Question 1:

Mr. Albert, a self-employed individual, presented the following data related to his 2019
business operation
Sales 5,800,000
Sales returns and allowances 150,000
Merchandise inventory, January 1, 2019 1,200,000
Merchandise inventory, December 31, 1,800,000
2019
Freight in 80,000
Purchases 4,100,000
Purchases returns and allowances 110,000
Freight-out 90,000
Assume the following errors were discovered:
The January 1, 2019 inventory was overstated by P45,000 because of double counting.
The December 31, 2019 inventory was understated by P60,000, since the merchandise
sent on consignment was not included in the physical count. How much is the gross
taxable income after considering the errors?
A. 2,195,000
B. 2,075,000
C. 2,080,000
D. 2,285,000

Question 2:
I. Income tax is a tax on all yearly profits arising from property, profession, trade or
business.
II. The levying of tax is essentially an administrative function.(legislative)

A. Both statements are incorrect

B. Both statements are correct
C. Only statement 1 is correct
D. Only statement 2 is correct

Question 3:
Statement 1: In case the employer purchased a residential housing unit and transferred
its ownership to the employee, the monetary value is equal to the purchase price of the
property. TRUE
Statement 2: For property acquires on installment basis, the acquisition cost normally
includes the down payment and installment payment including the interest on
installment.(purchase price is the cost net of interest)
A. Neither statement is correct.
B. Only second statement is correct.
C. Only first statement is correct.
D. Both statements are correct.

Question 4:
A tax is invalid, EXCEPT:
A. Inherent and constitutional limitations are not observed.
B. Theory of taxation and its purpose are disregarded.
C. It results to double taxation.
D. Basis of taxation is not recognized.

Question 5:
Jonathan and Leonard were partners in JL & Co., a general professional partnership,
and shared profits and losses in the ratio of 40% and 60%, respectively. JL & Co. uses
the itemized deductions method of computing its net income as a basis of the partners’
distributive share.
The following data were provided during 2019:
JL & Co. Jonathan Leonard
Gross income P800,00 P250,000 P300,000
0
Operating expenses 300,000 120,000 180,000
Charitable contributions 30,000 15,000 18,000
subject to limitation
Both partners are married without qualified dependents and reported income from the
partnership using the itemized deduction. How much is the tax due of Jonathan?
(Use Train Tax Table)
A. 9,400
B. 9,000
C. 11,400
D. 10,600

Question 19:
How much is the taxable income of the partnership?
A. 450,000
B. 480,000
C. 470,000
D. 475,000

Question 6:
Statement A: For the calendar year 2018, an individual taxpayer may claim either the
itemized deduction or optional standard deduction of 40% of gross sales/receipts.
Statement B: In the calendar year 2018, an individual taxpayer may claim either the
optional standard deduction or the itemized deduction in the filing of the quarterly
income tax returns.
A. False, false
B. True, false
C. True, true
D. False, true

Question 7:
Rey, a mixed income earner had the following data for the current taxable year.
 Salary, net of contributions P720,000
13th month pay and other benefits 100,000
Gross sales from business 3,500,000
Sales returns and allowances 45,000
Sales discounts 55,000
Operating Expenses 800,000
e
A. P372,500
B. P349,000
C. P280,500
D. P392,500

Question 8:
During 2019, Mr. P, a resident taxpayer, showed the following business income and
expenses:
Sales P3,500,000
Cost of Sales 2,000,000
Business Expenses inclusive of 750,000
P25,000
Interest on loan from First Commercial
Bank used in business operation
Interest income from bank deposit 50,000
How much is the amount of allowable business expense?
A. P700,000
B. P725,000
C. P758,500
D. P733,500

