BUSINESS LAW and TAXATION

Final Pre-Board Examination

MULTIPLE CHOICE
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INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for
each item by shading the box corresponding to the letter of your choice on the sheet provided.
STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only
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1. M makes negotiable promissory note in favor of P payable on December 25,2009 with the following successive
indorsement of P to A, A to B, and B to C. On the due date, M is paying C, but C extends the payment up to
to December 25, 2010. Which of the following is not correct?
a. C may still enforce the instruments against M.
b. If M becomes insolvent on December 25, 2010, P, A, and B are discharged from their obligation.
c. If the indorsers consented to the extension of time and M becoming insolvent on December 25, 2010, the
indorsers are still liable.
d. If C cancels the signature of P as indorser, P, A, B, and the instrument are discharged.

2. A issued a promissory note to the order of B for P10,000 payable on August 30,2010 in payment of TV set
sold by B to A. B failed to deliver the TV set to A and instead transferred the note to C for value but without
indorsement. Which of the following is correct?
a. C is deemed a holder for a value when B transferred the note to him
b. C becomes the holder in due course
c. C has no right to compel to B to make the proper indorsement to him
d. C cannot collect from A because of A’s defense of lack of consideration

3. This is not negotiable

a. I promise to pay to the order of myself P10, 000signed by A, the maker
b. Pay to the order of the Commissioner of the Internal revenue P10, 000 to ABC bank .Sgd. A
c. I promise to pay to order P10, 000. Sgd. A
d. Pay to the order of X, Y, and Z, P10, 000. To B Sgd.A

4. X, Y, and Z formed Y Partnership to engage in import-export business. The partners agreed that the profit
will be divided in the following ratio: X- 20%; Y- 30 %; Z-50 %, but no agreement as to losses .After one year
operation, there was a loss of P10, 000.How will you apportion this loss if the capital contributions are as
follows: X- P20, 000; Y-P 15,000; Z-P5, 000.
a. According to their capital contribution: X- P5, 000; Y-3,750; Z-P1, 250
b. Equally among X, Y and Z
c. X-P2, 000; Y-3,000; Z-P5, 000
d. A third party may be called to make the distribution

5. First Statement – In all cases of extrajudicial sale, the mortgagor may redeem the property at any time
within the term of one year from and after the date of registration of the sale.

Second Statement – In judicial foreclosure of real estate mortgage, the general rule is that the mortgagor
cannot exercise his right of redemption after his confirmation of the sale by the court.
a. Both statements are correct
b.Both statements are wrong
c. Only the first statement is correct
d. Only the second statement is correct
6. This obligation is demandable at once
a. With a suspensive condition
b. With a period of diem
c. When my means permit me to do so
d. When it depends on the happening of a specific event

7. This is not a characteristic of a void or inexistent contract

a. The right to raise a defense or illegality cannot be waived
b. The action or defense for declaration of nullity or in existence of the contract does not prescribe.
c. Not a subject to ratification
d. Defense of the legality of the contract is available to third person s whose interest are not directly affected

8. A owns a piece of land and sells it to B with a right of repurchase within one year from the date of the sale.
Can B sell the land he purchased from A, to C, a third party?
a. Yes provided the sale is with consent of A.
b. No, B is not yet absolute owner of the land
c. Yes, but A can still redeem the land from C.
d. No, because A can still redeem the land from B.

9. Which of the following s is correct?

a. Treasury stock for less than their par or issued value are considered ”watered stock” and as such is
prohibited by law.
b. Five but not more than fifteen juridical and natural persons, majority of who are residents of the
Philippines mat form a private corporation.
d.No par value shares of stock cannot be issued by banks, trust companies, insurance companies, building
and loan association and public utilities.
d.Membership in a non-stock corporation and rights arising there from are personal and non-transferable and
therefore cannot be transferred even if provided in the articles of incorporation or in the by-laws.

