1.

The term “Corporation” shall include:

I. Partnerships no matter how created or organized
II. Joint stock companies
III. Joint accounts (ceuntas en participacion)
IV. Associations
V. Insurance companies
VI. Regional operating headquarters of multinational corporations
a. I and II only
b. I, II and III only
c. I,II,III,IV and V only
d. All of the above

Answer: D

2. Which of the following is not treated as corporation?

a. General professional partnership
b. A joint venture or consortium formed for the purpose of undertaking construction
projects.
c. A joint or consortium for engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium agreement under a service contract
with the government
d. All of the above

Answer: D

 Generally, a Joint Venture is taxable as a corporation, unless it pertains to a joint venture

describe in “b” and “c” above
3. Statement 1: Partnerships, no matter how created or organized, are taxable as corporations for
income tax purposes.
Statement 2: Associations and mutual fund companies, for income tax purposes, are excluded
in the definition of corporations.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statement are correct
d. Both statement are incorrect
Answer: A
 “No matter how created” simply refer to how the partnership was established, either orally
or in writing.

4. Which of the following is not a taxable corporation?

a. Ana, Lorna and Fe agreed to contribute their money into s common fund to engage in
the business of buying and selling consumer goods. Their total investment amounted to
P300,000 and they did not bother to register their business with the DTI and the SEC.
 b. Pedro, Juan and Luna all certified public accountants, agreed to contribute their money
property and industry to a common fund with the sole intention of jointly exercising
their common profession. They have registered with the SEC.
c. Victorious Bus Company and California Bus Company owns separate franchise to
operate a public utulity covering the area of Northern Luzon. To achieve maximum
efficiency of utilizing their assets and to avoid the negative effects of competition, the
two companies agreed to pool their resources together and operate as a single
company.
d. Rody and Allan, lawyer and certified public accountants, respectively. agreed to
contribute their money, property and industry to a common fund to render service of
business process outsourcing.

Answer: B

 The partnership organized in “b” is a GPP, hence, non-taxable

5. Which is not Characteristic of corporate income tax.

a. Progressive tax
b. Direct tax
c. General tax
d. National tax

Answer: A

6. Which of the following is subject to income tax?

a. SSS and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Local Water Districts
d. Philippine Amusement and Gaming Corporation (PAGCOR)

Answer: D

7. One of the following is exempt from income tax

a. Proprietary educational institutions
b. Private cemeteries
c. Government educational institutions
d. Mutual savings bank
Answer: C

8. Statement 1: Corporations exempt from income tax are not subject to income tax on incomes
received which are incidental or necessarily connected with the purposes for which they were
organized and operating.
 Statement 2: Corporations exempt from income tax are subject to income tax on income of
whatever kind and character from any of their properties(real or personal) or from any other
activity conducted for profit, regardless of the disposition of such income.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statement are correct
d. Both statement are incorrect

Answer: C

9. Which of the following statements is incorrect? “Joint Stock Companies” are constituted when a
group of individuals, acting jointly, establish and operate business enterprise
a. Under an artificial name
b. With an invested capital divided into transferable shares
c. An elected board of directors, and other corporate characterisrics
d. Operating with formal government authority

Answer: D

10. A “Joint Account” is constituted when one interests himself in the business of another by/and
I. Contributing capital thereto.
II. Sharing in the profits or losses in the proportion agreed upon.
III. They are not subject to any formality.
IV. It may be privately contracted orally or in writing.
a. I and II only
b. I, II and III only
c. I, II, III and IV
d. None of the above

Answer: C

11. Statement 1: Joint ventures, regardless of the purpose by they were created, are generally
exempt from corporate income tax.
Statement 2: The share of a co-venturer corporation in the net income of tax exempt joint
venture or consortium is sibjected to corporate income tax.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statement are correct
d. Both statement are incorrect
Answer: B

