CHAPTER 3: Introduction to Taxation

A

A Canadian who is staying in the Philippines for more than one year is a a. Resident alien b. Non-resident alien c. Non-resident alien engaged in trade or business d. Non-resident alien not engaged in trade or business

C

A Filipino who has been abroad for more than 183 days is classified as a a. Resident alien b. Non-resident alien c. Non-resident citizen d. Non-resident citizen not engaged in trade or business

C

A Japanese who is staying in the Philippines for 183 days is a a. Resident alien b. Non-resident alien c. Non-resident alien engaged in trade or business d. Non-resident alien not engaged in trade or business

A

A citizen who left the Philippines on March 1, 2013 would be classified as a. Non-resident for the year 2013. b. Resident citizen for the year 2013. c. Non-resident for the year 2014.000B1.r3 d. Resident citizen for the year 2014.

C

A condominium homeowner's association collects dues from unit holders and remits the same to service providers on their behalf. Such dues include electricity, water, security, and maintenance. The association charges unit holders an additional 2% of their utility bills as service charge. During the year, the association processed utility bills for unit holders totaling P5,000,000. How much taxable income is realized by the association? a. P5,000,000 b. P4,900,000 c. P100,000 d. P0

A

A corporation incorporated according to Philippines laws is a a. Domestic corporation b. Resident corporation c. Non-resident corporation d. De jure corporation

C

A foreign corporation which is not authorized to conduct business in the Philippines is a a. Domestic corporation b. Resident corporation c. Non-resident corporation d. De jure corporation

C

A non-resident citizen is an international financier who earned P400,000 interest income from resident debtors and P300,000 from foreign debtors. How much is subject to Philippine income tax? a. None b. P300,000 c. P400,000 d. P700,000

A

A partnership which dominantly operates business abroad is a a. Domestic corporation b. Resident corporation c. Non-resident corporation d. De jure corporation

A

A resident alien naturalized in accordance with Philippine laws is a a. Resident citizen b. Resident alien c. Non-resident alien engaged in trade or business d. Non-resident alien not engaged in trade or business

A

Alexander Company insured the life of its president for P2,000,000. A total of P500,000 in premiums was paid before the president died. The company collected the total proceeds. Compute the return on capital. a. P0 b. P1,500,000 c. P500,000 d. P 2,000,000

D

All of the following are taxable only on income earned from sources within the Philippines, except a. Resident alien b. Non-resident citizen c. Non-resident corporation d. Domestic corporation

D

An American citizen has been staying in the Philippines since August 15, 2013. What would be his taxpayer classification for the year 2013 and 2014, respectively? a. Non-resident alien engaged in trade or business; resident alien b. Non-resident alien not engaged in trade or business; resident citizen c. Non-resident alien engaged in trade or business; resident citizen d. Non-resident alien not engaged in trade or business; resident alien

B

An American who showed proof to the satisfaction of the Commissioner of Internal Revenue of his intention to stay in the Philippines as an immigrant is classified as a a. Resident citizen b. Resident alien c. NRA- ETB d. NRA - NETB

B

An alien received P200,000 compensation income in the Philippines and P300,000 rental income from abroad. How much will be subject to Philippine income tax? a. None b. P200,000 c. P300,000 d. P500,000

A

An alien who stayed less than one year in the Philippines is classified as a non-resident alien not engaged in trade or business if he stayed herein for less than a. 180 days b. 1 year c. 183 days d. 2 years

C (22 + 15-12)

Andrew received a total sum of P42,000 from his employer consisting of the following: P5,000 reimbursements for employer's expenses paid by Andrew P15,000 payment of Andrew's computer set purchased by the employer P22,000 monthly salary Andrew's computer set cost him P12,000. Compute the total return on capital which can be subjected to income tax. a. P42,000 b. P37,000 c. P25,000 d. P22,000

C

As to tax payments measures, which of the following threshold for the qualification as large taxpayer is incorrect? a. Annual income tax payments of P1M b. Annual value added tax payments of P1M c. Quarterly percentage tax payments of P200,000 d. Annual documentary stamp tax of P1M