10. The following are the obligations of agent, except

a In the execution of the agency, the agent shall act in accordance with the instructions of the principal
b.Shall is bound to advance the necessary funds, except when the principal is insolvent
c.S hall finish the business already begun on the death of the principal should delay entail danger
d.In case a person declines an agency; he is bound to observe the diligence of a good father of a family
in the custody and preservation of the goods forwarded to him by the owner until the latter should appoint
the agent

11.A bought a car from B, a minor , for P100,000.One week later, A discovered that B was a minor at the time
of sale so he filed a complaint in court to annul the sale. Will the action prosper?
a. Yes, B being a minor is anticipated to enter into contract
d.No, the right to annul the sale is given to B
c. Yes, B cannot file the action to annul the sale because he is minor
d.No, unless there is lesion of more than ¼ of the value of the property

12. D mortgaged his 10-hectare parcel of land to secure his loan amounting to P400, 000.00 payable on or before
January 31, 2010.On January 10, 2010, D paid P200, 000.00 to his creditor. Can he validly ask for the
release of 50% of the mortgaged property?
a .Yes, because real mortgage is separable from the property
b. Yes, because real mortgage is only a limitation on ownership
c. No, because real mortgage binds the property and the third persons, if registered
d. No, because real mortgage is indivisible
13. A is authorized by P to sell ten (10) cell phones for P5, 000.00 each at 10% commission. A sold the cell
phones to B on credit for a price of P6, 000.00 each .P did not ratify the sale on credit .How much can P
immediately as a payment from A?
a.P 50,000.00
b. P 50,000.00 less 10%
c. P 60,000.00
d. P 60,000.00 less 10 %

14. Which of the following statements is not correct?

a. The seller need not to be the owner of the thing sold at the time of the perfection of the contract
b. Ownership of the thing sold is transferred upon its actual or constructive or quasi-delivery
c. Contract of sale through letter or telegram is deemed perfected only when the acceptance by the
buyer has been received by the seller
d. The seller of the thing shall be liable for the violation of the warranty against hidden defects if he is
aware of the sais defect at the time of the perfection of the contract

15. This shall take place when the vendor reserves the right to repurchase the thing sold
a.Policitation
b.Conventional redemption
c. Equitable mortgage
d. Legal redemption

16. The right of the creditor to exercise all the rights of his debtor to satisfy his claim, except rights which
are inherent and personal on the part of the debtor
a. Action subrogatoria
b.Action redhibitoria
c. Accion pauliana
d. Accion quanti minoris

17.In 2005, at age 16, A sold his land to B for P4M payable at P1M in 2006,P1M in 2007 , P1M in 2008
and P1M in 2009.In 2010, A wants to annul the contract on the ground of minority .Will his action
prosper?
a. No, A is allowed to ask for annulment of the contract only within 4 years from the perfection of the
contract
b.Yes, A has 4 years counted from the time he becomes of legal age to ask for annulment of the contract
c. No, the acceptance of the installment payments amounted to ratification of the sale
d. Yes, provided A was then acting in good faith when he sold the property

18. A owes B P500 and a security, A pledge his diamond ring .Later A borrowed again P200. As a result:
a .B has a right to retain the thing until the P700 is paid
b.B has right to retain the thing until the P 500 is paid
c. A has a right to demand that thing be deposited with the third person
d. B has the right to use the thing pledged

19. X entered into a written contract with Y for the sale of his car at the price of P 210,000.00.Subsequently
F told X that the purchase price is very low as it can command a price of his car to P250, 000.00 .X wanted
to increased the purchase price of his car to P250, 000.00.This cannot be done by X of what principle of
contract?
a. Freedom or liberty of contract
b. Mutuality of contract
c. Relativity of contract
d. Cosensuality of contract
20. M issued to P, accommodated party, negotiable promissory note for P 10,000.P indorsed it to A, to B, B to C
. Which of the following is incorrect?
a. M can collect from P, if M will pay C
b. M may directly pay C
c. Between M and P, M is secondarily liable while P is principally liable
d. P can collect from M, if P will pay C

21. Payment by cession as distinguished from dation in payment

a. The debtor is not necessarily in a state of financial difficulty
b.The effect is to release the debtor for the net proceeds of the things ceded or assigned
c. The property is alienated by the debtor to the creditor in satisfaction of a debt in money
d. What is delivered by the debtor is merely a thing to be considered as the equivalent of the performance
of the obligation

