DRILL PROBLEMS -GROSS INCOME

1. Which of the following damage recoveries is taxable?

a. Damage recoveries from slander
b. Exemplary damages
c. Damage recoveries from alienation of affection
d. Damage recoveries from breach of promise to marry
2. Which income is taxable in the Philippines?
a. Salaries of resident officials of the United Nations
b. Salaries of resident citizens for services rendered to consular offices of foreign governments
C. Salaries of citizens of the United States working in consular offices in the Philippines
d. Salaries of diplomatic officials and agents
3. Which of the following shall be returned in the year received?
a. Interest income on deposit substitute
b. Share in the net income of a business partnership
c. Royalties from books, music and literary works
d. Advanced rental received under accrual method
4. The individual performs services for a creditor who in consideration of thereof cancels the debt
the cancellation of indebtedness may amount:
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income
5. Which of the following is a taxable income?
a. Income from qualified pension plan c. Moral damages
b. Compensation for personal injuries d. Interest on moral damages
6. Select the incorrect statement concerning dividends.
A. dividends representing investments in another corporation is a property dividend subject to the
10% final tax
B. Stock dividend are exempt from taxes unless they confer upon the recipient a different interest
after the declaration
a. A only c. Both A and B
b. B only d. Neither A nor B
7. Which is not taxable?
a. Interest income in government securities
b. Interest income in long-term deposits but pre-terminated by the taxpayer prior to 5 years
C. Informer's reward for the discovery of violations to the provisions of the NIRC
d. Gains on redemption of shares in a mutual fund
8. Which is not taxable? ***
a. Director's fees
b. Dividends from a domestic corporation
c. Compensation income from a business partnership
d. Dividends from a resident corporation
9. Which is not an item gross income subject to regular tax?
a. Proceeds of crop insurance
b. Recovery of worthless receivable by a taxpayer under the cash basis
C. Refund of income tax paid in a foreign country which is claimed as a deduction on gross income
d. Forfeiture of right to dividend from a domestic corporation which is applied to the outstanding
balance of a stock subscription
10. Which of the following refund is taxable?
a. Refund of stock transaction tax
b. Refund of documentary stamp tax
c. Refund of capital gains tax paid by a domestic corporation
d. Refund of special assessment
11. Which is not within the scope of final withholding tax?
a. Property dividends of domestic corporations
b. Interest income from money market placements
C. winnings in the Philippine Charity Sweepstakes Office
d. Interest income of landlords who disposed their lands to tenants pursuant to the Agrarian Reform
Act
12. Mr. Basilio insured his life with his estate as beneficiary. In 2006, after Mr. Basilio had paid
P65,000 in premium,
he assigned the policy to Mr. Jose Llamado for P60,000, and Mr. Llamado continued paying the
premiums. Mr. Basilio died and Mr. Llamado collected the total proceeds of P200,000. Mr. Llamado,
after the assignment and before Mr. Basilio's death, paid a total premium of P80,000. As a result of
the above transaction, Mr. Llamado:
a. Derived a taxable income of P55,000
b. Derived a taxable income of P60,000
c. May consider the proceeds of P200,000 as exempt from tax
d. Answer not given
13. Mr. Monte was injured in a vehicular in 2005. He incurred and paid medical expense of P20,000
and legal fees of P10,000 during the year. In 2006, he received P170,000 as settlement from the
insurance company which insured the car owned by the other party involved in the accident. From
the above payments and transactions, the amount of taxable income of Mr. Monte in 2006 is
a. PO b. P140,000
c. P 170,000 d. P150,000
14. Tony was hit by a wayward bus while on his way home. He survived but had to pay P150,000 for
his hospitalization. He was unable to work for 6 months and did not receive her usual P10,000
monthly salary. He sued the bus company and was awarded by a final judgment a sum of P460,000:
P150,000 as reimbursement for his hospitalization, P60,000 for her lost salaries, and P250,000 as
moral damages for his pain and suffering. How much income did he realized when she collected
form the judgment?
a. P460,000 c. P60,000
b. P250,000 d. P400,000
15. Select the correct statement.
a. Termination benefits are exempt only once in a lifetime.
b. An employee must not have control on the basis of his termination in order for his termination
benefits to be taxable.
c. Separation benefit is exempt from tax if the employee is at the employ of his employer for at least
ten years whether on a straight or staggered basis.
d. Separation benefits are exempt if the termination if due to any cause beyond the control of the
employee.
