Chapter 6
1. Income, for tax purpose:
I. Means all income from whatever source (legal or illegal), unless specifically excluded under the Tax
Code
II. Means all wealth which flows into the taxpayer other than return of capital
III. Is recognized in the year it is actually received in cash or cash equivalent
IV. Refer to the amount of money coming to a person or corporation within a specified time, whether as
payment of services, interest, or profits from investment.
a. I, II and III only
c. I, II, III and IV
b. I and IV only
d. None of the above
2. The sources from which income is derived
a. Labor
b. Illegal activities
c. Profits derived from sale or exchange of capital assets
d. All of the above
3. The sources from which income is derived
A
Labor
Gifts and inheritance
Use of capital
B
True
True
True
C
True
False
True
False
D
True
False
False
False
False
4. In 2018, Pedro sent his sister Ana $10,000 via a telegraphic transfer through the Banko De Uro el
Pilipinas. Lorna, the bank’s remittance clerk made a mistake and credited Ana with $100,000 which
she promptly withdrew. The bank demanded the return of the mistakenly credited excess, but Ana
refused. The BIR entered the picture and investigated Ana. Would the BIR be correct if it determines
that Ana 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 income regardless of the source.
c. No, it was not her fault that the funds in excess of $10,000 were credited to her.
d. No, the funds in excess of $10,000 were in effect donated to her.
5. Which of the following is a characteristic of income?
A
B
Increase in taxpayer’s wealth
True
Realization of gain
True
Return of taxpayer’s wealth
True
True
C
True
False
6. Which of the following is a requisite for an income to be taxable?
a. There must be gain
b. The gain must be realized or received
c. The gain must not be excluded by law from taxation
d. All of the above
7. Which of the following is not an income for income tax purposes?
a. Gain derived from labor
b. Return on capital
c. Excess of selling price over cost of assets sold
d. Gift received
8. Which of the following is not an income for income tax purposes?
a. Collection of loans receivable
False
False
D
True
False
False
False
b. Condonation of debt for services rendered
c. Excess of selling price over the cost of an asset sold
d. None of the above
9. Which of the following is not a characteristic of income
a. Increase in taxpayer’s wealth
b. Realization or receipt of gain
c. Earnings constructively received
d. Return of taxpayer’s wealth
10. Which is not a valid definition of income
a. Income is the return from capital invested
b. Income is a fund at one distinct point of time
c. Income means all wealth which flows into the taxpayer other than a mere return of capital
d. Income means cash or its equivalent unless otherwise specified
11. The share in the profits of a partner in a general professional partnership is regarded as received by
him and thus taxable although not yet distributed. This principle is known as
a. Actual receipt of income
b. Advance reporting of income
c. Accrual method of accounting
d. Constructive receipt of income
12. Which of the following is considered or construed as an example of “constructive receipt”?
a. Retirement benefits, pensions, gratuities
b. Fees paid to a public official
c. Interest coupons that have matured and are payable but have not been cashed
d. Deposits for rentals to answer for damages, restricted as to use
13. Constructive receipt occurs when the money consideration or its equivalent is placed at the control of
the person who rendered the service without restrictions by the payor. The following are examples of
constructive receipts, except:
a. A security deposit to insure the faithful performance of certain obligations of the lessee to the lessor
b. Deposit in banks which are made available to the seller of services without restrictions;
c. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller
as payment for services rendered;
d. Transfer of the amounts retained by the payor to the account of the contractor
14. There is constructive receipt of income when:
a. Payment is credited to payee’s account
b. Payment is set aside for the payee, or otherwise made available so the payee may draw upon it at any
time, or so the payee could have drawn upon it during the taxable year if notice of intention to withdraw had
been given without substantial limitations.
C. Both “a” and “b”
D. Neither “a” nor “b”
15. When different types of income are subjected to common tax rate, the tax system is describe as
a. Global tax system
b. Gross income tax system
c. Scheduler tax system
d. Final tax system
16. Situs, for taxation purposes will depend upon various factors, including:
I. The nature of the tax and the subject matter thereof
II. The possible protection and benefit that may accrue both to the government and to the taxpayer.
III. Domicile or residence
IV. Citizenship
V. Source of income
a. I and V only
b. I, III and IV only
c. I, III, IV and V
d. I, II, III, IV and V
17. As a rule, income from whatever source is taxable. Income from whatever source may come from:
I. Gains arising from expropriation of property
II. Gambling gains
III. Income from illegal business or from embezzlement
IV. Recovery of receivables previously written off
V. Tax refunds
VI. Compensation for injury suffered
VII.Gratuitous condonation of debt
a. I and II only
b. I, IV and V only
c. I, IV, V and VI only
d. I, II, III, IV and V only
18. SItus of taxation on income from sale of property purchased
a. Place of the seller
b. Place of sale
c. Place of buyer
d. As determined by the Commissioner
19. Which of the following test of source of income is incorrect?
a. Interest income - resident 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
20. Situs of taxation on income from sale shares of a domestic corporation
a. Always treated as income derived from within the Philippines
b. Always treated as income derived from without the Philippines
c. May be treated as income within or without the Philippines depending on the place of sale
d. May be treated as income within or without the Philippines depending where the shares are kept
21. Situs of taxation on income from sale shares of a foreign corporation
a. Always treated as income derived from within the Philippines
b. Always treated as income derived from without the Philippines
c. May be treated as income within or without the Philippines depending on the place of sale
d. May be treated as income within or without the Philippines depending where the shares are kept
22. Statement 1: A gain from sale of shares of a domestic corporation shall be considered derived from the
Philippines regardless of where the shares were sold
Statement 2: A gain from a sale of shares of a foreign corporation shall be considered derived from the
country where the corporation was created or organized.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 & 2 are true
23. Pedro earned interest income from a promissory note issued to him by Juan, a resident of California,
U.S.A. Assuming that Pedro is a nonresident 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
24. Mr. Parker, a French citizen permanently residing in the Philippines, received several items during the
taxable year. Which among the following is not subject to Philippine income taxation?
a. Consultancy fees received for designing a computer program and installing the same in Shanghai
facility of a Chinese firm
b. Interest from his deposits in a local bank of foreign currency earned abroad converted to Philippine
pesos
c. Dividends received from an American corporation which derived 60% of its annual gross receipts from
Philippine sources for the past ten (10) years
d. Gains derived from the sale of his condominium unit located in Quezon City.
