Mr. Masagana, married, with three qualified dependents, is engaged in trading business. The f ollowing information relates to his business for the year ended December 31, 20A1:
Sales on account P300,000
Cash sales during the year 400,000
Collections of 20A1 sales on account 175,000 Collections of 20A0 sales on account 250,000
Purchases on account 120,000
Cash purchases 100,000
Payments for 20A1 purchases on account 70,000 Payments for 20A0 purchases on account 50,000
Expenses on account 180,000
Cash expenses 130,000
Payments for 20A1 expenses on account 80,000 Payments for 20A0 expenses on account 60,000
Mr. Masagana adopted the cash basis of accounting for income tax purposes. In addi tion, he opted to use the itemized deduction.
Required:
1. Determine Mr. Masagana’s taxable income for the year ended December 31, 20A1.
2. Determine Mr. Masagana’s income tax liability for the year ended December 31, 20A1.
3. Determine Mr. Masagana’s taxable income for the year ended December 31, 20A1 assuming he adopted the optional standard deduction.
4. Determine Mr. Masagana’s income tax liability for the year ended December 31, 20A1 assuming he adopted the optional standard deduction.
Problem 89 – Hybrid method
Mrs. Masigasig with one qualified dependent, i s engaged in trading and manufacturing businesses. The following information relates to her businesses for the year ended December 31, 20A1:
Trading Manufacturing
Sales on account P350,000 P370,000
Cash sales during the year 400,000 350,000
Collections of 20A1 sales on account 180,000 150,000 Collections of 20A0 sales on account 220,000 120,000
Purchases on account 100,000 120,000
Cash purchases 90,000 100,000
Payments for 20A1 purchases on account 80,000 75,000 Payments for 20A0 purchases on account 75,000 80,000
Expenses on account 280,000 220,000
Cash expenses 170,000 175,000
Payments for 20A1 expenses on account 150,000 120,000 Payments for 20A0 expenses on account 120,000 100,000
Mrs. Masagana adopted the cash basis of accounting for her trading business and accrual basis of accounting for her manufacturing business. In addi tion, she opted to use the itemized deductions. There were no beginning and ending inventories.
Required:
1. Determine Mrs. Masigasig’s taxable income for the year ended December 31, 20A1.
2. Determine Mrs. Masigasig’s income tax liability for the year ended December 31, 20A1.
3. Determine Mrs. Masigasig’s taxable income for the year ended December 31, 20A1 assuming he adopted the optional standard deduction.
4. Determine Mrs. Masigasig’s income tax liability for the year ended December 31, 20A1 assuming he adopted the optional standard deduction.
Problem 90 – Farming: cash or accrual method
Mr. Magsasaka, a farmer, single, had t he following information for the year ended December 31, 20A1:
Sales of livestock and farm products raised P170,000 Sales of livestock and farm products purchased 60,000 Cost of raising livestock and farm products paid in 20A1 90,000 Cost of livestock and f arm products purchased and sold paid in 20A1 40,000
Gain on sale of farm equipment 5,000
Proceeds from crop insurance 10,000
Inventory of livestock and farm products, January 1 10,000 Inventory of livestock and farm products, December 31 13,000 In addition, the following information relates to Mr. Magsasaka’s other deductions:
Cash expenses paid in 20A1 for current year’s expenses P30,000 Cash expenses paid in 20A1 for prior year’s expenses 25,000 Expenses incurred in 20A1 but not yet paid 20,000 Mr. Magsasaka adopted the cash basis of accounting for purposes of calculating his taxable income.
Required:
1. Determine Mr. Magsasaka’s taxable income for the year ended December 31, 20A1.
2. Determine Mr. Magsasaka’s income tax liability for the year ended December 31, 20A1.
3. Determine Mr. Magsasaka’s taxable income for the year ended December 31, 20A1 assuming he adopted the accrual basis of accounting.
4. Determine Mr. Magsasaka’s income tax liability for the year ended December 31, 20A1 assuming he adopted the accrual basis of accounting.
Source: Reyes (2006) modified.
