GROSS INCOME

Question 1

1. Which of the following is a requisite for an income to be taxable?
   a. There must be gain
   b. The gain must be realized or received
   c. The gain must not be excluded by law from taxation
   d. All of the above

Answer 1

D

Question 2

2. Which of the following is not an income for income tax purposes?
   a. Gain derived from labor
   b. Return on capital
   c. Excess of selling price over cost of assets sold
   d. Gift received

Answer 2

D

Question 3

3. Which of the following test of source of income is incorrect?
   a. Interest income – residence of the debtor
   b. Income from services – place of performance
   c. Royalties – place of use of intangible
   d. Gain on sale of real property – place of sale

Answer 3

D

Question 4

4. Which of the following compensation will be subject to graduated rates?
   a. Basic salary whether or not the employee is a minimum wage earner
   b. Basic salary only if the employee is not a minimum wage earner
   c. 13th month pay and other benefits not exceeding P90,000
   d. Fringe benefits received by supervisory or managerial employee

Answer 4

B

Question 5

5. Prizes and awards received shall be exempt from income tax when the following conditions are
   met, except
   a. It is given in recognition of religious, charitable, scientific, educational, artistic,
   literary or civicachievement
   b. The recipient of the award or prize is not required to render substantial future
   services as acondition in receiving the prize or award
   c. The recipient of the award was selected without any action on his part to enter the
   contest orproceeding
   d. The amount of prizes does not exceed P10,000

Answer 5

D

Question 6

6. One of the following compensation income of an individual taxpayer is not an exclusion from gross income
   a. Monetized vacation leaves not exceeding 10 days a year
   b. Separation pay of an employee who resigned from his employment
   c. Retirement benefits of an employee under a qualified benefit plan who has worked for an employerfor at least 10 years, who at the time of retirement is not less than 50 years of age, and who availsof the retirement for the first time
   d. All of these

Answer 6

B

Question 7

7. Which of the following is not a taxable income?
   a. Bad debts previously deducted as item of expense and partially recovered subsequently
   b. Tax expense previously disallowed as deduction from taxable income, fully refunded
   subsequently
   c. Income from gambling
   d. Income from usurious financing

Answer 7

B

Question 8

8. Proceeds of Insurance taken by a corporation on the life of an executive to indemnify it against
   loss in caseof his death is
   a. Exempt from income tax
   b. Part of taxable income
   c. Subject to final tax
   d. Partly exempt, partly taxable

Answer 8

B

Question 9

9. The proceeds received under a life insurance endowment contract is not considered part of gross
   income
   a. If it is so stated in the life insurance endowment policy
   b. If the price for the endowment policy was not fully paid
   c. Where payment is made as a result of the death of the insured
   d. Where the beneficiary was not the one who took out the endowment contract

Answer 9

C

Question 10

10. Which of the following is taxable?
    a. Separation pay received by a 50-year old employee due to the retrenchment program of the employer
    b. Retirement pay received from a benefit plan registered with the BIR where at the time the employee retired, he was 57 years of age,retiring from employment for the first time in hislife, andwas employed with the employer for 8 years
    c. Social security benefit received by a balikbayan from employer abroad at age of 30
    d. None of the above

Answer 10

B

Question 11

11. Which among the following is part of the taxable income of an employee?
    I. Insurance premium provided by employer on the life insurance policy of the employee
    where thedesignated beneficiary is the relative of the employee.
    II. Insurance premium paid by employer on the life insurance policy of the employee where the
    designatedbeneficiary is the employer.
    III. The income tax of the employee paid by the employer as part of the employee’s benefit.
    IV. The income tax of the employee advanced by the employer, deductible against future
    income of theemployee.
    a. I only
    b. I and III only
    c. II and III only
    d. III only

Answer 11

B

Question 12

12. Which of the following interest income is subject to normal tax?
    I. Interest income earned or derived from the normal course of trade or business.
    II. Interest income earned or derived from notes receivable.
    III. Interest income earned or derived from the over-payment of income tax for previous years.
    IV. Interest income derived from investments in government bonds.
    a. I only
    b. I and II only
    c. I, II and III only
    d. All of the above

Answer 12

C

Question 13

13. This is taxable income
    a. Retrenchment pay
    b. Separation pay due to resignation
    c. SSS/GSIS benefits
    d. Refund of Philippine Income tax