25. It is important to know the source of income for tax purpose (ie., from within or without the
Philippines) because:
a. Some individual corporate taxpayers are taxed on their worldwide income while others are taxable
only upon income from sources within the Philippines
b. The Philippines imposes income tax only on income from sources within
c. Some individual taxpayers are citizens while others are aliens
d. Export sales are not subject to income tax
26. Which of the following taxpayers is taxable on income from all sources within and outside the
Philippines
a. Domestic corporation
b. Resident foreign corporation
c. Resident citizen
d. Both “a” and “c”
27. Which of the following is NOT true about source of income?
a. In case of income derived from labor, source is the place where the labor is performed.
b. In case of income derived from use of capital, source is the place where the capital is employed
c. Ion case of profits from the sale or exchange of capital assets, source is the place or transaction occurs
d. None of the above
28. Which income from sources partly within and partly outside the Philippines is allocated on the time
basis?
a. Income of the international shipping corporation with vessels touching Philippine ports
b. Income of a telegraph company with transmission from the Philippines to points abroad
c. Income from goods produced in whole or in part in the Philippines and sold in a foreign country, or
vice-versa
d. Income from personal services performed in part in the Philippines and in part abroad
29. A taxpayer is employed by a shipping company touching Philippine and foreign ports. In 2018, he
received a gross payment for his services rendered of P3,000,000. In that year, the vessels on board of
which he rendered services had a total stay in Philippine ports of four months. His gross income from
the Philippines was:
a. P0
c. P1,500,000
b. P1,000,000
d. P3,000,000
30. Chris is a Filipino immigrant living the United States for more than 15 years. He is retired and he came
back to the Philippines as a balikbayan. Every time he comes to the Philippines, he stays here about a
month. He regularly receives a pension from his former employer in the United States, amounting to
US$2,000 a month. While in the Philippines, with his pension pay from his former employer, he
purchased three condominium units in Makati which he is renting out for P25,000 a month each.
Does the US$2,000 pension become taxable because he is now in the Philippines?
a. Yes. Income received in the Philippines by the non-resident citizen is taxable
b. Yes, income received in the Philippines or abroad by non-resident citizen is taxable
c. No. Income earned abroad by a non-resident citizen is not taxable in the Philippines
d. No. The pension is exempt from taxation being one of the exclusions from gross income
31. All of the following are correct except one. Which is the exception?
a. The source of interest income is the country where the debtor resides
b. The source of interest income is the country where the creditor resides
c. Rents or royalties are considered derived from the country where the property is located
d. Income from personal services is considered derived from the country where the services were
rendered.
32. Which of the following is considered income derived from within the Philippines?
I. Gain on sale of personal property purchased in the Philippines and sold in Canada
II. Compensation received from services in the Philippines
III. Rent income from real property located in USA
IV. Gain on sale of shares of a foreign corporation sold in the Philippines
a. I and II only
c. II and IV only
b. I, II and IV only
d. all of the above
33. Which of the following is not an income derived from sources within the Philippines for income tax
purposes?
a. Interests derived from bonds issued by a foreign corporation
b. Interest on notes or other interest-bearing obligations of residents
c. Both “a” and “b”
d. Neither “a” nor “b”
34. Which of the following statements is correct with respect to valuation of income?
a. The amount of income recognized is generally the value received or which the taxpayer has a right to
receive
b. If the services were rendered at a stipulated price, in the absence of any evidence to the contrary, such
price shall be presume to be the fair market value of the compensation received
c. Transfer of land made by a person to another in payment of services rendered in the form of attorney’s
fees shall be considered as part of the gross income of the latter valued at either the fair market value or the
zonal valuation, whichever is higher, in the taxable year received
d. All of the above
35. Compensation income is earned when an employer-employee relationship exists. Which of the
following income represents income earned through employee-employer relationship?
I. Professional fees
II. Wages
III. Pension pay
IV. Wages
a. I only
c. II and III only
b. I and III only d. I, II, III and IV
36. Pedro is a member of the board of directors ABC Company. During the current taxable year, Pedro
received director’s fees amounting to P300,000 from quarterly board meetings he attended. Such fees
should:
a. Form part of Pedro’s gross compensation income, whether or not he is at the same time an
employee of the corporation
b. Form part of Pedro’s gross compensation income only if he is at the same time an employee of the
corporation
c.
d.
Both “a” and “b” are correct
Neither “a” nor “b” is correct
37. Which of the following compensation will be subject to graduated rates?
a. Basic salary whether or not the employee is a minimum wage earner
b. Basic salary only if the employee is not minimum wager earner
c. 13th month pay and other benefits not exceeding P30,000
d. Fringe benefits received by supervisory or managerial employee
38. Which of the following items that reduces salaries of employees is not an exclusion from gross
income?
a. GSIS or SSS Contributions
b. Pag-ibig Contributions
c. Labor Union Dues
d. None of the choices
39. One of the following compensation income of an individual taxpayer is not an exclusion from gross
income:
a. Monetized vacation leaves not exceeding 10 days a year
b. Separation pay of an employee who resigned from his employment
c. Retirements benefits of an employee under a qualified benefit plan who has worked for an employer
for at least 10 years, who at the time of retirements is not less than 50 years of age, and who avails of the
retirement for the first time
d. All of these
40. Which of the following is taxable?
a. Separation pay received by a 50-year old employee due to the retrenchment program of the employer
b. Retirement pay received from a benefit plan registered with the BIR, where at the time the employee
retired, he was 57 years of age, retiring from employment for the first time in his life, and was employed with
the employer for 8 years
c. Social security benefit received by a balikbayan from employer abroad at age of 30
d. None of the above
41. Statement 1: Amounts received by reason of involuntary separation remain exempt from income tax
even if the official or employee at the time of separation has rendered less than ten (10 years of
services and/or below fifty (50) years of age
Statement 2: Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said official or employee,
such as retrenchment, redundancy, or cessation of business are exempt from income tax
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
42. The taxpayer was retired by his employer in 2016 and paid P2,000,000 as a retirement gratuity
without any deduction for withholding tax. The corporation became bankrupt in 2018. Can the BIR
subject the P2,000,000 retirement gratuity to improve tax in 2018?
