MCQ (Tabag Book)- Chapter 7
CHAPTER EXERCISES
MULTIPLE CHOICE. Choose the letter of the correct answer
1. Income, for tax purposes:
I.
II.
III.
IV.
a.
b.
c.
d.
Means all income from whatever source (legal or illegal), unless specifically
excluded under the Tax Code.
Means all wealth which flows into the taxpayer other than return of capital.
Is recognized in the year it is actually received in cash or cash equivalent
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
l and Ill only
I and IV only
I. II, III and IV
None of the above
2. The sources from which income is derived
a. Labor
b. The use of capital
c. Profits derived from sale or exchange of capital assets
d. All of the above
3. The sources from which income is derived
A
B
C
D
Labor
True
True
True
False
Gifts and inheritance
True
False
False
False
Use of capital
True
True
False
False
4. Which of the following is a characteristic of income?
True Increase in taxpayer's wealth
True Realization of gain
True Return on taxpayer's wealth
5. 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
6. 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
7. 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
8. 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.
9. 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. flows into the taxpayer other
C. Income means all wealth which than a mere return of capital.
d. Income means cash or its equivalent unless otherwise specified.
10. 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
11. 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
12. 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.
13. 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 payee could have drawn upon it during the taxable year notice
of intention to withdraw had been given without substantial limitations
c. Both "a" and "b”
d. Neither "a" nor "b"
14. 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.
b.
c.
d.
I and II only
I, IV and V only
I, IV, V and VI only
I, II, II, IV and V only
15. When different types of income are subject to common tax rate, the tax system is described
as
a. Global tax system
b. Gross income tax system
c. Scheduler tax system
d. Final tax system
16. 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
17. 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 property - place of sale.
18. 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
19. 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
20. 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
21. It is important to know the source of income for tax purposes (i.e., from within or without the
Philippines) because:
a. Some individual and 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
22. 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, II, IV and V
d. I, II, III, IV and V
23. Which of the following taxpayers is taxable on income from all sourceswithin and outside the
Philippines?
a. Domestic corporation
b. Resident foreign corporation
c. Resident citizen
d. Both "a" and "C"
24. 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. In case of profits from the sale or exchange of capital assets, source is the place or
transaction occurs.
d.None of the above
25. 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
26. 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 county where the services
were rendered.
27. 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
d. Statements 1 and 2 are true 2 is true
28. 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"
29. 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 presumed 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
30. A cash dividend of P100,000 received by a taxpayer in 2020 from a foreign corporation
whose income from Philippine sources was 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 WC
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 and 2 are true
31. 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. Party 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
32 A taxpayer is employed by a shipping company touching Philippine and foreign ports In
2020, he received a gross payment for his services rendered of P300,000 In that year, the
vessels on board or which he rendered services has a total stay in Philippine ports of four
months. His gross income from the Philippines was
a P300,000
b. 0
c. P150,000
d. P100,000
33. Assume the following:
Gain on sale of personal property purchased in the
Philippines and sold in Hongkong
Compensation received for personal services in the Philippines
Rent income from real property in Malaysia
Gain from sale in the Philippines of shares of a foreign corporation
P400,000
200,000
300,000
100,000
Deductions identified with
Philippine income
Foreign income
Deductions unidentified with any particular income
80,000
120,000
30,000
The Philippine net income is
a P220.000
b. P211.000
c. P190.000
d. P111 000
34. An operator of an illegal horse betting business has the following data during 2020 taxable
year:
Receipt from illegal bets
Rent of space where bets are received, gross of 5% withholding tax
Salaries of assistants, gross of creditable withholding tax
Bribe money to obtain protection from arrest and prosecution
How much is the taxable income
a. P380,000
c. P180,000
b. P330,000
d. P150,000
Use the following data for the next two (2) questions:
P600,000
120,000
100,000
A resident alien had the following data for the year:
Gross income, Philippines
P2,000,000
Business expenses
P1,200,000
Dividends received:
From domestic corporation (net)
60% of its income came from the Philippines
40% of its income came from the Philippines
90,000
72,000
From domestic corporation (gross)
60% of its income came from the Philippines
40% of its income came from the Philippines
50,000
40,000
35. The taxpayer’s taxable income is
a. P750,000
c. P796,000
b. P830,000
d. P800,000
36. The final withholding taxes on dividends amount to
a. P16,200
c. P25,200
b. P18,000
d. P26,000
Use the following data for the next two (2) questions:
F5 Corporation, a domestic corporation had the following data during the calendar year
Gross Income, Philippines
Allowable itemized deductions/expenses
P10,000,000
4,000,000
Dividend income FROM:
a) Domestic corporation
1,000,000
b) Foreign corporation 80% of its gross income were derived from
the Philippines
1,000,000
c) Foreign corporation. 60% of its gross income were derived from
the Philippines
800,000
d) Foreign corporation, 25% of its gross income were derived from
the Philippines
400,000
37. The taxable income is
a. P9,200,000
b. P7,500,000
c. P8,200,000
d. P7.430,000
38. Assume that F5 Corporation is a resident foreign corporation, how much is the taxable
income?
