Chapter 10

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 10: Basic Income Tax Patterns

86

CHAPTER 10
BASIC INCOME TAX PATTERNS

Problem 10 1 TRUE OR FALSE
1. True
2. False - General professional partnerships are tax-exempt.
3. False Not taxable income the Philippines because the passive income is earned outside
the Philippines.
4. True
5. False The excess of personal exemption over compensation income is to be deducted
from net income from business.
6. True
7. False Decrease by creditable taxes.
8. True
9. False passive income is not subject for deductions.
10. True
11. False There should be a combination of various income subject to the same tax rate
irrespective of personal exemption.
12. False Taxable only for income earned within.
13. False net income or income from operation.
14. False resident alien could also opt for OSD.
15. False Only P50,000. Siblings are not allowed for additional exemptions.
16. False could claim P150,000.

Problem 10 2
1. A 7. C
2. B 8. A
3. D 9. A
4. B 10. A
5. D 11. B
6. D 12. A

Problem 10 3 D
Gross compensation income (P167,500 +P22,500) P190,000
Less: Personal exemption single 50,000
Net taxable compensation income P140,000

Tax on P140,000 P22,500
Less: Withholding tax 22,500
Net tax payable P - 0 -

Problem 10 4 C
Gross compensation income P 90,000
Net business income (P200,000 x 60%) 120,000
Total net income before personal exemption P210,000
Less: Personal exemption 50,000
Net taxable income P160,000

Problem 10 5 B
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Net income for the first quarter (P50,000 + P60,000 + P70,000) P180,000
Less: Optional standard deduction (P180,000 x 40%) 72,000
Net taxable income first quarter P108,000

Note: No personal exemption yet is allowed to be deducted in the quarterly income tax. The
Personal exemption is to be deducted in the 4
th
quarter in the adjusted ITR.

Problem 10 6 D
Gross profit P1,000,000
Less: Operating expenses 400,000
Net taxable income P 600,000

Problem 10 7 D
Net taxable income (P5,500,000 P2,000,000) P3,500,000
Multiplied by corporate income tax rate 30%
Income tax due and payable P1,050,000
Less: Income tax paid 900,000
Net tax payable P 150,000

Problem 10 8 C
Minimum corporate income tax (P23,500,000 + P1,500,000) x 2%* P 500,000
Less: Income tax paid 500,000
Net tax refund P - 0 -

The minimum corporate income tax is greater than the normal tax.

Problem 10 9
Compensation P 250,000
Business income (P500,000 + P600,000) P1,100,000
Less: Business expenses (P200,000 + P300,000) 500,000 600,000
Dividend income earned outside the Philippines 100,000
Net taxable income before personal exemption P 950,000

Note: the dividend income within is subject to final withholding tax of 10%, and as such, is no
longer required to be reported in the annual tax return.

Problem 10 10
Compensation P 250,000
Business income P 500,000
Less: Business expenses 200,000 300,000
Net taxable income before personal exemption P 550,000

Note: the dividend income is subject to final withholding tax of 10%, and as such, is no longer
required to be reported in the annual tax return.

Problem 10 11
Business income P 500,000
Business expenses ( 200,000)
Net taxable income P 300,000

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Note: Foreign corporation is taxable only for income within. Dividend income earned within is
taxable in the Philippines but shall not be included as part of the annual ITR because such
dividend is subject of final tax.

Problem 10 12
Total salary income (P16,000 + P4,000) x 12 P240,000
First three quarters taxable business income (P300,000 + P90,000) 390,000
Last quarters net taxable business income 110,000
Total net income before personal exemption P740,000
Less: Personal exemption single 50,000
Net taxable income P690,000

Income tax on P500,000 P125,000
Income tax on excess (P190,000 x 32%) 60,800
Total income tax per ITR P185,800
Add: Final withholding tax on interest income 2,000
Annual income tax P187,800

Problem 10 13
Answers for 1 and 2 QUARTERS
First Second Third Fourth
Gross profit 40% of sales 200,000 240,000 160,000 360,000
Rent income 30,000 30,000 30,000 30,000
Total gross profit 230,000 270,000 180,000 390,000
Operating expenses before int. & cont. (120,000) (150,000) (100,000) (160,000)
Deductible interest expense* (5,050) (6,700) (10,050) (8,400)
Contribution deductible in full . (20,000) . (40,000)
Net taxable income 104,950 93,300 69,950 181,600
Multiplied by corp. income tax rate 30% 30% 30% 30%
Quarterly income tax due and payable 31,485 27,990 20,985 54,480

Interest expense 10,000 10,000 15,000 15,000
Less: Tax differential (int. income x 33%) 4,950 3,300 4,950 6,600
*Deductible interest expense 5,050 6,700 10,050 8,400

Answer for 3
Royalty income (P60,000 x 20%) P12,000
Interest income (P15,000 + P10,000 + P15,000 + P20,000) x 10% 12,000
Total passive income tax P24,000

Problem 10 14
Business income P 7,500,000
Itemized allowable deductions ( 4,000,000)
Capital gains 200,000
Passive income earned outside the Philippines 100,000
Net taxable income P 3,800,000
Multiplied by corporate income tax rate 30%
Income tax due P 1,140,000
Less: Total income taxes paid in the previous quarters P800,000
Income tax withheld per BIR form 2307 40,000 840,000
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Income tax still due and payable P 300,000

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

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