Philippine Christian University
Sampaloc 1, Dasmarinas City, Cavite
College of Business and Technology
Name:______________________________________Course/Year__________Date:_________
INCOME TAXATION (Final Exam)
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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______1. Statement 1: Only business expenses may be deducted from the gross income of taxpayers.
Statement 2: Itemized deductions from gross income should be duly supported by vouchers or
by vouchers or receipts.
a. Both statements are true;
b. Both statements are false;
c. The first statement is true, but the second statement is false;
d. The first statement is false, but the second statement is true.
______2. Which of the following statements is true?
a. Payments which constitute bribes, kickbacks, and others of similar nature which are necessary
to realize the profit are allowed as deduction from gross income
b. The taxes which are deductible from gross income include the taxes, interest and penalties
incident to tax delinquency.
c. Deductions are amounts allowed by the Tax Code to be deducted from gross income to arrive
at the income tax liability of a taxpayer
d. Losses from wagering transactions shall be allowed only up to the extent of the gains from
such transactions.
______3. The following may elect optional standard deduction or itemized deduction, except,
a. Taxable estates and trusts
c. General professional partnership
b. Domestic corporation
d. Foreign corporation
______4. The following may be allowed to claim optional standard deduction, except
a. Resident citizen
c. Resident alien
b. Non-resident citizen
d. Non-resident alien
c. Estate or donor’s tax
d. Special assessment
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______5. May be deducted from gross income
a. Philippine income tax
b. Foreign income tax
______6. This is not deductible from gross income
a. Transportation expenses from the main office to the branch
b. Transportation expenses from home to the office and from the office back to home
c. Travel expenses on business trips
d. Travel expenses while away from home in the pursuit of trade, business or profession
______7. A revenue expenditure is
a. Usually incurred in the acquisition, betterment or permanent improvement of the asset
b. Capitalized and the cost is recovered through annual depreciation
c. Ordinarily to benefit more than one accounting period
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d. To benefit one accounting period and is a deduction from gross income in the year paid or incurred.
______ 8. No deductions shall be allowed where the transaction is between “related taxpayers” for
A) Losses from sales or exchanges of property
B) Interest expense
C) Bad debts
a. A and B
b. B and C
c. A and C
d. A, B and C
______ 9. Which statement is wrong? Deduction for premiums on hospitalization and health insurance is:
a. Allowed a citizen whose income is gross compensation income only;
b. Allowed a citizen whose income is business or professional income only;
c. Allowed a citizen with mixed income;
d. Only if the taxpayer is taking itemized deductions from gross income.
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______10. The deduction for premium payments on health and/or hospitalization insurance is not available to;
a. An individual with gross compensation income only
b. An individual with gross income from business or practice of profession, whether he is availing of the OSD
or the itemized deduction
c. An individual with mixed income
d. Both husband and wife
______11. Interest expense incurred to acquire property used in trade or business or exercise of a profession is
a. Not allowed as a deduction against gross income
b. Required to be treated as a capital expenditure to form part of the cost of the asset
c. Allowed as a deduction or treated as a capital expenditure at the option of the taxpayer
d. Allowed as a deduction or treated as a capital expenditure at the option of the government
______12. A Corp. had a net sales of 1M. The actual entertainment, amusement and recreation expense amounted to
20,000.
The deductible “EAR” expense is
a. 20,000
b. 6,000
c. 10,000
d. 5,000
______13. B Corp. had a net revenue of 1M. The actual entertainment, amusement and recreation expense amounted to
20,000. The deductible “EAR” expense is
a. 20,000
b. 6,000
c. 5,000
d. 10,000
______14. C Corp. is engaged in the sale of goods and services with net sales of and net revenue of 2M and 1M
respectively.
The actual entertainment, amusement and recreation expense amounted to 18,000. The deductible “EAR”
expense is
a. 18,000
b. 16,000
c. 12,000
d. 6,000
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______15. If an individual is on a cash basis of accounting, will interest paid in advance be allowed as a deduction?
First answer – No, it is a deduction in the year that the indebtedness was paid and not in the year that the
interest
paid.