Answer 13

B

Question 14

14. If an individual performs services for a creditor who, in consideration thereof, cancels the
    debt, thecancellation of indebtedness may amount
    a. To a gift
    b. To a capital contribution
    c. To a donation inter vivos
    d. To a payment of income

Answer 14

D

Question 15

15. ABC Corporation took two life insurance policies on the life of its VP, Mr. X. In one policy, the
    beneficiary isthe corporation and the other, designates his wife asthe revocable beneficiary. The
    insurance premium paidby ABC Corporation is
    a. Tax deductible insofar as the first policy is concerned
    b. Tax deductible for both policies
    c. Not tax deductible for both policies
    d. First policy is not deductible; second policy is deductible

Answer 15

D

Question 16

16. One of the following is taxable income
    a. Gifts, bequests and devices
    b. Amounts received as rewards for giving information instrumental in the discovery of
    violation ofthe Tax Code and seizure of smuggled goods
    c. Proceeds from life insurance
    d. Separation pay received by an employee due to a cause beyond his control

Answer 16

B

Question 17

17. As a rule, the following are taxable income, except
    a. Cash dividend
    b. Scrip dividend
    c. Property dividend
    d. Stock dividend

Answer 17

D

Question 18

18. The following items are exclusions from gross income, except
    a. Labor union dues
    b. IOU’s
    c. SSS/GSIS premiums contributions
    d. Pag-ibig premiums contributions

Answer 18

B

Question 19

19. Which of the following is part of gross income?
    a. PCSO and Philippine Lotto winnings
    b. Bank interest on long-term deposit
    c. Proceeds of life insurance
    d. Raffle prize not exceeding P10,000

Answer 19

D

Question 20

20. Dividends paid by a domestic corporation maybe taxable but subject to final tax, except
    a. If received by a resident citizen
    b. If received by a resident alien
    c. If received by a non-resident corporation
    d. If received by another domestic corporation

Answer 20

D

Question 21

21. Which statements is correct?
    a. Incomes from illegal activities are taxable
    b. Tax refunds constitute taxable income to the taxpayer
    c. Recovery of bad debts previously written off is part of taxable income
    d. As a rule, contest awards and prizes are subject to 20% final tax if they amount to P10,00
    or more,otherwise they will be exempt from income tax

Answer 21

A

Question 22

22. One of the following is taxable income
    a. Compensation for damages
    b. The share of a partner in the undistributed net income of a general professional
    partnership
    c. Living quarters and meals furnished and given to an employee for the convenience of the
    employer
    d. Facilities or privilege of relatively small value offered by the employer as a means of promoting the health, goodwill, contentment, or efficiency of the employee

Answer 22

B

Question 23

23. Gain realized from the sale or exchange or retirement of bonds, debentures or other certificate
    ofindebtedness is excluded from gross income if with a maturity of
    a. 5 years or more
    b. More than 8 years
    c. More than 7 years
    d. More than 10 years

Answer 23

A

Question 24

24. Gross benefits received by officials and employees of public and private entities as 13th month
    pay and otherbenefits such as productivity bonus, service incentive pay, and Christmas bonus
    shall be excluded from taxable income up to
    a. P20,000
    b. P40,000
    c. P90,000
    d. P50,000

Answer 24

C

Question 25

25. Advance rental in the nature of prepaid rental, received by the lessor under a claim or right
    and withoutrestriction as to use is
    a. Taxable income ofthe lessorin the year received if he is on the cash method of accounting
    b. Taxable income of the lessor in the year received if he is on the accrual method of
    accounting
    c. Taxable income of the lessor in the year received whether he is on the cash or accrual
    method ofaccounting
    d. Taxable income of the lessor up to the amount earned in the year the rental is received

Answer 25

C

Question 26

26. Statement I: Holiday pay and hazard pay are not exempt from income tax.
    Statement II: Tips or gratuities paid directly to an employee by a customer of the employer
    which are notaccounted for by the employee to the employer are considered as taxable income.
    a. True; False
    b. False; False
    c. True; True
    d. False; True

Answer 26

C

Question 27

27. Statement I: If services are paid for in a medium other than money, it is not to be included as
    compensation.
    Statement II: Passive income subject to final tax shall not form part of the gross income for
    purposes of computing the normal income tax liability of individuals and corporations.
    a. True; False
    b. False; False
    c. True; True
    d. False; True

