Jaypaul Ocampo Acidera, CPA 2016

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

CORPORATIONS Dela Cruz I De Vera / Lopez / Llamado

D I. ABC, a corporation registered in Norway, has a 501\4W electric power plant in San Jose, Batangas.
Aside from ABC's income from its power plant, which among the following is NOT considered as
part of its income from sources within the Philippines?
a. Gains from the sale to an Ilocos Norte power plant of generator bought from the United States.
b. Interests earned on its dollar deposits in a Philippine bank under the Expanded Foreign Currency
Deposit System. three
xxx
C . Dividends from a two-year old Norwegian subsidiary with operations in Zambia but derives 60%
of its gross income from the Philippines.
d. Royalties from the use in Brazil of generator sets designed in the Philippines by its engineers.

C 2. Aplets Corporation is registered under the laws of the Virgin Islands. It has extensive operations in
Southeast Asia. In the Philippines, its products are imported and sold at a mark-up by its exclusive
distributor, Kim's Trading, Inc. The BIR compiled a record of all the imports of Kim from Aplets and
imposed a tax on Aplets's net income derived from its exports to Kim. Is the BIR correct?
a. Yes. Apiets is a non-resident foreign corporation engaged in trade or business in the Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net income.
C . No Aplets is a non-resident foreign corporation not engaged in trade or business in the
Philippines.
d. Yes, Apiets is doing business in the Philippines through its exclusive distributor Kim's Trading
Inc.

B 3. ABC Inc., a corporation registered and holding office in Australia, not operating in the Philippines,
may be subject to Philippine income taxation on
a. Gains it derived from sale in Australia of an ore crusher it bought from the Philippines with the
proceeds converted to pesos.
b. Gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a
Philippine corporation.
c. Dividends earned from investment in a foreign corporation that derived 40% of its gross income
from Philippine sources.
cl. Interest derived from its dollar deposits in a Philippine bank under the Expanded Foreign
Currency Deposit System.

B 4. A corporation organized and created under the laws of a foreign country and is authorized to do
business/ trade in the Philippines is
a. Domestic corporation
b. Resident foreign corporation
C. Goverment owned and controlled corporation
d. Non-profit hospital

B 5. A domestic corporation which may be classified as either a resident corporation or non-resident

corporation is
a. Domestic corporation
b. Foreign corporation
C. Government owned and controlled corporation
d. Non-profit hospital

C 6, A domestic corporation may employ, as a basis for filing its annual corporate income tax return the
a, Calendar year only c. Either calendar or fiscal year
b. Fiscal year only cl. Neither calendar or fiscal year

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B 7. A corporation files a quarterly return within "

a. 30. days after the end of each of the first 3 quarters

b. 60 days after the end of each of the first 3 quarters
C' 30 days, after the end of each of the first 4 quarters
d. 60 days after the end of each of the first 4 quarters

D 8. A final or annual return is filed on or before the 15 th day of the

a. Month following the close of the taxable year
, b. 2nd month following the close of the taxable year.
C. 3rd month following the close of the taxable year
d. 4th month following the close ofthe taxable year

C 9. A corporation on a fiscal year ending March 31, should file its annual ret!um
a. On or before April 15 of the same year
b. On or before April 15 of the following year
C. On or before July 15 of the same year
d. On or before July 15 of the following year

B 10. One of the general principles of income taxation:

a. A foreign corporation engaged in business in the Philippines is taxable on all income derived from
sources within and without the Philippines. .
b. - A foreign corporation engaged in business in the Philippines is taxable on all income derived from
sources within the Philippines only
C . A domestic corporation is taxable on income derived from sources within the Philippines only
d A domestic corporation is taxable on income derived from sources without the Philippines only

D 11. One of the following does not fall under the definition of a "corporation" for income tax purpose:
a. General partnership
b. Joint stock company
C. Insurance compahy
d. Sole proprietorship

D 12. Which of the following is subject to the income tax?

a. A non-stock and non-profit educational institution
b. Public educational institution
C . Civic league or organization not organized for profit and operated exclusively for the promotion ofl
social welfare
d. Mutual savings bank and cooperative bank having a capital stock represented by shares organized
and .operated for mutual purposes and profit. _

B 13. Which of the following is classified as a special corporation subject to a preferential corporate income!
tax rate?
a. Social Security System
b. Proprietary Educational Institution
C . Philippine Charity Sweepstakes Office
cl. Government Services Insurance System -

