Polytechnic University of the Philippines Final Departmental Examination

College of Accountancy and Finance ACCO 2033- Income Taxation

Sta. Mesa, Manila 2nd Semester, S.Y. 2014-2015

Part I – Theories (30 Questions, 1 Point Each)

1. A corporate taxpayer is different from an individual taxpayer in that a corporate taxpayer

a. may adopt either fiscal or calendar year c. is limited to adopting a calendar year
b. is limited to adopting a fiscal year d. is not required to file quarterly income tax returns

2. It is a branch established in the Philippine by multinational companies and which acts as a supervisory, communications, and
coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific.
a. Regional Operating Headquarters c. Resident Foreign Corporations
b. Regional Area Headquarters d. Non-Resident Foreign Corporations

3. Whenever applicable, how many taxable years can the net capital loss carry-over be allowed?
a. 1 year b. 2 years c. 3 years d. 5 years

4. A proprietary educational institution cannot be liable for

a. Minimum Corporate Income Tax c. Branch Profit Remittance Tax
b. Capital Gains Tax d. Final Income Tax on Passive Income

5. Guidant Resources Corporation, a resident corporation organized in Norway, has a 50-Megawatt electric power plant in San Jose,
Batangas. Aside from Guidant’s income from its power plant, which among the following is considered as part of its gross income from
sources within the Philippines?
a. Gains from sale of generators bought from the United States to an Ilocos Norte power plant
b. Interests earned on its dollar deposits in BDO under the Expanded Foreign Currency Deposit System
c. Dividends from XYZ, Inc., a domestic corporation
d. Royalties from the use in Brazil of generator sets designed in the Philippines by its engineers.

6. Income tax payments to a foreign country made by a resident foreign corporation may be claimed as
a. allowed deduction c. either allowed deduction or tax credit
b. tax credit d. neither allowed deduction nor tax credit

7. Charitable contributions provided to the World Health Organization

a. are not deductible c. are deductible, but subject to limitation
b. are deductible in full d. are not reported in the tax return

8. In the application of improperly accumulated earnings tax, which of the following would not be considered
a. Corporate expansion programs c. Prohibition under a loan covenant
b. Liabilities for product warranty d. Increase in working capitalization

For the purposes for the improperly accumulated earnings, the term ‘reasonable needs of the business’ includes the reasonably anticipated
needs of the business such as:

1. Retirement of business debts/bonds 3. Expansion of business facilities

2. Working Capitalization increase 4. Betterment, improvements & repairs of properties

9. It refers to a corporation whose main activities consist of buying and selling stocks, securities, real estate or other properties, which also
derives income from market fluctuations.
a. Holding Company c. Investment Company
b. Offshore Banking Unit d. Local Stocks Exchange

Holding Company refers to a corporation having practically no activities other than holding property and collecting income therefrom
or investing therein

10. Which of the following government-owned and/or -controlled corporations is subject to tax?
a. Philippine Charity Sweepstakes Office (PCSO) c. Philippine Health Insurance Corporation (PhilHealth)
b. Philippine Gaming Corporation (PAGCOR) d. Social Security System (SSS)

11. Which of the following is correct regarding the taxability of a regional area headquarters and its employees?
a. The regional area headquarters is exempt from tax, as well as its employees.
b. The regional area headquarters is taxed at the rate of 15%, as well as its employees.
c. The regional are headquarters is exempt from tax, but its employees are taxed at the rate of 15% of their gross
compensation income.
d. The regional area headquarters is taxed at the rate of 15% of its taxable net income while its employees are exempt from tax.
12. Whenever applicable, within how many taxable years can the net operating loss carry-over be allowed?
a. 1 year b. 2 years c. 3 years d. 5 years
13. Which of the following is correct regarding the taxability of a general professional partnership?
a. The partnership is exempt from tax, as well as the partners.
b. The partnership is taxed as a corporation, while the partners are exempt from tax.
c. The partnership is exempt from tax, but the partners are liable for basic income tax.
d. The partnership is taxed as a corporation, while the partners are liable for final income tax.

14. Final withholding taxes are different from creditable withholding taxes in that final withholding taxes
a. are considered as tax credit.
b. are added back as part of the gross income.
c. are to be reported by the income payor and not by the income earner.
d. are to be reported by the income earner and not by the income payor.

