EXAM DRILL PROBLEMS (Chapter 3 and 4)

1. In particular, income is taxed because

a. When a person receive an income, it received a benefit from the government
b. Other sources of government revenues may not be sufficient to shoulder government expenditures
c. It represents the primary source of government revenue aside from business tax
d. It represents the best indicator of one’s ability to pay
2. Gross income means
a. The pertinent item of income that is subject to progressive rates.
b. The pertinent item of income that is subject to final tax rates.
c. Income that can be subject to income taxation.
d. Income that are actually realized in cash or property.
3. ABC Company received a P1,000,000 cash remittance from its sister company, DEF Company, to be
remitted to its home office HIJ Company. Which statement is correct concerning the taxation of this
item?
a. Not taxable since the item represents a return of capital.
b. Taxable since it is realized by ABC Company by means of an actual receipt.
c. Not taxable since the item, although a received in cash, did not redound to the benefit of ABC
Company.
d. Taxable since taxation is the rule, exemption is the exception.
4. THE Corporation declared dividends to its 100,000 outstanding P10-par ordinary share at P2 per share.
ABC bought its 10,000 ordinary share investment in THE Corporation for P15 per share. ABC have
already received cumulative dividends of P140,000. Which statement is correct?
a. Only P10,000 of the dividends will be subject to income tax since it represents excess over cost (i.e.
return on capital)
b. The P20,000 dividends will be subject to tax since both return of or on capital is subject to tax
c. The P20,000 dividends will be subject to tax because it represents a return on capital.
d. Only P10,000 of the dividends will be subject to income tax since it is the benefit actually realized.
5. Which is not subject to income taxation?
a. Income from properties received from donations and inheritance
b. Proceeds of crop insurance
c. Damage recovered from patent infringement suit
d. Revenues of non-profit educational institutions
6. Which is subject to income tax?
a. Compensation for personal injuries
b. Investment income of foreign government in the Philippines
c. Income of resident aliens abroad
d. Business income from jueteng and sale of coccaine
7. Which is an item of gross income?
a. Tariff collected by the Bureau of Customs
b. License fees collected by the Professional Regulation Commission
c. Income of a government-owned and controlled corporations
d. Tithes received by religious organizations
8. Alexander is a foreign currency speculator. He currently held $100,000 dollar purchased by him at
P40/$1. At the close of his business on December 31, 2008, a dollar was selling P50. Which statement is
correct?
a. The appreciation will be subject to tax since transaction in currencies is presumed to be a realized
benefit.
 b. The appreciation will not be subject to tax since it is not a realized benefit.
c. The appreciation will not be subject to tax since it is merely a return of capital.
d. The appreciation will be subject to tax since it will be reported in accounting income. The NIRC
provides that the methods of accounting of the taxpayer shall be followed in determining the taxable
income.
9. Which of the following represents an item of gross income?
a. Revaluation surplus on building c. Appreciation in the value of land
b. Local tax refund d. Return of premium in a life insurance policy

10. Which is not an item of gross income?

a. Interest on a bank deposit c. Winnings
b. Interest on a notes receivable d. PhilHealth benefits
11. Which cannot be subjected to income tax?
a. Exemplary damages c. Damages awarded from a patent infringement suit
b. Proceeds of crop insurance d. Lotto winnings
12. All of the following cannot be subject to income tax, except?
a. Proceeds of life insurance of a director received by the corporation as beneficiary
b. Excess of the proceeds of the life insurance over premium paid by the taxpayer
c. Moral damages
d. Tuition fee earned by Benguet State University
13. Toma Sengla Tumba is an organized non-stock, non-profit fraternal organization. In order to fund its
summer activity, Bassagulero, its members purchased and sold souvenir merchandise to local tourists.
The total profit generated by the fund raising activity was P200,000. The members further contributed
P100,000 as additional funding for the activity. Which statement is correct?
a. All receipts of Toma Sengla Tumba are subject to income tax.
b. Only the P100,000 membership contribution is subject to income tax.
c. All receipts of Toma Sengla Tumba are exempt from income tax.
d. Only the P200,000 fund raising profit is subject to income tax.
14. Under the NIRC, income is received not only when it is actually or physically transferred to a person but
even when it is merely constructively received by him. An example of income constructively received is
a. Rental payments refused by the lessosr, when the lessee tendered payment and the latter made a
judicial deposit of the rental due.
b. Interest coupons not yet due and payable.
c. Interest on savings deposit not yet credited to the account of the depositor.
d. Advanced deposit made by the lessee.
