I.

CAPITAL BUDGETING (30 QUESTIONS)

1. Three potential investment projects (A, B, and C) at Stay at Home Corporation all require the same initial investment,
have the same useful life (3 years), and have no expected salvage value. Expected net cash inflows from these three
projects each year is as follows:
ABC
Year 1 P 1,000 P 2,000 P 3,000
Year 2 P 2,000 P 2,000 P 2,000
Year 3 P 3,000 P 2,000 P 1,000
What can be determined from the information provided above?
A. the net present value of project C will be the highest.
B. the internal rate of return of projects A and C cannot be computed.
C. the net present value and the internal rate of return will be the same for all three projects.
D. both A and B above.

2. The payback method assumes that all cash inflows are reinvested to yield a return equal to
A. zero
B. the Discount Rate
C. the Time-Adjusted-Rate-of-Return
D. the Cost-of-Capital

3. When the cash flows are the same every period after the initial investment in a project, the payback period is equal
to:
A. the net present value.
B. the simple rate of return.
C. the factor of the internal rate of return.
D. the payback rate of return.

4. Capital budgeting techniques are least likely to be used in evaluating the

A. Acquisition of new aircraft by a cargo company.
B. Design and implementation of a major advertising program.
C. Trade for a star quarterback by a football team.
D. Adoption of a new method of allocating non-traceable costs to product lines.

5. Which of the following is always true with regard to the net present value (NPV) approach?
A. If a project is found to be acceptable under the NPV approach, it would also be acceptable under the internal rate of
return (IRR) approach.
B. The NPV and the IRR approaches will always rank projects in the same order.
C. If a project is found to be acceptable under the NPV approach, it would also be acceptable under the payback
approach.
D. The NPV and payback approaches will always rank projects in the same order.

6. Which of the following would decrease the net present value of a project?
A. A decrease in the income tax rate
B. A decrease in the initial investment
C. An increase in the useful life of the project
D. An increase in the discount rate

7. A project’s net present value, ignoring income tax considerations, is normally affected by the
A. Proceeds from the sale of the asset to be replaced.
B. Carrying amount of the asset to be replaced by the project.
C. Amount of annual depreciation on the asset to be replaced.
D. Amount of annual depreciation on fixed assets used directly on the project.
8. Sensitivity analysis, if used with capital projects,
A. Is used extensively when cash flows are known with certainty
B. Measures the change in the discounted cash flows when using the discounted payback method rather than the net
present value method.
C. Is a “what-if” technique that asks how a given outcome will change if the original estimates of the capital budgeting
model are changed.
D. Is a technique used to rank capital expenditure requests.

9. S1: If a company is operating at a profit, the cash inflow resulting from the depreciation tax shield is computed by
multiplying the depreciation deduction by one minus the tax rate.
S2: In calculating the “investment required” for the project profitability index, the amount invested should be reduced
by any salvage recovered from the sale of old equipment.
S3: Depreciation is included as a cash flow in capital budgeting decisions to ensure that the original cost of the asset is
fully recovered.
A. Only one statement is correct
B. Only one statement is incorrect
C. All statements are correct
D. All statements are incorrect

10. Which of the following combinations is possible?

Profitability Index NPV IRR
A. greater than 1 Positive equals cost of capital
B. greater than 1 Negative less than cost of capital
C. less than 1 Negative less than cost of capital
D. less than 1 Positive less than cost of capital

11. Which of the following is NOT a defect of the payback method?

A. It ignores cash flows because it uses net income.
B. It ignores profitability.
C. It ignores the present values of cash flows.
D. It ignores the pattern of cash flows beyond the payback period.

