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Table of Contents
                            CHAPTER 12
INCOME TAX OF CORPORATIONS
	Problem 12 – 1 TRUE OR FALSE
	Problem 12 – 2 TRUE OR FALSE
	Problem 12 – 3 TRUE OR FALSE
	Problem 12 – 6
		1,000,000
		P5,000,000
		P1,500,000
		P4,000,000
		P1,200,000
	*This is on the assumption that a resident foreign corporation acquired a real property and subsequently sold it without the confiscation of the real property by the Philippine Government.
	Problem 12 – 7 D
	Problem 12 – 8 Not in the Choices = P2,700,000.
	Problem 12 – 9
		(205,000)
		P 72,000
		42,000
		P 30,000
	Problem 12 – 10 D
	Problem 12 – 11 C
		P 3,900,000
	Problem 12 – 12 A
		P 524,400
	Problem 12 – 14 B
	Problem 12 – 15
	P1,500,000
	P 5,000,000
	P 1,700,000
	P1,500,000
	Problem 12 – 16
	Problem 12 – 17 A
	Problem 12 – 18
	Problem 12 – 19 C
		P 45,000
		P 95,000
	Problem 12 – 20 A
		P400,000
		160,000
		P240,000
		30%
		P 72,000
		P96,000
		P24,000
	Problem 12 – 21
	P 280,000
	P254,000
	P104,000
	P122,000
	Problem 12 – 22 C
	
	Problem 12 – 23
	P171,000
	P144,000
	Problem 12 – 24
	Problem 12 – 25 A
		P50,000
	Problem 12 – 26
	Problem 12 – 27 D
	Problem 12 – 28 B
		P17,500
	Problem 12 – 29 A
		P10,000,000
		P28,000,000
	Problem 12 – 30 A
		P 2,500,000
	Problem 12 – 31 A
	Problem 12 – 32 B
		P20,000
	Problem 12 – 33 A
	Problem 12 – 34 B
	Problem 12 – 35 C
	Problem 12 – 36 C
	Problem 12 – 35 A
	Problem 12 – 36 C
		P 52,800
		P 14,400
	Problem 12 – 37 C
	Problem 12 – 38 A
	Problem 12 – 39 C
	Problem 12 – 40 D
	Problem 12 – 41 C
		P1,305,000
	Problem 12 – 42 A
	Problem 12 – 43
	Problem 12 – 45
Within
P 200,000
P300,000
P 500,000
	P 150,000
	P 60,000
	P90,000
	P90,000
	Problem 12 – 46
	Problem 12 – 47
	P 1,689,000
	P 8,311,000
	Problem 12 – 48
		P 14,000
	Problem 12 – 49
	P 72,000
	Problem 12 – 50
	P 30,685
	Problem 12 – 51
	P2,000,000
P1,500,000
	Problem 12 – 52
	Problem 12 – 53
		P2,463,200
		P 8,000
		P1,461,040
                        
Document Text Contents
Page 9

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 12: Income Tax of Corporations

Non-educational income:
Rent income (net/95%) P5,200,000 P5,500,000
Sale of scrap materials 60,000 20,000
Total unrelated P5,260,000 P5,520,000

Costs and expenses:
Cost of sales – canteen (P400,000) (P 800,000)
Cost of books sold ( 240,000) ( 320,000)
Operating expenses (2,000,000) (3,000,000)
Purchase of library books (1,000,000) (1,500,000)
Cost of classroom construction ( 500,000)
Purchase of school furniture . ( 200,000)
Total costs and expenses (P4,140,000) (P5,820,000

)
Net taxable income P6,120,000 P6,700,000

200A Income tax (P6,120,000 x 30%) P1,836,000
200B Income tax (P6,700,000 x 10%) P670,000
Less: CWT from rent
200A (P5,200,000 - P4,940,000) 260,000
200B (P5,500,000 – P5,225,000) . 275,000
Income tax still due and payable P1,576,000 P395,000

A proprietory educational institution has an option to either deduct its capital expenditures
on depreciable assets during the year for the expansion of school facilities (outright expense)
or deduct allowances for depreciation on such assets, [Sec. 34 (A) (2), NIRC]. In this case, it
is more advantageous for BCU to treat capital expenditures on depreciable assets as outright
expense.

