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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 55

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

CHATER %
DEALINGS IN ROERTY
Problem 7 – 1 TRUE OR FALSE
1. True
2. False – Ordinary assets
3. False – its real properties shall continue to be treated as ordinary assets.
4. True
5. False – the basis is the same as the cost of the donor or the FMV at the time of
donation whichever is lower.
. True
!. False – "e#ardless of #ain or loss$ a ta% should be paid when the shares of stoc& are
sold in the stoc& mar&et because the basis of ta% is the sellin# price.
'. False – real property classified as ordinary assets are sub(ect to normal ta%.

).
10. True – *oss on sale of debt securities sustained by ban& can either be classified as
False
capital loss or ordinary loss. +apital loss if owned by ban& as investments but ordinary
loss if ac,uired for clients- loan settlements.
11. True
1. False – For ordinary loss$ the same/ but for capital loss not the same because there is
no capital loss carry over and not holdin# period for corporation.

Problem 7 – 2 TRUE OR FALSE

1. True
. False – 0o$ because the  final ta% is based on the hi#her of the sellin# price or 2onal
value. f there is loss on sale$ the normal ta% rate if preferable.
3. False – 0ot sub(ect to creditable withholdin# ta%.
4. False –  whichever is lower
5. False – e,uipment used in business operations is an ordinary asset.
. True
!. False – The basis is the fair mar&et value at the date of donation.
'. True
). True
10. False – There should be no capital loss because there is an e%ercise of the option.
11. True
1. True

Problem 7 – 3 TRUE OR FALSE

1. True
. True
3. True
4. False – *osses from wash sales are not deductible.
5. False – 0o wash sales if the classes of shares of stoc&s are different.
6. True
!. True
'. False – 0ot sub(ect to capital #ains ta% because the issuance is ori#inal and the shares
of stoc& is owned by the corporation.
). True
16. False – sub(ect to either stoc& transaction ta% 7traded8in stoc& mar&et9 or capital #ains
ta% of 5 to 16 based on capital #ains 7not traded8in the stoc& mar&et9.
11. True

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 56

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C!"t#$ %: D#!in' in $o"#$t*

12. False – additional assessments by a corporation from its shareholders are not income/
hence$ not ta%able income.

Problem 7 – 4
1. False – sub(ect to capital #ains ta% of .
. True
3. False 8  the speculator sells securities which he does not own.
4. True
5. False – this refers to patent.
. True
!. True
'. False – if the land is ordinary asset$ sub(ect to normal ta%.
). True
16. False – not dealers of securities
11. True

1. True

Problem 7 – 5 Problem 7 – 6
1. + 1. :
. ; . <
3. < 3. <
4. + 4. :
5. + 5. +
. : . ;
!. ; !. <
'. : '. <
). + ). <
16. + 16. :
11. :
1. <

Problem 7 – 7 D
"eal property inventories =16$666$666
*and and buildin# used in business 3$666$666
Vacation house of the e%ecutives 1$566$666
:c,uired undeveloped properties 566$666
:bandoned properties 66$666
 Total amount of ordinary assets =15$66$666

:ll properties ac,uired by real estate dealers>developers are ordinary assets. Ordinary assets of
realty companies that were later abandoned and become idle continue to be considered as
ordinary assets. 7"ev. "e#. 0o. ! – 639

Problem
nterest in7partnership
–8 C =1$666$666
dle raw lands 166$666
=roceeds of e%propriated real property $666$666
+apital assets =3$166$666

 The transfer of property throu#h e%propriation with (ust compensation is basically a

sale or e%chan#e of property sub(ect to capital #ains ta% of . 7;las ?utierre2$ and
Maria Morales vs. +T:$ and +"$ ?.". 0os. *8)!3' and *8)!!1$ May 31$ 1)5!9

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 57

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C!"t#$ %: D#!in' in $o"#$t*

Problem 7 – 9
1. Letter D
@ellin# price per 66 s,. meters = 166$666
Multiplied by number of 66 s.m. sold 7)$666 – 1$6669>66 46
 Total sales =4$666$666
*essA +ost of sales 7=$666$666 % )69 1$'66$666
Ordinary #ain from sale of land =$66$666

. Letter A
 There is no remainin# capital asset of ; because the remainin# 16 of one hectare is also
used into business as a warehouse.

