Problem 7-1 True or False

Write True if the statement is correct, or False if the statement is incorrect.

1. Receivables are ordinary assets
2. Assets subject to depreciation are capital assets
3. The tapayer!s purpose at the time of sale is the determinin" factor #hether the asset is
to be classified as ordinary or capital
$. %f a tapayer abandons property for an ordinary loss and sells it in a foreclosure sale, the
loss incurred is a capital loss.
&. There is no holdin" period for sale of shares of stoc' held for more than 1 year
(. )o ta is to be paid if the sale of shares of stoc' is traded in the local stoc' echan"e and
resulted to a capital loss.
*. )et capital loss carry over is not applicable for corporations
+. %f the property #as ac,uired as a "ift, the cost of such property #hen sold is its fair
mar'et value at the date of donation or ac,uisition cost of donor, #hichever is lo#er
-. The net capital loss carry over of an individual tapayer is limited to the amount of
taable income in the year #hen the loss #as sustained
1.. The rules of ordinary loss and net capital loss for both individual tapayer and
corporations are the same
11. %f a "overnment o#ned corporation sells a real property, only the sellin" price is the
basis of ta.
12. %t is al#ays advanta"eous to the tapayer to choose the (/ final ta than the normal ta if
the real property is sold to the "overnment.
13. 0a'e of real and personal properties for profit of 000 and 10%0 are subject to creditable
#ithholdin" ta
1$. A contract price is determined by deductin" from the sellin" price the amount of cost or
assumed mort"a"e #hichever is hi"her
1&. 2and o#ned by reli"ious order, if sold is not subject to ta
Problem 7-2 True or False
Write True if the statement is correct, or False if the statement is incorrect
1. A sale or echan"e of interest in partnership is a capital asset transaction
2. 3rdinary assets are held primarily for sale to customers in the ordinary course of the
business ecept e,uipment used in business operations.
3. 4apital losses are deductible only to the etent of the etent of the capital "ain
$. %f the property is ac,uired throu"h inheritance, the basis of cost is the ac,uisition cost of
the donor.
&. A short sale is effected #hen a speculator sell securities #hich he o#ns
(. The "ains from sale of securities held by dealers in securities are ordinary income subject
to normal ta
*. 0hare of stoc's sold throu"h local stoc' echan"e are no lon"er to be reported in the
annual income ta return
+. 0toc's and securities held by dealers in securities are capital assets
-. 0toc's that are traded in the local stoc' echan"e are subject to a percenta"e ta based on
the sales price irrespective of "ain or loss sustained by the tapayer
1.. When a tapayer provided a consideration for an option period to buy a capital property
and such privile"e #as eercised, the option money shall be considered as capital "ain or
capital loss
11. %f the real property used in business #ere sold to the "overnment, the ta #ould be (/
final ta or normal ta rate at the option of the tapayer
12. The total payments received durin" the year of sale in cash or property includin"
evidences of indebtedness comprises the initial payment for the sale of real property
13. A deductible loss may be incurred if the treasury stoc' is subse,uently reissued for a
consideration less than its cost
1$. The )3243 applicable for three years from the year of operatin" loss can be deducted
from ordinary income and net capital "ain
Problem 7-3 True or False
Write True if the statement is correct, or False if the statement is incorrect
1. The ori"inal issue by a corporation of its shares of stoc' above par value is subject to
capital "ains ta
2. A dis"uised sale is a sale or echan"e transaction bet#een t#o related parties #ith intent
of partly sale and partly "ift
3. The "ain or loss on sale of partner!s interest 5capital6 in the partnership is a capital asset
transaction
$. %f the property sold is not subject to mort"a"e, the contract price is usually the sellin"
price
&. 1ains from #ash sales are taable and losses from #ash sales are deductible
(. There is a #ash sale if #ithin a (17day period , a tapayer sold its 1,... common stoc's
and subse,uently purchased 1,... preferred stoc's
*. 8an's and trust companies are dealers in debt securities
+. %f stoc' dividends are included in the number of shares sold, an allocated cost of the
ori"inal cost shall be assi"ned to the said stoc' dividends
-. Realty business re"istered #ith 92:R8 en"a"ed in sociali;ed housin" project #ith
sellin" price per house of <1+,... in =etro =anila is eempt from creditable
#ithholdin" ta
1.. The capital "ains ta of (/ based on the hi"her amount of sellin" price or ;onal value
simplifies the comple computation of donor!s ta and capital "ains ta
11. Real property sold in the <hilippines by a nonresident forei"n corporation is subject to a
final ta based on the sellin" price
12. %f a domestic corporation sold a real property located outside the <hilippines the net
income thereof shall be subject to a normal ta of 3&/
13. 2i,uidatin" dividends in "eneral is not taable if only a return of investment
1$. %ssuance of a corporation of its bonds at a premium "ives rise to capital "ain
Problem 7-4 Multiple Choice
1. Which of the follo#in" is a capital asset>
a. %nventory for sale
b. Real property for rent
c. ?,uipment used in business
d. %nvestment property
2. Which of the follo#in" is not an ordinary assets>
a. Accounts receivable7trade
b. %nvestment in ?,uity security
c. Real property used
d. Factory e,uipment of manufacturin" business
3. Which of the follo#in" statements is not correct>
a. 3rdinary loss is deductible from net capital "ain
