INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

C!"t#$ %: Con#"t o' Ino#

CHATER %

CONCET O* INCOME

Problem 3 – 1 TRUE OR FALSE

1. False – Some wealth that made to increase the taxpayer’s net worth are gifts andinheritance and these are not taxable income.

2. True3. True4. False – Filipino citien who is not residing in the !hilippines is taxable only for income

earned within.". False – The basis of tax is the fair mar#et $alue of the instrument.%. False – &ot income for the employee and not sub'ect to income tax because the

beneficiary is the employer.(. False – )ccrual reporting reports income when there is earning regardless of

collection.*. False – +alendar year basis,. True-. False – This rule applies to indi$idual taxpayers.--. False – There is no rule of 2"/ initial payment if the sale is made on regular basis of

personal goods.-2. True-3. True-4. True

Problem 3 – 2

-. ) --. 02. 1 -2. )3. 0 -3. )4. 1 -4. 1". + -". )%. 0 -%. 0(. -(. 1*. + -*. +,. + -,. +-. + 2. 1

2-. )

Problem 3 – 3 A

&et assets ending !3 – !" !2"&et assets beg. !4 – !-" 2"0alance ! 5 5)dd6 7wner’s drawings 24"8eportable income loss !24"

Problem 3 – 4 D

&et assets end of year ! -)dd6 !ersonal drawing ( Total ! -(9ess6 &et assets beginning of year -"0usiness income ! 2

Problem 3 – 5 C

&et assets ending !"3 – !-3 !4&et assets beg. 2"8eportable income loss !-"

Problem 3 – 6 B

:ncrease in total assets ! 2"1ecrease in total liabilities -%1rawings 2)dditional in$estments " Total income ! 3*

Problem 3 – 7 D

8eturn of +apital 8eturn on +apital Time deposit balance !2" !3

 

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

C!"t#$ %: Con#"t o' Ino#

Problem 3 – 8 C

 ;ear - ;ear 2 ;ear 3Sales !-*+ost of sale -1isposal cost ":ncome for each year ! ("

Problem 3 – 9 A

 Taxable :ncome &ontaxable:ncome

Salary !2%<-3 x -2 !248affle winnings (-3th month pay !2%<-3 x - ! 29otto winnings . "

!3- !"2Problem 3 – 10 D

=ithin6 Taxable :ncome  +ompensation income !-*  :ncome from grocery store "7utside6

+ompensation income -2  9otto winnings - Total income taxable in the !hilippines !4"

o!e" 9otto winnings earned outside the !hilippines by a resident Filipino citien are taxablein the !hilippines.

Problem 3 – 11 C

Sub'ect to :T8 Sub'ect to Final Tax

+onsultancy fee ! *Salary 3!ries in raffle tic#et ! 2>ain on sale of principal residence . 4 Totals !3* !42

Problem 3 – 12 D

Salary for the first 4 months !-2 x 4 ! 4*8emaining months !-" x * -2>ross compensation income !-%*

Problem 3 – 13 B

8eportable income is the mar#et $alue of the car recei$ed !-2

Problem 3 – 14 A

?ar#et $alue of the ser$ice recei$ed !%

Problem 3 – 15 C

Face $alue of the non5interest bearing note !3?ultiplied by the present $alue factor of -/ annuity .,,+ompensation income – present $alue of the note !2(2(

&ote6 @pon receipt of the note no interest income yet is to be reported.

Problem 3 – 16 A

+ompensation income !":nterest income !" x -2/ x %<-2 !3

Problem 3 – 17 B

+ollections during the year !4,Axpenses actually incurred -"&et income before personal exemption – cash basis !34

Problem 3 – 18 A

>ross income !- – !% !4)ctual operating expenses !2 x */ -%

 

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

C!"t#$ %: Con#"t o' Ino#

&et income before other income !24)dd6 >ain from sale of old furniture 2 Taxable income !2%

Problem 3 – 19

-. )  8eportable income 2% 5 casual sale !-2 – !3 !,

 The sale is considered cash sales because the 2% initial payments !- B !- B2 exceeds 2"/ of the selling priceC !4<!-2 D 33/

2. 0  8eportable income 2% – regular sale !, x !4<!-2 !3

Since the personal property is sold in regular basis installment reporting of income isallowed.

Problem 3 – 20

-. !3(" D &ot in the choices  &et income !2 – !-4 – !- !"  :ncome tax !" x "<2 x 3/ ! 3("

2. 0  :ncome tax !2 x %/ !-2

Problem 3 – 21 B

 Total re$enue !-+ost of sale ":ncome to be reported ! "

Problem 3 – 22 D

+ontract price ! -9ess6 +ost !,<2/ 4">ross profit ! ""?ultiplied by percent of completion 2/8eportable income under percent of completion ! --

Problem 3 – 23 D

+ontract price !-29ess6 Total costs !432 B !-*42" B !-3(" (2 Total profit ! 4*9ess6 !re$ious years’ reported income6)ccomplished contract price for 2* and 2, !-2 x*"/

!-2

!re$ious years’ actual costs6  2* 432

  2, -*42"

  43("

!ercent of completion – 2- 8eportable income ! (%2"

Problem 3 – 24 A

 ;ear 3 sales ! "9ess6 +ost incurred as of year 36  ;ear - ! -  ;ear 2 2  ;ear 3 " 3" ;ear 3 – reportable income ! -"

Problem 3 – 25 C

 

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

C!"t#$ %: Con#"t o' Ino#

Ear$ested crops sold ! 29ess6 Total direct costs6  ;ear - ! 3  ;ear 2 -  ;ear 3 -  ;ear 4 -  ;ear " 4 -8eportable income – year " ! -

Problem 3 – 26

 #e$r 1 #e$r 2

 Total har$est for the yearat selling price !" !-

  C$%& A''r($l C$%& A''r($l

Ear$ests sold6  * ca$ans x !" !4 !4  -, ca$ans x !" !," !,"Anding in$entory6  2 ca$ans x !" -  3 ca$ans x !" -"0eginning in$entory6  2 ca$ans x !" . . . ->ross income for the year !4 !" !," !-

Problem 3 – 27

-. +ash ?ethod Farming Trading 8ent Total8e$enue ! " !-" !-Auipment sold 2"+osts6  +ost of products purchased ,  +arrying $alue of farmeuipment

  . 2" .

>ross income ! " ! % !- !2-

2. )ccrual ?ethod Farming Trading 8ent Total8e$enue ! " !-" !-Auipment sold 2":n$entory ending ,:n$entory beginning %+osts6  +ost of products purchased ,  +arrying $alue of farmeuipment

  . 2" .

>ross income ! "3 ! % !- !2-3