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Multiple Choice
Identify the choice that best completes the statement or answers the question.
a. I, II and III
b. I and III only
c. II only
d. I only
____ 7. Ronald and Bev, husband and wife are both employed in Shell Corporation. After office hours, they jointly
manage an internet shop at the ground of their house. The internet shop is registered in the name of both
spouses.
Which of the following is the correct way to prepare their income tax return?
a. Ronald will declare his compensation income and Bev will declare hers. The income from
the internet shop shall be equally divided between them. Ronald will file one income tax
return to cover all the income of both spouses, and the tax is computed on the aggregate
taxable income of the spouses.
b. Bev will declare the combined compensation income of the spouses, and Ronald will
declare the income from the coffee shop.
c. All the income will be declared by Ronald alone, because only one consolidated return is
required to be filed by the spouses.
d. Ronald will declare his own compensation income and Bev will declare hers. The income
from the internet shop shall be equally divided between them. Each spouse shall be taxed
separately on their corresponding taxable income to be covered by one consolidated return
for the spouses.
____ 8. By specific provisions of law, which of the following need not appear in a public instrument?
a. a contract of agency, for the sale of a piece of land or any interest therein, in order to
consider the sale by the agent as valid.
b. a contract of partnership having a capital of P3,000 or more, in money or property.
c. a pledge, describing the thing pledged and the date of the pledge, in order to be effective
against third persons.
d. an assignment of credit, right or action involving real property in order to produce an
effect against third persons.
____ 9. Joan, a Filipino citizen engaged in the real estate business, filed his 2011 income tax return on March 15,
2012. On December 2012, he left the Philippines as an immigrant to join his family in Canada. After
investigation of said return, the BIR issued a notice of deficiency income tax assessment on April 15, 2014.
Joan returned to the Philippines as a balikbayan on December 8, 2014. Finding his name as a delinquent
taxpayer, he filed a protest against the assessment on the ground that he did not receive the notice of
assessment and that the assessment had prescribed.
How much is the income tax due and payable using the optional standard deduction?
a. 24,000
b. 59,400
c. 63,000
d. none of the choices
____ 11. Among the nature of taxation is that it is an inherent power being an attribute of sovereignty. Which among
the following is not among its manifestation as such inherent power?
a. there should be no improper delegation of the power to tax
b. courts not issue an injunction to enjoin the collection of taxes
c. the State has the right to select the subjects and objects of taxation
d. taxes may be imposed even without a constitutional grant
____ 12. Henry, subscribed 15,000 shares in the capital stocks of Joel Corporation. He paid 50% of the 15,000 shares.
Henry asked the Corporate Secretary to issue him the corresponding stock certificate representing the 50% of
what he already paid. The Corporate Secretary of the corporation refused. Was the Corporate Secretary
correct?
a. The Corporate Secretary cannot refuse because it is his legal duty to issue a stock
certificate corresponding to the number of shares actually subscribed regardless of the
actual payment.
b. The Corporate Secretary cannot refuse because a stock certificate can be issued
corresponding to the percentage of shares which were paid.
c. The Corporate Secretary is correct because the Corporation Code provides that no
certificate of stock shall be issued to a subscriber until the shares as subscribed have been
fully paid.
d. The Corporate Secretary cannot refuse because a certificate of stock can be issued
provided it is indicated in the certificate the actual percentage of what has been paid.
____ 13. The Commissioner of Internal Revenue may abate or cancel the tax liability when
I The administration and collection costs involved do not justify the collection of
the amount due
II A reasonable doubt as to the validity of the claim against the taxpayer exists
III The tax or any portion thereof appears to be unjustly or excessively assessed
IV The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax
a. Only I
b. I and II
c. I and III
d. I and IV
____ 14. A promissory note which does not have the words or order or or bearer will render the promissory note
non-negotiable, and therefore
a. the holder can become holder in due course
b. the promissory note can just be delivered and the maker will still be liable.
c. the note can still be assigned and the maker made liable
d. it will render the maker not liable
____ 15. Payment made to a third person is valid to extinguish the obligation of the debtor to the creditor in the
following cases, except
a. When through the creditors conduct, the debtor was led to believe that the third person
had authority to receive payment
b. When the third person is subrogated to the rights of the creditor
c. When the creditor ratifies the payment to the third person
d. After payment to the creditor, the third person acquires the creditors right
____ 16. N, R and J solidarily bound themselves to deliver to S a Honda motorcycle valued at P 60,000. The obligation
was not fulfilled through the fault of J. Thereupon, S filed an action in court against N and the court awarded
P 72,000 to S representing the value of the motorcycle plus damages. Which of the following situation is
valid?
a. S has to collect P 24,000 each from N, R and J to satisfy the courts award of P 72,000
b. N can refuse to pay the penalty because it should be charged against J, the guilty party
c. If N pays S the P 72,000, N can collect R and J P 24,000 each
d. If S succeeds in collecting the P 72,000 from N, N in turn can collect from R P 20,000 and
from J P 32,000
____ 17. Roger Company is exempt from VAT under Section 109 because its gross receipts never exceeded
P1,500,000. It is subject to the 3% percentage tax under Section 116 of the Tax Code. It files a Notice of
Availment of the Option to pay the tax through withholding process. It furnishes a copy of the notice to its
withholding agents payors and its RDO as well as the RDOs of its withholding agents payors. The following
selected data are made available by Roger Company.