15. Whenever in a taxable year, the total tax credits exceed the tax due, the difference
a. should be paid by the taxable year.
b. can be claimed as tax credit.
c. can be claimed as a tax refund.
d. can be claimed either as a tax credit or as a tax refund.

16. Which of the following taxes can be included as part of allowed deductions?
a. Income Tax c. Donor’s Tax
b. Taxes paid to a foreign country d. Special assessment

17. If a corporation deals in capital assets, the resulting gain is subject to

a. Basic Income Tax
b. Final Income Tax
c. Either Basic Income Tax or Final Income Tax
d. Neither Basic Income Tax or Final Income Tax

18. Which of the following corporations may be held liable for improperly accumulated earnings tax?
a. Banco De Oro, a universal banking corporation
b. PhilAm Life Insurance Corporation, a private insurance company
c. Philex Mining Corp., a publicly-held mining corporation
d. Goldilocks Bakeshop, Inc., a food manufacturing corporation
In general, the Improperly Accumulated Earnings Tax shall apply to every domestic corporation formed or availed for the purpose of avoiding
the income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate
instead of being divided or distributed. However, the improperly accumulated earnings tax as provided for under the Tax Code shall not apply
to the following corporations:

1. Publicly-held corporations
2. Banks and other non-bank financial intermediaries
3. Insurance Companies

19. Relief from liability for the minimum corporate income tax may be claimed for the following reasons, except
a. Insufficient working capital c. Legitimate business reserves
b. Prolonged labor dispute d. Force majeure

20. Whenever applicable, a corporation which chooses the optional gross income tax cannot revert back to ordinary income taxation for a
period of
a. 1 year b. 2 years c. 3 years d. 5 years

21. In determining the improperly accumulated earnings, any net operating loss carry-over claimed by the corporation should be
a. ignored. c. deducted from the taxable net income.
b. added to the taxable net income. d. added to the taxable gross income.

22. The income of co-ownership in which the activities of the co-owners are merely the preservation of the property and collection of the
income from the property is
a. taxed as a corporation. c. subject to final income tax.
b. taxed as an individual. d. tax-exempt.

A co-ownership shall not be subject to income tax if the activities of the co-owners are limited to the preservation of the property and the
collection of the income therefrom. In such cases, the co-owners who are taxed individually on their distributive share (actually or constructively
received) in the income of the co-ownership.

23. The venturer’s share in the income of a joint venture that is formed to engage in petroleum, coal, geothermal, and other energy operations
pursuant to an operating or consortium agreement under a service contract with the government is
a. subject to basic income tax as it will form part of the venturer’s gross income.
 b. subject to final income tax at the rate of 10%.
c. subject to final income tax at the rate of 20%.
d. not subject to tax.

24. All the property, rights, and obligations of a person which are not extinguished by his death and those which have accrued thereto since
the opening of the succession is referred to as
a. Estate. b. Trust. c. Bequest. d. Devise.

25. Under the loss limitation rule, capital losses can be deducted only up to the extent of capital gains. The loss limitation rule is applicable
a. to individual taxpayers only. c. to both individual and corporate taxpayers.
b. to corporate taxpayers only. d. to special corporations only.

26. In estate income taxation, distributions of income of the estate to the heirs and/or beneficiaries are treated as
a. allowed deduction from the estate gross income and exempt income on the part of the recipient.
b. allowed deduction from the estate gross income and income subject to basic income tax on the part of the recipient.
c. income subject to basic income tax on the part of the recipient but cannot be deducted from the estate gross income.
d. exempt income on the part of the recipient and cannot be deducted from the estate gross income.

27. Ordinary losses are different than capital losses in that ordinary losses
a. are deductible only up to the extent of ordinary gains.
b. are considered as part of allowed deduction regardless of the existence of ordinary gains.
c. are to be recognized only up to the extent of 50% if the ordinary loss has a holding period of more than 1 year.
d. are allowed only to be deducted in case of individual taxpayers.

28. With respect to its tax returns, a corporate taxpayer cannot make use of
a. Manual Filing system. c. Substituted Filing system.
b. Short-period return. d. Electronic Filing System.

29. The community tax is not

a. a personal tax. c. a local tax.
b. a national tax. d. to be paid by a corporation.

