INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

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CHA,TER %&
INCOME TAX O- COR,ORATIONS
Problem 12 1 TRUE OR FALSE
1. True
2. True
3. False Only domestic corporations are to be taxed for income within and without.
4. True
5. False 30% normal tax efective 2009.
6. True
7. True
8. True
9. True
10.False Not taxable because the corporation is a foreign corporation/
11.False 30%.
12.False applicable only to resident Ofshore Banking Unit on gross receipts of OBU.
13.False fnal tax of 10%
Problem 12 2 TRUE OR FALSE
1. False If the unrelated income of the proprietory educational institution exceeds the
related income, the income tax rate applicable would be the corporate income tax of
35%.
2. False Sale of real property outside the Philippines by a resident foreign corporation is
not subject to tax in the Philippines.
3. False 10% based on gross income within
4. True
5. True
6. False In general, GOCCs are subject to corporate income tax.
7. True
8. True
9. True
10.True
11.True
12.True
Problem 12 3 Problem 12 4
1. A 1. C or D
2. D 2. B
3. D 3. D
4. B 4. A
5. A 5. C
6. D 6. B & D
7. D 7. B
8. C 8. Not in the choices = normal tax of 30%
9. A 9. Not in the choices = normal tax of 30%
10. A 10. B
11. D 11. B
12. B 12. C
13. A
Problem 12 5
1. D Taxable
income
Income tax
due
Gross income (P8,000,000 + P4,000,000) P12,000,000
Business expenses (P5,000,000 + P3,000,000) 8,000,000
Net taxable income P4,000,000
Corporate income tax (P4,000,000 x 30%) P1,200,000
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Note: The land sold is a capital asset. Hence, not subject
to corporate income tax but for fnal tax of 6% based on
sales price or zonal value, whichever is higher.
2. C
Gross income P8,000,000
Business expenses 5,000,000
Net taxable income P3,000,000
Corporate income tax (P3,000,000 x 30%) P900,000
Note: The land sold is a capital asset. Hence, not subject
to corporate income tax but for fnal tax of 6% based on
sales price or zonal value, whichever is higher.
Problem 12 6 B
Gross income within P2,800,000
Less: Deductions within 1,300,000
Net taxable income P1,500,000
Multiplied by normal corporate tax rate 30%
Income tax due P 450,000
Problem 12 7 D
Gross income within P5,000,000
Multiplied by normal corporate tax rate 30%
Income tax due P1,500,000
Problem 12 8
1. Domestic corporation
Gross income within and without
(P450,000 + P180,000 + P75,000 + P160,000) P865,000
Deductions within and without
(P290,000 + P80,000 + P25,000 + P100,000) (495,000)
Net income P370,000
Multiplied by normal corporate income tax 30%
Income tax due and payable P129,500
2. Resident foreign corporation
Gross income within P450,000
Deductions within 290,000
Net income P160,000
Multiplied by normal corporate income tax 30%
Income tax due and payable P 56,000
Problem 12 9 C
Net income from PAGCOR (P30,000,000 x P28,000,000) P2,000,000
Multiplied by normal corporate tax rate 30%
Income tax due P 600,000
Problem 12 10 B
Net income from National Power Corporation P10,000,000
Net income from National Books Store 8,000,000
Total net income P18,000,000
Multiplied by corporate normal tax 30%
Income tax due P 5,400,000
Problem 12 11 D
Gross proft P1,600,000
Operating expenses before charitable contribution (550,000)
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Net income before charitable contribution P1,050,000
Charitable contributions - limit (P1,050,000 x 5%) P52,500
Actual lower 50,000
Net taxable income P1,000,000
Multiplied by corporate normal tax rate 30%
Income tax due and payable P 300,000
Problem 12 12 D
Operating loss (P 200,000)
Operating expenses 1,000,000
Gross income P 800,000
Multiplied by minimum corporate income tax rate 2%
Income tax payable P 16,000
Problem 12 13 YEAR 2005 use 35% normal tax rate
1. D
Net income per GAAP
Add: Allowance for bad debts
Contribution
Income before allowable contribution
Less: Deductible contribution (P5,450,000 x 5%)
Net taxable income
Multiply by normal corporate income tax rate
Income tax due and payable
P5,000,000
150,000
300,000
P5,450,000
272,500
P5,177,500
35%
P1,812,125
2. D
Net income per GAAP
Add: Operating expenses
Gross income
Multiply by minimum corporate income tax rate
Minimum corporate income tax
P 5,000,000
80,000,000
P85,000,000
2%
P 1,700,000
Normal tax (P5,000,000 x 35%) P1,812,125
Problem 12 14
1
.
A
Tax payable current year (P8,000,000 x 2%) P 160,000
2
.