12. Which of the following statements is correct?

 I. The term “ domestic “. When applied to a corporation, means created or organized in
the philippines or under the laws of a foreign country as long as it maintains a Philippine
branch.
II. A corporation which is not domestic may be a resident ( engaged in business in the
Philippines) or nonresident corporation (not engaged in business in the philippines)
III. Resident foreign corporations are subject to income tax based on net income from
sources within the philippines.
a. I only
b. II only
c. II and III only
d. I, II and III

Answer: C

13. Statement 1: Non-resident foreign corporation applies to a foreign corporation engaged in

trade or business within the philippines.
Statement 2: Resident foreign corporation applies to a foreign corporation not engaged in trade
or business in the Philippines.
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 & 2 are true

Answer: A

14. Which of the following is taxable based on income from all sources, within and without?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-resident Foreign Corporations
d. All of the choices

Answer: A

15. The term applies to a foreign corporation engaged in trade or business in the Philippines.
a. Resident foreign corporation
b. Nonresident foreign corporation
c. Multinational corporation
d. Petroleum contractor

Answer: A
1 . A domestic corporation had the following data on income and expenses during the year
2018:

Gross income, Philippines 10,000,000

Business expenses, Philippines 2,000,000
Gross income, China 5,000,000
Business expenses, China 1,500,000
Interest income, Metrobank, Philippines 300,000
Interest income, Shanghai Banking Corporation, China 100,000
Rent income, net of 5%withholding tax 190,000
How much was the income tax payable?

a. P3,540,000
b. P3,530,000
c. P3,440,000
d. P2,480,000

Answer: B

Solution:
Gross income, Philippines 10,000,000
Gross income, China 5,000,000
Business expenses, Philippines (2,000,000)
Business expenses, China (1,500,000)
Interest income, Shanghai Banking Corporation, China 100,000
Rent income, net of 5%withholding tax 200,000
(190,000/95%) ___________
Taxable net income 11,800,000
X RCIT % 30%
___________
Income Tax Due 3,540,000
Less. CWT on rental income (10,000)
___________
INCOME TAX PAYABLE 3,530,000
 2. Hananiah Corporation, a corporation engaged in business in the Philippines and abroad has
the following data for the current year:
Gross Income, Philippines 975,000
Expenses, Philippines 750,000
Gross Income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000

Determine the income tax due if the corporation is

Domestic Resident Foreign Corp. Non-resident Foreign Corp.
a. 116,800 72,000 320,000
b. 109,500 67,500 300,000
c. 312,000 515,850 116,800
d. 109,500 72,000 300,000

Answer: B

Solution:
Domestic RFC NRFC
Gross Income, Phil. 975,000 975,000 975,000
Expenses, Phil. (750,000) (750,000)
Gross Income, Malaysia 770,000
Expenses, Malaysia (630,000)
Interest on bank deposit 25,000
Taxable Income 365,000 225,000 1,000,000
Tax rate 30% 30% 30%
Tax Due 109,500 67,500 300,000

3. Ace, Inc., Philippines is engaged in research and development services and product development
related to computer and aircraft parts. During the year, Ace reported the following income and
expenses:
Sales 10,000,000
Cost of sales 4,000,000
Operating expenses 2,500,000
Interest income, net of final tax 200,000
Dividend income, tax-exempt 800,000

The income tax of Ace. Inc., Philippines would be

Sales 10,000,000
Less. COS 4,000,000
Gross income 6,000,000
Less. Operating Expenses 2,500,000
Net taxable income 3,500,000
X by: applicable tax rate 10%
Income tax due 350,000

4. The following data were provided by Air Jordan, an international air carrier doing business in the
Philippines.

Gross ticket sales in the Philippines P10,000,000

(Manila. – Macau flight)
Gross ticket sales in China (Manila. – Beijing flight) 5,000,000
Gross ticket sales in China (Beijing – Manila flight) 5,000,000
Gross ticket sales in japan (Tokyo- Manila flight) 3,000,000
Gross ticket sales in the Philippines (Manila _ L.A.)
 Passengers were transshipped in Tokyo to L.A. by another airline 8,000,000
 Estimated hours during the flight
 Manila to Tokyo-5 hrs;
 Tokyo to L.A.-15 hrs.)
Gross ticket sales in L.A., USA(Manila – L.,A.) 8,000,000
 Passeengers were transshipped in Tokyo to L.A. by a different
Plane of same airline company
 Estimated hours during the flight
 Manila to Tokyo-5 hrs;
 Tokyo to L.A,-15 hrs
Expenses, Philippines 5,000,000

Question: How much is the income tax due of Air Jordan?

