Problems 03

(for class seatwork, recitation, homework)

Instructions/Required: For each of the following cases in the taxable year 2019, in good form, present
the solutions leading to the correct answers using the applicable formats, formulas or computational
patterns:

Problem 01. Various individuals had their tax information in the taxable year 2019 as follows:

Taxpayers Net Income or Income Tax Amounts

1. Mr. X, sole-proprietor Taxable net income P975,000
2. Mr. Y, employee Taxable net income P476,900
3. Mr. Z, mixed earner Income tax due P287,000
4. Ms. A, employee Income tax due P192,000
5. Mr. B, self-employed Income tax due P745,000

Determine the amounts of the net income after income taxes for each of the taxpayers.

Problem 02. During the current year 2019 an employee has salaries and other income from employment
of P680,000, 15% of which is exempt from income tax. He has no income from business but has P12,000
income subject to final income tax as well as P25, gain from sale of his computer laptop. He is married
and has the following dependents: his wife, grandfather, sister and her two children. He spent P7,500
for health and hospitalization insurance premiums.

Compute the taxable net income and income tax due.

Problem 03. The following data in the current year 2019 belong to an individual who is both a self-
employed, having his own hardware store business, and likewise an accountant of Nestle Company;

From Phil. From Abroad

1. Employment Income P480,000 P510,600
2. Business Income P970,000 P720,000
3. Other Income P120,500 P40,500
4. Business Expenses P610, 500 P520,000
15% of business expense in the Philippines is disallowed.
10% of other income abroad is not subject to income tax.

Compute the taxable net income and income tax due, assuming the taxpayer is a:
a. Resident citizen, single with his young brother and legally adopted son as dependents.
b. Non-resident citizen engaged in business in the Philippines with a live-in partner and their
recognized natural child as dependents.
Problem 04. A parent and child, resident citizens, provided us the following data for the year 2019:
Father Son
Compensation Income P390,000 P0
Business Income 960,000 900,000
Other Income 20,000 35,000
Business Expenses 500,000 600,000
Civil Status widow single
Dependent Children three none
Health Hospitalization Insurance Premium 2,450 4,560

In April of the year, the father gave as a birthday gift to his son a house and lot worth P850,000. Said
property realized a rental income of P64,000 during the year. The donor's tax return was filed and the
gift tax was paid as of the end of the year.

Determine the taxable net income and income tax due for each taxpayer.

Problem 05. A married couple with eight dependent children, gave us their financial data in year 2019.

Compensation Income of husband P480,000

Compensation Income of wife 370,000
Business Income of husband 980,000
Business Income of wife 620,000
Other Income of couple 40,000
Business Expenses of husband 640,000
Business Expenses of wife 340,000
Other Business Expenses of couple 75,000
Health Hospitalization Insurance payments 3,800

Determine the taxable net income and income tax due for each of the spouses.

Problem 06. A taxpayer with a legitimate child, illegitimate child and a senior citizen dependents,
furnished us is business data for the taxable year 2019 as follows:

Items of Income and Expenses Philippines America

a. Gross profit from sales P950,000 P800,000
Cost of Sales 700,000 600,000
b. gain from sale of business 60,000 15,000
assets
c. Income exempt from 50,000 0
income tax
d. Income subject to final 15,000 0
income tax
e. Business expenses 600,000 450,000
f. Non-deductible business 35,000 48,000
expenses (included in (e))
g. Personal family and living 165,000 35,000
expenses
Determine the taxable net income and income tax due.

Problem 07. An individual taxpayer, sole proprietor of a drug store, presented us his data for year 2019:

Compensation Income from employment P928,000

Business Income 850,000
Business Expenses 980,000
Income from sale of his jewelry 40,000
Health Hospitalization Insurance Premium Paid 5,750
If he is unmarried but has a nephew dependent, 25% of his employment income is exempt from income
tax.
Compute for his taxable net income and income tax due:

Problem 08. A taxpayer who is resident entrepreneur, is a divorcee, and has his 15-year old sister as
dependent. For the current taxable year 2019, he had the following data in the Philippines:

Salary from employment, gross monthly P620,000

Allowances from employment, gross monthly 15,000
Commission income from employment 100,000
Interest income on bank deposit at final tax 4,000
Cash dividend as final income tax 8,500
Gross business income P1,930,000
Other income (25% is income exempt) 280,000
Business expenses 1,480,000
30% of the above expenses is not deductible

Determine his taxable net income and income tax due.