A 14. The Philippine Health Insurance Corporation (Philhealth), a government owned corporation is:
a. Exempt from the corporate income tax.
b. Subject to the preferential corporate income tax for special corporatio
C . Subject to the basic corporate income tax
d. Subject to final tax J. O. A.
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D 15. Public educational institutions, like the University of the Philippines is deemed by law:
a. Subject to the preferential corporate income tax for special corporations.
b. Subject to the basic corporate income tax,
C . Subject to both the preferential income tax and the basic corporate income tax.
d. Exempt from the corporate income tax

C 16. Which is not correct'? The following are exempt from the corporate income tax:
a. Philippine Charity Sweepstakes Office
b. Bureau of Internal Revenue
C. Government owned or controlled corporation
d. Social Security System

C 17. Which of the following may be subject to the corporate income tax?
a. A non-stock and non-profit educational institution
b. A public educational institution
C. A private educational institution
d. Government Service Insurance System

D 18. The improperly accumulated earnings tax shall apply to

a. Publicly held corporation
b. Banks and other non-bank financial intemediaries
C . Insurance companies
d. Private corporations

A 19. Which of the following statements is not correct?

a. MCIT is not applicable to resident foreign corporations
b. The corporate quarterly return shall be filed within 60 days following the close of each of the first
three quarters of the taxable year.
C . Resident foreign corporations would be taxed on net income from within the Philippines only
d. Non-resident foreign corporations are taxed on gross income from within the Philippines

C 20. The following income are subject to final tax, except

a. Royalty income received by a domestic corporation from a domestic corporation.
b. Cash dividends received by a non-resident foreign corporation from a domestic corporation
C. Cash dividends received by a domestic corporation from a domestic corporation.
cl, Interest income received by resident foreign corporation from a Philippine bank.

D 21. The MCIT shall not apply to the following resident foreign corporations, except
a. RFC engaged in business as international carrit:r subject to 2 1/2 % of their Gross Philippine
Billings
b. RFC engaged in business as Offshore Banking Units on their income from foreign currency
transactions with local commercial banks.
C . RFC engaged in business as regional operating headquarters
d. RFC engaged in hotel, motel and resort operations

B 22. The president, upon recommendation of the Secretary of Finance, may allow corporations the option
to be taxed at 15% of gross income, after the following conditions, except one, have been satisfied.
Which is the exception?
a. A tax effort ratio of 20% of Gross National Product (GNP)
b. A ratio of 20% of income tax collection to total tax revenue
c. A vat tax effort of 4% of GNP
J. O. A.
d. A 0.9% ratio of consolidated public sector financial position to GNP

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D 23. Which of the following is not correct? The gross income tax
a. Is optional to a qualified corporation
b. Is available if the ratio of cost of sales to gross sales or receipts from all sources does not exceed
55%
C . Shall be irrevocable for three consecutive taxable years that the corporation is qualified under the
scheme
d. Is compared with the normal income tax and minimum corporate income tax

C 24. A Corporation declared and distributed to its stockholder shares of B Corporation. One of its
stockholders, W, received 100 shares of B Corporation shares as dividends. At the date of dividend
declaration, the fair market value of B Corporation shares was P120 per share and by the time W
received the dividend, the fair market value per share was P180. Which of the following is correct?
The dividend is
a. A stock dividend, hence exempt from tax
b. A property dividend, hence part of taxable income of W
c. A property dividend, hence subject to final tax based on its fair market value of P120 per share
d. A property dividend, hence subject to final tax based on its fair market value of P180 per share

D 25. If the gross income from unrelated activity exceeds 50% of the total gross income derived by any
private educational institution, the tax rate shall be the regular 30% based on the entire taxable
income. This is known as the
a. Constructive receipt
b. Tax benefit rule
C. End trust doctrine
d. Predominance test

B 26. All of the following statements are correct, except one. Which is the exception?
a. The source of interest income is the country where the debtor resides.
b. The source of dividend income is the country where the corporation was incorporated
c. Rents are considered derived from the country where the property is located.
d. Income from personal services is considered derived from the country where the services were
rendered

