Final Exam

Present solution in good form

Problem A

Ian, single, had the following data for 2020 taxable year:
Gross business income, Philippines 1,000,000

Gross business income, USA 500,000

Business expenses, Philippines 700,000

Business expenses, USA 430,000

Compensation income, Philippines 600,000

Dividend income form a domestic corporation 50,000

Dividend income from foreign corporation 40,000

Interest income from peso bank deposit- 20,000

Philippines

Interest income from bank deposits abroad 30,000

Interest income from FCDS deposits 40,000

Royalty income from composition 25,000

Raffle draw winnings 10,000

PCSO winnings 200,000

Creditable withholding taxes on business income 125,000

Required:

1. Determine the following assuming the taxpayer is a resident citizen:

1. Taxable net income = P1,050,000
2. Income tax payable = P80,000
3. Total final taxes on passive income = P57,500
4. Total income tax expense = P262,500

SOLUTION:
a. Gross business income, Philippines P1,000,000
Gross business income, USA     500,000
Business expenses, Philippines   (700,000)
Business expenses, USA   (430,000)
Compensation income, Philippines     600,000
 Dividend income-foreign corp.       40,000
Interest income-bank deposit abroad       30,000
Raffle draw winnings       10,000
Basic personal exemption _________
Taxable income P1,050,000

b. Tax Due [(P130,000)+(250,000 x 30%)]   P205,000

Creditable withholding tax on bus. income   (125,000)
Income Tax Payable    P80,000

c. Dividend income – DC (50k x 10%)       P5,000

Interest income bank deposit-Phls.@20%         4,000
Interest income FCDS deposit @ 15%         6,000
Royalty income from composition @10%         2,500
PCSO winnings (P200,000 x 20%)      40,000
Final Tax on Passive Income    P57,500

d. Basic income tax due P205,000 

Final taxes on passive income     57,500
Total income tax expense P262,500

2. Determine the following assuming the taxpayer is a nonresident citizen:

a. Taxable net income = P910,000
b. Income tax payable = P38,000
c. Total final taxes on passive income = P51,500
d. Total income tax expense = P214,500

SOLUTION:
a. Gross business income, Philippines P1,000,000
Business expenses, Philippines   (700,000)
Compensation income, Philippines     600,000
Dividend income-foreign corp. -
Raffle draw winnings       10,000
Basic personal exemption _________    
Taxable income   P910,000

b. Tax Due [(P130,000)+(110k x 30%)]   P163,000

Creditable withholding tax on buss. income   (125,000) 
Income Tax Payable     P38,000

c. Dividend income – DC (50k x 10%)       P5,000

Interest income bank deposit-Phls.@20%         4,000
Interest income FCDS deposit @ 15%     -
Royalty income from composition @10%         2,500
 PCSO winnings (P200,000 x 20%)        40,000
Final Tax on Passive Income     P51,500

d. Basic income tax due P163,000

Final taxes on passive income     51,500
Total income tax expense P214,500

3. Determine the following assuming the taxpayer is a resident alien:

a. Taxable net income = P910,000
b. Income tax payable = P38,000
c. Total final taxes on passive income = P57,500
d. Total income tax expense = P220,500

SOLUTION:
a. Gross business income, Philippines P1,000,000
Business expenses, Philippines   (700,000)
Compensation income, Philippines     600,000
Dividend income-foreign corp. -
Raffle draw winnings       10,000
Basic personal exemption _________    
Taxable income   P910,000

b. Tax Due [(P130,000)+(110k x 30%)]   P163,000

Creditable withholding tax on buss. income   (125,000) 
Income Tax Payable     P38,000

c. Dividend income – DC (50k x 10%)       P5,000

Interest income bank deposit-Phls.@20%         4,000
Interest income FCDS deposit @ 15%         6,000
Royalty income from composition @10%         2,500
PCSO winnings (P200,000 x 20%)      40,000
Final Tax on Passive Income    P57,500