Problem 09. A special employee (resident alien) of an Offshore Banking Unit in the Philippines provided
us his financial data for the current taxable year 2019 as follows:

a. Regular salary, monthly P 250,000 – 3,000,000

b. Overtime pay in the year 185,000
c. Employment income except 69,000
Business Income abroad 975,000
Business expense abroad 650,000
d. One legitimate child dependent
e. HHIP paid 3,600

Compute the taxable base and the income tax due

Problem 10. An employee serving as a messenger in a company in the Philippines, but is classified as a
minimum wage earner had the following data in the current taxable year 2019:

a. Basic salary, including cost of living allowance P 153,700

b. Overtime pay 13,500
c. Hazard pay 6,000
 d. Holiday pay 3,500
e. Night shift differential pay 1,800
f. 13th month pay, bonus, incentive pay 12,600
g. Interest income from bank deposit at final tax 5,000
h. Commission income from sale of friend’s property 300,000
i. Gain from sale of his computer Laptop 16,500
j. Transportation allowance monthly 3,000

Compute the taxable net income and income tax due of the MWE

Problem 11. A clerk-employer of government agency, classified as a minimum wage earner furnished in
his employment data in the current year 2019 as follows:

1. Statutory minimum wage items P 180,000

2. Other compensation income exempt from income tax P42,500
3. 13th month, bonus, exempt from income tax P 30,000
4. Gross business income from canteen P 650,000
5. Business expenses from canteen P 320,000
6. HHIP payments P3,250
7. Price/winnings from Lotto Draw of PCSO P6,000

Compute the taxable net income and income tax due

Problem 12. In April of 2019 Mr. X died. The following data pertain to his estate and heirs. He was
survived by his daughter and son. The decedent’s estate, with Atty. Y as an executor, is under settlement
in court:

Gross Income of the estate P 980,000

Allowed Deduction on estate’s income 364,000
Income from estate distributed to the son, 175,000
Income from estate distributed to the daughter 150,000

Daughter Son

Compensation Income P0 P 450,000

Business Income P 817,000 700,000
Deductible Business Expenses 510,000 416,500
Other Income subject to basic income tax 26,000 18,200
Civil Status married HOF

Problem 13. A contract of trust was executed on a certain property between Mr. R (trustor) and Mr. X
(trustee) for the benefit of Mr. T (beneficiary). The data from the trust from July to December 2019
follows:

a. Gross income P 750,000

b. Allowed expenses 385,000
 c. Income given to Mr. R 65,000
d. Income credited to Mr. T 95,000
Personal Data

Mr. R Mr. T

a. Business income P 980,000 P 495,000

b. Business expenses 525,000 210,000
c. Gain from sale of asset 45,000 75,000
d. Civil status married Head family

Compute for the taxable net income and income tax due for the following:

1. Taxable Trust 2. Trustor (Mr. R) 3. Beneficiary (Mr. T)

Problem 14. In May of the year 2019, Mr. Z executed a separate contract of trust each with Atty. N and
Atty. P, involving two separate property/corpus. Both trusts are for the benefit of Mr. X as beneficiary.
Here below are the pertinent data:

Items Trust I Trust II

Gross income from the property in trust P 635,000 P 495,000

Allowed deduction 147,000 63,500
Income distributed to Mr. X 85,000 46,000
Income given to Mr. Z 25,000 15,000

Determine the following items:

1. Taxable net income and income tax due for each trust
2. Taxable net income and income tax due on the consolidated trust
3. Income tax still due from each trust

Problem 15. Candice created two trusts for her son James and Carah. She appointed Lilian and Virgilio as
trustees for Trust 1 and 2 respectively. During the year 2019, the gross income of Trust 1 is P 720,000
and a deduction of P 125,000 while Trust 2 has a gross income of P850,000 and a deduction of P
245,000. Before the year ended, income were distributed from Trust 1 and trust 2 to the beneficiaries as
follows:

Beneficiary From Trust 1 From Trust 2

James P 137,500 P143,700

Carah 145,000 130,000

Required; 1. The taxable net income and income tax still due from each trust and consolidated trusts.
2. The share of each trust on the combined income tax due from the consolidated trusts.
 CPABLES Multiple Choice Questions 03
(for class seatwork, recitation, homework)

Instructions/Required: For each of the following cases for the current taxable year 2018, in good form,
present the solutions leading to the correct answers using the applicable format, formulas or formulas:

Data: A resident individual self-employed, a widow, has the following data in the current year 2018:

a. Compensation income from employment in the Philippines, P 200,000

b. Business income in the Philippines, P 800,000
c. Business income abroad, P 700,000
d. Business expenses in the Philippines, P 600,000
e. Business expenses abroad, P 500,000
f. Minor dependents supported by her are: sister, illegitimate son, two legitimate daughters.
g. Health hospitalization premium paid, P 2,600