12. Joy Boy. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for
the upcoming year.
Project 1 Project 2 Project 3 Project 4
Initial cash outlay P200,000 P298,000 P248,000 P272,000
Annual net cash inflows
Year 1 P 65,000 P100,000 P 80,000 P 95,000
Year 2 70,000 135,000 95,000 125,000
Year 3 80,000 90,000 90,000 90,000
Year 4 40,000 65,000 80,000 60,000
Net present value ( 3,798) 4,276 14,064 14,662
Profitability index 98% 101% 106% 105%
Internal rate of return 11% 13% 14% 15%
No Budget Restriction P600,000 Available Funds P300,000Available Funds
A. Projects 2, 3 & 4 Projects 3 & 4 Project 3
B. Projects 1, 2 & 3 Projects 2, 3 & 4 Projects 3 & 4
C. Projects 1, 3 & 4 Projects 2 & 3 Project 2
D. Projects 3 & 4 Projects 2 & 4 Projects 2 & 4

13. Payback period (PP), profitability index (PI), and simple accounting rate of return (SARR) are some of the capital
budgeting techniques. What is the effect of an increase in the cost of capital on these techniques?
A. B. C. D.
PP Increase No change No change Decrease
PI Decrease Decrease Increase No change
SARR Increase No change Decrease No change

14. Front Liners Co. considering the purchase of a PPE that could potentially reduce labor costs of its operation by a
considerable margin. The new PPE would cost P 300,000 and would be fully depreciated by the straight-line method
over 5 years. At the end of 5 years, the ship will have no value and will be junk. The Front Liners Co.'s cost of capital is 10
percent, and its marginal tax rate is 35 percent. If the ship produces equal annual labor cost savings over its 5-year life,
how much do the annual savings in labor costs need to be to generate a net present value of P 0 on the project?
A. P 79,139
B. P 121,753
C. P 58,139
D. P 89,445

15. Covid Free Corporation is reviewing the following data relating to an energy saving investment proposal:
Initial investment P 50,000
Life of the project 5 years
Salvage value P 10,000
Annual cash savings ?
What annual cash savings would be needed in order to satisfy the company's 10% required rate of return (rounded to
the nearest one hundred pesos)?
A. P 13,190
B. P 11,551
C. P 14,829
D. P 15,828

16. Bayanihan Construction, Inc., has a large crane that cost P 70,000 when purchased ten years ago. Depreciation taken
to date totals P 50,000. The crane can be sold now for P 12,000. Assuming a tax rate of 30%, if the crane is sold the total
after-tax cash inflow for capital budgeting purposes will be:
A. 12,000
B. 8,400
C. 20,000
D. 14,400

17. Vivi Co. has an antiquated high-capacity printer that needs to be upgraded. The system either can be overhauled or
replaced with a new system. The following data have been gathered concerning these two alternatives:
Overhaul Present System Purchase New System
Purchase cost when new P 300,000 P 400,000
Accumulated depreciation P 220,000 —
Overhaul costs needed now P 250,000 —
Annual cash operating costs P 120,000 P 90,000
Salvage value now P 90,000 —
Salvage value in ten years P 30,000 P 80,000
Working capital required — P 50,000
The company uses a 10% discount rate and the total-cost approach to capital budgeting analysis. The working capital
required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives
are expected to have a useful life of ten years.
The net present value of the overhaul alternative and new system alternative respectively is (rounded off factors to
three decimal places) is:

18. Middle Class Industries is replacing a grinder purchased 10 years ago for P15,000 with a new one costing P25,000
cash. The original grinder is being depreciated on a straight-line basis over 15 years to a zero salvage value. Middle Class
will sell this old equipment for P6,000 cash. The new equipment will be depreciated on a straight-line basis over 10 years
to a zero salvage value. Assuming a 40% marginal tax rate, Middle Class’s net cash investment at the time of purchase is
the old grinder is sold and the new one purchased is
A. P19,400
B. P15,000
C. P17,400
D. P25,000

19. Lockdown is considering, an investment in a new cheese-cutting machine to replace its existing cheese cutter.
Information on the existing machine and the replacement machine follow:
Cost of the new machine P40,000
Annual net cash inflow 9,000
Salvage value now of the old machine 6,000
Salvage value of the old machine in 8 years 0
Salvage value of the new machine in 8 years 5,000
Estimated life of the new machine 8 years
What is the expected payback period for the new machine?