a. P9,200,000
b. P7,500,000
c. P8,200,000
d. P7,280,000
39. How much is the total income tax expense of Lenovo?
a. P200,000
b. P400,000
c. P320,000
d. P272,000
40. Assuming Lenovo is a domestic corporation, how much is its total income tax expense of
Lenovo?
a. P200,000 b. P560,000
c. P740,000 d. P680,000
41. The amount of income subject to tax should be:
a. P0
b. P120,000
c. P180,000
d. P300,000
42. Sandara is subject to:
a. Basic income tax on P180,000
b. Basic income tax on gross income of P300,000
C. Final withholding tax of 25% on P180,000
d. Final withholding tax of 25% on gross income of P300,000
43. Assuming Super Bowl is a domestic corporation, the amount of income subject to tax should
be:
a. P0
c. P180.000
b. P120,000
d. P300,000
44. Sandara, a nonresident citizen, received a dividend income of Kle
P300,000 in 2020 from Super Bowl Corporation, a foreign corporation doing business in the
Philippines. The gross income of the foreign
corporation from sources within and without the Philippines for the past three years preceding
2020 were provided as follows:
Source
2017
2018
2019
Philippines
14,000,000
10,000,000
12,000,000
Abroad
10,000,000
16,000,000
18,000,000
The amount of income subject to tax should be:
a PO
b. P135,000
c.P165,000
d. P300,000
T OR F (Tabag Book) - Chapter 8
1-25
Ange 1-2
Belle 3-4, 25
Cess 5-6
Celine 7-8
Chantal 9-10
Dianne 11-12
Ekai 13-14
Jai 15-16
Jem 17-18
Jen 19-20
Liah 21-22
Stacy 23-24
TRUE OR FALSE
Write True if the statement is correct, otherwise, write False
TRUE 1. Exclusion refers to income received or earned but is not taxable because it is exempted
by law or by treaty.
FALSE 2. Tax exempt income and receipts are required to be included in the income tax return.
True 3. A government agency or instrumentality performing governmental function is exempt
from taxation.
False 4. Local government's operation of a public market is exempt from taxation.
False 5. All associations or corporations enumerated under Sec. 30 of the NIRC on exempt
association are automatically exempt from income tax.
True 6. Exemption from tax is a privilege viewed with disfavor by the state. As such a taxpayer,
to become exempt, must comply with the requirements for tax exemption by laws or regulations.
False 7. Stipends received by resident physicians during their intensive training in the residency
program of a hospital are subject to basic and final withholding taxes.
True 8. 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 performed
them.
True 9. 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.
True 10. 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.
TRUE. 11. Excess of RATA, if not returned to the employer, constitutes compensation income
of the employee.
TRUE. 12. COLA of minimum wage earners is exempt from income tax.
True 13. Fees received by professionals in their practice of profession are treated as business
income.
False 14. Bad debts written off constitute income when recovered in the year of write off.
False 15. Refund of Special Assessment is subject to basic Tax.
False 16. Taxable Tax Refunds must be reported in the year they were received or the year
they were refund was ordered at the option of the tax payer.
True 17. Prizes less than P10,000 are taxable the same manner as business income
False 18. Gifts, bequests and devises are subject to basic tax.
False 21. Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of
the insured under an agreement to pay interest only the interest thereon shall be excluded from
the gross income
True 22. Indebtedness condoned is taxable income of the debtor if it results to acquisition of
something of exchangeable value in addition to what he has before the condonation
False 23. Gain on court-approved debt restructuring is subject to basic tax.
True 24. Obligations of the lessor to third persons paid or assumed by the lessee in
consideration of a lease contract is part of the former’s taxable rental income.
False 25. Advance rentals representing option money as well as security deposits to insure
faithful performance of certain obligations of the lessee are considered part of the lessor's
taxable income.
MCQ (Tabag Book) -Chapter 8
MULTIPLE CHOICE. Choose the letter of the correct answer.
Compensation Income, Pension and Retirement Benefit
1. Compensation income is earned when an employer-employee relationship exists. Which of the
following income represents income earned through employee-employer relationship?
I.
II.
III.
IV.
Professional fees
Wages
Pension pay
Capital gain
a. I only
b. I and Ill only
c. Il and Ill only
d. I, II, III and IV
2. 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 a minimum wage earner
c. 13" month pay and other benefits not exceeding P82,000
d. Fringe benefits received by supervisory or managerial employee
3. Which of the following does not represent compensation income?
I.
Honorarium as a guest speaker
II.
Emergency leave pay
III.
Vacation and sick leave pay
IV.
Tips or gratuities accounted for by the employee to the employer
a. I only
b. IV only
c. I and IV only
d. None of the above
4. Tips or gratuities paid directly to an employee by a customer of the employer which are not
accounted for by the employee to the employer are
Statement 1: Considered passive income
Statement 2 Considered income subject to schedular rate.
