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

SUGGESTED ANSWERS

102

Chapter 12: Income Tax of Corporations

CHAPTER 12

INCOME TAX OF CORPORATIONS

Problem 12 1 TRUE OR FALSE
1. False for tax purposes, a corporation does not include both general professional
partnership and joint venture with a consortium service contract with the government.
2. False domestic corporations refer only to corporations that are created or organized
under Philippine laws. Foreign corporations are also operating in the Philippines but not
created under Philippine laws.
3. False nonresident corporations are taxed based on gross income within.
4. False Only domestic corporations are to be taxed for income within and without.
5. True
6. True
7. True
8. False the MCIT is applicable also to resident foreign corporations for their income
derived within.
9. True
10. False Not taxable because the corporation is a foreign corporation.
11. False 30%, but legally, foreign corporations are not allowed to own real property in the
Philippines as provided by anti-dummy law.
12. False interest income of resident foreign corporation is subject to a final tax of 20%,
but interest income of nonresident foreign corporation is subject to normal corporate tax.
13. True
Problem 12 2 TRUE OR FALSE
1. True
2. True
3. False MCIT is applicable only to corporation that are subject to normal tax rate.
4. True
5. False Other fixed or determinable annual, periodic or casual gains, profits and income
are not treated as branch profit.
6. True
7. True
8. True
9. True
10. False exempt from income tax and VAT.
11. False not imposed also to insurance companies
12. True
Problem 12 3 TRUE OR FALSE
1. False the net additions to reserve funds are not part of income but instead deducted
from gross income.
2. True
3. False In general, GOCCs are subject to corporate income tax.
4. True

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

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103

Chapter 12: Income Tax of Corporations

5.

False royalties received in the active pursuit of business is subject to a normal tax of
30%.
6. True
7. True
8. True
9. True
10. False If the unrelated income of the proprietory educational institution exceeds the
related income, the income tax rate applicable would be the corporate income tax of
30%.
11. False Sale of real property outside the Philippines by a resident foreign corporation is
not subject to tax in the Philippines.
12. False 10% based on gross income within

Problem 12 4
1. C
2. A
3. A
4. D
5. C
6. A
7. A
8. B
9. A
10. C
11. A*
12. A
13. B

Problem 12 5
1. B
2. A
3. D
4. A
5. B
6. B
7. A
8. D
9. B
10. C
11. D Only family-closed corporation is subject to IAET.
12. A
13. C

*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.
As a rule, foreign corporations are not allowed to own and acquire real properties in the
Philippines as provided by the anti-dummy law. (PD 715, May 28, 1975)
Problem 12 6
1.
Letter C
Gross income (P8,000,000 + P4,000,000)
Business expenses (P5,000,000 + P3,000,000)
Gain on sale of warehouse (P3,000,000 P2,000,000)
Net taxable income
Corporate income tax (P5,000,000 x 30%)
Note: The land and warehouse sold is an ordinary asset.
Hence, subject to normal tax.

Taxable
income
P12,000,000
( 8,000,000)
1,000,000
P5,000,000

Income tax
due

P1,500,000

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Chapter 12: Income Tax of Corporations

2.

Letter B
Gross income within
Business expenses
Gain on sale of warehouse (P3,000,000 P2,000,000)*
Net taxable income

P8,000,000
( 5,000,000)
1,000,000
P4,000,000

Corporate income tax (P4,000,000 x 30%)

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
Gross income within
Multiplied by normal corporate tax rate
Income tax due

P2,800,000
30%
P 840,000

Problem 12 8
Not in the Choices = P2,700,000.
Gross income within
Less: Allocated operating expenses (P30,000,000 x 15/75)
Net taxable income
Multiplied by normal corporate tax rate
Income tax due
Problem 12 9
1.
Letter D
Domestic corporation:
Total net income (P160,000 + P240,000)
Multiplied by normal tax rate
Income tax due
Less: Tax credits:
Local
Foreign, Actual, P60,000 lower
limit (P120,000 x 240/400) = P72,000
Income tax still due and payable
Supporting computation:
Gross income within
without (P180,000 + P75,000 + P190,000)
Deductions within
- without (P80,000 + P25,000 + P100,000)
Net income
2.

