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PRELIMINARY EXAMINATION – TAX 2

TEST I. MULTIPLE CHOICE.

Instruction: Choose the BEST ANSWER.

1. A made the following transfers inter-vivos:


To B To C To D To E
Cost P100,000 P100,000 P100,000 P100,000
FMV, time of transfer 140,000 140,000 80,000 80,000
Consideration received 100,000 100,000 100,000 0
FMV time of death of A 120,000 70,000 120,000 90,000

The amount to be included in the gross estate of A is


a. P410,000 b. P100,000 c. P130,000 d. P110,000

2. Gross estate includes all his property, real or personal, tangible or intangible wherever situated,
except
a. Resident citizen b. Non-resident citizen c. Resident alien
d. Non-resident alien

3. Medical expenses, to be deductible, must be incurred by the decedent within


a. One year prior to his death c. Two years prior to his death
b. One year after his death d. Three years prior to his death

4. The medical expense shall in no case exceed


a. P200,000 b. P400,000 c. P500,000 d. P1,000,000

5. The estate should be valued at the time


a. The heirs are ascertained c. The estate is ready for
distribution to the heirs
b. The estate tax is paid d. Of death of the decedent

Items 6 through 9 pertain to the following information:


Proceeds of life insurance shall be included in the gross estate if the beneficiary designated is:
6. The estate and the designation is
a. Revocable c. Irrevocable
b. Whether revocable or irrevocable d. Partly revocable, partly
irrevocable

7. The executor and the designation is


a. Revocable c. Irrevocable
b. Whether revocable or irrevocable d. Partly revocable, partly
irrevocable

8. The administrator and the designation is


a. Revocable c. Irrevocable
b. Whether revocable or irrevocable d. Partly revocable, partly
irrevocable

9. A person other than the estate, executor or administrator and the designation is
a. Revocable c. Irrevocable
b. Whether revocable or irrevocable d. Partly revocable, partly
irrevocable

10. The amount of funeral expense that may be deducted from the gross estate is
a. 5% of the gross estate or P200,000, whichever is lower
b. Actual funeral expense or P200,000 whichever is lover
c. 5% of the gross estate or the actual funeral expenses whichever is lower
d. 5% of the gross estate or the actual funeral expenses or P200,000 whichever is the lowest

11. -Taxation of the estate shall be governed by the statue or law in force at the time of distribution of
the estate to the heirs
-Succession takes place upon the determination of the respective share of the heirs in the estate
of the decedent
a. True, True b. True, false c. False, true d. False, false

12. –Expenses incurred for the performance of the rites and ceremonies incident to interment and those
incurred after interment, such as prayers, masses and entertainment are par of unreal expenses
-The administrator or executor shall submit a statement showing the disposition of the proceeds of
the loan if the claims against the estate were contracted within five years before the death of the
decedent
a. True, True b. True, false c. False, true d. False, false

13. The estate may claim a standard deduction of


a. P1,000,000 b. P2,000,000 c. P200,000 d. P500,000
14. Statement 1- A died giving B power to appoint a person who will inherit A’s house and lot. B
however can only choose among C, D, E and F. B decided to transfer the property to C, in B’s will
when he was old already. The transfer from B to C is subject to estate tax.
Statement 2- During A’s lifetime, he decided to give B as gift his car subject to the condition that if
B does not become a CPA within three years, A shall revoke the transfer. In the second year
however, A died. The car can no longer form part of A’s gross estate.
a. True, True b. True, false c. False, true d. False, false

15. A died leaving a farm land. In his will, he transferred the ownership thereof to B but subject to the
condition that C will have the right to use the land for a period of ten years (usufruct). In the
seventh year, however, C died and in C’s will he surrendered his right over the land to B.
a. The transfer is subject to donor’s tax
b. The transfer is subject to estate tax
c. The transfer is both an inclusion from the gross estate
d. The above is a tax exempt transfer

16. One of the following is not an exemption or exclusion from the gross estate
a. Capital or exclusive property of the surviving spouse
b. Properties outside the Philippines of a non-resident Chinese decedent
c. Shares of stock of San Miguel Corporation of a non-resident Mexican
d. The merger of usufruct in the owner of the naked title

