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FAR EASTERN UNIVERSITY - MAKATI

Tax I Law on Income Taxation


Exercises

___

Francis Manabat Javier, CPA, LL.B.

CORPORATE INCOME TAXATION


1. _____________ The term includes partnership no matter how created or organized, joint stock
companies, joint accounts, associations or insurance companies but does not include general
professional partnership and a joint venture or consortium formed for the purpose of undertaking
constructions project or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract with the government.
2. ______________ It refers to a corporation created or organized under Philippine corporations laws.
3. _____________ It refers to a corporation created under foreign laws;
4. ______________ It refers to a foreign corporation engaged in trade or business in the Philippines.
5. ______________It refers to a foreign corporation not engaged in trade or business in the Philippines.
6. _____________ It refers to a partnership included under the meaning of the corporation.
7. _____________ A partnership formed for the purpose of rendering services and no income of
which is derived from other sources.
8. _____________ It refers to a dividend received by a domestic or foreign corporation from another
domestic corporation.
9. _____________ It means gross revenue derived from carriage of persons, excess baggage cargo and
mail originating from the Philippines in a continuous flight irrespective of the place of sale or issue
and the place of payment of the ticket or passage document.
10. For purposes of computing the MCIT, which will not form part of cost of goods sold for traders:
a. Invoice cost
c. Freight
b. Import duties
d. Wharfage
11. Under #10, but the taxpayer is a manufacturer:
a. Raw materials used
c. Freight & insurance
b. Direct labor & overhead
d. Import duties
12. Under #10, but the taxpayer is a seller of services:
a. Salaries & supplies
c. Depreciation & rental expenses
b. Employee benefits
d. Interest expense
13. The MCIT is only effective in the 5th year following the year in which the corporation
commenced its business.
Non resident corporations are also covered by MCIT.
a. TRUE; TRUE
c. FALSE; TRUE
b. FALSE;FALSE
d. TRUE; FALSE
14. Non- Resident Corporations need not file any income tax returns.
Tax EXEMPT Corporations are also required to file an ITR for administrative purposes only.
a. TRUE;TRUE
c. FALSE;TRUE
b. FALSE; FALSE
d. TRUE; FALSE
15. To record MCIT, the account deferred charges MCIT is:
a. Debited
c. Memo entry only
b. Credited
d. No entry required
16. To record application of excess MCIT vs. NORMAL income tax, what account is credited:
a. Income tax payable
c. Retained earnings
b. Cash in bank
d. Deferred charges MCIT

17. To record expired portion of MCIT, what account is debited:


a. Retained earnings
c. Deferred charges MCIT
b. Income tax payable
d. Provision for income tax
18. One of the following is not accepted basis of relief from the MCIT.
a. Prolonged labor dispute
b. Force majeure problems
c. Legitimate business reverse
d. Law suits filed by the company
19. Which is not a characteristics of corporate income tax:
a. Progressive tax
c. General tax
b. Direct tax
d. National tax
20. 1st Statement: Non stock-non-profit Corporation is tax-exempt from their income from all
operations.
2nd Statement: Intercorporate dividends are tax-exempt if the recipient is a foreign corporation.
a. True; True
c. False; True
b. False; False
d. True; False
21. Which is governed by gross income taxation.
a. Domestic corporation
c. Non-resident corporation
b. Resident corporation
d. Educational institutions
22. One of the following corporations cannot claim tax credit for foreign taxes paid abroad.
a. Private Educational Institutions
b. Resident International Carriers
c. Investment companies
d. Domestic Hospitals
23. 1st Statement: Foreign income tax may be treated by a taxpayer as tax credit but not as deduction
from gross income under the new law.
2nd Statement: Being a holding company is conclusive evidence of improper accumulation of profit.
a. True; True
c. True; False
b. False; False
d.False;True
24. The improperly accumulated earnings tax shall not apply to the following except:
a. Insurance companies
b. Corporations formerly registered with PEZA
c. Publicly held corporations
e. Banks & Non Bank Financial Intermediaries
25. 1st Statement : Domestic corporation not falling under the definition of closely held corporations are
considered publicly held corporations.
2nd Statement: A closely held corporation under the Tax Code and a close Corporation under the
Corporation Code are the same:
a. True; True
c. True; False
b. False; False
d. False; True
26. It is a test used in determining the reasonable needs of a business to justify the accumulation of
earnings which will exempt the corporation from paying IAE:
a. Urgency test
c. Immediacy test
b. Reasonable needs test
d. Control test

27. The IAE tax is essentially a:


a. General tax
b. Property tax

c. Regulatory or Penalty tax


d. Excise tax

28. 1st Statement: Once a profit has been subjected to IAE, the same may still be subjected to IAE in
later years if not declared as dividend.
2nd Statement: The dividends for purposes of IAET must be declared & paid or issued not later than
one year from the close of the taxable year, otherwise, the IAET if any should be paid within 30 days
thereafter.
a. MCIT
c. Corporate income tax for resident corporation
b. IAE tax
d. Profit Remittance Tax