1st answer: Yes, if the retirement gratuity was paid based on a reasonable pension where the taxpayer
was 50 years old and has served the corporation.
2nd answer: No, if the taxpayer was forced by the corporation to retire.
a. 1st and 2nd answers are correct
b. 1st answer is correct but 2nd answer is wrong
c. 1st answer is wrong but 2nd answer is correct
d. 1st and 2nd answers are wrong
43. JJ, an official of Excel Corporation, asked for an earlier retirement because he was immigrating to
Canada with his girlfriend. He was paid P3,000,000 as separation pay in recognition of his valuable
services to to the corporation. Paul, another official of the same company was separated for
occupying a redundant position. He was given P1,000,000 separation pay. Rene who was rendered 11
years of service and who is now 55 yrs. old opted to retire for the first time. He received P2,000,000
retirement pay. The total income subject to withholding tax is _______.
a. P1,000,000
c. P3,000,000
b. P2,000,000
d. P6,000,000
44. Which among the following is part of the taxable income of an employee?
I. Insurance premium provided by the employer of the life insurance policy of the employee where the
designated beneficiary is the relative of the employee
II. Insurance premium paid by employer on the life insurance policy of the employee where the
designated beneficiary is the employer
III. The income tax of the employee paid by the employer as part of the employee’s benefit
IV. The income tax of the employee advanced by the employer, deductible against future income of the
employee
a. I only
c. II and III only
b. I and II only
d. III only
45. Statement 1: Remuneration for services constitutes compensation income even if the relationship of
employer and employee does not exist any longer at the time when payment is made between the
person in whose employ the services had been performed and the individual who performer them.
Statement 2: In general, fixed or variable allowances which are received by a public officer or employee or
officer or employee of a private entity, in addition to the regular compensation, fixed for his position or office,
is compensation subject to income tax and consequently, creditable withholding tax on compensation income
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct
46. Statement 1: Representation and Transportation Allowances (RATA) granted under Section 34 of the
General Appropriations Act to certain officials and employees of the government are considered
reimbursements for the expenses incurred in the performance one’s duties rather than as additional
compensation
Statement 2: The excess of RATA in statement 1, if not returned to the employer, constitutes taxable
compensation income of the employee
Statement 3: COLA of minimum wage earners is exempt from income tax
a. All statements are correct
b. All statements are incorrect
c. Only statement 3 is correct
d. Only statement 3 is incorrect
47. Juana, widow received the following during 2018:
 Received $500 ($1=P44) monthly interest income from the pension plan of his deceased husband
who served in the US Army for 20 years
 Won a beauty contest “Miss Byuda 2018”. she received the following as prizes:
 Cash prize, P50,000
 Free-trip abroad worth P50,000
 College scholarship with International College of Business and Economics worth P100,000
 Goods worth P20,000
 P100,00 from her debtor in payment of a loan, and interest in the sum of P15,000.
 Inherited from her grandmother a lot and apartment valued at P2,500,000 from which she is
receiving monthly rental of P15,000
The income subject to tax is a. P415,000
c. P250,000
b. P679,000
d. P515,000
48. Statement 1: The stipends received by resident physicians during their intensive training in the
residency program of a hospital are subject to creditable withholding tax on compensation income
Statement 2: Reasonable amounts of reimbursements/advance for travelling and entertainment expenses
whcich are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty
such as “per diem” need not be subject to the requirement of substantiation and to withholding tax
a. All statements are correct
b. All statements are incorrect
c. Only statement 1 is correct
d. Only statement 2 is correct
49. Statement 1: Tips or gratuities paid directly to an employee by a customer of the employer that are not
accounted for by the employee to the employer are considered as taxable income subject to basic tax.
Statement 2: The tips described in statement 1 shall not be subject to withholding tax for the reason that
tips are not accounted for by the employee to the employer
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct
50. The maternity benefit of the female employee under RA 11210, otherwise known as the 105-Day
Expanded Maternity Leave Law, shall pertain to the:
a. Full pay or full salary
b. Actual cash benefit received from SSS
c. Salary differential
d. All of the above
51. ______________ pertains to the actual remuneration or earnings paid by an employer for services
rendered on normal working days and hours, including allowances provided for under existing
company police or collective bargaining agreement, if any
a. Full pay or full salary
b. Actual cash benefit received from SSS
c. Salary differential
d. All of the above
52. _____________ refers to the difference that shall be shouldered by the employer when the actual cash
benefit received from the Social Security System (SSS) is less than the full pay or full salary of the
female employee during the duration of the maternity leave.
a. Full pay or full salary
b. Actual cash benefit received from SSS
c. Salary differential
d. All of the above
53. The maternity leave pay under RA 11210, otherwise known as the 105-Day Expanded Maternity
Leave Law, shall be:
a. Exempt from tax
b. Tax subject to graduated income tax rate
c. Subject to fringe benefit tax
d. The actual cash benefit from SSS is exempt while the salary differential shouldered by the employer
shall be treated as compensation income subject to graduated income tax rate
54. Which of the following statements is incorrect?
a. Income from business is never subject to final withholding tax
b. Income from exercise of profession may be exempt from income tax
c. Income from business may be subject to capital gains tax
d. Income from exercise of profession may be subject to income tax
55. Which of the following dealings in property is subject to normal income tax?
a. Sale of ordinary assets
b. Sale of real property, located in the Philippines, classified as capital asset
c. Sale of shares in a domestic corporation sold outside the local stock exchange
d. All of the choices
56. Which of the following interest income is subject to normal tax?
I. Interest income earned or derived from the normal course of trade or business
II. Interest income earned or derived from notes receivable
III. Interest income earned or derived from the over-payment of income tax for previous years
IV. Interest income derived from investments in government bonds
a. I only
c. I, II and III only
b. I and II only
d. All of the above
57. The following data on net income, bad debt, write-off and recovery show:
2019:
Case A
Case B
Case C
Net income (loss) before write-off
P120,000
P60,000
(P40,000)
Less: Bad debt written-off claimed as deduction
40,000
40,000
50,000
Net income (loss) after write-off
P80,000
P20,000
(P90,000)
2020:
Subsequent recovery
P50,000
The taxable recovery in 2018 is:
Case A
Case B
a.
P40,000
P20,000
b.
P40,000
P20,000
c.
P40,000
P10,000
d.
