TAXATION I - INCOME TAX suffering financial reverses from the year 2009 up to the

present. Its asset position shows that it could pay only

SPECIAL MIDTERM EXAM P500,000.00 which it offered as a compromise to the BIR.
Which among the following may the BIR require to enable it to
NAME:_____________________________________
enter into a compromise with Renesmee, Inc.?
1. The power to demand proportionate contribution from persons a. Renesmee must waive its right to the secrecy of its bank
and property to defray the necessary expense of the government deposits.
a. Power of recall b. Renesmee must show it has faithfully paid taxes before
b. Police power 2009.
c. Power of eminent domain c. Renesmee must promise to pay its deficiency when
d. Power of taxation financially able.
2. Statement 1: The Constitution is the source of the State’s taxing d. Renesmee must immediately deposit the P500,000 with
power. the BIR.
Statement 2: The police power of the government may be 10. Bu-dhoy, a Mongolian national, arrived in the Philippines on
exercised through taxation. January 1, 2018 to visit his Filipina girlfriend. He planned to
a. Only statement 2 is correct stay in the country until December 21, 2020, by which time he
b. Only statement 1 is correct would go back to his legal wife and family in Mongolia. Bu-
c. Both statements are correct dhoy derived income during his stay here in the Philippines.
d. Both statements are incorrect For 2018 taxable year, Bu-dhoy shall be classified as a:
3. The power to regulate liberty ad property to promote the a. Special alien employee.
general welfare b. Resident alien
a. Power of recall c. Non-resident alien engaged in trade or business in the
b. Power of eminent domain Philippines
c. Police power d. Non-resident alien not engaged in trade or business in the
d. Power of taxation Philippines
4. Which of the following statements is correct? 11. It is important to know the source of income for income tax
a. Taxes maybe imposed to raise revenue or to provide purposes (i.e. from within and without the Philippines) because:
disincentives to certain activities within the State. a. The Philippines imposes income tax only on income from
b. The State can have the power of taxation even if the sources within.
statute does not apply expressly give it the power to tax. b. Some individual taxpayers are citizen while others are
c. In the exercise of the power of taxation, the State can tax aliens.
anything at any time. c. Some individuals and corporate taxpayers are taxable
d. The powers of taxation in the Philippine Constitution are based on their worldwide income while others are taxable
grant of power and not limitations on taxing powers. only on their income from sources within the Philippines.
5. Which of the following statement is correct? d. Export sales are not subject to income tax.
I. Taxes are not pecuniary in nature 12. Who of the following individual taxpayers is taxable on income
II. It co-exists with the existence of the State. derived from within and without the Philippines?
III. Imposed on persons and property beyond the territorial a. Pedro, a native of Bacolod City, working as overseas
jurisdiction of the state. contract worker in Iraq.
a. I only c. I and II only b. George, naturalized citizen and married to a Filipina. He
b. II only d. I, II, III had been living in Pampanga since 1990.
6. A written notice and demand by the BIR on the taxpayer for the c. Pao Gasul, Spanish citizen, a resident in Madrid, Spain,
settlement of a due tax liability that is there definitely set and spent a one week vacation in Boracay.
fixed – d. Lee Min Ho, Korean singer, held a 3-day concert in
a. Forfeiture Manila.
b. Assessment 13. Individual taxpayers are subject to the following income tax:
c. Audit engagement letter I. Basic tax based on graduated tax table
d. Institution of criminal action. II. Final withholding tax on passive income derived from
7. A pre-assessment notice is required sources within the Philippines
a. When a discrepancy has been determined between the tax III. Capital gains tax
withheld and the amount actually remitted by the IV. Stock transaction tax of 6/10 of 1% of gross selling price
withholding agent. a. I and II only c. I, II, III only
b. When a discrepancy has been determined between the b. I and III only d. All of the above.
amount of sales declared and the purchase recorded by the
Use the following data for 15 to 20
seller’s costumers.
Carlo, married, with two dependent children, received the following
c. When an article locally purchased or imported by an
income:
exempt person has been sold, traded, or transferred to non-
Rent, Philippines P 1,000,000
exempt persons.