22. Pacto de retro sale as distinguished from mortgage is that in Pacto de retro:
a. There is no foreclosure unless declared as an equitable mortgage
b. There is no transfer of possession of the property
c. There is no transfer of ownership
d. The contract is merely accessory to secure the performance of an obligation

23. The following are essential requisites common to the contracts of pledge and mortgage, except
a. That they are constituted to secure the fulfillment of a principal obligation
b. That the pledge or mortgagor is the absolute owner of the thing pledge or mortgaged
c. That the contract is registered with the Register of Deeds
d. That the person constituting the contract has free disposal of his property or that he is authorized legally
for the purpose

24. There being no express stipulation and if the undertaking is to deliver

a determinate thing, the payment shall be made
a. At the domicile of the debtor
b. At the domicile of the creditor
c. Where the thing might be at the moment the obligation was constituted
d. Where the thing might be at the moment the obligation is to be fulfilled

25. A limited partnership has A, as general partner, B as limited partner and C, as industrial partner
contributing P100, 000, P50, 000 and services respectively. The partnership failed and after disposing all
its assets to pay partnership debts, there still remains a note payable in the sum of P30, 000.Against whom
can the creditor demand payment?
a. A-P30, 000 B- P 0 C- P 0
b. A-P15, 000 B- P 0 C- P 15,000
c. A-P15, 000 B- P 7,500 C- P 7,500
d. A-P10, 000 B- P 10,000 C- P 10,000

26. A and B are co-owners of one-hectare rural land. A sold his ½ share to Y. C as adjoining land owner is
interested in buying the share which A sold to Y. Which of the following is correct?
a. B can redeem what A has sold to Y if Y already owns a rural land
b. B can redeem what A has sold to Y even if Y does not own any rural land
c. As an adjoining land owner C has a superior right to redeem what A sold to Y
d. C can redeem what A sold to Y whether or not Y already owns a rural land

27. A sells to B her car for P300, 000 on a “sale or return within 10 days “after delivery. On 5 th day after
delivery, the car was lost through fortuitous event. Who bears the loss?
a. A under the principle of “res perit domino”
b. B and he must pay the purchase price
c. Both A and B jointly
d. No one because the loss was due to fortuitous event
28. E owns a piece of property and sells it to S with a right to repurchase within 4 years from the date of
sale. If S sells the property to T, which of the following is not correct?
a. The sale is valid because things subject to a resolutory condition maybe the object of a contract sale
b. E can still exercise her right of redemption against T
c. The sale is void because it is a conditional sale
d. The acquires the property but subject to the right of conventional redemption.

29. If a partner assigns his interest in the partnership to his personal creditor the assignee acquires the right
to
a. Demand an accounting partnership affair
b. Inspect the books and records of the partnership
c. Receive the partner-assignor’s share of the profits
d. Interfere in the management of the partnership

30. Every corporation whose charter expires by its own limitation, or annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any other manner shall nevertheless be
continued as a body corporate for 3 years after the time when it would have been dissolved for the purpose
of the following, except
a. Prosecuting and defending suits by or against it and enabling it to settle and close its affairs
b. To dispose and convey its property
c. To distribute its assets
d. Continuing the business for which it was established

31. D’s obligation is to deliver a nokia cell phone worth P10, 000.00 on January 15, 2010. A week before
the maturity date, D was ordered by his superior to go to Cebu to confer with the company’s client. Since
D has no time to buy the cell phone, he offered to give C the amount of P10, 000 so that C can buy the cell
phone .C accepted the offer. The obligation of D to C in this case is extinguished by:
a. Novation
b. Cession
c. Dation in payment
d. Compensation

32. Similarity between real estate mortgage and antichresis

a. The property is delivered to the creditor
b. The subject matter is a real property
c. The creditor acquires the right to receive the fruits of the property
d. The creditor is obliged to pay the taxes and charges upon the estate

