ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41  May 2021 CPA Licensure Examination  Weeks 7 – 8

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-702A: INCOME TAX RATES FOR CORPORATIONS (ANSWERS)

1. Exercises: Identify whether the following are subject to final tax or not. Taxpayer is DOMESTIC CORPORATION
unless otherwise stated (Y/N).
Final
tax? Rate
1) Interest from peso bank deposit, Equitable – PCIB, Makati Y 20%
2) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan N Reg. rate (30%)
3) Interest from USA dollar bank deposit, First USA Bank, New York N Reg. rate (30%)
4) Interest income from a debt instrument not within the coverage of deposit substitute,
Philippines N Reg. rate (30%)
5) Interest income from a debt instrument within the coverage of a deposit substitute,
Philippines Y 20%
6) Interest on government debt instrument and securities (regardless of number of lenders
at the time of the origination) Y 20%
7) Interest from overdue accounts receivable, Philippines N Reg. rate (30%)
8) Royalties, in general, Manila Y 20%
9) Prize amounting to P30,000, Philippines N Reg. rate (30%)
10) Prize amounting to P10,000, Philippines N Reg. rate (30%)
11) Prize amounting to P40,000, USA N Reg. rate (30%)
12) Winnings amounting to P30,000, Philippines N Reg. rate (30%)

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13) Winnings amounting to P10,000, Philippines N Reg. rate (30%)

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14) Interest received from depository bank under expanded foreign currency deposit system Y 15%

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15) Interest income from long-term deposit or investment evidenced by certificates issued by
BSP
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16) Interest income from long-term deposit or investment evidenced by certificates issued by
N Reg. rate (30%)

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BSP received by RESIDENT FOREIGN CORPORATION N Reg. rate (30%)
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17) Interest income from long-term deposit or investment evidenced by certificates issued by
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BSP received by NON-RESIDENT FOREIGN CORPORATION Y 30%

18) Gain from sale of shares of stock not through the stock exchange Y 15%
19) Gain from sale of shares of stock not through the local stock exchange received by RESIDENT 5% - first 100,000
FOREIGN CORPORATION Y 10% - excess
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20) Gain from sale of shares of stock not through the local stock exchange received by NON- 5% - first 100,000
RESIDENT FOREIGN CORPORATION 10% - excess
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21) Presumed capital gain from sale of real property classified as capital asset Y 6%
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22) On selling price of sale of real property classified as ordinary asset (seller not habitually 6% cwt
engaged in real estate business) N Reg. rate (30%)
23) On selling price of sale of real property classified as ordinary asset (seller habitually 1.5% cwt
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engaged in real estate business), selling price is P500,000 N Reg. rate (30%)
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24) On selling price of sale of real property classified as ordinary asset (seller habitually 3% cwt
engaged in real estate business), selling price is P2,000,000 N Reg. rate (30%)
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25) On selling price of sale of real property classified as ordinary asset (seller habitually 5% cwt
engaged in real estate business), selling price is more than P2,000,000 N Reg. rate (30%)
26) Sale of real property by a corporation which is registered with and certified by the
Housing and Land Use Regulatory Board (HLURB) or the Housing and Urban Development
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Coordinating Council (HUDCC) N Exempt

27) Income derived by a depository bank from foreign currency transactions with non-
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residents, OBUs in the Philippines, local commercial bank including branches of foreign
banks N Exempt
28) Interest income from foreign currency loan granted by depository banks under expanded
system to residents other than OBUs in the Philippines and other depository bank Y 10%
29) Dividend from a domestic corporation N Exempt
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30) Dividend from a foreign corporation N Reg. rate (30%)

31) Dividend received from domestic corporation by a NON-RESIDENT FOREIGN
CORPORATION (no tax sparing credit) Y 30%
32) Dividend received from domestic corporation by a NON-RESIDENT FOREIGN
CORPORATION Y 15%
33) Interest on foreign loans contracted on or after August 1, 1986 received by non-resident
foreign corporation Y 20%
34) Interest income received by RESIDENT FOREIGN CORPORATION from a depository
bank under expanded foreign currency deposit system Y 7 1/2%%
35) Interest income received by a NON-RESIDENT FOREIGN CORPORATION from a
depository bank under expanded foreign currency deposit system N Exempt

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702A
Weeks 7 – 8: INCOME TAX RATES for CORPORATIONS (ANSWERS)