Question 9:
GV D., a sole proprietor, has the following data in 2018, its first year of merchandising:
Gross sales P 900,000
Cost of sales 400,000
Other income 50,000
Salaries expenses 100,000
Depreciation expenses 50,000
Interest income, net of 20% 16,000
FWT
Supplies & utilities expense 15,000
Interest expenses 30,000
How much is the tax due?
(Use the Train Tax Table)
A. P21,000
B. P22,056
C. P22,320
D. P27,000
Question 16:
How much is the total deductible expense?
A. P195,000
B. P188,400
C. P165,000
D. P189,720

Question 10:
The data of the general professional partnership of Alex and Ven in for the 2019 taxable
year are as follows:
Gross receipts from 2,000,000
operation
Cost of services 500,000
Operating expenses 600,000
The partners agreed to share profits and losses equally. Both partners are married with
the following number of qualifies dependent children: Alex, 3; and Ven, 2. What is the
liability of Alex if he reported his share in the profits from the partnership based on the
net income?
A. 45,000
B. 27,500
C. 80,000
D. 110,000

Question 11:
Engineer Ant provided the following data for the current taxable year:
Gross receipts from practice of profession P800,000
Expenses relative to the exercise of profession 450,000
Rent income, net of 5% withholding tax 136,800
Interest income on bank deposit, net of 20% final tax 72,000
Expenses on space rent for the office 54,000
Salary as part-time professor, net of 45,000 withholding 255,000
tax
How much is the total deductible expenses using the optional standard deduction?
A. P497,600
B. P526,400
C. P320,000
D. P377,600

Question 46:
How much is the total income using the optional standard deduction?
A. P938,400
B. P746,400
C. P924,000
D. P866,400

Question 12:
Ma Hal Corporation on its 4th year of operation provided the following data for calendar
year ending December 31, 2018:
Philippines Abroad
Gross Income P12,000,000 P3,000,000
Deductions 9,000,000 1,800,000
Dividends received from domestic 500,000 -0-
Gain on Sale of Shares of stock thru PSE 1,000,000
Interest Income on Bank Deposit, net of tax 150,000
Dividend received from RFC 200,000
Charitable contributions subject to 100,000
limitation
Income Tax paid 360,000
If it is a domestic corporation, what is its income tax still due?
A. 2,250,000
B. 1,590,000
C. 2,610,000
D. 1,230,000

Question 44:
If it is a resident foreign corporation and it remitted 40% of its net profit to its head office
abroad, how much is the total tax liability (original data)?
A. 1,026,000
B. 1,333,800
C. 868,680
D. 991,800

Question 13:
I. Taxes on distilled spirits, fermented liquors and the like are specific taxes.
II. In the case of intangible personal property, as a rule, situs is the domicile of the
owner even if he has acquired a situs in another place.

A. Only statement 1 is correct

B. Both statements are correct
C. Bothe statement are incorrect
D. Only statement 2 is correct

Question 14:
Mr. Camino, a mixed income earner, presented the following data for the following year:
Annual salary as chief finance officer P380,000
13th month pay and cash gift 45,000
Representation and traveling allowance subject for 90,000
liquidation
Gross sales from business 1,800,000
Cost of Sales 35% of sales
Allowable itemized business expenses 320,000
Interest income on bank deposit 40,000
 Dividend income from a Domestic Corporation 15,000
The taxpayer is married with three qualified dependent children. He adopted the
optional standard deduction. How much is the taxable income?
A. P1,460,000
B. P1,047,000
C. P1,530,000
D. P1,457,000

Question 15:
Miah is employed by Lovelife Insurance Corp. as a certified public accountant. His
taxable compensation amounted to P 1 Million. During the same year, he was able to
earn P 1 Million as a commission from Lovelife Insurance Corp. from his referrals.
Miah’s proper tax to pay is?
A. P490,000
B. P270,000
C. P160,000
D. P230,000
E. P340,000

Question 17:
The monetary value of a fleet of motor vehicles owned by the employer and used by
employees for business and personal purposes is equal to
A. 50% of the acquisition of fair market value, whichever is higher, divided by 5 years.
B. The acquisition cost divided by 5 years.
C. 50% of the acquisition cost divided by 5 years.
D. The fair market value of cost, whichever is higher, divided by 5 years.