Second answer – Yes, if the indebtedness is payable in periodic amortizations, the amount of the interest
which
corresponds to the amount of the principal amortized or paid during the year shall be allowed as a deduction in
such taxable year.
a. True, true
b. True, false
c. False, false
d. False, true
______16. One of the following losses cannot be deducted from the gross income
a. To construct a bigger warehouse, a corporation demolished an old warehouse which had a construction cost
of 2M and a book value of 300,000.
b. Demolition of a building existing on a land purchased where the corporation has no use for the building
at the time of purchase and it was it intention to remove the building in order to build its factory.
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c. A corporation retired its machinery from the business because of the increase in the cost of production and
the
failure of the machinery to meet desired number of units of production
d. A corporation ascertained that its B Corp. stocks are worthless because of the total insolvency of B Corp.
______17. Which statement is wrong? The deduction for premiums on hospitalization and health insurance is:
a. Not to exceed 2,400 a year per family;
b. Not to exceed 200 per month;
c. Not allowed if the family income exceeds 250,000
d. In the case of married persons, can be claimed by either spouse.
______18. A, not happy with her present job, resigned and started her own business. The business requires her to travel so
she used her car for the purpose. Assume that A started her business on April 1 and that she uses the car for
business 70% of the time, assuming total expenses for the year for the use of the car is 300,000, the deductible
expenses is
a. 210,000
b. 300,000
c. 225,000
d. 157,500
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______19. Statement A – For the calendar year 2016, an individual taxpayer may claim either the itemized deduction or
optional standard deduction of 40% of gross sales/receipts.
Statement B – In the calendar year 2016, an individual taxpayer may claim either the itemized deduction or
optional standard deduction in the filing of the quarterly income tax returns
a. True, true
b. True, false
c. False, true
d. False, false
______20. A acquired a machine at a cost of 500,000. Scrap value is 40,000 and the estimated useful life was 25 years.
After depreciating the asset for 20 years using the straight-line method, it was determined that the remaining
life
is not five years. The annual depreciation from the 21 st year assuming a remaining life of 10 years without
scrap
is
a. 17,600
b. 20,000
c. 35,200
d. 13,200
______21. I. An expense which is necessary but not ordinary, or ordinary but not necessary is deductible from gross
income.
II. The taxpayer must signify his intention to elect the itemized deduction, otherwise, he is deemed to have
chosen the optional standard deduction.
a. True, true
b. True, false
c. False, true
d. False, false
______22. I. Interest paid on preferred stock is deductible from gross income of the paying corporation.
II. A capital expenditure usually benefits more than one accounting period and is deductible from gross income
in the year it is paid or incurred.
a. True, true
b. True, false
c. False, true
d. False, false
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______23. Statement 1: Interest paid or incurred in the acquisition of fixed assets may be capitalized to the asset account.
Statement 2: An individual on the cash basis of accounting shall deduct interest paid in advance in the year that
the principal is paid.
a. Both statements are true;
b. Both statements are false;
c. The first statement is true, but the second statement is false;
d. The first statement is false, but the second statement is true.
______24. In 2016, a taxpayer borrowed money from Bank A, that gave him an interest expense of 8,000. He deposited
the
money with Bank B, and he had an interest income of 10,000. The deductible interest expense is:
a. 8,000
b. 3,900
c. 4,200
d. 4,700
______25. Which of the following statements is wrong?
a. A deduction for bad debt is not available when a provision for it is made;
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b. A deduction for bad debt is available only when a write off is made;
c. There is no deduction for bad debt when there is a surety for the debtor against whom collection may be
enforced;
d. A deduction for uncollectible account is available to a taxpayer whether he is on the cash or accrual
method
of accounting.
