Tax Quiz 3 Q Tax 1

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TAX 1
1. An example of a tax where the concept of progressivity finds application is the:
(A) income tax on individuals.

(B) excise tax on petroleum products.
(C) value-added tax on certain articles.
(D) amusement tax on boxing exhibitions.
2. Income from the performance of services is treated as income from within the
Philippines, if:
a) The payment of compensation for the service is made in the Philippines;
b) The contract calling for the performance of services is signed in the
Philippines;
c) The service is actually performed in the Philippines;
d) The recipient of service income is a resident of the Philippines.
3. A resident foreign corporation is one that is:

a) Organized under the laws of the Philippines that does business in another
country;
b) Organized under the laws of a foreign country that sets up a regional
headquarter in the Philippines doing product promotion and information
dissemination;
c) Organized under the laws of the Philippines that engages business in a special
economic zone;
d) Organized under the laws of a foreign country that engages in business in
Makati City, Philippines.
4. A general professional partnership (GPP) is one:

a) That is registered as such with the Securities and Exchange Commission and
the Bureau of Internal Revenue;
b) That is composed of individuals who exercise a common profession;
c) That exclusively derives income from the practice of the common profession;
d) That derives professional income and rental income from property owned by it.
5. Income is considered realized for tax purposes when:

(A) it is recognized as revenue under accounting standards even if the law does
not do so.
(B) the taxpayer retires from the business without approval from the BIR.
(C) the taxpayer has been paid and has received in cash or near cash the
taxable income.
(D) the earning process is complete or virtually complete and an exchange has
taken place.
6. Nalu Co sued Manlu Loco for breach of promise to marry. Manlu Loco lost the
case and duly paid the court's award that included, among others, Pl00,000 as
moral damages for the mental anguish Nalu Co suffered.
Did Nalu Co earn a taxable income?

(A) She had a taxable income of P100,000 since income is income from
whatever source.
(B) She had no taxable income because it was a donation.
(C) She had taxable income since she made a profit.
(D) She had no taxable income since moral damages are compensatory.
7. A corporation may change its taxable year to calendar or fiscal year in filing its
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annual income tax return, provided:

(A) it seeks prior BIR approval of its proposed change in accounting period.
(B) it simultaneously seeks BIR approval of its new accounting period.
(C) it should change its accounting period two years prior to changing its taxable
year.
(D) its constitution and by-laws authorizes the change.
8. The appropriate method of accounting for a contractor on his long-term

construction contract (i.e., it takes more than a year to finish) is:
a) Cash method;
b) Accrual method;
c) Installment sale method;
d) Percentage of completion method.
9. The "all events test" refers to:

a) A person who uses the cash method where all sales have been fully paid by
the buyers thereof;
b) A person who uses the installment sales method, where the full amount of
consideration is paid in full by the buyer thereof within the year of sale;
c) A person who uses the accrual method, whereby an expense is deductible for
the taxable year in which all the events had occurred which determined the fact
of the liability and the amount thereof could be determined with reasonable
accuracy;
d) A person who uses the completed method, whereby the construction project
has been completed during the year the contract was signed.
10. There is no taxable income until such income is recognized. Taxable income is
recognized when the:
(A) taxpayer fails to include the income in his income tax return.
(B) income has been actually received in money or its equivalent.
(C) income has been received, either actually or constructively.
(D) transaction that is the source of the income is consummated.
11. In 2017, Ma R. Te earned P500,000.00 as income from her beauty parlor and
received P250,000.00 as Christmas gift from her spinster aunt. She had no other
receipts for the year. She spent P150,000.00 for the operation of her beauty
parlor. For tax purposes, her gross income for 2017 is:
(A) P750,000.00.
(B) P500,000.00.
(C) P350,000.00.
(D) P600,000.00.
12. In 2017, Mr. Santa sent his sister Helen $1,000 via a telegraphic transfer through
the BDO. The bank's remittance clerk made a mistake and credited Helen with
$1,000,000 which she promptly withdrew. The bank demanded the return of the
mistakenly credited excess, but Helen refused. The BIR entered the picture and
investigated Helen.
Would the BIR be correct if it determines that Helen earned taxable income
under these facts?
(A) No, she had no income because she had no right to the mistakenly credited
funds.
(B) Yes, income is income regardless of the source.
(C) No, it was not her fault that the funds in excess of $1,000 were credited to
her.
(D) No, the funds in excess of $1,000 were in effect donated to her.
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13. Pierre de Savigny, a Frenchman, arrived in the Philippines on January 1, 2017

