Assignment

Income Taxation
(General Principles of Income Tax)

1. All of the following, except one, are taxable on income within only:
a. Resident alien
b. Nonresident citizen
c. Resident citizen
d. Nonresident alien

2. In 2018 Robin, Filipino, legally separated from his wife, Hazel, left for the United States with
his daughter, Rozel, to permanently reside therein which has fact established to the
satisfaction of the Commissioner of Internal Revenue. In 2018 he earned P 2M as income
from his Arnis Training Center in that country.

Which of the following statements is correct?

a. Robin may deduct from his gross income his personal exemption of P 50,000 or the
amount allowed in that country, whichever is lower.
b. Robin’s gross income is subject to a creditable withholding tax of 10%.
c. Robin gross income of P 2M is not taxable in the Philippines.
d. Robin is classified as nonresident alien engaged in business in foreign country.

3. Which of the following statements is correct about a non-resident alien?

a. Taxable on income within and without
b. May be entitled to claim basic personal exemption
c. May be entitled to claim additional exemption
d. Shall be taxable on all income derived from sources within the Philippines.

4. Passive income includes income derived from an activity in which the earner does not have
any substantial participation. This type of income is
a. Usually subject to a final tax.
b. Exempt from income taxation
c. Taxable only if earned by a citizen
d. Included in the income tax return

5. There is no taxable income until such income is recognized. Taxable income is recognized
when the –
a. Taxpayer fails to include income in his income tax return.
b. Income has been actually received in money or its equivalent.
c. Income has been received, either actually or constructively.
d. Transaction that is the source of the income is consummated.

6. The payor of passive income subject to final tax is required to withhold the tax from the
payment due to the recipient. The withholding of the tax has the effect of
a. A final settlement of the tax liability on the income.
b. A credit from the recipient’s income tax liability.
c. Consummating the transaction resulting in an income.
d. A deduction in the recipient’s income tax return.
8. In 2018, Mr. Haron sent his sister Fatima $1,000 via a telegraphic transfer through BDO. The
bank’s remittance clerk made a mistake and credited Fatima with $1,000,000 which she
promptly withdrew. The bank demanded the return of the mistakenly credited excess, but
Fatima refused. The BIR entered the picture and investigated Fatima. Would the BIR be
correct of it determines that Fatima earned taxable income under these facts?
a. No, she had no income because she had no right to the mistakenly credited funds.
b. Yes, income is a taxable income regardless of the source.
c. No, it was not her fault that the funds in excess of $1,000 were credited to her.
d. No, the funds in excess of $1,000 were in effect donated to her.

9. If an individual performs services for a creditor who in consideration thereof cancels the
debts, the cancellation of indebtedness may amount –
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income

10. Mr. Mar Bautista, an employee of Fortune Corporation is receiving a monthly salary of P
20,000. Due to an outstanding accomplishment in July 2018, the corporation gave him 200
shares of stock of the corporation with a par value of P 100 per share and a fair market value
of P 150. The fair value on the date of receipt is P 152 per share. How much is the income of
Mr. Bautista in 2018?
a. P 50,000
b. P 270,400
c. P 270,000
d. P 240,000

Solution:
Annual salary (20,000 x 12) 240,000
Stocks (200 x 150) 30,000
Total 270,000

11. B, due to inability to pay his debt to A, the former was asked to clean the piggery of the
latter for three months. Thereafter, A gave B P5,000 cash and condoned the debt amounting
to P 10,000. How much income should be declared by B?
a. P 5,000
b. P 10,000
c. P 15,000
d. None

12. In 2018, Ronnie Alonte received from his employer a promissory note with a face value of P
50,000 for services rendered. The note will mature in 2019. However, it can be sold to a
bank at a discount of 25%. The employer paid the promissory note in 2019. How much is the
taxable income to be declared by Alonte on the promissory note in 2018 and 2019?
2018 2019
a. P 50,000 P 50,000
b. P 12,500 P 37,500
c. P 37,500 P 12,500
d. None P 50,000

13. For purposes of income taxation, which of the following is not considered as a corporation?
 a. General professional partnership
b. Business partnership
c. Unregistered partnership
d. Joint stock companies

14. A resident corporation is one that is:

a. Organized under the laws of the Philippine that does business in another country.
b. Organized under the laws of a foreign country that sets up a regional headquarter in
the Philippines doing product promotion and information dissemination.
c. Organized under the laws of the Philippines that engages business in a special
economic zone.
d. Organized under the laws of a foreign country that engages in business in Makati
City, Philippines.

