False – Religious officer’s income is subject to income tax.. False – Not income but a liability in compliance with the trading business rule.. False – Under service business, advances f
Trang 1CHAPTER 4
GROSS INCOME
Problem 4 – 1 TRUE OR FALSE
1 True
2 True
3 False – Religious officer’s income is subject to income tax
4 True
5 True
6 False – The basis of tax is the amount of debt cancelled
7 False – Excess of advances over actual expenses
8 True
9 True
10 True
11 True
12 False – Not income but a liability in compliance with the trading business rule
13 False – Under service business, advances from clients are to be reported as income Hence, include as income because the advanced rental is without restriction
Problem 4 – 2 TRUE OR FALSE
1 True
2 True
3 False – because estimated bad debts is not allowed to be deducted from gross
business income
4 False – At the year of recovery
5 False – Not an option to report, but required to report
6 False – the return of premium from insurance company is not taxable
7 True
8 False – To be taxable, income should be realized
9 True
10 False – As a rule, income obtained illegally is taxable
11 False – As a rule, income received by error is reportable income
12 True
13 False – Not taxable
14 True
15 True
16 False – The rule of P10,000 and below applies to prizes not winnings
Problem 4 – 3 Problem 4 – 4
Trang 22 C 2 B
Note: New BIR interpretation provides that the 13th month pay and other benefits amounting
to P30,000 and below is not taxable Since the 13th month pay is only P10,000, the P20,000 achievement awards being part of de-minimis can be used as other benefits, to complete the P30,000 nontaxable threshold
First employment for 30 years received at the age of
Problem 4 – 10 C
Problem 4 – 11 B
Compensation Capital gain
Problem 4 – 12 C
Compensation Capital gain
Trang 3Compensation income (P25 – P23) x 10,000 P 20,000
Problem 4 – 13 D
Cancellation of indebtedness (P300,000 – P250,000) 50,000
Problem 4 – 14 B
Problem 4 – 15 B
Problem 4 – 16 C
Problem 4 – 17 C
Problem 4 – 18 C
Year 1 Year 2
Problem 4 – 19 B
Less: Cost of goods manufactured and sold
Raw materials, ending inventory ( 10,000)
Work-in-process, ending inventory ( 100,000)
Finished goods, ending inventory ( 50,000) 1,000,000
Trang 4Problem 4 – 20 B
Problem 4 – 21 A
Problem 4 – 22 B
Service charges:
Collection abroad of collect messages originating in the Philippines 60,000
Problem 4 – 23 B
Rent for year:
Problem 4 – 24 B
Problem 4 – 25 D
Outright
Spread-out
Year 1 Spread-out method
Less: Accum depreciation [(P240,500 - P560)/8 yrs] x 4.75 yrs 142,464.3
7
98,035.63 Divided by remaining years of contract 4.7
5
Year 1 spread-out – rent income on improvement P 15,479
Problem 4 – 26 C
Outright Spread-out
-Problem 4 – 27 C
Trang 5Less: Accumulated depreciation at the end of the lease (P300,000/6) x 4 years and 7
Book value of improvement at the time of pre-termination
Problem 4 – 28 C
P50,000 cash dividend received by an individual
Problem 4 – 29 B
Interest income from an investment in a 10-year bond P 40,000 Interest income from expanded foreign currency deposit 60,000
Problem 4 – 30 D
Year 3 interest income of P4,461.20
Problem 4 – 31 D
Problem 4 – 32 D
Copyright Patent
Copyright (P31,500/90%)
Income tax – final
Problem 4 – 33 A
P500,000 - Dividends earned outside the Philippines by a domestic corporation from a foreign corporation are taxable in the Philippines
Problem 4 – 34 A
The dividend received by a domestic corporation from another domestic corporation is nontaxable
Problem 4 – 35 A
P8,000 prize won in a TV program Prizes amounting to P10,000 and below are subject to normal taxes
Problem 4 – 36 D
Trang 6Problem 4 – 37 D
Year 1 Year 2 Year 3
Less: Bad debts written of 25,000 10,000 5,000 Income loss before bad debts recovery P 75,000 (P 30,000) P 45,000 Bad debts recovery of previous year with tax benefit 25,000 5,000
Note: The tax benefit allowed in year 2 for the bad debts written of is only P5,000; hence, the reportable bad debts recovery in year 3 should also be P5,000
Problem 4 – 38 D
Problem 4 – 39 D
P5,000 local tax recovery
The requirement should be properly stated as: What amount of tax refund should be reported
as part of year 3 taxable income?
Problem 4 – 40 C
Problem 4 – 41 C
Note: The present value factor of P1 for an efective interest rate of 10% is 0.9091
Problem 4 – 42 D
Problem 4 – 43 B
Problem 4 – 44 C
Problem 4 – 45
Total receipts, 200B
Less: Direct costs- commission (P425,000 x 65%)
Rental expense (P3,000 x 12)
Depreciation
Supplies used
P 276,250 36,000 5,000 1,750
P 425,000
319,000
Trang 7Gross income of A-1 Barbershop P 106,000
Note: The interest expense could only be deducted to compute gross income if a business is a banking institution Furthermore, borrowing cost directly attributable to the acquisition, construction or production of assets used in the business may either be capitalized or deducted as operating expense
Problem 4 – 46
Salary
Corporate shares received (1,000 shares x P100)
Cancellation of debt in lieu of service rendered
Profit sharing
Gross taxable compensation income
P300,000 100,000 50,000 40,000 P490,000
Problem 4 – 47
Salary (P25,000 + P302,000)
Income tax paid by the employer
Note receivable
Total compensation
Business gross income
Allowable expenses
Prepaid rent income
Bad debts recovered previously written-of (P38,000 x 60%)
Taxable income subject to tabular tax
P 400,000 ( 250,000)
P327,000 5,000 20,000 P352,000 150,000 50,000 22,800 P574,800