C
Operating income (P8,000,000 P7,000,000) P1,000,000
Multiplied by normal tax rate 30%
Normal tax P 300,000
Less: Excess of MCIT 100,000
Tax payable P 200,000
Problem 12 15 A
None. There is no excess corporate MCIT over NCIT in 2005 to be applied on 2006 because the
MCIT is not yet applicable for the company as it only has 3 years of operation in 2005.
Problem 12 16 C
Rental income (P1,900,000/95%) P2,000,000
Capital gains 500,000
Total gross income P2,500,000
Operating expenses (2,350,000)
Net taxable income P 150,000
Multiplied by corporate normal tax 30%
Income tax payable P 45,000
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Excess of MCIT over NCIT P 40,000
Expanded withholding tax (P2,000,000 P1,900,000) 100,000
Total creditable income tax P140,000
Income tax due 45,000
Tax refund P 95,000
Problem 12 17 C
Capital gains tax (P1,500,000 x 6%) P 90,000
Problem 12 18
1. D
Domestic Corporation:
a. Not traded in local exchange:
Selling price
Cost (P110 x 12,000 shares)
Capital gain
Tax on P100,000 x 5%
Tax on excess (P280,000 P100,000) x 10%
b. Traded in local exchange (P1,800,000 x .005)
c. Sale of land abroad (P3,000,000 P2,500,000) x 30%
d. Sale of land Philippines (P1,200,000 x 6%)
P1,600,000
1,320,000
P 280,000
P 5,000
18,000 P 23,000
9,000
150,000
72,000
P254,000
2. A
Resident Foreign Corporation
a.
b.
c.
d. (P1,200,000 x 6%)
Total
P 23,000
9,000
72,000
P104,000
Problem 12 19 C
Interest from savings deposits (P3,000,000 x 20%) P 600,000
Royalty income (P1,000,000 x 20%) 200,000
Interest from a depository bank (P1,500,000 x 7.5%) 112,500
Total passive fnal tax P 912,500
Dividend from a domestic corporation received by a domestic corporation is tax exempt.
Dividend from a nonresident foreign corporation is subject to normal tax.
Problem 12 20
1. B
Domestic Corporation
a. ($20,000 @ 7.5% x P50)
b. P300,000 @ 20%
c. P100,000 @ 20%
d. P 80,000 @ 20%
Total
P75,000
60,000
20,000
16,000
P171,000
2. B = Resident foreign corporation (same as letter 1)
3. C
Nonresident foreign corporation
a. Exempted
b. (P300,000 @ 30%)
c. (P100,000 @ 30%)
P90,000
30,000
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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d. (P 80,000 @ 30%)
Total
24,000
P144,000
Problem 12 21
1. A
Dividend income - (PCB and Magnolia are both domestic corporations) Exempt
Interest income on US dollar loans ($3,000 x 10% x P50) P15,000
2. C
Interest on Philippine peso loans P2,000,000
Operating expenses ( 900,000)
Taxable income P1,100,000
Multiplied by normal corporate tax 30%
Income tax due P 330,000
Problem 12 22 D
Related income P1,000,000
Unrelated income 1,500,000
Total revenue P2,500,000
Operating expenses (3,000,000)
Net loss (P 500,000)
Minimum corporate income tax (P2,500,000 x 2%) P50,000
Problem 12 23 A
Nonproft educational institutions are tax-exempt.
Problem 12 24 D
Government educational institutions are tax-exempt.
Problem 12 25 B
Income tax payable (P700,000 x 0.025) P17,500
Problem 12 26 A
Manila to Beijing (P5,000 x 2,000)
Manila Hong Kong Beijing (P6,000 x 4,000) x P3,000/P6,000
Manila to Hong Kong (P3,000 x 2,000)
Total reportable gross income within
Multiplied by applicable rate
Income tax
P10,000,000
12,000,000
6,000,000
P28,000,000
2.5%
P 700,000
Problem 12 27 Not in the Choices = P2,500,000 & P1,500,000
Within Dragon Films American Aircraft
Gross receipts P10,000,000 P20,000,000
Multiplied by special tax rate 25% 7 %
Philippine income taxes P 2,500,000 P 1,500,000
Note: Gross income means gross receipts. The aforementioned resident foreign corporation are
subject special tax rates (fnal taxes). They are not allowed to deduct costs or expenses from their
gross receipts. The cost of service is only applicable for MCIT purposes. (Sec. 27(E)(4), NIRC)
Problem 12 28 B
Income tax (P80,000/80%) x 20% P20,000
Note: Although cooperatives are tax-exempt, they still subject to fnal income taxes on interest
income.
Problem 12 29 A
All of the transactions of Unlad Cooperative are exempted from income taxes.