Problem 7 – 10 
Fair mar&et value =1)6$666
*essA ;oo& value of car 156$666
?ain on e%chan#e = 46$666

Problem 7 – 11 C
 There is capital loss if the property #iven away has fair value hi#her than =66$666 when it was
inherited.

Problem 7 – 12 A
 There is no ta%able amount in the above transaction because the transaction is an
e%chan#e solely in &ind and Mr. : #ained control of Veni2 +orporation ac,uirin#
more than 56 of the outstandin# shares 715>5 B 69.

Problem 7 – 13 D
:c,uisition cost 7=66$666 C =6$6669 =6$666
:#ent-s commission 7=566$666 % 169 56$666
<eductible cost and e%penses =!6$666

Problem 7 – 14 A
@ales price =$666$666
*essA Fair mar&et value at the time of his father-s death 566$666
?ain on sale of farm land =1$566$666

 The basis of the property shall be the fair mar&et price or value at the date of ac,uisition$ if the
same was ac,uired by inheritance. D@ec. 46 7;9 79$ 0"+E The value at the date of ac,uisition
prevails over the fair mar&et value because such is the lower amount.

Problem 7 – 15 A
@ales price =156$666
+ost or basis to the donee 7the lower of donor-s cost or
  the fair mar&et value when the #ift was made 7 56$6669
+apital #ain =166$666

0o holdin# period because the seller is a corporation.

Problem 7 – 16 
@ales price =!66$666
*essA ;oo& value of the car
:c,uisition cost =1$666$66
6
  *essA :ccum. depn. 7=1$666$666>59 %  466$66 66$666

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 58

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

6
+apital #ain =166$666
Multiplied by percent of holdin# period 56
"eportable capital #ain = 56$666

Problem 7 – 17 D
@ales price =66$666
*essA +ost or mar&et whichever is lower9 166$666
+apital #ain =166$666

0o holdin# period is allowed for ta%payer other individuals.

Problem 7 – 18 
  ear   ear 
1
Operatin# income =66$66 =366$666
6
+apital asset transactionsA
  +apital #ain – lon#8term 7569 = 5$666 = 6$666
  +apital loss – short8term 71669 7 46$666 7 16$6669
9
  0et capital #ain 7loss9 7=15$666 = 16$666
9
  0et capital loss carry8over$ limit 7 16$6669
 Ta%able income =66$66 =366$666
6

 The net capital loss carry8over is limited to only =16$666 instead of =15$666 because
the net capital #ains in year  is only =16$666.

Problem 7 – 19
1. Letter C
Ordinary #ain =56$666
+apital asset transactionsA
  @hort8term capital #ain =6$666
  *on#8term capital #ain 7=36$666 % 569 15$666
  *on#8term capital loss 7=16$666 % 569 7 5$6669 36$666
 Ta%able income before personal e%emption ='6$666

. Letter 
Ordinary #ain =56$666
+apital asset transactionsA
  @hort8term capital #ain =6$666
  *on#8term capital #ain 7=36$6669 36$666
  *on#8term capital loss 7 16$6669 46$666
 Ta%able income before personal e%emption =)6$666

Problem 7 – 20
1.  Letter C   ear 1 ear 
Ordinary ta%able income = 6$666 =1'6$666
@hort8term capital #ain 7loss9 7=466$6669 =66$666
*on#8term capital #ain 7loss9 7=66$666 % 569A 7=166$666 % 569   366$666 756$6669
0+*+O – applicable in year  is =6$666 7=166$6669 76$6669