and continued to live and engage in business in the Philippines. He went on a
tour of Southeast Asia from August 1 to November 5, 2017. He returned to the
Philippines on November 6, 2017 and stayed until April 15, 2018 when he
returned to France. He earned during his stay in the Philippines a gross income
of P3 million from his investments in the country. For the year 2017, Pierre’s
taxable status is that of:
(A) a non-resident alien not engaged in trade or business in the Philippines.

(B) a non-resident alien engaged in trade or business in the Philippines.
(C) a resident alien not engaged in trade or business in the Philippines.
(D) a resident alien engaged in trade or business in the Philippines.
14. What is "gross income" for purposes of the Income tax?
15. How does “income" differ from “capital"? Explain.
16. Z is a Filipino immigrant living in the United States for more than 10 years. He is
retired and he came back to the Philippines as a balikbayan. Every time he
comes to the Philippines, he stays here for about a month. He regularly receives
a pension from his former employer in the United States, amounting to US$1,000
a month. While in the Philippines, with his pension pay from his former employer,
he purchased three condominium units in Makati which he is renting out for
P15,000 a month each.
Does the US$1,000 pension become taxable because he is now residing in the
Philippines? Reason briefly.
17. Z is a Filipino immigrant living in the United States for more than 10 years. He is
retired and he came back to the Philippines as a balikbayan. Every time he
comes to the Philippines, he stays here for about a month. He regularly receives
a pension from his former employer in the United States, amounting to US$1,000
a month. While in the Philippines, with his pension pay from his former employer,
he purchased three condominium units in Makati which he is renting out for
P15,000 a month each.
Will Z be liable to pay income tax on the P45.000 monthly income? Reason
briefly.
18. PRT Corp. purchased a residential house and lot with a swimming pool in an
upscale subdivision and required the company president to stay there without
paying rent; it reasoned out that the company president must maintain a certain
image and be able to entertain guests at the house to promote the company's
business. The company president declared that because they are childless, he
and his wife could very well live in a smaller house.
Was there a taxable fringe benefit?

(A) There was no taxable fringe benefit since it was for the convenience of the
employer and was necessary for its business.
(B) There was a taxable fringe benefit since the stay at the house was for free.
(C) There was a taxable fringe benefit because the house was very luxurious.
(D) There was no taxable fringe benefit because the company president was only
required to stay there and did not demand free housing.
19. State with reasons the tax treatment of the following in the preparation of annual
income tax returns: De minimis benefits;
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20. A “fringe benefit’ is defined as being any good, service or other benefit furnished
or granted in cash or in kind by an employer to an individual employee. Would it
be the employer or the employee who is legally required to pay an income tax on
it? Explain.

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1

1. An example of a tax where the concept of progressivity finds application is the:

(A) income tax on individuals.

3. A resident foreign corporation is one that is:

4. A general professional partnership (GPP) is one:

5. Income is considered realized for tax purposes when:

Did Nalu Co earn a taxable income?

annual income tax return, provided:

8. The appropriate method of accounting for a contractor on his long-term

9. The "all events test" refers to:

13. Pierre de Savigny, a Frenchman, arrived in the Philippines on January 1, 2017

(A) a non-resident alien not engaged in trade or business in the Philippines.

14. What is "gross income" for purposes of the Income tax?

15. How does “income" differ from “capital"? Explain.

Was there a taxable fringe benefit?

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