15. Which of the following is considered or construed as an example of constructive receipt?
a. Retirement benefits, pension, gratuities.
b. Fees paid to a public officials.
c. Interest coupons that have matured and are payable but have not been cashed.
d. Deposits for rentals to answer for damages, restricted as to use.
16. Which is not subject to final tax?
a. Winnings not exceeding P10,000 c. Dividends from a resident corporation
b. Royalties d. Interest from deposit substitute
17. Which is a correct statement?
a. An item of income by an individual that is subject to final tax can still be subject to progressive rates.
b. Final tax rules do not apply with corporations since they are taxed under a globalized scheme.
 c. In case of individuals, an item of income that is subject to final tax cannot be subjected to
progressive tax.
d. An item of income of an individual that is exempted by final tax is always taxable under progressive
tax.
18. Under individual income taxation, which is subject to progressive rates?
a. Cash reward for tax informers c. Book royalties
b. P10,000 prizes d. Share in the net profit of a general professional
partnership
19. All of the following income is considered earned within, except one. Choose the exception.
a. Interest income from notes issued by a non-resident alien
b. Dividends paid by a non-resident foreign corporation
c. Management advisory fee earned from a foreign client abroad
d. Dividends declared by a domestic corporation received a non-resident alien investor
SITUS APPLICATIONS
20. THY, a resident foreign corporation, declared P500,000 dividends on July 1, 2008, to its 100,000
outstanding ordinary shares. Becky holds 20,000 of THY’s ordinary shares. The corporation has just
started operation 3 years ago and has significant Philippine operation since its start-up. Details of the
gross income of THY is shown below:
Gross Income: 2005 2007 2008
Philippines P 1,200,000 P 4,000,000 P 6,000,000
Abroad 2,800,000 2,000,000 4,000,000

How much of the dividends received by Becky is considered earned within the Philippines and the
pertinent tax scheme that would apply?
a. P56,000; final tax c. P52,000; final tax
b. PP56,000; progressive tax d. P52,000; progressive tax
21. A resident alien rendered professional advisory services to foreign businesses earning him P2,000,000
professional fees. The professional fee is
a. exempt from the Philippines. c. taxable both in the Philippines and abroad.
b. taxable from the Philippines. d. neither taxable in the Philippines nor abroad.
22. Which income is considered purely earned in abroad?
a. A merchandise purchased abroad and sold in the Philippines
b. A merchandise purchased in the Philippines and sold abroad
c. A merchandise manufactured in the Philippines and sold abroad
d. A merchandise manufactured abroad and sold in the Philippines
23. When real property is sold at a gain, the situs of taxation is
a. the residence of the owner. c. the place where the deed of sale is executed.
b. the residence of the buyer. d. the place where the property is located.
24. Darrel Asuncion, a resident citizen, owned a commercial building in Las Vegas. The building was
currently leased to a resident Pilipino who pays P50,000,000 rental annually. The rent is considered
a. earned abroad. c. earned within the Philippines.
b. earned in the Philippines. d. partly within and partly outside the Philippines.
25. An Indian citizen who married a beautiful Filipina wife owns a building in the United States and leases
the same to businesses owned by Filipino residents. The Indian national has his residence in the
Philippines and all his children are studying in elite Philippine universities. Which is true?
a. The rental income of the Indian national is taxable in the Philippines because he had his residence in
the Philippines.
 b. The rental income of the Indian national is taxable in the Philippines because he married a beautiful
Filipina wife and his family is resident in the Philippines.
c. The rental income of the Indian national is taxable in the Philippines because he derives his income
from Filipino resident lessees.
d. The rental income of the Indian national is exempt in the Philippines because the property is located
abroad.
26. Benzon, a non-resident alien, invests in the capital stock of a domestic corporation. Benzon subsequently
sold this to another non-resident alien at a gain of P20,000. Which is true?
a. The income is taxable in the Philippines because domestic securities are by situs rules situated herein.
b. The income is exempt in the Philippines because the place of sale applies with sale of personal
property.
c. The income is exempt in the Philippines because the resident of the seller applies with sale of
personal property.
d. The income is exempt in the Philippines because both non-residents are involved in the transaction.