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Problem 12 30 Not in the choices = P6,000
Income tax due 2
nd
quarter [(P792,000/99%) P700,000) x 30% P 30,000
Income tax due 1st quarter [(P495,000/99%) P480,000) x 30% ( 6,000)
Withholding tax 2
nd
quarter [(P792,000/99%) x 1% ( 8,000)
Excess tax credit 2009 ( 10,000)
Income tax still due and payable 2
nd
quarter P 6,000
Note: The withholding tax for the 1
st
quarter is already included in the income tax due in the
frst quarter.
Problem 12 31 C
Income tax from ordinary net income (P1,000,000 P900,000) x 30% P30,000
Final income taxes:
Interest income on peso savings (P100,000 x 20%) 20,000
Expanded foreign currency deposit (P100,000 x 7.5%) 7,500
Total income taxes P57,500
Problem 12 32 B
Income tax on interest income from peso savings bank (P100,000 x 30%) P 30,000
Interest income earned by nonresident foreign corporation from EFCD is tax-exempt.
Problem 12 33 C
Tax on cash dividend from a resident foreign corporation (P100,000 x 30%) P 30,000
Dividend received by a resident foreign corporation from a domestic corporation is tax-exempt.
Problem 12 34 C
Cash dividend from a domestic corporation (P100,000 x 30%) P 30,000
Cash dividend received by a domestic corporation from another domestic corporation is tax-
exempt because it is considered earned outside the Philippines since only 40% of its business is
done within.
Problem 12 35 D
Zero because the earnings of the said resident foreign corporation have no tax situs in the
Philippines.
Problem 12 36
Interest from saving deposit Metrobank (P3,000,000 x 20%) P 600,000
Royalty income Philippine Mining Company (P1,000,000 x 20%) 200,000
Interest from a depository bank under expanded foreign currency
deposit - PCI Bank ($30,000 x P50 x 7.5%) 112,500
Dividends from Zerxes, a resident foreign corporation (P500,000 x 30%) 150,000
Total fnal passive income taxes P1,062,500
Problem 12 37 C
3
rd
Quarter 4
th
Quarter
Gross income - cumulative P880,000 P1,120,000
Itemized deductions - cumulative (704,000) (896,000)
Net taxable income P176,000 P 224,000
Multiplied by normal corporate income tax 30% 30%
Income tax due P 52,800 P 67,200
Total income tax paid in previous quarters - tax credit ( 52,800)
Income tax still due and payable P 14,400
Problem 12 38 A
Income subject to normal tax rate (P300,000/ 30%)
Passive income (P60,000/20%)
Capital gains (P35,000: 5,000 @5%, 30,000@10%)
P1,000,000
300,000
400,000
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Total income
Less: Income taxes paid:
Income tax per annual tax return
Final tax on passive income
Capital gains tax
Amount subject to 10% surtax
P300,000
60,000
35,000
P1,700,000
395,000
P1,305,000
Problem 12 39
Year 2009
Within Without Total
Gross income:
Philippine
USA
Japan
Deductions:
Philippine
USA
Japan
Net income
Multiply by tax rate
Income tax payable
Tax credit allowed see supporting computation
Income tax still due
P1,000,000
(800,000)
.
P 200,000
P 400,000
300,000
(200,000)
(200,000)
P300,000
P1,000,000
400,000
300,000
(800,000)
(200,000)
(200,000)
P 500,000
30%
P 150,000
( 90,000)
P 60,000
Supporting computation:
US
Japan
Total
Tax credits:
(P200,000/P500,000) x P150,000 = P60,000 vs. P80,000
Allowed, lower
(P100,000/P500,000) x P150,000 = P30,000 vs. P30,000
Allowed, lower
(P300,000/P500,000) x P150,000 = P90,000 vs. P100,000
Allowed, lower
P60,000
30,000
P90,000 90,000
P90,000
Problem 12 40
Reported income before tax
Add: Loss from sale of shares of stock outside stock market
Total
Less: Gains subject to fnal income tax:
(1)Gain from sale of stock in the stock market
(2)Gain from sale of short-term debt securities
(3)Gain from sale of real property
(P9,400,000 P4,400,000)
Adjusted income subject to corporate income tax
Multiply by normal corporate income tax
Correct amount of income tax
Total reported income before tax
Less: Normal corporate income tax
Net income after tax
P 25,000
10,000
5,000,000
P10,000,000
5,000
P10,005,000
5,035,000
P 5,630,000
30%
P 1,689,000
P10,000,000
1,689,000
P 8,311,000
Problem 12 41
Total revenue P1,000,000
Operating expenses ( 10,000)
Service charge credit card (P1,000,000/5%) x 3% ( 600,000)
Net income P 380,000
Multiplied by normal corporate tax 30%
Income tax due P 114,000
Less: Creditable expanded withholding tax (P1,000,000/5%) x % 100,000
Income tax still due and payable P 14,000
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Problem 12 42
Taxable income (normal tax)
Add: Income subject to fnal tax
Income exempt from tax
Income, excluded from gross income
Amount of NOLCO deducted
Total
Less: Dividends
Income tax paid for the year
Improperly accumulated income
Multiply by tax rate
Tax on improperly accumulated income
P 60,000
50,000
10,000
50,000
P150,000
200,000
P 900,000
170,000
P1,070,000
350,000
P 720,000
10%
P 72,000
Problem 12 43
Income tax per ITR (P450,000/30%) P1,500,000
Income subject to fnal tax (P37,500/7.5%) 500,000
Capital gains:
P5,000/5% P100,000
P35,000/10% 350,000 450,000
Total P2,450,000
Less: Income tax paid (P450,000 + P37,500 + P40,000) 527,500
Basis of IAET P1,922,500
Multiplied by IAET rate 10%
IAET P 192,250
Problem 12 44
Government educational institutions are exempted from tax. (Sec. 30(I), NIRC.)