30. In determining the community tax liability of a person who is residing in the Philippines, income derived from sources outside the
Philippines
a. is not taxable.
b. is taxable in full.
c. is taxable, but subject to limitation.
d. is taxable, but only with respect to those who are citizens of the Philippines.

Part II – Theories (30 Questions, 1 Point Each)

Stumph provided you with the following information relative to the computation of Stumph’s taxable income:

Gross Income PHP 750,000.00

Business Expenses 400,000.00
Royalty Income 100,000.00

The business expenses of PHP 400,000.00 presented above includes the following charitable contributions:

Non-deductible charitable contributions PHP 50,000.00

Charitable contributions deductible in full 70,000.00
Charitable contributions subject to limitation 30,000.00

31. How much is the taxable net income if Stumph is a resident citizen?
a. PHP 450,000.00 b. PHP 400,000.00 c. PHP 350,000.00 d. PHP 330,000.00

32. How much is the taxable net income if Stumph is a domestic corporation?
a. PHP 500,000.00 b. PHP 505,000.00 c. PHP 400,000.00 d. PHP 350,000.00

33. How much is the taxable net income if Stumph is a non-resident foreign corporation?
a. PHP 850,000.00 b. PHP 750,000.00 c. PHP 450,000.00 d. PHP 350,000.00

Ross provided you with the following information relative to the computation of Ross’ taxable income:

2013 2014
Gross Income PHP 800,000.00 PHP 900,000.00
Business Expenses 300,000.00 200,000.00
 Capital Gains – Short-term 50,000.00 40,000.00
Capital Gains – Long-term 30,000.00 40,000.00
Capital Loss – Short-term 60,000.00 -
Capital Loss – Long-term 50,000.00 20,000.00

34. If Ross is a married resident citizen, how much is the taxable net income for 2014?
a. PHP 680,000.00 b. PHP 700,000.00 c. PHP 730,000.00 d. PHP 760,000.00

35. If Ross is a domestic corporation, how much is the taxable net income for 2014?
a. PHP 780,000.00 b. PHP 760,000.00 c. PHP 750,000.00 d. PHP 730,000.00

Hurley, Inc. bought a parcel of land in 2009 for PHP 7,000,000.00 as part of its inventory of real properties. In 2010, it sold the land for PHP
12,000,000.00, which was its fair market value. In the same year, it incurred a loss of PHP 6,000,000.00 for selling another parcel of land in
its inventory. These were the only transactions it had in its real estate business.

36. Which of the following is the applicable tax treatment?

a. Hurley shall be subject to a tax of 6% of PHP 12,000,000.00
b. Hurley could deduct its PHP 6,000,000.00 loss from its PHP 5,000.000 gain.
c. Hurley’s gain of PHP 5,000,000.00 shall be subject to the holding period.
d. Hurley’s PHP 6,000,000.00 loss could not be deducted from its PHP 5,000,000.00 gain.

For the current taxable year, Weekes, Corp. had the following information:

Gross Income from business PHP 3,000,000.00

Business Expenses 1,200,000.00
Net Operating Loss Carry-over from the previous year 300,000.00
Interest from long-term deposits 200,000.00
Interest from foreign currency deposit accounts 200,000.00
Dividends from a domestic corporation 100,000.00
Dividends from a foreign corporation 100,000.00
Royalty Income 100,000.00

All applicable taxes, basic and final, has been paid and/or withheld during the taxable year.

37. On the assumption that it is liable, how much is the improperly accumulated earnings tax?
a. PHP 193,500.00 b. PHP 194,500.00 c. PHP 195,500.00 d. PHP 197,500.00

38. On the assumption that it is available, and Weekes Corp. elects to be liable, how much is the optional gross income tax?
a. PHP 300,000.00 b. PHP 310,000.00 c. PHP 450,000.00 d. PHP 465,000.00

Keuning, Inc., a corporation formed 10 years ago, had the following quarterly non-cumulative information for the current taxable year:

January – March April – June July – September October – December

Gross Income PHP 4,000,000.00 PHP 12,500,000.00 PHP 5,000,000.00 PHP 6,000,000.00
Business Expenses 3,670,000.00 12,130,000.00 4,200,000.00 5,800,000.00
Withholding tax at source 20,000.00 30,000.00 40,000.00 35,000.00

There is an excess minimum corporate income tax from the prior year amounting to PHP 30,000.00. There is also an excess tax credit from
the prior year amounting to PHP 10,000.00.