INCOME TAXPAYERS
27. Which is not an income taxpayer?
a. Business partnership c. Non-resident alien
b. Non-resident foreign corporation d. General professional partnership
28. Which of the following individual taxpayers is not covered by progressive tax?
a. Resident citizen c. Non-resident alien engaged in trade or business
b. Resident alien d. Non-resident alien not engaged in trade or business
29. The following are not separate income taxpayer, except?
a. Revocable trusts
b. Non-resident alien, not engaged in business
c. Estates under extrajudicial settlements
d. Joint ventures engaged in construction projects or energy operations in pursuant to an operating
consortium agreement under service contract with the government
e. Co-ownership
30. A business partnership that is organized in the Philippines but dominantly operates abroad is classified
under the NIRC as a
a. domestic corporation c. non-resident corporation
b. resident corporation d. absentee corporation
31. A corporation doing business in the Philippines but is not organized according to Philippine laws is
classified as
a. domestic corporation c. non-resident corporation engaged in business
b. resident corporation d. non-resident foreign corporation
32. All of the following taxpayers are taxable even on income earned outside the Philippines, except
a. Domestic corporation c. Resident alien
b. Resident citizen d. None of these
33. All of the following are taxable only on income earned within the Philippines, except
a. Resident alien c. Non-resident alien
b. Resident citizen d. Non-resident citizen
34. An alien who arrived in the Philippines during the year and showed proof to the satisfaction of the CIR
regarding his employment in the Philippines for an extended period of time.
a. Resident alien c. Non-resident citizen engaged in trade or business
b. Resident citizen d. Non-resident citizen not engaged in trade or business
35. In default of intention, an alien who is resident in the Philippines for 6 months is considered a
a. Resident alien c. Non-resident citizen engaged in trade or business
 b. Resident citizen d. Non-resident citizen not engaged in trade or business
36. A resident alien naturalized in accordance with law
a. Resident alien c. Non-resident citizen
b. Resident citizen d. Non-resident alien engaged in trade or business
TAX ACCOUNTING PERIODS AND METHODS
37. Which is incorrect? The calendar year accounting period is applicable to
a. individual income taxpayers only
b. taxpayers who do not keep book or with no annual accounting period
c. taxpayers with other than fiscal accounting period
d. individuals and corporations
38. Which is correct? The fiscal accounting period is applicable only to
a. domestic corporations. c. corporations and individuals by election.
b. resident corporations. d. Any taxpayers who are not individuals.
39. A short accounting period may arise under the following scenarios, except one. Select the exception?
a. When a taxpayer dies.
b. When a business is dissolved.
c. When the Commissioner of Internal Revenue terminates the taxpayer’s accounting period.
d. When an individual taxpayer changes his accounting period to a fiscal year.
40. DEF Corporation changed its accounting period from a calendar year to a fiscal year ending every March
31. DEF Corporation should file its annual income tax return not late than
a. April 15 c. June 15
b. August 15 d. July 15
41. Bee Jay, a resident citizen, changed its accounting period for internal reporting purposes from a calendar
year to a fiscal year ending every June 30 after a significant change in the nature of his business. Bee Jay
should file its annual income tax not later than
a. June 30 b. September 15 c. October 15 d. April 15
42. Gross income is reported partially in each taxable year in proportion to collections made in such period
as it bears to the total contract price refer to
a. Crop year basis method c. Percentage of completion basis method
b. Accrual method d. Installment sales method
43. Which is incorrect regarding a change in accounting period by non-individual taxpayers?
a. IF the change is from fiscal year to calendar year, a separate final or adjustment return shall be made
for the period between the close of the last fiscal year for which return was made and the following
December 31
b. If the change is from calendar year to fiscal year, a separate final or adjustment return shall be made
for the period between the close of the last calendar year for which return was made and the date
designated as the close of the fiscal year
c. If the change is from one fiscal year to another fiscal year, a separate final or adjustment return shall
be made for the period between the close of the former fiscal year and the date designated as the
close of the new fiscal year
d. If the change is from fiscal year to a calendar year, a separate final or adjustment return shall be made
for the period between the close of the last calendar year and the last fiscal year
44. Starting August, 2008, ABC Corporation changed its accounting period from a fiscal year ending every
June 30 to the calendar year. Which statement is correct?
a. ABC Corporation should file an adjustment return on April 15, 2009 covering the period of July 1,
2008 to December 31, 2008.
b. ABC Corporation should file an adjusted return on April 15, 2009 covering the period of August 1,
2008 to December 31, 2008.
 c. ABC Corporation should file an adjustment return on October 15 covering the period of January 1,
2008 to June 30, 2008
d. ABC Corporation need not file an income tax return until April 15, 2009
45. Effective February 2008, DEF Corporation changed its accounting period from a fiscal year ending every
January 31 to another fiscal year ending every August 31. Which is correct?
a. DEF Corporation should file an adjustment return covering the period covering August 31, 2007 to
August 31, 2008.
b. DEF Corporation should file an adjustment return covering the period January 1, 2008 to August 31,
2008
c. DEF Corporation should file an adjustment return covering the period of February 1, 2008 to
August 31, 2008.
d. DEF Corporation should file an adjustment return covering the period of August 31, 2008 to
December 31, 2008.