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 59

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

0et capital #ain = )6$666

 Ta%able income before personal e%emption = 6$6669 =!6$666

.  Letter 
Ordinary ta%able income =1'6$666
@hort8term capital #ain =66$666
*on#8term capital 7loss9 7166$6669
0et capital #ain =166$666
 Ta%able income before personal e%emption ='6$666

Problem 7 – 21 A
@ellin# =rice +ost H I%penses 0et +apital ?ain
 Gewelry = '6$666 = 11$666 = )$666
M. ;en2 +ar – lon# term 7569 466$666 3!6$666 15$666
"efri#erator $666 5$666 1$666
Ford +ar 1$666 6$566   7'$5669

Problem 7 – 22 A P76!500
Jero. f ;= is a dealer of debt and e,uity securities$ the transactions related to securities are
not capital asset transactions but ordinary transactions$ hence there is no net capital #ain.

Problem 7 – 23 C
First =166$666 7=)5$666>)59 % 5 = 5$666
Over =166$666 D7=6!$566 – =)5$6669>)6E % 16 1$566
 Total final ta% = 1!$566

Problem 7 – 24 A
+apital #ains of 0ovember sales 7=156$666 – =16$6669 =36$666
Multiplied by capital #ains ta% rate 5
+apital #ains ta% = 1$566

Problem 7 – 25
1. Letter A
@ales =1$666$666
*essA +ost of e,uity securities =)66$666
  ;ro&era#e fee 46$666 )46$666
0et income = 6$666
Multiplied by corporate income ta% 36
ncome ta% due = 1'$666

 The dealers in securities are not liable to the stoc& transaction ta% of K of
1 based on the sellin# price or fair mar&et value$ whichever is hi#her. 7@ec.
4 H 5$ "ev. "e#s. 0o.  – 66'9

. Letter 
@toc& transaction ta% 7=1$666$666 % 6.6659 =5$666

3. Letter C
@ales =1$666$666
*essA +ost of e,uity securities =)66$666
  ;ro&era#e fee 46$666 )46$666
+apital #ains = 6$666
Multiplied by ta% rate applicable 5
+apital #ains ta% = 3$666

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 60

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C!"t#$ %: D#!in' in $o"#$t*

Problem 7 – 26 C
@old thru @old direct to
stoc& the buyer
mar&et
@ales price 7=146 % 1$666 shares9 =146$666 =146$666
*essA +ost of sales )6$666 )6$666
?ross profit = 56$666 = 56$666
;ro&er-s fee 7=146$666 % 19 7 1$4669
=ercenta#e ta% 7=146$666 % 6.6659 7 !669
+apital #ains ta% 7=56$666 % 59 . 7 $5669
=rofit = 4!$)66 = 4!$566
*essA =rofit if sold throu#h the stoc& mar&et 4!$)66
<ecrease in profit 7= 4669

Problem 7 – 27 D
+apital #ain 7=156 – =159 % 166 shares =$566

Problem 7 – 28
Letter D
@ale – March 7=16 % 566 shares9 = 6$666
*essA +ost 7=16$666>1$66 shares9 % 566 shares   56$666
+apital #ain =16$666

1. Letter C
@ales – May 7=)6 % 5669 =45$666
*essA +ost of sales 7=!6$666 % 566>!669 56$666
*oss = 5$666

0ondeductible loss 7=5$666 % 366>5669 = 3$666

. Letter A
=roceeds of li,uidation 7=136 % 5669 =5$666
*essA +ost – ;e#innin#A 7=16$666>1$669 % 66 shares =6$666
  8 :prilA 7=156 % 366 shares9 C =3$666 4'$666 '$666
+apital loss 7=3$6669

Problem 7 – 29
1. Letter C
@ales proceeds =46$666
*essA +ost of e,uity investments sold
  :pril 6 71$56 shares9 =11$!66
  March 6 7=)L % 356 shares9 3$66 1)3$)66
?ain on sale = 4$166