Problem 91 – Real property: Deferred payment basis, installment method
Dalaga Corporation, a real estate dealer, sold the following condominium units for the year ended December 31, 20A1:
· March 1, 20A1 – Unit A for P2,500,000 with cost of P1,000,000, downpayment of P100,000 and the balance was payable monthly for P100,000 beginning April 1, 20A1 for 24 months.
· July 1, 20A1 – Unit B for P3,200,000 with cost of P1,200,000, downpayment of P200,000 and the balance was payable monthly for P125,000 beginning August 1, 20A1 for 24 months.
· September 1, 20A1 – Unit C for P4,000,000 with cost of P1,800,000, downpayment of P250,000 and the balance was payable monthly for P150,000 beginning October 1, 20A1 for 25 months.
· November 1, 20A1 – Land for P1,250,000 to be paid by an assumption by the buyer of P600,000 mortgage, downpayment of P130,000 and monthly i nstallment payments of P20,000 every month starting December 1, 20A1 for 26 months. Land had acquisition cost of P500,000.
· December 1, 20A1 – Land for P1,000,000 to be paid by an assumption of the buyer of P400,000 mortgage, downpayment of P250,000 and monthly i nstallment payments of P10,000 every month starting December 31, 20A1 for 25 months. Land had acquisition cost of P480,000.
Dalaga had deductible expenses of P1, 200,000 during the taxable year. It opt ed to use the installment method of accounting for qualifying sales transactions and itemized deduction. It was incorporated and regi stered with the BIR five years ago.
Required:
1. Determine Dalaga’s taxable income for the year ended December 31, 20A1.
2. Determine Dalaga’s income tax liability for the year ended December 31, 20A1.
3. Determine Dalaga’s taxable income for the year ended December 31, 20A1 assuming it adopted the deferred payment basis on all sales transactions.
4. Determine Dalaga’s income tax liability for the year ended December 31, 20A1 assuming it adopted the deferred payment basis on all sales transactions.
Problem 92 – Dealer of personal property: Deferred payment; installment method
Binata Corporation, a car dealer, made the following sales transactions for the year ended December 31, 20A1:
Car A Car B Car C Car D Car E
Date of sale February 1 April 1 June 1 September 1 December 1 Selling price P1,200,000 P1,500,000 P1,700,000 P1,800,000 P2,000,000
Cost 400,000 600,000 750,000 800,000 1,100,000
Downpayment 200,000 300,000 500,000 300,000 500,000
Monthly
installment 20,000 20,000 20,000 30,000 30,000
The monthly installments were paid starting from the subsequent m onth of sale until fully paid. Binata had deductible expense of P500,000 during the taxable year. It adopted the installment method in computing its taxable income. Moreover, Binata was registered with the BIR on December 1, 20A0.
Required:
1. Determine Binata’s taxable income for the year ended December 31, 20A1.
2. Determine Binata’s income tax liability for the year ended December 31, 20A1.
3. Determine Binata’s taxable income for the year ended December 31, 20A1 assuming it adopted the deferred payment method.
4. Determine Binata’s income tax liability for the year ended December 31, 20A1 assuming it adopted the deferred payment method.
Problem 93 – Construction, percentage of completion
Kanluran Construction Company entered into a fix ed-price contract with Silangan Company on July 1, 20A1 to construct a four-story office buil ding. At this time, Kanluran estimated that it would take bet ween two to three years to complete the project. T he total contract price for the construction of the building was P6,000,000. The building was completed on December 31, 20A3. The following information relates to the project as of December 31, 20A1 to 20A3:
20A1 20A2 20A3
Percentage of completion 10% 60% 100%
Costs incurred to date P350,000 P2,500,000 P4,250,000
Estimated costs to complete 3,150,000 1,700,000
-0-Billings to Silangan, to date 720,000 2,170,000 3,600,000
The percentage of completion was determined by Kanluran’s engineers. Kanluran incurred operating expenses of P350,000 in 20A1, P400,000 in 20A2 and P450,000 in 20A3. These operating expenses were tax
deductible.
