contributions Basic salary (gross of statutory contributions) RATA (reimbursable) Personnel Economic Relief Allowance Overtime pay Holiday pay Hazard pay Total amount of taxes withheld 9. The income tax payable on Carlo is – A. B. C. D.

P31.32 17,077.72 P363.16 None

Correct Answer: D

Carlo P18,949 24,549 310,438 96,000 12,450 3,000 17,046

Irene P8,605.00 4,559.75 68,465.25 6,000.00 4,457.04 1,783.25 6,000.00 -

Basic salary Add: Overtime pay Holiday pay Gross compensation income Less: Non-taxable (SSS, Philhealth, Pag-ibig) Taxable compensation income Tax on P250,000 51,330 x 20% Income tax due Less: Withholding tax Income tax payable

P310,438 12,450 3,000 325,888 24,549 301,438

Exempt 10,267.80 10,267.80 17,046.40 -

The taxable compensation income of the taxpayer does not include SSS, GSIS, Philhealth, Pag-Ibig contributions and union dues. Married individuals shall file a single return for the taxable year to include the income of both spouses, separately computing their individual income tax based on their respective taxable compensation income. Where it is impractical for the spouses to file one return, each spouse may file a separate return. Hazard pay, overtime pay, night shift differential pay and holiday pay of regular/supervisory employees are subject to withholding tax and consequently income tax. 10. The income tax payable on Irene if she is a minimum wage earner is – A. B. C. D.

P448.29 1,431,45 P (983.19) None

Correct Answer: D Basic salary (minimum wage earner – not taxable) Hazard pay, overtime pay, night shift differential pay and holiday pay for the minimum wage earners are not subject to withholding tax and income tax. 11. Mrs. Evangelista owns a residential parcel of land worth P500,000 which she inherited from her father in 2019 when it was worth P300,000. Her father purchased it in 2010 for P100,000. If Mrs. Evangelista transfers this parcel of land to her wholly owned corporation in exchange for shares of stocks of said corporation worth P450,000, Mrs. Evangelista’s taxable gain is (RPCPA) –

A. B. C. D.

Zero P50,000 P150,000 350,000

Correct Answer: A

Value of property acquired Less: Value of property given Gain on exchange

P450,000 300,000 150,000

The gain on the exchange is not taxable as a gain because the transfer is subject to a capital gains tax of 6%. 12. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The life expectancy of Mr. Santiago is 12 years. Which of the following will Mr. Santiago be able to exclude from his gross income? (RPCPA) A. B. C. D.

P100,000 10,000 P20,000 120,000

Correct Answer: A 13. Mr. Anakin, an employee of Fuerte Corporation is receiving a monthly salary (net of P233.40 monthly withholding tax) of P21,766,60. Due to an outstanding accomplishment in July,2019, the corporation gave him 200 shares of stock of the corporation with a par value of P100 per share and a fair market value at P150. The fair value on the date of receipt is P152 per share. How much is the income of Mr. Anakin in 2019? A. P50,000 B. 294,000 C. P270,000 D. 264,000 Correct Answer: B Salary (P21,766.60 + 233.40) x 12 P264,000 Shares of stock (200 x P150) 30,000 Gross income 294,000 Whenever the corporation transfers to its employees its own stock as remuneration for services rendered, the amount of such remuneration is the fair market value at the time the services were rendered. The income tax withheld is part of the compensation income. 14. Carandang is indebted to Dacuycuy. Due to his inability to pay the debt, he was asked to clean the piggery of the latter for three months. Thereafter, Dacuycuy gave him P5,000 cash and condoned the debt amounting to P10,000. How much income should be declared by Carandang? A. P5,000 B. 10,000 C. P15,000 D. None

Correct Answer: C Cash payment from Dacuycuy P5,000 Amount of debt condoned 10,000 Gross income Condonation of debt by the creditor after requiring the debtor to render services to him is a taxable income to the debtor.

