1.

JB has earned the following income in 200A:

Salary as a professor, net of withholding tax of P50, 000 P370, 000
Professional fee as CPA, net 10% of P50, 000 P270, 000
Per Diem as a board of director P200, 000
Thirteenth month pay P35, 000
First prize in essay writing contest P50, 000
Sale of house and lot (capital asset) P500, 000

What is the amount of gross taxable compensation income subject to normal tax?
a. P420, 000 c. P425, 000
b. P620, 000 d. P625, 000

2. The following items of income are reported by Cute, a CPA:

Salary as an accountant P150, 000
Overtime pay 30,000
13th month pay and other bonuses 15,000
Audit retainers fee 60,000
Capital gains from sale of car 25,000

The total compensation from employment is

a. 180,000 c. 195, 000
b. 205,000 d. 255,000

3. Gorgeous reported the following separation pay:

First employment for 20 years at the age of 40 – resigned P300,000
Second employment for 10 years at the age of 50 –
- Retrenchment 200,000
Third employment for 10 years at the age of 60 –retirement 100,000

How much is the taxable separation pay?

a. P -0- c. P500,000
b. P300,000 d. P600,000

4. Benz works as the CEO of B Co. His compensation income of P50,000 per month. In January
31, 200B, he borrowed P300,000 from B Co. As a result, his monthly compensation income
is reduced by P25,000 starting February, as payment to his borrowing.

If on December 31, 200B, after payment of P25,000 salary net of loan amortization. B Co.
cancelled Benz’ indebtedness, how much is the latter’s compensation income in December
200B?
a. P25, 000 c. P75,000
b. P50,000 d. P100,000

5. A manufacturing business reported the following for its first year of operation:
Purchases of raw materials P540,000
Freight in 20,000
Raw materials, ending inventory 10,000
Direct labor 400,000
Factory Overhead 200,000
Work-in process, ending inventory 100,000
Finished goods, ending inventory 50,000
Sales 1,275,000
Freight out 12,000
Sales return 25,000
 Its gross business income is
a. P238,000 c. P228,000
b. P250,000 d. P188,000

6. Before starting to render his service, X collected an advance payment of P2,000 for the
acceptance of the job contract. When the required service from X was completed, X
received P8,000 cash service fee after deducting the P2,000 advance payment, plus an office
machine with cash price value of P3,000 and P2,500 cost to the seller.

The gross service income of X is

a. P15,000 c. P11,000
b. P13,000 d. P10,500

7. How much of the following amounts received in 200B will be included in tax return for the
year 200B?
Rent for year 200A P 80,000
Rent for year 200B 480,000
Rent for year 200C 40,000
Refundable deposit 120,000

a. P720,000 c. P560,000
b. P600,000 d. P520,000

On March 1, 200A, Claudette leases a portion of its commercial building to Mark with the
following terms:
Advance deposit P40,000
Monthly rental 20,000
Annual insurance premium to be paid by the lessee 6,000
Portion (10 mos.) of real estate tax to be paid by lessee 3,000/yr

The lease contract also stipulates that a 5% of Mark’s net revenue will be credited to
Claudette as commission. Mark’s net revenue during the year is P2,000,000.

8. Claudette’s 200A rent income would be

a. P 69,000 c. P247,500
b. P240,000 d. P347,500

9. Assume that the advanced deposit is restricted, the Claudette’s gross reportable taxable
income would be
a. P347,500 c. P207,500
b. P307,500 d. P169,000

10. The following information are available related to a 10-year lease contract which
commenced on June 30, 200B:
Cost of improvement put up by the lessee P180,000
Estimated useful life of the improvement 12 years
Date contemplated December 31, 200B

The reportable income from leasehold improvement for year 200B is

Outright Spread-Out
a. P180,000 P1,974
b. P180,000 P3,750
c. P180,000 P–0-
 d. P180,000 P3,947

11. The following are the income of a resident citizen for the period:
Interest Income from an investment in a 10-year bond 40,000
Interest Income from a 5-year time deposit in Philippine bank 50,000
Interest Income from expanded foreign currency by deposit 60,000
His taxable interest income is
a. 150,000 c. 40,000
b. 100,000 d. - 0 -

Pacman is a resident Filipino citizen, an investor, a song writer and an international singer.
He receives royalties within and outside the Philippines as follows:
Philippines Outside
Royalties from pain reliever invention 100,000 200,000
Royalties from musical compositions 200,000 300,000
Royalties from books 500,000 100,000

