Answer key

TAX EXERCISE 1 FUNDAMENTAL PRINCIPLES

MULTIPLE CHOICE
1. D
2. C
3. D
4. C
5. B
6. B
7. D
8. B
9. A
10. D
11. D
12. A
13. C
14. C
15. C
16. C
17. C
18. B
19. A
20. B
21. B
22. A
23. D
24. D
25. C

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26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

B
A
C
A
D
C
C
C
D
D
A
A
B
C
B
D
C
D
A
B
D
D
D
A
C

51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.

C
A
C
D
B
C
A
D
B
A
D
A
B
C
D
C
C
D
B
A
C
D
D
C
D

76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.

B
D
C
C
B
D
D
B
D
A
A
D
D
D
C
C
C
C
D
A
C
B
D
D
C

TAX EXERCISE 2 - INDIVIDUAL TAXPAYERS

MULTIPLE CHOICE
1. A
2. A
3. A
4. A
5. C
6. B
7. B
8. D
9. D
10. D
11. C
12. A
13. D
14. D
15. A
16. C
17. D
18. C
19. A
20. D
21. D
22. C
23. D
24. B
25. A
26. D
27. D
28. D
29. C
30. C

31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.

A
D
B
D
B
A
D
D
B
D
C
D
D
D
C
D
B
D
A
C
B
D
D
B
A
C
B
D
D
D

61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.

C
B
D
D
D
C
B
A
B
D
D
B
C
D
C
B
D
B
C
D
B
B
A
C
A
B
D
B
D
D

SUPPORTING COMPUTATIONS (MULTIPLE CHOICE)

28.
Gross income, Philippines
Gross income, USA

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P400,000
300,000

Expenses, Philippines

(200,000)

Expenses, USA

(150,000)

91.
92.
93.
94.
95.

D
D
D
C
D

Basic personal exemption

(50,000)

Taxable income

P300,000

Gross income, Philippines

P400,000

Expenses, Philippines

(200,000)

29.

Basic personal exemption

(50,000)

Taxable income

P150,000

Gross income, Philippines

P400,000

Expenses, Philippines

(200,000)

30.

Basic personal exemption

(50,000)

Taxable income

P150,000

Gross income, Philippines

P400,000

Expenses, Philippines

(200,000)

31.

Basic personal exemption

(35,000)

Taxable income

P165,000

Basic exemption

P50,000

33.
Additional exemption

10,000

(P10,000 x 2)
Taxable income
36.

P70,000

The taxpayer is classified as NRA-NETB.

Interest and dividends are not considered income derived from business operations

41.
Gross compensation income
Basic exemption
Additional exemption (4 max.)
HHIP (P200 x 6 mos.)
Taxable income

3|P a g e

P240,000
(50,000)
(100,000)
(1,200)
P88,800

43.
Basic exemption

P50,000

Additional exemption (4 max.)

100,000

HHIP (P200 x 12 mos.)

Taxable income

2,400
P152,400

44.
Gross compensation income

P180,000

SSS premiums contributions

(3,600)

Philhealth contributions

(2,400)

Pag-ibig contributions

(1,800)

Union dues

(2,200)

Basic Personal exemption

HHIP (January to June)
Taxable income

(50,000)
(1,200)
P118,800

45.
Gross compensation income

P250,000

SSS premium contributions

(3,600)

Philhealth contribution

(2,400)

Pagibig contributions

(2,000)

Union dues

(1,000)

Premiums on health insurance

(2,400)

Net income before personal

P238,600

exemption
50.
Compensation income
Basic exemption
Additional exemption (4 max.)

P1,200,000
(50,000)
(100,000)

Taxable income

P1,050,000

Compensation income

P1,200,000

51.

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Basic exemption

(50,000)

Additional exemption (Alpha

(25,000)

only.)
Taxable income

P1,125,000

69.
Copyright (11,250/90%)x10%

P1,250

Royalty (12,000/80%) x 20%

3,000

Share from Trade Partnership

30,000

(treated as dividend income)

(270,000/90%) x10%
Taxable income

P34,250

71.
Gross business income, Philippines

P1,000,000

Business expenses, Philippines

Basic personal exemption
Taxable income

(300,000)
(50,000)
P650,000

72.
Royalty on books (P94,500/90%) x 10%

10,500

Dividend income (P144,000/80%) x 20%

36,000

Total Final tax on passive income

P46,500

73.
Capital gains tax on sale of shares of

P4,000

stock
(P80,000 x 5%)
Capital gains tax on sale of real

120,000

property
(P2M x 6%)
Total Final tax on passive income

P124,000

74.
Dividend income from domestic corporation

P1,000

(P10,000x 10%)
Interest on Philippine currency bank deposit
(P13,000 x 20%)

