TAXATION

FINAL PREBOARD EXAMINATION

MAY 2022 CPALE

Instruction: Choose the letter corresponding to the best answer for each of the questions provided below. This
examination consists of 70 items and the exam is good for three (3) hours. Good luck!

1. This is an inherent limitation on the power of taxation

a. No law impairing the obligations of contracts shall be enacted
b. Tax laws can not apply to the property of foreign governments
c. Charitable institutions, churches, parsonages, convents and all lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt
from taxation
d. The rule of taxation shall be uniform and equitable

2. Which of the following is not one of the Constitutional limitations?

a. Equal protection of law
b. Non-diversification of tax collections
c. Non-delegability of the taxing power
d. The President shall have the power to veto any particular item in an appropriation, revenue or tariff

3. The income tax due from compensation is

a. 8% income tax rate on gross sales or receipts and other non-operating income in excess of P250,000
b. Based on graduated income tax rates under Section 24 (A)
c. Based on taxable income after deducting expenses and exemptions
d. Either graduated income tax rate or 8% income tax rate on gross sales or receipts and other non-operating
income in excess of P250,000

4. Which of the following is NOT one of the changes under the CREATE Law?
a. Regional operating headquarters shall be treated as a regular resident foreign corporation starting
January 1, 2022
b. Domestic and foreign corporations may qualify as MSMEs if their net taxable income does not exceed
P5M and total assets, excluding land, do not exceed P100M
c. Capital gains tax on sale of unlisted shares for all types of corporations shall be at 15%
d. Offshore banking units shall be taxed at 25% income tax rate

5. Statement 1. A foreigner who shall stay in the Philippines without a definite intention is considered a non-
resident alien.

Statement 2. A non-resident alien who shall stay in the Philippines for 180 days shall be considered engaged in
trade or business.

Statement 3: A nonresident citizen is a citizen of the Philippines who leaves the Philippines during the taxable
year to reside abroad, either an immigrant or for employment on a permanent basis.
a. Only one (1) of the above statements is true
b. Two (2) of the above statements are true
c. Three (3) of the above statements are true
d. All of the above statements are true

6. Which of the following statements regarding dividends is incorrect?

a. Exempt from income tax if received by a domestic corporation from another domestic corporation
b. Not taxable if received by a non-resident citizen from a non-resident corporation
c. Taxable subject to final tax if received by a resident citizen from a non-resident corporation
d. Exempt from income tax if received by a resident corporation from a domestic corporation
7. Which of the following statements is not correct?
a. The Optional Standard Deduction (OSD) is not available against compensation income arising out of an
employer-employee relationship
b. The election of Optional Standard Deduction (OSD) is irrevocable only for the quarter for which the choice
is made
c. The Optional Standard Deduction (OSD) is an amount equal to forty percent (40%) of gross income for
corporations
d. Unless the taxpayer signifies in his return his intention he shall be considered as having availed of the
itemized deduction

Use the following information for the next three (3) questions:

Mr. X signified his intention to be taxed at 8% income tax rate on gross sales in his first quarter return. His gross sales
and other information per quarter are shown below.

1st quarter 2nd quarter 3rd quarter 4th quarter

Gross sales P400,000 P900,000 P1,800,000 P2,000,000
Cost of sales 300,000 500,000 700,000 850,000
Operating expenses 100,000 200,000 250,000 300,000
Non-operating income 50,000 70,000 80,000 100,000

8. How much is the income tax payable for the second quarter?
a. P113,600
b. P68,000
c. P77,600
d. P100,000

9. How much is the income tax payable for the third quarter?
a. P265,000
b. P171,400
c. P264,000
d. P151,400

10. How much is the income tax payable for the final return?
a. P432,000
b. P167,000
c. P289,000
d. P554,000

11. Which of the following is an income subject to final tax?

a. Fringe benefits given to rank and file employees
b. Share of an individual taxpayer from the distributable net income of a general professional partnership
c. Dividend income from a domestic corporation to a nonresident foreign corporation
d. Withholding tax on compensation arising from employer-employee relationship
12. The monetary value of the following fringe benefits is 100% of the value of the benefits:
I. Employer leases residential property for the use of an officer.
II. Employer owns residential property which was assigned to an officer for his use as residence.
III. Employer purchases residential property on installment basis and allows an officer to use the same as his
residence.
IV. Employer purchases a residential property and transfers ownership in the name of an officer.
IV. Employer purchases a residential property and transfers ownership to an officer for the latter’s residential
use at a price less than the employer’s acquisition cost.