A

Becky purchased a P1,500,000 life insurance policy for P100,000. During the year, Becky died and her heirs collected the entire proceeds. How much of the proceeds is exempt from income tax? a. P1,500,000 b. P1,400,000 c. P100,000 d. P0

B

Beth negotiated a P1,000,000 non-interest bearing promissory note to Candy. Candy paid Beth P950,000. On due date, Beth paid Candy P1,000,000. Which is true? a. Beth earned P50,000 return on capital b. Candy earned P50,000 return on capital c. Candy received P50,000 donation d. Candy received P1,000,000 return of capital

C (120 - P80)

Betty paid P20,000 annual premium on a life insurance contract which would pay her P1,000,000 in case of her death. After paying for 4 years, Betty assigned the policy to Carlos for P120,000. Compute the return on capital. a. P120,000 b. P80,000 c. P40,000 d. P0

C (200 - 20x7)

Carlos paid P20,000 annual premium for a P1,000,000 life insurance policy. After 7years, Carlos surrendered the policy and was paid by the insurance company P200,000 which represents the cash surrender value of the policy. Compute the return on capital. a. P1,000,000 b. P860,000 c. P60,000 d. P0

C [1M - 120K - (20Kx4)]

Dan purchased the P1,000,000 life insurance policy of Ben for P120,000. Dan paid the P20,000 annual premiums on the policy for 4 years after which Ben died. Compute the total return on capital for Dan. a. P1,000,000 b. P880,000 c. P800,000 d. P0

A

Denver is a supervisory employee of Atlantis Corporation. He had the following items of gross income during the year: Denver was paid P800,000 salaries. Denver's P100,000 personal loan was paid by Atlantis Corporation as rewards for his excellent performance. Denver's P50,000 advances to the company was paid by Atlantis' chief executive officer as a gift. Denver is entitled to excess representation and transportation allowances. Denver received P200,000 total allowance out of which P120,000 was disbursed by him. Compute Denver's total income subject to income tax. a. P980,000 b. P900,000 c. P880,000 d. P800,000

D

Felix sells hot chili-flavored pancakes using a secret formula he patented. He sued a competing pancake house for alleged patent infringement and claimed a total indemnity of P1,200,000: P1,000,000 for loss of profits from loss of sales P200,000 as Attorney's fee reimbursement If Felix wins the case and is awarded the total indemnity, compute his total return of capital. a. P1,000,000 b. P800,000 c. P0 d. P 200,000

D

Gains on the sale of goods manufactured and sold by the taxpayer within the Philippines is subject to tax a. wherever sold. b. if sold abroad only. c. without the Philippines only. d. within the Philippines only.

C

Guilbert is worried that his entire potato plantation, which is expected to yield P400,000 income will be totally devastated by bad weather conditions. He obtained a P300,000 crop insurance cover for P30,000. Just before harvest, a rare frost totally destroyed Guilbert's plantation. The insurance comnpany paid the policy proceeds. Compute the total recovery of loss profits to be recognized by Guilbert as income. a. P0 b. P100,000 c. P 300,000 d. P370,000

C

Henson was one of the passengers of a van that fell off a ravine. Henson sued the bus company and was awarded an indemnity of P800,000 for the following: P500,000 for the impairment of his health resulting to the amputation of his legs P200,000 for his loss of salaries during his hospitalization P100,000 for his Attorney's fees Compute Henson's return on capital. a. P800,000 b. P300,000 c. P200,000 d. P0

B

Income tax may be imposed for the following purposes, except a. To provide large amounts of revenues b. To limit corruption c. To offset regressive sales and consumption taxes d. To mitigate the evils arising from the inequalities in the distribution of income and wealth

D

Jake sued an unscrupulous person for derogatory remarks which he considered to have besmirched his reputation. The court awarded him an indemnity of P1,000,000 inclusive of P200,000 reimbursement for Attorney's fees and P100,000 exemplary damages. Compute Henson's total return on capital. a. P1,000,000 b. P800,000 c. P700,000 d. P0