Letter C
Resident foreign corporation
Gross income within

P15,000,000
6,000,000
P 9,000,000
30%
P2,700,000

P400,000
30%
P120,000
P42,000
60,000

102,000
P18,000

Philippines
P450,000

Foreign
P445,000

(290,000)
.
P160,000

(205,000)
P240,000

P445,000

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

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105

Chapter 12: Income Tax of Corporations

Deductions within
Net income
Multiplied by normal corporate income tax
Income tax due
Less: Local
Income tax still due and payable
Problem 12 10
D
Net income from PAGCOR (P30,000,000 - P28,000,000)
Net income from NAPOCOR (P10,000,000 P4,000,000)
Total net income
Multiplied by normal corporate tax rate
Income tax due
Problem 12 11
C
Net income from National Power Corporation
Net income from National Books Store
Total net income
Multiplied by corporate normal tax
Income tax due
Problem 12 12
A
Gross profit (P3,000,000 P1,400,000)
Capital gains on sale of paintings
Operating expenses before charitable contribution (P800,000 P100,000)
Net income before charitable contribution
Charitable contributions - limit (P1,840,000 x 5%), lower
Actual P100,000
Net taxable income
Multiplied by corporate normal tax rate
Income tax due
Problem 12 13
C
Operating expenses
Less: Net operating loss 4 th year
Gross income
Multiplied by MCIT rate
Minimum corporate income tax

(205,000)
P240,000
30%
P 72,000
42,000
P 30,000

P2,000,000
6,000,000
P8,000,000
30%
P2,400,000

P 8,000,000
5,000,000
P13,000,000
30%
P 3,900,000

P1,600,000
940,000
(700,000)
P1,840,000
( 92,000)
.
P1,748,000
30%
P 524,400

P4,000,000
100,000
P3,900,000
2%
P
78,000

Domestic and resident foreign corporation taxed during the taxable year with MCIT
cannot enjoy the benefit of NOLCO. Nevertheless, the running of the three (3) year
period for the expiry of NOLCO is not interrupted by the fact that such corporation is
subject to MCIT. (Rev. Reg. 14-2001)
Problem 12 14
Operating loss
Operating expenses

B
(P 200,000)
1,000,000

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

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106

Chapter 12: Income Tax of Corporations

Gross income
Multiplied by minimum corporate income tax rate
Income tax payable 4th year
5th year net income
Multiplied by normal tax rate
Income tax due
Less: Excess of minimum income tax over normal tax
Net income tax payable
Problem 12 15
1. Letter A
Net income per GAAP
Add: Allowance for bad debts
Income before incentive to CHED contribution
Less: Incentive to CHED contribution (P300,000 x 50%)
Net taxable income
Multiply by normal corporate income tax rate
Income tax due
2. Letter C
Net income per GAAP
Add: Operating expenses
Gross income
Multiply by minimum corporate income tax rate
Minimum corporate income tax higher
Normal tax (P5,000,000 x 30%)
Problem 12 16
1
Letter A
.
Income tax payable current year MCIT (P8,000,000 x 2%)
2
.

P 800,000
2%
P 16,000
P320,000
30%
P 96,000
16,000
P 80,000

P5,000,000
150,000
P5,150,000
150,000
P5,000,000
30%
P1,500,000

P 5,000,000
80,000,000
P85,000,000
2%
P 1,700,000
P1,500,000

P 160,000

Letter C
Net operating income (P8,000,000 P7,000,000)
Multiplied by normal tax rate
Normal tax
Less: Excess of MCIT
Income tax payable

P1,000,000
30%
P 300,000
100,000
P 200,000

Problem 12 17
A
None. There is no excess corporate MCIT over NCIT in year 3 to be applied on year 4 because the
MCIT is not yet applicable for the company as it only has 3 years of operation in year 3.

