TEST 8 PRINCIPLES OF TAXATION

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Hopeful Corporation obtained a loan from Generous Bank and executed a mortgage on its real property to secure the loan. When Hopeful Corporation failed to pay the loan, Generous Bank extrajudicially foreclosed the mortgage on the property and acquired the same as the highest bidder. A month after the foreclosure, Hopeful Corporation exercised its right of redemption and was able to redeem the property. Is Generous Bank liable to pay capital gains tax as a result of the foreclosure sale?

1 point

Yes

Clear selection

Mr. A was preparing his income tax return and had some doubt on whether a commission he earned should be declared for the current year or for the succeeding year. He sought the opinion of his lawyer who advised him to report the commission in the succeeding year. He heeded his lawyer's advice and reported the commission in the succeeding year. The lawyer's advice turned out to be wrong; in Mr. A's petition against the BIR assessment, the court ruled against Mr. A. Is Mr. A guilty of fraud?

1 point

Mr. A is not guilty of fraud as he simply followed the advice of his lawyer.

Mr. A is guilty of fraud; he deliberately did not report the commission in the current year when he should have done so.

Mr. A's lawyer should pay the tax for giving the wrong advice.

Mr. A is guilty for failing to consult his accountant.

Clear selection

A corporation may change its taxable year to calendar or fiscal year in filing its annual income tax return, provided: (2011 Bar Question)

1 point

it seeks prior BIR approval of its proposed change in accounting period.

it simultaneously seeks BIR approval of its new accounting period.

it should change its accounting period two years prior to changing its taxable year.

its constitution and by-laws authorizes the change.

Clear selection

The appropriate method of accounting for a contractor on his long-term construction contract (i.e., it takes more than a year to finish) is:

1 point

Cash method;

Accrual method;

Installment sale method;

Percentage of completion method.

Clear selection

The "all events test" refers to:

1 point

A person who uses the cash method where all sales have been fully paid by the buyers thereof;

A person who uses the installment sales method, where the full amount of consideration is paid in full by the buyer thereof within the year of sale;

A person who uses the accrual method, whereby an expense is deductible for the taxable year in which all the events had occurred which determined the fact of the liability and the amount thereof could be determined with reasonable accuracy;

A person who uses the completed method, whereby the construction project has been completed during the year the contract was signed.

Clear selection

YYY Corporation engaged the services of the Manananggol Law Firm in 2016 to defend the corporation’s title over a property used in the business. For the legal services rendered in 2017, the law firm billed the corporation only in 2018.

The corporation duly paid. YYY Corporation claimed this expense as a deduction from gross income in its 2018 return, because the exact amount of the expense was determined only in 2018. Is YYY’s claim of deduction proper?

1 point

Yes

Clear selection

For income tax purposes, the source of the service income is important for the taxpayer, who is a:

1 point

Filipino citizen residing in Makati City;

Non-resident Filipino citizen working residing in London, United Kingdom;

Japanese citizen who is married to a Filipino citizen and residing in their family home located Fort Bonifacio, Taguig City;

Domestic corporation.

Clear selection

Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident citizen. If the goods were produced from Ms. B's factory in the Philippines, is Ms. B's income from the sale to Ms. C taxable in the Philippines?

1 point

Yes

Clear selection

The head priest of the religious sect Tres Personas Solo Dios, as the corporation sole, rented out a 5,000 sq. m. lot registered in its name for use as school site of a school organized for profit. The sect used the rentals for the support and upkeep of its priests. The rented lot is:

1 point

not exempt from real property taxes because the user is organized for profit.

exempt from real property taxes since it is actually, directly, and exclusively used for religious purposes.

not exempt from real property taxes since it is the rents, not the land, that is used for religious purposes.

exempt from real property taxes since it is actually, directly, and exclusively used for educational purposes.

Clear selection

Lualhati Educational Foundation, Inc., a stock educational institution organized for profit, decided to lease for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and exclusively used the rents for the maintenance of its school buildings, including payment of janitorial services. Is the leased portion subject to real property tax?

1 point

Yes, since Lualhati is a stock and for profit educational institution.

No, since the school actually, directly, and exclusively used the rents for educational purposes.

No, but it may be subject to income taxation on the rents it receives.

Yes, since the leased portion is not actually, directly, and exclusively used for

Clear selection

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