d. Basic income tax due   P163,000

Final taxes on passive income       57,500
Total income tax expense   P220,500

4. Determine the following assuming the taxpayer is a nonresident alien engaged in trade
or business:
a. Taxable net income = P910,000
b. Income tax payable = P38,000
c. Total final taxes on passive income = P16,500
d. Total income tax expense = P179,500
SOLUTION:

a. Gross business income, Philippines P1,000,000

Business expenses, Philippines   (700,000)
Compensation income, Philippines     600,000
Dividend income-foreign corp. -
Raffle draw winnings       10,000
Basic personal exemption _________    
Taxable income   P910,000

b. Tax Due [(P130,000)+(110k x 30%)]   P163,000

Creditable withholding tax on buss. income   (125,000) 
Income Tax Payable     P38,000

c. Dividend income – DC (50k x 20%)     P10,000

Interest income bank deposit-Phls.@20%         4,000
Interest income FCDS deposit @ 15% -
Royalty income from composition @10%         2,500
PCSO winnings       ______
Final Tax on Passive Income     P16,500

d. Basic income tax due     P163,000

Final taxes on passive income         16,500
Total income tax expense     P179,500

5. Determine the total income taxes of the taxpayer assuming the taxpayer is a nonresident
alien not engaged in trade  or business (ignore business income, business expenses
and creditable withholding taxes on business income in the Philippines.) = P226,250

Compensation income, Philippines P600,000

Dividend income - DC     50,000
Dividend income from foreign corp. -
Interest income bank deposit, Phls.     20,000
Interest income on FCDS deposit -
Royalty income from composition     25,000
Raffle draw winnings     10,000
PCSO winnings   200,000
Total GROSS Income P905,000
Tax rate     x 25%
Income Tax Due/expense P226,250

Problem B

The following cumulative balances during the year on income and expenses were
provided by Juan Dela Cruz, a resident citizen:
 1st Q 2nd Q 3rd Q Year

Gross profit from sales P300,00 P650,000 P910,00 P1,200,000

0 0

Business expenses 120,000 262,000 405,890 426,700

Dividends-domestic corp.  20,000 20,000 30,000 30,000

Interest income from

BPI 4,000 8,000 12,000 16,000

UCPB 8,000 12,000 16,000 18,000

Metro Bank 5,000 10,000 15,000 30,000

Capital gain on sale of 150,000 150,000 150,000 150,000

Land

Selling price - P600,000 Cost - P450,000

Required: Using above information, compute the following

1. Income tax payable, first quarter = P0

2. Income tax payable, second quarter = P27,600
3. Income tax payable, third quarter = P28,427.50
4. Income tax payable, fourth quarter = P67,297.50
5. Total final taxes (for the year) on passive income = P15,800
6. Total capital gains tax = P600,000 x 6% = P36,000

SOLUTION:

(for 1 to 4) FIRST QTR. SECOND QTR. THIRD QTR. FOURTH QTR.

Gross Profit from Sales P300,000 P650,000 P910,000 P1,200,000

Business expenses 120,000 262,000 405,890 426,700

Personal exemption 0 0 0 0

Taxable income P180,000 P388,000 P504,110 P773,300

Tax due (using tax 0 P27,600 P56,027.50 P123,625

table)

Tax paid 0 0 27,600 56,027.50

 Income tax payable P0 P27,600 P28,427.50 P67,297.50

5. 
Dividends from DC (P30,000 X 10%) P3,000
Interest income from local banks [(16,000 + 18,000 + 30,000) x 20%] 12,800
Final Tax on passive income           P15,800

Problem C

Determine if the following incomes are subject to basic tax, fringe benefit tax or exempt
from tax by putting a check mark in the column provided below. If the value of the benefit is
provided, indicate the correct amount.