17. Based on the above problem but assuming that the PLDT shares of stocks are not listed in the local
stock exchange, and there are 1,000 shares at the time of death, the company’s outstanding share
were 10,000 shares. Its retained earnings was P2,000,000, par value per share was P50. The gross
estate should show the said shares at
a. Still at P75,000 b. P250,000 c. P200,000 d. P0

18. Statement 1-Unpaid mortgage indebtedness is deductible form the gross estate provided the said
property subject to the indebtedness is included in the gross estate, net of the mortgage
indebtedness
Statement 2- A donation inter-vivos by the decedent to the Philippine government few months
before his death is a deduction form the gross estate.
a. True, true b. True, false c. False, true d. False, false

19. One of the following is not allowed as deduction from the gross estate of a non-resident alien
decedent.
a. Vanishing deduction; c. Medical expenses;
b. Share of surviving spouse; d. Transfer for public use.

20. All of the following, except one, are allowed as deductions from the gross estate of a non-resident
alien, but are prorated between Philippine gross estate and the total or world gross estate:
a. Funeral expenses; c. Unpaid taxes;
b. Claims against the estate; d. Transfer for public purpose.

21. The following selected data were presented to enable you to compute the deductible funeral
expenses:
Gross estate P1,000,000
Actual funeral expenses 70,000

The deductible funeral expenses were:


a. P200,000; c. P70,000;
b. P100,000; d. P50,000.

22. The gross estate left by the decedent amounted to P5,000,000. The actual funeral expenses paid
for from the estate by the administrator amounted to P300,000. How much was the deductible
funeral expenses?
a. P300,000; c. P200,000;
b. P250,000; d. P100,000.

23. The following were incurred in connection with the wake and burial of a decedent:
Mourning clothing of grandchildren P10,000
Mourning clothing of the decedent’s married children 15,000
Expenses of the wake preceding the burial 30,000
Publication charges for death notices 5,000
Telecommunication expenses incurred in informing relatives of
The deceased 3,000
Cost of the three (3) burial plots (one was used as burial site of the
Deceased) 30,000
Interment fees and charges 12,000
Expenses for the performance of the rites and ceremonies incident
To interment 5,000
Expenses incurred for prayers after the interment 3,000

The value of the gross estate was P2,000,000.


The deductible funeral expenses should be:

a. P200,000; c. P90,000;

b. P100,000; d. P65,000.
24. First statement: Judicial expenses are those incurred during the settlement of the estate but not
beyond the last day prescribed by law for the filing of estate tax return

Second statement: Attorney’s fees paid during the settlement of the estate for the benefit of the
decedent’s beneficiary are deductible as judicial expenses from the gross estate.
a. True; True; c. True, False;
b. False, False; d. False, True.

25. One of the following is not a requisite for deduction from gross estate of losses:
a. Losses are incurred during the settlement of the estate and not later than the last day for
the payment of the estate tax;
b. Losses arise from fires, storms, shipwrecks or other casualties, or from robbery, theft or
embezzlement;
c. Losses are not compensated for by insurance or otherwise;
d. Losses were allowed as deduction from gross income for income tax purposes.

26. Y, a Filipino resident, died on November 5, 2003, and his estate incurred losses due to:
First loss: From fire on February 2, 2003 of improvement on his property, not compensated by
insurance;
Second loss: From flood on February 25, 2004 of household furniture also not compensated by
insurance.
a. First loss is not deductible, and second loss is deductible;
b. Both losses are not deductible from the gross estate;
c. Both losses are deductible from the gross estate;
d. First loss is deductible, and second loss is not deductible.

27. Nati Guok died on June 30, 2004, leaving among others, the following charges and obligations:
Real property tax for the calendar year 2004 P50,000
Notarized interest bearing promissory note 60,000
Accrued interest on the promissory note at the time of death 2,000
Interest to accrue on the promissory note from the date of death
To the date of maturity 500

How much were the deductions from the gross estate?


a. P112,500; c. P110,000;
b. P112,000; d. P 62,500.