b. 4apital loss is deductible from capital "ain
c. )et capital "ain is added to ordinary "ain
d. )et capital loss is deductible from the succeedin" year!s capital "ain of an
individual tapayer
$. Which of the follo#in" is correct #ith re"ard to the dealin" in capital asset>
a. )et capital loss is allo#ed to carry7over by individual tapayer net year
b. 4orporate tapayer is allo#ed to have short and lon" term holdin" periods
c. %f the capital asset sold is under possession of the individual seller for 12 months,
the holdin" period is considered lon"7term
d. %f the holdin" period is considered lon"7term, only *&/ of capital "ain is
reportable
&. Which of the follo#in" capital asset transactions is subject to final ta>
a. 0ale of shares of stoc' sold inside stoc' mar'et
b. 0ale of movable property considered as capital asset
c. 0ale of real property classified as capital asset
d. 0ale of receivable
(. Which of the follo#in" may result to capital "ain or loss>
i. 0ale of investment bonds
ii. Receipt of li,uidatin" dividends
iii. 0ale of interest in partnership
iv. Re7issuance of treasury stoc'
4hoices@
a. i, ii and iv c. i and ii only
b. i, ii and iii only d. iv only
*. 0tatement 1@ 2oss from #ash sale of securities is deductible from capital "ain
0tatement 2@ 1ains from #ash sales are taable "ains
a. 3nly statement 1 is correct
b. 3nly statement 2 is correct
c. 8oth statements are correct
d. 8oth statements are not correct
+. %f an individual tapayer disposes of his principal residence for <1,...,... and ac,uired as a
replacement a smaller residential house and lot for <*&.,..., the sale is subject to (/ capital "ain
ta on
a. 2&/ of the sellin" price
b. *&/ of the sellin" price
c. 1../ of the sellin" price
d. 1../ of the purchase price
-. The sale of real property that is considered as capital asset shall be taed at (/ of
a. sellin" price, #here the ;onal value is 11./ of sellin" price
b. ;onal value, #here the sellin" price is 11./ of ;onal value
c. sellin" price, #here the ;onal value is +./ of the sellin" price
d. ;onal value, #here the ;onal value is +./ of the sellin" price
1.. %f the real property sold is classified as inventory #ith a sellin" price of <3,...,... and ;onal
value of <$,...,... the creditable #ithholdin" ta is
a. (/ of the sellin" price c. &/ of the sellin" price
b. (/ of the ;onal value d. &/ of the ;onal value
11. A net capital loss means the ecess of the
a. losses over the "ains on sales or echan"es of capital assets
b. losses over the losses on sales or echan"e of capital assets
c. determined cost over the value received from the sale or echan"e of a capital asset
d. "ains over the losses on sales or echan"es of capital assets
12. A dividend received by stoc'holders upon the corporate dissolution is called
a. 2i,uidatin" dividends c. 0toc'holder!s dividends
b. Terminatin" dividends d. Retirement dividends
13. When a tapayer provided a consideration for an option period to buy a capital property but
such privile"e #as not eercised, the option money shall be considered
a. Taable c. 4apital loss
b. )ontaable d. Refundable
Problem 7-5 Multiple Choice
0elect the letter that contains the best ans#er
1. For income taation purposes, #hich of the follo#in" is classified as capital asset
of a manufacturin" business>
a. Wor'7in7process endin" inventory
b. %nvestment in e,uity securities
c. Factory buildin"
d. 3ffice e,uipment
2. The follo#in" rules shall be observed #hen a capital "ain or loss is sustained by
a corporation, ecept,
a. 4apital "ains and losses are reco"ni;ed to the etent of its full amount
b. 4apital losses are deductible only to the etent of capital "ains
c. )et capital losses are not deductible from ordinary "ain or income but ordinary
losses are deductible from capital "ains
d. There is a holdin" period
3. To compute for the "ain or loss in the disposition of the capital assets, the sellin"
price should be reduced by
a. 4ost of the capital assets
b. 4ost and epenses of the capital assets ac,uired
c. Aisposition epenses of the capital assets
d. Ac,uisition cost and disposition epenses of the capital assets
$. Which of the follo#in" rules shall be observed on securities becomin" #orthless
for purposes of income taation>
a. The securities are ascertained #orthless and #ritten off
b. The tapayer o#nin" the securities #ritten off should not be ban' or trust
company
c. The #ritten off amount is a capital loss
d. All of the above
&. 0ales of stoc's of a domestic corporation traded throu"h a local stoc' echan"e
are subject to a
a. <ercenta"e ta of one half of one percent
b. Final ta of five percent if the net capital "ain is not over <1..,...
c. Final ta of ten percent on any amount in ecess of <1..,...
d. <ercenta"e ta of one fourth of one percent
(. %f the stoc' cannot be properly identified, the follo#in" rules are applicable in the
determination of the cost of the shares of stoc's, ecept
a. The cost to be assi"ned shall be on the basis of the first7in first7out method
b. The cost to be assi"ned shall be on the basis of the avera"e method if the seller
maintains a record for every particular stoc'
c. An allocated cost shall be assi"ned to stoc' dividends to "et the cost of each
stoc'
d. )o cost shall be assi"ned to the stoc's since the stoc's cannot be properly
identified
*. Which of the follo#in" sale of land is ta7eempt
a. 2and sold by the church
b. 2and foreclosed by the ban'
c. 2and sold by 1overnment 4orporation
d. 2and sold by non7stoc' and non7profit corporation
+. 0ales of stoc's of a domestic corporation not traded throu"h local stoc' mar'et
are subject to a final ta of
a. &/
b. 1./
c. 1./ on the net "ain not over <1..,...
d. &/ on the net "ain not over <1..,... and 1./ on the ecess of the first
<1..,...