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2,600

Interest on government bonds (P5,000 x 20%)

1,000

Total

P4,600

75 and 76.
Gross income from business

P220,00
0

Expenses, business [P150,000 + (10,000/2)]

(155,00
0)

Share in Rent income from land and building

24,000

(50%)
Interest on notes receivable
Taxable income before personal exemption

2,000
P91,000

(#81)
Basic personal exemption

(50,000)

Taxable income after personal exemption

P41,000

(#82)
77 and 78.
Gross income from profession

P200,000

(P180,000/90%),
Expenses profession [P120,000 +

(125,000)

(10,000/2)]
Share in Rent income from land and building

24,000

(50%)
Interest on notes receivable
Taxable income before personal exemption

1,000
P100,000

Basic personal exemption

(50,000)

Taxable income after personal exemption

P50,000

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TAX EXERCISE 3 INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME

MULTIPLE CHOICE
1.
C
2.
D
3.
B
4.
B
5.
D
6.
D
7.
D
8.
B
9.
B
10.
B
11.
C
12.
B
13.
C
14.
A
15.
C
16.
C
17.
C
18.
D
19.
B
20.
B
21.
B
22.
A
23.
A
24.
C
25.
B
26.
C
27.
D
28.
D
29.
C
30.
A

31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.

B
A
D
A
D
D
C
C
A
C
B
A
D
D
C
D
D
D
A
C
D
B
B
C
C
D
B
D
C
A

SUPPORTING COMPUTATIONS
11.
Business income

7|P a g e

P1,050,000

Pension income

400,000

Basic exemption

(50,000)

Taxable income

P1,400,000

61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.

C
A
C
D
B
A
B
D
D
B
C
D
D
D
D
A
D
B
C
B
D
D
B
C
D
B
C
D
A
D

91.
92.
93.
94.
95.
96.
97.
98.
99.
100.

C (income fr.gift)
D
D
C
A
B
B
D
C
D

17.
Recovery # 1

P20,000

Recovery # 3

8,000

Taxable income

P28,000

24.
Gross profit from sales

P1,000,000

Business connected expenses

(630,000)

Accounts written off during the year and charge to

(60,000)

allowance for bad debts

Recovery of bad debt written off previously allowed as

30,000

deduction from the gross income

Refund of taxes previously allowed as deduction from

50,000

the gross income

Taxable income

P390,000

37.

d should be regardless of the accounting method used

38.

P10M x 10/50 = P2M

39.

P2M / 40 = P50,000

40.

P2,500,000 (50,000 x 20) = P1,500,000

41.
Annual rent
Income from improvement

P360,000
200,000

(P6M x 15/30) / 15
Total annual income

P560,000

48.
Copyright
Gross amount
Final Tax @ 10% and 20%
Proceeds

Patent

P70,000

P50,000

(7,000)

(10,000)

P63,000

P40,000

67.
Ramon Magsaysay award

8|P a g e

P50,000

Total

P103,000

Athlete of the year award

100,000

Prize for winning an Olympic

500,000

Medal
Gift from Mayor Alfredo Lim
Car from Honda as a gift
Winnings Philippine lotto
Total

250,000
1,000,000
100,000
P2,000,000

68.
Cash prize
House and lot

P2,000,000
3,000,000

won
Gambling

3,000,000

winnings
Taxable

P8,000,000

winnings
77.
Proceeds of his life insurance

P2,000,000

paid
Less premiums paid (P15,000 x

(375,000)

25)
Rent income from inherited

200,000

properties
Taxable income

P1,825,000

79.
Proceeds

9|P a g e

P200,000

Premiums paid by Cotto

(60,000)

Premiums paid by Pacman

(80,000)

Income

P60,000

TAX EXERCISE 4 DEALINGS IN PROPERTIES

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

C
D
D
A
D
D
D
D
B
C
A
A
D
B
D

16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.

D
D
C
A
B
D
D
C
C
C
D
D
C
A
A

31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.

D
B
B
B
A
D
D
C
A
A
D
C
B
B
B

SUPPORTING COMPUTATIONS
18.

P1,200,000 x 6% = P72,000
Sale of vacant lot used as warehouse is an ordinary asset

19.

Assume cost per share for the second transaction was P100.
Selling Price (1,000 sh. x P110)

P110,000

Cost (1,000 sh. x P100)

100,000

Capital gain

P10,000

Capital gains tax (P10,000 x 5%)

P500

The first transaction is subject to Percentage Tax of of 1% of Gross Selling Price.

20.

The capital loss should be recognized as of the last day of the taxable year.

22.
Total net sales from his trading

P 500,000

business
Cost of sales
Gain on sale of vacant lot used in
business

10 | P a g e

(300,000)
50,000

Ordinary income/gain

P250,000

23.