33. Which of the following statements is false?

a. P in writing appoints A as his agent to sell his parcel of land for P 40,000.A sold it orally to X.The
contract of A and X is valid
b. B wrote A, his sister, to sell his parcel of land. The land was purchased by X, but A did not forward the
money to B. B now wants to recover the parcel of land .B can recover because the authority of S is not in
special power of attorney.
c. P orally appoints S as his agent to sell his land for P40, 000. A sold it to X in writing. The sale by A to
X is not valid.
d. P orally appointed A to sell a house on a parcel of land belonging to X. A sold it to B orally. The contracts
by P and A, and A and B are valid

34. Which of the following is true and correct regarding the contract of agency?
a. The contract entered into by a sub-agent appointed despite the prohibition of the principal may be
ratified by the principal.
b. An agent can appoint a sub-agent only when he is authorized to do so by the principal.
c. If the co-owner s X, Y, and Z appointed A as their agent for the sale of the property owned by them, said
appointment can be revoked by X alone.
d. When several agents had been appointed by the principal, the liability of the agents to the principal shall
be solidary.
35. Which of the following statements is not correct?
a. The sale of the thing pledge shall extinguish the principal obligation, whether or not the proceeds of the
sale are equal to the amount of the principal obligation, interest and expenses in a proper case
b. If the proceeds of the sale of the thing pledge are more than the obligation, the debtor shall not be
entitled to excess unless it is otherwise agreed.
c. If the proceeds of the sale of the thing pledge are more than the obligation, the debtor shall not be
entitled to recover the deficiency, unless it is otherwise agreed.
d. At the public auction, the pledgor or owner may bid and he shall have a better right if he could offer
the same terms as the highest bidder

36. A resident citizen died on September 3, 2006 .An administrator was appointed on September 15, 2006
The inventory taking of the decedent’s properties was completed on October 10,2006 .When should the
estate tax return be filed?
a. November 3, 2006
b. December 10, 2006
c. March 3.2007
d. March 15, 2007

37. In determining the net estate of the decedent, which of the following statements is CORRECT?
a. All decedents are allowed to deduct expenses and charges from their gross estate.
b. Deduction for property previously taxed is not allowed when the decedent is a non-resident alien.
c. Shares of stocks being intangible property shall be included in the decedent’s gross estate whenever
situated.
d. Only fully paid funeral, expenses are deductible to the extent of 5% of the total gross estate but not
exceeding P200, 000

38. One of the following is not an important factor when computing the taxable net gifts and the gift tax
payable
a. Residence of the donor
b. Citizenship of the donor
c. Blood relationship between the donor and the done
d. The economic status of the done

39. X, the guarantor-corporation owns 40% of the capital stock of Y, debtor-corporation. X assumes the
original loan of Y, with a portion of the loan assumed by X to be late on condoned and converted into
paid-in surplus of Y ( without the corresponding issuance of additional shares)and then used to wipe out
its accumulated losses. What is the tax consequence of this transaction?
a. The condonation of debt is subject to donor’s tax because the condoned portion of the original loan
represents forgiveness of debt where the debtor did not render service in favor of the creditor.
b. The condonation of debt is not subject to donor’s tax because the condoned portion of the original loan
represents additional capital contribution.
c. Condonation of debt is subject to capital gains tax.
d. The transfer involved tangible personal property, hence, not subject to donor’s tax.

40. Transfers in contemplation of death made during the lifetime of the transferor shall be subject to:
a. The donor’s tax
b. Estate tax
c. Neither donor’s tax nor estate tax
d. Both donor’s tax and estate tax

41. One of the following taxes had been replaced by VAT.

a. Advance sales tax
b. Tax on life insurance premiums
c. Common carrier’s tax on transport of passengers
d. Franchise tax on electric, water and gas utilities
42. The threshold amount for any business pursued by an individual to be considered principally for
subsistence or livelihood and not in the course of trade of business is:
a.P100, 000
b. P500, 000
c. P550, 000
d. P900, 000

43. The following input taxes, which are connected with a zero- rated sale of goods were presented to you:
Presumptive input tax P50, 000
Input tax on purchase of supplies 30,000
Input tax on purchase of office equipment 20,000
How much of the excess input taxes can be refunded?
a.P100, 000
b. P80, 000
c. P50, 000
d. P20, 000

