Gross Income

1. For income tax purposes, gains derived from the following transactions shall be recognized:

a. Transactions between related taxpayers

b. Illegal transactions

c. Both a and b

d. Neither a nor b

2. Which of the following compensation will be subject to graduated rates?

a. Basic salary whether or not the employee is a minimum wage earner

b. Basic salary only if the employee is not a minimum wage earner

c. 13th month pay and other benefits not exceeding P82,000

d. Fringebenefitsreceivedbysupervisoryor managerial employee

3. Which of the following items that reduces salaries of employees is not an exclusion from gross income?

a. GSIS or SSS Contributions

b. Pag-ibig Contributions

c. Labor Union Dues

d. None of the choices

4. One of the following compensation income of an individual taxpayer is not an exclusion from gross income:

a. Monetized vacation leaves not exceeding 10 days a year.

b. Separation pay of an employee who resigned from his employment.

c. Retirement benefits of an employee who has worked for an employer for at least 10 years, who at the time of retirement is not less than 50 years of age, and who avails of the retirement for the first time.

d. All of these.

5. Which of the following statements is incorrect?

a. Income from business is never subject to final withholding tax

b. Income from exercise of profession may be exempt from income tax

c. Income from business may be subject to capital gains tax

d. Income from exercise of profession may be subject to income tax

6. Which of the following dealings in property is subject to normal income tax?

a. Sale of ordinary assets

b. Sale of real property, located in the Philippines, classified as capital asset

c. Sale of shares in a domestic corporation sold outside the local stock exchange

d. All of the choices

7. Donald Trump received royalty fees from Viva Records Corporation, a domestic corporation, for his musical compositions under the album Theres no Other Way. Donald is an American composer and has never set foot in the Philippines. The royalty fee shall be subject to:

a. 15% final withholding tax

b. 20% final withholding tax

c. 25% final withholding tax

d. 5-32% graduated tax rate

8. Prizes and awards received shall be exempt from income tax when the following conditions are met, except

a. It is given in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement.

b. The recipient of the award or prize is not required to render substantial future services as a condition in receiving the prize or award.

c. The recipient of the award was selected without any action on his part to enter the contest or proceeding.

d. None of the above

9. Statement 1: Representation and transportation allowance given regularly on a monthly basis are not taxable fringe benefits but taxable as compensation income subject to basic tax under Sec. 24(A) of the Tax Code.

Statement 2: Expenses in connection with attending business meeting or convention in the Philippines such as food, beverages and transportation are nontaxable benefits of the employee

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

10. Pedro is a regular college professor of Mapagpala University. All tenured instructors and professors of the university regularly receive a fixed daily meal allowance of P250 per day for a total of twenty-six (26) working days per month. The meal allowance is:

a. Exempt from basic income tax

b. Subject to fringe benefit tax if the recipient is a rank and file employee

c. Subject to fringe benefit tax if the recipient is a managerial employee

d. Subject to basic income tax

11. Which of the following statements regarding thirteenth (13th) month pay is correct?

a. Thirteenth (13th) month pay and other benefits received by officials and employees of public and private entities are exempt from income tax and creditable withholding tax on compensation, provided that the total exclusion shall not exceed P90,000.

b. The excess of de minimis benefits over the ceiling would form part of an individual's gross income only if the total excess benefits including bonuses exceeds P90,000 and would be subject to income tax and applicable final withholding taxes.

c. Statements a and b are correct

d. Neither statement a nor b is correct

12. Proceeds of insurance taken by a corporation on the life of an executive to indemnify the laters beneficiaries against loss in case of his death is:

a. Exempt from income tax

b. Part of taxable income

c. Subject to final tax

d. Partly exempt, partly taxable

13. Under the global system of income taxation:

a. There is no need for classification of income as all taxpayers are subject to a single rate.

b. There are different categories of taxable income.

c. There are different tax rates.

d. Individuals are subject to different tax treatments.

14. If a corporation distributes its assets to its stockholders upon dissolution, this kind of corporate distribution will result in:

a. stock dividendc. cash dividend

b. property dividendd. liquidating dividend

15. Which among the following dividend income is tax exempt? Dividend income received from

I. A domestic corporation by a domestic corporation.

II. A domestic corporation by a resident foreign corporation.

III. A domestic corporation by a nonresident foreign corporation.

IV. A resident foreign corporation by a domestic corporation.

a. All of the abovec. I and II only

b. None of the aboved. I, II and III only

16. Which among the following dividend income is tax exempt?

I. Pure stock dividend

II. Pure liquidating dividend

a. I onlyc. I and II only

b. II onlyd. None of the choices

17. A cash dividend of P100,000 received by a taxpayer in 2017 from a foreign corporation whose income from Philippine sources is 40% of its total income is

Statement 1:partly taxable if he is a resident citizen.