Q01. If a resident alien, the taxable net income is

a. P 300,000 b. P 250,000 c. P 350,000 d. 400,000

Q02. If a resident citizen, the taxable net income is:

a. P 75,000 b. P 500,000 c. P 1,000,000 d. P 600,000

Q03. In a year 2019, aliens employed by a regional operating headquarter established in the Philippines
by multi-national corporation shall be taxed at:

a. 25% of gross income c. 25% of net income

b. 15% of gross income d. 15% of net income

Q04. Mr. Raul Delta donated a parcel of land to his son, 20 years old and single. The gift tax on the
property was not paid. However, his son took possession of the property and received the rental
income. In the current year 2018 a tax assessment on the income derived from the property was issued
against Mr. Delta’s son. In this case:

a. The assessment against the son must be deferred

b. The income should be included in the father’s income tax return
c. The assessment against the son is valid
d. Answer not given

Q05. The schedular system of income taxation means:

a. Capital gains are excluded from the determining gross income

b. Separate graduated tax rates are imposed on different types of income
c. All types of income are added together to arrive at taxable gross income
d. All of the above.
Data: A Filipino widower has two minor children dependents, one of whom is 24 years old but is
mentally defective. The taxpayer owns a merchandising company with business operations within and
without the Philippines. The following were his transactions in the current year 2018:

In Philippines In Australia

a. Gross sales P926,000 P 645,000

b. Sales returns and discounts 15,000 10,000
c. Cost of goods sold 510,000 380,000
d. Other income 47,000 31,600
e. Operating business expenses 320,000 219,000
f. 20% of the business expenses in the Philippines and in Australia are non-deductible
g. Health, hospitalization, insurance payments, P 2,000

Q06. If a resident citizen, the taxable net income is:

a. P203,400 b. P92,000 c. P228,400 d. P303,400

Q07. If a non-resident alien, the taxable net income is:

a. P203,400 b. P92,000 c. P117,000 d. P192,000

Data: In the current year 2018, a married couple earned employment income of P235,000 and business
income of P695,000for the husband and wife respectively. Business expenses incurred was P427,000.
Health and hospitalization insurance premium payment was P2, 350. They have five (5) dependents.

Q08. The taxable net income of the couple are

a. H- P185,000 b. H- P135,000 c. H- P185,000 d. H- P235,00

W- P158,000 W- P208,000 W- P155,000 W- P258,000

Data: In the current year 2018,Richard, a widower, had income from employment of P312,750. Other
income was P34,000 which is inclusive of P13,000 income subjected to final income tax. His HHIP
payments totaled P3,500. He had with him, living and for chief support the following dependent:

Legitimate daughter, 20 years old who got married in November of the year.

Recognized natural son, 18 years old who died in December of the year.

Illegitimate son, 7 years old.

Legally adopted daughter,19 years old, first time gainfully employed in the year.
 Legitimate son who lives permanently with his grandmother who provides chief support since
October of the year.

Q09. The taxable net income is:

a. P233,750 b. P208,750 c.P183,750 d. P333,750

Data: Cyril Vance is a self-employed contractor. He has two children with his common-law wife and all of
them are living with and depend upon him for chief support. The following are his financial data in the
year 2018:

a. Business Income P1,650,000 = P1,402,5000

b. Business Expenses P1,400,000 = P980,000

c. 30% of the business expenses is not deductible

d. 15% of the business income is subjected to final income taxes

Q10. The taxable net income is:

a. P150,000 b. P208,750 c. P322,500 d. 422,500

Q11. The following data in the current year 2018 belong to an individual taxpayer, He is a resident
citizen, single but with a legally adopted child as dependent.

Philippines From abroad

Gross Income P980,000 $20,000

Business Expenses P600,000 $10,900

The taxable income is:

a. P760,000 b. P785,000 c. P305,000 d. P835,000

Q12. A non-resident alien is an employee with a managerial position in a foreign petroleum contractor in
the Philippines. He is married and has 6 qualified dependent children. In the current year 2018 he has
paid P3,850 as health hospitalization insurance premium and likewise earned employment income of
P1,275,000 net of withheld income tax.
His income tax due is?

a. P191,250 b. P318,750 c. P225,000 d. No answer

Q13. A resident alien is married with five (5) qualified children, all minors and living with him. For the
current year 2018 he had the following financial data:

Gross Business Income P 1,500,000

Gross Compensation Income 600,000

Business Expenses 1,350,000

Premiums paid on Health Insurance for the family 20,000

Prizes from the Phil. Charity Sweepstakes 100,000

His taxable net income is:

a. P600,000 b. P597,600 c. P575,000 d. P750,000

Data: An individual resident taxpayer had the following financial data in the current year 2018:

An illegitimate child, and a cousin who are both underage, single, unemployed, living with dependent
upon the taxpayer for chief support. He earned compensation income of P129,000 from employment as
well as from business and other income of P250,000. The actual hospitalization health insurance
premium payments were P5,000. Business expenses incurred were P170,000.