Kanluran was incorporated and registered with the BIR seven years ago.
Required:
1. Determine Kanluran’s taxable income for the years ended December 31, 20A1, 20A2 and 20A3.
2. Determine Kanluran’s income tax liability for the years ended December 31, 20A1, 20A2 and 20A3.
Problem 94 – Inventory method, change i n accounting method
Hilaga Company’s inventory records contained t he following information regarding its inventories for the years ended December 31, 20A1 and 20A2:
January 1, 20A1 600 units at P80 each Purchases
March 15, 20A1 1,000 units at P95 each June 1, 20A1 800 units at P100 each December 31, 20A1 200 units at P105 each Sales
February 1, 20A1 400 units at P120 each July 1, 20A1 800 units at P130 each December 1, 20A1 500 units at P135 each
Purchases
March 31, 20A2 900 units at P110 each May 31, 20A2 800 units at P115 each October 31, 20A2 700 units at P120 each Sales
March 1, 20A2 700 units at P140 each June 30, 20A2 1,000 units at P145 each December 31, 20A2 500 units at P150 each
Hilaga adopted the FIFO method in accounting for its inventories for income tax purposes. Howev er, starting January 1, 20A2, it adopted the moving average method in accounting f or its inventories. Moreover, it adopted the optional standard deduction f or purposes of calculating its taxable income for bot h taxable years.
Hilaga was registered with the BI R on January 1, 20A0.
Required:
1. Determine Hilaga’s taxable income for the year ended December 31, 20A1.
2. Determine Hilaga’s income tax liability for the year ended December 31, 20A1.
3. Determine Hilaga’s taxable income for the year ended December 31, 20A2.
4. Determine Hilaga’s income tax liability for the year ended December 31, 20A2.
Problem 95 – Accounting periods: Calendar or f iscal year, excess MCIT over RCIT, NOLCO Tatak Corporation had the following information for the year ended December 31, 20A3:
Net sales P5,000,000
Cost of sales 1,800,000
Deductions 3,000,000
It had excess MCIT over RCIT and NOLCO as follows:
Excess MCIT NOLCO
December 31, 20A0 P30,000 P350,000
December 31, 20A1 20,000 100,000
December 31, 20A2 10,000
-0-Starting 20A4, it changed its accounting period to March 31. It had the following information for the periods ended March 31, 20A4 and 20A5:
20A4 20A5
Net sales P1,000,000 P7,000,000
Cost of sales 300,000 2,500,000
Deductions 400,000 1,000,000
Required:
1. Determine the Tatak’s RCIT for the periods ended December 31, 20A3, March 31, 20A4 and 20A5.
2. Determine the Tatak’s MCIT for the periods ended December 31, 20A3, March 31, 20A4 and 20A5.
3. Determine the Tatak’s income tax liability for the periods ended December 31, 20A3, March 31, 20A4 and 20A5.
UNIT 11 – FILING OF RETURNS, PAYMENT OF TAX AND A DMINISTRATIVE REQUIREMENTS Problem 96 – Individual compensation income earners; withholdi ng tax; substituted filing
The following are independent situations regardi ng the compensation and benefits received by Mr. Lanzones, a citizen, for the year ended December 31, 20A1:
a. Mr. Lanzones, single, with PWD dependent who is his brother, was employed by Camachile
Corporation, a Large Taxpayer, as notified by the BIR. He received m onthly compensation of P30,000 which was paid P15,000 every 15th and P15,000 every 30th of the month. In addition, he also received a rice subsidy of P1,200 every 30th of the month. Moreover, he also received 13th month pay of P30,000 on November 15, 20A1, 14th month pay of P30,000 on December 15, 20A1, and performance bonus of P60,000 on October 30, 20A1. Camachile correct withheld the taxes on his compensation.