Answer 27

D

Question 28

28. X Corporation took 2 life insurance policies on the life of its VP. In one policy, the beneficiary is
    the corporation and the other, designates his wife as the revocable beneficiary. The insurance
    premium paid byX Corporation is
    a. Tax deductible insofar as the first policy is concerned
    b. First policy is not deductible; second policy is deductible
    c. Not tax deductible for both policies
    d. Tax deductible for both parties

Answer 28

B

Question 29

29. X was selected as the most outstanding teacher in her region. Her name was submitted by
    the schoolprincipal without her knowledge. She received a trophy and cash award of P15,000
    a. Exempt from income tax c. Partly taxable, partly exempt
    b. Subject to final tax
    c. Partly taxable, partly exempt
    d. Taxable income

Answer 29

A

Question 30

30. Which of the following tax refunds constitutes income?
    a. Refund of Philippine income tax
    b. Refund of estate tax
    c. Refund of donor’s tax
    d. Refund of percentage tax

Answer 30

D

Question 31

31. One of the following is correct
    a. Income from long-term contracts may be reported on the completed contracts method of accounting
    b. Income from long-term contracts must be reported only on the percentage of completion method of accounting
    c. The value of property acquired by gifts, bequests and devises are included from gross income
    d. Benefits received from SSS and GSIS are taxable

Answer 31

B

Question 32

32. The following are excluded from gross income, except
    a. Interest payments on proceeds of life insurance held by the insurer
    b. GSIS, SSS, Philhealth, Pag-ibig contributions and union dues of individuals
    c. Gains realized by an investor upon redemption of shares of stock in a mutual fund company
    d. Income derived from the sale of gold pursuant to RA 7076 (People’s Small-scale Mining Act of 1991)

Answer 32

A

Question 33

33. Should the lessee make permanent improvements on the property leased under an agreement
    that upon the expiration of the lease contract the improvements shall belong to the lessor, the
    lessor may recognize income from the leasehold improvements
    I. At the time when such improvements are completed, the fair market value of such
    improvements.
    II.By spreading over the remaining term of the lease the estimated depreciated value of such
    improvements at the termination of the lease and report as income for each year of the lease.
    a. Only I is allowed
    b. Only II is allowed
    c. Either I or II is allowed
    d. Neither I nor II is allowed

Answer 33

C

Question 34

34. Mr. X was named the MVP in the recently concluded FIBA Basketball World Cup. In recognition
    ofhis outstanding performance, he was awarded a trophy and a cash prize of P500,000.
    a. The value of the trophy and the cash prize are part of his taxable income
    b. Only the value of the trophy is taxable
    c. Only the cash prize is taxable
    d. Both are exempt from income tax

Answer 34

D

Question 35

35. The following income received by officials and employees in the public sector are not subject
    toincome tax and withholding tax on compensation, except
    a. Representation and transportation allowance (RATA) granted under the General
    Appropriations Act
    b. Personnel Economic Relief Allowance (PERA) granted to government personnel
    c. Monetized value of leave credits paid to government officials and employees
    d. The excess of the 13th month pay and other benefits paid or accrued during the year over
    P90,000

Answer 35

D

Question 36

36. Mr. X was employed by several companies on a part time basis for several years. During this
    time,all of his employers were withholding and excluding from his salary Social Security system
    contributions despite the fact that he has already exceeded the maximum allowed contributions
    under the SSS. Mr. X then filed a refund from the SSS on the said contributions to which the SSS
    paid back to Mr. X the said amount excess. The effect of the said refund of SSS payment to Mr. X would be
    a. The amount refunded represent return of capital and therefore not subject to income tax for the years that they were deducted
    b. The amount refunded represents return of income and therefore should be included
    inthe income tax on the years that they were deducted
    c. The amount refunded represents return of income and therefore should be included
    in the income tax on the year that it was received
    d. The amount refunded represents return of capital and therefore not subject to income tax
    for the year that it was received

Answer 36

C

Question 37

37. X was a passenger of an airliner that crashed. He survived the accident but sustained serious
    physical injuries which required hospitalization for 3 months. Following negotiations with the
    airline and its insurer, an agreement was reached under the terms of which X was paid some
    amounts. Which of the following amounts constitute taxable income?
    a. P500,000 for hospital confinement
    b. P400,000 for medical expenses
    c. P250,000 as moral damages
    d. P300,000 for loss of income during the period of his treatment and recuperation

Answer 37

D