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

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Chapter 12: Income Tax of Corporations

Problem 12 18
1. Letter A
Income tax payable
Divided by MCIT tax rate
Gross income
2.

Letter C
Income tax expense
Divided by corporate normal income tax rate
Net taxable income

200,000
2%
P10,000,000

P
P

150,000
30%
500,000

The excess of MCIT over NCIT shall be recorded in the corporations books as an asset under the
account title Deferred Charges, MCIT. This asset account shall be carried forward and may be
credited against the normal tax due for a period not exceeding three taxable years immediately
succeeding the taxable year(s) in which the same has been paid. (Rev. Regs. No. 9-98)
Problem 12 19
C
Rental income (P1,900,000/95%)
Capital gains
Total gross income
Operating expenses
Net taxable income
Multiplied by corporate normal tax
Income tax due

P2,000,000
500,000
P2,500,000
(2,350,000)
P 150,000
30%
P
45,000

Excess of MCIT over NCIT

Add: Expanded withholding tax (P2,000,000 P1,900,000)
Total creditable income tax
Less: Income tax due
Tax refund

P 40,000
100,000
P140,000
45,000
P 95,000

Problem 12 20
A
Gross income (P1,600,000 P1,200,000)
Less: OSD (P400,000 x 40%)
Net income
Multiplied by normal tax rate
Income tax due

P400,000
160,000
P240,000
30%
P 72,000

Capital gains tax (P1,600,000 x 6%)

P96,000

Tax advantage using normal tax (P96,000 P72,000)

P24,000

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Chapter 12: Income Tax of Corporations

Problem 12 21
1. Letter D
Domestic Corporation:
a. Not traded in local exchange:
Selling price
Cost (P110 x 12,000 shares)
Capital gain
Tax on P100,000 x 5%
Tax on excess (P280,000 P100,000) x 10%

P1,600,000
1,320,000
P 280,000
P

5,000
18,000

P 23,000

b. Traded in local exchange (P1,800,000 x .005)

c.
d.

9,000

150,000
72,000
P254,000
Note: OSD is not applicable to land sold in Japan because the land is a capital asset.

2.

3.

Sale of land abroad (P3,000,000 P2,500,000) x 30%

Sale of land Philippines (P1,200,000 x 6%)

Letter A
Resident Foreign Corporation
a.
b.
c.
d. (P1,200,000 x 6%)
Total
Answer not in the choices = P122,000.
Nonresident Foreign Corporation
a.
b.
c.
d. (P1,200,000 P900,000) x 30%
Total

Problem 12 22
C
Interest from savings deposits (P3,000,000 x 20%)
Royalty income (P1,000,000 x 20%)
Interest from a depository bank EFCD (P1,500,000 x 7.5%)
Total passive final tax

P 23,000
9,000
72,000
P104,000

P 23,000
9,000
90,000
P122,000

P 600,000
200,000
112,500
P 912,500

Dividend from a domestic corporation received by a domestic corporation is tax exempt.

Dividend from a nonresident foreign corporation is subject to normal tax.
Problem 12 23
1. Letter B
Domestic Corporation
a. ($20,000 @ 7.5% x P50)

P75,000

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Chapter 12: Income Tax of Corporations

b. P300,000 @ 20%
c. P100,000 @ 20%*
d. P 80,000 @ 20%
Total
2.

Letter B = Resident foreign corporation (same as letter 1)

3.

Letter C
Nonresident foreign corporation
a. Exempted
b. (P300,000 @ 30%)
c. (P100,000 @ 30%)
d. (P 80,000 @ 30%)
Total

60,000
20,000
16,000
P171,000

P90,000
30,000
24,000
P144,000

*It is assumed that the royalty income from franchising is a passive income.
Problem 12 24
1.
Letter B
Dividend income - (PCB and Magnolia are both domestic corporations)
Interest income on US dollar loans ($3,000 x 10% x P50)
2.