b. Mr. Lanzones, single, with PWD dependent who is his brother, was employed by Camachile
Corporation until May 31, 20A1. Camachile is a Large Taxpayer, as notified by the B IR. He received monthly compensation of P30,000 which was paid P15,000 ev ery 15th and P15,000 every 30th of the month. In addition, he received a rice subsidy of P1,200 every 30th of the month. Moreover, he also received pro-rated 13th month pay as part of his final pay with Camachile which was paid May 31, 20A1 together with his last half-month pay. He joined Duhat Corporation starting June 1, 20A1. Duhat is not a Large Taxpayer or a Top 20,000 corporation. It also uses the m anual books of accounts. Mr. Lanzones received monthly compensation of P40,000 which was paid P20,000 every 15th and P20,000 every 30th of the month. In addition, he received pro-rated 13th month pay on November 15, 20A1 and
performance bonus of P50,000 on December 31, 20A1. Camachile correctly withheld taxes on his
compensation. Moreover, Duhat correctly consolidated the c alculation of his income tax liability together with his compensation from Camachile.
Required:
1. Determine the monthly withholding taxes withheld by Camachile and Duhat under each scenario for the year ended December 31, 20A1. Use the withholding tax table prescribed under RR No. 2-98, as
amended.
2. Determine the due date for filing the monthly withholding tax return and remittance of the related tax of Camachile and Duhat for the year ended December 31, 20A1.
3. Determine the income tax liability of Mr. Lanzones under each scenario for the year ended December 31, 20A1.
4. Determine the income tax that will be paid by Mr. Lanzones when he filed his income tax return under each scenario, if required. Determine the due date for filing of the tax return and payment of the tax.
5. Prepare the annual income tax return of Mr. Lanzones under each scenario, if required, for the year ended December 31, 20A1. Please fill-up all the required boxes. Please put “XXX” for those boxes where no information are provided.
Problem 97 – Individual business income earners, mixed income; quart erly and annual; installment payment Mr. and Mrs. Dalandan, Filipino resident citizens, hav e six qualified dependents. Mr. Dalandan was an
employee Pomelo Corporation for the year ended December 31, 20A1. Mrs. Dalandan, on the other hand, was also an employee of Rambutan Company and at the same time had a trading business for the year ended December 31, 20A1.
The following information pertain Mr. Dalandan’s compensation and benefits f rom Pomelo:
Salaries and allowances P240,000
13th month pay and other benefits 40,000 Payroll deductions
SSS contributions P5,000
Philhealth contributions 2,000
Pag-ibig contributions 1,800
Labor uniondues 1,000
Pomelo properly and correctly withheld taxes on Mr. Dalandan’s compensation during the year.
Mrs. Dalandan, on the other hand, had the following information regarding her compensation and benefits from Rambutan:
Salaries and allowances P216,000 13th month pay and other benefits 25,000 Payroll deductions
SSS contributions P4,000
Philhealth contributions 3,000
Pag-ibig contributions 1,200
Rambutan properly and correctly withheld t axes on Mrs. Dalandan’s compensation during the year.
Moreover, the following information relate to t he trading business of Mrs. Dalandan for each of the quarters:
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales P50,000 P90,000 P70,000 P80,000
Cost of sales 25,000 50,000 40,000 42,000
Expenses 10,000 15,000 14,000 18,000
Mr. and Mrs. Dalandan opted t o pay their income tax liabilities, if any, on installment.
Required:
1. Determine the income tax withheld on compensation of Mr. Dalandan for the year ended December 31, 20A1.
2. Determine the income tax withheld on compensation of Mrs. Dalandan for the year ended December 31, 20A1.
3. Determine the quarterly income tax liability of Mrs. Dalandan on her business income for the year ended December 31, 20A1. Determine the deadline for filing of her tax returns and payment of taxes.
4. Determine the annual income tax liability of Mrs. Dalandan for the year ended December 31, 20A1.
5. Determine the amount of tax that will be paid by Mr. and Mrs. Dalandan in filing their annual income tax return for the year ended December 31, 20A1. Determine the deadline for filing of their tax return and payment of tax.
6. Prepare the quarterly and annual income tax returns of Mr. and Mrs. Dalandan for the year ended December 31, 20A1. Please fill-up all the required boxes. Please put “XXX” for those boxes where no information are provided.