. Letter C
+ost per share batch March 16 = )
0umber of shares remainin# D7'66 % 1169 – 356E 536
+ost of remainin# shares =4'$!6

L+omputation of cost per share and total amountA

 Total
+ost>share :mount
Mar. 16 7='6$)6>''6 shares9 =).66 ='6$)6

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 61

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

:pril 6 7=11$!66>1$56 shares9 =)'.66 11$!66

 The shares of stoc& are increased by the 16 stoc& dividend.

f the shares of stoc& sold are properly identified$ the identified cost shall first be
deducted.

Problem 7 – 30
1. Letter D
0o capital #ain on ori#inal issuance of company-s own stoc& = 8 6 8
even if issued above par

. Letter C
+apital #ain on reissued shares 7=3 – =19 % $6669 =4$666

Problem 7 – 31 D
@hare premium – treasury shares D7=146 – =169 % )66E =1'$666
*essA *oss on treasury shares retirement
7=166 – =169 % 166 shares $666
0et ta%able #ain =1$666

Corre"t#o$% &'o(l) be% the remainin# o$e '($)re) 71669 shares were retired.N

 There is no ta%able #ain or deductible loss in the ori#inal issuance of shares of stoc&.
7@ec. 55$ "e#. 0o. 9

Problem 7 – 32 
@ales 7=1'6 % 1$6669 = 1'6$666
+ost 7=16 % 1$6669 716$6669
?ross profit = 6$666
Multiplied by applicable capital #ains ta% rate 5
+apital #ains ta% = 3$666

=ercent of initial payment 7=6$666>=1'6$6669 6.66

66< capital #ains ta% due D=3$666 % = '66

7=4'$666>=1'6$6669E

 The initial payment does not e%ceed 5$ therefore$ installment payment of the
capital #ains ta% will be allowed. The installment payment per year is =4'$666 or
D7=1'6$666 – =3$6669>3E.

Problem 7 – 33
1. Letter C
*i,uidatin# dividend =16$666
*essA +ost of stoc& investment 7=16 % 16$6669 166$666
"eportable capital #ain – corporation = 6$666

. Letter D
*i,uidatin# dividend =16$666
*essA +ost of stoc& investment 7=16 % 16$6669 166$666
+apital #ains = 6$666

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 62

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

Multiplied by percent to report due to holdin# period 56

"eportable capital #ain – individual = 16$666

f the shareholder is a corporation$ the capital #ain is ta%able in full. f the shareholder is an
individual and the stoc&s were held for more than 1 months$ the capital #ain is ta%able only to
the e%tent of 56 thereof$ D@ec. 3) 7;9$ 0"+E.

 The authors believe that the rule on holdin# period on shares of stoc& is applicable in case of
li,uidatin# dividend. owever if the shares of stoc& is sold throu#h the stoc& mar&et or the
direct to the buyer$ the holdin# period does not apply because the sales are sub(ect to
percenta#e ta% or capital #ains ta% which are final ta%es in nature. D@ec.  7c$ 39$ "ev. "e#s. 0o.
8'E

Problem 7 – 34
1. Letter C
+ost of the new family home 7=$566$666>=4$666$6669 % =$666$666 =1$56$666

. Letter 
@ales proceeds =4$666$666
*essA :mount used to ac,uire new family home $566$666
Pnutili2ed sales proceeds =1$566$666
Multiplied by capital #ains ta% rate 
+apital #ains ta% to be paid = )6$666

Problem 7 – 35 D
;asis of new residence =)$666$666

+apital #ains ta% 7=5$666$666 % 9 =366$666

@ince there was no ta% e%emption$ the entire amount of ac,uirin# the new house and lot shall
be its cost.