-. %f the proceeds are from the disposition of principal residence and fully utili;ed in
ac,uirin" or constructin" a ne# principal residence, the capital "ain is not subject
to ta if the
a. ac,uisition or construction of the ne# residence us #ithin 1+ months
b. 4ommissioner is notified #ithin 3. days from the date if disposition of the
tapayer!s intention to avail of the ta eemption
c. 9istorical cost or adjusted basis of property sold is carried over to the ne#
principal residence
d. All of the above
1.. The cost of the ne# principal residence may be the
a. 4ost of the residence sold
b. <ercenta"e of the cost of the old residence sold
c. 4ost of the old residence sold plus additional cost in ac,uirin" the ne# principal
residence
d. All of the above
11. Which of the follo#in" isBare to be included as part of the sellin" price of
installment sale>
i. 4ash payment by the buyer
ii. )on7cash item "iven by the buyer
iii. ?istin" obli"ation assumed by the buyer
iv. <romise to pay ori"inated by the buyer
a. i, ii, and iv only c. i and ii only
b. %, ii and iii only d. i only
Problem 7-6 Classification of Assets
2ito presented the follo#in" assets@
3rdinary assets@
1oods for sale <1..,...
Trade receivables &.,...
%nvestment in property 2..,...
4apital assets@
2and and buildin" for business &..,...
Aelivery truc' 2&.,...
4ar for personal use $..,...
The correct amount of ordinary and capital assets #ould be@
3rdinary Assets 4apital Assets
a. <-..,... < (..,...
b. < +&.,... < (&.,...
c. < (&.,... < -&.,...
d. < 3&.,... < 1,1&.,...
Problem 7-7 Chane of Purpose
8 purchased one7hectare land intended for investment purposes for <2,...,.... After 1. years,
9e decided to subdivide -./ of the land for business purposes and the 1./ is to be used to
construct his principle residence.
1. %f per subdivided lot is sold for <1..,... per 2.. s,uare meters, ho#
much is the ordinary "ain from the sale of land>
a. < $,&..,... c. < 2,*..,...
b. < $,...,... d. < 2,&..,...
2. 9o# much is the remainin" capital asset of 8>
a. < 2,...,... c. < 2..,...
b. < &..,... d. < 1..,...
Problem 7-! "ain #$oss% on &'chane
=r. 8asa echan"ed his car #ith a cost of 2&.,... and a boo' value of 1&.,... to a lot #ith a fair
mar'et value of 1-.,... and a ;onal value of 1&.,...
The "ain 5loss6 from the echan"e of property is
a. 5(....6 c. &....
b. $.... A. -....
Problem 7-( &'chane of )issimilar propert*
A tapayer echan"es his personal property for dissimilar property #ith a mar'et value of
2...... Which of the follo#in" is correct>
a. There is a capital "ain if the property "iven a#ay has fair value lesser than 2..... at date
of echan"e
b. There is capital "ain if the property "iven a#ay has ac,uisition cost that is hi"her than
2......
c. There is capital loss if the property "iven a#ay has fair value more thabn 2..... #hen it
#as inherited.
d. There is capita loss if the property "iven a#ay has fair value at the date it #as received as
donation that is lo#er than 2......
Problem 7-1+ Transfer of propert*
=iss 8ambao o#ns a parcel of land #orth &..... #hich she inherited from her father in 2..A
#hen it #as #orth 3...... 9er father prrchased it in 1--( for 1......
%f miss 8ambao transfers this parcel of land to her #holly o#ned corporation in echan"ed for
share of stoc's of said corporation #orth $&...., miss bambao!s taable "ain is
a. 7.7 c. 1&....
b. &.... d.3&....
Problem 7-11 ,etermination of cost an) e'penses
=r. Alejandro 4iencia sold his capital asset for a sales price &......the sale #as subject to 1./
a"ent commission based on the "ross capital "ain and a processin" fee of 1/ based on the sales
price. The capital asset #as ac,uired by =r. 4iencia for a purchase price of 2..... includin"
installation and insurance cost of 2.....
The cost and epenses deductible from sale is
a. 2..... c. 23&...
b. 22&... d. 2*&...
Problem 7-12 -pecial .ules
A ac,uired a capital asset for &..... 9e donated it to C corporation #hen the mar'et value #as
+.....
After 2 years from date of donation, C sold the capital asset for 1&.....
9o# much is the amount of the reportable "ain>
a. 1..... c. &....
b. *.... d. 3&...
Problem 7-13 Capital "ain
A tapayer sold his capital asset previously ac,uired at a cost of 1&..... 9e spent another 2....
to put it to its intended use. 0ubse,uently, the same capital asset #as sold for 2..... before
bro'er!s commission and &/ based on sales price. The capital "ain is
a. &.... c. 3....
b. $.... d. 2....
Problem 7-14 /r)inar* ain 0s1 capital ain
The follo#in" is the balance sheet of a sin"le proprietorship@
4ash 3....
Accounts receivable 1&....
%nventory 2....
Accounts payable 12&...
C, 4apital *&...
C sold the business for <1..,..., the buyer assumin" the outstandin" liabilities. Which of the
follo#in" is true, pertainin" to the sale>
a. 3rdinary "ain of <2&,...D no capital "ain nor loss
b. 3rdinary "ain of <1*&,...D capital loss of <1&.,...
c. 3rdinary "ain of <2.&,...D capital loss of <1+.,...
d. )o ordinary "ain nor lossD capital "ain of <2&,...
