UM Tagum College

Department of Accounting Education

Philippine Income Tax System (TAX1A)
Drill
April 20, 2018 Joe Mari N. Flores, CPA
TEST I: MCQ – THEORY: (1 point each) Choose the letter that correspond your answer.
1) The following, except one, is taxed on income earned within the Philippines only
a. Nonresident alien engaged in trade or business in the Philippines c. Resident alien
b. Resident Citizen d. Non-Resident Citizen
2) In case of conflict between tax laws and generally accepted accounting principles:
a. Both tax laws and GAAP shall be enforced; c. Tax laws shall prevail over GAAP;
b. GAAP shall prevail over tax laws; d. The issue shall be resolved by the courts;
3) The following are similarities of the inherent power of taxation, eminent domain and police power, EXCEPT one:
a. Are necessary attributes of sovereignty; c. Interfere with private rights and property;
b. Affect all person or the public; d. Are legislative in implementation;
4) A fundamental rule in taxation is that the property of one country may not be taxed by another country. This is
known as:
a. International Law c. International Inhibition
b. Reciprocity d. International Comity
5) Which of the following is not an element of direct double taxation?
a. Same taxes b. Same subject matter c. Same year d. Same amount

TEST II: MCQ – PROBLEM SOLVING: (3 points each) Show your solutions.
For items 1 – 4:
Michael Cruz, married with a legally adopted son, had the following data for the taxable year 2018:
Gross Income, Philippines P 490,600
Gross Income, South Korea 365,304
Expenses, Philippines 204,269
Expenses, South Korea 203,248
1. If the taxpayer is a Resident Citizen, How much is his tax due?
2. If the taxpayer is a Non-Resident Citizen, How much is his tax due?
3. If the taxpayer is a Non-Resident Alien Engaged to trade, How much is his taxable income?
4. If the taxpayer is a Non-Resident Alien Not Engaged to trade, How much is his tax due?

For items 5 – 7:
John Chung, resident Filipino citizen, married with 4 children, all minors, by his Filipino, fulltime housewife.
He prefers the itemized deduction for his business . He has the following data for the taxable year 2018:
Gross Sales from Business P8,000,000
Cost of Sales 5,500,000
Gross compensation income 800,000
Itemized deductions 750 000
Royalty for a musical composition 200,000
Winning from lotto 150,000
5. How much is the final tax on his passive income?
6. How much is the taxable income of Mr. Chung?
7. How much is the tax due of Mr. Chung?
8.How much is the business expenses deducted, If the taxpayer opted OSD?

9. Mr. Aguinaldo sold a residential lot located at MargaritaVillage, Tagum City with an area of 200 square meters
for P500,000. The said lot has fair market value of P350,000 and assessed value of P450,000 per tax declaration
and is valued at P2,000 per square meter as per BIR zonal valuation. How much is Mr. Aguinaldo’s capital gains
tax?

10. Mr. Negos Y. Ante has investment in the shares of stock of Shell Philippines which he acquired in year 2016
at a cost of P1,000,000. He sold it to his friend in January 15, 2018 at P1,100,000. His capital gains stock is