46. Which is correct?
a. The installment method of reporting income is applicable only to dealers in property.
b. The installment method can be availed only by any taxpayer when the initial payment do not exceed
25% of the selling price of the property sold.
c. The casual sale of personal property cannot avail of the installment method if the selling price is
below P1,000
d. Dealers in real properties can always avail of the installment method.
47. On July 1, 2008, Eliazar sold a real property for P600,000. 10% down-payment is due upon signing of the
contract of sale. The balance is payable as follows: 15% December 31, 2008; 50% March 31, 2009; 35%
July 31, 2009
Since the property is classified as ordinary asset only the gain of P300,000 is subject to progressive tax.
How much of the gain is taxable in 2008?
a. P0 b. P6,000 c. P300,000 d. P70,500
48. The following accounts relates to book of Zeus, a dealer of household appliances:
12/31/2006 12/31/2007
Installment sales P 1,000,000 P 2,000,000
Cost of installment sales 500,000 1,100,000
2007 Installment receivables - 500,000
2006 Installment receivables 300,000 50,000

How much taxable gain is to be reported in 2007?

a. P1,750,000 b. P800,000 c. P675,000 d. P900,000
49. Which is incorrect regarding change in accounting methods?
a. If the taxpayer changes from accrual to installment basis, he should include the amounts received
from sales or other dispositions of property made in any prior year in the computation of his income
for the year of change or any subsequent year.
b. Any change in accounting method or accounting period require the BIR’s approval
c. If a taxpayer adopted the cash basis and the accrual basis in computing income earned on separate
trade or business, he may opt to combine the two income determined from the respective methods
as a consolidated income for tax purposes
d. If the taxpayer changes from accrual to installment basis, he should include only receipts that relates
to current sales or dispositions
50. On October 1, 2008, Vicky sold one of her business establishment (ordinary asset). The land and building
cost Vicky P10,000,000 and was sold for P14,000,000. P500,000 was paid upon the signing of the
contract. The establishment is subject to P11,000,000 real mortgage and is to be assumed by the buyer.
Compute the amount taxable gain to be reported in 2008.
 a. P500,000 b. P5,000,000 c. P4,000,000 d. P625,000
51. On December 31, 2008, Carlo received P100,000 notes due April 1, 2009 as payment for his business
advisory services from his client. The notes can be discounted at various bank at P96,000. Under deferred
payment method, how much is taxable in 2008 and in 2009?
a. P100,000; P0 c. P4,000; P96,000
b. P96,000; P4,000 d. P0; P100,000
52. The following computations were shown by the taxpayer as support of his GAAP income under the
accrual basis:
Gross profit from cash and credit sales P 500,000
Rental Income:
Cash rentals received P 300,000
Unearned rent, beginning 100,000
Unearned rent, end ( 50,000 ) 350,000
Other Income: P 850,000
Unrealized gain on trading securities 50,000
Total Income P 900,000
Determine the income for taxation purposes.
a. P800,000 b. P500,000 c. P900,000 d. P950,000
53. Mr. Mario was alleged to have under-declared his income during the previous year. An examiner
conducted an evaluation of Mr. Mario based on his statement of assets and liabilities. The following
information were available:
Declared asset, beginning of the year P 400,000
Discovered undeclared assets existing at the beginning of the year 500,000
Declared liabilities, beginning* 200,000
Ending assets as evaluated, inclusive of discovered undeclared assets 1,000,000
Ending liabilities as evaluated 150,000
*40% was discovered unsupported and apparently fictitious
In the same period, Mr. Mario donated a parcel of land out of its declared asset with a declared value of
P200,000. Mr. Mario also presented a lists of his personal and family expenditures aggregating P150,000
during that year. Using the net worth method, what is Mr. Mario’s possible income?