Q14. The allowances and exemption is?

a. P50,000 b. P75,000 c. P100,000 d. Zero

Q15. The taxable net income is?

a. P109,000 b. P159,600 c. P134,000 d. P209,000

Q16. For income tax purposes, it is important to know the source of income whether derived from
within or without the Philippines because:

a. Some individual taxpayers are citizen while others are not

b. The Philippines imposes income tax only on income from sources within
 c. Some individual taxpayers are taxed on their worldwide income while others are taxable only upon
income from sources within the Philippines.

d. Export sales are not subject to income tax.

Q17. Which of the following statements is false?

a. A citizen of Philippines residing therein is taxable on all income derived from sources within and
without the Philippines.

b. A non-resident citizen is taxable only on income derived within the Philippines.

c. An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;

d. A resident alien is taxed exactly on the same manner as a resident citizen.

Data: Mr. Charlie Cruz is engaged in operating a restaurant where he serves food and refreshment as
well as wines and liquors to his customers. In the current year 2018, the following are the pertinent data
in his sole-proprietorship business:

Gross sales of food and refreshments P484,800

Gross sales of wines and liquors P264,400

Cost of sales of food and refreshments P206,000

Cost of sales of wines and liquors P150,000

Operating Business Expenses P315,000

Q18. Taxpayer is unmarried but with a minor nephew and a recognized natural son (whose age is 21 years
and 5 months old) as dependents in the taxable year 2018..

The taxable net income of Charlie is

a. P359,200 b. P384,200 c. P28,200 d. 78,200

Data: A mother gifted a lot in Bicutan City to her 19 year old daughter, on occasion of the latter’s opening
of her Beauty Spa business on April 1, of the current year 2018. Said property is earning yearly rental
income of P150,000 since the year 2011. They have net business income before allowed personal
exemption and rental income of P350,000 and P175,000 respectively.

Q19. If the donor’s tax was not yet paid, what are their reportable gross Income respectively?

a. M- P500,000, b. M- P450,000 c. M-P300,000 d. M- P175,00

D- P175,000 D- P125,000 D- P275,000 D- P350,000
Q20. If the donor’s tax was already paid, what are their declarable gross Income respectively?

a. M- P350,000 b. M- P450,000 c. M- P300,000 d. D-P525,000

D- P325,000 D- P125,000 D- P275,000

Q21. Which one of the following is a taxpayer not required to file an income tax return?

a. An estate which is not under administration.

b. A trust where the fiduciary must accumulate the income of the trust.
c. A trust where the fiduciary may accumulate or distribute the income of the trust at his
discretion.
d. All of the above.

Q22. Ronald died in February 2017, leaving to his two children B and C a land. The two decided not to
partition the property and just divided the rentals among themselves for the year 2018.

Was a partnership formed which is subject to corporate income tax for the year 2018?

In the year 2018, the two did not divide the income from the land, instead, they invested the such
income to the purchase of an apartment to be rented out.

Is a partnership created by B and C?

a. Yes to 1st question and No to the 2nd question

b. Yes to both questions
c. No to 1st question and Yes to 2nd question
d. No to both questions

Q23. Amado died on August 15, 2018. His income from January 1, 2018 until his death was P250,000.
From August 16 to December 31 of the same year, the un-distributed property/estate earned an
income of P175,000. His two children Sally and Ramon were in a disagreement as to how the
estate will be distributed among them. Hence, a case for the settlement of the estate of Amado
was filed in court. Which is wrong?

a. The P250,000 is taxable to Amado

b. The estate is subject to income tax
c. The P175,000 is taxable to Amado & to his two children.
d. No given answer

Q24. In which of the following enumerated situations is a taxpayer required to file an income tax return?

a. A trust where the trustee must accumulate the profit of the trust
b. A trust where the trustee must accumulate/distribute the profit of the trust at his option
c. An estate which is under administration
d. All of the above

Q25. Which of the following refers to a person for whose benefit a trust has been created?

a. fiduciary b. trustor c. grantor d. beneficiary