I Sales to customers who bought the goods in the course of trade or business,
net of 3% withholding tax, P10,000
II Sales to customers who bought goods not in the course of business, P15,000.
How much is the percentage tax payable after deducting the withholding percentage tax?
a. 450
b. 0
c. 741
d. 299.73
____ 18. An individual engaged in business earned net income which is less than his personal and additional
exemptions during the year. Is he required to file an income tax return?
a. no, because individual taxpayers whose gross income is less than his personal exemptions
need not file returns.
b. yes, because he still incurs income tax liabilities notwithstanding the foregoing facts
c. yes, because he is required to file a tax return notwithstanding such loss
d. no, because he is not liable for any tax
____ 19. The provisions of the family code require the transfer of the share of the guilty spouse of his/her share in the
community property in favor of the innocent spouse, in effect causing a transfer of the property. The siad
transfer is
a. subject to Philippiine donors tax due to the donative intent
b. not subject to the Philippine donors tax due to lack of donative intent
c. subject to Philippine donors tax becuase there was a transfer of property for inadequate
consideration
d. not subject to the Philippine donors tax due to a provision of the Family Code
____ 20. Gil worked for a manufacturing firm. Due to business reverses, the firm offered a voluntary redundancy
program in order to reduce overhead expenses. Under the program, an employee who offered to resign would
be given separation pay equivalent to his 3 months basic salary for every year of service. Gil accepted the
offer and received P400,000 as separation pay under the program.
After all the employees who accepted the offer were paid, the firm found its overhead still excessive. Hence,
its adopted another redundanct program. Various unprofitable departments were closed. As a result, Gil was
separated from the service. He also received P400,000 as separation pay. Which among the following
statements is correct?
a. Gils separation pay is not subject to income tax
b. Gils separation pay is excluded from his gross income
c. Gils separation pay is subject to income tax
d. Gils separation pay is excluded from gross income
____ 21. SIMI, a corporation registered in Australia, has a 50 MW electric power plant in Mindoro. Aside from SIMIs
income from its power plant, which among the following is considered as part of its income from sources
within the Philippines?
a. interests earned on it dollar deposits in a Philippine bank under the Expanded Foreign
Currency Deposit System
b. royalties from the use in India of generator sets designed in the Philippines by its
engineers
c. dividends from a 2 year old Australian subsidiary with operations in Kenya but derives
60% of its gross income from the Philippines
d. gains from the sale to an Quezon power plant of generators bought from the US
____ 22. Jonas Joson, a manager in Splash Corporation, is given a free trip to the US with his wife and family. The
Company paid for all of the expenses of the said trip. He would be compelled to report the trip in his personal
income tax return as
a. professional fees
b. no item of the trip and the tax paid should be reported in his ITR
c. both the trip and the fringe benefits tax paid would be recorded in his ITR
d. additional compensation income
____ 23. Which of the following is not for the benefit of the taxpayer?
a. substantiation rule
b. all events test
c. optional standard deduction
d. cohan rule
____ 24. Jomel has been an employee of San Miguel Corporation for 19 years. On April 1, 2015, Jomel will celebrate
his 49th birthday and, on the same day, retire from his company. Jomels retirement benefits will
a. be subject to tax since he is only 49 years old
b. be tax exempt
c. be subject to tax since he has only been employed for 19 years
d. be either exempt from or subject to income tax depending on whether the retirement plan
is BIR registered.
____ 25. Katie is a thief who is under obligation now to return the car to the owner of Tom. The car was lost through
an accidental fire. The obligation will
a. be extinguished because an accidental fire is always a fortuitous event.
b. not be extinguished because the obligation proceeds from a criminal offense hence Katie
will still have to pay the price of the car.
c. be extinguished because not all persons can avail of the remedies provided by law
d. be extinguished because the value of the car will be converted into the number of days
Katie will serve in prison.
____ 26. The NIRC requires that ordinary and necessary deductions should be deducted in the income tax computation
of taxpayers, when
a. the deduction is paid
b. the taxpayer needs to record the expense
c. the deduction is accrued
d. the deduction is both paid and accrued
____ 27. Jane, a dealer of jewelry sold one jewelry which she purchased in 2011 at a cost of P30,000. She sold the car
on the following terms:
All the three (3) were not qualified to retire under the BIR-approved pension plan of the corporation.
a. I only
b. I, II and III
c. II and III only
d. I andd II
____ 36. The taxable income before income tax of Julie Corporation for the current year was P500,000. During the
year, the Corporation received the following refund of taxes paid in previous years and recoveries of accounts
written off, of which were credited to miscellaneous income:
How much would be the income tax payable of the corporation for the current year?
a. 160,000
b. None of the above
c. 168,000
d. 130,500
____ 37. A taxpayer received a certain sum of money erroneously through the crediting of his bank account. The
taxpayer knew of this error and informed the bank which did nothing in relation to the said error. The
taxpayer then prepared his income tax return and did not include the amount erroneously received as part of
his income for the year. No mention was made on this matter in his financial statements or income tax return.