Statement 3. Subject to creditable withholding tax
a. true, true, true
b. true, false, true
c. false, false, false
d. false, true, false
5. Pedro is one of the board of directors of 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. Both "a and "b" are correct
d. Neither "a' nor "b" is correct
6. Which among the following is part of the taxable compensation income of an employee?
I. Insurance premium provided by employer on 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 employees benefit
IV. The income tax of the employee advanced by the employer. deductible against future
income of the employee.
a. I only
b. I and Ill only
c. Il and II only
d. lll only
7. 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. Retirement benefits of an employee who has worked for an employer for at least 10
years, who at the time of retirement is not less than 50 years of age, and who avails of
the retirement for the first time
d. All of these
8. 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
9. The taxpayer was retired by his employer in 2012 and paid P2,000,000 as a retirement
gratuity without any deduction for withholding tax. The corporation became bankrupt in 2015.
Can the BIR subject the P2,000,000 retirement gratuity to income tax in 2015?
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. 1 and 2nd answers are correct
b. 1 answer 1 is correct but 2nd answer is wrong
c. 1 st answer is wrong but 2nd answer is correct
d. 1st and 2nd answers are wrong
Annuities
10. 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
b. Royalty
c. Pension
d. Gratuity
11. 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
12. Pedro purchased a life annuity for P1,000,000 which will pay him P120,000 annually. The
life expectancy of Pedro is 25 years. Which of the following will Pedro be able to exclude from
his gross income?
a. The annual receipt of P120,000
b. P40,000 a year (computed by dividing years)
C. The acquisition cost of P1,000,000
d. None of the above.
Bad Debt Recovery and Tax Refunds
13. 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)
P40,000
P10,000
P50,000
2020:
Subsequent recovery
The taxable recovery in 2020 should be:
Case A
a.P40,000
b. P40,000
c.P40,000
d.P40,000
Case B
P20,000
P20,000
P10,000
P0
Case C
P50,000
Р0
Р0
Р0
14. 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 income, fully refunded
subsequently.
c. Income from gambling.
d. Income from usurious financing from taxable
15.Which of the following Tax Refunds is taxable?
a.Fringe Benefit Tax
b.Estate or Donors Tax
c.Stock Transaction Tax
d.Income Tax paid to a foreign country if claimed as tax credit during the year
16. During 2020, PNoy received the following income:
Interest from Philippine Treasury Certificates P40,000
Refund pertaining to 2019 income tax 5,000
The total amount of interest subject to tax in Pnoy's 2020 income tax return was
a. P45,000
b. P40,000
c. P5,000
d. P0
17. This income of a resident citizen is subject to basic tax
a. Compensation for injuries and sickness
b. Interest income from a foreign currency deposit in Metrobank
c. Winnings from wagering transactions
d. Royalty income with situs in the Philippines
Interest Income
18. This refers to earnings derived from depositing or lending of money, goods or credits.
a. Dividend income
b. Interest income
c. Royalty income
d. Annuity
19. For individuals (except nonresident aliens not engaged in the Philippines), interest income
from long term deposit or investment shall be exempt from income tax provided the following
conditions are met, except
a. The deposit or investment is evidenced by certificates with forms conforming to the
Bangko Sentral ng Pilipinas prescribed form.
b. The deposit or investment must have a maturity period of not less than five years and
in denominations as may be approved by BSP issued by banks.
c.The deposit or investment must have a maturity period of not less than five
years and in denominations as may be approved by BSP issued by financial
intermediaries.
d. None of the above.
20. The following interest income are subject to final withholding tax, except
a. Interest income earned from financial institutions.
b. Interest income from any currency bank deposit.
c. Interest income received from expanded foreign currency deposit system earned by
residents.
d. Interest income received from expanded foreign currency deposit system
earned by nonresidents.
21. Which of the following interest income is subject to normal tax?
I.
II.
III.
IV.
Interest income earned or derived from the normal course of trade or business
Interest income earned or derived from notes receivable.
Interest income earned or derived from the over-payment of income tax for previous
years
Interest income derived from investments in government bonds
a. I only
b. I and II only
c. I, II and Ill only
d. All of the above
Rental Income/ Income from Leasehold Improvements/Royalty
22. Advance payment in a lease contract by the lessee may be
I.
II.
III.
IV.
A loan to the lessor from the lessee
An option money for the property
A security deposit to insure faithful performance of certain obligations of the lessor.
Prepaid rent
a. All of the above
b. None of the above
c. I, III, and III only
d. I, II and IV only
23. What is the correct treatment of advance payment made by the lessee to the lessor?
a.
If the advance payment represents loan, the amount is part of the lessor's taxable
income.
b. If the advance payment represents security deposit, the amount is part of the lessor's
taxable income.
c. If the advance payment representing loan is applied to unpaid rent, the amount is
part of the lessor's taxable income.
d. None of the above
24. On July 1, 2017, Joseph leased his vacant lot for a period to Ivan. The lease will expire on
December 31, 2029 at an annual rate of P2,400,000. Ivan agreed to pay the following on July 1,
2017:
●
●
●
●
P1,200,000 representing rental payment for 2017
P2,400,000 representing rental payment for 2018
The succeeding annual rent will be paid starting 2019
Security deposit of 2,400,000.