Rent, Hongkong 200,000
d. When of the deficiency tax is the result of mathematical
Interest, peso deposit, MBTC (20%; 25%) 100,000
errors in the computations appearing on the face of the Interest, US deposit, BDO ($10,000xP42) (7 ½%;E)
return. 420,000
8. Which of the following statement is not true? Interest, deposit HongKong (HK$10,000xP5) 50,000
a. If a taxpayer is acquitted in a criminal violation of the Tax Prize (cash) won in a local contest 8,000
Code, this acquittal; does not exonerate him from his civil Prize (TV) won in a local lottery 50,000
liability to pay taxes. PCSO/Lotto winnings 2,000,000
b. A conviction for tax evasion is a bar for collection of Prize won In contest, US 300,000
unpaid taxes. Lotto winning, US 100,000
c. A tax assessment is not necessary to a criminal Dividend, domestic company (10%;20%;25%) 600,000
prosecution for willful attempt to defeat and evade
payment of taxes. 14. Determine the total final tax in 2018, assuming he is a Resident
d. Criminal proceedings under the Tax Code is not a mode of Citizen.
collection of internal revenue taxes, fees, or charges. a. P553,000 c. P131,000
9. Renesmee, Inc. received a notice of assessment and a letter b. P121,500 d. P553,000
from the BIR demanding the payment of P3 million pesos in 15. Determine the total final tax in 2018, assuming he is a Resident
deficiency income taxes for the taxable year 2008. The Alien.
financial statements of the company show that it has been a. P150,000 c. P90,000
b. P121,500 d. P550,000
 16. Determine the total final tax in 2018, assuming he is a a. To be subject to final tax, passive income must be from
NonResident Alien Engaged in Trade and Business. Philippine sources.
a. P687,500 c. P150,000 b. An income which is subject to final tax is excluded from
b. P121,500 d. P90,000 the computation of income subject to Section 24(A) of the
17. Determine the taxable net income in 2018 assuming he is a tax code.
Resident Citizen. c. Lotto winnings in foreign countries are exempt from
a. P80,000 c. P1,558,000 income tax in the Philippines.
b. P180,000 d. P1,658,000 d. None of the above.
18. Determine the taxable net income in 2018 assuming he is a 27. Which of the following statements is correct?
NonResident Citizen. a. Interest income on bank deposit or investment with
a. P80,000 c. P908,000 maturity period of at least five years is exempt from
b. P180,000 d. P1,008,000 income tax.
19. Determine the taxable net income in 2018 assuming he is a b. Interest income on treasury bond with maturity of at least
NonResident Alien Engaged in Trade or Business. five years is exempt from income tax.
a. P80,000 c. P908,000 c. The tax exemption on long term bank deposit or
b. P1,000,000 d. P1,008,000 investment extends to all types of taxpayers.
d. All of the above.
Use the following data for 21 to 23 28. Which of the following income of an individual taxpayer is
Ana, a self-employed resident citizen provided the following data for subject to final tax?
2018 taxable year: a. P10,000 prize in Manila won by a resident citizen.
Sales P2,800,000 b. Dividend received by a resident citizen from a resident
Cost of sales 1,125,000 foreign corporation.
Business Expenses 650,000
c. Shares in the net income of a general professional
Interest income from peso
partnership received by a resident citizen.
bank deposit 80,000
Interest income from bank d. Dividend received by a non-resident alien of a domestic
deposit under FCDS 120,000 corporation.
Gain on sale of land in the Phil. 29. Sandara, a nonresident Korean stockholder, received a dividend
held as capital asset with cost income of P300,000 in 2018 from Super Bowl Corporation, a
of P1,500,000 when the zonal domestic corporation. The amount of Basic Taxable Income is?
value is P1,200,000 500,000 a. P0 c. P180,000
b. P120,000 d. P300,000
20. How much is the Basic Income Tax Expense of Ana for the 30. Which of the following sale transactions will be subject to
year? capital gains tax?
a. 197,500 c. 180,000 a. Sale of shares of stock by a dealer in securities
b. 179,500 d. 177,500 b. Sale of shares of stock during an Initial Public Hearing
21. How much is the Capital Gain Tax?
c. Sales of shares of stock not through the local stock
a. 150,000 c. 102,000
b. 120,000 d. 105,000 exchange by a person who is not a dealer in securities.
d. Sale of shares of stock though the local stock exchange by
a person who is not a dealer in stock exchange.
