INCOME TAX MIDTERM EXAM

Choose the letter of the correct answer:

1. Eddie resigned from his employment and received P25,000 separation pay. Glory received
P30,000 as her terminal pay due to retrenchment legally enforced by her employer. Joseph
received P35,000 termination pay when he was dismissed due to gross negligence.
a. Only the separation pay of Eddie is taxable.
b. Only the terminal pay of Glory is not taxable.
c. Only the termination pay of Joseph and Glory are not taxable.
d. Only the separation pay of Eddie and Joseph are not taxable.

2. Which of the following is taxable?

a. SSS and GSIS benefit
b. Social security benefit received by a balikbayan from employer abroad.
c. Separation pay received by a 50- year old employee due to the retrenchment program of
the employer.
d. Interest income on time deposit.

3. Which of the following exclusion from gross income is not provided by special laws?
a. Prizes and awards on religious and educational achievement.
b. Winnings from Lotto.
c. Winnings from Philippine Charity Sweepstakes.
d. Interest and capital gains on land covered by Land Reform under on the purchaser tenant
program.

4. The proceeds of insurance taken by a corporation on the life of the President to indemnify it
against loss in case of his death is
a. Part of taxable income of the incorporation.
b. Taxable income of the corporation.
c. Partly exempt, partly taxable.
d. Exempt from income tax.

5. Mr. Tso’s building with a book value of P2,000,000 was razed by fire. The insurance company
paid P1,400,000. The P1,400,000 proceeds is
a. Taxable in full
b. Subject to final tax
c. Tax exempt
d. Any of the above

6. Which of the following may be excluded from the gross income of a taxpayer?
a. Income derived from bequests and devices.
b. Interest on proceeds of life insurance policies.
c. Interest received from a domestic corporation
 d. None of the above,

7. Which of the following is considered as taxable income?

a. Separation due to sickness
b. Separation pay due to death.
c. Separation pay due to voluntary resignation.
d. Retirement pay of P3,000 per month.

8. Which of the following is a taxable income?

a. SSS contribution deducted form salary
b. SSS sickness benefits
c. 13th month pay in excess of P30,000
d. Passive income earned by a citizen from sources outside the Philippines.

9. The following are taxable compensation for injuries except

a. Interest from nontaxable damages.
b. Compensatory liquidated damages.
c. Damages for loss of goods and other belongings.
d. Damages for unrealized profit.

10. Which of the following cases is retirement benefit excluded from taxable income?
a. The retiree is 45 years of age and has been in the service for more than 20 years.
b. The retiree is 50 years of age and has been in the service for lesser than 10 years.
c. Th retiree is more than 50 years of age and has been in the service of the same employer for
15 years.
d. The retiree is less than 50 years and has been in the service of the same employer for 10
years.

11. Which of the following statements is true?

a. Existing benefit being provided to a management employee could be reduced without
violating the labor law.
b. The fringe benefit increases in direct proportion to overtime rendered.
c. The fringe benefit is strictly payable in cash.
d. The fringe benefit of managerial employee is exempted from income tax.

12. Which of the following statements is not correct?

a. Fringe benefit of a managerial employee is subject to final income tax.
b. Fringe benefit tax is a creditable withholding tax
c. Fringe benefit tax is an income tax.
d. Fringe benefit tax rate is 32%.

13. Which of the following statements is correct?

a. The grossed up monetary value of fringe benefit is equal to 68% of cash value of the benefit.
 b. The taxable compensation of the employee with respect to the benefit is equal to the
grossed up monetary value of the benefit.
c. The fringe benefit tax is the income tax expense of the employer.
d. The 32% final tax is applied to the monetary value of the benefit.

14. Which of the following statements is not correct?

Relatively small meal allowances paid to rank and file employee intended to promote health and
goodwill are
a. Considered as de minimis fringe benefits
b. Not subject to fringe benefit tax.
c. Not to subject to income tax as compensation.
d. Subject to income tax as compensation.

15. Which of the following is subject to fringe benefit tax?

a. Fringe benefit required by nature of or necessary to trade business or profession of the
employer.
b. Those granted for the convenience of employer
c. De minimis benefits
d. Medical cash allowance to dependents of employees amounting to P150 per month.

16. Which of the following concepts denotes exemption from fringe benefit tax?
a. Convenience of the employer rule.
b. Necessity to the business or trade of employer rule
c. De minimis benefits
d. All of the above

17. Which of the following items is not a taxable fringe benefit?

a. P10,000 actual medical benefits received during the taxable year.
b. Daily meal allowance of P50. The basic minimum wage is P200.
c. Cost of the educational assistance to the employee’s children.
d. Cost of employee’s group insurance paid by then employer.