Ivan also agreed to pay the annual real property tax of P30,000 starting 2017.
The lease contract provides, among others that the lessee will construct a 5-storey building for
parking purposes at a cost of P36,000,000. Ownership of the building shall belong to the lessor
upon the expiration or termination of the lease contract.
The building was completed on December 31, 2019 with an estimated useful life of 15 years.
Using the spread-out method, Joseph shall report total income from the lease for 2017 at:
a.
b.
c.
d.
P1,230,000
P3,600,000
P3,630,000
P2,640,000
25. Assume the same data in the preceding number, determine the total gross income to be
reported by Joseph in 2019 using spread-out method.
a. P30,000
b. P2,430,000
c. P3,030,000
d. P3,630,000
26. Assume the same data, determine the total gross income to be reported by Joseph in 2019
using lump-sum method
a. P14,430,000
b. P2,430,000
c. P3,030,000
d. P38,430,000
27. The following are the gross royalty income of a resident period
Royalty income as author
P100,000
Royalty income from franchising P200,000
Royalty income from gold mine P500,000
Royalty income from the use of
100,00p
its patents
The total final tax on royalty income is
a. P150,000
b. P100,000
C. P130,000
D. P170,000
Dividend Income
28. 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.
V. A resident foreign corporation by a resident foreign corporation.
a. All of the above
b. None of the above
c. I and Il only
d. I, II and Ill only
29. Which among the following dividend income is tax exempt?
I.
II.
Pure stock dividend
Pure liquidating dividend
a. I only
b. ll only
c. I and II
d. Neither I nor II
30. Which of the following payments made by a corporation to a shareholder is considered
dividend income of the latter subject to basic tax?
a. Payment of property purchased from the shareholder in excess of its fair values
b. Payment to a shareholder for services rendered in excess of the fair value of the service
C. Cancellation of indebtedness of a shareholder.
d. None of the above
31. Which of the following statements regarding "indirect dividends” is correct?
I.
II.
III.
Indirect dividends are other dividends representing payment rights, which are in
substance, dividends.
If the shareholder is a debtor of a corporation, cancellation indebtedness by the creditorcorporation results in indirect dividend distribution.
The amount of the debt cancelled in statement is returnable income of the shareholder.
a. I only
b. Il only
c. I and II only
d. I, Ii and III
32. Liquidating dividends are return of shareholders investment. Which of the following rules on
liquidating dividend is incorrect?
a. The excess amount of liquidating 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
33. Share of an individual in the distributable net income after tax shall be subject to 10% if
received from
I.
II.
III.
IV.
Partnership other than general professional partnership
Association
Joint venture
Joint venture or consortium
a. I, II, III and IV
b. I, II, and Ill only
c. I, and II only
d. II, III, and IV only
34. A stock dividend is not taxable
a. If there was no resulting change in the proportionate interest of the shareholders in the net
assets of the corporation.
b. If there was only one class of stock issued and outstanding at the time of the dividend,
C. Since it is only capitalization of the accumulated profits.
d. All of the above
35. Which of the following statements is incorrect?
a. A stock dividend constitutes income if it gives the shareholder an interest different from that
which his former stock represented;
b. When there is only one class of stock issued and outstanding at the time of the stock
dividend, the dividend will not result in a change in the proportionate interests of the
shareholders in the net assets of the corporation, hence, the stock dividend is not taxable;
C. When a stockholder receives a stock dividend which is taxable income, the measure
of income the par value of the shares of stock received;
d. A stock dividend represents the transfer of surplus to a capital account.
Prizes and Winnings
36. George was selected as the most outstanding "barrio teacher in Di Mahanap-hanap town of
Tawi-Tawi region. His name was submitted by the school principal without his knowledge. He
received a trophy and a cash award of P500. The amount he received is
a. Subject to basic income tax
b. Subject to final tax
c. Exempt from income tax
d. Partly taxable, party exempt
37. 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
38. Which of the following income derived from within the Philippines by a resident individual is
not subject to the rates in Section 24 (A) of the Tax Code?
a. Salary received by a managing partner of a general professional partnership. b. A passive
income in the form of a prize won in a raffle amounting to P4,000.
c. A gain from sale of his personal computer as miscellaneous income of a taxpayer who is also
a compensation income earner
d.A gain on sale of a real property not used in business
39. Pedro received the following prizes and winnings:
●
●
●
●
Cash Prize as Pinoy Big Brother winner P2,000,000
House and Lot won as PBB Big winner P3,000,000
Philippine lotto winnings P 10,000,000
Gambling winnings P 3,000,000
How much is the taxable winnings and prizes?
a. P5,000,000
b. P15,000,000
c. P18,000,000
d. P3,000,000
Cancellation of Indebtedness
40. For tax purposes, which among the following rules shall be observed with respect to
forgiveness of indebtedness?