P40,000
P 0
P40,000
P10,000
Case C
P50,000
P 0
P 0
P 0
58. The following were taken from the income statement of domestic corporation for the taxable year
2020:
Gross profit on sales
P
800,000
Less: Deductible expenses
P
440,000
Provision for bad debts
80,000 (520,000)
Net income before tax
P
280,000
The taxable income of the corporation in 2020 should be:
a. P280,000
c. P330,000
b. P260,000
d. P340,000
59. Which of the following is not a taxable income?
a. Bad debts previously deducted as item of expense and partially recovered subsequently
b. Tax expense previously disallowed as deduction from taxable income, fully refunded subsequently
c. Income from gambling
d. Income from usurious financing
60. Which of the following tax refunds is taxable?
a. Percentage on person’s exempt from VAT
b. Estate or donor’s tax
c. Stock transaction tax
d. Income tax paid to a foreign country if claimed as tax credit during the year
61. The following are not taxable, except
a. Refund of fringe benefits tax
b. Refund of Philippine income tax
c. Refund of Philippines income tax
d. Refund of estate or donor’s tax
62. ABC Company paid the following taxes in 2018:
Income Tax
P
120,000
Common carrier’s tax
150,000
Local business taxes
100,000
Donor’s tax
60,000
Real estate tax
70,000
The common carrier’s tax, real estate tax and P60,000 of the income tax were refunded in 2018. If the
income of ABC was P1,200,000, the taxable income for the year should be:
a. P1,200,000
c. P1,420,000
b. P1,480,000
d. P1,410,000
63. For tax purposes, which among the following rules shall be observed with respect to forgiveness of
indebtedness?
I. If debtor rendered service in favor of the creditor, forgiveness of debt results in a taxable income to
the debtor
II. If the debtor did not render service in favor of the creditor, forgiveness of debt results in a taxable
indirect gift
III. If the debtor is a shareholder of a corporation, forgiveness of debt by the creditor-corporation results
in dividend distribution
a. I only
b. I and II only
b. II only
d. I, II and III only
64. If an individual performs services for a creditor who in consideration thereof cancels the debt, 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
65. Pobre borrowed from Rich P100,000 payable in five (5) equal monthly installments. Before the first
installment became due, Pobre rendered general cleaning services in the entire office building of
Rich, and as compensation, Rich canceled the indebtedness of Pobre up to the amount of P75,000
may amount to:
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income
66. One of the following income shall be returned for the year received.
a. Interest earned on bank deposit
b. Share in the net income of professional partnership
c. Stock dividend
d. Rentals for 2018, 2019 and 2020 received in 2018 by a lessor under accrual method
67. What is the correct treatment of advance payment made by the lessee to the lessor?
I. If the advance payment represents loan, the amount is part of the lessor’s taxable income
II. If the advance payment represents security deposit, the amount is part of the lessor’s taxable income
III. If the advance payment representing loan is applied to unpaid rent, the amount is part of the lessor’s
taxable income
IV. Prepaid rent must be reported in full in the year of receipt
a. All of the above
c. I, II and III only
b. None of the above
d. III and IV only
Use the following data for the next four (4) questions:
Mike leased his land to Leomar for two years beginning July 1, 2018. Leomar would pay monthly rental of
P100,000. He paid rent up to October 2018 and then defaulted for the rest of the year.
68. Under accrual method, how much was the income of Mike for 2018?
a. P200,000
c. P600,000
b. P400,000
d. None of the choices
69. Using the same data in the preceding number, how much was the income of Mike in 2018 using cash
method?
a. P200,000
c. P600,000
b. P400,000
d. None of the choices
70. Under accrual method, how much was the deductible expense of Leomar in 2018?
a. P600,000
c. P200,000
b. P400,000
d. None of the choies
71. Under cash method, how much was the deductible expense of Leomar in 2018?
a. P600,000
c. P200,000
b. P400,000
d. None of the choices
Use 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 term 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..
72. Assume Cathrina will spread her income over the term of the contract of lease. For income tax
purposes, Cathrina’s 2018 income is:
a. P360,000
c.P760,000
b. P560,000
d. P6,360,000
73. Assume Cathrina opted to use the lump-sump method of recognizing income from leasehold
improvement, her taxable income in 2018 should be:
a. P360,000
c. P760,000
b. P560,000
d. P6,360,000
74. Using the assumption in the immediately preceding number, Cathrina’s taxable income in 2019 should
be:
a. P360,000
c. P760,000
b. P560,000
d. P6,360,000
Use the following data for the next five (5) questions):
On July 1, 2016, Pedro leased his vacant lot for a period of 12 years to Juan at an annual rate of P2,400,000. It
was also agreed that Juan will pay of the following in 2016:
 P4,800,000 representing rental payment for two (2) years
 Security deposit of P2,400,000

Annual real property tax of P30,000
The lease contract provides, among others that Juan will construct a 5-storey building for parking
purposes at a cost of P36,000,000. Ownership of the building shall belong to Pedro upon the expiration or
termination of the lease contract. The building was completed on July 1, 2018 with an estimated useful life of
15 years.
75. Pedro shall report total income from the lease in 2016 at
a. P30,000
c. P2,430,000
b. P2,400,000
d. P4,830,000
76. Pedro shall report total income in 20017 at
a. P30,000
c. P2,430,000
b. P2,400,000
d. P4,830,000
77. Assuming Pedro will use outright method in recognizing income from leasehold improvements, how
much is the total income from lease for year 2018?
a. P3,030,000
c. P38,430,000
b. P3,630,000
d. P2,400,000
78. Assuming Pedro will use spread-out method in recognizing income from leasehold improvements,
how much is the total income from lease for year 2018?
a. P3,030,000
c. P14,430,000
b. P3,630,000
d. P2,400,000
79. Assuming that due to the fault of the lessee, the lease contract was terminated on January 1, 2020,
how much income is to be reported by the lessor in 2020?
a. P32,400,000
c. P34,830,000
b. P30,600,000
d. P33,030,000
80. On January 1, 2017, Mike leased to Leomar a piece of vacant lot on which the latter constructed a 3storey building for P6,000,000. The building was completed on December 31,2018. The term of the
lease is 10 years, while the estimated useful life of the building is 15 years. Mike opted to use the
spread out method in recognizing income. Which of the following statements is correct?
a. Mike’s annual depreciation expenses on the leasehold improvement is P400,000
b. Aside from rent, Mike should recognize annual income of P350,000 due to the construction of the
building
c. Mike has the option either to deduct in full the cost of the building in the year of completion, or claim
deductions for such building annual depreciation up to the end of the term of the lease.
d. If the fair market value of the building as of the date of completion is known, Mike is required to
recognize as income such fair market value in the year of completion
81. Lessor, had the following information for 2018:
Cost of leasehold improvement
Annual rent
P
1,000,000
100,000
The estimated life of leasehold improvement is 50 years. The term of the lease is 40 years. At the end of
the twentieth (20th) year, the lease was terminated for valid causes done by the lessee.