18. Which of the following fringe benefit is subject to compensation income?

De minimis Received by rank- and -file Received by supervisor
a. Yes Yes Yes
b. No Yes Yes
c. No Yes No
d. Yes No Yes

19. Which of the following statements is correct?

Statement 1: The fringe benefit tax is part of the compensation of the managerial employee.
Statement 2: The fringe benefit tax is to be withheld and remitted by the employer to BIR.
a. Statement 1 is correct.
b. Statement 2 is incorrect.
 c. Both statements are correct.
d. Both statements are incorrect.

20. What is the value of fringe benefit if a property is furnished by the employer to be used by the
employee without transfer of ownership?
Book value Fair Market Value Depreciated value
a. No No Yes
b. Yes Yes No
c. Yes No Yes
d. No Yes Yes

21. The following business travel is subject to fringe benefit tax, except
a. Hotel accommodation for $300 per day.
b. Cost of economy airplane ticket.
c. Inland travel expense.
d. All of the above.

22. Educational grant to the employee of his dependent by the employer is not subject to fringe
benefit tax, except when
a. The study grant involved is connected with the trade.
b. There is a written contract that the employee will remain to work for a period of time.
c. The assistance was through competitive scholarship program.
d. The study grant is not connected with the trade

23. Mr. A received the following compensation and benefits during the year:
Total basic salary P240,000
13th month pay 20,000
Rice subsidy (P2,000 per month) – de minimis 24,000

How much is the Taxable and the nontaxable compensation of Mr. A?

Taxable Nontaxable
a. P240,000 P30,000
b. P240,000 P38,000
c. P240,000 P44,000
d. P246,000 P38,000

24. Mr. B a minimum wage earner, received the following compensation and benefits during the
year:
Total Basic salary P96,000
Overtime pay 20,000
13th month pay 8,000
Hazard pay 2,000
Holiday pay 1,000
Rice Subsidy (P2,000 per month) – de minis 24,000
 How much is the taxable compensation of Mr. B?
a. P132,000 c. P112,000
b. P116,000 d. P-0-

25. Mr. C, a minimum wage earner, received the following compensation and benefits during the
year:
Total Basic salary P108,000
Overtime pay 30,000
th
13 month pay 9,000
Hazard pay 2,000
Holiday pay 1,000
Rice Subsidy (P2,000 per month) – de minis 36,000
Clothing Allowance 20,000

How much is the Taxable and the nontaxable compensation of Mr. C?

Taxable Nontaxable
a. P150,000 P30,000
b. P154,000 P52,000
c. P176,000 P30,000
d. P-0- P206,000

X Corporation purchased a residential property with a zonal value of P5,000,000. The property
has a fair market value of P6,000,000.

26. If the property was assigned for the use of X Co.’s president, how much is the fringe benefit tax?
a. P70,588 c. P48,000
b. P58,824 d. P40,000

27. If the property was acquired for the use of X Co.’s manager for P2,000,000 down payment and
P1,000,000 on installment basis per year in 4 years (with an effective interest rate of 12% per
year), how much is the fringe benefit tax?
a. P70,000 c. P58,824
b. P59,264 d. P35,294

A Co. purchased a car for a cash price of P1,000,000. If the A Co. purchased the car on
installment, the monthly payment would be P20,000 for 5 years.

28. If the company decided to maintain the car for the use of its president and other employees as
needed. How much is the fringe benefit tax?
a. P47,059 c. P94,118
b. P56,471 d. P112,941

29. If the company decided to transfer the ownership of the car in the name of its president, how
much is the fringe benefit tax?
a. P47,059 c. P94,118
 b. P56,471 d. P112,941

30 The following individual taxpayers are granted basic and additional personal exemption except.
a. Resident citizen
b. Nonresident citizen
c. Resident citizen
d. Nonresident alien subject to reciprocity

31. For Philippine income tax computation which of the following individual is taxable also for
income earned outside of the Philippines.?
a. Nonresident alien
b. Nonresident citizen
c. Resident alien
d. Resident citizen

32. A foreign individual who have stayed in the Philippines during the taxable year for more than
180 days but less than one year is considered a
a. Nonresident alien doing business in the Philippines .
b. Nonresident alien not doing business in the Philippines.
c. Resident alien.
d. Resident alien doing business in the Philippines .