I.
II.
III.
If the debtor rendered service in favor of the creditor, forgiveness of debt results in a
taxable income to the debtor.
If the debtor did not render service in favor of the creditor,forgiveness of debt results in a
taxable indirect gift.
If the debtor is a shareholder of a corporation, forgiveness of debt by the creditorcorporation results in dividend distribution.
a.I only
b. Il only
c. I and Il only
d. I, II and II
41. Which of the following will result to earnings of income by the debtor?
a. Cancellation of existing payables without any financial consideration.
b. Cancellation of existing payables for services rendered to the creditor.
c. Cancellation of existing payables to offset the equivalent amount of collectibles.
d. Cancellation of existing payables due to bankruptcy of the debtor.
EXCLUSIONS from the Gross Income
42. The law excludes some of the items of income from taxation because:
a. The transformation of some items of income into economic gain are not essentially the
result of labor or efforts of the taxpayer.
b. The law or treaty provides that they are not taxable.
c. Some of these items are just return of capital.
d. All of the above.
43. Which of the following is taxable income?
a. Income derived by political subdivision of the government.
b. Income derived by foreign government in the Philippines.
C. Both "a" and "b".
d. Neither "a" nor "b"
Proceeds of Life Insurance
44. As a general rule, proceeds of insurance are not taxable because they only constitute a
return of what was lost (capital). Which among the following is taxable proceeds?
a. Proceeds of life insurance
b. Proceeds of accident or health insurance
C. Proceeds of property insurance
d. Proceeds of crop insurance
45. Which among the following is not excluded from gross income?
a. Life insurance proceeds received by a building contractor on the life insurance of his
client to secure payment for services rendered;
b. Insurance premiums returned to the insured after he survives the term of his life insurance
policy.
c. Retirement pensions received by a Philippine resident from an off-shore employer.
d. Separation pay received by an employee whose services were terminated due to an
incurable disease.
51. 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
52. The following are taxable compensation for injuries, except
a. Interest from nontaxable damages
b. Compensatory liquidated damages
c. Damages for loss of goods and other belongings
d. Damages for unrealized profits
53. Clifford filed a case against George for putting so much shame on him through slanderous
remarks that made Clifford very sick. As a result Clifford was hospitalized. George paid a total of
P500,000 Clifford's one month hospitalization. After 1 year of trial, the court awarded the
following: P1 500.000 actual damages. P300 000 exemplary damages, P500,000 for loss of
income and P100 000 moral damages He also received a cash gift of P100 000 from George.
The taxable income received by Clifford is
a. P2.400,000
b. P1,900.000
c. P1.500.000
d. P500,000
Tax Exempt Income by virtue of a Law or Treaty
54. 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 States of
America working in consular offices in the Philippines are exempt from all taxes
c. Salaries of diplomatic officials and agents
d. All of the above
55. Which among 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 *(Conflicting answer with Quizzer, pero dapat D talaga)
56. The type of income subject to Philippine income tax are as follows except:
a. Compensation income earned by an employee
b. Income from the practice of profession
c. Income from the sale, through the stock exchange, of shares of stocks of a domestic
corporation
d. Capital gains from dealings in capital assets
Income derived by the government and its political subdivision
57. Which of the following income derived by foreign governments, Financing institutions
owned, controlled or enjoying refinancing from foreign governments and international or regional
financial institutions established by foreign governments shall be excluded from the gross
income?
I. Income derived from investments in the Philippines in loans, stocks, bonds or other domestic
securities.
II. Income from interest on deposits in banks in the Philippines.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
Exempt Corporations and Cooperatives
58. The following are corporations exempt from income tax, except
a. Non-stock and non-profit educational institutions.
b. Government owned and controlled corporations.
c. CDA registered cooperatives.
d. Government educational institutions.
59. CDA registered cooperatives are income tax exempt, EXCEPT
a. Income from business transacted with non-members.
b. Interest income from depository bank.
c. Income from business transacted with members.
d Interest income earned from member's loan.
60. JJ Educational Foundation is a non-stock, non-profit educational institution. Which of the
following statements is not correct?
a. It is exempted from payment of income tax on its revenue derived from educational activities.
b. It is subject to income tax on its income derived from business income unrelated to
educational activities.
c. It is not liable to withholding of income tax on salaries of its employees.
d. Its tax exemption does not cover withholding taxes.
MCQ (Tabag Reviewer)
QUIZZER: Choose the letter of the correct answer
Principles
1. Income, for tax purposes
I.
II.
III.
IV.
Means all income from whatever source (legal or ilegal), unless specifically excluded
under the Tax Code
Means all wealth which flows into the taxpayer other than return of capital.
Is recognized in the year it is actually received in cash or cash equivalent.