Letter C
Interest on Philippine peso loans
Operating expenses
Taxable income
Multiplied by normal corporate tax
Income tax due

Problem 12 25
Related income
Unrelated income
Total revenue
Operating expenses
Net loss

Exempt
P15,000

P2,000,000
( 900,000)
P1,100,000
30%
P 330,000

A
P1,000,000
1,500,000
P2,500,000
(3,000,000)
(P 500,000)

Minimum corporate income tax (P2,500,000 x 2%)

P50,000

Problem 12 26

1.
2.

Letter D
Letter A
Educational income:
Tuition and miscellaneous fees
Sales of canteen
Sales of bookstore
Total related income

200A
P4,000,000
700,000
300,000
P5,000,000

200B
P6,000,000
1,600,000
400,000
P7,000,000

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Chapter 12: Income Tax of Corporations

Non-educational income:
Rent income (net/95%)
Sale of scrap materials
Total unrelated
Costs and expenses:
Cost of sales canteen
Cost of books sold
Operating expenses
Purchase of library books
Cost of classroom construction
Purchase of school furniture
Total costs and expenses

P5,200,000
60,000
P5,260,000

(P400,000)
( 240,000)
(2,000,000)
(1,000,000)
( 500,000)
.
(P4,140,000)

Net taxable income

P6,120,000

200A Income tax (P6,120,000 x 30%)

200B Income tax (P6,700,000 x 10%)
Less: CWT from rent
200A (P5,200,000 - P4,940,000)
200B (P5,500,000 P5,225,000)
Income tax still due and payable

P1,836,000

P5,500,000
20,000
P5,520,000

(P 800,000)
320,000)
(3,000,000)
(1,500,000)

( 200,000)
(P5,820,000
)
P6,700,000

P670,000
260,000
.
P1,576,000

275,000
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)
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

P17,500

P10,000,000
12,000,000
6,000,000
P28,000,000
2.5%
P
700,000

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Chapter 12: Income Tax of Corporations

Problem 12 30
A
Within
Gross receipts
Multiplied by special tax rate
Philippine income taxes

Dragon Films
P10,000,000
25%
P 2,500,000

American Aircraft
P20,000,000
7 %
P 1,500,000

Note: Gross income means gross receipts. The aforementioned resident foreign corporations are
subject special tax rates (final taxes). They are not allowed to deduct costs or expenses from their
gross receipts. The cost of service is only applicable for MCIT purposes. (Sec. 27(E)(4), NIRC)
Problem 12 31
A
Operating net income after tax
Tax rate on branch remittance
Branch profit remittance tax

P24,000,000
15%
P 3,600,000

Branch profit remittance, net of tax (P24,000,000 x 85%)

Dividend income from Pharma Co.
Total branch profit remittance

P20,400,000
7,000,000
P27,400,000

Note: Sec. 28 (A) (4) of NIRC provides that the following income within of a foreign
corporation shall not be treated as branch profit for tax purposes unless the same are
effectively connected with the conduct of the trade or business in the Philippines:
1.
2.
3.
4.

Interest, dividends, rents, royalties;

Remuneration for technical services;
Salaries, wages, premiums, annuities, emoluments;
Other fixed or determinable annual, periodic or casual gain, profits, income and
capital gains.

Problem 12 32
B
Income tax (P80,000/80%) x 20%

P20,000

Note: Although cooperatives are tax-exempt, they are still subject to final income taxes on interest
income.
Problem 12 33
A
All of the transactions of Unlad Cooperative are exempt from income taxes.
Problem 12 34
B
1
Letter A
.
Income tax due 1st quarter [(P495,000/99%) P480,000) x 30%
Less: 1% creditable withholding tax (P495,000/99%) P495,000
200A excess tax credit used in first quarter 200B
Income tax still due and payable 200B first quarter

P 6,000
P5,000
1,000

6,000
P - 0 -

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Chapter 12: Income Tax of Corporations

2
.