Problem 7 – 36 D
Jonal value 7=!66 % 5669 – hi#her =356$666
Multiplied by capital #ains ta% rate 
+apital #ains ta% = 1$666

oldin# period is not applicable because the property is a real property sub(ect to final ta%.

Problem 7 – 37 
+ost of ori#inal residence =$666$666
:ddA I%cess of new ac,uisition cost over sales price
7=15$666$666 – =1$666$6669 3$666$666
;asis of new principal residence =)$666$666

Problem
1. 7 –C38
Letter
Final ta% 7=1$66$666 % 9 =!$666

. *ot #$ t'e "'o#"e&

+reditable withholdin# ta% 7=566$666 % 1.59 =!$566

Problem 7 – 39
1. Letter D
+apital #ains ta% 7=$566$666 % 9 – @=$ hi#her =156$666

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 63

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

:ddA <ocumentary stamp ta% 7=$566$666 %   3!$566

1.59
 Total ta% to the ;" =1'!$566

. Letter C
?ross income 7=$566$666 – =1$566$6669 =1$666$666
*essA O@< 7=1$666$666 % 469 466$666
0et ta%able income = 66$666
Multiplied by corporate normal ta% rate 36
ncome ta% due = 1'6$666
:ddA <ocumentary stamp ta% 7=$566$666 %   3!$566
1.59
 Total ta% due to the ;" =1!$566

 The transaction above is V:T8e%empt because the sellin# price 7@=9 is =$566$666
and the real property is for residential dwellin#.

Problem 7 – 40 D
+reditable withholdin# ta%A
  7=566$666 % 1.59 % 4 houses = 36$666
  7=3$666$666 % 59 %  366$666
=336$666
ncome ta% still due and payableA
  Total revenue 7=566$666 % 49 C 7=3$666$666 % 9 ='$666$666
  Total costs 7=66$666 % 49 C 7=1$66$666 % 9 73$66$6669
  ?ross profit =4$'66$666
  Operatin# e%penses 7$'66$6669
  0et income =$666$666
  Multiplied by normal corporate income ta% rate 36
  ncome ta% due = 66$666
  +reditable withholdin# ta% 7 336$6669
  ncome ta% still due and payable = !6$666

Problem 7 – 41
1. *etter :
0one. 0o withholdin# ta% because ?oldrich "ealty +orporation is the buyer not a seller.
 *etter :
0one. 0o income ta% is to be collected from sale of land by the #overnment.

Problem 7 – 42
1. Letter A
Fair mar&et value of V +o.-s share received
7=36 % 56$6669 = !$566$666
*essA ;oo& value of the net asset of I +o. )$666$666
*oss of I +o. – not reco#ni2ed 7=$566$6669

. Letter 
I +o.-s cost or basis is the same as the boo& value of net
asset it transferred to ac,uire V +o.-s e,uity =)$666$666

3. Letter D
Fair value of I +o.-s net asset received ='$666$666
*essA =ar value of shares issued 7=5 % 56$6669 $56$666

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 64

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

0onta%able #ain of V +o. =1$!56$666

 Ta%able #ain of V +o. = 8 6 8

 There is no ta%able #ain because the mer#er is solely in &ind.

4. Letter C
=ortion of FMV of V +o.-s shares received
  7=!$566$666 % 6>3669 = 566$666
*essA +ost of investment !66$666
*oss – not reco#ni2ed 7=66$6669

5. Letter A
@ales price D=36 % 76$666 % 69E =16$666
*essA +ost of sale 7=!66$666 % 69 146$666
*oss on sale 7= 6$6669

Problem 7 – 43
1. +reditable withholdin# ta%A
  b. 7=1$666$666 % 36 % 39 = )66$666
  c. 7=$566$666 % 46 % 59 5$666$666
 Total creditable withholdin# ta% =5$)66$666

0oteA @ale of sociali2ed housin# of a realtor that is a member of

*P"; is not sub(ect to +QT if the sales price is =156$666 per house.