28. You were appointed by a court as an administrator of the Estate of N.A. Mete. N.A. Mete died on
March 15, 2004. The following unpaid taxes were presented to you:
Unpaid real estate tax for the second, third and fourth quarters of 2004
P90,000
Unpaid tax on the income received by the Estate of N.A. Mete
20,000
Estate tax on the Estate of N.A. Mete 50,000
Unpaid tax on income received by N.A. Mete for the period January 1 to March
14, 2004 3,000

How much should be the deductible unpaid taxes?


a. P163,000; c. P90,000;
b. P 93,000; d. None

29. Which of the following taxes is not deductible from the gross estate?
a. Income tax paid on income received before death;
b. Property tax accrued prior to death;
c. Estate tax paid to a foreign country;
d. Donor’s tax accrued prior to death.

30. Which of the following statements in INCORRECT? A claim against an insolvent person, which is not
collectible in full:
a. Is included in the gross estate;
b. Is not included in the taxable net estate;
c. Must be notarized if arising out of a debt instrument of the insolvent;
d. Needs no preliminary filing of a case against the insolvent.

31. The following selected data were taken from the Estate of Ed Sados:
Claim against an insolvent person (fully uncollectible) P500,000
Claim against a person who absconded (fully uncollectible) 300,000
Claim against an insolvent person (20% collectible) 100,000

How much should be included in and deducted from the gross estate?
Amount to be included Amount to be deducted
a. P800,000 P800,000
b. P800,000 P580,000
c. P900,000 P580,000
d. P100,000 P 80,000

32. A place of land with a fair market value of P2,000,000 at the time of the decedent’s death was
included in the gross estate. Upon closer examination, you found out that the value used was net of
P500,000 unpaid mortgage on the same land. How much should have been included and deducted
from the gross estate?
Amount to be included Amount to be deducted
a. P2,500,000 P500,000
b. P2,000,000 P500,000
c. P2,000,000 None
d. P1,500,000 None

33. First statement: An oral transfer to the National Government exclusively for public purpose to
take effect after the decedent’s death is deductible from the gross estate.
Second statement: In case of non-resident alien decedent, deduction fro transfer for public
purposes from the gross estate is allowed only when the properly transferred is situated in the
Philippines.
a. True, True; c. True, False;
b. False, False; d. False, True.

34. The following are the requisites for vanishing deduction to be allowable, except one.
a. The estate tax of the prior succession must have been finally determined and paid;
b. The present decedent died within five (5) years from date of death of the prior decedent;
c. The property with respect to which deduction is sought can be identified as having been
received by the present decedent from the prior decedent;
d. The property must have formed part of the gross estate situated outside the Philippines of
the prior decedent?

35. Rudolfo, a citizen of the Philippines and resident of Bacolod City, died testate on May 10, 1991.
Among his gross estate were properties inherited from his deceased father who died on April 4,
1988. What percentage of the deduction would be used in computing the amount of vanishing
deduction?
a. 80% b. 60% c. 40% d. 20%

36. A decedent died single, leaving properties he inherited 3 ½ years ago with a fair market value of
P800,000 at the time of death {650,000 at the time of inheritance, and unpaid mortgage of
P50,000 paid by the present decedent). Other properties in his gross estate had fair market value of
P1,000,000. The total expenses, losses, indebtedness, taxes and transfer for public purpose
amounted to P300,000
How much was the vanishing deduction?
a. P500,000; b. P225,000 c. P200,000 d. P40,000

37. First statement: R.A. No. 4917 provides that retirement benefits given to employees of private
firms shall not be subject to attachment, levy, execution, or any tax whatever.
Second statement: Any amount received by the heirs from the decedent’s employer as a
consequence of the death of decedent-employee in accordance with R.A. No. 4917 is allowed as
deduction provided that the amount of the separation benefit is included as part of the gross estate
of the decedent.
a. True, True; c. True, False;
b. False, False; d. False, True.