A 27. Statement I -- A gain from sale of shares of a domestic corporation shall be considered derived from
the Philippines regardless of where the shares were sold.
Statement 2 A gain from sale of shares of a foreign corporation shall be considered derived from
the country where the corporation was created or organized.
a. True, True
b. True, False
C . False, True
d. False, False

C 28. For income taxation purposes, the term "corporation" excludes one of the following:
a. Ordinary partnership
b. An incorporated business organization
C . General professional partnership
d. Business partnership

J. O. A.
29. A Corporation's record show:
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Normal Taxes Excess MCIT Excess

MCAT per
Quarter Income Tax Withheld per Prior Year Withholding
Quarter
er Quarter Quarter Tax Prior Year
First P 100,000 P 80,000 P20,000 P 30,000 P 10,000
Second 120,000 250,000 30,000
Third 250,000 100,000 40,000
Fourth 200,000 100,000 35,000

D The income tax due for the first quarter is

a. P 100,000
b. P80,000
C. P 50,000
d. P 40,000

D 30. The income tax due for the second quarter is

a. P 120,000 -
b. P250,000
c. P 150,000
d. P230,000

D 31. The income tax due for the third quarter is

a. P 250,000
b. P 100,000
c. P 140,000
d. P 70,000

D 32. The income tax due for the year is

a. P200,000
b. P 100,000
C. P 135,000
d. P 165,000

B 33. Using the preceding problem except that the normal income tax for the fourth quarter is P50,000
(instead of P200,000), the income tax due for the year is
a. P 120,000
b. P 55,000
C. P 45,000
P 75,000

B 34. CPA University, a proprietary educational institution organized in 2000, had the following data for
2012.
Tuition Fees P 850,000
Rental Income ( net of 5% cwt) 142,500
School related expenses 820,000
The income tax still due for 2012 is
a.P 54,000
b. P10,500
C. P18,000
d. P 46,500
J. O. A.

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C35. CPA College, a proprietary educational institution organized in 2000, had the following data for
2012.
Tuition Fees P480,000
Rental Income ( net of 5% cwt) 494,000
School related expenses 945,000
The income tax still due for 2012 is
a. P16,500
b. (P9,500)
C. (P6,000)
d. P 20,000

D36. CPA Airlines, a resident foreign international carrier has the following records of income for the
!
period. ( The income represents gross billings.)
a. Continuous flight from Manila to Tokyo = 1,000 tickets at P2,000 per ticket
b. Flight from Manila to Taipei; transfer flight (on CPAR Airlines) from Taipei to Tokyo = 2,000 :
tickets at P2,000 per ticket
C . Continuous flight from Manila to Taipei = 3,000 tickets at P1,000 per ticket
The income tax due is
a. P225,000
b. P 125,000
c. P 100,000
d. P175,000

37- 46. The A Corporation provided the following data for the calendar year ending December 31, 2012 .
($ 1 = P50)
Philippines Abroad
Gross Income P4,000,000 $40,000
Deductions P2,500,000 $15,000
Income Tax Paid $ 3,000

B37. If it is a domestic corporation, its income tax after tax credit is

a. P812,500
b. P 675,000
C. P 962,500
cl; P480,000

B38. If it is a resident corporation, its income tax is

a. P730,000
b. P 450,000
C. P 480,000
d. P 525,000

C 39. If it is a non-resident corporation, its income tax is

a. P 730,000
b. P 1,280,000
C. P 1,200,000
d. P1,400,000

D 40. Under No 37, but it opts to claim the tax paid abroad as deduction from gross income, its income tax
is
a. P910,000 c. P237,000 J. O. A.
b. P832,000 d. P780,000
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A 41. If it is a resident international carrier, its income tax is

a. P100,000
b. P 10,000
C .. P 37,000
d. P125,000

A 42. If it is a non-resident cinematographic film owner/lessor, its income tax is

a. P1,000,000
b. P 100,000
C . P 300,000
d P 128,000

B 43. If it is a non-resident lessor of vessels, its income tax is

a. P100,000
b. P180,000
C, P300,000
d. P128,000

C 44. If it is a non-resident lessor of aircrafts, machineries and equipments, its income tax is
a. P100,000
b. P180,000
c. P300,000
d. P128,000

D 45. If it is a resident foreign corporation but its expenses within and outside the Philippines is P3m,
unallocated (disregard original data on expense) its income tax is
a. P640,000
b. P700,000
C. P480,000
d. P600,000

