Income Tax Exam

UNIVERSITY OF THE CORDILLERAS
College of Accountancy
1st Term, AY 2018-2019
MIDTERM EXAMINATION
TAX (Income Taxation) 6:30-8:30 MON-THU
Professor: Alissa Luiz C. Costales, C.P.A.
General Instructions: Write your FINAL answers on the answer sheet provided. Good
luck!
 NO ERASURES ON THE ANSWER SHEET. You can write anything on the
questionnaire.
 USE CALCULATORS ONLY. Cellular phones are not allowed.
 STRICTLY FOLLOW INSTRUCTIONS, not following instructions will be marked
WRONG.
PART I. TRUE OR FALSE. Write TRUE if the statement is correct, FALSE if the statement is
incorrect.
1. Police power is the most superior power of the government.
2. The scope of taxation is regarded as comprehensive, plenary, unlimited and
supreme.
3. Elements of a valid tax includes: Tax must be for public purpose.
4. Tax as to incidence is classified as either National or Local Tax.
5. Increases in value of investments are not yet taxable.
6. A non-resident alien engaged in trade or business, is an alien who stayed in the
Philippines for an aggregate period of less than 183 days during the year.
7. The three taxation schemes are mutually inclusive in coverage.
8. The technique used to measure income is referred to as an accounting period.
The length of time over which income is reported is referred to as an accounting
method.
9. A dividend from Domestic Corporation received by an Individual is taxable
under final income taxation.
10. Corporations are subject to final income tax on prizes.
11. The 6% capital gains tax cannot apply unless there is a gain on the sale of real
property.
12. Gain on sale, exchange and other disposition of domestic stocks directly to
buyer is subject to 5% and 10% capital gains tax.
13. Rent is a passive income, but is not subject to final tax.
14. Generally, Items of passive royalty income are subject to final income tax while
items of active royalty income are subject to regular income tax.
15. Accrual basis and cash basis are the most common accounting method.
16. Advanced income is an item of gross income.
17. There are three types of gross income for taxation purposes.
18. The lifeblood doctrine requires the government to override its obligation and
contracts if necessary.
19. The government should tax itself.
20. Eminent domain involves confiscation of prohibited commodities to protect the
well-being of the people.
21. Taxpayers under the same circumstance should be taxes differently.
22. Under the withholding system, the taxpayer himself determines his income,
reports the same through income tax returns and pays the tax to the
government.
23. Vague tax laws are construed against the taxpayer, in favor of the government.
24. Horizontal equity requires consideration of the circumstances of the taxpayer.
25. The final withholding tax return shall be filed by the withholding agent on or
before the 15th day of the month the final taxes are withheld.
UC-VPAA-COA-TQS Page 1 1ofof4

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OCT. 2014 Rev. 00
PART II. IDENTIFICATION.
1. It refers to all income collections of the government.

2. One of the allocation theories which states the more benefit one receives, the more
taxes he/she pays.
3. It is a charge imposed prior to commencement of business or exercise of a profession.
4. It is an imposition intended to discourage an act.
5. It is charge for the use of other’s property.
6. A doctrine of taxation that states the scope and implementation covers only the present
and future transactions.
7. A tax system that emphasizes indirect taxes.
8. Under this collection system, the taxpayer himself determines his income, reports the
same through income tax return and pays the tax to the government.
9. This principle required that the sources of the government funds must be sufficient to
cover government costs.
10. This principle suggests that tax laws should be capable of efficient and effective
administration.
11. A doctrine of taxation that states a claim for refund may be allowed to be used as
payment for unsettled liabilities if both taxes arise from same transaction in which
overpayment was made and underpayment is due.
12. An act of the sovereign by taxing twice for the same purpose in the same year upon the
same property or activity of the same person.
13. An accounting method wherein the gross income is recognized and reported in
proportion to the collection from installment sales.
14. An accounting method wherein the gross income from the construction is reported
based on the percentage of completion of the construction project.
15. A type of gain which arises from sale, exchange and other dispositions of ordinary asset.
PART III. Indicate whether the statement related to Inherent Limitations (I) and
Constitutional Limitations (C). If not a limitation to the taxing power, indicate (N).
1. International courtesy.
2. Taxes may be levied for public purpose.
3. Non-impairment of the jurisdiction of the Supreme Court to review tax cases.
4. Territoriality of taxation.
5. Non-appropriation for public purpose.
6. Equal protection of the law.
7. Government entities are generally tax exempt.
8. Non-imprisonment for non-payment of debt or poll tax.
9. Taxation may not be delegated.
10. Free worship rule.
PART IV. PROBLEM SOLVING (INDEPENDENT CASES). (2 points each)
1. ABC Corp. realized the following gains or losses in selling various securities:
Gain on sale of domestic stocks P300,000
Par value of domestic stocks sold 200,000
Gain on sale of interest in a partnership 200,000
Gain on sale of stocks of foreign corporation 150,000
Compute for the CAPITAL GAINS TAX.
2. Baguio Car Dealer Corp., a car dealer, sold a machine with a cost of Php1,
200,000 on installment on January 1, 2017. BCDC received a Php200, 000 cash
down payment and a Php1, 800,000 promissory notes for the balance payable
in six installments of Php300, 000 every July 1 and January 1 thereafter. How
much should BCDC recognize as gross income for taxable year 2017?