______30. Examples of taxes that are deductible except
a. Occupation tax
b. Privilege tax
_______31. Non-deductible taxes, except
a. Special assessment
b. Donor’s tax
c. DST
d. Philippine income tax
c. Estate tax
d. Business tax
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_______32. Any amount subsequently received on account of a bad debt previously charged off and allowed as a
deduction
from gross income in prior years must be included in gross income in the taxable year in which received. This
is
a. Severance test
c. Destination of income test
b. Life-blood theory
d. Equitable doctrine of tax benefit
_______33. A is engaged in the marketing of cars. When A’s son got married to the daughter of a senator, he gave the
newly-wedded couple a brand new car worth 800,000 as a wedding gift. The value of the car is
a. Taxable income to the newly-wedded couple
b. Deductible expense of A
c. Not taxable income to the newly-wedded couple
d. Taxable income to the couple and deductible expense of A
_______34. May claim tax credit for income taxes paid to foreign country.
a. Resident citizen
b. Resident alien
c. Non-resident citizen
d. Non-resident alien
_______35. One of the following is not correct for deductibility of losses from gross income
a. Must arise from fire, storm or other casualty, robbery, theft or embezzlement
b. Must not be compensated by insurance or other form of indemnity.
c. A declaration of loss by casualty should be filed with the Bureau of Internal Revenue.
d. Must have been claimed as deduction in the estate return of the taxpayer
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_______36. The net operating loss, which had not been previously offset as deduction from gross income shall be carried
over as deduction from gross income for the next
a. 2 consecutive taxable years immediately following such loss.
b. 3 consecutive taxable years immediately following such loss.
c. 4 consecutive taxable years immediately following such loss.
d. Taxable year immediately following such loss.
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_______37. The records of Manila Bus show salaries and wages paid for its rank and file employees.
To non-senior citizens
1,800,000
To senior citizens
200,000
The deductible salaries and wages expense is
a. 2,000,000
b. 1,960,000
c. 2,400,000
d. 2,030,000
_______38. The term “net operating loss” shall mean
a. The excess of allowable deduction over gross income of the business in a taxable year
b. The excess of itemized deduction over gross income of the business in a taxable year
c. The excess of optional standard deduction over gross income of the business in a taxable year
d. Loss incurred which shall be carried over as a deduction from gross income to be spread for the next three
years
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_______39. Statement 1: Contributions by the employer to a pension trust for past service cost is deductible in full in the
year that the employer made the contributions, if he is on the cash basis of accounting.
Statement 2: Contributions or donations given directly to individuals cannot be deducted from gross income.
a. Both statements are true;
b. Both statements are false;
c. The first statement is true, but the second statement is false;
d. The first statement is false, but the second statement is true.
_______40. Which statement is wrong? Contributions made by an employer to a pension trust:
a. For lump sum payment to cover past service cost, is allowable as deduction beginning with the year the
payment was made.
b. For lump sum payment to cover past service cost is allowable as deduction amortized for a period of ten
years:
c. For a lump sum payment to cover past service cost, may be amortized over a period of more than, but not
less than, ten years;
d. For present service cost, is deductible in the year that payment is made.
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_______41.Which statement is not correct?
a. The deduction of an individual for contributions subject to limitation should not exceed ten percent (10%) of
his taxable income from business, trade or practice of profession before deduction for contributions;
b. The deduction of a corporation for contributions subject to limitation should not exceed five percent (5%) of
its taxable income from business or trade before deduction for contributions;
c. Contributions to media in its fund drive for the relief of calamity victims are deductible from gross income.
d. Contributions of canned goods to student organizations during the Christmas season for distribution to
Muntinlupa inmates are deductible from gross income.
_______42. Which statement is wrong? Research and development costs:
a. When related to the acquisition and/or improvement of land and building, must be capitalized;
b. If not related to land and building, may be treated as an outright deduction;
c. If not related to land and building, may be treated as a deferred expense which may be amortized;
d. Cannot be deducted because it has unlimited life.
Problem 1: (6 pts.)
A domestic corporation reported the following result of operations:
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Taxable income in the Philippines
Taxable income from Thailand
Taxable income from Mexico
Taxable income from Taiwan
Income tax paid during the year
Income tax paid in Thailand
Income tax paid in Mexico
2,900,000
3,200,000
2,000,000
2,400,000
600,000
350,000
500,000
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1. Under the Tax Credit Approach, determine the amount of foreign tax credit._____________________
2. Determine the amount of income tax still due, assuming the corporation elected to use the Deduction Approach.
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