. ?ross profitA
  76 % =156$666 % 59 = !56$666
  736 % =1$666$666 % 369 )$666$666
  746 % =$566$666 % 359 35$666$666 =44$!56$666
*essA Optional standard deduction 7=44$!56$666 % 469 1!$)66$666
0et ta%able income =$'56$666
Multiplied by corporate ta% rate 36
ncome ta% due = '$655$666
*essA +reditable withholdin# ta% 5$)66$666
ncome ta% still due and payable = $155$666

Problem 7 – 44
1+ Letter D
@ales in the re#ular course of business =566$666
:ddA @ales of ordinary asset 7lot used as warehouse9   66$666
 Total sales of ordinary assets =!66$666
*essA +ost of sales =366$666   456$66
  +ost of lot   156$666 6
Ordinary #ains > income =56$666

. Letter 
@ales of residential house and lot =1$666$666
=roceeds applied for the ac,uisition of new residential
  house and lot   '66$666
:mount sub(ect to final withholdin# ta% = 66$666
Final ta% rate   
Final ta% = 1$666

Problem 7 – 45
0ot8traded in *ocal @toc& I%chan#eA

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 65

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

1. FFO MethodA
  @ales proceeds 7=66 % 3569 = !6$666.66
  *essA +ost of shares soldA
  <ecember 66: purchased 7='.) % 1669 = '$).66
  February 66; purchased 7=164.35 % 569  $6'!.56   34$!'3.56
  ?ain on sale on investment on stoc& = 35$1.56
  Multiplied by percenta#e of ta%   5
  Ta% due and payable = 1$!6.'3

  *ote% The new cost per share due to 15 stoc& dividends is computed as followsA

<ecember 66: purchase 7=16$666>1159 = '.)

February 66; purchase 7=3$666>3459 =164.35

 
. Movin# :vera#e MethodA

   @ales +ost
*essA proceeds 7=66
of shares % 3569
sold 7356 % =1669  = 35$666
!6$666
  ?ain on sale of investment in stoc& = 35$666
  Multiplied by percenta#e of ta%   5
  Ta% due and payable = 1$!56

L+omputation of the new cost per share would beA

Investment in common stocks:
0o. of @hares +ost> share :mount
<ecember 15$ 66: 166 =166 =16$666
February 4$ 66; 366 =16   3$666
 Totals 466 =4$666
:ddA 15 stoc& dividends   6   .
;asis of cost per share 46 =4$666
<ivide by number of share   46
0ew cost per share = 166

Problem 7 – 46
@ales 7=156 % 1$6669 =156$666
+ost 7='6 % 1$6669 7 '6$6669
?ross profit = !6$666
?ross profit rate 7=!6$666>=156$6669 4!.!
=ercent of initial payment 7=36$666>=156$6669 6.66

66: 7=36$666 % 4.!9 % 5 =!66.66

66; 7=46$666 % 4.!9 % 5 =)33.34
66+ 7=46$666 % 4.!9 % 5 =)33.34
66< 7=46$666 % 4.!9 % 5 =)33.34

Problem 7 – 47
  *oss   ?ain
Option money – not e%ercise = 5$666
?ain on retirement of bonds D7=1$666$666 % 1698=1$666$666E =66$666
@hares becomin# worthless   6$666   .
=5$666 =66$666
0et #ain 7=66$666 – =5$6669 =1!5$666

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 66

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

0oteA The #ain or loss on transaction letter c is 2ero. n the absence of cost$ the fair mar&et
value is assumed as the cost.

Problem 7 – 48
 Trinidad is correct. There is a ta% savin#s of =166$666 for optin# to pay final ta%es.
Final ta% 7=3$666$666 % 9 = 1'6$666
0ormal ta% 7=3$666$666 – =$66$6669 % 36 7 46$6669
 Ta% savin#s 7 =6$6669

Problem 7 – 49
0o$ because the *oa&an +orporation is not an individual ta%payer.