2. ABC Corporation was created in accordance with Philippines laws. During the calendar year 2018, it has the following
data on income and expenses:
Gross income, Philippines (gross sales, P15,000,000) P10,000,000
Business expenses, Philippines 2,000,000
Gross income, USA (gross sales, P8,000,000) 5,000,000
Business expenses, USA 1,500,000
Interest income, Bank of PI-Manila, Philippines 300,000
Interest income from long-term deposit, Philippines 80,000
Dividend from a domestic corporation 150,000
Interest income from domestic depository bank under EFCDS 120,000
Interest income, JP Morgan-Chase Bank, USA 100,000
Prizes, Manila 200,000
Interest income from loans, Philippines 300,000
Gain from sale of shares of stock directly to the buyer (par value is P200,000) 100,000
Gain from sale of real property (ordinary asset) seller not habitually engaged in real estate
business, Philippines, gross of applicable withholding tax (selling price, P500,000) 250,000
Gain from sale of real property (capital asset), Philippines, gross of applicable
withholding tax (selling price, P600,000; FMV time of sale, P800,000) 100,000
Rent income from equipment, Philippines, gross of applicable withholding tax 1,000,000
Payments, first three (3) quarters 500,000

Question 1 – How much is the Philippine income tax payable?

2 – How much is the total final withholding tax?
3 – How much is the Philippine income tax payable using OSD?

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4 – How much is the documentary stamp tax on the sale of real property?

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5 – How much is the documentary stamp tax on sale of shares of stock?
6 – Disregarding certain information that are not relevant and assuming the above corporation is a foreign

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corporation engaged in trade or business in the Philippines, how much is the Philippine income tax payable?
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7 – Disregarding certain information which are not applicable and assuming the corporation is not engaged in
business in the Philippines, how much is the final withholding taxes in the Philippines?

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Answers:
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Question 1
Gross income, Philippines P10,000,000
Gross income, USA 5,000,000
Other income 15,000,000
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Interest income from long-term deposit, Philippines 80,000

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Gain from sale of real property (ordinary asset), Philippines 250,000

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Interest income, USA 100,000

Prizes, Manila 200,000
Interest on loans, Philippines 300,000
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Rent income, Philippines 1,000,000 1,930,000

Total gross income 16,930,000
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Less: Deductions
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Business expenses, Philippines 2,000,000

Business expenses, USA 1,500,000 3,500,000
Taxable net income 13,430,000
Tax rate 30%
Tax due 4,029,000
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Less: Tax credits/payments

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Creditable tax withheld tax on rent (5% x P1,000,000) 50,000

Creditable tax withheld on sale of real property (ordinary asset)
(500,000 x 6%) 30,000
Payments, first 3 quarters 500,000 580,000
Tax payable P 3,449,000
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Question 2
Interest income, BPI- Manila, Philippines (300,000 x 20%) P 60,000
Interest income from domestic depository bank under EFCDS (120,000 x 15%) 18,000
Total P 78,000

Fair market value (higher) P800,000

Tax rate 6%
Capital gains tax 48,000

Gain from sale of shares of stock directly to the buyer P100,000

Tax rate 15%
Capital gains tax 15,000
Total P141,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702A
Weeks 7 – 8: INCOME TAX RATES for CORPORATIONS (ANSWERS)

Question 3
Gross income, Philippines P10,000,000
Gross income, USA 5,000,000
Other income 15,000,000
Interest income from long-term deposit, Philippines 80,000
Gain from sale of real property (ordinary asset), Philippines 250,000
Interest income, USA 100,000
Prizes, Manila 200,000
Interest on loans 300,000
Rent income 1,000,000 1,930,000
Total gross income 16,930,000
Less: Optional standard deduction (40% X 16,930,000) 6,772,000
Taxable net income 10,158,000
Tax rate 30%
Tax due 3,047,400
Less: Tax credits/payments
Withholding tax on rent (5% x P1,000,000) 50,000
Creditable tax withheld on sale of real property (ordinary asset)
(500,000 x 6%) 30,000
Payments, first 3 quarters 500,000 580,000
Tax payable P 2,467,400

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Question 4
Sselling price (real property ordinary asset) P500,000

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Tax rate eH w 1.5% P 7,500

FMV time of sale (higher) (real property capital asset) P800,000

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Tax rate 1.5% 12,000
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Total documentary stamp tax P19,500
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Question 5
Par value P200,000
Divided by 200
Tax base 1,000
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Multiplied by 1.50
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Documentary stamp tax P 1,500

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Question 6
Gross income, Philippines P10,000,000
Other income
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Interest income from long-term deposit, Philippines 80,000

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Prizes, Manila 200,000

Interest on loan, Philippines 300,000
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Rent income, Philippines 1,000,000 1,580,000

Total gross income, Philippines 11,580,000
Less: Deductions
Business expenses, Philippines 2,000,000
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Taxable net income, Philippines 9,580,000

Tax rate 30%
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Tax due 2,874,000

Less: Tax credits/payments
Withholding tax on rent (5% x P1,000,000) 50,000
Payments, first 3 quarters 500,000 550,000
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Tax payable P 2,324,000