The said constitutes
a. basis for the imposition of donors tax
b. not a basis for fraud because the money was not owned by the taxpayer
c. willful intent to evade taxes which can constitute fraud
d. failure to file a return
____ 38.
Statement 1 Symbiotic relation is the reason why the government could impose taxes on
the incomes of resident citizens derived from sources outside the Philippines
Statement 2 Jurisdiction is the reason why citizens must provide support to the state so
the latter could continue to give protection.
A Employees who are at least 50 years of age and has 10 years of service
at the time of termination of employment
B Emplpyees who do not meet either the age or length of service of DMCI
plans to give the following:
For category A employees, the benefits under the BIR approved plan plus an ex gratia payment of 1 month for
every year of service.
The company asks you for advice. Which among the following shall you give?
a. The payments received by all of the employees are excluded from gross income.
b. Only the employees who are at least 50 years of age and has 10 years of service at the time
of termination of employment could exclude whatever they receive from their gross
income
c. The benefits received by category A employees from the BIR approved plans are excluded
from gross income the ex gratia payment of 1 month for every year of service should be
included in their gross income.
d. The one month for every year service oayment received by category B employees are not
excluded from their gross income
____ 42. Dianne issued a promissory notes which states, I promise to pay Y or order P100,000 or 1 unit of Kia Pride.
Which statement is most accurate?
a. The promissory note is an invalid instrument because there is more than one form of
payment.
b. The promissory note can be negotiated by way of delivery.
c. The promissory note is non-negotiable because the option as to which form of payment is
with the maker.
d. The promissory note is negotiable because the forms of payment are clearly stated.
____ 43. Philip, the President of Josh Corporation, was authorized by the Board of Directors of Josh Corporation to
obtain a loan from Joey Bank and to sign documents in behalf of the corporation. Philip personally negotiated
for the loan and got the loan at very low interest rates. Upon maturity of the loan, Josh Corporation was
unable to pay. Which statement is most accurate?
a. Because Philip was personally acting in behalf of the Corporation, he can be held
personally liable.
b. Philip, as President, cannot be personally held liable for the obligation of the corporation
even though he signed all the loan documents, because the loan was authorized by the
Board.
c. Joey Bank can choose as to who it wants to hold liable for the loan.
d. If Josh Corporation cannot pay, Philip can be held subsidiarily liable.
____ 44. Jones acted as an accommodation party in signing as a maker of a promissory note. Which phrase best
completes the sentence. This means that Jones is liable on the instrument to any holder for value.
a. provided Jones received consideration for acting as accommodation party.
b. for as long as Jones did not receive any consideration for acting as accommodation party.
c. even though the holder knew all along that Jones is only an accommodation party
d. for as long as the holder does not know that Jones is only an accommodation party
____ 45. The optional standard deduction is applicable under the National Internal Revenue Code which provides that
taxpayers shall be allowed the following as an optional deduction in lieu of the itemized deduction.
a. 40% optional standard deduction for both individuals and corporations with individuals
based on their gross sales or receipts while corporations would be based on gross income
b. 10% optional standard deduction based on gross receipts for individuals and 40% OSD for
corporations based on gross income
c. 10% optional standard deduction based on gross income for both individual and
corporations
d. 40% optional standard deduction based on gross receipts for both individual and
corporation
____ 46. A resident citizen, married with 2 qualified dependent children has the following income and expenses for the
year 2014:
MULTIPLE CHOICE
Choices a and b. Gil voluntarily resigned, hence the separation pay he received, not being for a cause beyond
his control, is not excluded from gross income. Furthermore, the separation pay is not also considered as
tax-free retirement because there is no showing that he is 50 years or over, that he has rendered at least 10
years service with his employer, and he has not previously availed of the tax-free retirement.
21. ANS: D TOP: Income taxation corporation
22. ANS: B TOP: Income tax individuals
23. ANS: A TOP: General principles of taxation
24. ANS: A TOP: Income tax individuals
25. ANS: B TOP: Obligations
26. ANS: C TOP: Income tax individuals
27. ANS: B
SOL:
Selling price 120,000
Less: cost 30,000
Ordinary gain 90,000
Gain to be recognized (90,000/120,000 x 40,000) 30,000
Income can be reported in installment because it involves a sale by a dealer of a personal property.
TOP: VAT
33. ANS: D TOP: Income tax individuals
34. ANS: D TOP: Income tax individuals
35. ANS: C TOP: Income tax individuals
36. ANS: D
SOL:
Taxable income before income tax 500,000
Refund of income tax (50,000)
Bad debt recovered (disallowed as deduction) (15,000)
Adjusted taxable income 435,000
Tax rate 30%
Income tax payable 130,500