D

Jen is engaged in business. The following pertains to her transactions during 2014: Sold his personal car which was purchased at P200,000 to a friend who paid only half of the car's P500,000 current fair value. Sales of merchandise was P800,000 and the cost of goods sold was P600,000. Jen acquired several stocks from the Philippine Stock Exchange for speculation. These stocks have an aggregate purchase price of P400,000 but with P700,000 fair value by December 31, 2014. Jen's house and lot which he acquired for P1,500,000 in 2010 now have a current fair value of P2,500,000. Compute Jen's total income subject to income tax. a. P1,800,000 b. P1,550, 000 c. P200,000 d. P250,000

D

Juan, a resident alien, and Pedro, a non-resident alien, executed a contract of sale in Japan whereby Pedro shall purchase the lot owned by Juan in the Philippines. Juan gains P1,000,000 in the exchange. Which is true? a. The gain is exempt since the gain is derived outside the Philippines. b. The gain is not subject to Philippine tax since Juan is a resident alien. c. The gain is subject to Philippine tax because Juan is a resident alien. d. The gain is subject to Philippine tax because the property is in the Philippines.

D

Kendrick received the following items during the year: P200,000 donation from a girlfriend P100,000 service fee from professional services P300,000 inheritance from his deceased father P100,000 income from illegal gambling P50,000 gain on sale of his personal car P250,000 profits from his bar restaurant Compute the total income subject to income tax. a. P1,050,000 b. P750,000 c. P550,000 d. P500,000

D

Kenny used to bet in PCS0 lotto. On June 3, 2014, he won the P20,000,000 jackpot prize from the 6/45 lotto. One P20-ticket out of 10 bets took the prize. How much is Kenny's total income subject to tax? a. P20,000,000 b. P19,999,990 c. P19,999,900 d. P0

C

Onyoc insured his newly constructed building costing P1,000,000. Within a few days, the building was totally destroyed by a fire. The insurance company reimbursed Onyoc P1,500,000, which represents the fair value of the building. Which statement is false? a. P1,000,000 of the proceeds is a return of capital. b. P500,000 of the proceeds is a return on capital. c. P1,500,000 is a return of capital. d. Only A and B

B

Pedro, a non-resident citizen, lent money to Shino, a resident Chinese. The indebtedness was collateralized by a property located in Japan. The interest income is earned in a. the Philippines. b. China. c. Japan. d. Japan, China and the Philippines.

C

Pines Corporation has a branch in Manila and a 70%-owned subsidiary, Choco Hills, Inc. in Davao. The following data shows Pines Corporation's sales transactions during the year: Pines Corporation billed the Manila branch P1,500,000 for merchandise shipped to the latter at a mark-up of 50% above acquisition cost. The branch stored the merchandise and did not operate during the year. Sold merchandise to unrelated parties at a gain of P800,000 Sold merchandise to Darrel Asuncion, Pines Corporation's controlling stockholder, at a gain of P100,000 Sold various merchandise to Choco Hills, Inc. at a gain of P200,000 Compute the total income of Pines Corporation subject to income tax. a. P1,700,000 b. P1,200,000 c. P1,100,000 d. P900,000

B

The place of taxation is a. Situs rule b. Situs c. Territoriality d. Gross income

D

The total consideration received from the sale of goods at a gain represents a. Return on capital b. Return of capital c. Either a or b d. Both a and b

B

The total consideration received from the sale of goods at a loss represents a. Return on capital b. Return of capital c. Either a or b d. Both a and b

A

The total consideration received from the sale of service constitute a. Return on capital b. Return of capital c. Either a or b d. Both a and b

D

Transfers for insufficient consideration are subject to a. Income tax b. Transfer tax c. Either a or b d. Both a and b

A

When paid for, which of the following items may involve a return on capital? a. House and lot b. Life c. Dignity d. Health

A

Which is an incorrect statement regarding situs of income: a. Service income is earned in the domicile of the taxpayer. b. Interest income is earned in the residence of the debtor. c. Royalty is earned where the intangible is employed. d. Rent is earned in the location of the property.