Question 7
Gross income, Philippines (P10,000,000 x 30%) P 3,000,000
Interest income, Bank of PI-Manila, Philippines (P300,000 x 30%) 90,000
Interest income from long-term deposit, Philippines (80,000 X 30%) 24,000
Dividend from a domestic corporation (P150,000 x 15%) 22,500
Interest income from domestic depository bank under EFCDS -
Prizes, Manila (P200,000 x 30%) 60,000
Interest on loan, Philippines (300,000 x 20%) 60,000
Gain from sale of shares of stock directly to the buyer (100,000 x 5%) 5,000
Rent income from equipment (P1,000,000 x 7 ½%) 75,000
Total P 3,336,500

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702A
Weeks 7 – 8: INCOME TAX RATES for CORPORATIONS (ANSWERS)

4. A corporation has the following income:

Interest income derived from depository bank under Expanded Foreign Currency
Deposit System (EFCDS) P100,000
Capital gain from sale of shares of stock not traded in the local stock exchange 200,000
Dividend from a domestic corporation 300,000

Question 1 – How much is the final tax on the passive income and the capital gains tax, assuming the corporation is a
resident foreign corporation?
2 – How much is the final tax on the passive income and the capital gains tax, assuming the corporation is
non-resident foreign corporation?
Answers:
Resident FC Non-resident FC
(Question 1) (Question 2)
Interest income under EFCDS (100,000 x 7 ½%) P 7,500 Exempt
Capital gains on sale of shares of stock (not traded)
100,000 x 5% 5,000
100,000 x 10% 10,000 15,000 15,000
Dividend from domestic corporation (300,000 x 15%) Exempt 45,000

j. Exercises
1. Panday Corporation’s computed normal income tax and MCIT, and creditable income taxes withheld from first quarter to
fourth quarter including excess MCIT and excess withholding taxes from prior year/s are as follows:

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First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P200,000

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Minimum corporate income tax eH w 80,000 250,000 100,000 100,000
Taxes withheld 20,000 30,000 40,000 35,000

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Additional information: Excess MCIT, prior year, P30,000; Excess withholding tax prior year, P10,000
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REQ: Compute the income tax payable for the first three (3) quarters and the year end.
Answers:
First Second Third Annual
Quarter Quarter Quarter Return
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Normal corporate income tax P100,000 P220,000 P470,000 P670,000

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Minimum corporate income tax P 80,000 P330,000 P430,000 P530,000

Income tax due (higher) P100,000 P330,000 P470,000 P670,000
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Less: Excess tax credit, previous year ( 10,000) ( 10,000) ( 10,000) ( 10,000)
Creditable tax withheld, previous quarters - ( 20,000) ( 50,000) ( 90,000)
Creditable tax withheld, this quarter ( 20,000) ( 30,000) ( 40,000) ( 35,000)
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Tax payments, previous quarters - ( 40,000) (270,000) (340,000)

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Excess MCIT, prior year ( 30,000) - ( 30,000) ( 30,000)

Tax payable (normal income tax) P 40,000 P230,000 P 70,000 P165,000
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2. Using the same data in number 1 except that the normal income tax and the MCIT for the quarters are as follows:
First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P 50,000
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Minimum corporate income tax 80,000 250,000 100,000 120,000

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REQ: Compute the annual income tax payable of the corporation for the year end?
Answer:
Normal corporate income tax (100,000 + 120,000 + 250,000 + 50,000) P520,000
Minimum corporate income tax (80,000 + 250,000 + 100,000 + 120,000) P550,000
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Income tax due (higher) P550,000

Less: Excess tax credit, previous year ( 10,000)
Creditable tax withheld, previous quarters (20,000 + 30,000 + 40,000) ( 90,000)
Creditable tax withheld, this quarter ( 35,000)
Tax payments, previous quarters (40,000 + 230,000 + 70,000) (340,000)
Excess MCIT, prior year -
Tax payable (normal income tax) P 75,000

3. The following data are presented to you:

4.
Year Normal income tax Minimum corporate income tax
2014 P 50,000 P 75,000
2015 60,000 100,000
2016 50,000 60,000
2017 80,000 90,000
2018 100,000 70,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702A
Weeks 7 – 8: INCOME TAX RATES for CORPORATIONS (ANSWERS)

Compute the tax payable for the years 2014 to 2018 and prepare the necessary journal entries?