20. Heal as One Company has a payback goal of 2 years on new equipment acquisitions. A new sorter is being evaluated
that costs P450,000 and has a 5-year life. Straight-line depreciation will be used; no salvage value is anticipated. Heal as
One Company is subject to a 40% income tax rate. To meet the company’s payback goal, the sorter must generate
reductions in annual cash operating costs of
A. P216,000
B. P360,000
C. P315,000
D. P190,000

21. Hygiene Products Company is considering generation of a new product that can kill any virus in an instant. It can be
sold for P100 and have a variable cost of P60. Expected volume is 20,000 units. New equipment costing P1,500,000 and
having a five-year useful life and no salvage value is needed, and will be depreciated using the straight-line method. The
machine has cash operating costs of P20,000 per year. The firm is in the 40 percent tax bracket and has cost of capital of
12 percent. The present value of 1, end of five periods is 0.56743; present value of annuity of 1 for 5 periods is 3.60478.
How many units per year the firm must sell for the investment to earn 12 percent internal rate of return?

22. Quarantine Inc., is considering investing in automated equipment with a ten-year useful life. Managers at Quarantine
have estimated the cash flows associated with the tangible costs and benefits of automation, but have been unable to
estimate the cash flows associated with the intangible benefits. Using the company’s 10% discount rate, the net present
value of the cash flows associated with just the tangible costs and benefits is a negative P184,350. How large would the
annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment?
A. P18,435
B. P30,000
C. P35,000
D. P37,236

23. Leaves Co. is planning to buy a coin-operated machine costing P40,000. For book and tax purposes, this machine will
be depreciated P8,000 each year for five years. Leaves estimates that this machine will yield an annual cash inflow of
P12,000. Leaves’s desired rate of return on its investments is 12%. At the following discount rates, the NPVs of the
investment in this machine are:
Discount rate NPV
12% +P3,258
14% + 1,197
16% - 708
18% - 2,474
Leaves’s accounting rate of return on its initial investment in this machine is expected to be?
24. Young’s Town Co. is expanding its manufacturing plant, which requires an investment of P4,000,000 in new
equipment and plant modifications. Young’s Town sales are expected to increase by P3,000,000 per year as a result of
the expansion. Cash investment in current assets averages 30% of sales; accounts payable and other current liabilities
are 10% sales.
What is the estimated total investment for this expansion?

25. The Mega Company is planning to purchase a new machine which it will depreciate, for book purposes, on a straight-
line basis over a ten-year period with no salvage value and a full year’s depreciation taken in the year of acquisition. The
new machine is expected to produce cash flow from operations, net of income taxes, of P66,000 a year in each of the
next ten years. The accounting (book value) rate of return on the initial investment is expected to be 12%. How much
will the new machine cost?
A. P300,000
B. P550,000
C. P660,000
D. P792,000

26. For P450,000, Fresca Corporation purchased a new machine with an estimated useful life of five years with no
salvage value. The machine is expected to produce cash flow from operations, net of 40 percent income taxes, as
follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
Fresca will use the sum-of-the-years-digits’ method to depreciate the new machine as follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000
The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12 percent at end of each period
are:
End of: Period 1 – 0.8928, Period 2 - 0.79719, Period 3 - 0.71178, Period 4 - 0.63552, Period 5 - 0.56743
Had Fresca used straight-line method of depreciation, what is the difference in net present value provided by the
machine at a discount rate of 12 percent?

27. A project has a NPV of P15,000 when the cutoff rate is 10%. The annual cash flows are P20,505 on an investment of
P50,000. the profitability index for this project is
A. 1.367
B. 3.333
C. 2.438
D. 1.300

28. Ligo Company is planning to invest P80,000 in a three-year project. Ligo’s expected rate of return is 10%. The present
value of P1 at 10% for one year is .909, for years is .826, and for three years is .751. The cash flow, net of income taxes,
will be P30,000 for the first year (present value of P27,270) and P36,000 for the second year (present value of P29,736).
Assuming the rate of return is exactly 10%, what will the cash flow, net of income taxes, be for the third year?