Statement 2: Partly taxable if he is a non-resident alien

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 and 2 are true

18. Which of the following is taxable?

a. Interest on long-term deposit or investment by an individual taxpayer

b. Gain on sale of 10-year bond

c. Prize not exceeding P10,000

d. PCSO Lotto winnings not exceeding P10,000

19. Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in 2017 from Super Bowl Corporation, a foreign corporation doing business in the Philippines. The gross income of the foreign corporation from within and without the Philippines for the past three years preceding 2015 were as follows:

Source2014 2015 2016

PhilippinesP16,000,000P12,000,000P14,000,000

Abroad 8,000,000 14,000,00016,000,000

The amount of income subject to tax should be:

a. P0c. P157,500

b. P90,000d. P300,000

Deduction from Gross Income

Brianne Corporation has incurred rent expense amounting to P500,000. Brianne paid the lessor the gross amount of P500,000 without deducting 5% withholding tax. How much rent can Brianne claim as allowable deduction from its gross income?

a. P500,000 c. P475,000

b. P450,000 d. nil

RRO Corporation is engaged in the sale of goods and services with net sales/net revenue of P3,000,000 and P2,000,000 respectively. The actual entertainment, amusement and recreational (EAR) expense for the taxable year totalled P30,000.

How much is the deductible EAR expense?

a. P30,000 c. P25,000

b. P27,000 d. nil

Which of the following expenses is not deductible from gross income?

a. Salaries and wages of employees.

b. Entertainment, amusement and recreation expenses.

c. Rental expenses.

d. Bribes, kickbacks and other similar payments.

In the conduct of his business in 2013, Modesto found it necessary to give gifts to the government officials with whom he had official dealings.

a. These gifts are deductible expenses subject to the substantiation rule.

b. The value of the gifts, if de minimis, are allowed to be deducted.

c. Irrespective of the value, the gifts are considered as bribes and not allowed to be deductible.

d. These gifts are deductible if found to be necessary and properly supported by receipts

Roy borrowed money from the Bank amounting to P1,000,000 at an annual interest rate of 7%. He invested the money in deposit substitutes earning annual interest income of 8%. How much is the deductible interest?

a. P43,600 c. P70,000

b. P26,400 d. P80,000

Which of the following is not a requisite for taxes to be deductible?

a. Must have been paid or incurred within the taxable year.

b. Deductible only by the person/s upon whom the tax is imposed by law.

c. Must be in connection with the taxpayer's profession, trade, or business.

d. Must be imposed by the national government.

Which of the following is non-deductible?

a. Percentage tax on common carriers by land

b. Franchise tax

c. Overseas communications tax

d. Stock transaction tax

The term "net operating loss" shall mean

a. The excess of capital losses over capital gains deductible from ordinary income.

b. The excess of capital losses over capital gains not deductible from ordinary income.

c. The excess of allowable deductions over gross income.

d. The excess of capital losses over ordinary losses.

A retailer of goods has gross sales of P1,000,000 with a cost of sales amounting to P800,000. Assuming that the taxpayer is an individual and opted to claim optional standard deduction, how much is the taxable income?

a. P600,000 c. P120,000

b. P550,000 d. P80,000

A retailer of goods has gross sales of P1,000,000 with a cost of sales amounting to P800,000. Assuming that the taxpayer is a corporation and opted to claim optional standard deduction, how much is the taxable income?

a. P600,000c. P120,000

b. P550,000d. P80,000

The taxpayer is a domestic corporation:

Gross sales P9,350,000

Sales returns and allowances 250,000

Sales discounts 100,000

Interest income on trade notes receivable 150,000

Other income 50,000

Cost of sales 3,000,000

Operating expenses with vouchers and receipts 4,000,000

Operating expenses without vouchers and receipts 500,000

Interest income from savings deposit 80,000

Interest income from deposit under FCDS 125,000

Royalty income 100,000

How much is the taxable income using itemized deduction?

a. P1,675,000c. P1,700,000

b. P2,175,000 d. P2,200,000