Letter C
Income tax due 2nd quarter [(P792,000/99%) P700,000) x 30%
Income tax due 1st quarter [(P495,000/99%) P480,000) x 30%
Withholding tax 2 nd quarter [(P792,000/99%) (P495,000/99%) x 1%
Remaining excess tax credit 200A (P10,000 P1,000)
Income tax still due and payable 2 nd quarter 200B

Problem 12 35
C
Gross receipts (P2,940,000/98%)
Less: OSD (P3,000,000 x 40%)
Net taxable income
Multiplied by corporate normal tax rate
Income tax due
Less: Creditable income taxes paid
1st Qtr. (P1,960,000/98%) x 60% x 30%
2% creditable tax 2 nd quarters gross receipts
(P2,940,000/98%) (P1,960,000/98%) x 2%
Income tax still due and payable 2 nd Qtr.

P
(
(
(
P

30,000
6,000)
3,000)
9,000)
12,000

P3,000,000
1,200,000
P1,800,000
30%
P 540,000
P360,000
20,000

380,000
P 160,000

With the issuance by the BIR of RMC No. 16-2010 in relation to RR No. 2-2010, the taxpayers
are no longer allowed to change methods (OSD to Itemized Deductions or vice versa) from quarter
to quarter within the same taxable year. The said RMC provides that the method adopted for the
1st quarter shall be the same method to be applied to the succeeding quarters of the same
taxable year as well as in the preparation of the annual ITR of the said taxable year.
Problem 12 36
C
Income tax from ordinary net income (P1,000,000 P900,000) x 30%
Final income taxes:
Interest income on peso savings (P100,000 x 20%)
Expanded foreign currency deposit (P100,000 x 7.5%)
Total income taxes
Problem 12 35
A
Income tax on interest income from peso savings bank (P100,000 x 30%)
Tax on cash dividend domestic corporation (P100,000 x 30%)
Tax on cash dividend from a resident foreign corporation (P100,000 x 30%)
Total income tax
Interest income earned by nonresident foreign corporation from EFCD is tax-exempt.

P30,000
20,000
7,500
P57,500

P 30,000
30,000
30,000
P90,000

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Chapter 12: Income Tax of Corporations

Problem 12 36

Gross income - cumulative

Itemized deductions - cumulative
Net taxable income
Multiplied by normal corporate income tax
Income tax due
Total income tax paid in previous quarters - tax credit
Income tax still due and payable

3rd Quarter
P880,000
(704,000)
P176,000
30%
P 52,800

Problem 12 37
C
Regular tax (P1,000,000 P900,000) x 30%
Final tax on interest income peso deposit (P100,000 x 20%)
Final tax on interest income EFCD (P100,000 x 7.5%)
Total income tax

4th Quarter
P1,120,000
(896,000)
P 224,000
30%
P
67,200
( 52,800)
P
14,400

P 30,000
20,000
7,500
P 57,500

Problem 12 38
A
Interest income from peso savings bank (P100,000 x 30%)
Cash dividend from domestic corporation (P100,000 x 30%)
Cash dividend from a resident foreign corporation
with 100% earnings in the Philippines (P100,000 x 30%)
Total income tax

P 30,000
30,000
30,000
P 90,000

Problem 12 39
C
Cash dividend from a domestic corporation (P100,000 x 30%)

P 30,000

The cash dividend received from a resident foreign corporation is considered income outside the
Philippines because its earnings within does not reached 50%.
Problem 12 40
D
Zero because the earnings of the said resident foreign corporation have no tax situs in the
Philippines.
Problem 12 41
C
Income subject to normal tax rate (P300,000/30%)
Passive income (P60,000/20%)
Capital gains (P35,000: 5,000 at 5%, 30,000 at 10%)
Total income
Less: Income taxes paid:
Income tax per annual tax return
Final tax on passive income
Capital gains tax
Amount subject to 10% surtax

P1,000,000
300,000
400,000
P1,700,000
P300,000
60,000
35,000

395,000
P1,305,000

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Chapter 12: Income Tax of Corporations

Problem 12 42
A
Net taxable income (P300,000/30%)
Add: Passive income (P60,000/20%)
Capital gains (P100,000) + (P35,000/10%)
Total
Less: Income tax per ITR
Passive income final tax
Capital gain tax
IAET base
Multiplied by IAET tax rate
IAET

P1,000,000
300,000
450,000
P1,750,000
P300,000
60,000
40,000

Problem 12 43
1. Letter A
Reserve funds, beginning
Add: Net additions to reserve funds during the year
Total
Less: Reserve funds, ending
Amount of reserve funds released
2.