* Answers below are based on RR – note that if we are talking of the Company’s books, we follow the accounting standards for
purposes of recording income tax related balances (PAS/IAS 12 – Income Taxes)

2014: Normal income tax P 50,000

Minimum corporate income tax P 75,000
Tax due (higher) P 75,000

2015: Normal income tax P 60,000

Minimum corporate income tax P100,000
Tax due (higher) P100,000
2016: Normal income tax P50,000
Minimum corporate income tax P60,000
Tax due (higher) P60,000

2017: Normal income tax P80,000

Minimum corporate income P90,000
Tax due (higher) P90,000

2018: Normal income tax P100,000

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Minimum corporate income tax P 70,000

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Tax due (higher) P100,000

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Less: Unexpired excess MCIT
1999
2000
eH w 40,000
10,000

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2001 10,000 60,000
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Tax payable P40,000
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Journal entries:
2014 – Provision for income tax 50,000
Income tax payable 50,000
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Deferred charges – MCIT (75,000- 50,000) 25,000

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Income tax payable 25,000

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Income tax payable 75,000

Cash 75,000
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2015– Provision for income tax 60,000

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Income tax payable 60,000

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Deferred charges – MCIT (100,000 – 60,000) 40,000

Income tax payable 40,000

Income tax payable 100,000

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Cash 100,000
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2016 – Provision for income tax 50,000

Income tax payable 50,000

Deferred charges - MCIT 10,000

Income tax payable 10,000
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Income tax payable 60,000

Cash 60,000

2017 – Provision for income tax 80,000

Income tax payable 80,000

Deferred charges - MCIT 10,000

Income tax payable 10,000

Income tax payable 90,000

Cash 90,000

2018 – Provision for income tax 100,000

Income tax payable 100,000

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702A
Weeks 7 – 8: INCOME TAX RATES for CORPORATIONS (ANSWERS)

Income tax payable 60,000

Deferred charges – MCIT 60,000

Income tax payable 40,000

Cash 40,000

Retained earnings 25,000

Deferred charges – MCIT (2014) 25,000

m. Exercise: The record of a closely held corporation, registered with BIR in 2018, reveals the following data for the
calendar years:
2018: Gross income P3,000,000
Less: Expenses 3,800,000
Net operating loss ( P 800,000)
Accumulated retained earnings, end of 2013 P6,000,000

2019: Gross income P5,000,000

Expenses 3,000,000
Rent income, net of 5% withholding tax 475,000
Interest on money market placement, net of 20%

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withholding tax 80,000

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Inter-corporate dividends received 500,000

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Dividends paid by the corporation out of the 2014 income 1,500,000
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Tax payments, first 3 quarters 100,000

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It had a paid-up capital stock of P6,000,000 as of December 31, 2018.
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Upon examination of the 2019 return, the BIR concludes that there is an improper accumulation of profit. The
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corporation fails to show proof to prove the contrary.

Question 1: How much is the tax payable of the corporation per return of income in the taxable year 2018?
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2: How much is the tax payable of the corporation per return of income in the taxable year 2019?
3: How much is the tax on the improperly accumulated income in taxable year 2019?
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4: To avoid the payment of IAET, when shall the dividend be declared and paid?
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5: Assuming the corporation failed to declare and pay dividends, when shall the payment of IAET?
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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702A
Weeks 7 – 8: INCOME TAX RATES for CORPORATIONS (ANSWERS)

Question 1
Gross income P 3,000,000
Less: Expenses (3,800,000)
Net loss ( 800,000)
Normal corporate income tax P -
Minimum corporate income tax (3,000,000 x 2%) P 60,000
Tax due (higher) P 60,000

Question 2
Gross income P5,000,000
Other income (rent) 500,000
Total 5,500,000
Less: Business expenses (P3,000,000)
Net operating loss carry over ( 800,000) (3,800,000)
Taxable net income P1,700,000
Normal corporate income tax (1,700,000 x 30%) P 510,000
Minimum corporate income tax (5,500,000 x 2%) P 110,000
Tax due (higher) P 510,000
Less: Creditable withholding tax on rent (P 25,000)
Payments, first 3 quarters ( 100,000)
Unexpired excess MCIT
(2% X P3,000,000) ( 60,000) ( 185,000)

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Tax payable P 325,000

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Question 3

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Taxable net income eH w P1,700,000
Add: Inter-corporate dividends P500,000
Net operating loss carry over 800,000

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Interest on money market
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placement 100,000 1,400,000
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Total 3,100,000
Less: Final tax on interest on money
market placement (P 20,000)
Dividends paid (1,500,000)
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Tax due for the year ( 510,000) ( 2,030,000)

Retained earnings, end 2019 1,070,000
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Add: Retained earnings from prior years 6,000,000

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Accumulated retained earnings, end of 2019 7,070,000

Less: Amount that may be retained
(100% of paid-up capital) 6,000,000
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Improperly accumulated taxable income 1,070,000

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Tax rate 10%

Improperly accumulated earnings tax P 107,000
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4: To avoid the payment of IAET, when shall the dividend be declared and paid? December 31, 2020
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5: Assuming the corporation failed to declare and pay dividends, when shall the payment of IAET? January 15, 2021
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END
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