a. All of the above

b. None of the above
c. I, II and III only
d. IV and V only

13. Statement 1: If the property sold is subject to a mortgage which is assumed by the buyer, and the mortgage
exceeds the basis of the property sold, the excess shall form part of the initial payments in which case, the
contract price is equal to selling price less mortgage assumed.

Statement 2: Initial payment means the payment which the seller receives before or upon execution of the
instrument of sale plus other payments which he expects or is scheduled to receive in cash or property during
the taxable year of sale or disposition.

Statement 3: Capital losses are deductible from ordinary gains, but net capital loss is not deductible from
ordinary gains.

Statement 4: Ordinary losses are deductible only to the extent of the capital gains, but the net capital loss is not
deductible from ordinary gains.
a. Only one (1) of the above statements is true
b. Two (2) of the above statements are true
c. Three (3) of the above statements are true
d. All of the above statements are true

14. Mr. X is a purely self-employed individual and his gross sales/receipts and other non-operating income exceed
the VAT threshold. He signified his intention to avail of the 8% income tax rate on his first quarter return, he will
pay:
a. Income tax on gross sales/receipts and other non-operating income in excess of P250,000 in lieu of
graduated tax rates and percentage under Section 116
b. Income tax on gross sales/receipts excluding non-operating income in excess of P250,000 in lieu of
graduated tax rates and percentage under Section 116
c. Percentage tax under Section 116 in lieu of income tax
d. Income tax on gross sales/receipts and other non-operating income in excess of P250,000 and the
percentage tax under Section 116

15. The following are the general principles of income taxation:

I. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without
the Philippines.
II. A non-resident citizen is taxable on income derived from sources within the Philippines.
III. An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
contract worker is taxable on income from sources outside the Philippines.
IV. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources outside the Philippines.
V. A domestic corporation is taxable on all income derived from sources within and outside the Philippines
VI. A foreign corporation, whether engaged or not in business in the Philippines, is taxable only on income
derived from sources within the Philippines.
 a. All the statements are true
b. One of the statements is false
c. Two of the statements are false
d. Three of the statements are false

Use the following information for the next two (2) questions:

Mr. X, a resident citizen, has the following data on income and expenses for 2022:

a. Gross business income, P500,000

b. Business expenses, P200,000
c. Interest from savings deposit, BPI-Makati, Philippines, P50,000
d. Prize in literary contest he joined, P100,000
e. Prize received for achievement in literature (did not join the contest), P10,000
f. Gain from sale of bonds (maturity is 6 years), P5,000
g. Separation pay from his former job (resigned), P250,000
h. Cash he inherited from his uncle, P300,000
i. Proceeds of his wife’s life insurance (revocable beneficiary), P1,000,000
j. Amount received as return of premium (premium paid, P150,000), P200,000
k. Tax informer’s reward, P500,000
l. Interest income from government bonds, P20,000
m. Winnings from illegal gambling, P10,000

16. How much was the taxable net income subject to Section 24 (A)?
a. P500,000
b. P550,000
c. P610,000
d. None of the above

17. How much was the total income tax expense for the year?
a. P48,800
b. P82,500
c. P166,500
d. None of the choices

18. All of the following statements are correct, except one. Which is the exception?
a. Rents are considered derived from the country where the property is located
b. The source of interest income is the country where the debtor resides
c. The source of dividend income is the country where the corporation was incorporated
d. Income from personal services is considered derived from the country where the services were rendered.
19. Which of the following statements is incorrect?
a. A joint venture for undertaking construction projects is not taxable as a corporation
b. A general professional partnership is not taxable as a corporation
c. A co-ownership where the activities of the co-owners are limited to the preservation of property and
collection of income from the property is taxable as a corporation
d. A consortium for energy operations pursuant to an operating consortium agreement under a service
contract with the government is not taxable as a corporation