Problem 7-15 2ol)in Perio)
:nder the Ta 4ode, ho# much shall be ta'en into account in computin" the net income, if a "ain
is reali;ed by an individual tapayer from the sale or echan"e of capital asset 5other than real
properties and shares of stoc's6 held for more than t#elve months>
a. &./ of the capital "ain c. 1../ of the capital "ain
b. &/ of the capital "ain d. 1./ of the capital "ain
Problem 7-16 2ol)in Perio)
A capital asset of an individual #as ac,uired at cost of <1..,.... 0ubse,uently, this o#ner died
and the capital asset is transferred to a reli"ious or"ani;ation #hen the fair mar'et value #as
<12.,.... They later sold the capital asset for <2..,... after holdin" it for 2 years.
The amount of reportable capital "ain #ould be>
a. < $.,... c. < +.,...
b. < &.,... d. < 1..,...
Problem 7-17 Ta'able 3ncome
The individual tapayer reported the follo#in"@
Eear 1 Eear 2
)et income from business < 2..,... < 3..,...
4apital "ain for asset held for more than a year &.,... $.,...
4apital loss for asset held for less than a year $.,... 1.,...
The tapayer should report taable income of
a. < 21.,... in year 1@ <33.,... in year 2
b. < 1+&,... in year 1@ <33.,... in year 2
c. < 1+&,... in year 1@ <31.,... in year 2
d. < 2..,... in year 1@ <3..,... in year 2
Problem 7-1! Ta'able income # 3n)i0i)ual 0s1 Corporation%
The follo#in" are the transactions of the C business for the year@
3rdinary "ain <&.,...
0hort term capital "ain 2.,...
2on" term capital "ain 3.,...
2on" term capital loss 1.,...
1. %f C is an individual, ho# much is the taable income before personal eemption>
a. < -&,... c. < +.,...
b. < -.,... d. < *&,...
2. %f C is a corporation, ho# much is the taable income>
a. < -&,... c. < +.,...
b. < -.,... d. < *&,...
Problem 7-1( 4et Capital $oss Carr*-/0er
Aolinta, married, had the follo#in" data on income and losses@
2..A 2..8
3rdinary business income <$+,-.. <+&,*...
0hort term capital "ain 1&,+-&
0hort term capital losses 1+,-(. $&,*-.
=rs. Aolinta "ave birth to their first child on Aecember 31, 2..A.
1. The taable income before personal eemption of =r. Aolinta for 2..A is
a. < 3.,-.. c. < $+,-..
b. < $&,+3& d. < ($,*-&
2. The taable income before personal eemption of =r. Aolinta for 2..8 is
a. < 131,$.. c. < 1.&,&3.
b. < 1.+,&-& d. < +2,&3.
Problem 7-2+ 4C$C/ #3n)i0i)ual 0s1 Corporation%
4 reported the follo#in" income and losses for the years 1 and 2@
Eear 1 Eear 2
3rdinary taable income < (.,... < 1+.,...
0hort7term capital loss $..,...
2on" term capital "ain (..,...
2on" term capital loss 1..,...
0hort term capital "ain 2..,...
1. %f 4 is an individual tapayer, the year 2 taable income before personal eemption is
a. < 33.,... c. < 2*.,...
b. < 2+.,... d. < 1*.,...
2. %f 4 is a corporation, the year 2 taable income is
a. < 33.,... c. < 2*.,...
b. < 2+.,... d. < 1*.,...
Problem 7-21 4et Capital "ain
%n addition to his business as construction materials dealer, =r. ?spiritu had the follo#in"
transactions in 2..@
0old Ac,uired 0ellin" ?p.
4apital Asset Aate 0ellin" <rice Aate 4ost
Fe#elry +B1&B. < +.,... &B1.B. < 1.,... < 1,...
=. 8en; car &B1(B. $..,... &B1&B.b 3&.,... 2.,...
Refri"erator -B&B. (,... 2B-B. &,...
Ford 4ar 12B&B. 12,... 1B1.B. 2.,&..
The net taable capital "ain of =r. ?spiritu in 2..C is
a. < *(,&.. c. < 2*,...
b. < $2,... d. < 2(,&..
Problem 7-22 5an6 an) Trust Companies
8<% Family ban' and Trust 4o. reports the follo#in" results of operations@
%nterest Revenue < 1.,...,...
3peratin" ?pense (,...,...
1ain on sale of lon"7term bonds 1,...,...
2oss on sale of Tradin" debt securities 2..,...
2oss on sale of lon" term e,uity investment &.,...
%f 8<% is a dealer of debt and e,uity securities, ho# much is the net capital "ain of 8<% Family
8an'>
a. < 7.7 c. < +..,...
b. < 1,...,... d. < *&.,...
Problem 7-23 -toc6 Transaction
=ari;;a bou"ht shares of stoc' not throu"h the local stoc' echan"e in 1--- for < &.,.... These
shares #ere donated to Roel ?van"elista in 2..A #hen the fair mar'et value #as < 3..,.... =r.
?van"elista sold the shares directly to the buyer in 2..8 for < $..,...
The "ain on the sale of shares is
a. < 3&.,... c. < $..,...
b. < 1..,... d. < 3..,...
Problem 7-24 -toc6 Transaction
The follo#in" capital stoc' transactions on shares of stoc' #ere reported by an individual
tapayer@
4ost 0ellin" <rice
=arch < 1..,... < 1&.,...
Fune < 1&.,... < 1(.,...
0eptember < 2..,... < 2$.,...
)ovember < 12.,... < 1&.,...
%f ta returns #ere filed and paid on prescribed dates, ho# much capital "ain ta should be
reported #ithin 3. days from )ovember sales>
a. < 1,&.. c. < (,&..
b. < 3,... d. < +,...
