Mindanao State University

College of Business Administration and Accountancy

Department of Accountancy

Income Taxation – ACT 183

MIDTERM EXAMINATION

PROBLEM 1.The record of closely-held domestic corporation show the following data for 2019:
Gross income P 1,500,000
Business expense 600,000
Gain on sale of business asset 60,000
Interest on deposit with Metrobank, net of tax 5,000
Sale of shares, not listed and traded:
Selling price 150,000
Cost 115,000
Dividends from Victory Corporation, domestic 35,000
Dividends paid during the year 120,000
Reserved for building acquisition 300,000
During 2018, the corporation suffered an operating loss of P130,000. This amount was carried forward and claimed
deduction from gross income 2019.

Determine the following:

1. Income tax due for 2019
2. The IAET
3. The IAET (assuming the data is for the year 2021)

PROBLEM 2. A corporation has the following data for the year 2018:
Gross income, Philippines P 1,000,000
Gross income, USA 500,000
Gross income. Japan 500,000
Expenses, Philippines (including interest expense from bank loan) 300,000
Expenses, USA 200,000
Expenses, Japan 100,000

Other income:
Dividend from San Miguel Corp. 70,000
Gain, sale of San Miguel shares directly to a buyer 150,000
Royalties, Philippines 50,000
Royalties, USA 100,000
Interest income (from bank deposit) 60,000
Rent, land in USA 250,000
Other rental income (Phil) 100,000
Prize, contest in Manila 200,000
Lotto winnings 60,000
Interest income ($ deposit in BDO) 50,000

Determine the following:

4. Total tax liability as domestic corporation
5. Total tax liability if it is a resident foreign corporation
6. Total tax liability if it is a non-resident foreign corporation

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 (for numbers 7-9, assume the above data is for the year 2021)
7. Total tax liability as domestic corporation
8. Total tax liability if it is a resident foreign corporation
9. Total tax liability if it is a non-resident foreign corporation

PROBLEM 3. Tris leased a facility from Divergent Company in January 1, 2017. Terms of the lease were as follows:
Annual Rental P 240,000
Annual real property tax assumed by Tris 24,000
Annual insurance premium assumed by Tris 60,000
Term of the lease 12 years
Part of the lease agreement for Tris is to improve the facility. The improvement was completed on January 1, 2019. Details
of the improvement were as follows:
Cost of leasehold improvement P 3,000,000
Estimated useful life of improvements 15 years

10. The income to be reported in 2017?

11. The income from the improvements to be reported in 2019 assuming the company opted to report income from
improvement using the spread out method?
12. How much income/loss from the improvement will be reported if the property was destroyed by fire after the
8th year?
13. How much total income/loss will be reported if the lease contract was terminated due to the fault of the lessee
at the end of the 8th year?

PROBLEM 4. For taxable 2018, LCB Service Co. employed Mr. J Bala, married, with two qualified dependent received the
ff.:
Basic monthly salary (excluding SSS/HDMF/
HIC employee’s share) P45, 000
Overtime pay per month 5, 000
Hazard pay per month 2, 000
13th month pay given December 2018 45, 000
Other benefits given December 2018 12, 000
The tax withheld from January to December amounted to 13, 609.93.

14. How much is the tax payable (refund) on her annual ITR?

PROBLEM 5. Sarah, single citizen and sales executive of a leading pharmaceutical firm (RiteMed), received in 2019 the
following from his employer:

Salary, net of P267,000 withholding tax, P683,000

Allowances and benefits received:
 Rent paid by RiteMed on the hpuse which Sarah occupies for residential purposes, net of 5% withholding
P129,200
 Entertainment allowance subject to liquidation (P75,000 was duly receipted in the name of RiteMed and used to
entertain RiteMed’s customners and the balance of P25,000 was used to purchase a late model mobile phone for
the personal use of Sarah) P100,000
 Reimbursement of entertainment expenses paid by Sarah (P17,500 was used to entertain Sarah’s boyhood pals
and the balance of P22,500 was used to promote RiteMed’s business) P40,000
 Fixed yearly allowance for entertainment P85,000

15. Compute for the fringe benefit tax

PROBLEM 6.Christian Antolin received the following:

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Winnings from charity horse sweepstakes from PCSO P 500,000
Winnings from gambling, net of P700,000 loss from gambling 800,000
Interest of government debt securities 100,000
Damages awarded by the court for breach of contract 1,000,000
(of which 40% is damages for unrealized profit)
Gains from redemption of shares in mutual fund 300,000
Gains from sale of bonds with maturity of more than 5 years 60,000
Gifts from friends 200,000
Return of his life insurance premium paid for 25 years 2,000,000
with annual premium of P15,000
Proceeds of his mother's life insurance, paid premium for 1,000,000
30 years with annual premium of P5,000
Cash gift from his missionary friend 50,000
House and lot inherited from his mother 3,000,000
Rent Income from house and lot inherited 100,000
Ramon Magsaysay Award 50,000
Athlete of the year award 100,000
Prize- Jolibee raffle 5,000
Prize for winning the silver Olympic award 500,000
Car from Nissan as gift 1,000,000
Winnings-Philippine Sweepstake 100,000

16. Compute for the amount to be excluded from gross income (those that are exempt from tax).
17. Compute for the amount to be included in the gross income subject to regular tax.

PROBLEM 7. Dell Corporation’s record for 2019 show:

Excess
MCIT per Taxes withheld Excess MCIT
Quarter RCIT per quarter withholding tax
quarter per quarter prior year
prior year
First P 100,000 P 80,000 P 20,000 P 20,000 P 15,000
Second 150,000 250,000 25,000
Third 250,000 100,000 30,000
Fourth 200,000 100,000 35,0000

Determine the following:

18. Income tax due for the first quarter
19. Income tax payable for the second quarter
20. Income tax due for the third quarter
21. Income tax payable for the year
22. Using the same problem, except that the RCIT for the fourth quarter is P50,000, the income tax still due for the
year

PROBLEM 8
2018 Case 1 Case 2 Case 3 Case 4
Net income before write-off of bad debt P70,000 P70,000 P70,000 P70,000
Less: Bad debt written-off 40,000 80,000 55,000 85,000
Net Income after bad debt 30,000 (10,000) 15,000 (15,000)

2019
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Amount recovered 40,000 30,000 40,000 85,000

23. Compute for the taxable amount on the recovery of bad debt previously deducted in Case 1.
24. Compute for the taxable amount on the recovery of bad debt previously deducted in Case 2.
25. Compute for the taxable amount on the recovery of bad debt previously deducted in Case 3.
26. Compute for the taxable amount on the recovery of bad debt previously deducted in Case 4.

PROBLEM 9. CBAA Corporation, a domestic retailer, has gross sales of P10,000,000 with cost of sales of P6,000,000 and
allowable deductions of P1,000,000 for the fiscal year ending March 31, 2021. Its total assets of P180,000,000 includes land
and building in which being held primarily for investment purposes, amounting to P50,000,000 and P30,000,000,
respectively.

27. Compute for the income tax due.

PROBLEM 10. Garcia College, a proprietary educational institution organized in 2006, had the following data for 2018:
Tuition Fees P480,000
Rental Income (net of 5% cwt) 494,000
School related expenses 945,000

28. Income tax due in 2018

29. Income tax still due in 2018

PROBLEM 11. The ff. data were provided by Air America, international carrier doing business in the Philippines:
Gross receipts, sales of tickets in the Philippines
(Manila to Taipei flight) P8, 000, 000
Gross receipts, sales of tickets in Japan
(Manila to Tokyo flight) 5, 000, 000
Gross receipts, sales of tickets in Japan
(Tokyo to Manila flight) 3, 000, 000
Gross receipts, sales of tickets in the Philippines
(Manila to Hongkong flight), passengers were
endorsed to another international airline which
airlifted them from Manila 1, 000, 000
Gross receipts, sales of tickets in the Philippines
(Manila to Los Angeles flight), passengers were
transshipped in Tokyo to Los Angeles by another
airline (flight from Manila to Tokyo – 5 hours;
flight from Tokyo to Los Angeles – 10 hours) 4, 500, 000
Expenses, Philippines 4, 000, 000

30. How much was the Philippine income tax due and payable?

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 MIDTERM EXAMINATION
ANSWER SHEET

1. 11. 21.
2. 12. 22.
3. 13. 23.
4. 14. 24.
5. 15. 25.

6. 16. 26.
7. 17. 27.
8. 18. 28.
9. 19. 29.
10. 20. 30.

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