a. P70,000 b. P270,000 c. P420,000 d. P220,000
54. Income tax return may be filed on the following, except
a. Authorized agent bank c. Authorized City or Municipal Treasurer
b. Collection agent of the BIR d. Barangay treasurer of the taxpayer’s residence

FINAL TAXATION EXAM DRILL QUESTIONS (Chapter 5)

1. Which is not subject to final tax?

a. Gain on sale of shares of stock directly to buyer
b. Royalties from musical composition
c. Capital gain on sale of real property classified as capital asset
d. Share of a partner in the distributive net income after tax of a business partnership
2. Which is subject to final tax?
a. Share of the distribute net income of a general professional partnership
b. Winnings not exceeding P10,000
c. Prizes not exceeding P10,000
d. Interest income from foreign bank deposits
3. Which of the following passive income is taxed on an annual and net basis?
a. Capital gain on sale of domestic stocks directly to buyer
b. Capital gain on sale of domestic stocks through the Philippine Stock Exchange
c. Capital gain on sale of real property classified as capital asset
d. Capital gain on sale of real property classified as ordinary asset
4. Capital gain on the sale of which capital asset below is conclusively presumed
a. Real property used in business c. Personal property not used in business
b. Real property not used in business d. Personal property used in business
5. The passive income that is subject to a two-tiered final tax structure is
a. Capital gain on sale of stocks of a resident foreign corporation directly to buyer
b. Capital gain on the sale of capital interest in a partnership
c. Capital gain on sale of sale of real property not used in business
d. Capital gain on the sale of stocks of a domestic corporation directly to buyer
6. Which is taxed at the lowest final tax rate among the following passive income?
a. Interest income received from a depositary bank under the expanded foreign currency deposit system
received by a resident citizen
b. Cash dividend from a domestic corporation
c. Royalties from books and other literary works
d. Interest income from long-term deposit with maturity of over five years
7. All of the following are subject to 7 ½% final tax on interest on FCDU Deposit, except
a. Resident citizen c. Domestic corporation
b. Non-resident citizen d. Resident corporation
c. Resident alien
8. Dividends received by which of the following is not subject to dividend tax?
a. Resident individual c. Resident corporation
b. General professional partnership d. Non-resident foreign corporation
9. Ambiong Bank of Baguio started operation in 1995 with the following information on results of
operation and dividend declarations.
Year Net income Dividends declared
1996 P 500,000 -
1997 1,500,000 -
1998 2,000,000 -
1999 1,000,000 -
2000 2,500,000 P 6,500,000
How much tax must have been paid in the 2000 dividend declaration of Ambiong Bank?
a. P650,000 b. P390,000 c. P450,000 d. P0
10. The prizes on the following award or competition is generally taxable
a. Prize in a chess competition sponsored by an organization sanctioned by the Philippine Olympic
Committee.
b. “Most Charitable Person of the Year”
c. “Nobel Prize Winner”
d. Pageant competition
11. Interest income from foreign currency deposits made abroad by a resident citizen is subject to
a. 20% final tax b. 7 ½% final tax c. 4 ½% final tax d. regular tax
12. Royalties on musical composition is subject to
a. 20% final tax b. 10% final tax c. 0% final tax d. regular tax
13. The interest income on long-term deposit that is pre-terminated on the third year is subject to
a. 0% b. 12% c. 20% d. 5%
14. Armando is a partner in a business partnership. At the end of 2010, he has a total of P300,000 profit
sharing on the after tax income of the partnership inclusive of P120,000 salaries as a managing partner.
Compute the amount final tax to be withheld from Armando’s profit sharing.
a. P12,000 c. P30,000
b. P18,000 d. P 0
15. Assuming the same information above except that the partnership is a general professional partnership,
compute the final tax to be withheld? ______

16. Final taxes are generally withheld at source and does not require an income tax return, which is an
exception
a. Final tax on interest income from deposit
b. Final tax on royalties
c. Final tax on capital gain on sale of domestic shares of stock directly to buyer