Problem 12 45
Tuition fees
Miscellaneous fees
Income from rents
Net income, school canteen
Net income, book store
Gross income
Less: Allowable deductions:
Payroll and administrative salary
Other operating expenses
Interest expense
Depreciation, net six room building
Taxable income
Multiply by the applicable tax rate
Income tax
P1,425,420
762,330
82,100
37,500
P2,843,100
362,600
60,000
36,200
24,800
P3,326,700
2,307,350
P1,019,350
10%
P 101,935
Note: The tax diferential on interest income shall not be used because the tax applicable is 10%
not 30% normal tax.
Problem 12 46
1. 3
rd
year 4
th
year 5
th
year 6
th
year
Sales P1,000,000 P2,500,000 P4,000,000 P5,000,000
Cost of sales ( 600,000) (1,200,000) (2,400,000) (2,700,000)
Rent income 200,000 300,000 100,000 50,000
Gross income P 600,000 P1,600,000 P1,700,000 P2,350,000
Operating expenses allowed ( 300,000) (1,300,000) (1,400,000) (1,500,000)
Net taxable income P 300,000 P 300,000 P 300,000 P 850,000
Multiplied by NCIT rate 30% 30% 30% 30%
Income tax due P 90,000 P 90,000 P 90,000 P 255,000
Quarterly tax paid ( 10,000) ( 20,000) ( 30,000) ( 40,000)
Income tax still due and payable P 80,000 P 70,000 P 60,000 P 215,000
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2. 3
rd
year 4
th
year 5
th
year 6
th
year
Royalty income, net of tax P 80,000 P160,000 P120,000 P 40,000
Interest income, net of tax 20,000 32,000 16,000 24,000
Total passive income, net of tax P100,000 P192,000 P136,000 P 64,000
Divide by 80% 80% 80% 80%
Total gross passive income P125,000 P240,000 P170,000 P 80,000
Multiplied by fnal tax rate 20% 20% 20% 20%
Final taxes P 25,000 P 48,000 P 34,000 P 16,000
Problem 12 47
(1)
Taxable income from operation (P1050,000/70%) P1,500,000
Add: NOLCO deducted 100,000
Interest income (P120,000/80%) 150,000
Capital gain (P230,000 P5,000)/90% 250,000
Total income for GAAP reporting, before tax P2,000,000
(2)
Tax on income from operation (P1,500,000 x 30%) P450,000
Tax on interest income (P150,000 x 20%) 30,000
Tax on capital gain (P250,000 P230,000) 20,000
Total income tax paid P500,000
(3)
GAAP income P2,000,000
Less: Income tax 500,000
Net income after tax GAAP P1,500,000
(4)
Taxable income from operation P1,500,000
Add: NOLCO P100,000
Income subjected to fnal tax (P150,000 + P250,000) 400,000 500,000
Total P2,000,000
Less: Income tax paid 500,000
Net income after income tax P1,500,000
Multiplied by surtax rate 10%
IAET = Surtax P 150,000
Problem 12 48
1. Sales P10,000,000
Less: Cost of sales 6,000,000
Reportable income per ITR P 4,000,000
2. Gross proft P4,000,000
Less: Operating expenses:
Salaries P1,000,000
Depreciation 300,000
Supplies 200,000
Interest expense [P50,000 (40,000 x 33%) 36,800 1,536,800
Net taxable income per ITR P2,463,200
Note:
Interest income is subject to fnal tax of 20%
Inter-corporate dividend is tax-exempt.
Losses on investment in securities is not deductible capital loss
3. Final withholding tax paid (P32,000/80%) x 20% P 8,000
4. Net income before tax per GAAP P2,200,000
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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C!"t#$ %&: In'o(# T!) o* Co$"o$!tion+
Less: Income tax (P2,463,200 x 30%) 738,960
Net income P1,461,040
93