20. Which of the following is NOT one of the requisites for tax exemption on foreign-sourced dividends received by
a domestic corporation?
a. Funds from such dividends actually received or remitted into the Philippines are reinvested in the business
operations of the domestic corporation in the Philippines within 2 years from receipt of dividends
b. The domestic corporation has held the shareholdings for a minimum of 2 years at the time of dividend
distribution
c. The domestic corporation holds directly at least 20% of the outstanding shares of the foreign corporation
d. Reinvestment is limited to funding the working capital requirements, capital expenditures, dividend
payments, investment in domestic subsidiaries and infrastructure project.

Use the following information for the three (3) questions:

On February 14, 2022, Mr. and Mrs. X donated residential land to their daughter on account of her wedding to be
celebrated on June 12, 2022. The FMV of the land at the time of donation was P1,200,000 with an unpaid mortgage
of P300,000 to be assumed by their daughter. The FMV of the land at the time of marriage was P1,300,000.

On July 30, 2023, Mrs. X donated P700,000 to the sister of Mr. X who was diagnosed with COVID-19. The donated
amount was used for the medication of Mr. X’s sister.

On August 31, 2023, Mr. and Mrs. X sold 400,000 shares of ABC Corporation to their only son for P400,000. The book
value per share as per latest audited financial statement of ABC Corporation is P2.00 per share. The shares of stocks
were acquired three years ago for P100,000.

21. How much is the donor’s tax still due of Mr. X on the February 14, 2022 transfer?
a. P 12,000
b. P 24,000
c. P 40,500
d. P 81,000

22. How much is the donor’s tax still due of Mrs. X on the July 30, 2023 transfer?
a. P 7,500
b. P 15,000
c. P 27,000
d. P 42,000

23. How much is the donor’s tax still due of Mr. X on the August 31, 2023 transfer?
a. P15,000
b. P12,000
c. P24,000
d. P0

24. Which of the following are grounds to file a compromise?

I. Assessment is of doubtful validity.
II. The tax appears to be unjustly or excessively assessed.
III. Taxpayer’s clear inability to pay.
IV. The administration or collection costs involved do not justify the collection of the amount due.
a. I and IV
b. I and III
 c. II and III
d. II and IV

25. Which of the following is not one of the benefits of PWDs?

a. 20% discount on selected products and services
b. VAT exemption
c. A minimum of 5% discount on water and utility bills up to 100 kilowatt hours of electricity and 30 cubic
meters of water, registered under their name
d. 5% discount on basic necessities and prime commodities

26. Ms. X filed her 2019 ITR on March 15, 2020. On September 15, 2023, the BIR discovered a fraudulent intention
to avoid the payment of income tax because the income was understated by more than 40% of the correct
amount. On April 15, 2024, the BIR issued a deficiency income tax assessment which was received by Ms. X on
April 30, 2024. Which of the following statements is correct?
a. The assessment should have been made not later than April 15, 2023
b. Ms. X should protest with the CIR within 30 days from the receipt of the assessment otherwise, the
assessment becomes final and unappealable
c. The BIR has ten (10) years to assess counted from the due date or filing of the return whichever is later
d. Ms. X should protest the assessment because the right of the BIR to assess has prescribed

27. Which of the following is not one of the benefits of a barangay micro business enterprise (BMBE) under BMBE
Act of 2002?
a. Exemption from national and local internal revenue taxes
b. Technology transfer, production and management training, and marketing assistance programs for BMBE
beneficiaries
c. Exemption from the coverage of the Minimum Wage Law
d. Priority to special credit window set up specifically for the financing of BMBEs

Use the following information for the next three (3) questions:

Mr. X, a resident of Baguio City, disposed a residential lot located in the Municipality of San Carlos, Pangasinan with
a zonal value of P4,000,000 and fair value per tax declaration of P2,500,000. The property is currently appraised at
P6,000,000 and was sold for P3,000,000.