d. Final tax on dividends
17. Which of the following is not subject to 20% final tax?
a. Interest income on long-term deposit of domestic corporation
b. Interest income on foreign loans
c. Interest income from money market placements or trust funds
d. Lotto winnings
18. Compute the total amount of income subject to final tax.
Yield from deposit substitute P 10,000
Interest income from bonds of a domestic corporation 23,000
Property dividend declared by a foreign corporation 40,000
Stock dividend declared by a domestic corporation 50,000
Compensation income, net of P10,000 withholding tax 80,000
Prize on “Search for Mr. Sexy Body” 15,000
Royalties from books 24,000
Interest income on personal loans granted to a friend 8,000
Salaries from a general professional partnership 30,000
Salaries from a business partnership 20,000
a. P89,000 b. P99,000 c. P49,000 d. P69,000
19. Determine the total amount of income tax withheld if the taxpayer received the following passive income
during the year:
Interest on Peso bank deposit P 90,000
Royalties 36,000
Dividends 63,000
Share in the distributive income of a joint venture 72,000
a. P46,000 b. P53,000 c. P38,700 d. P46,500
20. On January 1, 2008, Kevin purchased 1,000 P1,000 face value bonds of a domestic corporation at face
value. The bonds were dated January 1, 2007 and mature on January 1, 2011. The bonds pay 12% annual
interest every January 1. If Kevin disposed of this investment directly to buyer on December 31, 2008 at
102, how much is the total final tax due?
a. P24,000 b. P25,000 c. P1,000 d. P0
21. On January 1, 2005, Helen invested P1,000,000 to RCBC Commercial Bank’s 5-year, tax-free time
deposit. The long-term deposit pays 15% annual interest every January 1. In need of cash, Helen pre-
 terminated her investment on July 1, 2008. How much is the final tax due and the proceeds of Helen’s
investment?
a. P9,000; P1,066,000 c. P18,750; P1,056,250
b. P63,000; P1,012,000 d. P30,000; P1,345,000
22. How much final tax is withheld in the interest income paid by the bank on January 1, 2006?
a. P0 b. P18,000 c. P30,000 d. P7,500
23. Assuming the same information in the problem above, except that the investment was made by a
domestic corporation, how much final tax is withheld in the year of pre-termination and the proceeds to
the corporation?
a. P15,000; P1,060,000 c. P18,750; P1,056,250
b. P45,000; P1,030,000 d. P30,000; P1,345,000
20. Benito Mojica invested in an 8-year long-term deposit in Rizal Commercial Banking Corporation
amounting to P2,000,000 paying 10% interest semi-annually. How much is the final tax to be withheld by
Rizal Commercial Banking Corporation if Benito Mojica pre-terminated his investment at the just after
the end of the third year?
a. P0 c. P30,000
b. P72,000 d. P120,000
21. What if Benito Mojica pre-terminates it just after the end of the fifth year?
a. P0 c. P50,000
b. P72,000 d. P200,000
22. Benedict rendered advisory services to Alexander in connection with the latter’s tax compliance from
May 2, to July 2, 2006. In July 2, 2006, Alexander paid him a note with a face value of P100,000 payable a
year after. The same note could be discounted at the bank for 15% at the time of receipt. How much
compensation income and interest income is to be included in gross income?
a. P85,000; P0 c. P85,000; P7,500
b. P100,000; P15,000 d. P100,000; P0
23. Andromeda, a non-resident alien, rendered professional services to Philippine company, a domestic
corporation. The total consultancy fees agreed were P1,000,000. How much should Philippine company
withhold?
a. P100,000 b. P200,000 c. P250,000 d. P 0
24. Andromeda, a non-resident alien, invests in the 60-day Peso time deposit of Metro Pilipino Bank.
Andromeda earned P100,000 interest income. How much final tax should Metro Pilipino Bank withhold?
a. P 0 b. P20,000 c. P25,000 d. P 30,000
25. Assuming the same information in the preceding problem except that Andromeda is a non-resident
corporation. How much final tax is to be withheld?
a. P 0 b. P20,000 c. P25,000 d. P 30,000
26. Andromeda, a non-resident alien, deposited $100,000 in the FCDU unit of Universal Bank, a resident
foreign bank. During the period, Andromeda earned $1,000 total interest. The relevant exchange rate
between the Peso and the Dollar was P50:$1. How much final tax should Metro Pilipino Bank withhold?
b. P50,000 b. P100,000 c. P125,000 d. P 0
27. Sunrise Bank, a non-resident foreign bank, has substantial foreign currency deposit at the FCDU unit of
Banco Italiano, a resident foreign bank, totaling $5,000,000. Total interest credited to Sunrise Bank was
$600,000 equivalent to P28,800,000 at the time of payment. How much is the final tax on the interest
received by Sunrise Bank?
a. P10,080,000 b. P5,760,000 c. P2,880,000 d. Exempt
28. The Gambling World, Inc. a foreign corporation, Inc. has been trying its luck with the Philippine Charity
Sweepstakes lotto. It spent P800,000 for losing PCSO lotto tickets. Luckily, one ticket costing P10 won
the P218,000,000 Superlotto 6/49 draw on July 24, 2007. How much is the deductible expense and the
taxable amount of winnings?