Amount Subject to Subject to Exempt

FBT Basic Tax

1. Officer’s expense account not P120,00 P120,000 0 0

subject to liquidation 0

2. Officer’s expense account subject to 80,000 0 0 P80,000

liquidation

3. Personal expenses of the company 50,000 P50,000 0 0

officers, paid for or reimbursed by
the company employer

4. Annual uniform allowances granted 6,000 0 0 P6,000

to an executive

5. Housing benefits of officials of the 360,000 0 0 P360,000

Philippine Army

6. Housing benefits of officials of the 250,000 P250,000 0 0

Philippine Army

7. Housing unit furnished to an 45,000 0 0 P45,000

employee, where said unit was
situated inside of adjacent to the
premises of the business

8. Monetized unused vacation leave 15,000 0 0 P15,000

credits not exceeding 10 days

9. Household personnel benefit by an 60,000 P60,000 0 0

officer of a domestic corporation

10. Annual medical cash allowance to 1,500 0 0 P1,500

dependents
Problem D

The following data were taken from the financial statement of Chen Corporation for the
current taxable year.

Philippines Abroad

Gross Sales P10,000,00 P5,000,000

0

Sales returns 200,000 -

Cost of goods sold 3,500,000 2,250,000

Operating expenses 2,800,000 1,100,000

Interest income from trade receivable 100,000 50,000

Interest income from BPI deposits Phils. 100,000 -

Interest income from BPI deposits USA - 80,000

Interest income FCDU 150,000 -

Income from money market placement 200,000 100,000

Dividend income from domestic corporation 75,000 -

Dividend income from resident corporation 45,000 -

Dividend income from nonresident corporation - 30,000

Royalty income 50,000 25,000

Gain on sale of shares of stock of domestic corp held as capital 120,000 -

asset thru local stock exchange; Selling Price-P500,000

Gain on sale of shares of stock of domestic corp. Held as capital 150,000 -

asset directly to a buyer Selling Price - P650,000

Sale of real property in the Philippines not used in business Cost- 5,000,000
P4M; FMV-P8M
Case A:

Assume the corporation is a domestic corporation, determine the following:

1. Tax Due on its ordinary income = P1,674,000
2. Total final tax due on passive income = P92,500
3. Total Capital gains tax due = P562,500

SOLUTION:
 (for no. 1) PHILIPPINES ABROAD TOTAL

Gross sales P10,000,000 P5,000,000 P15,000,000

Sales returns 200,000 (200,000)

Cost of goods sold 3,500,000 2,250,000 (5,750,000)

Operating expenses 2,800,000 1,100,000 (3,900,000)

Interest income from trade receivable 100,000 50,000 150,000

Interest income from BPI (USA) deposits 80,000 80,000

Interest income from money market 100,000 100,000

placement

Dividend income - RFC 45,000 45,000

Dividend income - NFC 30,000 30,000

Royalty income 25,000 25,000

Taxable income P5,580,000

Tax rate 30%

Corporate income tax due P1,674,000

Interest income from BPI deposits-Phils. (100,000 X 20%) P20,000

Interest income from FCDS (150,000 X 15%)   22,500
Income from money market placement (200,000 X 20%)   40,000
Royalty income (50,000 X 20%)   10,000
Final tax on passive income P92,500

Gain on sale of shares sold directly to a buyer [(150,000x 15%) P22,500

Sale of real property in the Philippines (P9M x 6%) 540,000
Total Capital Gains Tax           P562,500

Case B:

Assume the corporation is a resident foreign corporation, determines the following

(Disregard Sale of Real Properties in the Philippines)
1. Tax Due on its ordinary income = P1,093,500
2. Total final tax due on passive income =  P81,250
3. Total Capital gains tax due = P10,000

SOLUTION:
1. Gross sales P10,000,000
 Sales returns        (200,000)
Cost of goods sold   (3,500,000)
Operating expenses   (2,800,000)
Interest income from trade receivable       100,000
Dividend income-resident foreign corp.         45,000
Taxable income   P3,645,000
Tax rate             30%
Corporate Income Tax Due     P1,093,500

2. Interest income from BPI deposits-Phils. (20% X 100,000) P20,000

Interest income from FCDS (7.5% X 150,000)   11,250
Income from money market placement (20% X 200,000)   40,000
Royalty income (20% X 50,000)   10,000
Final tax on passive income P81,250

3. Gain on sale of shares sold directly to a buyer:

(100,000 x 5%) + (50,000 x 10%) P10,000