What is the income to be reported by the lessor at the end of the 20 th year?
a. P100,000
c. P605,000
b. P125,000
d. P700,000
82. How much is the allowable deduction of lessee on the 20th year?
a. P600,000
c. P100,000
b. P625,000
d. P500,000
83. If a corporation distributes its own treasury stocks to its stockholders, this kind of a corporate
distribution which is recognized in the Tax Code is a:
a. Stock dividend
c. cash dividend
b. Property dividend
d. Liquidating dividend
84. If a corporation distributes its assets to its stockholders upon dissolution, this kind of corporate
distribution will result in:
a. Stock dividend
c. Cash dividend
b. Property dividend
d. Liquidating dividend
85. Which among the following dividend income is tax exempt? Dividend income received from:
I. A domestic corporation by a domestic corporation
II. A domestic corporation by a resident foreign corporation
III. A domestic corporation by a nonresident foreign corporation
IV. A resident foreign corporation by a domestic corporation
a. All of the above
c. I and II only
b. None of the above
d. I, II and III only
86. Which among the following dividend income is tax exempt?
I. Pure stock dividend
II. Pure liquidating dividend
a. I only
c. I and II
b. II only
d. None of the choices
87. Liquidating dividends are return of shareholder’s investment. Which of the following rules on
liquidating dividend is incorrect?
a. The excess amount of liquidating dividend over cost of shares surrendered is taxable
b. If a shareholder sustains a loss brought about by the liquidating dividend, such loss is deductible
c. If a shareholder sustains a loss brought about by the liquidating dividend, such loss is not deductible
d. All of the above
88. Which of the following statements regarding “indirect dividends” is correct?
I. Indirect dividends are other dividends representing payment or rights, which are in substance,
dividends
II. If the shareholder is a debtor of a corporation, cancellation of indebtedness by the creditorcorporation results in indirect dividend distribution
III. The amount of the debt canceled in statement “II” is returnable income of the shareholder.
a. I only
c. I and II only
b. II only
d. I, II and III
89. A cash dividend of P100,000 received by a taxpayer in 2018 from a foreign corporation whose income
from Philippine sources is 40% of its total income is
Statement 1: Partly taxable if he is a resident citizen
Statement 2: Partly taxable if he is a non-resident alien
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 & 2 are true
90. Using the above data, which of the following is correct? The cash dividend is:
a. Exempt from income tax if he is a resident citizen.
b. Partly taxable if he is a resident alien
c. Taxable in full if he is a nonresident citizen
d. Exempt from income tax if he is a nonresident alien
Use the following data for the next two (2) questions:
A resident alien had the following data in 2018:
Gross income, Philippines
P
2,000,000
Business expenses
1,200,000
Dividends received:
From domestic corporation (net)
60% of its income came from the Philippines
40% of its income came from the Philippines
From resident foreign corporation (gross)
60% of its income came from the Philippines
40% of its income came from the Philippines
90,000
72,000
50,000
40,000
91. The taxpayer’s taxable income is
a. P750,000
c. P796,000
b. P830,000
d. P800,000
92. The final withholding taxes on dividends amount to
a. P16,200
c. P25,200
b. P18,000
d. P26,000
93. Cabaries Corporation declared and distributed to its stockholders shares of Soliman Corporation. One
of its stockholders, Brianne, who is a Filipino, received 100 shares of Soliman Corporation as
dividends. At the date of dividend declaration, the fair market value of shares of Soliman Corporation
was P120 per share and by the time Brianne received by the dividend, the fair market value per share
was P180. Which of the following is correct? The dividend is….
a. A stock dividend, hence, exempt from income taxation
b. A property dividend, hence, taxable subject to the graduated tax rate
c. A property dividend, hence, taxable and subject to the final tax rate of 10%
d. A property dividend, hence, taxable and subject to the final tax rate of 20%
94. This refers to a specified income payable at stated intervals for a fixed or a contingent period, often for
the recipient’s life, in consideration of a stipulated premium paid either in prior installment
payments or in a single payment.
a. Annuity
c. Pension
b. Royalty
d. Gratuity
95. Annuity payments received by a taxpayer represent a part which is taxable and not taxable. Which of
the following statement is correct?
a. If annuity received represents interest, it is a taxable income.
b. If annuity received represents return of premium, it is not a taxable income
c. Both statements are correct
d. Both statements are not correct
96. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The life
expectancy of Mr. Santiago is 12 years. Which of the following will Mr. Santiago be able to exclude
from his gross income?
a. P10,000
c. P100,000
b. P20,000
d. P120,000
97. Ana received the following winnings in 2018. Which of the following is subject to final tax of 20%
a. P10,000 winnings outside the Philippines
b. P1,000,000 Lotto winnings
c. P6,000 prize in a singing contest
d. P8,000 PCSO winnings
98. Prizes and awards received shall be exempt from income tax when the following conditions are met,
except:
a. It is given in recognition of religious, charitable, scientific, educational, artistic, literary or civic
achievement.
b. The recipient of the award or prize is not required to render substantial future services as a condition
in receiving the prize or award
c. The recipient of the award was selected without any action on his part to enter the contest or
proceeding
d. The amount of prizes does not exceed P10,000
99. Prizes and awards received shall be exempt from income tax when the following conditions are met,
except:
a. It is given in recognition of religious, charitable, scientific, educational, artistic, literary or civic
achievement
b. The recipient of the award or prize is not required to render substantial future services as a condition
in receiving the prize or award
c. The recipient of the award was selected without any action on his part to enter the contest or
proceeding
d. None of the above
100. Pedro was selected as the most outstanding “barrio teacher” in Di Mahagilap town of Region XX. His
name was submitted by the school principal without his knowledge. He received a trophy and a cash
award of P50,000. The amount he received is:
a. Subject to basic income tax
b. Subject to final tax
c. Exempt from income tax
d. Partly taxable, partly exempt
101. Brian is an amateur boxer who represented the Philippine team in the recently concluded Rio
Olympics held in Brazil. For winning in the said competition, he received the following amounts
 P500,000, cash prize from the Amateur Boxing Association of the Philippines (accredited national
sports association)
 P2,000,000 cash award donated by Rizal Commercial Banking Corporation (RCBC);
 P600,000 talent fee as model of a known boxing gear; and
 P900,000 professional fee from ABS-CBN for being an instant celebrity.