15. In 2018, Alonte received from his employer a promissory note with a face value of P100,000 for services rendered. The note will mature in 2019. However, it was sold to a financing institution at a discount of 25%. The employer paid the promissory note in 2019 How much taxable income is to be declared by Alonte on the promissory note in 2018 and 2019 ? 2018 2019 A. P50,000 P50,000 B. 25,000 75,000 C. P75,000 P25,000 D. None 100,000 Correct Answer: C 2018 Face value Less: Discount (P100,000 x 25%) Taxable income 2019 Face value Less: Income reported in 2018 Taxable income

P100,000 25,000 75,000

P100,000 75,000 25,000

16. Using the same data in the preceding number, except that 50% of the face value of the note is payable in 2019 while the remaining 50% is payable in 2020. How much income is taxable to Alonte in 2018, 2019 and in 2020? 2018 2019 2020 A. P100,000 None None B. 75,000 P12,500 P12,500 C. 25,000 37,500 37,500 D. 50,000 50,000 Correct Answer: B

2018 Face value Less: Discount (P100,000 x 25%) Taxable income

P100,000 25,000 75,000

2019 Face value Less: Amount reported as income in 2018 Amount reportable in 2019 and 2020 x Portion paid in installment Income reportable in 2019

100,000 75,000 25,000 50% 12,500

2020 Amount of reportable in 2019 and 2020 x Portion paid in installment Income reportable in 2020

25,000 50% 12,500

17. An individual taxpayer had the following data: 2019 Income before write-off of bad debt Less: Bad debt written off Income after bad debt 2020 Amount recovered

Case 1 P370,000

Case 2 P270,000

Case 3 P370,000

40,000 330,000

80,000 190,000

155,000 215,000

P40,000

30,000

150,000

The taxable amount on the recovery of bad debt previously deducted is

A. B. C. D.

Case 1 P40,000 40,000 30,000 30,000

Case 2 P30,000 10,000 80,000 None

Correct Answer: B Taxable income of P250,000 and below is not taxable.

Case 3 P150,000 115,000 55,000 150,000

18. Mrs. Lucena was insured under an endowment policy with a value of P500,000. Total premiums paid by her during the term of premium payments on the policy was P490,000 from which there was a return of premiums of P40,000. At the maturity of the policy, Mrs. Lucena received P500,000. The income of Mrs. Lucena under the policy is (RPCPA) A. B. C. D.

Zero P500,000 P10,000 50,000

Correct Answer: D Amount of proceeds received Less: Net premiums paid (490,000 – 40,000) Income under the policy

P500,000 450,000 50,000

Sonia took a life insurance from Sunstar Insurance Company, with her husband Noli as the beneficiary. Under the policy, Sunstar will pay Sonia the amount of P500,000 when the policy matures, or to her beneficiary husband in case she dies before the maturity. Sonia will pay P10,000 annually for 20 years. 19. Assuming that the policy matured when Sonia reached 50 years old and she received the entire P500,000 from the insurer, how much income should she report? A. B. C. D.

P500,000 200,000 P300,000 None

Correct Answer: C Proceeds from insurance Less: Amount of premiums paid (P10,000 x 20) Taxable amount

P500,000 200,000 300,000

The proceeds of life insurance are taxable if the insured outlives the policy. However, the total amount of premiums paid are to be deducted from the proceeds because they are considered as return of capital. 20. Assume that Sonia died after 10 years of paying premium. How much income should be reported to the BIR? A. B. C. D.

P500,000 100,000 P400,000 None

Correct Answer: D The proceeds of P500,000 is not taxable because it is considered more as an indemnity rather than as gain or profit.

Paulo insured his life with an insurance company. Under the contract, he will pay a monthly premium of P2,000 for 10 years. In case of death before the 10th year, his beneficiary will receive an indemnification in the amount of P150,000. If he still living on the 10th year, he will receive the face value of P500,000.

21. If Paulo dies on the 5th year, his beneficiary will report an income of A. B. C. D.

P500,000 150,000 P260,000 Exempt

Correct Answer: D Whenever the insured in a life insurance policy dies, the entire amount of proceeds received from an insurance company is exempt from tax.

22. Suppose Paulo dies on the 5th year and his beneficiary was offered to receive the P150,000 in lump sum or to receive it at P20,000 a month for ten (10) months and the beneficiary chose the 2nd option, he will report an income of A. B. C. D.