Question 18:
Basic rule on sale of capital assets, except
A. Sale of shares of stock of a domestic corporation not through the local stock
exchange is subject to a final tax of 15%.
B. Sale of shares of stock of a domestic corporation through the local stock exchange or
initial public offering is exempt from income tax.
C. Sale of personal property located in the Philippines by a resident citizen is subject to
the rules on holding period.
D. Sale of real property located in the Philippines by a foreign corporation is subject to
6% CGT based on selling price or FMV, whichever is higher.

Question 20:
The records of Yellow Merchandising, a sole proprietorship, had the following data
during the 2019 taxable year:
Net annual salaries and wages P3,200,000
Employees’ contributions withheld by the
employer:
Withholding tax 280,000
SSS contributions 120,000
 Medicare contributions 80,000
Pag-ibig contributions 100,000
Christmas Bonus and Cash Gift 250,000
Cash Fringe benefits to rank and file employees 180,000
How much is the deductible salaries and wages of the taxpayer during the taxable year?
A. P3,050,000
B. P4,210,000
C. P4,030,000
D. P3,930,000

Question 21:
I. Tax evasion is known as tax minimization while tax avoidance is known as tax
dodging.(FALSE)
II. Import and export duties are provided for in the Tariff and Customs Code of 1978.

A. Both statements are incorrect

B. Only statement 2 is correct
C. Both statements are correct
D. Only statement 1 is correct

Question 22:
Nathan Company, a domestic corporation, paid following expenses:
Total salaries for the year, net of the following 8,750,000
deduction:
SSS, P300,000
Withholding tax, P650,000
Medicare, P100,000 and
Cash advances, P200,000
Fringe benefits to rank-and-file employees 1,500,000
Fringe benefits to key officers 1,950,000
How much is the deductible salaries expense of the company?
A. P10,000,000
B. P14,500,000
C. P8,750,000
D. P13,540,000

Question 23:
A sold his principal residence at a selling price of P5M but with a FMV of P6M. The
property sold was acquired for P3M. He purchased his new principal residence at a
cost of P7M. If only P4M out of P5M was utilized in acquiring his new principal
residence, what is the basis (cost) of the new principal residence?
A. P4M
B. P3M
C. P3.2M
D. P2.4M
Question 24:
The monetary value of a motor vehicle purchased by the employer on cash basis in the
name of the employee is equal to:
A. The fair market value or acquisition price, whichever is higher, multiplied by 100%
B. The fair market value multiplied by 100%
C. The acquisition price multiplied by 100%
D. The acquisition cost less salvage value, if any, multiplied by 100%

Question 25:
Statement 1: A leasehold improvement that becomes the property of the lessor at the
end of the lease term is a donation from the lessee.
Statement 2: A leasehold improvement that becomes the property of the lessor at the
expiration of the lease term is included in the gross taxable income of the lessor.

A. Both statements are correct.

B. Only the first statement is correct.
C. Only the second statement is correct.
D. Neither statement is correct.

Question 26:
I. Income tax is an excise tax.
II. Taxes imposed under special laws are not tax laws.

A. Both statements are correct.

B. Only statement 2 is correct.
C. Both statements are incorrect.
D. Only statement 1 is correct.

Question 27:
A took out a life insurance policy of P1,000,000 naming his wife as beneficiary. The
policy provides that the insurance company will pay A the amount of P1,000,000 after
the 25 year of the policy and hi beneficiary, should he die before this date. The
premiums paid on the policy is P700,000. If A dies and his beneficiary received the
proceeds of P1,000,000, such proceeds will be
A. Exempt from Income tax
B. Subject to final tax
C. Partly taxable, partly exempt
D. Taxable in full