Refer to the amount of money coming to a person or corporation within specified time,
whether as payment of services, interest, or profit from investment.
a. I, lI and III only
b. I and IV only
c. I, II, III and IV
d. None of the above
2. The sources from which income is derived
a. Labor
b. Legal 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
B
C
D
Labor
True
True
True
False
Gifts and inheritance
True
False
False
False
Use of capital
True
True
False
False
4. In 2018. Pedro sent his sister Ana $10,000 via a telegraphic transfer through the Banko De Uro
el Pilipinas. Loma, 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.
b.
c.
d.
No, she had no income because she had no right to the mistakenly credited fnd
Yes, income is income regardless of the source.
No, it was not her fault that the funds in excess of $10,000 were credited to her
No the funds in excess of 10,000 were in effect donated to her.
Section 32 of the NIRC defines gross income as all income derived from whatever source.
Consequently, the flow of wealth without any distinction as to the lawfulness of its source, is
subject to income tax. In other words, the phrase “income from whatever source” discloses a
legislative policy to include all income not expressly exempted within the class of taxable income
under the law.
5. Which of the following is a characteristic of income?
A
Increase
wealth
in
taxpayer’s True
Realization of gain
Return
wealth
on
True
taxpayer’s True
B
C
D
True
True
False
False
False
False
True
False
False
6 Which of the following is a requisite for an income to be taxable?
a.
b.
c.
d.
There must be gain
The gain must be realized or received
The gain must not be excluded by law from taxation
All of the above
7. Which of the following is not an income for income tax purposes?
a.
b.
c.
d.
Gain derived from labor.
Return on capital
Excess of selling price over cost of assets sold
Gift received
8. Which of the following is not an income for income tax purposes?
a.
b.
c.
d.
Collection of loans receivable
Condonation of debt for services rendered
Excess of selling price over the cost of asset sold
Note on 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. Eamings constructively received
d. Return of taxpayer's wealth
10. Which is not a valid definition of income?
a.
b.
c.
d.
Income is the return to capital invested
Income is a fund at one distinct point of time
Income means all wealth which flows into the taxpayers other than a mere return of capital
Income means cash or its equivalent unless otherwise specified
11. The share in the profits of a partner in a general professional partnership is regarond a
received by him and thus taxable although not yet distributed. This principle is known as
a.
b.
c.
d.
Actual receipt of income
Advance reporting of income
Accrual method of accounting
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 coupon 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 the faithful performance of certain obligations of
the
a. A security deposit to insure 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
described as
a Global tax system
b. Gross income tax system
c. Scheduler tax system
d. Final tax system
Situs of Income
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, II 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 residence 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 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 and 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 15
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 purposes (i.e., from within or without the
Philippines) because:
a. Some individual and 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. In 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
C. abroad Income from goods produced in whole or in part in the Philippines and sold in
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. PO
b. P1,000,000
c. P1,500,000
d. P3,000,000
Income derived from Philippines (allocated) = P3M x 4/12 = P1,000,000
30. Chris is a Filipino immigrant living in 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 citizens 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 county where the
services were rendered.
32. Which of the following is considered income derived from within the Philippines?
I.
II.
III.
IV.
Gain on sale of personal property purchased in the Philippines and sold Canada.
Compensation received from services in the Philippines.
Rent income from real property located in USA.
Gain on sale of shares of a foreign corporation sold in the Philippines.
a. I and II only
b. I, II and IV only
C. 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 presumed to be the fair market value of the
C. compensation received. Transfer of land made by a person to another in payment of
services rendered in the form 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
Compensation Income
35. Compensation income is earned when an employer-employee relationship exists. Which of
the following income represents income earned through employee-employer relationship?
I.
II.
III.
IV.
Professional fees
Wages
Pension pay
Capital gain
a.
b.
c.
d.
I only
I and III only
II and III only
I, II, III, and IV
I: "Professional" fees are generally classified as business income
IV: Capital gains are derived from sale/disposal/exchange/barter of capital assets.
36. Pedro is a member of the board of directors of 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. Both "a" and "b" are correct
d. 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 a minimum wage 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. Retirement 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 retirement 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 service 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 income 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 1 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 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 has rendered 11 years of service and who is now P55 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
b. P2,000,000
C. P3,000,000
d. P6,000,000
44. Which among the following is part of the taxable income of an employee?
I.Insurance premium provided by employer on 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
b. I and III only
c. Il and III 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 performed 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
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 deceased husband
who served in the US Army for 20 yearsof his
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.
• P100,000 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
b. P679,000
c. P250,000
d. P515,000
48. Statement 1: The stipends received by resident physicians during their intensive t in the
residency program of a hospital are subject to creditable withholding tax on
Statement 2: Reasonable amounts of reimbursements/advances for travelling and
compensation income. entertainment expenses which 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 3 is correct
d. Only statement 3 is incorrect
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
49. Statement 1: Tips or gratuities paid directly to an employee by a customer of be employer
that are not accounted for by the employee to the employer are considered 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.
b.
c.
d.
Both statements are correct
Both statements incorrect
Only the first statement is correct
Only the second statement is correct
Extended Maternity Leave Pay
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.
b.
c.
d.