Use the following data for 24 to 26
Ana is a mixed income earner. She is self-employed resident citizen and Use the following data for 33 and 34
currently the Finance manager of Omega Corporation. The following data Bryan sold the following shares of stock of domestic corporations which
were provided for 2018 taxable year: he bought for investment purposes:
Compensation income P1,800,000 Listed and Traded Not listed and Not
Sales 2,800,000 Traded
Cost of Sales 1,125,000 Selling Price 250,000 143,680
Business Expenses 650,000
Interest income from peso Selling Expenses 12,000 3,680
bank deposit 80,000 Cost 118,000 80,000
Interest income from bank
Deposits under FCDS 120,000
Gain on sale of land in the 31. Determine the 15% capital gains tax assuming the sale was
Philippines held as capital made in 2018 (Upon effectivity of TRAIN Law).
Asset with cost of P1,500,000 a. 9,000 c. 9,255
When the zonal value is b. 9,552 d. 9,525
P1,200,000 500,000 32. Assume the shares sold are shares issued by foreign
22. How much is the Basic Taxable Income? corporations, the capital gain tax in 2018 is
a. 2,285 c. 2,852 a. 9,000 c. 6,000
b. 2,825 d. 2,258 b. 3,000 d. 0
23. How much is the Basic Taxable Income if she opted to use
OSD? 33. Which of the following is subject to fringe benefit tax?
a. 3,880 c. 3,800 - Compensation income of managers
b. 3,480 d. 3,804 - Taxable fringe benefits of managers
24. How much is the Capital Gain Tax? - De minimis benefit of managers
a. 105,000 c. 102,000 a. Yes; Yes; Yes c. No; Yes; Yes
b. 120,000 d. 150,000 b. No; Yes; No d. Yes, No; Yes
34. fringe benefit tax is computed based on:
25. Statement 1: Passive incomes are subject to separate and final a. grossed-up monetary value
tax rates. b. monetary value
Statement 2: Passive incomes are included in the computation c. gross compensation
of taxable income from compensation or business/professional d. net compensation
income. 35. During 2018, Alan gave the following fringe benefits to its
A. B. C. D. employees:
Statement 1 True False True False salaries to rank and file employees P1,000,000
Statement 2 True False False True salaries to managerial employees 1,800,000
de minimis benefits to rank and file 54,400
26. Which of the following statements is incorrect? deminimis benefit to managerial employees 27,200
 fringe benefits to rank and file 102,000
fringe benefit to managerial employees 170,000
How much is the fringe benefit tax?
a. P48,000 c. P92,538
b. 91,538 d. P166,400
36. Uste owns a condominium unit which is near the factory and
the plant’s administrative building. To make it convenient to its
executive, it allowed the latter to use the said building as his
residence. The Zonal value of the property is P32,000,000
while its fair market value as shown in its current Real Property
Tax Declaration amounts to P25,000,000. How muchis the
fringe benefit tax expense?
a. P0 c. P376,470
b. 94,117 d. P430,770
37. Which of the following is not an income for income tax
purposes?
a. gain derived from labor
b. return on capital
c. excess of selling price over cost of asset sold
d. gift received
38. On July 1, 2018, Pedro leased his vacant lot for a period of 12
years to Juan at an annual rate of P2,400,000. It was also agreed
that Juan will pay the following in 2018:
-P4,800,000 representing rental payment for 2 years
- security deposit of P2,400,000
- annual real property tax of P30,000

The lease contract provides, among the others that Juan will
construct a 5-storey building for parking purposes at a cost of
P36,000,000. Ownership of the building shall belong to Pedro
upon the expiration or termination of the lease contract. The
building was completed on july 1, 2018 with an estimated
useful life of 15 years.
Assuming Pedro will use outright method in recognizing
income from leasehold improvements, how much is the total
income from lease for year 2018?
a. P3,030,000 c. P38,430,000
b. P3,630,000 d. P2,400,000
39. Juan reported the following for the current taxable year:
Gross income P5,000,000
Cost of sales 3,000,000
Salaries of employees, net of P100,000 withholding tax and
P50,000 SSS 800,000
Fringe benefits given to rank and file 300,000
Rent expense 120,000
Donation to religious institutions 500,000
How much is the deductible amount of the donation to religious
institutions?
a. P369,000 c. P359,000
b. P360,000 d. P500,000
40. With same set of facts in preceding number, how much is the
correct taxable net income of Juan assuming its 2018?
a. P 3,591,000 c. P3,321,000
b. P3,190,000 d. P3,271,000