Question 28:
Orange Company presented the following data for the 2019 taxable year:
Within Outside
Gross income 12,000,000 3,000,000
Total itemized business expenses 7,000,000 1,800,000
Dividend received from domestic corporation 500,000
Sales of shares of stock thru local stock 1,000,000
 exchange
If Orange was a resident foreign corporation and adopted the itemized deduction, how
much is regular corporate income tax liability?
A. 2,610,000
B. 1,500,000
C. 1,860,000
D. 2,250,000

Question 29:
During the taxable year, Baby Company incurred losses on account of fire on its
machinery with a net book value of P300,000. The company will need P560,000 to
undertake the major repair on the extent of damage not covered by any insurance
policy. On the date of fire, the machinery had an accumulated depreciation of 900,000.
If the company will purchase a new machinery of the same type and quality, it will cost
them P660,000.
How much is the allowable deduction?
A. P300,000
B. P360,000
C. P1,200,000
D. P660,000

Question 30:
May consider capital expenditures as revenue expenditures
A. Domestic corporation
B. Resident citizen
C. Private education institutions
D. Resident alien

Question 31:
The grossed-up monetary value of fringe benefits shall be computed as follows:
A. The monetary value of the fringe benefit shall be divided by 75% for non-resident
aliens not engaged in business or trade in the Philippines.
B. The monetary value of employees in special economic zones shall be divided by
68%.
C. The monetary value shall be divided by 75% for non-resident citizens.
D. For non-resident aliens engaged in business or trade in the Philippines, the monetary
value shall be divided by 85%.

Question 32:
Where the taxpayer is a corporation, the following rules as to recognition of capital gains
or losses from the disposition of property classified as capital asset shall apply. Which
is the exception?
A. Capital losses are deductible only to the extent of capital gains
B. Net capital loss carry-over should not exceed the net income in the year the loss was
incurred
C. The holding period does not apply to corporations hence, capital gains and losses
are recognized at 100%
D. Capital losses are deductible from capital gains but net capital loss cannot be
deducted from ordinary gain

Question 33:
The net operating loss, which had not been previously offset as deduction from gross
income shall be carried over as deduction from gross income for the next:
A. Taxable year immediately following such loss.
B. 4 consecutive taxable years immediately following such loss.
C. 2 consecutive taxable years immediately following such loss.
D. 3 consecutive taxable years immediately following such loss.

Question 34:
On June 1 of the current taxable year, Mr. Cruz leased two doors of the commercial
building of Green Valley Company for 10 years. He agreed to pay the following:
Annual rent of P180,000
Real estate tax of P3,500
Annual insurance premium P30,000
of
Mr. Cruz introduced major improvements on the leased property costing P600,000 with
an estimated useful life of five years. The lessor at the expiration of the lease will own
the improvement. How much is the deductible rent expense of Mr. Cruz?
A. P168,500
B. P196,000
C. P213,500
D. P273,500

Question 35:
A progressive system of taxation means a tax structure:
A. Where persons who possess more in wealth or income are required to bear the cost
of government corresponding to such capacity
B. Where the tax rate increases as the tax base decrease
C. Where persons who desire to avail of government services or benefits are required to
pay for their cost in the form of taxes
D. Where the tax rate increases as the tax base increases

Question 36:
The term “capital assets” include
A. Real property not used in the trade or business of taxpayer.
B. Property used in the trade or business of the taxpayer and subject to depreciation.
C. Stock in trade or other property included in the taxpayer’s inventory.
D. Property primarily for sale to customers in the ordinary course of his trade or
business

Question 37:
Which of the following statements about IAET is false?
A. It aims to deter the avoidance of tax on the part of shareholders on earnings
received.
B. IAET shall not be imposed despite determination that a corporation has accumulated
beyond the reasonable needs of business.
C. It is in the nature of a penalty to the corporation for improperly accumulating
earnings.
D. If undistributed earnings are used for the reasonable needs of the business,
generally, such earnings are not subject to IAET.