29. 5Five5 Company is considering to replace its old equipment with a new one. The old equipment had a net book value
of P100,000, 4 remaining useful life with P25,000 depreciation each year. The old equipment can be sold at P80,000. The
new equipment costs P160,000, have a 4-year life. Cash savings on operating expenses before 40% taxes amount to
P50,000 per year. What is the amount of investment in the new equipment?
A. P160,000
B. P 72,000
C. P 80,000
D. P 68,000

30. Iska Morena plans to buy a haymaker. It costs P175,000 and is expected to last for five years. She presently hires 6
workers at P10,000 per month for each of the three harvesting months each year. The equipment would eliminate the
need for two workers. Morena uses straight-line depreciation and projects a salvage value of P25,000. Her tax rate is
25% and opportunity cost of funds is 12.0%. The present value of 1discounted at 12 percent at the end of 5 periods is
0.56743 and the present value of an annuity of 1 for 5 periods is 3.60478. Which of the following is true?
A. The present value of cash flows in year 5 is P22,710
B. NPV is P28,436
C. NPV is P15,250
D. NPV is P14,186

II. COST OF CAPITAL (25 QUESTIONS)

1. Which of the following is a reason(s) why estimation of cost of capital is important in financing decisions?

A. Neither the NPV rule nor the IRR rule can be implemented without knowledge of the appropriate discount rate
B. The optimal/target capital structure minimizes the cost of capital
C. Cost of capital is used by regulatory agencies in order to determine the “fair” return in some regulated industries like
utilities.
D. All of the above

2. Which of the following is an advantage of Capital Asset Pricing Model over the Dividend Growth Model?

A. Only applicable to companies currently paying dividends

B. Explicitly adjusts for systematic risk
C. Not applicable if dividends aren’t growing at a reasonably constant rate
D. Estimates varies over time
E. Extremely sensitive to the estimated growth rate

3. A company has made the decision to finance next year’s capital projects through debt rather than additional equity.
The benchmark cost of capital for these projects should be

A. The before-tax cost of new-debt financing.

B. The after-tax cost of new-debt financing
C. The cost of equity financing
D. The weighted-average cost of capital.

4. If the return on the market portfolio is 10% and the risk-free rate is 5%, what is the effect on a company's required
rate of return on its stock of an increase in the beta coefficient from 1.2 to 1.5?

A. 3% increase
B. 1.5% increase
C. No change
D. 1.5% decrease.
5. The pre-tax cost of capital is higher than the after-tax cost of capital because

A. interest expense is deductible for tax purposes.

B. principal payments on debt are deductible for tax purposes.
C. the cost of capital is a deductible expense for tax purposes.
D. dividend payments to stockholders are deductible for tax purposes.

6. The overall cost of capital is the

A. Rate of return on assets that covers the costs associated with the funds employed.
B. Average rate of return a firm earns on its assets.
C. Minimum rate a firm must earn on high-risk projects.
D. Cost of the firm's equity capital at which the market value of the firm will remain unchanged.

7. The explicit cost of debt financing is the interest expense. The implicit cost(s) of debt financing is (are) the

A. Increase in the cost of debt as the debt-to-equity ratio increases.

B. Increases in the cost of debt and equity as the debt-to-equity ratio increases.
C. Increase in the cost of equity as the debt-to-equity ratio decreases.
D. Decrease in the weighted-average cost of capital as the debt-to-equity ratio increases.

8. The basis for measuring the cost of capital derived from bonds and preferred stock, respectively, is the

A. after-tax rate of interest for bonds and stated annual dividend rate for preferred stock
B. pretax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred
stock
C. pretax rate of interest for bonds and stated annual dividend rate for preferred stock
D. after-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred
stock

9. The weighted-average cost of capital approach to decision making is not directly affected by the:

A. proposed mix of debt, equity, and existing funds used to implement the project
B. value of the common stock
C. cost of debt outstanding
D. current budget for expansion.

10. A tax adjustment should be made in determining the cost of ____________?

A. Long-term debt
B. Common stock
C. Preferred stock
D. All of the above

11. Stock J has a beta of 1.2 and an expected return of 15.6% and Stock K has a beta of 0.8 and an expected return of
12.4%. What must be the expected return on the market and the risk-free rate of return, to be consistent with the
capital asset pricing model?

A. Marker is 14%; Risk-free is 6%

B. Marker is 12%; Risk-free is 8%
C. Marker is 14%; Risk-free is 4%
D. Marker is 14%; Risk-free is 1.6%
12. Kozuki Oden paid a cash dividend to its common shareholders over the past twelve months of P 2.20 per share. The
current market value of the common stock is P 40 per share and investors are anticipating the common dividends to
grow at a rate of 6% per annum. Cost to issue common stock will be 5% of the market value. What is the expected
return on returned earnings?