28. How much is the property transfer tax?

a. P2,500
b. P12,500
c. P15,000
d. P30,000

29. How much is the total annual real property tax of the buyer?
a. P2,500
b. P5,000
c. P10,000
d. P20,000

30. What is the capital gains tax?

a. P0
b. P90,000
c. P240,000
d. P360,000
31. On March 10, 2022, Intercontinental, Inc. received a preliminary assessment notice(PAN) dated March 1, 2022
issued by the Commissioner of Internal Revenue (CIR) for deficiency income tax for its taxable year 2020. It failed
to protest the PAN. The CIR thereupon issued a final assessment notice (FAN) with letter of demand on April 30,
2022. The FAN was received by the corporation on May 10, 2022, following which or on May 25, 2022, it filed
its protest against it. The CIR denied the protest on the ground that the assessment had already become final
and executory, the corporation having failed to protest the PAN. Is the CIR correct?
a. No. The issuance of preliminary assessment notice (PAN) does not give rise to the right of the taxpayer to
protest. What can be protested by a taxpayer is the final assessment notice (FAN) or the assessment issued
following the PAN. Since the FAN was timely protested, within 30 days from the receipt thereof, the
assessment did not become final and executory
b. Yes. The FAN shall become final and executory upon failure of the taxpayer to protest the PAN within 15
days from the receipt thereof
c. Yes. The BIR has the sole discretion to accept or deny any protest from the taxpayer
d. None of the above

Use the following information for the next two (2) questions:

RMC Company has been assessed of deficiency income tax of P1,000,000, exclusive of interest and surcharge
for 2019 taxable year. The tax liability has remained unpaid despite the lapse of June 30, 2021, the deadline for
the payment stated in the notice and demand issued by the Commissioner. Payment was made by the taxpayer
on February 10, 2022.

32. What is the correct amount of deficiency interest?

a. P 248,530.16
b. P 144,986.30
c. P 1,498,530.16
d. P 145,315.07

33. What is the correct amount of delinquency interest?

a. P 103,190.77
b. P 248,530.16
c. P 103,215.09
d. P 1,498,530.16

34. Ms. Y, a compensation income earner, filed her income tax return for the taxable year 2018 on March 30, 2019.
On May 20, 2022, Ms. Y received an assessment notice and letter of demand covering the taxable year 2018 but
the postmark on the envelope shows April 10, 2022. Her return is not a false and fraudulent return. Can Ms. Y
raise the defense of prescription?
a. Yes. Since the 3-year prescriptive period started to run on March 30, 2019, it already expired by May 20,
2022
b. Yes. The 3-year prescriptive period started to run on April 15, 2019, hence, it had already expired by May
20, 2022
c. No. The prescriptive period started to run on March 30, 2019, hence, the 3-year period expired on April 10,
2022
d. No. The 3-year prescriptive period started to run on April 15, 2019, hence, it has not yet expired on April
10, 2022

35. Under absolute community of property, which of the following is a community property?
a. Property bought during the marriage using the money inherited by the decedent before marriage
b. Jewelry inherited by the decedent during the marriage
c. Property inherited by the surviving spouse during the marriage
d. Personal belongings (clothes, shoes, etc.) bought during the marriage for the exclusive use of the decedent
36. Which of the following is subject to VAT?
a. Sales of agricultural cooperatives duly registered with the Cooperative Development Authority
b. Sale of passenger or cargo vessels and aircrafts for domestic or international transport operations
c. Sale of agricultural and marine food products in their original state
d. Sale of fuel, goods and supplies by persons engaged in international shipping or air transport operations

37. Under the effective Philippine Double Taxation Agreements (DTAs), which of the following is not a type of
Philippine income that may be subject to preferential tax treaty rates?
a. Dividends
b. Capital gains
c. Royalties
d. Interests

38. Which of the following is not one of the fiscal incentives of companies registered under the Board of Investments
(BOI?
a. Three (3) years for expansion/modernization projects
b. Four (4) years for new projects with non-pioneer status
c. Six (6) years income tax holidays for projects with pioneer status
d. Upon expiry of the Income Tax Holiday, 5% special tax on gross income

