NAME: SCORE:

SECTION: PROFESSOR:

Multiple Choice

1. Which of the following may not be deducted from gross receipts to arrive at gross income for purposes of
computing the MCIT of a taxpayer engaged in the sale of service under the cash basis?

a. Sales discounts
b. Cost of services
c. Sales returns and allowances
d. None of the above

2. One of the following statements is wrong. Which is it? Gross income tax on corporation is

a. Applicable starting year 2000

b. Applicable to resident corporations.
c. Applicable to domestic corporations.
d. Applicable to non-resident corporations.

3. For purposes of determining the improperly Accumulated Taxable Income for a taxable year, the following,
except one, are added to that year’s taxable income. Which one?

a. Income exempt from tax

b. Income subject to final tax
c. Income excluded from gross income
d. The amount of net operating loss carry-over (NOLCO)

4. Which of the following in not a prima facie instance that is indicative of purpose to avoid income tax upon
shareholders?

a. Accumulation of earnings in excess of 100% of paid up capital otherwise intended for the reasonable needs
of the business
b. Being a mere holding or investment company
c. Investment in bonds and other long term securities
d. Investment of substantial earnings and profits of the corporation in unrelated business or in stock or
securities of unrelated business

5. The minimum corporate income tax of a domestic or resident trading or manufacturing corporation is

a. 2% of gross income.
b. 2% of gross sales.
c. 15% of gross income.
d. 15% of gross sales.

6. Which or the following is not true?

a. Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning
January 1, 1998.
b. Firms which were registered with BIR in any month in 1998 shall be covered by the MCIT in 2002 after the
lapse of three calendar years from 1998.
c. A firm which registered with the BIR on May 13, 1998 shall be subjected to an MCIT on his gross income
earned for the entire fiscal year ending in the year 2002.
d. For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in
which the domestic corporation registered with the BIR.
e. None of the above

7. Which statement is correct? The gross income tax of corporation is

a. 15% of gross income.

b. 155 of gross sales.
c. 15% net sales
d. All of the above

8. The term “normal income tax “ shall mean the income tax rates prescribed

a. Under Section 27(A) of the code

b. Under Section 28(A)(1) of the code
c. At 35% effective Nov. 01, 2005, and 30% effective Jan. 1, 2009
d. All of the above

9. Legitimate business reverses shall include substantial losses sustained

a. Due to fire, robbery, theft or embezzlement.

b. For other economic reasons as determined by the Secretary of finance.
c. Both of the above
d. None of the above
10. Reasonable needs of business is inconsistent with the concept of IAET when

a. Construed as immediate needs of the business including reasonable anticipated needs.

b. The direct correlation of anticipated needs to the accumulation of profits is proved
c. It is not necessary for the purpose of the business considering all the circumstances of the case
d. The “immediacy Test” under American jurisprudence is adopted in Philippines jurisdiction.

11. Which statement is wrong? The gross income tax

a. Available only if the ratio of cost of sales does not exceed fifty- five percent at gross sales or receipt from all
sources.
b. The choice shall be irrevocable for three consecutive years that the corporation is qualified under the
scheme.
c. Is always computed to compare with the normal income tax and minimum corporate income tax.
d. Is optional to a qualified corporation.

12. Which of the following may not be deducted from the gross receipts to arrive at gross income for purposes
of computing the MCIT of a taxpayer engaged in the sale of services under the accrual basis?

a. Sales discounts
b. Cost of goods sold
c. Sales returns and allowances
d. All of the above

13. Force majeure includes

a. Armed conflicts like war or insurgency.

b. Lightning, earthquake, storm, food and the like.
c. A cause due to an irresistible force as by “ Act of God”
d. All of the above

14. Which of the following statements about IAET is false?

a. It is in the nature of a penalty to the corporation for improperly accumulating earnings.

b. It aims to deter the avoidance of tax on the part of shareholders on earnings received.
c. If undistributed earnings are used for the reasonable needs of the business generally, such earnings is not
subjected to IAET.
d. IAET shall not be imposed despite determination that a corporation has accumulated beyond the reasonable
needs of business

15. A minimum corporate incoming tax of two percent (2%) of the gross income as of the end of the taxable
year imposed upon any domestic and resident foreign corporation subject to the normal tax.
a. Whenever such corporation has zero or negative taxable income.
b. Whenever the amount of minimum corporate income tax is greater than the normal income tax due from
such corporation.
c. Beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation
commenced its business operations.
d. All of the above.