A. 12.14%
B. 11.79%
C. 11.83%
D. 6.14%

13. Akazaya Nine Inc. is preparing to issue a preferred stock. The preferred stock will have a P 100 par value and will pay
P 8 per year in dividends. Akazaya’s marginal tax rate is 34%. Flotation costs for the new issue will be P 2.38 per share.
The issue price is expected to be P 96.50 per share. Based on this information, Akazaya’s cost of preferred stock is
nearest to

A. 5.6%
B. 8.5%
C. 5.3%
D. 8.0%

14. Kinemon Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity
and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of the capital budget. The
before-tax cost of debt is 9 percent, and the company’s tax rate is 30 percent. If the expected dividend next period is P5
and the current stock price is P45, what is the company’s growth rate?

A. 2.68%
B. 3.44%
C. 4.64%
D. 6.75%

15. Denjiro’s new financing will be in proportion to the market value of its present financing, shown below:

Book Value
Long-term debt P 7,000,000
Preferred stock (100,000 shares) 1,000,000
Common stock (200,000 shares) 7,000,000
The firms’ bonds are currently selling at 80% of par, generating a current market yield of 9% and the corporation has a
40% tax rate. The preferred stock is selling at its par value and pays a 6% dividend. The common stock has a current
market value of P40 and is expected to pay a P1.20 per share dividend this fiscal year Dividend growth is expected to be
10% per year. Denjiro’s weighted-average cost of capital is
A. 13.0%
B. 8.3%
C. 9.6%
D. 9.0%

16. Raizo Company expects earnings of P30 million next year. Its dividend payout ratio is 60%, and its debt/equity ratio is
1.50. Raizo uses no preferred stock.

At what amount of financing will there be a break point in Raizo’s marginal cost of capital?
A. P45 million.
B. P30 million.
C. P20 million.
D. P18 million.

17. Ashura Doji Airlines is expected to pay an upcoming dividend of P 3.29. The company's dividend is expected to grow
at a steady, constant rate of 5% well into the future. Ashura Doji currently has 1,600,000 shares of common stock
outstanding. If the required rate of return for Ashura Doji is 12%, what is the best estimate for the current price of
Ashura Doji's common stock?

A. P 65.80
B. P 62.51
C. P 47.00
D. P 27.41

18. Kawamatsu Corp. is a steel manufacturer that finances its operations with 40 percent debt, 10 percent preferred
stock, and 50 percent equity. The interest rate on the company’s debt is 11 percent. The preferred stock pays an annual
dividend of P 2 and sells for P 20 a share. The company’s common stock trades at P 30 a share, and its current dividend
(D0) of P 2 a share is expected to grow at a constant rate of 8 percent per year. The flotation cost of external equity is 15
percent of the peso amount issued, while the flotation cost on preferred stock is 10 percent. The company estimates
that its WACC is 12.30 percent. Assume that the firm will not have enough retained earnings to fund the equity portion
of its capital budget. What is the company’s tax rate (nearest)?

A. 30.33%
B. 32.87%
C. 35.75%
D. 38.12%

19. Traitor Company has a capital structure that consists of 60 percent long-term debt and 40 percent common stock.
The company’s CFO Kanjuro has obtained the following information:

• The before-tax yield to maturity on the company’s bonds is 8 percent.

• The company’s common stock is expected to pay a P 3.00 dividend at year end (D1 = P 3.00), and the dividend is
expected to grow at a constant rate of 7 percent a year. The common stock currently sells for P 60 a share.
• Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
• The company’s tax rate is 40 percent.
What is the company’s weighted average cost of capital (WACC)?
A. 12.00%
B. 8.03%
C. 9.34%
D. 7.68%

20. Kikunojo has a capital structure with 30 percent debt (all long-term bonds) and 70 percent common equity. The yield
to maturity on the company’s long-term bonds is 8 percent, and the firm estimates that its overall composite WACC is 10
percent. The risk-free rate of interest is 5.5 percent, the market risk premium is 5 percent, and the company’s tax rate is
40 percent. Bradshaw uses the CAPM to determine its cost of equity. What is the beta on Bradshaw’s stock?