16. During 2007, Mrs. Imelda Juanito retired from her job at Golden Manpower Services, Manpower
Services, Inc. in 1991, when she was 38 years old, until 2000; resigned in 2000 but returned to the
company’s employ in 2002. Golden Manpower Services, Inc. maintains a reasonable private benefit
plan which also approved by the BIR. This was her first time availment of retirement benefit
exemption. Is the benefit taxable?
a. Yes, because employment is not required to be continuous over 10 years
b. Yes, because employment need to be continuous over 10 years
C. No, because employment need to be continuous over 10 years
d. No, because all conditions have been complied with
17. After resigning in 2007, Mrs. Imelda Juanito immediately joined another company with a
reasonable pension plan but she was terminated in 2012 due to retrenchment. Is the separation pay
exempt?
a. No, because she did not meet the employment term requirement.
b. No, because she was previously exempted in her retirement.
c. Yes, because the underlying reason of her resignation was beyond her control
d. Yes, because she had satisfied the age requirement by this time.
18. The proceeds of insurance taken by a corporation on the life of an executive to indemnify it
against loss in case of his death is
a. Exempt from income tax
b. Part of taxable income
C. Subject to final tax
d. Partly exempt, partly taxable
19. Mrs. Lucena was insured under an endowment policy with a value of P500,000. Total premium
paid by her on the policy was P490,000 form which there was a dividend of P40,000. At the maturity
of the policy, Mrs. Lucena received P500,000. The income of Mrs. Lucena under the policy is
a. PO b. P 500,000 c. P 10,000 d. P 50,000
20. Mr. Santiago purchased a life annuity for P100,000 which will pay him P10,000 a year. The life
expectancy of Mr. Santiago is 12 years. Which of the following will Mr. Santiago be able to exclude
from his gross income?
a. P100,000 b. P10,000 c. P20,000 d. P120,000
21. Chorva, a taxpayer uses the GAAP direct write-off method in computing his income:
2009 2010
Operating income before bad debts P 100,000 P 400,000
Recovery - 50,000
Write-off (120,000) (40,000)
Operating income after write-off P20,000 P410,000
What is Chorva's taxable income in 2010 before personal exemptions?
a. P390,000 b. P420,000 c. P430,000 d. P440,000
22. Miss Cruz had recently joined the MMC as sales executive. She was advised to be retrenched
because the company was losing heavily, but that she would be given a substantial separation pay.
The general manager, however, suggested to Miss Cruz to file a letter of resignation from the
company, instead of having been involuntarily separated as the latter would have implications of
inefficiency on her part. Miss Cruz chose to resign from the company and received the sum of
P100,000 as separation pay. The above amount is
a. Exempt from income tax c. Non-deductible expense on the part of the company
b. Taxable in full d. Partially taxable
23. Raquel Montero was retired by her employer-corporation in 2006 and was paid P2,000,000 as a
retirement gratuity without any deduction of withholding tax. The corporation became bankrupt in
2007. Can the BIR subject the P2,000,000 retirement gratuity to income tax?
1st Answer: No, if the retirement gratuity was paid based on a reasonable pension plan where
Montero was 60 years old and has served the corporation for 9 years.
2nd Answer: Yes, if Montero was forced by the corporation to resign due to retrenchment.
a. Both answers are wrong.
b. Both answer are correct.
c. First answer is correct; the second answer is wrong.
d. First answer is wrong the second is correct.
24. ABC, Inc. reported the following income in 2010 using GAAP cash basis:
Professional fees P 600,000
Less: Expenses
2010 salaries of staff paid 120,000
Supplies expenses for 2010 40,000
Rental expense (1/2 relates to 2011) 80,000
Operating Income P 360,000
Unrealized gain on marketable equity securities 20,000
Net income P 380,000
Additional information:
a. Accrued salaries of staff at December 31, 2010, P20,000.