44. One of the following persons is not subject to other percentage taxes.
a. Proprietor of cockpits
b. Domestic common carrier transporting passengers
c. Closely held corporation initially offering its shares to the public
d. Agricultural cooperative selling its produce in processed form

45. One of the following is NOT required to withhold percentage taxes.

a. Bureaus, offices and instrumentalities of the government
b. Government-owned or controlled corporations
c. Purchaser-payor of goods in the course of business, which is subject to 3% percentage
tax under Sec.116
d. Purchaser-payor of goods not in the course of business, which is subject to 3% percentage
tax under Sec.16

46. A single individual taxpayer with no dependents who is a pure compensation income earner
can deduct the following from his gross compensation income.
a. Basic personal exemption, additional exemption, health and/or hospitalization insurance
premium paid
b. Basic personal exemption, additional exemption, health and/or hospitalization insurance
premium paid
c. Basic personal exemption only
d. None of the choices

47. Which of the following taxpayers is not allowed to claim tax credit for foreign income tax incurred?
a. Resident citizens
b. Domestic corporations
c. Beneficiaries of estates and trusts
d. Non-resident citizens

48. A fire occurred in the City of Dumaguete and by reason of which of stock of plywood of a lumber
company was located .The lumber company failed to record such loss in its book of accounts. Was the loss
deductible?
a. Yes, the loss was deductible because it was caused by fire
b.Yes, the loss was deductible because it would be correct to assume that the lumber company
reported within 45 days after it was sustained
c. No, the loss was not deductible because the conduct of the taxpayer in not charging off its book of
accounts its loss proved that the alleged loss had not been suffered.
d. No, the loss was caused by carelessness
49. One of the following individuals is not subject to income tax in the Philippines.
a .An American engineer who makes the Philippines his residence because of the nature of his work
b. A Japanese visiting professor who occasionally teaches at one of the leading universities in the
Philippines, and stays here for an aggregate of 185 days
c. A Taiwanese singer who performs in one of the hotels in the Philippines for one (1) week, and then
leaves after he is through with his performances
d A Filipino residing and working in America who comes to visit his relatives

50. A domestic corporation has the following data for three (3) years:
Normal income tax MCIT
2001 P 50,000 P75, 000
2002 P 60,000 P100, 000
2003 P 100,000 P60, 000
How much is the tax payable in 2003
a. P 100,000
b. P 60,000
c. P 35,000
d. Zero

51. A resident citizen owns a real property classified as capital asset situated in USA. During
the current year, he sells the property for P5, 000,000 realizing a gain of P2, 000,000.What is the
Philippine tax consequence of the sale?
a. Subject to 6% capital gains
b. Subject to Section 24 (A)
c. Subject to 6% capital gains or subject to Section 24 (A)
d. Not subject to Philippine tax

52. An individual taxpayer is qualified to substituted filing of income tax return if he meets the following
requisites ,except:
a .Pure compensation income earner
b. One employer in the Philippines
c. Withholding tax is correct
d. Gross compensation income does not exceed P60, 000

53. A taxpayer receives an assessment notice on January 5, 2004 .He files a motion for reconsideration
with the BIR on January 15, 2004. When he is the last day for the submission of complete documents to
his motion for reconsideration?
a. February 4, 2004
b. March 15, 2004
c. July 15, 2004
d. April 15, 2005

54. Boy Bonafe resides in Bacoor, Cavite while his place of work is in Sampaloc, Manila. He files his income
tax return for 2003 income on September 10, 2004 in Quezon City because the Revenue District Officer in
the place is his college friend. The amount tax due is P100, 000.How much will be the sub charge?
a. P 50,000
b. P 25,000
c. P 20,000
d. None

55. Which of the following national taxes is found in the Tax Code?
a. Sugar adjustment taxes
b. Taxes on narcotic drugs
c. Documentary stamp tax
d. Private motor vehicle tax
56. One of the following is not a source of income tax laws
a. Income tax regulations
b. Administrative rulings and opinions
c. Judicial decisions
d. Opinions of tax experts and authors

