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Chapt-7 Dealings in Prop
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 7: Dealings in Property
CHAPTER 7
DEALINGS IN PROPERTY
Problem 7 1 TRUE OR FALSE
1.
False Receivable not related to the main conduct of business are capital assets.2.False Depreciable
assets primarily used in business are ordinary assets.3.True4.True5.True6.False Regardless of gain or
loss, a tax should be paid when the shares of stock aresold in the stock market because the basis of tax
is the selling price.7.True8.True9.True10.False For ordinary loss, the same; but for capital loss not the
same because there isnot capital loss carry over and not holding period for corporation.11.True12.False
No, because the 6% final tax is based on the higher of the selling price orzonal value. If there is loss on
sale, the normal tax rate if preferable.13.False Not subject to creditable withholding tax.14.False
whichever is lower15.False subject to income tax (capital gains tax).
Problem 7 2 TRUE OR FALSE
1.True2.False equipment used in business operations is an ordinary asset.3.True4.False The basis is
the fair market value at the date of donation.5.False - the speculator sells securities which he does not
own.6.True
7.
True unless sold by dealers of securities8.False Ordinary assets9.True10.False There should be no
capital gain or loss.11.True12.True13.True14.True
Problem 7 3 TRUE OR FALSE
1.False Not subject to capital gains tax because the issuance is original and the sharesof stock is owned
by the corporation.2.True3.True4.True5.False Losses from wash sales are not deductible.
6.
False no wash sales if there are two kinds of shares of stocks7.True8.True9.True10.True
11.
False The final tax should be 30% is based on the gross income.12.True
36



INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 7: Dealings in Property
13.True14.True
Problem 7 4 Problem 7 5
1.D 1.B2.A2.D3.None of the choices all are
correct.3.D4.A4.D5.C5.D6.A6.D7.B7.C8.A8.D9.C9.D10.C10.D11.A
Problem 7 6 A
OrdinaryassetsCapital assetsGoods for saleP100,000 Trade receivables50,000Investment in
propertyP200,000Land and building for business500,000Delivery truck250,000Car for personal use .
400,000Correct amount of assetsP900,000P600,000
Problem 7 7
1. ASelling price per 200 sq. metersP 100,000Multiplied by number of 200 s.m. sold (9,000/200) 45 Total
salesP4,500,000Less: Cost of sales (P2,000,000 x 90%) 1,800,000Ordinary gain from sale of
landP2,700,0002. CRemaining capital asset (P2,000,000 x 10%)P200,000
Problem 7 8 B
Fair market valueP190,000Less: Book value of car 150,000Gain on exchangeP 40,000
Problem 7 9 C
There is capital loss if the property given away has fair value higher than P200,000 when itwas
inherited.
Problem 7 10A
Sec.40C, NIRC. No gain or loss shall also be recognized if property is transferred to acorporation by a
person in exchange for stock or unit of participation in such a corporation of which as a result of such
exchange said person, alone or together with others, not exceedingfour persons, gains control of said
corporation; provided, that stocks issued for services shallnot be considered as issued in return for
property.
Problem 7 11Not in the choices
Acquisition costP200,000
37



INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 7: Dealings in Property
Agents commission (P500,000 P200,000) x 10%30,000Processing fee (P500,000 x 1%) 5,000Deductible
cost and expensesP235,000
Problem 7 12C
Sales priceP150,000Cost or basis to the donee (the lower of donors cost orthe fair market value when
the gift was made( 50,000)Capital gainP100,000Multiplied by holding period rate more than 1 year
50%Reportable capital gainP 50,000
Problem 7 13C
Sales priceP200,000Acquisition cost (P150,000 + P20,000)(170,000)Brokers commission (P200,000 x
5%)( 10,000)Capital gainP 30,000
Problem 7 14D
The sale of the entire business is not an ordinary business transaction (Kahns Federal Income Tax, p.
364)Sales priceP100,000Less: X , Capital 75,000Capital gainP 25,000
Problem 7 15A
Holding period is more than 1 year = 50% of the capital gain
Problem 7 16D
Sales priceP200,000Less: Cost or market whichever is lower) 100,000Capital gainP100,000No holding
period is allowed for taxpayer other individuals.
Problem 7 17D
Year 1 Year 2Net business incomeP200,000P300,000Capital asset transactions: Year 1 Year 2Capital gain
(long-term) = (P50,000 x 50%) ( 40,000 x 50%)25,00020,000Capital loss (short-term) = (P40,000 x 100%)
(10,000 x 100%)(40,000)(10,000)Net capital loss carry over(15,000)Capital loss(15,000)(5,000) Taxable
income before personal exemptionP200,000P300,000
Correction:
The requirement should be taxable income before personal exemption.
Problem 7 181.C
Ordinary gainP50,000Capital asset transactions:Short-term capital gain P20,000Long-term capital gain
(P30,000 x 50%)15,000Long-term capital loss( 5,000) 30,000 Taxable income before personal
exemptionP80,000
38



INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 7: Dealings in Property
2.B
Ordinary gainP50,000Capital asset transactions:Short-term capital gain P20,000Long-term capital gain
(P30,000)30,000Long-term capital loss( 10,000) 40,000 Taxable income before personal
exemptionP90,000
Problem 7 19
1.C2.C200A 200BOrdinary net business incomeP48,900P85,700Capital asset transactions:Short-term
capital gain15,895Short-term capital loss(18,960)Long-term capital gain (P45,790 x 50%) .P22,895Net
capital loss carry-over (P3,065) ( 3,065) Taxable net income before personal exemptionP 48,900P
105,530
Problem 7 201. Not in the choices = P270,000
Year 1 Year 2Ordinary taxable incomeP 60,000P180,000Short-term capital gain
(loss)(P400,000)P200,000Long-term capital gain (loss)
(P600,000 x 50%): (P100,000 x 50%)
300,000(50,000)NOLCO applicable (P100,000) (60,000)Net capital gainP 90,000 Taxable income before
personal exemptionP 60,000)P270,000
2. B
Ordinary taxable incomeP180,000Short-term capital gain (loss)P200,000Long-term capital gain (loss)
(100,000)Net capital gainP100,000 Taxable income before personal exemptionP280,000
Problem 7 21A
JewelryM. Benz Car long term (50%)RefrigeratorFord CarSelling PriceP
80,000400,0006,00012,000Cost & ExpensesP 11,000370,0005,00020,500Net Capital GainP
69,00015,0001,000(8,500)
P76,500Problem 7 22A
Zero. If BPI is a dealer of debt and equity securities, the transactions related to securities arenot capital
asset transactions but ordinary transactions, hence there is no net capital gain.
Problem 7 23A
Sales of shares of stockP400,000Basis of shares of stock (lower) ( 50,000)Gain on saleP350,000
Problem 7 24A
Capital gains of November sales (P150,000 P120,000)P30,000
39


INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS
Chapter 7: Dealings in Property
Multiplied by capital gains tax rate 5%Capital gains taxP 1,500
Problem 7 25A
Gain per share (P110 P100)Number of shares of stock sold outside stock exchangeCapital gain not
traded in local stock exchangeFinal tax rate, 5% for the first P100,000 gainCapital gains taxP
101,000P10,0005%P 500Note: The shares of stock sold in the Philippine stock exchange are subject to
percentage taxof of 1%.
Problem 7 26
1.A Tax due and payable (P500,000 x .005)P2,5002. DGross profit (P500,000 x 30%)P150,000Other
expenses (P3,800 + P200) 4,000Net taxable gainP146,000Multiplied by normal corporate income tax
rate 30% Tax due and payableP 43,800
Problem 7 27D
Capital gain (P150 P125) x 100)P2,500
Problem 7 28D
Sale March (P120 x 500 shares)Less: Cost (P120,000/ 1,200 shares) x 500 sharesCapital gainP
60,00050,000P10,000
1.B
Sales May (P90 x 500)P45,000Less: Cost of sales (P70,000 x 500/700) 50,000LossP 5,000Nondeductible
loss (P5,000 x 300/500)P 3,000
2.B
Proceeds of liquidation (P100 x 300)P30,000Less: Cost (P45,000 + P3,000) 48,000Capital lossP18,000
Problem 7 29
1.DNo capital gain on original issuance of companys ownstock even if issued above parP - 0 -2. CCapital
gain on reissued shares (P23 P21) x 2,000)P4,000
40






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