16. One of the following statements is correct. Which is it? The minimum corporate income tax of a corporation
is computed

a. Only in the quarterly return of the corporation.

b. Only in the annual income tax return of the corporation.
c. In all the taxable years of operations of the corporation.
d. In the quarterly and the annual returns of the corporation.

17. The following, except one, give rise to the presumption that a corporation is improperly accumulating
profits, identify the exception.

a. The corporation permits its profits to accumulate beyond the reasonable needs of the business.
b. The corporation is a mere holding company.
c. The corporation is an investment company.
d. The corporation is a service enterprise.

18. Cost of service for MCIT purpose means all direct cost and expenses necessity incurred to provide the
services required by the customers and clients including

a. Interest expense in the case of banks and other financial institutions

b. Salaries and employee benefits of personnel, consultants and specialist directly rendering the service.
c. Cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used
and cost of supplies
d. All of the above

19. Which of the following does not constitute accumulation of earnings for the reasonable needs of the
business?

a. Earnings reserved for definite corporate expansion projects or programs requiring considerable capital
expenditure even without approval by the Board of Directors or equivalent body
b. Earnings reserved for compliance with any loan covenant or pre- existing obligation established under a
legitimate business agreement
c. Earnings required by law or applicable regulations to be retained by the corporation or in respect of which
there is legal prohibition against its distribution
d. Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the
corporation as of Balance Sheet date, inclusive of accumulations taken from other years

20. A BOI - registered enterprise has a “ registered” and an “unregistered” activity. The MCIT shall apply to the

a. Unregistered activity
b. Registered activity
c. Both activities
d. None of the above

21. Which of the following statements about improperly accumulated earnings tax (IAET) is false?

a. If there is no distribution of corporate earnings, shareholders are not liable for income tax on such earnings.
b. Once a corporation is subjected to the corporate income tax, the IAET can no longer be imposed.
c. If corporate earnings are distributed to shareholders, such earnings shall net be subjected to AIET.
d. Shareholders are liable to income tax for corporate earning received.

22. In the case of a domestic corporation whose operations or activities are party covered by the regular income
tax system and partly covered under a special income tax system, the MCIT shall apply on

a. Operations covered by both regular and special income tax systems.

b. Operations covered by the regular income tax system.
c. Operations covered under a special income tax system.
d. None of the above

23. Which of the following may be not be deducted from gross sales to arrive at gross income for purposes of
computing the gross income tax of a merchandising/manufacturing concern?

a. Sales discounts
b. Cost of goods sold
c. Sales returns and allowances
d. None of the above

24. Improperly Accumulated Earning Tax shall not apply to the following corporations except one. Which one?

a. Closely - held corporations

b. Publicly - held corporations
c. Taxable and general professional partnerships
d. Bank and other non- bank financial intermediaries
25. Which of the following may not be deducted from gross sales to arrive at gross income for purposes of
computing the MCIT of a merchandising/manufacturing concern?

a. Sales discounts
b. Cost of goods sold
c. Sales returns and allowances
d. None of the above

26. For purposes of determining the Improperly Accumulated Taxable Income for a taxable year, the following,
except one, are reduced from that year’s taxable income after appropriately adding certain items. Which one?

a. Amount reserved for the reasonable needs of the business

b. Dividends actually or constructively paid/issued
c. Income tax paid/payable for the taxable year
d. 10% improperly accumulated earnings tax

27. The minimum corporate income tax of a domestic or resident service corporation is

a. 2% of gross income
b. 2% of net sales
c. 15% of gross income
d. 15% of gross sales

28. The tax rate on improperly accumulated earnings

a. 2%
b. 10%
c. 15%
d. 30-35%

29. The MCIT applies to which of the following domestic corporations?

a. Non-profit hospitals
b. Proprietary educational institutions
c. Firms that are taxed under a special income tax regime
d. Depository banks under the expanded foreign currency deposit system on their income from foreign
currency transactions with local commercial banks
e. All of the above
f. None of the above
30. The MCIT shall not apply to which of the following resident foreign corporations?