PROBLEMS
MULTIPLE CHOICE QUESTION
The Argel Corp. provided the following data for calendar year ending Dec. 31, 2015: ($ 1 P50)

GROSS INCOME
DEDUCTIONS
INCOME TAX PAID

PHILIPPINES
P 5,000,000
P 2,000,000

ABROAD
$ 50,000
$ 15,000
5,000

29. If it is a domestic corporation, its income tax after tax credit is:
a. P1,175,000
b. P1,425,000
c. P1,157,000
d. P900,000
30. If it is a resident corporation, its income tax is:
a. P1,175,000
b. P1,500,000
c. P800,000

d. P900,000

31. If it is a non-resident corporation, its income tax is:


a. P1,175,000
b. P1,500,000
c. P800,000

d. P900,000

32. Under #29 but it opts to claim the tax paid abroad as deductions from GI, its tax due is:
a. P1,175,000
b. P1,500,000
c. P825,000
d. P900,000
33. If it is a private educational institution like FEU, its income tax after tax credit:
a. P1,175,000
b. P1,500,000
c. P475,000
d. P300,000
34. If it is a non-profit hospital, its income tax after tax credit is:
a. P1,175,000
b. P1,500,000
c. P475,000
d. P300,000
35. If it is a resident international carrier, its income tax is:
a. P1,250,000
b. P225,000
c. P375,000

d. P125,000

36. If it is a non-resident cinematographic film owner/lessor, its income tax is:


a. P1,250,000
b. P225,000
c. P375,000
d. P125,000
37. If it is a non-resident lessor of vessel its income tax is:
a. P1,250,000
b. P225,000
c. P375,000

d. P125,000

38. If it is a non-resident lessor of aircrafts machineries and equipment, its tax due is:
a. P1,250,000
b. P225,000
c. P375,000
d. P125,000
39. If it is a resident corporation but its expenses within and outside the Philippines is P3M, unallocated
(disregard original data on expenses), its income tax is:
a. P1,175,000
b. P1,500,000
c. P825,000
d. P900,000

40. If it is a resident corporation and it remitted 60% of its net profit to its head office abroad, its total
tax liability is (ORIGINAL DATA)
a. P1,098,000
b. P1,089,000
c. P 189,000
d. P900,000
41. If it is a private educational institution but P4.5M of its total gross income is from lease & restaurant
business, its income tax after tax credit is:
a. P1,175,000
b. P1,425,000
c. P1,157,000
d. P900,000
42. If it is a domestic corporation but its total expenses is P6,500,000, (disregard original data on
expenses), its income tax after tax credit is:
a. P300,000
b. P50,000
c. P150,000
d. P100,000
43. Under # 42, but the domestic corporation is a non-profit hospital, (disregard tax paid abroad) its
income tax is:
a. P300,000
b. P50,000
c. P150,000
d. P100,000
44. If the corporation is a non-stock educational institution w/c uses all its revenues or income for
educational & charitable purpose, its income tax is:
a. P0
b. P730,000
c. P120,000
d. P64,000
45. DELICA, a domestic corporation provided the following data:
2012
2013
Gross sales
P2,040,000
2,800,000
Sales returns
40,000
100,000
Cost of goods sold
1,000,000
700,000
Business expenses
950,000
2,100,000

2014
2,750,000
1,500,000
1,200,000

2015
4,000,000
1,500,000
1,200,000

The income tax due after tax credit, if any for taxable year 2015 is:
a. P50,000
b. P390,000
c. P335,000
d. P350,000
46. Panahon Corporation, an educational institution provided the following data for taxable year 2015:
Income from tuition fees
School miscellaneous fees
Dividend Income:
Domestic corporation
Foreign corporation
Rent income (net of 5% withholding tax)
Operating expenses
The income tax of the school is:
a. P750,000
b. P2,250,000

P5,500,000
2,500,000
2,000,000
2,000,000
1,900,000
4,500,000
c. P3,000,000

d. P1,500,000

47. Bayani Corporation, a domestic corp. had the following data for taxable year 2015:
Sales
Cost of goods sold
Gen., selling and administrative expenses
Interest income from Phil. Bank deposit
Rental income (net of 5% withholding tax)
Dividend Income:
From domestic corporation
From foreign corporation
Winnings from charity sweepstakes
Capital gains from sale of domestic shares of
stocks sold directly to buyer

5,000,000
2,000,000
500,000
100,000
190,000
60,000
50,000
1,000,000
75,000

Dividend declared and paid during the year


Retained earnings, beg. of the year (subjected
To IAE tax last year)