Full pay or full salary
Actual cash benefit received from SSS
Salary differential
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 policy or collective bargaining agreement, if any.
a. Full pay or full salary
b. Actus 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.
b.
c.
d.
Full pay or full salary
Actual cash benefit received from SSS
Salary differential
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.
b.
c.
d.
Exempt from tax
Subject to graduated income tax rate
Subject to fringe benefit tax
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
Business income Practice of Profession
54. Which of the following statements is incorrect?
a.
b.
c.
d.
Income from business is never subject to final withholding tax
Income from exercise of profession may be exempt from income tax
Income from business may be subject to capital gains tax
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.
b.
c.
d.
Sale of ordinary assets
Sale of real property, located in the Philippines, classified as capital asset
Sale of shares in a domestic corporation sold outside the local stock exchange
All of the choices
56. Which of the following interest income is subject to normal tax?
I.
II.
III.
IV.
Interest income earned or derived from the normal course of trade or business
Interest income earned or derived from notes receivable
Interest income earned or derived from the over-payment of income tax for previous
years
Interest income derived from investments in government bonds
a.
b.
c.
d.
I only
I and Il only
I, II and III only
All of the above
Recovery of previously written off bad debts
Refund of previously paid taxes
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
Less: Bad debt written off claimed as deduction
Net income (loss) after write-off
P120,000
40,000
P80,000
P60,000
40,000
P20,000
(P40,000)
50,000
(P90,000)
2020:
Subsequent recovery
P40,000
P10,000
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
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
P800,000
Less: Deductible expenses P440,000
Provision for bad debts
80,000
(520,000)
Net Income before tax
P280,000
Additional Information:
● Accounts written-off during the year and charged to allowance for bad debts - P50,000
● Recoveries on accounts receivable previously written off in 2019 and credited to
allowance for bad debts
Allowed as deduction by the BIR - P30,000
Disallowed by the BIR as deduction - P20,000
The taxable income of the corporation in 2020 should be:
a. P280,000
b. P260,000
c. P330,000
d. P340,000
59. Which of the following is not a taxable income?
a. Bad debt previously deducted as item of expense and partially recovered subsequently
b. Tax expenses 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.
b.
c.
d.
Percentage tax on person's exempt from VAT
Estate or donor's tax
Stock transaction tax
Income tax paid to a foreign country if claimed as tax credit during the year.
61. The following are not taxable, except
a.
b.
c.
d.
Refund of fringe benefits tax
Refund of Philippine income tax
Refund of estate or donor's tax
Refund of special assessment
62. ABC Company paid the following taxes in 2018:
Income tax
Common carrier's tax
Local business taxes
Donor's tax
Real estate tax
P120,000
150,000
60,000
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 in 2018 was P1,200,000, the taxable income for the year should be:
a.
b.
c.
d.
P1,200,000
P1,480,000
P 1,420,000
P1,410,000
Condonation of Debt
63. For tax purposes, which among the following rules shall be observed with respect to
forgiveness of indebtedness?
I.
II.
III.
If debtor rendered service in favor of the creditor, forgiveness of debt results in a taxable
income to the debtor.
If the debtor did not render service in favor of the creditor, forgiveness of debt results in
a taxable indirect gift.
If the debtor is a shareholder of a corporation, forgiveness of debt by the creditorcorporation results in dividend distribution.
a. I only
b. ll only
c. I and II only
d. I, II and III
64. If an individual performs services for a creditor who in consideration thereof cancels debt,
the cancellation of indebtedness may amount:
a.
b.
c.
d.
To a gift
To a capital contribution
To a donation inter vivos
To a payment of income
65. Pobre borrowed from Rich P100,000 payable in five (5) equal monthly installment Before the
first installment became due, Pobre rendered general cleaning services in the entire office
building of Rich, and as compensation, Rich cancelled the indebtedness of Pobre up to the
amount of P75,000. The P75,000 may amount to:
a.
b.
c.
d.
To a gift
To a capital contribution
To a donation inter vivos
To a payment of income
66. One of the following income shall be returned in 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 lessor's taxable
income.
III.
IV.
a.
b.
c.
d.
If the advance payment representing loan is applied to unpaid rent, the amount is part of
the lessor's taxable income.
Prepaid rent must be reported in full in the year of receipt,
All of the above
None of the above
I, II, III only
lII 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.
b.
c.
d.
P200,000
400,000
P600,000
None of the choice
69. Using the same data in the preceding number, how much was the income of Mike in 2018
using cash method?
a. P200,000
b. 400,000
c. P600,000
d. None of the choices
70. Under accrual method, how much was the deductible expense of Leomar in 2018?
a.
b.
c.
d.
P600,000
400,000
P200,000
None of the choices
71. Under cash method, how much was the deductible expense of Leomar in 2018?
a. P600,000
b. P400,000
c. P200,000
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
feen (16) 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 his income over the term of the contract of lease. For Income
tax purposes, Cathrina's 2018 income is:
a.
b.
c.
d.