33. Which of the following is taxable only for income earned within?
i. Resident alien
ii. Nonresident alien doing business in the Philippines
iii. Nonresident alien not doing business in the Philippines

Choices:

a. i, ii and iii
b. ii and iii only
c. ii only
d. iii only

34. which of the following individual is taxable at 15% on compensation income derived within the
Philippines?
i. Compensation income of citizen earned from employment with regional or area
headquarters of multi-national corporation
ii. Compensation income of alien earned from employment with the petroleum service
contractor
iii. Compensation income of alien earned from employment with an offshore banking unit

Choices :

a. i, ii and iii
b. ii and iii only
c. ii only
d. iii only

35. which of the following is not required to file an income tax return?
a. Resident citizen with respect to his business income earned outside the Philippines
b. An employee with only one employee and whose compensation income is fully collected
with creditable withholding tax
c. Nonresident citizen with respect to his compensation income earned within the Philippines
d. Nonresident alien with respect to his business income earned within the Philippines

36. Which of the following is not correct?

a. A self-employed individual is required to file an quarterly income tax return .
b. The income reported in quarterly tax return is cumulative during the year.
c. Business expenses reduce the income reported in the quarterly tax return.
d. The income reported in the quarterly tax return is reduced by personal exemption.

37. Statement 1: An alien who shall reside in the Philippines with no definite intention as to his stay
is a resident of the Philippines .
Statement 2: A foreigner who has acquired residency in the Philippines shall only become a
nonresident alien when he actually departs with the intention of abandoning his residency in
the Philippines
a. Only statement 1 is correct
b. Both statements are correct
c. Only statement 2 is correct
d. Both statements are incorrect

38. Statement 1 : Compensation income is reduced by personal expenses to arrive the taxable
amount.
Statement 2 : Business income is reduced by business expenses to arrive at taxable amount.
a. Only statement 1 is correct
b. Both statements are correct
c. Only statement 2 is correct
d. Both statements are incorrect

39. The following persons benefit from personal exemptions , except

a. Resident alien, not doing business in the Philippines
b. Nonresident alien, with only compensation income earned in the Philippines
c. Foreigner who stayed in the Philippines for more than 183 days and earned business income
within.
 d. An alien with only business income earned within after a year of stay in the Philippines .

40. A corporation whose income within and without the Philippines is taxable.
a. Domestic Corporation
b. Foreign Corporation
c. Resident Foreign Corporation
d. Nonresident Foreign Corporation

41. A corporation is taxable on business income after business expenses, except

a. Domestic Corporation
b. Foreign Corporation
c. Resident foreign corporation
d. Nonresident Foreign Corporation

42. Which of the following corporation is taxed based on gross income?

a. Cooperative
b. Domestic Corporation
c. Resident Foreign Corporation
d. Nonresident Foreign Corporation

43. What kind of income tax is subject to 2% of corporate gross income?

a. Normal Corporate Income Tax
b. Minimum Corporate Income Tax
c. Gross Income Tax
d. Capital Gains Tax

44. In paying corporate income tax, the excess of minimum corporate income tax could be used as a
deduction within three immediate succeeding taxable years and such excess could only be
deducted from
a. Normal corporate tax
b. Minimum corporate tax
c. Gross income tax
d. Capital gains tax

45. The minimum corporate income tax shall be used in computing and paying the corporate
income tax if the corporation has been
a. In its fourth year
b. Incurred net loss or zero taxable income
c. The normal income tax is lesser than the minimum income tax.
d. All of the above.
46. The gross income tax is applicable to
a. Servicing and manufacturing firms
b. Manufacturing and merchandising firms
c. Merchandising and servicing firms
 d. All of the above
47. Royalty income derived within the Philippines by a non resident foreign corporation shall bee
subject to
a. 20% final tax
b. 7.5 final tax
c. Normal corporate tax
d. Minimum corporate tax
48. Capital gains of resident foreign corporation on sale or exchanges or disposition of lands and or
buildings located in the Philippines
a. 6% of selling price or FMV whichever is higher
b. 6% of selling price or FMV whichever is lower
c. ½ of 1% of the selling price
d. Subject to normal corporate income tax
49. The following corporate income are subject to income tax, except,
a. Cash dividends received from a domestic corporation by other domestic corporation.
b. Royalty income received from a domestic corp.
c. Interest income on foreign loans
d. Inter-corporate dividends received by a non-resident foreign corporation from a domesctic
corporation.
50. The tax imposed on intercorporate dividends received by a domestic corporation from a
resident foreign corporation is
a. Tax exempt
b. Subject to 10% final tax
c. Subject to 15% final tax
d. Subject to 30% corporate tax