a. Regional operating headquarters

b. International carrier
c. Firms that are taxed under a special income tax regime
d. Offshore Banking Units (OBUs) on their income from foreign currency transactions with local commercial
banks
e. All of the above
f. None of the above

31. Which of the following statements is false?

a. The dividends must be declared and paid or issued not later than one year following the close of the taxable
year.
b. IAET on dividends declared but unpaid or unissued within one year following the close of the taxable year
should be paid within one year thereafter.
c. Profit subjected to IAET shall no longer be subjected to the same tax in later years even if not declared as
dividend.
d. Profit subjected to IAET shall still be subjected to tax on dividends when declared as dividend.

32. One of the following statements is wrong. Identify the improperly accumulated earnings tax imposed on
corporations.

a. Is based on the net income per books after income tax

b. Is based on a statutory formula for improperly accumulated income.
c. Is calculated to force corporations to pay out dividends
d. Is computed on the year’s improperly accumulated income.

33. Improperly accumulated taxable income means taxable income adjusted by

a. Income exempt from tax

b. Income subject to final tax
c. Income excluded from gross income
d. The amount of net operating loss carry over deducted.
e. All of the above

34. Improperly accumulated taxable income means taxable reduced by the sum of

a. Income tax paid for the taxable year

b. Dividends actually or constructively paid
c. Both of the above
d. None of the above
35. All, except one, of the following are not subjected to the improperly accumulated earnings tax. Which is the
exception?

a. Service enterprises
b. Insurance companies
c. Publicly-held corporations
d. Banks and other non- bank financial intermediaries

36. Substantial losses from a prolonged labor dispute means

a. The strike resulted to temporary shutdown of business operations

b. Losses arising from a strike staged by the employees which lasted for more than six months within a taxable
period.
c. Both of the above
d. None of the above
NAME: SCORE:

SECTION: PROFESSOR:

Multiple Choice - Problems

MCIT of Manufacturing Concern

For taxable year 2014, the company’s sixth year of operations, the records of Mega Specialties Corp. A domestic
corporation show the following:

Gross sales P2,463,500

Sales returns & allowances 27,500
Sales discounts 42,750
Cost of goods manufactured & sold 1,313,600
Operating expenses 586,040

1. Net Sales

a. P2,463,500 b. P2,436,000 c. P2,420,750 d. P2,393,250

2. Gross income

a. P2,463,500 b. P2,393,250 c. P1,313,600 d. P1,079,650

3. Minimum corporate income tax

a. P21,593 b. P26,272 c. P47,865 d. P49,270

NAME: SCORE:

SECTION: PROFESSOR:

Gross sales P2,956200

Sales returns & allowances 33,000
Sales discounts 51,300
Operating expenses 703,248
Minimum corporate income tax 25,912
Charity Inc. a domestic company has the following financial data for 2014, its fifth year of operations:

4. Net Sales

a. P2,871,900 b. P2,904,900 c. P2,923,200 d. P2,956,200

5. Cost of goods manufactured and sold

a. P2,956,200 b. P2,871,900 c. P1,576,320 d. P1,295,580

6. Gross Income

a. P2,956,200 b. P2,871,900 c. P1,576,320 d. P1,295,580

Multiple Choice - Problems

MCIT of Manufacturing Concern Under Cash & Accrual Bases

Demi Bridal Consultancy a domestic corporation adopts the cash basis of accounting. It has the following
financial data for the year 2014, its fifth year of operations:

Gross receipts P250,000

Sales returns & allowances 5,000
 Sales discounts 7,000
Cost services 95,000
Operating expenses 62,000

1. Gross income

a. P250,000 b. P242,500 c. P237,500 d. P142,500

2. Minimum corporate income tax

a. P2,850 b. P4,750 c. P4,850 d . P5,000

3. Minimum corporate income tax under the accrual basis

a. P82,500 b. P5,000 c. P4,750 d. P2,850

Austerity Inc. A domestic company, employs the cash basis method. The following financial data appear in its
records for the year 2014, its sixth year of operations:

Gross receipts P187,500

Sales returns & allowances 3,750
Sales discounts 5,625
Operating expenses 46,875
Minimum corporate income tax under 2,138
the cash basis