A. 1.07
B. 1.48
C. 0.10
D. 1.35
21. Inuarashi is interested in calculating it weighted-average cost of capital. Inuarashi has a current financial structure
that is composed of 50% debt, 40% common stock, and 10% preferred stock. Ignore the effects of cost of retained
earnings. The beta of Inuarashi stock is 0.7, and the current risk-free rate of return is 4%. The market risk premium is 6%.
The preferred dividend on Inuarashi preferred stock is set at P 2.25, and the net issuance price per share (which happens
to be the same as the current price per share) of preferred stock is P 30. Debt issued by Inuarashi yields an 11% stated
interest rate to investors. The marginal tax rate for Inuarashi is 40%. What is the weighted-average cost of capital for
Inuarashi?

A. 0.0743
B. 0.0820
C. 0.0660
D. 0.0733

22. The Nekomamushi Company’s bonds have 5 years remaining to maturity. Interest is paid annually; the bonds have a
P1,000 face value; and the coupon interest rate is 9 percent.

What is the estimated yield to maturity of the bonds at their current market price of P850?

23. Enma, Inc. expects net income of P800,000 for the next fiscal year. Its targeted and current capital structure is 40%
debt and 60% common equity. The director of capital budgeting has determined that the optimal capital spending for
next year is P1,200,000. If Enma follows a strict residual dividend policy, what is the expected dividend payout ratio for
next year?

A. 80.0%
B. 40.0%
C. 66.7%
D. 10.0%

24. Shusui Company expects to generate P10 million internally which could be available for financing part of its P12
million capital budget for this coming year. Shusui’s management believes that a debt-equity ratio of 40 percent is best
for the firm. How much should be paid in dividends if the target debt-equity ratio is to be maintained?

A. P2,800,000
B. P8,571,429
C. P1,428,571
D. P4,000,000

25. The following data are related to Ame no Habakiri stock:

Required return on Ame no Habakiri common 15 percent

Beta coefficient 1.5
Risk-free rate 9.0 percent
The required market return is
A. 13.0 percent
B. 18.0 percent
C. 25.0 percent
D. 16.0 percent

III. PARTNERSHIP LIQUIDATION (15 QUESTIONS)

1. Asta and Yuno share partnership profits and losses in a 7:3 ratio. Their post-closing trial balance on January 31 show
before liquidation:
Cash………………………………………P 30, 000
Accounts receivable, net……….……... 380, 000
Inventory……………………………… 260, 000
Furniture, net…………………………… 120, 000
Accounts payable………………………P165, 000
Asta, capital……………………………...350, 000
Yuno, capital…………………………. 275, 000
Megicula offered to buy for P760,000 the partnership assets including liabilities but excluding cash and after certain
assets are to be restated at their fair values as follows:
Accounts receivable …………….. P350,000
Inventory …………………………………… 250,000
Furniture …………………… …………… 135,000
How much will Asta and Yuno receive as final settlement of their partnership interest?
a. P 570, 000 c. P790, 000
b. 760, 000 d. 625, 000

2. On January 1, 2107, the partners Dante, Zenon, and Vanica, who share profits and losses in the ratio of 5:3:2,
respectively, decided to liquidate their partnership. On this date the partnership condensed balance sheet was as
follows:
Cash
P 50,000
Other Assets
250,000
Total
P 300,000
Liabilities
P 60,000
Dante, Capital
80,000
Zenon, Capital
90,000
Vanica, Capital
70,000
Total
P 300,000
On January 15, 2017, the first cash sale of other assets with a carrying amount of P 150,000 realized P 120,000. Safe
installment payments were made on the same date.
How much cash should be distributed to each partner Dante, Zenon and Vanica, respectively?
A. P 15,000; P 51,000; P 44,000
B. P 40,000; P 45,000; P 35,000
C. P 55,000; P 33,000; P 22,000
D. P 60,000; P 36,000; P 24,000