b. Accrued professional fees at December 31, 2010, P80,000
Compute the taxable income of the taxpayer using the cash basis of accounting
a. P400,000
b. P420,000
c. P460,000
d. P480,000
25. Compute the taxable income of the taxpayer using the accrual basis of accounting
a. P400,000
b. P420,000
c. P460,000
d. P480,000
26. In converting a GAAP accrual net income into taxable income, which of the following is added?
a. Interest income from deposit
b. Penalties and other non-deductible expenses
c. Unrealized gain on financial assets carried at fair value through profit or loss
d. Gains from sale of stock investments of a domestic corporation
27. Mr. A, a famer, had the following data for the year.
Sales of livestock and farm products raised P 270,000
Sales of Livestock and farm product purchased 160,000
Cost of raising livestock and farm products 190,000
Cost of livestock and farm products purchased and sold 140,000
Rental income of farm equipment 105,000
Inventory of livestock and farm products, January 1 110,000
Inventory of livestock and farm products, December 31 113,000
Using the cash method of accounting, the income is:
a. P205,000 b. P208,000 c. P395,000 d. P202,000
28. Using the accrual method of accounting, the income is
a. P205,000 b. P208,00 c. P395,000 d. P202,000
29. Alexander is a dealer of house and lot. The following relates to his sales during the year,
Lot A House and Lot
Sales P 400,000 P 800,000
Cost of goods purchased and sold 220,000 400,000
Uncollected accounts at year-end 300,000 400,000
Compute the gross income to be reported by Alexander if he preferred to use installment method
whenever practicable.
a. P245,000 b. P400,000 c. P445,000 d. P580,000
30. Mr. Monte bought a 2,000 square meter of and at a cost of P500,000. He leased the land to Mr.
D. Asuncion at an annual rental of P40,000. The term of the contract of lease was 15 years. The
contract of lease provide that Mr. Asuncion will construct a building on the land, which will belong to
the lessor at the end of the term of the lease or at the termination of the lease. The building was
constructed for a total cost of P400,000 an has an estimated useful life of 20 years which was the
basis of a straight-line method of depreciation. The remaining term of the lease when the building
was completed was 14 years.
Compute the income from the leasehold improvement using the outright method
a. P180,000 b. P160,000 c. P200,000 d. P120,000
31. Compute the yearly income assuming Mr. Monte will spread his income from leasehold over the
term of the lease contract
a. P42,000 b. P45,667 c. P48,571 d. P51,327
32. Compute the income of Mr. Monte assuming the contract of lease was terminated just after the
10th year due to the fault of the lessee.
a. P182,861 b. P160,000 c. P180,450 d. P183,231
33. Compute the deductible loss of the lessor assuming the leasehold improvement was destroyed
at the beginning of the 9th year of the lease contract
a. P59,997 b. P58,250 c. P59,342 d. P61,287
34. A taxpayer derived the following income during 2010:
Philippines Abroad
Compensation income, net of P500 SSS, P250 P 200,000
PhilHealth and P10,000 withholding tax
Rental of house to student boarders 400,000
Gross profit on sale of Bagoong 300,000 P 200,000
Interest income from bank deposit 18,000 27,000
Gain on sale of bonds with 5 year maturity 50,000
Prizes in a singing competition 80,000 120,000
Interest received from loan to an Overseas Contract Worker100,000
SSS Benefits received 20,000
Compute the total income to be reported assuming the taxpayer is a resident citizen.
a. b. c. d.
35. Compute the total income to be reported assuming the taxpayer is a non-resident citizen.
a. b c c
36. A corporate taxpayer reported the following in its 2009 income statement
Sales P 1,500,000
Cost of sales 1,000,000
Gross profit P 500,000
Less: Business expenses 200,000
Operating profit P 300,000
Interest income (P16,000 from bank deposit) 25,000,000
Dividend from a domestic corporation 18,000
Proceeds of life insurance of Company CEO 1,000,000
Awards in recognition of civic achievements 100,000
Gain on sale of investment in bonds 15,000
Net income P1,458,000
Compute the corporation's taxable income.
a. P324,000 b. P340,000 C. P424,000 d. P440,000
37. Jeff, a resident citizen, disclosed the following income before the applicable income taxes in
2010:
Dividends from domestic corporation P 200,000
Dividends from a resident corporation (85% of income in the 100,000
3 prior years from the Philippines)

Rent income 200,000

Dollar interest income from Bank of Tokyo, Japan (peso equivalent) 120,000
Dollar interest income in under the EFCDS 80,000
Compensation, net of 15% withholding tax, P2,000 SSS, P1,500 170,000
PhilHealth, P1,000 Pag-Ibig and P500 union dues

Professional fees, net of 10% withholding tax 90,000

Compute the total reportable income in 2010.
a P520,000 b. P620,000 c. P690,000 d. P720,000
Compute the total final taxes on certain passive income.
a. P26,000 b. P40,000 c. P66,000 d. P0
38. The following were received by a resident citizen employee, married, and with four qualified
dependent children for the year 2009: Salary (net of P20,000 withholding tax, P3,000 SSS
contribution; P2,000 union dues), P275,000; 13th month pay, P25,000; 14th month pay, P25,000.