Problem 7 – 50
1. ndividual ta%payer ear 1 ear  ear 3 ear 4
Operatin# #ain 7loss9 7=166$6669 =56$666 =36$666 ='6$666
  0O*+O 7'6$6669 76$6669

+apital #ain 7loss9 6$666 16$666 746$6669 56$666

  0+*+O . 716$6669
 Ta%able income before p.e. 7 ='6$6669 7=6$6669 P10!000 P120!000

 The net capital loss of =46$666 in year 3 could not be deducted in its full amount in year 4
because the ta%able income in year 3 is only =16$666.

. +orporate ta%payer
Operatin# #ain 7loss9 7=166$6669 =56$666 =36$666 ='6$666
  0O*+O 7'6$6669 76$6669

+apital #ain 7loss9 6$666 16$666 746$6669 56$666

  .

 Ta%able income before p.e. 7 ='6$6669 7=6$6669 P10!000 P130!000

0o 0+*+O shall be made if the ta%payer is a corporation.

Problem 7 – 51
@hort8term #ain 8 sale of car 7=165$666 – =)5$6669 % 166 =16$666
*on#8term #ain 8 sale of (ewelry 7='6$666 – =56$6669 % 15$666
56 7 $6669
*on#8term loss 8 sale of refri#erator 7=4$666 – ='$6669 % =3$666
56
0et capital #ains

@ale of real property classified as capital asset is sub(ect to final ta%/ hence$ not to
be reported in the T"$ D@ec. 4 7<9719$ 0"+E. "elated party losses are not
deductible. D@ec. 3 7;9$ 0"+E

Problem 7 – 52
T,-.,/er #& #$)##)(,l+
  e,r 4 e,r 5 e,r 6 e,r 7 e,r 8
;usiness income 366$666 466$666 566$666 66$666 !66$666
;usiness e%penses 346$666 3'6$666 456$666 5!6$666 56$666
0et income before 7 46$6669 6$666 56$666 36$666 56$666
0O*+O

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 67

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

0O*+O 7 16$6669
0et income 7loss9
from operation 7 46$6669 16$666 56$666 36$666 56$666
+apital #ain 7loss9
  @hort8term 71669 56$666 746$6669 36$666 36$666 746$6669
  *on# term 7569 76$6669 5$666 756$6669 5$666 35$666
  0+*+O 76$6669
  0et capital #ain 7loss9 36$666 735$6669 76$6669 15$666 7 5$6669
 
0et income 7loss9 7 16$6669 16$666 56$666 45$666 56$666

1. T,-.,/er #& , "or.or,t#o$+

  e,r 4 e,r 5 e,r 6 e,r 7 e,r 8
;usiness income 366$666 466$666 566$666 66$666 !66$666
;usiness e%penses 346$666 3'6$666 456$666 5!6$666 56$666
7 46$6669 6$666 56$666 36$666 56$666

0O*+O
0et income 7loss9 76$6669 716$6669
from operation 7 46$6669 6 46$666 36$666 56$666
+apital #ain 7loss9
  @hort8term 56$666 746$6669 36$666 36$666 746$6669
  *on# term 746$6669 16$666 7166$6669 16$666 !6$666
16$666 736$6669 7!6$6669 46$666 36$666

0et income 7loss9 7 36$6669 736$6669 46$666 !6$666 '6$666

Problem 7 – 53
1. @ales price =5$666$666
*essA +ost of sale 4$666$666
?ross income =1$666$666
Multiplied by percent of collection 7=$666$666 C =566$6669>5$666$666 56
"eportable #ross income in 66: = 566$666

. +ollection 7=$566$666>59 =566$666

Multiplied by percent of #ross income 7=1$666$666>=5$666$6669 6
"eportable #ross income in 66; =166$666

3. @ales price =5$666$666

*essA +ost of sale 4$666$666
?ross income =1$666$666

*ote% The 5 initial payment rule does not apply for the re#ular installment sale of personal
property 7inventory9. The 5 initial payment rule applies only to the casual sale of personal
property classified as capital asset and sale of real property.