57. One of the following is entitled to an optional standard deduction?

a. Resident citizen who is a pure compensation income earner
b. Resident alien who is pure business income earner
c. Resident foreign corporation
d. None of these choices

58. A resident international carrier has the following data for the current year. Gross income of P700, 000
and expenses of P200, 000 from the Philippines; gross income of P 500,000 and expenses of P100, 000
from Japan .How much is the Philippine income tax of the corporation?
a. P 160,000
b. P 30,000
c. P 17,500
d. None of these choices

59. The 10% Improperly Accumulated Earnings Tax (IAET) shall apply to:
a. Banks and other non-banks financial intermediaries
b. Insurances companies
c. Publicly-held corporations
d. Closely –held corporations

60. The minimum percentage of comprise on the basic assessed tax when financial incapacity is used as basis
because the company has not been in operation for 5 years is:
a.40 %
b. 30 %
c. 20 %
d. 10 %

61. In 2009, Ching Co., a domestic corporation, has a net income from within the Philippines, P200, 000
and for USA, P300, 000 .Income tax paid on income from USA is P110, 000 .The tax credit on the income
tax paid to the US government is:
a. P 175,000
b. P160, 000
c. P 110,000
d. Choice is not given

62. A rank and file employee received the following for the year 2009:
13th month pay P10, 000
14th month pay 10, 000
Rice allowance 12, 000
Clothing 5, 000
Actual medical benefits 15,000
How much would be the taxable benefits?
a. P 52,000
b. P32, 000
c. P 7,000
d. None

63. Which of the following is not subject to fringe benefit tax?

a. Salary of the household help of a supervisor paid by the taxpayer’s employer
b. Tuition of a manager paid by his employer
c. Salary of a manager paid his employer
d Rent expense of the house where a supervisor lives paid by his employer
64. C. Uberita has three (3) wives under his tribal customs and practices. He has a total of (6) qualified
dependent children from his three (3) wives. He is entitled to a basic personal exemption and additional
exemption of:

Basic personal exemption Additional exemption

a. P 50,000 P 100,000
b. P 50,000 P 150,000
c. P 150,000 P 150,000
d. None None

65. The amount of the informer’s reward shall be equivalent to:

a. Ten percent (10%) of the amount recovered or one million peso (P1, 000,000) per case whichever
is lower.
b. Ten percent (10%) of the amount recovered or one million peso (P1, 000,000) per case whichever
is higher
c. Fifteen (15%) of the amount recovered
d. None of the choices

66. Which of the following is not a condition for reporting income under installment method by a casual
seller of personal property?
a. The selling price of property exceeds P1, 000
b. The initial payments must exceed 25 % of the selling price
c. The property sold is not a kind which would be includible in the inventory if on hand at the close
of the taxable year.
d. The seller is a natural person.

67. How much is the annual community tax for individuals?

a. P 25
b. P 20
c. P 10
d. P 5

68. This refers to the control number issued by authorized agent bank (AAB) to the taxpayer and
BIR to acknowledge that the taxpayer‘s account has been successfully debited electronically in payment
of his tax liability.
a. Filing reference Number
b. Acknowledgement Number
c. Confirmation Number
d. Taxpayer’s Information Number

69. A taxpayer paid excessive tax on April 15, 2000. On December 20, 2001, she filed a written claim for refund
Her claim was denied by the BIR and she received the denial on March 15, 2002 .She filed a motion for
reconsideration with the BIR on March 31, 2002. On April 10, 2002, she received the final denial of the BIR
What will be the taxpayer’s remedy?
a. File another motion for reconsideration with the BIR within 30 days after the receipt of the final denial
b. File an appeal with the Court of Tax of Appeals on or before May 10, 2002
c. File an appeal with the Court of Tax of Appeals on or before April 15, 2002
d. The taxpayer has no more remedy against the final denial

70. Which is not an essential characteristic of tax?

a. Limited as to amount
b.Proportionate in character
c. Payable in money
d. Regular payment