P500,000 150,000 P50,000 Exempt

Correct Answer: C Total amount to be received (20,000 x 10) Less: Face value Taxable amount / Interest Less: Face value Taxable amount / Interest

P200,000 150,000 50,000 150,000 50,000

23. Suppose Paulo survived the policy and was able to receive P500,000, he will report an income of – A. P500,000 B. 260,000 C. P150,000

D. None Correct Answer: B Amount of proceeds Less: Premiums paid Taxable amount

P500,000 240,000 260,000.

24. An accident attributed to the negligence of the driver of Superman Lines resulted in the death of Richard’s wife, physical injuries to Richard that prevented him from working for two (2) months, and the total wreck of his brand new car which he had bought for P1,650,000. In an action for damages, the court awarded to Richard the following P140,000 – Injuries to Richard consisting mainly the loss of his left leg/ 80,000 – Two months’ salary of Richard. 120,000 – For the death of his wife. 100,000 – Moral damages for the physical suffering and mental anguish. 1,800,000 – For the loss of his car, the value of which had increased. Based on the foregoing, Richard should report income of – A. B. C. D.

P190,000 680,000 P230,000 240,000

25. Frances Corporation gave the following fringe benefits to its employees: To supervisory employees To managerial employees To rank and file employees

P220,000 170,000 60,000

The entry to record the above transaction is – A. Fringe benefits tax Fringe benefit expense Cash Fringe benefit tax payable

P157,500 450,000

B. Fringe benefits tax Fringe benefit tax payable

210,000

C. Fringe benefits tax Fringe benefit tax payable

650,000

P450,000 157,000

210,000

650,000

D. Fringe benefit tax expense Fringe benefit expense Cash Fringe benefit tax payable

210,000 450,000 450,000 210,000

Correct Answer: D 26. After working for 30 years and due to old age, Rufino retired from his employment on December 31, 2020 as rank-and-file employee of Tumagay Corporation. As a consequence of his retirement, he received the following from his employer: Basic salary for 2020 13th month pay Anniversary bonus Loyalty award Retirement pay Based on the above data, the amount subject to tax is – A. B. C. D.

P250,000 257,500 P252,500 1,037,500

Correct Answer: A Salary Add: Taxable other benefits 13th month pay Anniversary bonus Loyalty award Total other benefits Less: Exemption Taxable amount

P250,000 P25,000 2,500 10,000 37,500 90,000

______ 250,000

Mulry had the following data from his employment in 2019: Monthly salary, at gross Taxes withheld Pag-ibig fund contributions Union dues Philhealth contributions SSS premiums 13th month pay Mid-year bonus Loyalty award

P24,000 8,000 1,500 2,400 720 4,480 24,000 12,000 5,000

27. The non-taxable compensation income if Mulry is a rank-and-file employee is A. B. C. D.

P5,100 50,100 P29,000 None

Correct Answer: B Pag-ibig fund contributions Union dues Philhealth contributions SSS premiums Other benefits: 13th month pay Mid-year bonus Loyalty award Non-taxable compensation income

P1,500 2,400 720 4,480 P24,000 12,000 5,000

41,000 50,100

28. The gross compensation income of Mulry in 2019 Is – A. B. C. D.

P144,000 150,000 P329,000 138,900

Correct Answer: C Basic salary (P24,000 x 12) Other benefits Gross compensation income

P288,000 41,000 329,000

29. The taxable compensation income is A. B. C. D.

P247,000 278,000 P329,000 138,900

Correct Answer: B Basic salary Less: Mandatory contributions Taxable compensation income

P288,000 9,100 278,900

30. Three taxpayers have the following data:

Monthly basic pay Holiday pay Overtime pay Hazard pay Night shift differential pay Total pay for the month

Alcanzo P7,254 435 1,256 8,945

Barrientos P6,431 1,459 1,686 9,576

Corporal P20,546 2,543 1,000 24,089

Who of the above taxpayers is/are exempt from income tax? A. B. C. D.

Alcanzo only Barrientos and Corporal Alcanzo and Barrientos Corporal only

Correct Answer: C The basis of the computation of the minimum wage rates prescribed by law shall be the normal working hours which shall not be more than eight (8) hours a day....