39. A common carrier by land is engaged in the transport of passengers, goods and cargoes. He is not VAT-
registered. What business tax or taxes is he liable to pay?
a. 3% common carrier’s tax
b. 12% VAT
c. 3% tax on VAT-exempt persons on gross receipts from transport of goods and cargoes and 3% common
carrier’s tax on gross receipts from transport of passengers
d. 12% VAT on gross receipts from transport of goods and cargoes and 3% common carrier’s tax on gross
receipts from transport of passengers

40. An agricultural land is located in the province. Its fair market value is P5,000,000. How much is the basic real
property tax and special educational fund (SEF), respectively?
a. P20,000, P20,000
b. P25,000, P12,500
c. P25,000, P25,000
d. P20,000, P10,000

41. A commercial land is located in one of the cities in Metro Manila, its fair market value is P8,000,000. How much
is the basic real property tax and special educational fund (SEF), respectively?
a. P40,000, P40,000
b. P80,000, P40,000
c. P64,000, P32,000
d. P40,000, P20,000

Use the following information for the next two (2) questions:

ABC Corporation, A BOI-registered company, is engaged in copper wire manufacturing business which is one of the
preferred activities under the Investments Priorities Plan (IPP). ABC’s projects are located in one of less developed
areas (LDA) in the Philippines.

ABC reported the following financial results for 2022, its sixth (6th) year of operations:

Gross revenue P10,000,000

Cost of services 3,000,000
Operating expenses 1,000,000
Other income 500,000
42. Assuming ABC’s projects qualified as with pioneer status, how much is the tax due in 2022?
a. P1,625,000
b. P525,000
c. P0
d. None of the choices

43. Assuming ABC’s projects qualified as with non-pioneer status and it is the fifth (5th) year of operations, how
much is the tax due?
a. P1,625,000
b. P525,000
c. P0
d. None of the choices

44. Which of the following statements is not correct?

a. Compensation income of individuals that do not exceed the statutory minimum wage is exempt from the
requirement of withholding tax on compensation
b. Holiday pay, overtime pay, night shift differential pay and hazard pay received by individuals shall be
exempt from income tax
c. Compensation income of individuals that do not exceed ten thousand pesos per month, otherwise known
as marginal income earners, is exempt from the requirement of withholding tax on compensation
d. Minimum wage earners who are receiving only the statutory minimum wage are not subject to
withholding tax and consequently to income tax

45. Which of the following individuals is required to file income tax return?
a. An individual whose taxable income does not exceed P250,000
b. An individual receiving purely compensation income, regardless of amount, from only one employer in
the Philippines for the calendar year, the income tax of which has been withheld correctly by the said
employer
c. An individual whose sole income has been subjected to creditable withholding tax
d. A minimum wage earner (MWE)

46. Ms. A, 62 years old, was treated by her grandchildren X, Y and Z to ABC Restaurant during grandparents day and
their total bill is P3,920. How much is the discount of the Senior Citizen and the amount due and payable on the
bill?
a. P196; P3,920
b. P175; P3,640
c. P700; P3,619
d. P784; P3,627

47. Who is the taxpayer in estate tax?

a. The deceased person’s estate
b. The heir’s legal representative
c. The heirs or successors
d. The executor or administrator of the estate

48. Which of the following is deductible from the exclusive portion of the gross estate?
a. Transfer for public use pertaining to joint donation of husband and wife to the government
b. Bad debts for uncollectible claims against insolvent person
c. Vanishing deduction pertaining to property inherited by the decedent prior to marriage under conjugal
property ownership
d. Family home pertaining to house and lot acquired during marriage
Use the following information for the next three (3) questions:

Mr. X, married to Ms. Y, died on June 1, 2022. The inventory of the properties of the spouses under the Conjugal
Partnership of Gains (CPG) shows the following:

a. Family home acquired during marriage P6,000,000

b. House and lot in Quezon City owned by Mr. X before marriage 7,000,000
c. Real property acquired during marriage 5,000,000
d. Rental income from the real property (c above) 100,000
e. Personal properties acquired during marriage 2,500,000
f. Farmland owned by Ms. Y before marriage 1,200,000

g. Parcel of land inherited from the decedent’s father on January 1, 2019. FMV at the time of inheritance
was P1,000,000 (P200,000 original mortgage indebtedness; half of which has been paid at the time of
death). FMV at the time of death of the present decedent is P1,500,000

h. Car received as gift 18 months before the decedent’s death. FMV, date of donation, P500,000; FMV,
date of death, P400,000

i. Casualty losses (exclusive) 300,000

j. Unpaid taxes 50,000
k. Claims against insolvent person (40% recoverable) 100,000
l. Claims against the estate 80,000

49. The total conjugal gross estate is

a. P13,600,000
b. P13,700,000
c. P14,900,000
d. None of the choices

50. The amount of the share of surviving spouse is

a. P6,705,000
b. P6,755,000
c. P7,355,000
d. None of the choices

51. The estate tax payable is

a. P359,565
b. P392,570
c. P395,565
d. None of the choices

52. Which of the following is incorrect regarding documentary stamp tax (DST)?
a. The DST for original issuance of par value shares is P2.00 for every P200 of par value
b. The DST for subsequent issuance of par value shares is 50% of DST paid on the original issuance
c. The DST for issuance of debt instruments is P1.50 for every P200 face value
d. The DST for executing deed of sale and conveyance of real property is P15 for every P1,000 of
consideration or value
53. Which of the following is incorrect regarding other percentage taxes (OPT)?
a. International air and shipping carriers doing business in the Philippines are subject to 3% percentage tax
on gross receipts
b. Overseas dispatch, message or conversation originating from the Philippines are subject to 10%
percentage tax based on the amount paid for the service
c. Banks and non-bank financial intermediaries performing quasi-banking functions are subject to 1%
percentage tax on interest income if the maturity period is five (5) years or less
d. Operators of cockpits, cabarets, night or day clubs are subject to 18% percentage tax on gross receipts

54. Which of the following is not subject to excise tax?

a. Importation of perfumes
b. Pre-packaged powdered coffee products
c. Cosmetic surgeries
d. Manufacture of automobile

55. Statement 1: Net capital loss carry-over is allowed to individual taxpayers, and this is carried over to the
succeeding year as a short-term loss.

Statement 2: The amount of net capital loss carry over is the net capital loss or the net income in the year the
net capital loss was sustained, whichever is lower.

Statement 3: Corporations are allowed to observe the holding period and to carry over net capital loss.
a. Only one (1) of the above statements is true
b. Two (2) of the above statements are true
c. Three (3) of the above statements are true
d. All of the above statements are true

Use the following information for the next four (4) questions:

ABC Enterprises, a domestic corporation, is engaged in restaurant operation. The following data were made available
for the first quarter of 2022:

Revenues P15,000,000
Cost of services 8,000,000
Operating expense 4,000,000
Receivables: December 31, 2021 800,000
Receivables: March 31, 2022 500,000

In addition, the following information were provided:

• All sales for the first quarter were cash and credit card sales.
• All sales made to senior citizens are cash sales.
• Sales are net of senior citizens discount amounting to P400,000.
• Receivables at the beginning and ending of first quarter are outstanding receivables from credit card
companies.
• The receivables are VAT exclusive.
• Input tax credit from purchase of goods for the first quarter amounts to P500,000.
• Included in the operating expenses are entertainment, amusement, and recreational expenses amounting to
P200,000.
• The total assets of ABC Enterprises, excluding land, amounted to P50,000,000.

56. How much is output tax due for the first quarter of 2022?
a. P1,608,000
b. P1,644,000
c. P1,800,000
d. P1,836,000
57. How much is the deductible creditable input tax for the first quarter of 2022?
a. P422,078
b. P433,333
c. P435,065
d. P500,000

58. How much is the income tax due for the first quarter of 2022, assuming itemized deduction was used?
a. P609,200
a. P761,500
b. P913,800
c. P1,033,800

59. How much is the income tax due for the first quarter of 2022, assuming OSD was used?
a. P1,110,000
b. P888,000
c. P1,332,000
d. P1,572,000

60. Statement 1: The Commissioner of Internal revenue is authorized to inquire into the bank deposit of a taxpayer
who filed an application for compromise of his tax liability by reason of financial incapacity to pay.