Problem 7-25 Percentae Ta' an) Capital "ains Ta'
The follo#in" are the transactions of =aricris for the year 2..A@
0ale of shares of stoc' of C corporation #hich she ac,uired previously at <1.. per share@
516 1,... shares sold in the stoc' echan"e at < 1.& per share
526 1,... shares sold outside the stoc' echan"e at < 11. per share
What #ould be the final ta for these stoc' transactions>
a. < &.. c. < 1...
b. < *&. d. < 1,&..
Problem 7-26 ,ealer in -ecurities
4orporation sold its &,... investment in stoc' of 0=4 4o. for < &..,... #ith a reali;ed 3./ "ross profit
on sale. 3ther epenses incurred #ere a"ent commission of < 3,+.. and documentary ta of <2...
%f 1aroy is a dealer in securities, ho# much is the ta eposure assumin" the shares #ere@
1. Traded in stoc' echan"e>
a. < 2,&.. c. < 2-,(..
b. < $(,3.. d. < $3,+..
2. )ot traded in stoc' echan"e>
a. < 2,&.. c. < 1*,&..
b. < -,(.. d. < $3,+..
Problem 7-27 4et Capital "ain
Aurin" the year, the follo#in" are the recorded stoc' transaction of C 4orporation@
516 Total share issued 1,... shares of <1.. par value per share, sold at <12. per share.
526 Total shares retrieved 2&. shares at cost of <12& per share.
536 From the total shares retrieved, 1.. shares #ere sold outside stoc' mar'et at <1&. per share.
What #ould be the net capital "ain before ta for the year>
a. < 22,&.. c. < 21,2&.
b. < 2.,... d. < 2,&..
Problem 7-2! 7ash -ales
=arjorie 4orpu; is an investor in C 4orporation. %n 2..A she has 1,... share holdin"s ac,uired at <12.
per share or a total investment cost of < 12.,... classified as capital asset.
2..8 Transactions@
Fanuary Received stoc' dividends 2 shares for every shareholdin"s.
=arch 0old &.. shares of C 4orporation for <12. per share.
April <urchased 3.. shares of C 4orporation for <1&. per shares.
=ay 0old &.. shares of C 4orporation for <-. per share.
1. What #ould be the net capital "ain on =arch>
a. 1ain of < -,... c. 1ain of < 2.,...
b. 1ain of < +,... d. 1ain of < 1.,...
2. 9o# much is the nondeductible loss in =ay>
a. < +,... c. < 3,...
b. < &,... d. < 2,...
3. 0upposin" that all of the remainin" 3.. shares #ere li,uidated in Aecember 2..8 at <1.. per share
because of ban'ruptcy of C 4orporation. What #ould be the capital loss in Aecember 2..8>
a. 4apital loss, < 1&,... c. 4apital loss, < +,...
b. 4apital loss, < 1+,... d. 4apital loss, < 1.,...
Problem 7-2( Corporation8s /9n -hare of -toc6
C 4orporation issued &, ... of its <2. per share common stoc' at <2& per share. 3f the &, ... common
share issued, 2, ... shares #ere reac,uired for <21 per and eventually reissued for <23 per share.
1. 9o# much is the capital "ain on the ori"inal issuance>
a. < 2&,... c. < $,...
b. < 12,&.. d. <7.7
2. 9o# much is the capital "ain on reissued shares>
a. <2&, ... c. <$, ...
b. <12, &.. d. <7.7
Problem 7-3+ 5asis of 4e9 .esi)ence an) Capital "ain Ta'
=an#on" is a resident of =an'ayan, 8en"uet. 9e sold his family home for <$, ..., .... #hich #as
previously ac,uired for <2, ..., .... =an#on" complied all 8%R re,uirements to avail of ta eemption
and spent <2, &.., ...in ac,uirin" ne# family home.
1. 9o# much is the basis of the ne# family home>
a. <2, &.., ... c. <1, 2&., ...
b. <2, ..., ... d. <&.., ....
2. 9o# much is the capital "ain ta to be paid by =r. =an#on">
a. <7.7 c. <1&., ...
b. <-., ... d. <2$., ...
Problem 7-31 5asis of 4e9 .esi)ence an) Capital "ains Ta'
9un' sold his old residential house and lot for <&,...,... and ac,uired a ne# residential house and lot for
<-,...,.... 9o# much is the cost of the ne# residence and capital "ains ta on the said sale if the old
house and a lot #as previously ac,uired for <2,...,... and no ta eemption #as allo#ed by the 8%R>
8asis of )e# Residence 4apital 1ains Ta
a. <(, ..., ... Ta eempt
b. <(, ..., ... <3.., ...
c. <-, ..., ... Ta eempt
d. <-, ..., ... <3.., ...
Problem 7-32 Capital "ains Ta' #.eal Propert*%
3n Au"ust 1&, 2..*, =r. Tandin"an, sold &.. s,uare meter residential land for <3.., .... The land #as
ac,uired in 1--- for <2.., ... and classified as capital asset. 3n the date of sale the fair mar'et value as
sho#n in the real property declaration is <2&.,... and the assessed value amounts to <*&,.... The ;onal
value is <*.. per s,uare meter. The capital "ain ta is
a. <3, *&. c. <1*, &...
b. <12, ... d. <21, ....
Problem 7-33 5asis of 4e9 resi)ence
%n 2..A, =r. Ael Rosario ac,uired his principal residence for <(, ..., .... 9e sold it to =r. Ae la 4ru; for
<12, ..., ... in 2..A. Within 3. days, he #rote the 8%R for ta eemption because he intends to use the
entire sales proceeds to purchase a ne# principal residence.
9o# much is the basis of the ne# residence for the taation purposes if he actually ac,uired it for <1&, ...,
...>
a. <(, ..., ... c. <12, ..., ...
b. <-, ..., ... d. <1&, ..., ...