 Answer: P625,000 computed as follows:

Gross ticket sales in the Philippines (Manila. –Macau flight) P10,000,000

Gross ticket sales in China (Manila. – Beijing flight) 5,000,000
Gross tickets sales in the Philippines (Manila – L.A. flight);
Manila to Tokyo only (P8M x 5/20) 2,000,000
Gross tickets sales in USA (Manila – L.A. flight) 8,000,000

Total Gross “Philippine” Billings P25,000,000

Income Tax Rate 2.5%

Income Tax Due P625,000

 Gross ticket sales in China were excluded because the flight did not originate in the Philippines
  Gross ticket sales in the Philippines for Manila to L.A. flight were apportioned or allocated by 5/2
because the flight is considered interrupted in Tokyo. Thus, only the amount proportionate to
Philippine to Tokyo flight should be included in the determination of GPB.

5. Case A (Related income > Unrelated income):

Infotech College is a private educational institution. It owns a six (6) storey building where the first 3
floors are being used for its operations and the other 3 floors are being rented by other entities. During
the taxable year, its icome and expenses are as follows:

Gross income from

Tuition fees P4,000,000
Rent income 1,000,000
Operating expenses 1,500,000
Determine the income tax due of infotech

 Answer: P350,000 (5M-1.5M) x 10%

Case B (Related income < Unrelated income):

Using the same data in Case A except that the income for the year amounted to P7,500,000. Determine
the income tax due of Infotech.

 Answer: P3,000,000

> (4M + 7.5-1.5M) x 30%

> The related income < unrelated income. Consequently, the educational
institution is subject to normal corporate tax of 30% based on net income.

6. Maikli Corporation has the following data:

2015 2016
Sales P1,700,000 P2,300,000
Cost of sales 1,050,000 1,425,000
Operating expenses 615,000 480,000

The income tax payable in 2015 is –

A. P 13,000 C. P 35,000
B. 12,250 D. 10,500
Answer: A

Gross income (1,700,000 – 1,050,000) 650,000

Less: Operating expenses 615,000
Taxable income 35,000
Rate of tax 30%
Normal income tax 10,500
MCIT (650,000 x 2%) 13,000
Tax payable (higher) 13,000

7. In Number 162, the income tax payable by Maikli Corporation in 2016 is –

A. P 118,500 C. P 116,000

B. 17,500 D. 137,500

Answer: C

Gross income (2,300,000 – 1,425,000) 875,000

Less: Operating expenses 480,000
Taxable income 395,000
Rate of tax 30%
Normal income tax 118,500
MCIT (875,000 x 2%) 17,500
Income tax (higher) 118,500
Less: Carry forward of excess MCIT (13,000 – 10,500) 2,500
Income tax payable 116,000

8. Na Dhale Corporation, a domestic corporation, had the following selected data:

YEAR GROSS INCOME EXPENSES
2014 P1,000,000 P1,200,000
2015 2,000,000 1,900,000
2016 3,000,000 2,950,000
2017 1,000,000 1,100,000
2018 980,000 500,000

The taxable income in 2018 was:

a. P380,000 c. P100,000
b. P0 d. P50,000
Answer: A

Solution:

2014 2015 2016 2017 2018

Gross Income P1,000,000 P2,000,000 P3,000,000 P1,000,000 P980,000
Expenses (1,200,000) (1,200,000) (2,950,000) (P1,100,000) (500,000)
NOLCO:
2014 (100,000) (50,000)
2017 (100,000)

Income(loss) (200,000) P0 P0 (P100,000) P380,000

 NOLCO may be deductible from gross income for the next three succeeding years only. The
remaining NOLCO of P50,000 from 2014 is already beyond the allowable 3-year period in 2018,
hence, no longer deductible.