500,000
1,000,000

Note: The board of directors approved a resolution reserving P1,500,000 of its net profit for the year
for plant expansion.
The income tax due after credit if any is:
a. P825,000
b. P852,000

c. P822,000

d. P815,000

48. Based on the foregoing problem, the IAE tax if any is:
a. P113,625
b. P103,125
c. P213,625

d. P113,620

49. CZARINA Corporation, an educational institution provided the following data for taxable year 2015:
Income from tuition fees
P3,500,000
School miscellaneous fees
1,500,000
Dividend Income:
Domestic corporation
2,000,000
Foreign corporation
2,000,000
Rent income (net of 5% withholding tax)
1,900,000
Operating expenses
4,000,000
Required:
Income tax due of the school
The income tax of the school is:
a. P1,600,000
b. P1,500,000

c. P1,400,000

d. P500,000

50. Suing, a domestic bank authorized by the BSP to operate with foreign currency transactions provided
the following data: ($1-P50) for year 2015:
Interest from Phil. bank deposits on a loan granted to borrowers
Interest from Phil. peso bank deposit with another bank
Interest from US dollar loans to resident borrowers
Interest from US dollar loans to non-residents
Interest income, abroad
Interest from US dollar deposit Phil bank
Operating expenses
The basic income tax of the bank is:
a. P2,259,000
b. P2,295,000

c. P2,529,000

P
10 M
P
1M
$
50,000
P
10,000
P
20,000
P
30,000
P 2,500,000

d. P2,260,000

51. YAP Corporation, a resident corp. provided the following data for taxable year 2015:
Phil.
USA
Gross income
P
40 M
20 M
Dividends from:
Domestic corp.
5M
Foreign corp.
4M
Business Expenses
12 M
8M
The corporation remitted to its head office the P5M dividend income and 40% of its net profit to
its head office in USA.
The Corporations total tax liability including the tax on the profit remitted is:
a. P9,600,000
b. P10,944,000
c. P1,344,000
d. P10,449,000
52. In the foregoing problem, if it is registered with EPZA, its total tax liability is:
a. P10,944,000
b. P0
c. P2,200,000
d. P9,600,000

53. The ff. data were taken from the financial statement of BISNAR Corporation for taxable year 2015:
Phil.
Gross sales
P 950,000
Sales returns
2 5,000
Costs of goods sold
425,000
Interests income from trade receivable
10,000
Interests income from bank deposits, Phil.
20,000
Dividend income from domestic corp.
15,000
Dividend income from foreign corp.
25,000
Royalty income
20,000
Sales of shares of stocks of domestic corp.
held as capital asset thru local stock exchange 70,000
Operating expenses
250,000
Income from money market placement
35,000
Sale or real property in the Phil. not used
in business, cost P4M
5M

Abroad
P2,000,000
300,000
50,000

300,000
100,000

20% of the operating expenses is non-deductible / Note: Krivenko vs. Register of Deeds of

Manila and Article 12 of 1987 Constitution.


The FMV of the real property sold was P8M at the time of the sale.
Its income tax on ordinary taxable income is:
a. P600,000
b. P600,500

c. P524,800

d. P115,200

Its total tax on passive income is:


a. P15,000
b. P8,000

c. P4,000

d. P11,000

Its capital gains tax is:


a. P480,000

c. P300,000

d. P60,000

b. P495,000

54. Based on the above problem, its total combined tax liability if it is a resident corp:
a. P435,200
b. P450,000
c. P423,350
d. P450,550
55. And if it is a non-resident corp., its total combined taxes is:
a. P485,450
b. P515,200
c. P517,450

d. P485,600

56. A domestic corporation has the following data for the year 2015 (fourth year of operation):
Sales
Cost of sale
Business expenses
Dividend from domestic corporation
Selling price of land classified as capital
asset (cost, P3,500,000)
Interest on Phil. currency bank deposit
Dividend declared and paid
Tax paid for the first three quarters

5,000,000
1,500,000
800,000
50,000
4,000,000
40,000
500,000
150,000

The BIR, upon investigation, found out that there is improper accumulation of earnings.
The IAE tax is:
a. P173,200

b. P187,000

c. P517,800

d. P143,800

57. Velasquez Corporation has the following data for the year 2014:
Gross Income Philippines
Gross Income USA
Gross Income Japan
Expenses Philippines
Expenses USA
Expenses Japan
Other Income:
Dividend San Miguel Corp.
Dividend Ford Motors - USA
Gain Sale of Shares of Stock SMC Directly
To Buyer
Royalties Philippines
Royalties USA
Interest Other than from Banks
Rent Land in USA
Other Rent Income
Prize Contest in Manila
Land Sold in the Philippines

P 1,000,000
500,000
500,000
300,000
200,000
100,000
70,000
120,000
150,000
50,000
100,000
60,000
250,000
100,000
200,000
2,000,000

The cost of the land not used in business is P1M, its FMV is P3M
Its total tax liability as a Domestic Corporation is:
a. P869,000
b. P913,600
c. P963,600

d. P953,600

58. Based on Number 57, Its total tax liability if it is a resident corporation:
a. P638,000
b. P679,200
c. P659,200

d. P339,200

59. And if it is a non-resident corporation, its total tax liability is:


a. P743,500
b. P791,700
c. P791,200

d. P651,700

60. ENRIQUEZ CORP., a domestic corporation had the following data:


Year
2010
2011
2012
2013
2014

Gross Income
P 1,000,000
2,000,000
3,000,000
1,000,000
980,000

The taxable Income in 2014 is:


a. P380,000
b. P0

Deductions
P 1,200,000
1,900,000
2,950,000
1,100,000
500,000

c. P100,000

d. P50,000

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