a. P10; P47,999,990 c. P800,000; P0
b. P800,000; P47,999,990 d. P0; P0
29. Which statement is incorrect?
a. Prize results from an effort.
b. Winning results from transaction dependent upon chance.
c. Prizes is subject to either regular tax or final tax
d. Winnings from the Philippines is always subject to final tax
30. The system of tax compliance wherein the employees does not have to make computations nor file an
income tax return at the end of the year
a. Final withholding tax scheme c. Substituted Filing of Tax Returns
b. Creditable withholding tax scheme d. Self-Assessment Method
31. The substituted Filing of Tax Return is applicable where (choose the exception)
a. The employee earns pure compensation income
b. The employee has only one employer
c. The tax withheld by the employer is correct
d. The employee is also engaged in the exercise of a profession
32. Creditable withholding tax rates shall not be less than ____ but not more than ____
a. 5%; 20% c. 1%; 32%
b. 1%; 20% d. 2%; 15%
33. Which is subject to final withholding taxes?
a. Interest on loans of by banks c. Dividends from foreign corporations
b. Prizes from abroad d. Book royalties
34. Which is subject to creditable withholding taxes?
a. Rent income c. Winnings from PCSO
b. Dividends from domestic corporations d. Interest income from long-term deposits by
corporations
35. The return for final withholding tax by withholding agent shall be filed not later than
a. 20 days from the close of each calendar quarter
b. 25 days from the close of each calendar quarter
c. 23 days from the close of each calendar quarter
d. 60 days from the close of each calendar quarter
36. The return for creditable withholding tax by withholding agent shall be filed not later than
a. the first day of the month following the close of the quarter during which withholding was made
b. the 15th day of the month following the close of the quarter during which withholding was made
c. the 25th day of the month following the close of the quarter during which withholding was made
d. the last day of the month following the close of the quarter during which withholding was made

CPA EXAM DRILL PROBLEMS (Chapter 6)

1. The term “capital assets” includes

a. Stock in trade or other property included in the taxpayer’s inventory.
b. Real property not used in the trade or business of the taxpayer.
c. Real property primarily use for sale to customers in the ordinary course of trade or business.
d. Property used in the trade or business of the taxpayer and subject to depreciation.
2. Lots being rented when subsequently sold are classified as
a. Capital assets b. Liquid assets c. Ordinary assets d. Fixed assets
3. Which is an ordinary asset for a realty developer?
a. Accounts receivables c. Real property held for development and subsequent sale
b. Construction machineries d. Head office building of the developer
4. Which of the following accounting assets is not an ordinary asset?
a. Investment property c. Property, plant and equipment
b. Inventory d. Trading securities by a stock brokerage firm
5. On July 1, 2009, Crislyn Riego sold shares of stock for P200,000. The shares which were acquired for
P140,000 acquire on June 1, 2007, have a par value of P150,000, were held as investment, and were sold
to a buyer under the following terms:
Downpayment, July 1, 2009 P 20,000
Installment due, October 10, 2009 30,000
Installment due, October 10, 2010 75,000
Installment due, October 10, 2011 75,000
How much was the capital gains tax due in 2009?
a. P 500.00 b. P 450.00 c. P625.00 d. P750.00
6. How much was the documental stamp tax due?
a. P 600.50 b. P 525.25 c. P 562.50 d. P 612.50
7. To facilitate the disposal of his shares, Freddie sold his shares for P360,000 at 10% discount from its fair
value. Even at discounted price, Freddie reports a gain of P160,000. Compute the capital gains tax on the
transaction.
a. P 21,000 b. P 11,000 c. P 16,000 d. P 15,000
8. Which of the following is not a requisite of installment payment of capital gains tax in installment
involving the sale of personal property?
a. Downpayment must not exceed 25% c. The item sold is not inventoriable
b. Selling price must exceed P1,000 d. Initial payment must not exceed 25%
9. Abdul Rhamanam Ahmin, a non-resident alien disposed his stock investments in a domestic corporations
to Juan dela Cruz, a non-resident citizen, at a gain of P300,000. Which statement is correct?
a. The sale is not subject to capital gains tax since the property involved is a personal property is
deemed located abroad.
b. The sale is not subject to capital gains tax as Juan dela Cruz, the buyer, is a non-resident individual.
c. The sale is subject to capital gains tax even if the sale occurred outside the Philippines.
d. None of these.
