Chapter 16 - 19

A

CLL Enterprises Inc. is a domestic corporation. It recently entered into a lease contract wherein it leased 5 motor vehicles for the use of its sales team. For each car, it is shall be paying P3,000 per month as lease payments, but with the option of purchasing ihe leased vehicles at the end of 5 years. May CLL Enterprises deduct the monthly payments for income tax purposes? A. Yes, the monthly payments may be deducted as lease rental. (if there is option to buy only and no definite agreement that the vehicles will be transferred) B. No, because of the call option given to CLL Enterprises to purchase the vehicles at the end of the contract true. (if there is reasonable certainty that the option will be exercised and it becomes a finance lease where rental payments are non-deductible) C. Yes, because CLL Enterprises may consider the payments as amortization expenses D. None of the above.

B

Which if the following is a deductible loss? A. Depreciation expense B. Loss due to robbery, theft, or embezzlement C. Loss claimed as a deduction in an estate tax return D. Allowance for bad debts

A

Entertainment, amusement, and recreation expenses (EAR) are subject to a ceiling of A. ½ of 1% of net sales B. 1 ½ % of net revenues C. 1% of net sales D. ½ of 1% if ne

C

Statement 1: Estimates of bad debts as a percentage of accounts receivable balances are not deductible. Statement 2: Gains arising from transactions between related taxpayers as defined in Section 36(B) of the Tax Code are taxable, but losses arising therefrom are not deductible. A. Only Statement 1 is true. B. Only Statement 2 is true. C. Both statements are true. D. Both statements are false

C

Statement 1: In general, prepaid interest of a taxpayer who is on the cash basis is not deductible in the year the debt is incurred, but the same can only be deducted only in the year the debt is paid. Statement 2: If the debt is payable in periodic amortizations, the amount of interest corresponding to the amortized or paid principal during the year shall be deductible in such year. A. Only Statement 1 is true. B. Only Statement 2 is true. C. Both statements are true. D. Both statements are false

B

Statement 1: Life insurance premiums paid by an employer to insure the life of a manager where the employer is the designated beneficiary under the policy, is an allowable deduction of the employer. Statement 2: In general, insurance premiums paid in connection with the conduct of the business of a taxpayer may be deducted by the taxpayer. A. Only Statement 1 is true. B. Only Statement 2 is true. C. Both statements are true. D. Both statements are false.

A

Statement 1: Ordinary and necessary expenses which are paid or incurred during the taxable year in carrying on the business of the taxpayer shall be allowed as deductions from gross income in the income tax return of the taxpayer. Statement 2: Business expenses of a previous period may still be deducted in the current taxable period as long as the same have not been deducted in such previous period. A. Only Statement 1 is true. B. Only Statement 2 is true. C. Both statements are true. D. Both statements are false.

C

Statement 1: Passive Income which have already been subjected to final tax form part of the gross income of corporate taxpayers for the purpose of computing the OSD. Statement 2: A taxpayer in business is deemed to have chosen to have chosen to itemize deductions for the 1st quarter if he fails to signify his intention to elect the OSD in the 1st Quarterly Return. Nevertheless, he can avail of the OSD in any of the next 3 quarters as long as he signifies this choice in the quarterly return field for the quarter. a. Statement 1 is true. b. Statement 2 is true. c. Both statements are false. d. Both statements are true.

D

The Optional Standard Deduction ("OSD") of a corporate taxpayer is 40% of: a. Gross sales or gross receipts b. Gross sales less sales returns, discounts, allowances, and cost of goods sold, if the corporation is a seller of services c. Gross receipts less sales returns, discounts, allowances, and cost of goods sold, if the corporation is a seller of goods d. None of the above

A

The Optional Standard Deduction ("OSD") of an individual taxpayer is 40% of: a. Gross sales or gross receipts plus other taxable income from operations not subject to final taxes b. Gross sales less sales returns, discounts, allowances, and cost of goods sold, if the individual is a seller of goods c. Gross receipts less sales returns, discounts, allowances, and cost of goods sold, if the individual is a seller of services d. B or C

A

The following are deductible business expense except: A. Donations made to employees who lost their homes in a fire. B. Travel expense, including meals and lodging, in connection with business. C. Cost of continuing legal education seminars of a practicing lawyer. D. Cost of subscription to medical journals by a practicing physician.

C

The following are deductible from gross income in the ITR, except: A. Casualty losses incurred in the conduct of a trade, business or profession B. NOLCOs C. Losses arising from capital asset transactions, D. Losses due to robbery, theft, or embezzlement of property connected with a trade, business or profession

D

The following are not deductible business expense except: A. Dividends paid by the corporation to its shareholders B. Premium paid by the employer to insure the life of its manager, and where beneficiary of the life insurance policy is the employer C. Necessary bribes paid to the office of the mayor to facilitate the issuance of the business permit D. Common repairs made to transportation vehicles used in the business

C

The following taxpayers may elect to claim the OSD in lieu of itemized deductions, except: a. Citizens b. Resident Aliens c. Non-resident Aliens d. Estates and Trusts

B

What is the deductible amount if the loss is due to casualty, robbery, or theft is partial? A. Replacement cost less salvage value B. Replacement cost of the damaged portion of the asset, or the book value at the time of loss, whichever is lower C. Actual cost of the property less accumulated depreciation D. None of the above

C

Which of the following forms of interest expense is deductible in full? A. Interest paid to the bank in which taxpayer is also a depositor B. Interest paid to a family member under Section 36(B) of the Tax Code C. Interest on delinquent tax paid to the BIR D. Interest which is capitalized

C

Which of the following is a deductible bad debt expense against gross income in the current taxable year? a. Bad debt allowance of 15% of accounts receivable b. Bad debt recovered after it was previously written off c. AR ascertained to be worthless and charged off in the current year d. AR ascertained to be worthless in a previous year, and will be charged off in the next taxable year

D

Which of the following may be deductible from gross income? A. Surcharge and compromise penalties paid to the BIR B. Interest on unclaimed salaries and bonuses owed to employees C. Interest incurred to finance petroleum exploration D. Interest expense paid by a taxpayer to his first cousin on a business loan

D

Which of the following taxes incurred in the ordinary course of business of a taxpayer is allowed as a deduction from gross income? A. Capital gains taxes on real properties in the Philippines classified as capital assets B. Stock transaction tax under Section 127 of Tax Code C. Special Assessments D. Foreign income taxes paid, but not claimed as tax credits

C

Which of the following taxes is not deductible? a. documentary stamp tax b. excise tax c. VAT d. other percentage tax (OPT)

B

Which taxpayers are not entitled to deduct NOLCOs? A. Individual taxpayers engaged in trade or business, or in the exercise of a profession B. Foreign international carriers and offshore banking units. C. Domestic and resident foreign corporations, in general D. Proprietary educational institutions, and hospitals which are non-profit

D

false. 3. Statement 1: Since the Philippine income tax of a taxpayer is not an allowable deduction of a taxpayer, it follows that interests imposed by BIR on any income tax delinquency is also not deductible from gross income Statement 2: For the interest expense paid by a taxpayer on a loan given to him by his brother to be deductible, the contract of loan must be notarized. A. Only Statement 1 is true. B. Only Statement 2 is true. C. Both statements are true. D. Both statements are false