1.
Rica paid P20,000 annual premium on a life insurance contract which would pay her
P1,000,000 in case of her death. After paying for 4 years, Rica assigned the policy to
Carlos for P120,000. Compute the return on capital.
a. P120,000
b. P80,000
c. P40,000
d. 0
2. Sophia purchased a P1,500,000 life insurance policy for P100,000. During the year,
Sophia died, and her heirs collected the entire proceeds. How much of the proceeds is
exempt from income tax?
a. P1,500,000
b. P1,400,000
c. P100,000
d. 0
3. Sean negotiated a P1,000,000 non-interest-bearing promissory note to Candy. Candy paid
Sean P950,000. On due date, Sean paid Candy P1,000,000. Which is true?
a. Sean earned P50,000 return on capital
b. Candy earned P50,000 return on capital
c. Candy received P50,000 donation
d. Candy received P1,000,000 return of capital
4. Andrew received a total sum of P42,000 from his employer consisting of the following:
P5,000 reimbursements for employer’s expenses paid by Andrew
P15,000 payment of Andrew’s computer set purchased by the employer
P22,000 monthly salary
Andrew’s computer set cost him P12,000. Compute the total return on capital which an
be subjected to income tax.
a. P42,000
b. P37,000
c. P25,000
d. P22,000
5. Lake Sebu Company insured life of its president for P2,000,000. A total of P500,000 in
premiums was paid before the president died. The company collected the total proceeds.
Compute the return on capital.
a. P0
b. P1,500,000
c. P500,000
d. P2,000,000
6. Melvin purchased the P1,000,000 life insurance policy of Ben for P120,000. Dan paid the
P20,000 annual premiums on the policy for 4 years after which Ben died. Compute the
total return on capital for Melvin.
a. P1,000,000
b. P880,000
c. P800,000
d. P0
7. Carlos paid P20,000 annual premium for a P1,000,000 life insurance policy. After 7
years, Carlos surrendered the policy and was paid by the insurance company P200,000
which represents the cash surrender value of the policy.
Compute the return on capital.
a. P1,000,000
b. P860,000
c. P60,000
d. P0
8. Onyoc insured his newly constructed building costing P1,000,000. Within a few days, the
building was totally destroyed by the fire. The insurance company reimbursed Onyoc
P1,500,000, which represents the fair value of the building.
Which statement is false?
a. P1,000,000 of the proceeds is a return of capital
b. P500,000 of the proceeds is a return on capital
c. P1,500,000 is a return of capital
d. Only A and B
9. Teodoro is worried that his entire potato plantation which is expected to yield P400,000
income will be totally devastated by bad weather conditions. He obtained a P300,000
crop insurance cover for P30,000. Just before harvest, a rare frost totally destroyed
Teodoro’s plantation. The insurance company paid the policy proceeds.
Compute the total recovery of loss profits to be recognized by Teodoro as income.
a. P0
b. P100,000
c. P300,000
d. P370,000
10. Carl sued an unscrupulous person for derogatory remarks which he considered to have
besmirched his reputation. The court awarded him an indemnity of P1,000,000 inclusive
of P200,000 reimbursement for Attorney’s fees and P100,000 exemplary damages.
Compute Carl’s total return on capital.
a. P1,000,000
b. P800,000
c. P700,000
d. P0
11. Nathan sells hot chili-flavored pancakes using a secret formula he patented. He sued a
competing pancake house for alleged patent infringement and claimed a total indemnity
of P1,200,000:
P1,000,000 for loss of profits form loss of sales
P200,000 as Attorney’s fee reimbursement
If Nathan wins the case and is awarded the total indemnity, compute his total return of
capital.
a. P1,000,000
b. P800,000
c. P0
d. P200,000
12. Johnson was one of the passengers of a van that fell off a ravine. Johnson sued the bus
company and was awarded an indemnity of P800,000 for the following:
P500,000 for the impairment of his health resulting to the amputation of his legs
P200,000 for his loss of salaries during his hospitalization
P100,000 for hi Attorney’s fees
Compute Johnson’s return on capital
a. P800,000
b. P300,000
c. P200,000
d. P0
13. Clyde received the following items during the year:
P200,000 donation form a girlfriend
P100,000 service fee from professional services
P300,000 inheritance form his deceased father
P100,000 income from illegal gambling
P50,000 gain on sale of his personal car
P250,000 profits from his bar restaurant
Compute the total income subject to income tax.
a. P1,050,000
b. P750,000
c. P550,000
d. P500,000
14. Pines Corporation has a branch in Manila and a 70%-owned subsidiary, Choco Hills, Inc.
in Davao. The following data shows Pines Corporation’s sales transactions during the
year:
Pines Corporation billed the Manila branch P1,500,000 for merchandise shipped to
the latter at a mark-up of 50% above acquisition cost. The branch stored thee
merchandise and did not operate during the year.