15. One of the following is taxed on gross income

a. Domestic corporation
b. Resident foreign corporation
c. Non – profit cemetery
d. Nonresident foreign corporation

16. Virgin Brewery Corporation is registered under the laws of the Virgin Islands. It has extensive
operations in Southeast Asia in the Philippines. Its products are imported and sold at a mark-
up by its exclusive distributor, Hans Trading, Inc. The BIR compiled a record of all the imports
of Hans Trading from Virgin Brewery and imposed a tax on Virgin Brewery’s net income
derived from its exports to Hans Trading. Is the BIR correct?
a. Yes. Virgin Brewery is a non-resident foreign corporation engaged in trade or
business in the Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net
income.
c. No. Virgin Brewery is a non-resident foreign corporation not engaged in trade or
business in the Philippines.
d. Yes. Brewery is doing business in the Philippines through its exclusive distributor
Hans’s Trading, Inc.

17. Which of the following test of source of income is incorrect?

a. Interest income – residence of the debtor
b. Income from services – place of performance
c. Royalties – place of use of intangible
d. Gain on sale of real property – place of sale

18. An operator of an illegal horse betting business, single, has the following data:
Receipt from illegal bets P 600,000
Rent of space where bets are received 120,000
Salaries of assistants 100,000
Bribe money to obtain protection from arrest and prosecution 50,000

How much is the taxable income?

a. P 380,000 c. P 180,000
b. P 330,000 d. P 150,000
19. Mr. de Guzman purchased a life annuity for P 200,000 which will pay him P 20,000 a year.
The life expectancy of Mr. de Guzman is 12 years. How much is the amount of exclusion
from gross income?
a. P 200,000
b. P 20,000
c. P 40,000
d. P 240,000

20. While crossing along the intersection of Legarda St. and Recto Avenue in Sampaloc, Manila,
Miss Minamalas was bumped by a passenger jeepney. As a consequence of the accident, she
was hospitalized for 20 days. The driver and the operator of the passenger jeepney paid her
a total amount of P 135,000 for the following expenses that she incurred. Hospital bills, P
60,000; cost of medicines, P 15,000; moral damages for mental anguish and others, P
60,000.

She also received P 20,000 as settlement of a libel case that she filed against a television
station which announced that she was pregnant at the time of the accident and that the
fetus was aborted. The income to be reported by Mina is –
a. P 0
b. P 20,000
c. P 60,000
d. P 155,000

21. Marga, an official of Sunlife Corporation asked for an earlier retirement because she was
emigrating to Ecuador. She was paid P1 million as a separation pay in recognition of her
valuable services to the corporation.

Maxine, another official of the same company was separated for occupying a
redundant position, she was given P 800,000 as separation pay.

Shiela was separated due to her failing eyesight. She was given P 350,000 as
separation pay.

All of the three (3) were not qualified to retire under the BIR approved pension plan
of the corporation.
Q1. Is the separation pay given to Marga subject to income tax?
Q2. How about the separation pay received by Maxine?
Q3. How about the separation pay received by Sheila?
a. Yes to all questions
b. Yes to 2nd question
c. No toll questions
d. Yes to 1st question

22. On October 1, 2018, Samantha inherited properties worth P 3,000,000 from her mother. The
properties are earning income of P 90,000 a month. How much income is to be reported by
Samantha in 2018?
a. P 3,090,000
b. P 3,000,000
c. P 3,270,000
d. P 270,000
 23. Mary has the following data from his employment in 2018:
Monthly salary P 12,000
Taxes withheld 8,000
Pag ibig fund contributions 1,500
Union dues 2,400
Philhealth contributions 720
SSS premiums 480
13th month pay 12,000
Mid-year bonus 12,000
Loyalty award 5,000

The portion of compensation which is excluded from the gross compensation income if Mary
is a rank-and-file employee is –
a. P 5.100
b. P 34,100
c. P 29.000
d. None

24. One of the following is exempt from income tax

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

25. The power of the state to take private property for public use and with just compensation.
a. police power
b. power of eminent domain
c. power of taxation
d. all are correct.