3. The partners of FVR decided to liquidate their partnership. Partners Fanah, Vetto, and Raia have capital balances of P
40,000, P 90,000 and P 30,000, respectively, immediately prior to liquidation. Total remaining assets have a book value
of P 160,000, the liabilities having been paid. Among these remaining assets is a machine with a fair value of P 35,000.
The partners split profits and losses equally. Vetto covets the machine and is willing to accept it for P 35,000 in lieu of
cash. The other partners have no designs on specific assets, only cash in liquidation.
How much cash in addition to the machine, would first be distributed to Vetto, before any of the other partners received
anything?
A. P 15,000
B. P 50,000
C. P 55,000
D. P 166,000

4. Partners Luck and Magna who share profits and losses equally, decided to incorporate the partnership at December
31, 2019. The partnership net assets after the following adjustments will be contributed in exchange for shares of stocks
from the corporation.
I. provision of allowance for
doubtful accounts, P 3,000
II. adjustment of overstated
inventory by P 5,000, and
III. recognition of additional
depreciation of P 1,000
The corporation’s ordinary share is to have a par value of P 100 each and the partners are to be issued corresponding
shares equivalent to 80% of their adjusted capital balance.
The balance sheet at December 31, 2017 follows:
Cash P 30,000 Liabilities P 43,000
A/R 25,000 Accu. Dep’n 2,000
Inventory 35,000 Luck, Capital 35,000
Equipment 20,000 Magna, Capital 30,000
Total P 110,000 Total P 110,000
The number of ordinary shares issued to partner Luck is
A. 284
B. 308
C. 244
D. 26.8

5. Noelle, Mimosa and Nero decided to liquidate their partnership. Their capital balances and profit and loss ratio are as
follows:
Capital P&L Ratio
Noelle P 144,000 25%
Mimosa 88,000 30%
Nero 68,000 45%
Also, on this date, cash and liabilities are P 36,000 and P 148,000 respectively.
Which of the following is inconsistent with the result of liquidation if Noelle received P 107,000 in full settlement of her
interest in the firm?
A. Total cash paid to partners, P 152,000
B. Non-cash assets were sold for P 148,000
C. Nero received P 14,400
D. Noelle’s share in loss on realization
of non-cash assets, P 37,000

6. A balance sheet for the Arcane Stage Partnership, who shares profits in the ratio of 4:2:2 for partners Julius, Yami and
William respectively shows the following balances just before liquidation:
Cash P 480,000
Other Assets 3,020,000
Liabilities 600,000
Julius, Capital 1,440,000
Yami, Capital 960,000
William, Capital 800,000
On the first month of liquidation, certain assets are sold for P 1,359,000. Liquidation expenses of P 45,000 are paid and
additional liquidation expenses are anticipated. Liabilities are paid to creditors before making first payment to partners.
If Partner Julius receives P 400,000 Calculate the amount of cash withheld for anticipated liquidation expenses
A. 36,000
B. 40,000
C. 74,000
D. 150,000

7. The accounts of partnership of CDM at December 31, 2017, are as follows:

Cash
P 82,500
Non-cash assets
728,750
Loan to Charlotte
15,000
Total
P 826,250
Liabilities
P 62,500
Loan from Dorothy
20,000
Charlotte, Capital
206,250
Dorothy, Capital
366,250
Mereoleona, Capital
171,250
Total
P 826,250
Determine the amount Charlotte and Dorothy would have received by the time Mereoleona would have received a
cumulative amount of P 45,000
A. Charlotte, P 1,785 and Dorothy, P 72,650
B. Charlotte, P 1,578 and Dorothy P 70,265
C. Charlotte, P 1,875 and Dorothy, P 70,625
D Charlotte, P 1,758 and Dorothy, P 72,600

8. Rill, Kaiser and Jack decided to dissolve the partnership on November 30, 2017. Their capital balances and profit ratio
on this date, follow:
Capital Profit
Balances Ratio
Rill P 50,000 40%
Kaiser 60,000 30%
Jack 20,000 30%
The net income from January 1 to November 30, 2017 is P 44,000. Also, on this date, cash and liabilities are P 40,000 and
P 90,000, respectively.
For Rill to receive P 55,200 in full settlement of his interest in the firm, how much must be realized from the sale of the
firm’s noncash assets?
A. P 196,000
B. P 193,000
C. P 177,000
D. P 187,000