12. What is the amount final tax on royalty income?

a. 80,000 c. 140,000
b. 90,000 d. 280,000

13. What is the amount of royalty income subject to normal tax?

a. - 0 - c. 500,000
b. 300,000 d. 600,000

14. A domestic corporation received 500,000 cash dividend from a foreign corporation the
earning of which are70% earned in the Philippines. The taxable dividend income of the
domestic corporation is
a. 500,000 c. 150,000
b. 350,000 d. 100,000

15. Mario receives the following prizes and winnings during the taxable year:

First Prize in Talentadong Pinoy 10,000

2nd place in bicycle race 6,000
3rd place in chess tournament 15,000
4th place in a raffle draw 5,000
What is the total amount subject to normal tax?
a. 10,000 c. 31,000
b. 16,000 d. 36,000

16. The following information is available from the records of X,

Year1 Year2 Year3
Income (loss) before bad debts written of 100,000 (20,000) 50,000
Excluding bad debts recovery
Bad debts written of 25,000 10,000 5,000
Previous year’s write of, recover this year 30,000 8,000

For year 3, the total taxable income would be

a. 42,000 c. 48,000
b. 45,000 d. 50,000

17. In year 1, A company’s net operating income reported was 20,000. The amount is net of
100,000 operating expenses. Part of the operating expenses is 25,000 local taxes.
 In year 2, A company paid an income tax amounting to 12,000 and a VAT of 1,000. In year 3,
5,000 of year 1 local tax and 2,000 income tax were refunded. What amount of tax refund
should be reported as part of year 3 taxable income?
a. 8,000 c. 6,000
b. 7,000 d. 5,000

18. X received an annuity of 5,880, inclusive of 12% interest as part of the insurance plan
entered into by X. What amount of this annuity is taxable against X?
a. 5,880 c. 706
b. 5,250 d. 630

19. Mr. X received a letter from Mr. Y, his brother, to withdraw $1,000 from the PNB. The teller
of PNB, however, issued $10,000 to Mr. X in which the latter took the entire money and
spent $9,000 immediately. Assuming that the exchange rate is 50 per $1, how much is the
reportable income received by error of Mr. X?
a. 50,000 c. 500,000
b. 450,000 d. - 0 -

20. Congress enacted a law imposing a 5% tax on the gross receipts of common carriers. The law
does not define the term “gross receipts.” Express Transport a bus company has time
deposits with ABC Bank. In 2017, Express Transport earned P1 Million interest, after
deducting the 20% final withholding tax from its time deposits with the bank. The BIR wants
to collect a 5% gross receipts tax on the interest income of Express Transport without
deducting the 20% final withholding tax. Is the BIR correct?
a. No. The income is not yet realized.
b. No. There will be direct duplicate taxation.
c. Yes. The term “gross receipts” is broad enough to include income not physically
rendered but constructively received by the taxpayer.
d. Yes. The BIR is granted wide latitude of discretion to subject every otem it deems proper
to income taxation. After all, the amount withheld is paid to the government on its
behalf, in satisfaction of its withholding taxes.

21. Lao is a big-time swindler. In one year he was able to earn P1 Million from his swindling
activities. When the CIR discovered his income from swindling, the CIR assessed him a
deficiency income tax for such income.

Assuming that the lawyer of Lao protested the assessment on the ground that the income
tax applies only to legal income, not to illegal income; is the contention correct?
a. No. Sec. 32 of the NIRC includes within the purview of gross income all Income from
whatever source derived.
b. No. Under the NIRC, all proceeds of taxpayers are subject to income tax.
c. Yes. The Tax Code recognizes the “principle of realization” before taxing an income.
Hence, since the income is not yet realized, as there is still obligation to return the same,
it should not be subject to tax.
d. Yes. Only income earned are subject to tax, whether legal or illegal.

22. Suppose creditor is a corporation and debtor is its stockholder, what is the tax implication in
case the debt is condoned by the corporation?
a. Final tax
b. Normal tax
c. Donor’s tax
d. Exempt from tax
23. ABC invested 1 million in 12% long-term deposit BSP certificate with 5 years maturity. What
is the applicable income tax on its earnings?
a. 12%
b. 20%
c. Exempt
d. None of these

24. The Philippines, under EO 37 (1986) and RA 8424 (1998), follows what type of tax system?
a. Global system
b. Schedular system
c. Semi-global or semi-schedular system
d. Semi global and semi-schedular system

25. The progressive system of income taxation is laid down under the fundamentals of?
a. Jurisdiction
b. Territoriality
c. Necessity
d. Ability to pay