Income Taxation Midterm Quiz 2

What is the purpose of income taxation?

• To encourage regressive sales and consumption taxes

• To provide large amounts of revenues

• To offset progressive sales and consumption taxes

• To mitigate the evils arising from the inequalities in the distribution of income and wealth

How is income defined in tax laws?

• A flow of wealth during a definite period of time

• A fund or property existing at one distinct point of time

• A representation of an interest in the corporate properties

• An amount of money coming to a person within a specified time

What is the essential difference between capital and income?

• Capital is a fund or property existing at one distinct point of time, while income denotes a flow of wealth during a definite period of time

• Capital is wealth or fund whereas income is profit or gain or the flow of wealth

• Capital is the tree, and income the fruits

• Capital is the right of a person to receive income or profits

What are the sources of income according to tax laws?

• Sources within the Philippines

• Sources partly within and partly without the Philippines

• Sources without (outside of) the Philippines

• Sources within the United States

What is the meaning of taxable income?

• The right of a person to receive income or profits

• Items received which add to the taxpayer’s net worth or redound to his benefit

• Items received which do not add to the taxpayer’s net worth or does not redound to his benefit

• The pertinent items of gross income specified in the NIRC, less deductions and/or personal and additional exemptions

When is income considered received or realized?

• Actual receipt

• Constructive receipt

• Neither actual nor constructive receipt

• Both actual and constructive receipt

What are the requisites for income to be taxable?

• There must be gain or profit

• The gain must be realized or received

• All of the above

• The gain must not be excluded by law or treaty from taxation

Under the accrual basis method of accounting, when is income reportable?

• When the amount can be determined with reasonable accuracy

• When all the events have occurred that fix the taxpayer’s right to receive the income

• All of the above

• When there is a reasonable expectation that the amount will be paid in due course

What is the substantial alteration of interest test in determining taxable income?

• None of the above

• Stock dividends are not income subject to tax on the part of the shareholder

• Any proceeds from the use of capital, beyond the amount of the capital is considered as income

• Income is earned when there is a substantial alteration of the interest of a taxpayer

What is the flow of wealth test in determining taxable income?

• Income is reportable when all the events have occurred that fix the taxpayer’s right to receive the income

• Income which is credited to the account of a taxpayer which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart

• None of the above

• The essential difference between capital and income is that capital is a fund whereas income is the flow of wealth coming from such fund