Problem
?ain 7 – 54
on retirement of bonds D7=566$666 % 169 – =566$666E =166$666
?ain on short sales D=56$666 – 7=.5 % 6$6669E 5$666
 Total capital #ains =165$666
*essA @hares becomin# worthless at =hilippine :irlines 56$666
0et capital #ains = 55$666

 There is no capital loss in the option money because the ta%payer e%ercised his option ri#hts.

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 68

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

Problem 7 – 55
1. +apital #ains ta% 7=3$666$666 – =$666$6669 %  = 6$666

. ;asis of the new residential home 7=1$66$666 % >39 ='66$666

3. +apital #ains ta% 7=3$666$666 % 9 =1'6$666

4. ;asis of the new residential home =$666$666

Problem 7 – 56
1. <eductible loss – Feb. 14$ 66% =8 68

. @ales =36$666
*essA +ost of sales 7=456$666 % '>)9 466$666
0ondeductible loss – Feb. 14$ 66% = '6$666

3. =)4$444
4. =15$55
 Gan. 6 Feb. 16
Ori#inal cost =56$666 =1'6$666
:ddA 0ondeductible loss
  Gan. 6A 7='6$666 % 5>)9 44$444
  Feb. 16AA 7='6$666 % 4>)9 . 35$55
0ew cost =)4$444 =15$55

5. @ales 7=6 % 4$6669 =46$666

*essA +ost of salesA
  Gan. 16A 7=56 % 1$6669 = 56$666
  Gan. 6A 7=)4$444 % 3>59 1!$! $!
+apital #ain = 13$333

Problem 7 – 57
1. FMV of ordinary shares 7=36 % 5$6669 = !56$666
FMV of preference shares 7=56 % 5$6669 56$666
 Total FMV of shares of stoc& received =1$666$666
*essA +ost of investment in : +o. transferred 7=) % 166$6669 )66$666
0onta%able #ain = 166$666

. ;asis of new shares – allocated Ordinary =reference

;asis of ordinary shares 7=)66$666 % !5>1669 =!5$666
;asis of preference shares 7=)66$666 % 5>1669 =5$666

3. @ellin# price – ordinary shares 7=5 % 5$6669 =5$666

*essA +ost – ordinary shares 8 allocated !5$666 7=56$6669
@ellin# price – preference shares 7=6 % 5$6669 =366$666
*essA +ost – preference shares – allocated 5$666 !5$666
0et #ain = 5$666

4. Total sales price 7=5$666 C =366$6669 =)5$666

Multiplied by percenta#e ta% 6.665
=ercenta#e ta% = 4$5

5. +apital #ains ta% 7=5$666 % 59 = 1$56

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) 69

SUGGESTED ANSWERS
C!"t#$ %: D#!in' in $o"#$t*

. Ta% advanta#e of 5 transaction over 4 7=4$5 – =1$569 = 3$3!5

Problem 7 – 58
1. ; +o. ordinary shares with FMV of =66$666
*and with FMV of 166$666
+ash 56$666
 Total =356$666
*essA +ost of : +o.-s shares transferred 1'6$666
 Total #ain =1!6$666

 Ta%able #ain 7is limited to the FMV of land and cash9 =166$666

. +ost of : +o.-s shares transferred =66$666

*essA +ash received =56$666
  FMV of land received 166$666 156$666
;alance = 56$666

:ddA ?ain
;asis of ; reco#ni2ed in the e%chan#e
+o. shares received 166$666
=156$666

3. ;asis of land received – FMV of land =166$666

4. +apital #ains ta% of land 7=366$666 % 9 = 1'$666

5. @ales price =56$666

*essA +ost 1'6$666
 Ta%able #ain = !6$666

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