P360,000
P560,000
P760,000
P6,360,000
73. Assume Cathrina opted to use the lump-sum method of recognizing income from leasehold
improvement, her taxable income in 2018 should be:
a P360,000
b. P560,000
C. P760,000
d. P6,360,000
74. Using the assumption in the immediately preceding number, Catharina's taxable income in
2019 should be:
a. P360,000
b. P560,000
C. P760,000
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 the following in 2016:
● 4,800,000 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 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
b. P2,400,000
c. P2,430,000
d. P4,830,000
76. Pedro shall report total income in 2017 at
a. P30,000
b. P2,400,000
c. P2,430,000
d. 24,830,000
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
b. P3,630,000
c. P38,430,000
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
b. P3,630,000
c. P14,430,000
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
b. P30,600,000
c. P34,830,000
d. P33,030,000
80. On January 1, 2017 Mike leased to Leomar a piece of vacant lot on which the latter
constructed a 3-storey 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 expense on the leasehold improvement is P400,000
b. Aside from rent, Mike should recognize annual income of P 350,000 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
P1,000,000
Annual rent
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 (20) 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 20th year?
a. P100,000
b. P125,000
C. P605,000
d. P700,000
82. How much is the allowable deduction of lessee on the 20m year?
a. P600,000
b. P625,000
C. P100,000
d. P500,000
Dividend Income
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
b. property dividend
C. cash 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
b. property dividend
c. cash dividend
d. liquidating dividend
85. Which among the following dividend income is tax exempt? Dividend income from
I. A domestic corporation by a domestic corporation.
II.A domestic corporation by a resident foreign corporation.
II.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
b.II only
c. I and II
d. None of the choices
87. Liquidating dividends are return of shareholders' 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 creditor-corporation results in indirect dividend distribution.
III. The amount of the debt cancelled in statement "II" is returnable income of the
shareholder.
a. I only
b. ll only
c. I and 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 and 2 are true
90 Using the above data, which of the following is correct?
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
Prizes, Awards and Other Winnings
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, party 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 (accredited national sports association)
Association of the Philippines
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. PO
b. P1,500,000
c. P2,000,000
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
- P12 million talent fee as commercial model of San Miguel Beer.
How much of the following amounts is exempt from income tax?
a. PO
b. P25,000,000
c. P30,000,000
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
P500,000
Athlete of the year award
100,000
Winnings from 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
b. P1,100,000
c. P1,110,000
d. P1,010,000
Proceeds from Insurance
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.
b.
c.
d.
Exempt from income tax
Part of taxable income
Subject to final tax
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
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
P2,000,000
1,000,0000
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.
b.
c.
d.
Property acquired through donation
Inherited properties
Income from letters 'a" and "b"
None of the choices
Compensation for Injuries suffered
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 incident After 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
Marion also received a cash gift of P100,000 from Jayne The taxable income received by
Marlon is
a P2,400,000
b. P1,900,000
C. P1.500 000
d. P500.000
114. Recoveries of damages, shall not form part of the table income when it represents
compensation for personal injuries arising from
I.
II.
III.
IV.
V.
Libels
Delamation
Slander
Breach of promise to marry
Alienation of affection
a l and l only
b. 1, Il and Il only
c. I, 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 prescribed 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 relative a 10door high-end apartment worth P50,000,000. Net rental income from e 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 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 trealy?
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 Nation
b. Salaries, allowances, fees, or wages received by citizens of the United States of
America working in consular offices in the Philippines are exempt from all taxes
c. Salaries of diplomatic officials and agents
d. All of the above
122. Which among 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 Hongkong 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
b. P285.000
c. P250,000
d. P150.000
125. 1st statement: To be exempt from income tation, long term bank deposit or investment
should not be terminated by the investor before the 5th 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 lax?
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 Chanty 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
Dealings in Property
Capital Gains and Losses
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
b. Liquid assets
c. Ordinary assets
d. Fixed assets
145. How much is the taxable income of Emilio for year 2019?
a. P306,700
b. P56,700
c. P106,700
d. nil
146. How much is the taxable income of Emilio for the year 2020?
a. P13,800
b. P110,800
c. P113,800
d. P260,600
147. If the taxpayer is a corporation, how much is the taxable income for the year 2019?
a. P306,700
b. P56,700
c. P106,700
d. nil
Use the following data for the next two (2) questions:
Jose has the following information in 2020:
Gross Profit from sale of inventories held for 2 years
P500,000
Loss on two (2) weeks option contract
50,000
Gain on sale of Bonds (holding period: 6 months)
60,000
Gain on sale of delivery truck held for 3 1/2 years
400,000
Gain on sale of personal car held for 5 years
160,000
Capital gain on direct sale to buyers of shares of stocks held for 4 years
40,00
Sale of 2-year old residential house (Cost: P540,000)
5,500,000
In 2019, Jose had a net taxable income of P50,000 and a capital loss of P75,000.
149. How much is the taxable net income?
a. P415,000
b. P490,000
C. P890,000
d. P940,000
150. How much is the total capital gains tax?
a. P2,000
b. P166,000
c. P332,000
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 a 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 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 corred
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