Capital Gain (On Sale of personal Car) = (P100,000-P50,000) x 50% = P25,000

24.

Capital Loss (On Sale of personal computer) = (P10,000-P20,000) x 50% = (P5,000)

25.

Net capital gain = P25,000 P5000 = P20,000

31.
Ordinary income

P140,000

Long term capital gain

20,000

(@50%)
Long term capital loss

(5,000)

(@50%)
Basic personal exemption
Taxable income
32.

(50,000)
P105,000

Sale of bonds @ 50%

33.
Capital gain on sale of bonds

P45,00
0

Capital loss on sale of family car @

(40,000

50%

Net capital gain

P5,000

35.
Ordinary business income
Add:

Capital gain (P45,700 x

P85,700
P22,850

50%)
Less: capital loss carryover
(P15,585 P18,960)

3,065

Total
Less:

19,785
105,485

Basic personal

50,000

Additional exemption

25,000

exemption
Taxable income

(75,000)
P30,485

42. New Cost Basis = P2.5M/P4M x P2M = P1,250,000

43. P1.5/P4 x P4M x 6% = P90,000
44. If the proceeds were fully utilized, the new cost basis is the same with the old cost basis.

11 | P a g e

TAX EXERCISE 5 FRINGE BENEFITS

MULTIPLE CHOICE
1. C
2. B
3. A
4. D
5. C
6. D
7. D
8. C
9. D
10. D
11. B
12. A
13. D
14. C
15. C

16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.

A
A ***
B
B
B
D
C
B
C
D
D
A
D
C
D

31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.

C
46. A
D
47. C
A
48. D
B
49. A
D
50. C
B
A
D
A (P416,667; P196,078)
C
D
A
C
C
D

SUPPORTING COMPUTATIONS (MULTIPLE CHOICE)

***#17.
The journal entry in letter a is the journal entry provided in related revenue regulations.
Nonetheless, the authors believe that the journal entry should have been:
Compensation expense (@

Pxx

GUMV)
Cash

Pxx

Consequently, from the journal entry shown above, the account debited as fringe benefit tax
expense in revenue regulations should not form part of the employers Taxes Expense but as
a component of the employers Compensation expense.
28.
To managerial fringe benefit

P1,360,000

expense
Fringe benefit tax expense
Rank and File
Total

12 | P a g e

640,000
5,000,000
P7,000,000

29.
Expenditure attributable to Managerial
employees

P200,000

(P1M x 20%)
FBT: (P200,000/68%) x 32%

P94,118

30.
Total expenditure (monetary value)
Fringe benefit tax expense

94,118

Total

P1,094,118

32.

[(P48,000/68%) x 32%]

35.

(P340,000 x 50%)/68% x 32%

36.
Fringe benefit expense
Fringe benefit tax

P340,000
80,000

expense
Rank and File axpenses

200,000

De minimis

100,000

Total

P720,000

37.
P2,000,000 x 5% x 50% / 12 = P4,1667.67
P4,1667.67 / 68% x 32%
= P1,960.78
38.
P3,000,000 x 5% x 50% / 12 = P6,250
P6,250/ 68% x 32%
= P2,941.18
39.
P5,000,000 / 12
P416,667/ 68% x 32%
40.

13 | P a g e

P1,000,000

= P416,667
= P196,078.42

 (P5,000,000-2,000,000) / 12
P250,000/ 68% x 32%

= P250,000
= P117,647.05

42.
P1,000,000 / 68%
P1,470,588 x 32%

= P1,470,588
= P470,588

P800,000 / 68%
P1,176,471 x 32%

= P1,176,471
= P376,471

43.

44.
(P1,000,000/5) / 68%
P294,118 x 32%

14 | P a g e

= P294,118
= P94,118

TAX EXERCISE 6 INTRODUCTION TO TAXATION

15 | P a g e

TAX EXERCISE 7 TAXES, TAX LAWS AND TAX ADMINISTRATION

16 | P a g e

TAX EXERCISE 8 FINAL INCOME TAXATION

17 | P a g e

TAX EXERCISE 8 CAPITAL GAINS TAXATION

18 | P a g e

TAX EXERCISE 10 EXCLUSION FROM GROSS INCOME

19 | P a g e

TAX EXERCISE 11 COMPENSATION INCOME

20 | P a g e

21 | P a g e

TAX EXERCISE 12 INCLUSION IN GROSS INCOME

22 | P a g e

23 | P a g e

TAX EXERCISE 13 FRINGE BENEFITS TAX

24 | P a g e

TAX EXERCISE 14 DEALINGS IN PROPERTIES

25 | P a g e