Problem 7-34 Ta' on .eal &state Transactions
The follo#in" are the transactions of Ruby pertainin" to sale of real properties for the year 2..@
5a60ale of vacant lot used as open #arehouse of her tradin" business, <&.., .... This #as ac,uired 2 years
a"o at <2.., ....
5b60ale of her residential lot for <1, ..., ..., the ;onal value at date of sale is <1, 2.., .... This #as
purchased 3 years a"o at <$.., ....
1. What #ould be her final ta for these real estate transactions>
a. <(., ... c. <*2, ...
b. <-., ... d. <1.2, ...
2. What #ould be the creditable #ithholdin" ta for the real estate used in business>
a. <(., ... c. <3., ...
b. < 3*,... d. <1&, ...
Problem 7-35 Capital "ains of Foreclose) Propert*
R484, a domestic ban', foreclosed a real property #ith a ;onal value of <&&., ... in payment for a <$..,
... client!s unpaid loan. 0ubse,uently, the property #as sold for <&.., ....
The capital "ain ta is
a. <3., .... c. <3&, ....
b. <33, .... d. <&2, ....
Problem 7-36 Cre)itable 7ithhol)in Ta' an) 3ncome Ta' ,ue
4amella 9omes, a realty corporation, sold the follo#in" real property durin" a taable year@
%)43=? TACAT%3)
0ales priceBunit
$ houses at a cost of <2.., ... each <&.., ...
2 houses at a cost of <1, 2.., ... each 3, ..., ...
The operatin" epense incurred durin" the year is <2, +.., .... 9o# much is the creditable #ithholdin"
ta and income ta still due and payable of 4amella 9omes>
4reditable #ithholdin" ta %ncome ta still due and payable
a. <2$., ... <$(., ...
b. <33., ... <3*., ...
c. <$.., ... <3.., ...
d. <33., ... <2*., ...
Problem 7-37 Cre)itable 7ithhol)in Ta' an) 3ncome Ta' ,ue
The 0an Fernando 4ity 1overnment sold 1. hectares of land to 1oldrich Realty 4orporation 5a member of
92:R86 at a price of <1., ...., ....
1. 9o# much is the creditable #ithholdin" ta to be #ithheld by 1oldrich>
a. <7.7 c. <&.., ...
b. <(.., ... d. <3.., ...
2. 9o# much is the income ta still due and payable by 0an Fernando 1overnment>
a. <7.7 c. <2, -.., ...
b. <(.., ... d. <3, &.., ...
Problem 7-3! -ale of .eal Propert* #Comprehensi0e%
1. A sold his real property #ith a cost of <1, ..., ... to 8. At the date of sale, the land has a ;onal value
of <1., ..., ... but the sellin" price stipulated in the absolute contract of sale is <(, ..., .... 9o# much
is the capital "ains ta on the sale of land>
a. <(., ... c. <3(., ...
b. <(.., ... d. <&$., ...
2. 8ased on number 1, #hat is the capital "ain ta if A is a ban' and the land sold #ere ac,uired by
foreclosure from clients>
a. <*&., ... c. <3(., ...
b. <(.., ... d. <&$., ...
3. 8ased on number 1, if A sold his land to 8 #ho is a "overnment o#ned and controlled corporation, #hat
is the amount of creditable #ithholdin" ta on sale if A opted to apply the normal ta rate>
a. <*&., ... c. <$&., ...
b. <(.., ... d. <&.., ...
$. 8ased on number 1, assumin" that A is a reli"ious "roup, ho# much is its capital "ain ta it should pay if
the said reli"ious "roup is eempted from real property ta>
a. Ta eempt c. <3(., ...
b. <(.., .... d. <3.., ...
&. 8ased on number 1, assumin" that A is a "overnment o#ned and controlled corporation, ho# much is
the capital "ain ta on the sale of land>
a. <*&., ... c. <3(., ...
b. <(.., ... d. <&$., ...
Problem 7-3( -ellin Price
The real property #ith a cost of <$.., ... #as sold for <1, ..., .... <12., ... do#n payment, <&.., ...
unpaid mort"a"e assumed by the buyer. The sellin" price is>
a. <1, ..., ... c. <1, &.., ...
b. <1, 12., ... d. <1, (2., ...
Problem 7-4+ Contract Price
The real property #ith a cost of <$.., ... #as sold for <1, ..., .... <12., ... do#n, <&.., ... unpaid
mort"a"e assumed by the buyer. The contract price is>
a. <&..... c. <-.....
b. <(..... d. <++....
Problem 7-41 3nitial Pa*ment
The real property #ith a cost of <$.., ... #as sold for <1, ..., .... <12., ... do#n payment, <&.., ...
unpaid mort"a"e assumed by the buyer. The balance is payable <-&., ... every Aecember 31 for the net
$ years. The initial payment is>
a. <12., ... c. <(2., ...
b. <22., ... d. <*2., ...
Problem 7-42 3ncome from 3nstallment -ales
The real property costin" <&.., ... #as sold <1, &.., ..., <2./ do#n, unpaid mort"a"e of <3.., ...
assumed by the buyer, balance payable in 3 e,ual annual installments. :nder installment method of
reportin" income, the income to be reported in the year of sale is>
a. <2.., ... c. <3.., ...
b. <2&., ... d. <$.., ...
