ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 43  May 2022 CPA Licensure Examination  Weeks 7 & 9

TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

TAX-902A: GROSS INCOME – EXCLUSIONS

2. A resident citizen, widower, with a dependent minor brother, had the following data on income and expenses for 2021:

Gross sales P1,500,000

Cost of sales 1,000,000
Business expenses 200,000
Interest from savings deposit, BPI-Makati, Philippines 50,000
Prize in a literary contest he joined 100,000
Prize received for achievement in literature (did not join the contest) 10,000
Gain from sale of bonds (maturity is 6 years) 5,000
Separation pay from his former job (resigned) 250,000
Cash he inherited from his uncle 300,000
Proceeds of his wife’s life insurance (irrevocable beneficiary) 1,000,000
Amount received as return of premium (premium paid, P150,000) 200,000
Tax Informer’s Reward 500,000
Philippine Charity Sweepstakes winnings 10,000
Interest income from Government bonds 20,000
Winnings from illegal gambling 10,000
Question 1 - How much was the total amount of excluded or exempted income?
2 - How much was the total final tax from certain income?
3 – The taxpayer failed to indicate in his first quarter return the option to be taxed at 8%:
a) How much was the income tax due if he uses itemized deductions?
b) How much was the percentage tax, if any?
4 – The taxpayer indicated in his first quarter return to opt for the 8% income tax rate:
a) How much was the income tax due?
b) How much was the percentage tax, if any?
5 – The taxpayer opted to for the optional standard deduction (OSD):
a) Can he avail of the 8% income tax rate?
b) How much was the income tax due?
c) How much is the percentage tax, if any?
Suggested Answers and Solutions:
Question 1 - Total amount of excluded or exempted income
Prize received for achievement in literature (did not join the contest) P 10,000
Gain from sale of bonds (maturity is 6 years) 5,000
Cash he inherited from his uncle 300,000
Proceeds of his wife’s life insurance (irrevocable beneficiary) 1,000,000
Amount received as return of premium 150,000
Philippine Charity Sweepstakes winnings 10,000
Total amount of excluded/exempted income P1,475,000
Question 2 - Total final tax from certain income
Interest from savings deposit, BPI-Makati, Philippines (50,000 x 20%) P 10,000
Prize in a literary contest he joined (100,000 x 20%) 20,000
Tax Informer’s Reward (500,000 x 10%) 50,000
Interest income from Government bonds (20,000 x 20%) 4,000
Total final tax P 84,000
Question 3 – a) Income tax due (taxpayer failed to indicate in his first quarter return the option to be taxed at
8%)
Taxable compensation income P250,000
Gross sales P1,500,000
Less: Cost of sales 1,000,000
Gross business income 500,000
Less: Business expenses 200,000
Net operating income 300,000
Add: Non-operating income
Excess of amount received as return of premium (200,000 – 150,000) 50,000
Winnings from illegal gambling 10,000 360,000
Total taxable income P610,000
Tax due Sec. 24 (A) 400,000 30,000
210,000 x 25% 52,500 P52,500
Question 3 b) – Percentage tax
Gross sales P1,500,000
Tax rate 1%
Percentage tax (Sec. 116) – under CREATE Act from July 1, 2020 until June 30, 2023 P 15,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-902A
Weeks 7 & 9: GROSS INCOME - EXCLUSIONS

3. A resident citizen, widower, with a dependent minor brother, had the following data on income and expenses for 2021:

Gross sales P1,500,000

Cost of sales 1,000,000
Business expenses 200,000
Interest from savings deposit, BPI-Makati, Philippines 50,000
Prize in a literary contest he joined 100,000
Prize received for achievement in literature (did not join the contest) 10,000
Gain from sale of bonds (maturity is 6 years) 5,000
Separation pay from his former job (resigned) 250,000
Cash he inherited from his uncle 300,000
Proceeds of his wife’s life insurance (irrevocable beneficiary) 1,000,000
Amount received as return of premium (premium paid, P150,000) 200,000
Tax Informer’s Reward 500,000
Philippine Charity Sweepstakes winnings 10,000
Interest income from Government bonds 20,000
Winnings from illegal gambling 10,000

Question 1 - How much was the total amount of excluded or exempted income?
2 - How much was the total final tax from certain income?
3 – The taxpayer failed to indicate in his first quarter return the option to be taxed at 8%:
a) How much was the income tax due if he uses itemized deductions?
b) How much was the percentage tax, if any?
4 – The taxpayer indicated in his first quarter return to opt for the 8% income tax rate:
a) How much was the income tax due?
b) How much was the percentage tax, if any?
5 – The taxpayer opted to for the optional standard deduction (OSD):
a) Can he avail of the 8% income tax rate?
b) How much was the income tax due?
c) How much is the percentage tax, if any?

Suggested Answers and Solutions:

Question 1 - Total amount of excluded or exempted income

Prize received for achievement in literature (did not join the contest) P 10,000
Gain from sale of bonds (maturity is 6 years) 5,000
Cash he inherited from his uncle 300,000
Proceeds of his wife’s life insurance (irrevocable beneficiary) 1,000,000
Amount received as return of premium 150,000
Philippine Charity Sweepstakes winnings 10,000
Total amount of excluded/exempted income P1,475,000

Question 2 - Total final tax from certain income

Interest from savings deposit, BPI-Makati, Philippines (50,000 x 20%) P 10,000
Prize in a literary contest he joined (100,000 x 20%) 20,000
Tax Informer’s Reward (500,000 x 10%) 50,000
Interest income from Government bonds (20,000 x 20%) 4,000
Total final tax P 84,000

Question 3 – a) Income tax due (taxpayer failed to indicate in his first quarter return the option to be taxed at
8%)
Taxable compensation income P250,000
Gross sales P1,500,000
Less: Cost of sales 1,000,000
Gross business income 500,000
Less: Business expenses 200,000
Net operating income 300,000
Add: Non-operating income
Excess of amount received as return of premium (200,000 – 150,000) 50,000
Winnings from illegal gambling 10,000 360,000
Total taxable income P610,000
Tax due Sec. 24 (A) 400,000 30,000
210,000 x 25% 52,500 P52,500

Question 3 b) – Percentage tax

Gross sales P1,500,000
Tax rate 1%
Percentage tax (Sec. 116) – under CREATE Act from July 1, 2020 until June 30, 2023 P 15,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-902A
Weeks 7 & 9: GROSS INCOME – EXCLUSIONS

Taxable compensation income P 250,000

Tax due Section 24 (A) 0
Gross sales P1,500,000
Add: Non-operating income
Excess of amount received as return of premium (200,000 – 150,000) 50,000
Winnings from illegal gambling 10,000
Taxable income P1,560,000
Tax rate 8% 124,800
Total income tax due P 124,800

Taxable compensation income P 250,000

Gross sales P1,500,000
Less: Optional standard deduction (40% x 1,500,000) 600,000
Net operating income 900,000
Add: Non-operating income
Excess of amount received as return of premium (200,000 – 150,000) 50,000
Winnings from illegal gambling 10,000 960,000
Total taxable income P1,210,000
Tax due Sec. 24 (A) 800,000 130,000
410,000 x 30% 123,000 P253,000

Gross sales P1,500,000

Tax rate 1%
Percentage tax (Sec. 116) – under CREATE Act from July 1, 2020 until June 30, 2023 P 15,000

END

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