How much of the above amounts is taxable to Brian?
a. P0
c. P2,000,000
b. P1,500,000
d. P4,000,000
102. Pacman, a professional boxer, won in his title-bout against Timmy Bradly held at Mandalay Bay, Las
Vegas, Nevada. During the year, Pacman received the following amounts:
 P25 Million as cash prize in the fight
 P30 Million from Pay Per View
 12P Million talent fee as commercial model of San Miguel Beer.
How much of the following amounts is exempt from income tax?
a. P0
c. P30,000,000
b. P25,000,000
d. P67,000,000
103. Apol, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing match
held in 2018, he won prize money in United States (US) dollars equivalent to P800,000,000.
Question 1: Is the prize money paid to and received by Apol in the US taxable in the Philippines?
Question 2: May Apol’s prize money qualify as an exclusion from his gross income?
Question 3: The US already imposed and withheld income taxes from Apol’s prize money. How may Apol
use or apply the income taxes he paid on his prize money to the US when he computes his income tax liability
in the Philippines for 2017?
Answer to Question 1:
Yes. Under the Tax Code, the income within and without of a resident citizen is taxable. Since Apol is a
resident Filipino citizen, his income worldwide is taxable in the Philippines.
Answer to Question 2:
No. Under the law, all prizes and awards granted to athletes in local and international sports
competitions whether held in the Philippines or abroad and sanctioned by their national sports association
are excluded from gross income. However, in this case, there is no showing that the boxing match was
sanctioned by the Philippine National Sports Commission. Therefore, the prize money is not excluded.
Answer to Question 3:
Apol may avail of tax credit against his tax liability in the Philippines for taxes paid in foreign
countries. He may also choose to classify such income tax payments as deduction from his gross income. He
has to signify in his income tax return his desire to avail the deduction.
a. All the answers to the questions are correct
b. Only the answers to Questions 1 and 2 are correct
c. Only the answer to Question 3 is incorrect
d. All the answers to the questions are incorrect.
104. JJ, a member of the Philippine boxing team received the following during 2018:
Prize for winning gold in the Asian games
P
500,000
Athlete of the year award
100,000
Winnings from the Philippine lotto
400,000
Prize - Mc Donald raffle promo
10,000
Cash gift from his SM Foundation
100,000
The amount not subject to income tax is:
a. P700,000
c. P1,110,000
b. P1,100,000
d. P1,010,000
105. Proceeds of insurance taken by a corporation on the life of an executive to indemnify it against loss
in case of his death is:
a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable
106. The proceeds received under a life insurance endowment contract is not considered part of gross
income:
a. If it is so stated in the life insurance endowment policy
b. If the price for the endowment policy was not fully paid
c. Where payment is made as a result of the death of the insured
d. Where the beneficiary was not the one who took out the endowment contract
107. Pedro, single received the following during the taxable year:
Proceeds of his life insurance paid at an annual premium of
P
P15,000 within 25 years
Proceeds of his mother’s life insurance paid at an annual
premium of P10,000 within 20 years
House and lot inherited from his mother
Rent income from inherited properties
2,000,000
1,000,000
4,000,000
200,000
For income tax purposes, how much of the above items must be included in his gross income?
a. P7,200,000
b. P1,200,000
c. P200,000
d. P1,825,000
108. Pedro insured his life with his estate as beneficiary. In 2016, after Pedro had paid P650,000 in
premium, he assigned the policy to Jose for P600,000. Jose continued paying the premiums. Pedro
died in 2018 and Jose collected the total proceeds of P2,000,000. Jose, after the assignment and
Pedro’s death, paid total premiums of P800,000. As a result of the above transactions, Jose;
a. May consider the proceeds of P2,000,000 as exempt from tax
b. Derived a taxable income of P550,000
c. Derived a taxable income of P600,000
d. Answer not given
109. Which of the following may be excluded from the gross income of a taxpayer?
a. Income derived from bequests and devices.
b. Interest on proceeds of life insurance policies
c. Interest received from a domestic corporation
d. None of the above
110. Which of the following is taxable?
a. Property acquired through donation
b. Inherited properties
c. Income from letters “a” and “b”
d. None of the choices
111. The following are examples of nontaxable compensation for injuries, except.
a. Actual damages for injuries suffered
b. Compensatory damages for unrealized profits
c. Moral damages for grief, anxiety and physical sufferings
d. Exemplary damages
112. This income is subject to basic tax:
a. Compensation for personal injuries or sickness
b. Salaries or emoluments received during a leave of absence
c. Winnings from PCSO and Philippine lotto
d. Fringe benefits given to managerial employees
113. Marlon was hit by a car driven by Jaysee causing severe injuries to the former. It was found out
during trial that the driver was drunk at the time of the accident. After the trial, the court awarded
the following:
 P1,500,000 actual damages for hospitalization
 P300,000 exemplary damages
 P500,000 for loss of income,; and
 P100,000 moral damages
Marlon was received a cash gift of P100,000 from Jaysee. The taxable income received by Marlon is:
a. P2,400,000
c. P1,500,000
b. P1,900,000
d. P500,000
114. Recoveries of damages, shall not form part of the taxable income when it represents compensation
for personal injuries arising from:
I. Libels
II. Defamation
III. Slander
IV. Breach of promise to marry
V. Alienation of affection
a. I and II only
b. I, II and III only
c. I, II, III, IV and V
d. None of the above
115. The following are examples of nontaxable compensation for injuries, except
a. Actual damages for injuries suffered
b. Compensatory damages for unrealized profits
c. Moral damages for grief, anxiety and physical sufferings
d. Exemplary damages
116. In order for gains realized from the sale or exchange or retirement of bonds, debentures or other
certificate of indebtedness be exempt from income taxation; what is the prescribe length of its
maturity?