Question 38:
The following data were taken from the records of Mr. Mark in 2019:
Interest income on receivable 90,000
Interest income on bank deposit in the 150,000
Philippines
Interest income on bank deposit abroad 200,000
Interest expense on borrowed loan for business 300,000
Interest expense on personal loan of the spouse 180,000
What is the deductible amount of interest expense?
A. P184,500
B. P334,800
C. P430,500
D. P250,500

Question 39:
Which is the correct and best statement? A tax reform at any given time underscores
the fact that:
A. The estate can and should adopt progressive taxation
B. Taxation is an inherent power of the state
C. Taxation is essentially a legislative power
D. Taxation is a power that is very broad

Question 40:
The theory which most justifies the necessity of taxation:
A. Revenue purposes theory
B. Lifeblood theory
C. Ability to pay theory
D. Protection and benefits theory

Question 41:
In 2020, Mr. Pacino was employed as account officer in a non-life insurance company.
He received P8,000 basic monthly salary. In addition, he gets 5% of gross premium as
commission on policies issued under his account. In 2020, gross premiums under his
account totaled P4.2 million. He is likewise entitled to representation allowance of
P1,000 a month. How much is to be included as gross income in 2020?
A. P306,000
B. P96,000
C. P318,000
D. exempt

Question 42:
Mr. Alberto, married with three qualifies dependent children, is the production manager
of Green Leaves Company with an annual salary of 420,000. During the current taxable
year, he borrowed from the company 80,000 for the surgical operation of his mother. At
the end of the current taxable year, he received from the company a 12%-interest
bearing note payable after one year amounting to 50,000 and also his indebtedness
was cancelled as payment for his exemplary performance. He likewise received the
13th month pay equivalent to one-month basic salary plus a cash gift of P40,000. The
taxpayer also supports his niece, 15 years, unmarried and not gainfully employed. How
much is the income tax payable?
A. 87,750
B. 78,750
C. 67,500
D. 79,000

Question 43:
The fringe benefit tax is:
A. Imposed on the employer
B. Withheld at source
C. Deductible expense by the employee

A. Only A and B
B. A, B and C
C. Only B and C
D. Only A and C

Question 45:
Fulfilled Inc. a resident foreign corporation is on its sixth year of operation in 2018. For
its operations in the Philippines, the following data appear in its 2018 and 2019 records:
2018 2019
Regular Income P31,500 P39,600
Tax
MCIT 18,000 21,000
Sales Returns 20,000 50,000
Cost of Sales 720,000 950,000
How much is the Gross sales for 2018?
A. Php 1,640,000
B. Php 1,620,000
C. Php 1,600,000
D. Php 2,000,000

Question 47:
The following are the requirements in order that the retirement pay received by an
employee from his employer is non-taxable, EXCEPT
A. The retiree availed of the retirement pay for the first time.
B. The retiree should be at least 40 years old.(50years)
C. The retiree should have been connected with the company for at least 10 years.
D. The retirement plan of the company has been approved by the Commissioner of the
BIR.

Question 48:
Statement 1: The tax base of compensation paid in cash is the face value of the cash
received.
Statement 2: The tax base of property as payment of compensation is the book value of
the property or its fair market value, whichever is higher.

A. Both statements are correct.

B. Only the second statement is correct.
C. Neither statement is correct.
D. Only the first statement is correct.

Question 49:
JM, a resident citizen, received P 42,000 interest income from short term deposits in the
Philippines. The final tax withheld on interest is:
A. P-0-
B. P8,400
C. P10,500
D. P5,000

Question 50:
A. Capital losses are deductible from ordinary gains but net capital loss is not
deductible from ordinary gains.
B. Ordinary losses are deductible only to the extent of the capital gains but the net
capital loss is not deductible from ordinary gain.

A. true, true
B. false, true
C. false, false
D. true, false

Question 51:
I. Not all taxes imposed and collected by the Bureau of Internal Revenue are internal
revenue taxes.
II. Even in the absence of any constitutional provision, taxation power falls under
Congress as part of the general power of lawmaking.