C 46. If it is a resident corporation and it remitted 60% of its net profit to its head office abroad, its total tax
liability is (Original data)
a. P480,000
b. P571,800
C . P544,500
d. P612,750

D 47. A Corporation, a resident foreign corporation, provided the following data for taxable year 2012
Ettkipaking USA
Gross Income P4OM P2OM
Dividend from:
Domestic corporation 5M
Foreign corporation (connected with the
conduct of its business in the Phils.) 4M
Business expenses 12M 8M
The corporation remitted to its head office the P5M dividend income and 40% of its net profit to its
head office in USA. The corporation's total tax liability including the tax on the profit remitted is
a. P10,240,000 c. P12,960,000
b. P12,448,000 d. P10,944,000 J. O. A.

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A 48. A Corporation has the following data for the year 2011
Gross Income, Philippines P1,000,000
Gross income, USA 500,000
Gross income, Japan 500,000
Expenses, Philippines 300,000
Expenses, USA 200,000
Expenses, Japan 100,000

Other Income:
Dividend from San Miguel Corp. 70,000
Dividend from Ford Motors, USA 120,000
Gain, sale of San Miguel shares directly to buyer 150,000
Royalties, Philippines 50,000
Royalties, USA 100,000
Interest (other than from banks) 60,000
Rent, land in USA 250,000
Other rent income 100,000
Prize, contest in Manila 200,000

The total tax liability as a domestic corporation is:

a. P689,000 e. P679,750
b. P669,000 d. P699,500

B49. Based on the above problem, its total tax liability if it is resident foreign corporation is
a. P318,000
b. P338,000
C. P328,750
d. P348,520

B50. And if it is a non-resident foreign corporation, its total tax liability is

a. P433,500
b. P443,500
c. P338,500
d. P353,500

51. ABC, is a domestic corporation engaged in the merchandising business. For the calendar year 2014, i t
had a net income per books of P500,000, after considering, among others, the following:

a) Dividend received from a domestic corporation P30,000

b) Provision for doubtful accounts 10,000
c) Dividend received from a foreign corporation 20,000
d) Portion of P150,000 advance rental already earned 100,000
e) Recovery of receivables previously written off (included as part of net income
above)

i) Allowed by the BIR as deduction 10,000

ii) Disallowed by the BIR as deduction 30,000
f) Refund of taxes (included as part of net income above): ,

i) Allowed by the BIR as deduction 25,000

ii) Disallowed by the BIR as deduction 15,000
g) Bank interest income:
i) Philippine Bank 80,000
ii) USA Bank J. O. A.
100,000

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D The taxable net income is
a. P485,000
b. P365,000
C. P375,000
d. P405,000

D 52. The net operating loss incurred in a taxable year during which the taxpayer was exempt from income
tax shall
a. Be carried over as a deduction from gross income for the next taxable year
b. Be carried over as a deduction from gross income for the next 3 consecutive taxable years
C. Be carried over as a deduction from gross income for the next 5 consecutive taxable years
d. Not be allowed as a deduction for the next taxable year

C 53. Any income from transactions with depository banks under the expanded foreign currency deposit
system shall be exempt from income tax if derived by a
a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
d. Resident alien

B 54. Selected cumulative balances were taken from the record of ABC Co., a domestic corporation, in its
fifth year of operations in 2015, which had an income tax refundable of P10,000 for a preceding year
for which there is a certificate of tax credit:
9.. q. a4
Gross profit from sale P800,000 P1,600,000 P2,400,000 P3,100,000
Capital gain on sale directly 50,000 50,000 50,000 100,000
to buyer of shares of domestic
corporation
Dividend from domestic 10,000 10,000 20,000 20,000
corporation
Interest income on Philippine 5,000 10,000 15,000 20,000
Peso bank deposits ....... ...._.
Business expenses 6 00,000 1,200,000 . 1,700,000 2,100,000
Income tax withheld 15,000 35,000 65,000 115,000

If the corporation uses the calendar year, the annual income tax return is due on
a. April 15, 2016
b. April 15, 2016
C. July 15, 2016
d. July 15, 2015

C 55. The income tax due at the end of first quarter

a. P39,000
b. P45,000
C. P35,000
d. P60,000

C 56. The income tax due at the end of second quarter

a. P 50,000
b. P70,000
C. P40,000
J. O. A.
d. P85,000
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B 57. The income tax due at the end of third quarter
a. P70,000
b. P60,000
C. P75,000
cl. P80,000