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OCT. 2014 Rev. 00
3. Mr. Siegfried, a non-resident alien engaged in trade or business, received
P100, 000 dividend income from Vodka Inc., a domestic corporation. How
much final tax must have been withheld by Vodka Inc.?
4. On January 2, 2019, Tyrell a resident citizen, won the PCSO’s Ulta 6/58 Lotto
grand prize amounting to Php909,584,000.00. PCSO claimed that the cash prize
is “tax free”. How much final tax shall PCSO remit to BIR?
5. Golden Company declared a total of P3,000,000 dividends in March 2018. An analysis

of the recipient shareholders are as follows:
Compute for the final tax that Golden Company must withheld before issuing the
dividends.
PART V. SITUS OF TAXATION. Identify income items if it is earned in within or

outside Philippines.
Income Description WITHIN OUTSIDE
1. Red priestess earned P100,000

interest income. 50% of such were
from non-resident debtors 50,000.00 50,000.00
2. P500,000 rent income from

commercial complex located in the
USA leased to resident Filipinos - 500,000.00
3. P300,000 salary from resident
employer 300,000.00 -
4. Luwin, a resident citizen, works

home online as a tutor. He collected
P100,000 service fee from foreign
clients and P100,000 from resident
clients. 200,000.00 0
5. Dany earned P350,000 rent from
OFWs in his apartment in Saudi. He
also earned P40,000 rent from his
condo in Makati, Philippines. 40,000.00 350,000.00

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OCT. 2014 Rev. 00
PART VI. COMPREHENSIVE PROBLEM SOLVING. Answer what is being asked. Write your
final answers on the answer sheet provided. Show your solutions at the back page of
your answer sheet. (2 points each)
Ms. Sansa, a resident citizen, derived the following income in 2016:
Interest Income from deposits in Foreign Currency Depository Unit 15,260

Active Royalty from Abroad 32,900
Active Royalty from Philippines 85,600
Interest income from bank deposits (1 year), gross of tax 18,000
Royalty income from printed books 65,000
Passive Royalty income from the Philippines 46,000
Capital gains on personal car 30,000
Prize from Tawag ng Tanghalan sa showtime (Singing) 15,000
Lottery winnings from Canada 408,000
Dividend Income from a Domestic Corporation 69,000
Capital gains on sale of domestic stock directly to the buyer 98,000
Prize from dance competition 9,000
Dividend Income from a Foreign Corp. 16,000
Proceeds of a vacant lot (300sqm) 3,500,000
(assessed value 4,000,000; zonal value 11,500/sqm)
1. Compute for total passive income subject to FINAL INCOME TAXATION.

2. Compute for Final Tax.
3. Compute the capital gain/taxable gain subject to CAPITAL GAINS TAXATION.
4. Compute for Capital Gains Tax.
5. Compute for taxable income subject to REGULAR INCOME TAXATION.
Checked by:
Ms. Vanessa M. Roberto, CPA, MBA

Department Head, College of Accountancy
Noted by:
Ms. Jasmin May P. Baniaga, CPA, MBA

Dean, College of Accountancy

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OCT. 2014 Rev. 00

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UNIVERSITY OF THE CORDILLERAS

UC-VPAA-COA-TQS Page 1 1ofof4

1. It refers to all income collections of the government.

PART IV. PROBLEM SOLVING (INDEPENDENT CASES). (2 points each)

UC-VPAA-COA-TQS Page 2 1ofof4

5. Golden Company declared a total of P3,000,000 dividends in March 2018. An analysis

PART V. SITUS OF TAXATION. Identify income items if it is earned in within or

Income Description WITHIN OUTSIDE

1. Red priestess earned P100,000

2. P500,000 rent income from

4. Luwin, a resident citizen, works

UC-VPAA-COA-TQS Page 3 1ofof4

Ms. Sansa, a resident citizen, derived the following income in 2016:

Interest Income from deposits in Foreign Currency Depository Unit 15,260

1. Compute for total passive income subject to FINAL INCOME TAXATION.

Ms. Vanessa M. Roberto, CPA, MBA

Ms. Jasmin May P. Baniaga, CPA, MBA

UC-VPAA-COA-TQS Page 4 1ofof4

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