How much was the taxable compensation income?
A. P 150,000 b. P160,000 c. P165,000 d. P170,000
39. A certain taxpayer had the following items of gross income in 2010:
Salary, gross of withholding tax P 480,000
Allowance 20,000
Thirteenth month pay 20,000
Christmas bonus 20,000
Reimbursement for transportation expense 5,000
Payroll deductions:
SSS contributions 4,000
PhilHealth contributions 3,000
Pag-Ibig contributions 2,400
Loan payment 20,000
Compute the total exclusions from gross income.
A. P39,400 b. P40,000 c. P48,400 d. P68,400
40. A resident citizen, 50-year old, with 3 qualified dependent children ask you to assist him in the
computation of his taxable income for the year 2010:
Gross professional income, net of 15% withholding tax P 850,000
Professional expenses 300,000
Retirement benefit received from his previous employer that 250,000
maintained a reasonable private benefit plan (he served the company for 12 years)
Lump sum benefits received from SSS 200,000
Prize in a sports tournament sponsored by a group of businessmen
promoting health products 50,000
Gain from sale of bonds (maturity period is 4 years) - held for 11 months 10,000
Yield from short-term bonds issued by a bank 20,000
Interest on long-term deposit with maturity period of 5 years 30,000
Philippine lotto winnings 500,000
Share in the net income of a business partnership 100,000
Compute the total amount of excluded or exempted income.
a. P 860,000 b. P900,000 C. P980,000 d. P1,020,000
Compute the total amount of taxable income, before personal exemptions, to be reported.
a. P675,000 b. P695,000 C.P730,000 d. P760,000
Compute the final withholding taxes on certain income.
a. P12,000 b. P20,000 c. P24,000 d. P32,000
41. A resident citizen, widower, with a dependent minor brother, had the following data on income
and expenses.
Gross business income P 500,000
Business expenses 200,00
Interest from savings deposit, BPI-Makati, Philippines 50,000
Prize in a literary contest he joined 100,000
Prize received for achievement in literature (did not join the contest) 10,000
Gain from sale of bonds (maturity is 6 years) 5,000
Separation pay form his former job (resigned) 250,000
Cash he inherited from his uncle 300,000
Proceeds of his wife's life insurance (irrevocable beneficiary) 1,000,000
Amount received as return of premium (premium paid, P150,000) 200,000
Tax informer's reward 500,000
Interest income from Government bonds 10,000
Winnings from illegal gambling 20,000
Compute the total amount of excluded or exempted income.
a. P1,260,000 b. P1,320,000 c. P1,465,000 d. P1,565,000
Compute the total final tax from certain income.
a. P84,000 b. P86,000 c. P92,000 d. P108,000
Compute the taxable net income subject to Section 24 (A)
a. P460,000
b. P520,000
C. P560,000
d. P610,000
42. The following data for the year 2010 of a resident rank-and-file employee who has four qualified
dependent children are made available:
Salary, net of P10,000 withholding tax, P2,400 SSS contributions,
P2,000 Philhealth contributions and P1,500 union dues P 206,000
13th month pay 18,000
Rice subsidy (P1,500 x 12) 18,000
Uniform and clothing allowance 5,000
Monetized unused vacation leave credits (12 days) 6,000
Actual medical benefit 15,000
Christmas gift 10,000
Laundry allowance (P400 x 12) 4,800
Separation pay from a previous employer (terminated due to redundancy) 150,000
150,000 Interest income from an 8-year deposit which was pre-terminated
(remaining maturity is 4 years) 40,000
Dividend from regional operating headquarter of a multinational
corporation in the Philippines 10,000
Compute the tax-exempt de minimis benefits.
a. P45,600 b. P42,000 c. P52,600 d. 45,800
Compute the total exclusions/exemptions (including de minimis benefits).
a. P221,500 b. P231,500 c. P241,500 d. 252,600
Compute the total final withholding taxes.
a. P4,000 b. P3,000 c. P2,000 d. 4,200
Compute the taxable compensation income.
a. P58,800 b. P60,800 c. P64,200 d. 67,200