7. Determine the attachments to the quarterly and annual income tax returns of Mr. and Mrs. Dalandan for the year ended December 31, 20A1.
Problem 98 – Individuals: capital gains tax on sale of real property, shares Mr. Malaya, widower, had the following transactions duri ng the year:
· March 1, 20A1 – sold 10,000 shares of Kadiwa Company for P15 per share. At that time, the shares have fair market value of P17 per share. These shares were acquired for P10 per share.
· May 20, 20A1 – sold l and for P3,500,000 with fair market value of P3,800,000. These were acquired for P1,800,000.
· June 25, 20A1 – sold 15,000 Malumay shares for P20 per share with fair market value of P19 per share. These shares were acquired for P12 per share.
· September 8, 20A1 – sold 12,000 Kapatid shares at fair market val ue for P25 per share. These shares were acquired for P17 per share.
· November 18, 20A1 – sold residential house which was constructed 10 years ago for P1,000,000 with fair market value of P900,000. These were acquired for P300,000.
Required:
1. Determine Mr. Malaya’s income tax liability for the years ended December 31, 20A1.
2. Determine the deadline for filing the tax returns and payment of the related tax liabilities of Mr. Malaya for the year’s ended December 31 20A1.
3. Prepare Mr. Malaya’s income tax returns for the years ended December 31, 20A1. Please fill-up all the required boxes. Please put “XXX” for those boxes where no information are provided.
Problem 99 – Corporate income tax r eturns; excess MCIT, NOLCO; creditable withholding taxes
Palosebo Co. is a domestic trading corporation. I t had the following data at t he end of each of the first three quarters (cumulative), and for the year ended December 31, 20A1 (sixth year of operations):
First Quarter Second Quarter Third Quarter Annual
Sales P500,000 P765,000 P920,000 P1,180,000
· The interest income pertains to i nterest on bank deposits subjected to 20% final tax.
· The dividend income pertains to dividend received from domestic corporations.
· Rent income pertains to income earned duri ng the year. Rentals of P120,000 were collected in advance on July 1, 20A1 covering one-year agreement.
· Taxes pertain to quarterly local business tax (LBT) of P14,675, deficiency income tax including
penalties pertaining to prior years of P70,000, and the balance pertains to quarterly income taxes paid.
· The provision for bad debts of P150,000 was made at the end of the year. Write-off was made in September for P200,000.
· Casualty loss was for a partial loss in May of property with a book value of P100,000. The cost to restore the property to its normal operating condition was P120,000.
· The contributions during the year pertain to contributions to the Society for the Blind, Inc., a PCNC-accredited charitable institution. Said contributions were f or charitable purposes which qualify for f ull deduction.
· Income taxes were withheld on sales for P5,000 during the first quarter, P2,650 for the second quarter, P1,550 for the third quarter and P2,600 for the fourth quarter.
· Income tax withheld on the rent received on July 1 was P6,000.
Palosebo incurred net operating loss of P500,000 for the year ended December 31, 20A0. Moreover, it paid MCIT of P80,000 and excess creditable t axes withheld of P10,000 during the same year. It opted to carryover the excess creditable taxes withheld in 20A0 as credit against its future income tax liabilities.
However, for the year ended December 31, 20A1, Palosebo opted to claim for r efund the excess creditable taxes withheld.
Required:
1. Determine the quarterly and annual taxable income of Palosebo for the year ended December 31, 20A1.
2. Determine the quarterly and annual income tax due of Palosebo for the year ended December 31, 20A1.
3. Determine the amount of excess creditable taxes withheld that can be claimed as refund for the year ended December 31, 20A1. Determine the deadline for filing the claim for refund.
4. Determine the amount of excess tax credits that can be carried over in the subsequent year(s).
Determine the prescription for the carryover.
5. Prepare the quarterly and annual income tax returns of Palosebo for the year ended December 31, 20A1. Please fill-up all the required boxes. Please put “XXX” for those boxes where no information are provided.
6. Determine the attachments to the quarterly and annual income tax returns of Palosebo for the year ended December 31, 20A1.