Letter B
Gross premium collected
Add: Reserve funds release
Gross income
Less: Operating expenses
Net additions to reserve funds
Net income

400,000
P1,350,000
10%
P 135,000

P1,000,000
500,000
P1,500,000
900,000
P 600,000

P10,000,000
600,000
P10,600,000
P4,600,000
500,000

5,100,000
P 5,500,000

In the case of insurance companies, whether domestic or foreign doing business in the
Philippines, the net additions, if any, required by law to be made within the year to reserve
funds and the sums other than dividends paid within the year on policy and annuity
contracts may be deducted from their gross income: Provided, however, that the released
reserve be treated as income for the year of release. [Sec. 37 (A), NIRC; Sec. 129, Rev. Regs.
No. 2]
Problem 12 44
1.
Letter D
Franchise fee
Less: Creditable withholding tax (P10,000,000 x 2%)
Net amount of franchise fee
2.

Letter B
Franchise fee
Less: Pre-operating and training costs
Gross income
Less: OSD (P4,000,000 x 40%)
Net taxable income

P10,000,000
200,000
P 9,800,000

P10,000,000
6,000,000
P 4,000,000
1,600,000
P 2,400,000

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Chapter 12: Income Tax of Corporations

Multiplied by normal tax rate

Income tax due
Less: Creditable withholding tax (P10,000,000 x 2%)
Income tax still due and payable

P
P

30%
720,000
200,000
520,000

When royalties are received in active pursuit of business, it is subject to 30% regular
corporate income tax. If royalties are derived from passive income, these are generally
subject to 20% final tax. (BIR Ruling No. DA (C-101) dated October 17, 2008)
Problem 12 45
Year 201A
Within
Gross income:
Philippines
USA
Japan
Deductions:
Philippines
USA
Japan
Net income
Multiply by tax rate
Income tax payable
Tax credit allowed see supporting computation
Income tax still due

Without

Total

P 400,000
300,000

P1,000,000
400,000
300,000

P1,000,000

(800,000)
.
P 200,000

(200,000)
(200,000)
P300,000

(800,000)
(200,000)
(200,000)
P 500,000
30%
P 150,000
( 90,000)
P
60,000

Supporting computation:
US
Japan

Total

Tax credits:
(P200,000/P500,000) x P150,000 = P60,000 vs. P80,000
Allowed, lower
(P100,000/P500,000) x P150,000 = P30,000 vs. P30,000
Allowed, lower
(P300,000/P500,000) x P150,000 = P90,000 vs. P100,000
Allowed, lower

Problem 12 46
Interest from savings deposit Metrobank (P3,000,000 x 20%)
Royalty income Philippine Mining Company (P1,000,000 x 20%)
Interest from a depository bank under expanded foreign currency
deposit - PCI Bank ($30,000 x P50 x 7.5%)
Dividends from Zerxes, a resident foreign corporation (P500,000 x 30%)
Total final passive income taxes
Problem 12 47

Reported income before tax

Add: Loss from sale of shares of stock outside stock market
Total

P 60,000
30,000
P90,000

90,000
P90,000
P 600,000
200,000
112,500
150,000
P1,062,500

P10,000,000
5,000
P10,005,000

116

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

SUGGESTED ANSWERS

Chapter 12: Income Tax of Corporations

Less: Gains subject to final income tax:

(1) Gain from sale of stock in the stock market
(2) Gain from sale of short-term debt securities
(3) Gain from sale of real property
(P9,400,000 P4,400,000)
Adjusted income subject to corporate income tax
Multiply by normal corporate income tax
Correct amount of income tax