4. Cost of services

a. P71,250 b. P106,875 c. P178,125 d. P187,500

5. Gross income
a. P71,250 b. P106,875 c. P178,125 d. P187,500

6. Minimum corporate income tax under the accrual basis

a. P1,425 b. P2,138 c. P3,562 d. P3,850

NAME: SCORE:
SECTION: PROFESSOR:

Problems

MCIT VS Normal Tax of a Merchandising Business

Humility Inc. it is a domestic corporation engaged in merchandising business. For the calendar year 2014, the company's
switch year operations, the following financial data appear in its records:

Dividend received from a domestic corporation

Provision for bad debts

After considering the above terms, Humility has a gross profit from sales P517,000 and net income pero books of P207,000

For the first three quarters, Humility pays P32,775 in income taxes on April 20, 2005 Humility files its income tax return ,
Due date is April 15, 2015. The BIR imposes a compromuse penalty of P8,000

1. Taxable income _______________________

2.Minimum corporate tax:__________________

3.Income tax still due_______________

4.Surcharge for the late filling of return_____________

5.Total amount payable______________________

NAME: SCORE:
SECTION: PROFESSOR:

PROBLEMS

Normal tax,MCIT and Improperly accumalated Earning Tax

For taxable year 2014 the BIR declares the accumalated earnings of Jubilatio Inc., a domestic corporation to be improper.
Company records show the following financial data:
 Sales P8,100,000

Cost of Sales 2,700,000

Business expenses 1,350,000

Interest on Philippine currency bank deposit. 67,500

Capital gain on sale directly to buyer of shares

of a domestic corporation

Dividend income from a domestic corporation 162,000

Dividend income from a domestic corporation 81,000

Dividend declared and paid during the year 675,000

1. Income tax due__________________

2. Capital gains tax on shares of stock of a domestic corporation:_______________

3.Improperly accumalated earnings tax:_________________

NAME: SCORE:
SECTION: PROFESSOR:
PROBLEMS

Normal tax, MCIT and Improperly Accumalated Earnings Tax

For taxable year 2014, records of Ingenuity Inc., a domestic corportion, show the following financial data:

Dividend income from a domestic corporation: P33,000

Interest income:
 From long-term investment (maturity of more than five years) 9,900

From Philippine currency bank deposits 13,200

Capital gain on sale of land in the Philippines held for twelve

years , selling price is P6,600,000 165,000

Capital gain on sale shares a stock of a domestic corporation

held for ten months sold directly to buyer 19,800

Income from trust indenture with Metro bank 6,600

Income tax (three quarterly income taxes) 132,300

Capital loss on sale bonds of a domestic corporation held for

three years 9,075

Dividends declared and paid 330,000

After considering the above items, ingenuity has the following balances:

Gross profit from sales P4 125,000

Net income per books 1,155,000

1.Minimum corporate income tax____________

2.Applicable income tax_____________

3.Income tax still due____________

4.Improperly accumalated earnings if accumalation of profitsw in 2014 is adjudged to be improper__________

5. Improperly accumalated earnings tax:_____________________

NAME: SCORE:
SECTION: PROFESSOR:
PROBLEMS

Normal Tax Versus MCIT

In 2014 Variety Cup., a resident foreign corporation was on its sixth year pf corporations. The following data pertain to
operations in the Philippines for the years 2014 and 2015.

2014 2015

Gross profit P620,000 P270,000

Business expenses 530,000 612,000

1. Normal income tax of 2014:_________________

2.Income tax due for 2014:_____________________

3.Minimum corporate income tax for 2015:___________________

4.Income tax due for 2015:___________________

Fullfillment Inc. a resident foreign corporation, is on its sixth year of operations in 2014.
For its operations in the Philippines, the following appear in its 2014 and 2015 records

2014 2015

Business epenses P795,000 P918,000

Normal income tax 31,500 39,600

5.Gross profit from sales for 2014:_____________

6.Income tax due for 2014________________

7.Gross profit from sales for 2015:____________

8.Income tax due for 2015___________

NAME: SCORE:
SECTION: PROFESSOR:
PROBLEMS

MCIT vs. Normal tax of a Merchandising Business

Hope Corporation is a trading company organized in the Philippines Calendar year 2014 is its fifth year of operatios. It has
the following financial data for 2014:

Dividend received from a domestic corporation P8,500

Interest received on government bonds, net of 20%tax 7,395

Interest on money borrowed to buy government bonds 255

Income tax payments for the first three quarters 24,225

Provision for bad debts 4,250

After considering the items, the following balances appear in the company records

Gross profit from sales 382,500

Net income per books 153,00

Hope was charged a compromise penalty of P5,500 after failing to file its income tax return on the due date, Apr.15,2015.
The return was filed on Apr. 22,2015

1.Taxable income:_______________

2.Minimum corporate income tax:________________

3.Normal corporate income tax:________________

4.Income tax still due:_______________________

5.Interest for late filing of return:______________

6.Total penalties:__________________

7.Total amount payable:________________

NAME: SCORE:
SECTION: PROFESSOR:
PROBLEMS

Normal Tax Versus MCIt

Miscellaneous Corp., a domestic corporation, its on fifth year of operations in 2014 a has the following data:

Sales P2,350,000

Cost of sales 1,075,000

Business expenses 1,125,000

1.Gross income:_______________

2Normal tax taxable income:____________________

3.Income tax due:___________________

In2014, the companys fourth year of operations Destiny Inc., a domestic corporation has the following financial data:

Business expenses PP975,000

Minimum corporate income tax 25,000

4.Gross income:_______________

5.Normal tax taxable income:____________________

6.Income tax due:___________________

Gross company is a resident foreign corporation taxable year 2014 is its fourth year of operations for the years 2014 and
2015, Grace's Philippine operations yield the followig financial data:

2014 2015

Business expenses P325,000 P360,000

Minimum corporate tax 7,000 8,000

9.Normal tax taxable income for 2014:__________________

10.Income tax due for 2014:_______________

11. Nomal tax taxable income for 2015:_____________

12.Income tax due for 2015:__________________

NAME: SCORE:
SECTION: PROFESSOR:
PROBLEMS

Accounting Treatment of Excess MCIT

Salcedo Corporation a domestic corporation has been operating its business since 2003. The corporation adopts the
calendar year as its taxable year. The accountant made a schedule comparing the normal income tax and the MCIT of the
company for the eight- year period the company is covered by the MCIT:
2007 2008 2009 2010 2011 2012 2013 2014

MCIT P200,00 P300,000 P380,00 P600,000 P100,000 P120,000 P80,000 P100,000

Normal tax50,000 260,000 400,00 300,000 20,000 30,000 16,000 2,000

Excess: P150,000 P40,00 P300,000 P80,000 P90,000 P64,000 P98,000

From year 2007 to 2014,prepare the appropriate accounting entries record:

1.income tax liability using the normal income tax rate

2.deferred charges relative to excess MCIT over normal income tax

3.payment of income tax

4.application of excess MCIT against normal income tax liability

5.expired portion of deferred charges recognized

NAME: SCORE:
SECTION: PROFESSOR:
Multiple Choice Problem

Gross Income tax

In year 2014 Towers Corporation a domestic corporation, is engaged in architectural designs services. The Following are
pertinnent data:

Gross receipts P5,000,000

Sales returns and allowances 200,000

Sales discounts 250,000

 Cost of Services 2,250,000

Deductions 1,000,000

1. The gross income tax of Towers for year is

a. P345,000 P195,000 c.P682,000 P750,000

In year 2014 Eastwood Corp., a domestic corporation, has the following data:

Sales P4,000,000

Cost of sales P1,5000,000

Busines expenses 1,000,000

2. The gross income tax of the corporation is

a.P375,000 b.P480,000 C.P600,00 D125,000

The income statement of Mars Corp., a resident foreign corporation, for the year 2014 shows the following:

Gross sales P2,675,000

Sales return and allowances 26,000

Sales discounts 23,000

Cost of goods sold 1,070,000

Business expenses 414,000

3.The gross income tax of the corporation is

P31,120 b.P233,400 C.P53,500 P401,250

4.If cost of goods sold is P1,605,00 the gross income tax of the corporation is

a.20,420 b.exempt c.153,150 d.not qualified