38. A non-resident alien decedent, single, left the following properties:


Car, Manila P500,000
Car, USA 600,000
Shares of stock, USA 600,000
Shares of stock, Manila 400,000
House and lot, USA 800,000
Bank deposit, PNB-Manila 100,000

The administrator claimed the following deductions:


Actual funeral expenses P40,000
Judicial expenses 30,000
Claims against the estate 20,000
Transfer for public use 10,000

How much was the total deductions from Philippine gross estate in connection with Philippine
estate tax?
a. P100,000; c. P43,333;
b. P 90,000; d. P40,000

39. First statement: Any amount of medical expenses in excess of P500,000 can not be allowed as a
deduction whether paid or unpaid as of the time of the decedent’s death.
Second statement: All medical expenses actually incurred but not necessarily paid by the
decedent within one (1) year after his death shall be allowed as deduction provided the amount
thereof does not exceed P500,000
a. True, True; c. True, False;
b. False, False; d. False, True.

40. One of the following is not deductible as medical expenses.


a. Cost of medicine; c. Doctor’s fees;
b. Hospital bills; d. Cost of burial plot.
41. First statement: A deduction of family home shall be allowed in an amount equivalent to its fair
market value at the time of the decedent’s death but in no case shall exceed P1,000,000.
Second statement: The family home must have been the decedent’s family home at the time of
his death, as certified by the Barangay Chairman of the locality where such family home was
situated.
a. True, True; c. True, False;
b. False, False; d. False, True.

42. The following real properties were owned by a decedent, head of family, who was Filipino citizen at
the time of his death:
Vacation house, USA P2,000,000
Beach house, Bohol 1,500,000
House and lot (family home), Masbate 900,000
House and lot (dwelling place when in the city),Manila 2,500,000

How much should be included in and deducted from the gross estate?
Amount to be included Amount to be deducted
a. P6,900,000 P1,000,000
b. P4,900,000 P1,000,000
c. P6,900,000 P 900,000
d. P 900,000 P 900,000

43. Which of the following statements is INCORRECT in connection with family home deduction?
a. Family home deduction shall be allowed only if such family home is situated in the
Philippines;
b. Family home deduction shall be allowed at the maximum amount of P1,000,000 based on
cost or fair market value, whichever is higher;
c. For purposes of availing family home deduction, a person may constitute only one family
home;
d. Family home deduction may be lower than P1,000,000.

44. The fair market value of a family home, which is part of the common property of the decedent
included in the gross estate is P3,000,000. How much will be the deductible amount for family
home?
a. P1,500,000; c. P500,000;
b. P1,000,000; d. None.

45. The fair market value of the family home which is partly exclusive and partly common follows:
Family lot (exclusive) P 500,000
Family house (common) 900,000
Total P1,400,000

How much is the deductible amount for family home?


a. P1,400,000; c. P950,000;
b. P1,000,000; d. P700,000.

SHORT PROBLEMS (SHOW YOUR COMPUTATION IN GOOD FORM)

The following data were provided by the Estate of Jose Juan, head of family, a resident of Quezon City.
Mr. Juan died intestate on September 30, 2005.
Land and house (family home) P 3,000,000
Agricultural land inherited from his father who
died 21/2 years before his death 800,000
Other real properties 1,000,000
Other tangible personal properties 200,000
Bank deposit, PNB-Manila representing amount received
by heirs under R.A.No. 4917 500,000

Obligations of and charges against certain properties follow:


Medical expenses of last illness (unpaid as
of the time of death, supported by bills and statements
from hospital) 600,000
Actual funeral expenses (30% paid for from the estate,
70% paid for by relatives) 500,000
Judicial expenses uncured within six (6) months after death 100,000
Claims against the estate other than unpaid mortgage 250,000
Unpaid mortgage on inherited agricultural land 30,000
Claims against insolvent persons 100,000
Unpaid real estate tax for the 4th quarter for 2002 20,000

The agricultural land was inherited the present decedent. Its value at the time of inheritance was P
500,000. It had an unpaid mortgage of P 80,000.

How much was the taxable net estate and the estate tax payable?

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