Statement 2: A compromise for a tax liability of the ground of financial incapacity to pay shall still involve a
payment of tax from the taxpayer at a maximum compromise rate of 10% of the basic assessed tax.

Statement 3: The power to interpret provisions of the National Internal Revenue Code and other tax laws shall
be under the exclusive and original jurisdiction of the Commissioner of Internal revenue, subject to review by
the Secretary of Finance.

Statement 4: The power to decide disputed assessment and refunds of internal revenue taxes is vested in the
Commissioner of Internal Revenue, subject to the exclusive appellate jurisdiction of the Supreme Court.
a. Only one (1) of the above statements is true
b. Two (2) of the above statements are true
c. Three (3) of the above statements are true
d. All of the above statements are true

Use the following information for the next two (2) questions:

ABC Company provided you with the following data:

2021 2020
Statement of Financial Position
Cash 50,000 30,000
Accounts receivable 224,000 336,000
Inventory 70,000 60,000
Property, plant and equipment 570,000 385,000
Accounts payable 94,000 111,000
Share capital 200,000 200,000
Retained earnings 620,000 500,000

Income Statement
Sale of goods 1,200,000 1,000,000
Cost of goods sold 600,000 500,000
Operating expenses 450,000 275,000
Net income 150,000 225,000
Additional information:
• Operating expenses include depreciation expense of P150,000 and P90,000 during 2021 and 2021,
respectively.
• Operating expenses also include income tax expense for year 2021 and 2020.
• Sales and cost of goods sold are exclusive of VAT.
• The balances of the accounts receivable are inclusive of VAT.
• Dividends paid during 2021 amounts to P30,000.

61. How much is the VAT payable during 2021?

a. P70,800
b. P73,200
c. P82,800
d. P126,000

62. How much is the income tax payable to be recognized by the entity during 2021?
a. P30,000
b. P37,500
c. P45,000
d. P50,000

63. Statement 1: Properties owned before marriage and brought into the marriage are generally classified as
exclusive properties under absolute community of properties.

Statement 2: Properties owned before marriage and brought into the marriage are generally classified as
common properties under conjugal partnership of gains.

Statement 3: The fruits as well as the income received during the marriage from the exclusive properties of the
spouses are classified as common properties under conjugal partnership of gains.

Statement 4: The fruits as well as the income received during the marriage from the exclusive properties of the
spouses are classified as exclusive properties under absolute community of properties.
a. Only one (1) of the above statements is true
b. Two (2) of the above statements are true
c. Three (3) of the above statements are true
d. All of the above statements are true
Use the following information for the next three (3) questions:

During the taxable year of 2021, you are engaged by ABC Company to prepare the income tax return in compliance
with the Tax Code. ABC has the following data which were taken from its annual income statement for the year.

Gross sales of goods P150,000,000

Sales returns and allowances (2,800,000)
Net sales of goods 147,200,000

Cost of sales (64,700,000)

Gross income 82,500,000
Operating expenses:
Salaries expense P5,500,000
Wages expense 7,400,000
Depreciation expense 10,500,000
Rental expenses 15,000,000
Entertainment expenses 750,000
Research and development expenses 3,500,000
Bad debt expense 1,500,000
Impairment loss on goodwill 500,000
Estimated warranty expense 2,500,000 (47,150,000)
Operating income 35,350,000
Non-operating income/other income:
Gain on sale of shares of stocks directly to buyer 1,280,000
Gain on sale of debt securities classified as FVTPL 1,550,000
Gain on sale of real property 4,050,000
Dividend income from a domestic corporation 1,600,000
Dividend income from resident foreign corporation 1,250,000
Interest income from local currency bank deposits 1,920,000
Interest income from trades receivable 750,000 12,400,000
Non-operating expenses:
Interest expense 3,500,000
Charitable contribution 5,000,000 (8,500,000)
Net income before tax 39,250,000
Income tax expense (9,812,500)
Net income P29,437,500