The non-educational income in 200A is greater than the educational income; therefore, the
tax rate to be used in 200A should be the normal corporate income tax of 30%. On the other
hand, a special tax rate of 10% should be used in 200B because the educational income is
greater than the non-educational income. [Sec. 27 (B), NIRC]

Problem 12 – 27 D
P-0-, Government educational institutions are tax-exempt.

Problem 12 – 28 B
Income tax payable (P700,000 x 0.025) P17,500

Problem 12 – 29 A
Manila to Beijing (P5,000 x 2,000)
Manila – Hong Kong – Beijing (P6,000 x 4,000) x P3,000/P6,000
Manila to Hong Kong (P3,000 x 2,000)
Total reportable gross income within
Multiplied by applicable rate
Income tax

P10,000,000
12,000,000

6,000,000
P28,000,000
2.5%

P 700,000

110

Page 16

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 12: Income Tax of Corporations

Outright expense of capital expenditures for new six rooms
Taxable income
Multiply by the applicable tax rate
Income tax

750,000 3,019,850
P306,850

10%
P 30,685

Note: The tax differential on interest income shall now be used because under R.A. 9337
specifically requires that the interest expense is to be reduced by 33% of the interest income
subjected to final tax during the taxable year. It is assumed that the educational institution
opted to treat the capital expenditures as outright expense to avail of a lower tax.

Problem 12 – 51
(1)
Taxable income from operation (P1050,000/70%) P1,500,000
Add: NOLCO deducted 100,000
Interest income (P120,000/80%) 150,000
Capital gain (P230,000 – P5,000)/90% 250,000
Total income for GAAP reporting, before tax P2,000,000

(2)
Tax on income from operation (P1,500,000 x 30%) P450,000
Tax on interest income (P150,000 x 20%) 30,000
Tax on capital gain (P250,000 – P230,000) 20,000
Total income tax paid P500,000

(3)
GAAP income P2,000,000
Less: Total income tax (see 2) 500,000
Net income after tax – GAAP P1,500,000

(4)
Taxable income from operation P1,500,000
Add: NOLCO P100,000
Income subjected to final tax (P150,000 + P250,000) 400,000 500,000
Total P2,000,000
Less: Income tax paid 500,000
Net income after income tax P1,500,000
Multiplied by surtax rate 10%
IAET = Surtax P 150,000

Problem 12 – 52
1. 3 rd year 4 th year 5 th year 6 th year

Sales P1,000,000 P2,500,000 P4,000,000 P5,000,000
Cost of sales ( 600,000) (1,200,000) (2,400,000) (2,700,000)

117

Page 17

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 12: Income Tax of Corporations

Rent income 200,000 300,000 100,000 50,000
Gross income P 600,000 P1,600,000 P1,700,000 P2,350,000
Operating expenses allowed ( 300,000) (1,300,000) (1,400,000) (1,500,000)
Net taxable income P 300,000 P 300,000 P 300,000 P 850,000
Multiplied by NCIT rate 30% 30% 30% 30%
Income tax due P 90,000 P 90,000 P 90,000 P 255,000
Quarterly tax paid ( 10,000) ( 20,000) ( 30,000) ( 40,000)
Income tax still due and payable P 80,000 P 70,000 P 60,000 P 215,000

2. 3 rd year 4 th year 5 th year 6 th year
Royalty income, net of tax P 80,000 P160,000 P120,000 P 40,000
Interest income, net of tax 20,000 32,000 16,000 24,000
Total passive income, net of tax P100,000 P192,000 P136,000 P 64,000
Divide by 80% 80% 80% 80%
Total gross passive income P125,000 P240,000 P170,000 P 80,000
Multiplied by final tax rate 20% 20% 20% 20%
Final taxes P 25,000 P 48,000 P 34,000 P 16,000

Problem 12 – 53
1. Sales P10,000,000

Less: Cost of sales 6,000,000
Reportable gross income per ITR P 4,000,000

2. Gross profit P4,000,000
Less: Operating expenses:
Salaries P1,000,000
Depreciation 300,000
Supplies 200,000
Interest expense [P50,000 – (P32,000/80% x 33%) 36,800 1,536,800
Net taxable income per ITR P2,463,200

Note:
 Interest income is subject to final tax of 20%
 Inter-corporate dividend is tax-exempt.
 Losses on investment in securities is not deductible – capital loss

3. Final withholding tax paid (P32,000/80%) x 20% P 8,000

4. Net income before tax per GAAP P2,200,000
Less: Income tax (P2,463,200 x 30%) 738,960
Net income P1,461,040

118

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