Problem 7-43 .eportin 3ncome b* 3nstallment
The real property #ith a cost of <$.., ... #as sold for <1, ..., .... <12., ... do#n payment, <&.., ...
unpaid mort"a"e assumed by the buyer. The balance is payable <-&., ... every Aecember 31 for the net
$ years. The reportable income under installment method in year of sale is>
a. <12., ... c. <22., ...
b. <1+3, 333 d. <3*2, ...
Problem 7-44 Cre)itable 7ithhol)in ta'
Gilla 4orporation, a real estate developer and member of 92:R8, sells sociali;ed housin". %n 2..8,
records sho# the follo#in" sales of houses as follo#s@
a. 2. houses@ sellin" price of <1&., ... each, "ross profit of 2&/
b. 3. houses@ sellin" price of <1, ..., ... each, "ross profit of 3./
c. $. houses@ sellin" price of, &.., ... each, "ross profit of 3&/
.e:uire); 4ompute for the creditable #ithholdin" ta and income ta still due and payable on the sales.
Problem 7-45 /r)inar* 3ncome< Capital "ains an) Final Ta'
The follo#in" data pertains to the transactions of =iss 2acy Ae 1u;man for the 2..8@
Total net sale from his tradin" business <&.., ...
4ost of sale 3.., ...
0ale of vacant lot used as open #arehouse for her tradin" business.
This #as ac,uired 2 years a"o at accost of <1&., ... 2.., ...
0ale of residential house and lot7ac,uired 12 years a"o, <+.., ...
3f the proceeds #as to ac,uire her ne# residential house
And lot. All pertinent 8%R re,uirements #ere complied #ith. 1, ..., ...
0ale of her personal computer. 9e bou"ht this for her personal use,
2 years a"o at cost of <2., ... 1., ...
0ale of personal car, ac,uired 3 years a"o at <&., ... 1.., ...
=uestions;
1. What is the ordinary incomeB"ain of =iss Ae 1u;man for 2..8>
2. 9o# much is the supposedly final ta ta'en from the proceeds of =iss Ae 1u;man transactions for the
year 2..8>
Problem 7-46 F3F/ 0s Mo0in A0erae
1alam!s common stoc' investments in <hile mines are as follo#s@
Aecember 1&, 2..A@ <urchased 1.. shares at <1.. per share.
February 2$, 2..8@ <urchased 3.. shares at <12. per share.
Au"ust 2., 2..8@ Received a 1&/ stoc' dividend.
Aecember 1&, 2..8@ 0old 3&. shares at <2.. per share.
.e:uire); 4ompute the ta due and payable for the 3&. shares sold assumin" that the shares are not traded
in stoc' echan"e usin" 5a6 F%F3 =ethod 5b6 =ovin" Avera"e.
Problem 7-47 3nstallment -ale of -hares of -toc6
%n 2..A, =iss Gir"inia Reyes sold outside stoc' echan"e 1, ... shares of stoc' #ith a cost of <+. per
share for <1&. per share under the follo#in" terms@<3.., ... do#n payment and the balance shall be
payable in three e,ual annual installments.
.e:uire); 4ompute the annual ta due of =iss Reyes for 2..A, 2..8, 2..4 and 2..A.
Problem 7-4! -ellin Price< Contract Price an) 3nitial Pa*ments
=iss 2imas sold a real property5capital asset6 under the follo#in" terms@
Terms Aate of <ayments Amount
Ao#npayment .(B1.B2..A <1.., ...
%nstallment dues@ 12B31B2..A 2.., ...
.3B1.B2..8 3.., ...
12B31B2..8 3.., ...
.3B1.B2..4 3.., ...
12B31B2..4 3.., ...
Additional information@
a. The real property #as purchased five years a"o at a cost of <(.., ....
b. The property #as mort"a"ed for <(&., ... #hich #as assumed by the buyer.
.e:uire); 4ompute for the follo#in"D
1. %nitial payments
2. 0ellin" price
3. 4ontract price
Problem 7-4( >arious Capital Asset Transactions
=rs. Aolinta!s capital asset transactions for 2..8 #ere as follo#s@
a6 1ave <&, ... option money to buy a capital asset of =r. Ee# of #hich she did not eercise.
b6 %nvested <1, ..., ... in 0an <edro 4orporation!s bonds #ith an interest of 3./#hich #as retired after -
months for 12..
c6 Received <&., ... from =r. 4hu for 2., ... common shares #ith mar'et value of <3... per share
delivered immediately
d6 %nvested <2., ... for 1.. common shares in <hilippine Airlines #hich #as ascertained insolvent.
.e:uire); 4ompute the net capital "ain or net loss incurred by =rs. Aolinta.
Problem 7-5+ Capital "ains Ta' 0s1 4ormal Ta'
3n Aecember 31, 2..8, Trinidad Wood 4orporation sold its land #ith erected #arehouse to the 8en"uet
<rovincial 1overnment at sales price of <3, ..., .... The land #as previously ac,uired by Trinidad for <2,
..., ... and the #arehouse has a remainin" boo' value of <2.., ... at the date of sale. Trinidad boo's of
accounts sho#s the follo#in" data related to its 2..8 operations@
0ales
4ost of sale 2, ..., ...
Allo#able deductible epanse 1, ..., ...
=uestions; Trinidad intends to pay the sale to the land at its capital "ains ta of (/ instead of optin" to pay
the normal ta #ith a creditable #ithholdin" ta of (/. %s Trinidad correct> 0ho# your supportin"
computation.
Problem 7-51 Ta' &'emption
2oa'an 4orporation sold the residential buildin" used as housin" privile"e of its employees for <1.,
..sales p, .... The buildin" #as previously constructed at <+, ..., ... #ith recorded accumulated
depreciation of <*, &.., .... The corporation #rote the 8%R to avail of the ta eemption privile"e
because its plan to use the entire sales proceeds to construct a ne# residential buildin" amountin" to <1.,
..., ....
