GROSS INCOME

1. Which of the following taxpayers is taxable on income derived from all sources within and outside
the Philippines?
A. Domestic corporation
B. Resident Foreign Corporation
C. Resident Citizen
D. Both “a” and “c”

2. 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 properties- place of sale

3. Pedro earned interest income from a promissory note issued to him by juan, a resident of
California USA, Assuming pedro is a non resident citizen, the interest income is
A. Subject to basic income tax
B. Subject to Final Tax
C. Not subject to income tax
D. Partly subject to scheduler and partly subject to Final tax

4. Which of the following is a requisite for an income to be taxable?

A. There must be gain
B. The gain must be realized and received
C. The gain must not be excluded by law from taxation
D. All of the above

5. The sources from which income is derived

A. Labor
B. Illegal services
C. Profits derived from sale or exchange of capital assets
D. All of the above

6. Which of the following is not an income for income tax purposes?

A. Collection of loans receivable
B. Condonation of debt for services rendered
C. Excess of selling price over the cost of an asset sold
D. None of the above

7. Which of the following is not a characteristic of income?

A. Increase in taxpayers wealth
 B. Realization of receipt of gain
C. Earnings constructively received
D. Return of taxpayer’s wealth

Use of the following data for the next four (4) Questions:

JJ leased his land to Joven for two years beginning July 1, 2018. Joven would pay monthly rental of
P100,000. He paid rent up to October 2018 and then defaulted for the rest of the year.

8. Under the accrual method, how much was the income of JJ for 2018?
A. 200,000
B. 400,000
C. 600,000
D. None of the choices

9. Using the same data from the preceding number, how much was the income of JJ in 2018 using
the cash method?
A. 200,000
B. 400,000
C. 600,000
D. None of the choices

10. Under accrual method, how much was the deductible expense of Joven in 2018?
A. 600,000
B. 400,000
C. 200,000
D. None of the choices

11. Under the cash method, , how much was the deductible expense of Joven in 2018?
A. 600,000
B. 400,000
C. 200,000
D. None of the choices

Use of the following data for the next three (3) Questions:

On January 1, 2017, Cathrina leased her land to leah. The terms of the contract of lease is for fifteen
(15) years and the rental fee is P360,000 a year. The contract provides that Leah will construct a building
and at the end of the contract, the ownership of the building will be transferred to Cathrina. The building
with a useful life of 30 years, was completed on January 1, 2018 at a cost of P6,000,000.

12. Assume cathrina will spread her income over the term of the contract of lease. For income tax
purposes, cathrina’s 2018 income is:
A. 360,000
B. 560,000
 C. 760,000
D. 6,360,000

13. Assume cathrina opted to use the lump sum method of recognizing income from leasehold
improvement, her taxable income in 2018 should be:
A. 360,000
B. 560,000
C. 760,000
D. 6,360,000

14. Using the assumption in the immediately preceding number, cathrina’s taxable income in 2019
should be:
A. 360,000
B. 560,000
C. 760,000
D. 6,360,000

15. Joven was selected as the most outstanding professor in LPU Manila. His name was submitted by
the Accountancy Chairperson without his knowledge. He received a trophy and a cash award of
P50,000. The amount received is
A. Subject to basic income tax
B. Subject to final tax
C. Exempt from Income tax
D. Partly taxable and partly exempt

DEDUCTIONS FROM GROSS INCOME

1. Which of the following is not the characteristic of Deductions?

A. It is a reduction of wealth that helped earn the income subject to tax
B. An immunity or privilege, a freedom from a change or burden to which others are
subjected
C. It is not a receipt
D. It is a subtraction to arrive at income subject to tax

2. Political campaign contributions are not deductible from gross income

A. If they are not reported to the Commission on Elections
B. If the candidate supported wins the election because of possible corruption
C. Since they do not help earn the income from which they are to be deducted
D. Since such amounts are not considered income of the candidate to whom given

3. Statement 1: deductions from gross income are not presumed.

Statement 2: as a rule, deductions means itemized deductions.
 A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

4. Which of the following is deductible expense for income tax purposes?

A. Salaries of domestic servants
B. Ordinary repair of the personal car
C. Provision for doubtful accounts
D. None of the above

5. This is not a requisite for business expense to be deductible

A. It must be reasonable
B. It must be paid during the taxable year
C. The withholding tax otherwise required had been deducted and remitted to the BIR
D. It must be ordinary and necessary

6. The following requisites for deduction of compensation expense, except

A. Personal services must have been actually rendered
B. The compensation for such services must be reasonable
C. Both “a” and “b”
D. Neither of “a” nor “b”

7. Which of the following can be deducted from gross income in the year paid or incurred?
A. Repairs that materially add to the value of the property
B. Repair that appreciably prolong the life of the property
C. Repair that keep the property in its ordinarily efficient operating condition
D. All of the choices

8. Which of the following losses is not deductible?

A. Abandonment losses in petroleum operation
B. Excess of expenses over gross income from sale of ordinary assets
C. Losses on wash sales of stocks
D. Losses on sale of investments

9. On December 1, 2017, Ms. Tintin purchased 100 shares of common stock of Paul company for
P10,000. On December 15, 2017 she purchased 100 additional shares for 9,000. On January 2,
2018, she sold the 100 shares purchased on December 1, 2017 for P9,000. How much is the
deductible loss?
A. 1,000
B. 750
C. 500
 D. 0

10. Sira Sira company had an old warehouse which had a cost of P1,200,000. The company
demolished the warehouse when it had a book value of P200,000 in order to construct a new and
bigger warehouse. The demolition cost amounted to P25,000 while the scrap were sold for
P10,000. How much is the deductible loss in arriving at taxable income?
A. None
B. 185,000
C. 200,000
D. 215,000

11. It denotes an accident, a mishap, some sudden invasion by a hostile agency, and excludes the
progressive deterioration or property through a steady operating cause.
A. Casualty
B. Business
C. Abandonment
D. Wager

12. In 2017, Delta company paid total premiums of P10,000 for the life insurance policy of the vice
president, where the beneficiary is the corporation. At the end of the year, Delta received
dividend of P100,000 because of policy. In 2017, the corporation should indicate a claim for a
deduction for life insurance premium of
A. 100,000
B. 10,000
C. 1,000
D. Nil

13. The following donations are non-deductible, except?

A. Donations given directly to Yolanda Survivors
B. Alms given to beggars
C. Political contributions
D. Donation to International Organizations

14. Which of the following income is to be reduced by itemized deductions?

A. Compensation income
B. Business income
C. Passive income
D. Capital gain

15. The following may be allowed to claim OSD in lieu of the itemized deductions, except
A. Taxable estates and trust
B. Non-resident aliens
C. Resident foreign corporation
D. Domestic corporation