Additional notes:
• The entity elected to use accrual method of accounting since the start of its operation.
• The entity uses allowance for doubtful accounts as method in estimating bad debt expense.
• The record shows that the real property with a book value of P6,000,000 was sold for P10,050,000.
However, upon careful examination, the fair market value determined by the city assessor and the zonal
value of the real property amounted to P12,000,000 and 9,000,000, respectively. The said real property is
not used in business by the entity.
• It was also determined that the requisites for exemption for foreign-sourced dividends under Section 27D
of the Tax Code have been met.
• Upon inspection of the books, one record shows that entertainment and representation expenses are duly
supported by receipts and are business connected.

Required: Compute for the following:

64. Corporate income tax due

a. P9,273,900
b. P9,812,500
c. P8,412,500
d. P8,886,400
65. Total income tax expense for the year
a. P9,708,500
b. P10,414,900
c. P10,569,900
d. P11,108,500

66. How much should be reflected in Page 4, Schedule V, Item 4 of BIR Form 1702-RT of ABC Corporation’s annual
income tax return?
a. P4,500,000
b. P47,195,600
c. P7,945,600
d. None of the choices

67. How much should be reflected in Page 4, Schedule V, Item 9 of BIR Form 1702-RT of ABC Corporation’s annual
income tax return?
a. P11,650,000
b. P10,100,000
c. P12,400,000
d. None of the choices
Use the following information for the next four (4) questions:

In the course of your examination, as a revenue officer, of the audited financial statements of ABC Corporation which
sells and leases real estate, and by virtue of a Letter of Authority duly issued by the BIR, the income statement of
ABC Corporation on its first year of operation shows:

Revenues:

Gain on sale of residential lots P 750,000

Bank interest income 40,000
Dividend from XYZ Corporation 65,000
Rental income 4,200,000
Total P 5,055,000

Expenses:

Salaries and wages P 750,000

Depreciation 400,000
Entertainment and representation 45,000
Office supplies 110,000
Advertising expense 60,000
Interest expense 120,000
Taxes and licenses 250,000
Total P 1,735,000

Net income before income tax P 3,320,000

Less: Income tax expenses 616,250
Net income after income tax P 2,703,750

The income tax due for the year as computed by ABC shows:
Net income before income tax P 3,320,000
Less:
Bank interest income 40,000
Dividend from XYZ Corporation 65,000
Gain on sale of lots 750,000 855,000
Net taxable income P 2,465,000
Corporate income tax rate 25%
Income tax expense P 616,250

During examination, you observed the following:

1) The balance sheet for the taxable year showed deferred rent income of P600,000. The payor has
properly withheld the appropriate withholding tax on rentals.
2) The bank interest income is net of 20% final withholding tax.
3) XYZ Corporation is a domestic corporation
4) The gain on sale of residential lots represents gain on sale of two residential lots with selling price of
P1,600,000 each.
5) Entertainment and representation expenses are duly supported by receipts and are business
connected.
6) Taxes and licenses in the notes to Financial Statements showed the following:
a. Documentary stamp tax on sale of the residential lots – P60,000
b. Surcharge and penalties on late payment of tax – P40,000
c. Permits and licenses – P30,000
7) Total assets, excluding land, of the entity are valued at 110M.
Required: Compute for the following:

68. How much should be reflected in Page 1, Part II, Item 14 of BIR Form 1702-RT of ABC Corporation’s annual
income tax return?
a. P996,750
b. P140,500
c. P380,500
d. None of the choices

69. How much should be reflected in Page 1, Part II, Item 21 of BIR Form 1702-RT of ABC Corporation’s annual
income tax return?
a. P996,750
b. P140,500
c. P380,500
d. None of the choices

70. How much should be reflected in Page 2, Part IV, Item 34 of BIR Form 1702-RT of ABC Corporation’s annual
income tax return?
a. P1,563,000
b. P4,013,000
c. P1,565,000
d. None of the choices
- - - END OF EXAMINATION - - -