Sold merchandise to unrelated parties at a gain of P800,000
Sold merchandise to Darrel Asuncion, Pines Corporation’s controlling stockholder at
a gain of P100,000
Sold various merchandise to Choco Hills, Inc. at a gain of P200,000
Compute the total income of Pines Corporation subject to income tax.
a. P1,700,000
b. P1,200,000
c. P1,100,000
d. P900,000
15. Jonathan is a supervisory employee of Koronadal Corporation. He had the following
items of gross income during the year:
Jonathan was paid P800,000 salaries
Jonathan’s P100,000 personal loan was paid by Koronadal Corporation as reward for
his excellent performance
Jonathan’s P50,000 advances to the company was paid by Koronadal’ chief executive
officer as a gift
Jonathan is entitled to excess representation and transportation allowances. Jonathan
received P200,000 total allowance out of which P120,000 was disbursed by him.
Compute Jonathan’s total income subject to income tax.
a. P980,000
b. P900,000
c. P880,000
d. P800,000
16. Jen is engaged in business. The following pertains to her transactions during 2021:
Sold her personal car which was purchased at P200,000 to a friend who paid only half
of the car’s P500,000 current fair value
Sales of merchandise was P800,000 and the cost of goods was P600,000.
Jen acquired several stocks from the Philippines Stock Exchange for speculation.
These stocks have an aggregate purchase price of P400,000 but with P700,000 fair
value b December 31, 2021.
Jen’s house and lot which she acquired for P1,500,000 in 2010 now have a current
fair value of P2,500,000.
Compute Jen’s total income subject to income tax
a. P1,800,000
b. P1,550,000
c. P200,000
d. P250,000
17. A condominium home owner’s association collects dues from unit holders and remits the
same to service providers on their behalf. Such dues include electricity, water, security,
and maintenance. The association charges unit holders an additional 2% of their utility
bills as service charge.
During the year, the association processed utility bills for unit holders totaling
P5,000,000. How much taxable income is realized by the association?
a. P5,000,000
b. P4,900,000
c. P100,000
d. P0
18. Kenjy used to bet in PCSO lotto. On June 3, 2014, he won the P20,000,000 jackpot prize
from the 6/45 lotto. One P20-ticker out of 10 bets took the prize. How much is Kenjy’s
total income subject to tax?
a. P20,000,000
b. P19,999,990
c. P19,999,900
d. P0
19. An American citizen has been staying in the Philippines since August 15, 2021. What
would be his taxpayer classification for the year 2021 and 2022, respectively?
a. Non-resident alien engaged in trade or business; resident alien
b. Non-resident alien not engaged in trade or business; resident citizen
c. Non-resident alien engaged in trade or business; resident citizen
d. Non-resident alien not engaged in trade or business; resident alien
20. A citizen who left the Philippines on March 1, 2021 would be classified as
a. Non-resident for the year 201
b. Resident citizen for the year 2021
c. Non-resident for the year 2022
d. Resident citizen for the year 2022
21. An alien received P200,000 compensation income in the Philippines and P300,000 rental
income from abroad. How much will be subject to Philippine income tax?
a. None
b. P200,000
c. P300,000
d. P500,000
22. A non-resident citizen is an international financier who earned P400,000 interest income
from resident debtors and P300,000 form foreign debtors. How much is subject to
Philippine income tax?
a. None
b. P300,000
c. P400,000
d. P700,000
23. Sarah has the following items of income:
Philippines Abroad
Business income 200,000 100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest income 30,000 40,000
1. Assuming Sarah is a resident citizen, compute the total income subject to Philippine
income tax
a. P1,390,000
b. P1,180,000
c. P1,030,000
d. P1,420,000
2. Assuming Sarah is a resident alien, compute the total income subject to Philippine
income tax
a. P1,420,000
b. P1,180,000
c. P1,030,000
d. P390,000
3. Assuming Sarah is a resident corporation, compute the total income subject to Philippine
income tax
a. P1,420,000
b. P1,030,000
c. P1,180,000
d. P390,000
4. Assuming Sarah is a domestic corporation, compute the total income subject to
Philippine income tax
a. P390,000
b. P1,030,000
c. P1,180,000
d. P1,420,000