a. 5 years or more
b. 5 years or less
c. More than 5 years
d. Exactly 5 years
117. Which is not a creditable withholding income tax?
a. Expanded withholding income tax
b. Withholding income tax on passive income
c. Withholding income tax at source
d. None of the above
118. Mike is the hottest designer and make-up artist in the Metropolis today. His annual professional
income is P15,000,000. On February 14,2014, he inherited from a related a 10-door high-end
apartment worth P50,000,000. Net rental income from the apartment during the year amounted to
P3,000,000. Mike’s other income is from interest on his gratuity of P5,000,000 under time deposit
with BDO at a rate of 10% per annum. Which among the following is correct?
a. The apartment he inherited forms part of his taxable income during the year.
b. The net rental income from apartment he inherited forms part of his taxable income during the year
c. The interest on his gratuity forms part of his taxable income during the year
d. All of the above
119. A tax exclusion is defined as
a. An item or amount which the law allows to be deducted from gross income in order to arrive at net
income
b. The grant of immunity to a particular persons or corporations from a tax which others within the same
taxing district are obliged to pay
c. Income received but which is not part of gross income as it is exempted by law or by treaty
d. A deduction from income tax due of any amount paid to a foreign country subject to limitation
120. Which of the following is not an income tax on corporations?
a. Normal tax
b. Minimum corporate income tax
c. Gross income tax
d. Stock transaction tax
121. Which among the following are examples of income that are exempt from income tax by virtue of a
treaty?
a. Salaries of officials of the United Nations assigned in the Philippines if paid by the United Nations and
certified by the Secretary General of the United Nations
b. Salaries, allowances, fees or wages received by citizens of the United Sates of America working in
consular offices in the Philippines are exempt from all taxes
c. Salaries of the diplomatic officials and agents
d. All of the above
122. Which of the following are examples of income that are exempt from income tax by virtue of special
laws?
a. Payments of benefits due or to become due under United States Veterans Administration are not
included in the gross income
b. Benefits received from or enjoyed under the Social Security System (SSS) are not included in the gross
income
c. Benefits received from the GSIS including retirement gratuity received by government officials and
employees are not included in the gross income
d. All of the above
123. Which of the following items is not part of gross income to be reported in the income tax return?
a. Increase in value of land
b. Gambling winnings
c. Prize of P10,000
d. Gain from sale of store’s air conditioner
124. Mr. Joe, an American residing in Hong Kong came to the Philippines to sing the American national
anthem on a professional boxing championship match held in the Araneta Coliseum. He was paid
P1,000,000 as talent fee. His Philippine income tax would be:
a. P320,000
c. P250,000
b. P285,000
d. P150,000
125. 1st statement: To be exempt from income taxation, long term bank deposit or investment should not
be terminated by the investor before the 5 th year; otherwise, it shall be subjected to final tax rates of
5%, 12%, or 20% on interest income earnings.
2nd statement: For purposes of exemption from income taxation, the long term deposit or investment
above refer to those investments issued by banks and other financial institutions.
a. Only 1st statement is correct
b. Only 2nd statement is correct
c. Both statements are correct
d. Both statements are incorrect
126. Which of the following organizations shall be exempt from income tax?
a. Organizations such as provincial fairs and like associations of a quasi-public character, which are
designed to encourage the development of better agricultural and horticultural products through a
system of awards, prizes, or premiums, and whose income derived from gate receipts, entry fees,
donations is used exclusively to meet all the necessary expenses of upkeep and operation
b. Associations which have for their purpose, the holding of periodical race meets, the profits from which
may inure to the benefit of their shareholders
c. Corporations engaged in growing agricultural or horticultural products or raising livestock or similar
products for profits
d. None of the choices
127. Which of the following government owned or controlled corporations, agencies or instrumentalities
shall pay such rate of tax upon their taxable income as are imposed upon corporations or associations
engaged in similar business, industry or activity?
a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
c. Philippine Amusement and Gaming Corporation (PAGCOR)
d. Philippine Charity Sweepstakes Office (PCSO)
128. Ana sued Pedro for breach of promise to marry. Pedro lost the case and duly paid the court’s award
that included, among others, P100,000 as moral damages for the mental anguish Ana suffered. Did
Ana earn a taxable income?
a. She had a taxable income of P100,000 since income is income from whatever source
b. She had no taxable income because it was a donation
c. She had taxable income since she made a profit
d. She had no taxable income since moral damages are compensatory
129. Income from dealings in property (real, personal, or mixed) is the gain or loss derived:
a. Only from the cash sale of property
b. From cash and gratuitous receipts of property
c. From sale and lease of property
d. Only from sale of property
130. The term “capital assets” includes
a. Stock in trade or other property included in the taxpayer’s inventory
b. Real property not used in the trade or business of taxpayer
c. Property primarily for sale to customers in the ordinary course of trade or business
d. Property used in the trade or business of the taxpayer and subject to depreciation
131. Under Section 39 (b) of the Tax Code, how much shall be taken into account in computing net
income, if a gain is realized by an individual taxpayer from the sale or exchange of capital assets
(other than real properties and shares of stocks) held for more than 12 months?
a. 40% of the net capital gain
b. 50% of the net capital gain
c. 60% of the net capital gain
d. 100% of the net capital gain
132. Lots being rented when subsequently sold are classified as
a. Capital assets
c. Ordinary assets
b. Liquid assets
d. Fixed assets
133. The following rules shall be observed when a capital gain or capital loss is sustained by a
corporation, except
a. Capital gains and losses are recognized to the extent of its full amount
b. Capital losses are deductible only to the extent of capital gains
c. Net capital losses are not deductible from ordinary gain or income but ordinary losses are deductible
from capital gains
d. There is a holding period
134. The following taxpayers consider holding period in determining the taxable capital gain or
deductible capital loss and carry-over net capital loss the following year, except a. Individual
c. Corporation
b. Estates
d. Trusts
135. Rules on capital gains and losses of corporations, except:
a. Capital gains and losses are recognized to the extent of 100% regardless of the holding period
b. The net capital loss carry over is not applicable
c. Capital losses are deductible only to the extent of capital gains
d. There is a final tax of 5% on real property sold
136. Which of the following statements is incorrect?
a. Capital losses are deductible only to the extent of capital gains
b. Ordinary losses are deductible only to the extent of ordinary gains
c. Ordinary gains are always subject to basic tax
d. Capital gains may be subject to basic tax
137. In computing gain or loss from the sale or other disposition of property acquired as gift or donation,
the basis of cost shall be:
a. The fair market value as of the date of acquisition
b. The purchase price plus expenses of acquisition
c. The latest inventory value
d. The same as it would be in the hands of the donor
138. Juan received as gift from his mother property purchased ten years ago for P100,000. At the time of
donation, the property had a fair market value of P2,000,000. After owning the property for 3 years,
Juan sold them for P2,500,000. Which of the following statements is correct?