D 58. The income tax due (refundable) at the end of the year
a. P52,000
b. P50,000
C, P30,000
d. P40,000

B 59. A domestic corporation has the following data for 2012:

Excess MCIT 2011 - P10,000
12.1 0.
Income, net of 1% withholding tax P495,000 P792,000
Deductions 480,000 700,000
How much is the income tax still due and payable in the second quarter?
a. P 4,000
b. P8,000
C. P9,000
d. P13,000

B 60. The record of a closely-held domestic corporation show the following data for 2014:
Gross income P1,500,000
Business expenses 600,000
Gain on sale of business asset 60,000
Interest on deposits with Metrobank, net of tax 5,000
Sale of shares of stocks, not listed and traded:
, 150,000
Selling price
Cost 115,000
Dividends from Victory Corporation, domestic 35,000
Dividends paid during the year 120,000
Reserved for building acquisition 300,000

In 2013, the corporation suffered an operating loss of P130,000. This amount was earned forward and
claimed as deduction from gross income 2014. The income tax due in 2014 is
a. P234,375
b. P249,000
C . P273,937
d. P288,000

D 61. The improperly accumulaced earnings tax

a. P48,640
b. P34,765
C. P35,640
d. P36,425
J. O. A.

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C 62. A domestic corporation organized in 1998 provided the following information:

2006 2007 2008 2009 2010

Net Sales P4,000,000 P5,000,000 P6,000,000 P7,000,000 P9,000,000
Cost of Sales 2,000,000 3,500,000 4,200,000 5,000,000 5,200,000
Business Expenses 1,900,000 1,550,000 1,820,000 2,100,000 2,300,000

The income tax due for 2006 is

a. P35,000
b. P30,000
c. P40,000
d. P32,000 ,

A 63. The income tax due for 2010 is

a. P293,000
b. P399,000
C. P344,000
d. P450,000

64-68. The records of a domestic corporation organized in 2000 show:

2012 2013 2014

Gross income P2,000,000 P3,000,000 P4,000,000
Other income:
Capital gain from sale of commercial land 400,000 500,000
Interest income from bank deposit 80,000 96,000
Capital gain from sale of shares of stock not 60,000 70,000
listed

Allowable deduction 1,940,000 3,100,000 3,500,000

B 64. The income tax payable in 2012 is

a. P138,000
b. P 40,000
c. P 42,000
d. P 18,000

A 65. What is the accounting treatment for the excess MCIT in 2012?
a) Provision for income tax N 8,000
Deferred charges MCIT (2012) 22,000
. Income tax payable P40,000
b) MCIT (2012) N8,000
Income tax payable P18,000
) Income tax payable P40,000
Excess MCIT (2012) P22,000
Cash 18,000
J. O. A.
d None of the above
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A 66. The taxable income in 2014 is

a. P400,000
b. P900,000
C. P1,000,000
d. P500,000

C 67. The income tax payable in 2014 is

a. P150,000 . . -
b. P120,000
C. P38,000
d. P68,000 ; -

A 68. What are the accounting entries to properly recordlthe income tax payable in 2014? .


a. Provision for income tax N20,000
Deferred charges MCIT (012,2013) P82,000
Income tax payable . 3,8,000

b. Provision for income tax P38,000

Income tax payable ; I4 8,000 .
i
:I
C. Income tax payable P120,000
Cash v P120,000

d. None of the above ,

69-70. The records of ABC Corporation, organized in 2004 showed the following data for 2014.

Gross Income V P2,000,000

Less: Allowable business expenses
(other than bad debts) P1,850,000
Bad debts written off 100 000 1 950 000
Taxable net income P 50,000

In 2015, 80% of the bad debts written off in 2014 was collected

A 69. The income tax due in V 2014 is

a. P40,000 .
b. P45,000
C, P15,000
d. P25,000

C 70. In 2015, which of the following statement is correct?

a. There is a deficiency income tax of P24,000 for 2014
b. The taxable net income should be corrected to P130,000
c. There is a taxable recovery amounting to 1-$)8-moo_ in 2015
d. The bad debts expense in 2014 should be reduced to P20,000

END

J. O. A.

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