10. Meiko Acebo is a stock broker and holds 10,000 ordinary stock of San Miguel Corporation, a domestic
corporation, acquired at P100 per share. His valuation for San Miguel Corporation indicates that San
Miguel’s stocks will decline in the near future. If Meiko sells his stock investment directly to a buyer,
Zeus Millan, at P115 per share, how much is the capital gains tax payable on the transaction?
a. P5,000 b. P10,000 c. P5,750 d. P 0
11. Mr. Acebo, a non-security broker or dealer, made the following dispositions directly to buyer:
Date Domestic securities Gain/(Loss)
2/4/8 Abacus ordinary shares P 150,000-
5/8/8 PLDT bonds 150,000-
7/15/8 Globe preferred shares ( 80,000)
9/20/8 Globe common shares 50,000-
11/15/8 Metrobank ordinary shares 80,000-
 Compute the amount of capital gains tax payable (refundable) of Mr. Acebo for the year 2008.
a. (P1,500) b. P15,000 c. P 0 d. P38,000
12. Which of the following entities is not exempt to the final capital gains tax imposed on the sale, exchange
and other disposition of real property?
a. Banks on their sale real and other assets acquired in the Philippines
b. Resident corporations on their land not used in business in the Philippines
c. Real estate developer or dealer on their sale of condo units
d. Resident citizen on his sale of one of his residence under foreclosure sale
13. The actual capital gain derived by an individual taxpayer may be included to all income subject to
progressive income tax when
a. It involves sales of real property to non-residents
b. It involves sales of real property to the government
c. It involves sales of personal property to non-residents
d. It involves sale of domestic stocks directly to taxpayer
14. Ms. Janet Ranillo, a real estate dealer, sold a real property for P200,000 on October 29, 2007 in
installment. The cost of the property was P150,000. The terms of the sale agreed upon by Ms. Ranillo an
the buyer were:
Downpayment P 40,000
Balance, payable in monthly installments of P10,000
beginning November 29, 2007 until fully paid 160,000
How much income will be reported in 2007?
a. P12,500 b. P15,000 c. P50,000 d. P75,000
15. Ms. Lyn Rosales, a real estate dealer, sold a real estate for P2,000,000 on November 29, 2007. The cost of
the property was P1,500,000. The terms of the sale were as follows:
Downpayment P 400,000
Balance, payable in monthly installments of P100,000
beginning December 29, 2007 until fully paid 1,600,000
How much was the income to be reported in 2007?
a. P100,000 b. P112,000 c. P125,000 d. P140,000
16. Compute the capital gains tax in the above case.
a. P 30,000 b. P 40,000 c. P120,000 d. P 0
The following problems relates to numbers 17 through 20:
17. Raff Escuela sold his principal residence for P5,000,000. His principal residence was acquired at
P2,000,000 and has a fair market value of P6,000,000 at the date of sale. Within 18 months, Raff
reconstructed his new principal residence for P4,500,000.
Compute the capital gains tax to be deposited in escrow.
a. P 270,000 b. P 300,000 c. P360,000 d. P 0
18. The cost basis of the new residence is
a. P1,800,000 b. P1,500,000 c. P3,750,000 d. P4,500,000
19. The amount of capital gains tax to be released to Raff is
a. P240,000 b. P270,000 c. P300,000 d. P324,000
20. Compute the cost basis of the new residence if it was acquired for P5,200,000.
a. P2,000,000 b. P2,200,000 c. P1,733,333 d. P4,333,333
21. Which is not a requisite of the wash sales rule of securities?
a. The sale or other disposition of securities resulted to a loss
 b. There was an acquisition or contract or option for acquisition of stock or securities within 30 days
before the sale or after the sale.
c. The stock or securities sold were substantially the same as those acquired within the 61-day period.
d. The seller must be a dealer in securities in a short sale transaction.
22. The following are not substantially identical securities, except one
a. Common stock and preferred stock
b. Voting and non-voting common stock
c. Bonds with different interest rates or secured and unsecured bonds
d. Similar bonds with different maturity dates
23. To which of the following is the capital gains tax required to be filed? (Select the exception.)
a. Authorized Agent Bank under the jurisdiction of the RDO where the seller is required to register
b. Revenue collection officer
c. Duly authorized City or Municipal Treasurer of the RDO where the seller is required to register
d. Office of the Commissioner of Internal Revenue