C

Which is not an income taxpayer? a. Non-resident foreign corporation b. Non-resident alien not engaged in trade or business c. Joint venture engaged in energy operation pursuant to a service contract with the government d. Irrevocable trusts

B

Which is not an item of gross income because of the absence of an undertaking from the taxpayer? a. Proceeds of a life insurance policy b. Forgiveness of indebtedness as an act of gratuity c. Revaluation surplus on properties d. Service fees

A

Which is not subject to income tax? a. Donation b. Sale of service c. Sales of goods d. Barter of goods

D

Which is required to pay income tax? a. Revocable trusts b. Estates under extrajudicial settlement c. Co-ownership d. Business partnership

A

Which is specifically exempted from income taxation by virtue of legal exemption? a. Minimum wage b. Gain on sale of prohibited drugs c. Unrealized gain d. All of these

B

Which is subject to income tax? a. Proceeds of life insurance policy received by the family of the insured b. Excess of proceeds over the premiums paid received by the taxpayer c. Life insurance proceeds received by the corporation from the insurance of a deceased officer d. None of these

D

Which is taxable item of income? a. Increase in numbers of a herd of animals b. Compensation for personal injuries c. Moral damages d. Interest on moral damages

C

Which is taxable on world income? a. Resident corporation b. Non-resident citizen c. Resident citizen d. Resident alien

C

Which of the following constitutes taxable income? a. Return of premium on life insurance received by the insured b. Moral damages received from slander c. Proceeds of crop insurance d. Compensation for personal injury

B

Which of the following is exempted from income taxation because of the absence of ability to pay? a. Damages received from patent infringement suit b. Unrealized income from investments c. Gain on sale of goods d. Inheritance

D

Which of the following is not a constructive receipt of income? a. Forgiveness of indebtedness in consideration of service b. Matured detachable interest coupons c. Deposit of income to taxpayer's bank accounts d. Cash salary of an employee

D

Which of the following is not an income taxpayer classification? a. Resident citizen b. Non-resident alien c. Resident foreign corporation d. General professional partnership

A

Which of the following taxpayers is taxable only on income earned from the Philippines? a. Resident corporation b. Domestic corporation c. Resident citizen d. All of these

A

Which statement is correct regarding situs of income? a. The gain on the sale of real property is earned in the location of the property. b. The gain on sale of any property is earned in the place of sale. c. Merchandising income is earned in the residence of the proprietor. d. Manufacturing income is earned in the place of sale

B

Which taxpayer is not a natural person? a. Resident citizen b. Taxable estate c. Non-resident alien engaged in trade or business d. Non-resident alien not engaged in trade or business

B

Who is not a resident alien? a. An alien who stayed in the Philippines for more than two years. b. An alien who married and stayed in the Philippines for one year. c. An alien who stayed in the Philippines for more than one year. d. An alien who established his intention before the CIR to stay in the Philippines for an extended period of time.

B

Why is income subject to taxation? a. Income is the most prevalent source of a taxpayer's wealth. b. Income is the best measure of taxpayers' ability to pay tax. c. Rich people tend to have more income than the poor. d. Any of these.

D

Yvonne, a resident alien, bought a car manufactured in the Philippines and exported the same at a gain to Carla, a non-resident citizen. Which is correct? a. The gain is subject to tax in the Philippines since the commodity involved is manufactured in the Philippines. b. The gain is subject to tax in the Philippines since the buyer is a citizen of the Philippines. c. The gain is both subject to tax in the Philippines and abroad since the commodity involved is manufactured in the Philippines. d. The gain is taxable abroad because it is sold abroad.

B

foreign corporation which operates a branch in the Philippines is a a. Domestic corporation b. Resident corporation c. Non-resident corporation d. De jure corporation