=uestion; 4an 2oa'an avail of the ta eemption> Fustify your ans#er.
Problem 7-52 4/$C/ 0s1 4C$C/
The follo#in" ordinary and capital "ains5losses6 are ta'en from T@
Eears 3peratin" "ain5loss6 4apital "ain5loss6
1 5<1.., ....6 <2., ...
2 &., ... 1., ...
3 3., ... 5<$., ...6
$ +., ... <&., ...
.e:uire);
1. What is the amount of taable income for years 3 and $ before personal eemption if T is an individual
tapayer>
2. What is the amount of taable income for years 3 and $ if T is a corporate tapayer>
Problem 7-53 Capital Asset Transaction
The follo#in" data are available from the records of =@
2..A 2..8 2..4 2..A 2..?
8usiness income <2.., ... <$.., ... <$&., ... <&2., ...
<(..,...
8usiness epenses 3.., ... 3&., ... $.., ... &.., ... &.., ...
4apital
0hort7term "ain 5loss6 12., ... 51.., ...6 7.7 *., ... &., ...
2on"7term "ain 5loss6 51.., ...6 1+., ... 2., ... 52.., ...6 7.7
.e:uire); 4ompute the taable income if = is aBan@
1. %ndividual tapayer 5taable income before personal eemption6
2. 4orporation
Problem 7-54 /r)inar* Asset 0s1 Capital Asset
%n 2..-, Toyota <hilippines sold a land 4ruiser 5inventory6 costin" <$, ..., ... for <&, ..., ... by
installment. The terms of payment #ere@
Ao#npayment $./
Additional durin" the year of sale &.., ...
:npaid balance e,ually in & years
.e:uire); 4ompute for the follo#in"@
1. Reportable "ross income in 2..-.
2. Reportable "ross income in 2.1..
3. Assumin" that the 2and 4ruiser is classified as a capital asset, ho# much is the reportable "ross income
2..->

Problem 7-55 -ale Famil* 2ome
=r. 0 sold his family home costin" <1, 2.., ... for <3, ..., .... 9e applied for ta eemption. 9e spent
<2, ..., ... for the construction of his ne# residential home.
.e:uire); 4ompute for the follo#in"@
1. %f the ta eemption #as "ranted ho# much is the capital "ains ta>
2. 8ased on )o. 1, ho# is the basis of the ne# residential home>
3. %f the ta eemption #as not "ranted, ho# much is the capital "ains ta>
$. 8ased )o. 3, ho# is the basis of the ne# residential home>

Problem 7-56 3nstallment sale of .eal Propert*
%n 2.., C sold a real property lot 5capital asset6 by installment by <3, ..., .... %nformation related to the
sale@
Ao#npayment 2./
=ort"a"e assumed by the buyer <1, 2.., ...
:npaid balance e,ually in & years
4ost to the seller <*.., ...
.e:uire); 4ompute for the follo#in"@
1. %nitial payment
2. 4ontract price
3. 4apital "ains ta in 2..
Problem 7-57 7ash -ales
=r. % had the follo#in" transactions in A84 4orporation!s ordinary shares classified as capital asset@
Aate <articulars Amounts
Fan. 1., 2.. <urchased -, ... shares at <&. per share <$&., ...
Fan. 2., 2.. <urchased &, ... shares at <&. per share 2&., ...
Feb. 1., 2.. <urchased $, ... shares at <$& per share 1+., ...
Feb. 1$, 2.. 0old +, ... shares at <$. per share 5F%F36 32.,...
.e:uire); 4ompute for the follo#in"@
1. Aeductible loss on Feb. 1$, 2.. sales.
2. )ondeductible loss on Feb. 1$, 2.. sales.
3. )e# cost of Fanuary 2. purchases
$. )e# cost of February 1. purchases
&. %f on Feb. 2&, =r. % sold $, ... shares <(. per share, ho# much is the capital "ain 5loss6>
Problem 7-5! Corporate .eorani?ation
E, a shareholder, o#ns 1.., ... A 4o. shares #hich cost him <- per share. As a result of mer"er of A 4o.
and 8 4o., he received from b 4o. the follo#in" shares@
)o. of shares <ar valueBshare
F=GBshare
3rdinary shares 2&, ... <2. <3.
<reference shares &, ... 3. &.
.e:uire);
1. Aetermine the "ain or loss to be reco"ni;ed on the echan"e.
2. Aetermine the basis of the ordinary and preference shares respectively.
3. Assume that the ordinary shares #ere sold for <2& and preference share for <(. per share, determine the
net "ain or loss.
$. %f the shares #ere sold in the stoc' echan"e, compute the percenta"e ta.
&. %f the shares #ere sold not in the stoc' echan"e, determine the capital "ains ta.
(. 4hoosin" the lo#er ta bet#een $ and &, determine the ta advanta"e.
Problem 7-5( Corporate .eorani?ation
As a result of mer"er, =r. C transferred his A 4o. shares #ith a basis of <1+., ... in echan"e for the
follo#in"@
8 4o. ordinary shares #ith F=G of <2.., ...
2and #ith a F=G of 1.., ...
4ash &., ...
.e:uire);
1. Aetermine the taable "ain on the echan"e
2. Aetermine the basis of the 8 4o. shares received on the echan"e
3. What is the basis of the land received>
$. %f the land #ere sold for <3.., ..., ho# much is the capital "ain ta>
&. %f the investment in 8 4o. shares #ere sold for <2&., ..., compute the "ain or loss on sale.