a. The gain on the sale was a capital gain of P2,400,000
b. The gain on the sale was an ordinary gain of P2,400,000
c. The holding period of the asset is immaterial
d. The gain on the sale going into the net taxable income was P2,400,000
139. Andres inherited a piece of land from his father (purchased by the father at P5,000,000) with a fair
market value of P3,000,000 when inherited. He transferred this property to a corporation where he is
the majority stockholder, Omega Corporation, and received for it newly issued shares of stocks with a
par value of P4,500,000 and fair market value of P5,000,000. Which of the following is wrong?
a. The gain to Andres on the transfer is P2,000,000.
b. The gain to Omega Corporation on the transfer is P0
c. The basis of the shares in the hands of Omega is P5,000,000
d. There is no gain from any and all transactions
140. Manuel transferred his commercial land with a cost of P500,000 but with a fair market value of
P750,000 to MHD Corporation in exchange of the stocks of the corporation with per value of
P1,000,000. As a result of the transfer, he became the major stockholder of the corporation. As a
result of the transfer:
a. The recognized gain is the difference between the fair market value of the shares of stocks and the cost
of the land
b. The recognized gain is the difference between the par value of the stocks and the fair market value of
land
c. No recognized gain because the land was in exchange of purely stocks and Manuel became the majority
stockholder
d. No recognized gain because the land was in exchange of stocks of the corporation
141. Emilio was a stockholder of EAC Co. He owned shares of stock which he acquired five years ago at a
cost of P100,000. EAC was dissolved. He received a liquidating divided of P140,000. The gain subject
to income tax is a. An ordinary gain to consider is P40,000
b. A capital gain to consider is P40,000
c. A capital gain to consider is P20,000
d. No gain to consider
142. Apol owns 51% of JJ Corporation valued at P25,000,000. Due to bankruptcy, JJ was liquidated. Apol
received P20,000,000 as liquidating dividend. Was the loss deductible?
a. No, because Apol and JJ are considered related parties
b. Yes, the loss is classified as capital loss and could be deducted from capital gain, if any
c. No, because the amount received by Apol was subject to capital gains tax
d. Yes, because losses as a rule are deductible
143. Pedro generated net income from trade amounting to P400,000. His capital asset transactions during
2020 are summarized as follows:
Holding Period
Amount
Capital gain
6 months
P
50,000
Capital gain
Capital loss
Capital loss
2 years
12 months
10 years
45,000
23,000
28,000
How much is Pedro’s taxable income in 2018?
a. P484,000
c. P435,500
b. P444,000
d. P385,500
144. Based on the above problem, assuming the taxpayer is a corporation, how much is the taxable
income?
a. P484,000
c. P435,500
b. P444,000
d. P385,500
The next six (6) questions are based on the following information:
Emilio, married, with 2 minor children, had the following data:
Business income
Interest on time deposit with BPI
Short-term capital gain
Long-term capital gain
Short-term capital loss
Long-term capital loss
2019
P
306,700P
2,000
3,000
10,000
20,600
290,000
80,400
410,800
2020
290,500
80,200
20,900
145. How much is the taxable income of Emilio for year 2019?
a. P306,700
c. P106,700
b. P56,700
d. nil
146. How much is the taxable income of Emilio for the year 2020?
a. P13,800
c. P113,800
b. P110,800
d. P260,600
147. If the taxpayer is a corporation, how much is the taxable income for the year 2019?
a. P306,700
c. P106,700
b. P56,700
d. nil
148. If the taxpayer is a corporation, how much is the taxable income for the year 2020?
a. P13,800
c. P113,800
b. P110,800
d. P760,600
149. How much is the taxable net income?
a. P415,000
c. P890,000
b. P490,000
d. P940,000
150. How much is the capital gains tax?
a. P2,000
c. P332,000
b. P166,000
d. P336,000
151. Juan, a Filipino citizen, migrated to the United States some eight (8) years ago and got a permanent
resident status or green card. He should pay his Philippine income taxes on:
a. The gains derived from the sale in California, U.S.A. of jewelry he purchased in the Philippines
b. The proceeds he received from Philippine insurance company as the sole beneficiary of life insurance
taken by his father who died recently
c. The gains derived from the sale in New York Stock Exchange of shares of stock in PLDT, a Philippine
corporation
d. Dividends received from a two year old foreign corporation whose gross income was derived solely
from Philippine sources
152. Statement 1: Gain on sale of all kinds of capital assets are subject to the final tax on capital gains
Statement 2: Gain from sale of real property classified as capital asset and located in Miami, Florida is not
subject to the final tax on capital gain
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
153. In 2018, Mr. Vicente Tagle, a retiree, bought 10,000 CDA shares that are unlisted in the local stock
exchange for P10 per share. In 2019, the said shares had a book value per share of P60 per share. In
view of a car accident in 2019, Mr. Vicente Tagle had to sell his CDA shares but he could sell the same
only for P50 per share. The sale is subject to tax as follows:
a. Stock transaction tax of 6/10 of 1% of gross selling price
b. 15% capital gains tax on the capital gain of P50 per share, arrived at by deducting the cost (P10 per
share) from the book value (p60 per share),
c. 15% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less P10 cost)
plus donor’s tax on the excess of the fair market value of the shares over the consideration.
d. Graduated income tax rates on the net taxable income from the sale of the shares
154. Assume the shares sold were from a foreign corporation, the sale is subject to:
a. 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less
P10cost)
b. 15% capital gains tax on the capital from sale of P40 per share (P50 selling price less P10 cost)
c. Stock transaction tax of 6/10 of 1% of gross selling price
d. Basic income tax