39. How much is the income tax still due for the 3rd quarter?
a. PHP 30,000.00 b. PHP 50,000.00 c. PHP 80,000.00 d. PHP 90,000.00

40. How much is the income tax still due for the final adjusted return?
a. PHP 55,000.00 b. PHP 65,000.00 c. PHP 95,000.00 d. PHP 105,000.00

Flowers, Inc. had the following information for the current taxable year:

Philippines Abroad
Gross Income/billings/receipts PHP 3,000,000.00 PHP 1,000,000.00
Business Expenses 1,000,000.00 500,000.00
Interest from bank deposits 200,000.00 100,000.00
Royalty income 100,000.00

41. How much is the income tax due if Flowers, Inc. is a proprietary educational institution?
a. PHP 200,000.00 b. PHP 210,000.00 c. PHP 250,000.00 d. PHP 260,000.00

42. How much is the income tax due if Flowers, Inc. is a resident international carrier?
a. PHP 75,000.00 b. PHP 102,500.00 c. PHP 135,000.00 d. PHP 184,500.00

43. How much is the income tax due if Flowers, Inc. is a non-residential lessor of aircraft?
 a. PHP 307,500.00 b. PHP 225,000.00 c. PHP 195,000.00 d. PHP 150,000.00

The following information pertains to the dividends that Urie received during the taxable year:

Portion of income
derived from the Amount of
Corporation Status Philippines dividends
Xerneas Corp. Domestic 100% PHP 50,000.00
Yveital Corp. Domestic 85% 70,000.00
Zygarde Corp. Domestic 40% 60,000.00
Diancie Corp. Foreign 90% 100,000.00
Hoopa Corp. Foreign 30% 90,000.00

44. How much is the total final income tax if Urie is a resident citizen?
a. PHP 12,000.00 b. PHP 18,000.00 c. PHP 22,000.00 d. PHP 36,000.00

45. How much is the total final income tax if Urie is a non-resident alien engaged in trade or business?
a. PHP 18,000.00 b. PHP 24,000.00 c. PHP 35,000.00 d. PHP 44,000.00

46. How much is the total final income tax if Urie is a domestic corporation?
a. -0- b. PHP 12,000.00 c. PHP 18,000.00 d. PHP 28,000.00

47. How much is the total final income tax if Urie is a non-resident foreign corporation?
a. -0- b. PHP 18,000.00 c. PHP 27,000.00 d. PHP 36,000.00

Wentz provided you with the following information relative to the computation of Wentz’ taxable income:

Gross income from business PHP 800,000.00

Business expenses 300,000.00
Interest expense
(not included in business expenses above) 60,000.00
Interest income on trade receivables 50,000.00
Interest income on peso deposit accounts 40,000.00
Interest income on dollar deposit accounts 30,000.00
Interest income on long-term deposit accounts 20,000.00

48. How much is the taxable net income if Wentz is a married resident citizen?
a. PHP 463,100.00 b. PHP 486,200.00 c. PHP 513,100.00 d. PHP 536,200.00

49. How much is the taxable net income if Wentz is a married non-resident citizen?
a. PHP 499,900.00 b. PHP 453,200.00 c. PHP 499,900.00 d. PHP 503,200.00

50. How much is the taxable net income if Wentz is a domestic corporation?
a. PHP 490,000.00 b. PHP 513,100.00 c. PHP 519,700.00 d. PHP 536,200.00

Vannucci, Inc., a corporation formed 10 years ago, had the following information:

2012 2013 2014 2015 2016

Gross Income PHP 3,250,000.00 PHP 100,000.00 PHP 1,500,000.00 PHP 1,000,000.00 PHP 1,000,000.00
Business Expenses 3,150,000.00 73,000.00 1,200,000.00 928,000.00 833,000.00
Withholding tax at source 5,000.00 2,000.00 3,000.00 4,000.00 5,000.00

51. How much is the income tax still due in 2014?

a. PHP 58,100.00 b. PHP 60,100.00 c. PHP 63,100.00 d. PHP 87,000.00

52. How much is the income tax still due in 2016?

a. PHP 43,500.00 b. PHP 45,100.00 c. PHP 48,500.00 d. PHP 50,100.00

Mr. Pat and Mr. Ner, both married resident citizens