25,000
10,000

5,000,000

5,035,000
P 5,630,000
30%
P 1,689,000

Total reported income before tax

Less: Normal corporate income tax
Total accounting income after tax

P10,000,000
1,689,000
P 8,311,000

Problem 12 48
Total revenue
Operating expenses
Service charge credit card (P1,000,000/5%) x 3%
Net income
Multiplied by normal corporate tax
Income tax due
Less: Creditable expanded withholding tax (P1,000,000/5%) x %
Income tax still due and payable

P1,000,000
( 10,000)
( 600,000)
P 380,000
30%
P 114,000
100,000
P
14,000

Problem 12 49
Taxable income (normal tax)
Add: Income subject to final tax
Income exempt from tax
Income excluded from gross income
Amount of NOLCO deducted
Total
Less: Dividends
Income tax paid for the year
Improperly accumulated income
Multiply by tax rate
Tax on improperly accumulated income

P 900,000
P 60,000
50,000
10,000
50,000
P150,000
200,000

Problem 12 50

Tuition fees
Miscellaneous fees
Income from rents
Net income, school canteen
Net income, book store
Gross income
Less: Allowable deductions:
Payroll and administrative salary
Other operating expenses
Interest expense

170,000
P1,070,000
350,000
P 720,000
10%
P
72,000

P2,843,100
362,600
60,000
36,200
24,800
P3,326,700
P1,425,420
762,330
82,100

117

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%)
Add: NOLCO deducted
Interest income (P120,000/80%)
Capital gain (P230,000 P5,000)/90%
Total income for GAAP reporting, before tax

P1,500,000
100,000
150,000
250,000
P2,000,000

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

P450,000
30,000
20,000
P500,000

(3)
GAAP income
Less: Total income tax (see 2)
Net income after tax GAAP

P2,000,000
500,000
P1,500,000

(4)
Taxable income from operation
Add: NOLCO
Income subjected to final tax (P150,000 + P250,000)
Total
Less: Income tax paid
Net income after income tax
Multiplied by surtax rate
IAET = Surtax

Problem 12 52
1.
Sales
Cost of sales

3rd year
P1,000,000
( 600,000)

4th year
P2,500,000
(1,200,000)

P1,500,000
P100,000
400,000

5th year
P4,000,000
(2,400,000)

500,000
P2,000,000
500,000
P1,500,000
10%
P 150,000

6th year
P5,000,000
(2,700,000)

118

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

SUGGESTED ANSWERS

Chapter 12: Income Tax of Corporations

Rent income
Gross income
Operating expenses allowed
Net taxable income
Multiplied by NCIT rate
Income tax due
Quarterly tax paid
Income tax still due and payable
2.
Royalty income, net of tax
Interest income, net of tax
Total passive income, net of tax
Divide by
Total gross passive income
Multiplied by final tax rate
Final taxes

200,000
P 600,000
( 300,000)
P 300,000
30%
P
90,000
(
10,000)
P
80,000

300,000
P1,600,000
(1,300,000)
P 300,000
30%
P
90,000
(
20,000)
P
70,000

100,000
P1,700,000
(1,400,000)
P 300,000
30%
P
90,000
(
30,000)
P
60,000

50,000
P2,350,000
(1,500,000)
P 850,000
30%
P 255,000
(
40,000)
P 215,000

3rd year
P 80,000
20,000
P100,000
80%
P125,000
20%
P 25,000

4th year
P160,000
32,000
P192,000
80%
P240,000
20%
P 48,000

5th year
P120,000
16,000
P136,000
80%
P170,000
20%
P 34,000

6th year
P 40,000
24,000
P 64,000
80%
P 80,000
20%
P 16,000

Problem 12 53
1.
Sales
Less: Cost of sales
Reportable gross income per ITR
2.

Gross profit
Less: Operating expenses:
Salaries
Depreciation
Supplies
Interest expense [P50,000 (P32,000/80% x 33%)
Net taxable income per ITR

P10,000,000
6,000,000
P 4,000,000
P4,000,000
P1,000,000
300,000
200,000
36,800

1,536,800
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%

4.

Net income before tax per GAAP

Less: Income tax (P2,463,200 x 30%)
Net income

P 8,000
P2,200,000
738,960
P1,461,040