A. Only statement 1 is correct

B. Both statements are incorrect
C. Both statements are correct
D. Only statement 2 is correct

Question 52:
Mr. John received a note as payment of services rendered. The basis of computing the
income will be:
A. The value of the note will depend on the amount when such note will be paid
B. The face value of the note
C. The discounted value of the note
D. The fair market value of the note

Question 53:
Mr. Buscemi, the Treasurer of Apollo Corp., receives P25,000 basic salary a month.
For being one of the five members of the board of the same corporation, he, in addition,
receives P15,000 a month. In December 2020, he received his 13 th month pay of
P40,000 and productivity incentive of P150,000. How much is Mr. Buscemi’s gross
income in 2020?
A. P300,000
B. P580,000
C. P520,000
D. P480,000

Question 54:
Substantial losses from a prolonged labor dispute means
A. The strike resulted to temporary shutdown of business operations.
B. None of the above
C. Both of the above
D. Losses arising from a strike staged by the employees which lasted for more
than six months within a taxable period.

Question 55:
I. A taxpayer’s tax-exempt status justifies the non-keeping of books of accounts & other
accounting records.
II. The salaries of the Chief Justice & associate justice of the Supreme Court are tax-
exempt.

A. Only statement 2 is correct

B. Both statements are correct
C. Both statements are incorrect
D. Only statement 1 is correct

Question 56:
Which payments made by the lessee under such terms of the lease contract should be
considered as additional rent income of the lessor?
A. If a lessee paid directly to the government a real estate tax on the property of the
lessor.
B. If the amount received by the lessor is in the nature of a security deposit for the
faithful compliance by the lessee of the terms of the contract.
C. If the amount received by the lessor is in the nature of a loan extended by the lessee
to the lessor.

A. Only B and C
B. A, B, and C
C. Only A and C
D. Only A

Question 57:
Blue Company, a domestic corporation, showed the following data for the 1 st and 2nd
quarters of 2019:
1st 2nd
Gross sales 3,000,000 4,500,000
Cost of sales 1,800,000 2,400,000
Operating 900,000 1,550,000
expenses
The company paid the tax of P60,000 for the 1 st quarter. How much is the income tax
payable on the 2nd quarter?
A. 66,000
B. 165,000
C. 255,000
D. 195,000

Question 58:
Ms. Magdalene retired from the company after serving for eight years as receiving clerk.
During the period of retirement, she received the following
Annual basic salary P144,000
Christmas bonus, cash gift and 13th month pay P20,000
Allowance P2,500
monthly
Retirement benefits from SSS P350,000
Retirement benefits from the company’s approved retirement benefit P45,000
plan
Monetization of her 10-day leave credits P4,000
During the same period, the taxpayer has an actual payment for health insurance of
3,600. The taxpayer is a widow who supports her two qualified children and two
children, below 21 years old, unmarried and not gainfully employed, of her husband
from his first wife. How much is the income tax due?
A. 77,250
B. 78,250
C. 30,000
D. -0-

Question 59:
A. The cost of leasehold improvements shall be deductible by the lessee by spreading
the cost of the improvements over the life of the improvements or remaining term of the
lease whichever period is shorter.
B. Contributions by the employer to a pension trust for past service cost is deductible in
full in the year that the employer made the contributions.

A. False, true
B. True, false
C. False, false
D. True, true

Question 60:
Crown Corporation provided the following information:
Gross Income from Sales P5,000,000
Cost of Sales 2,000,000
Other Business Expenses (except contribution below) 1,000,000
Charitable contribution to the government for public purposes 100,000
Charitable contribution to Saint Mary Euphrasia 50,000
Charitable contribution to the Provincial government of Batangas for 300,000
education
Charitable contribution for Taal Eruption victim 50,000
How much is the taxable income?
A. P2,500,000
B. P2,550,000
C. P2,600,000
D. P2,700,000