9. The following balance sheet summary, together with residual profit sharing ratios, was developed on April1, 2017,
when the Triple G partnership began its liquidation:
Cash P 280,000
Accounts receivable 120,000
Inventories 170,000
Plant assets- net 400,000
Loan to Grey 50,000
Total P1,020,000
Liabilities P 120,000
Loan from Gordon 40,000
Grey, capital (20%) 150,000
Gordon, capital (40%) 400,000
Gauche, capital (40%) 310,000
Total P 1,020,000
If available cash except for a P 10,000 contingency fund is distributed immediately, Grey and Gordon, and Gauche,
respectively, should receive
A. P 0; P 160,000; and P 30,000
B. P 0, P 140,000; and P 10,000
C. P 32,000; P 64,000, and P 64,000
D. P 0, P 145,000, and P 15,000

10. As of December 31, the books of Silva Partnership showed capital balances of Nozel: P 40,000; Solid: P 25,000;
Nebra: P 5,000. The partners’ profit and loss ratio was 3:2:1, respectively.
The partners decided to dissolve and liquidate. They sold all the noncash assets for P 37,000 cash. After settlement of all
liabilities amounting to P 12,000, they still have P 28,000 cash left for distribution.
The loss on realization of the noncash assets was:
A. P 42,000
B. P 45,000
C. P 40,000
D. P 28,000

11. Vanessa, Charmy, Noelle, partners, are in textile distribution business sharing profits and losses equally. On Dec. 31,
2017, the partnership capital and partners’ drawings are as follows:
Vanessa Charmy Noelle Total
Capital P 100,000 P 80,000 P 300,000 P 480,000
Drawings 60,000 40,000 20,000 120,000
The partnership was unable to collect on trade receivables and was forced to liquidate. Operating profit in the year 2017
amounted to P 72,000 which was all exhausted including the partnership assets. Unsettled creditors’ claim at Dec. 31,
2017 totalled P 84,000. Charmy and Noelle have substantial private resources but Vanessa has no personal assets.
Final cash distribution to Noelle was
A. P 78,000
B. P 108,000
C. P 84,000
D P 162,000

12. The partnership of Bulls, Deer, and Mantis was dissolved on June 30, 2019 and account balances after non-cash
assets were converted into cash on September 1, 2004 are:
Cash……………………………P50, 000
Accounts payable P120, 000
Bulls, capital (30%) 90, 000
Deer, capital (30%) (60, 000)
Mantis, capital (40%) (100, 000)
Personal assets and liabilities of the partners at September 1, 2019 are:
Personal Personal
Assets Liabilities
Bulls ………………………… P80, 000 P90, 000
Deer ………………………………… 100, 000 61, 000
Mantis………………………………… 192, 000 80, 000
If Mantis contributes P70, 000 to the partnership to provide cash to pay the creditors, what amount of Bulls’ P90, 000
partnership equity would appear to be recoverable?
a. P30,000 c. P69, 000
b. 81,000 d. 0

13. Black, Aqua, and Green are partners in Magic Partnership and share profits and losses, 5:3:2, respectively. The
partners have agreed to liquidate the partnership. Prior to liquidation, the partnership balance sheet shows the
following book values.
Cash P 25,200
Non-cash 297,600
Notes, payable to Green 38,400
Other liabilities 184,800
Black, capital 72,000
Aqua, capital (12,000)
Green, capital 39,600
Liquidation expenses of P 16,800 are paid. Non-cash assets with a book value of P 240,000 are sold for P 216,000.
How much cash should Green receive?
a. P 74,571
b. P 46,458
c. P 39,600
d. P 37,600

14. Zora, Henry and Nero are partners. Their respective personal assets, personal liabilities and partnership capital
balances are as follows:
Personal assets
Zora 90,000
Henry 240,000
Nero 180,000
Personal liabilities
Zora 75,000
Henry 150,000
Nero 216,000
Capital balances
Zora 150,000
Henry (96,000)
Nero 210,000
Which of the partners is personally insolvent?
a. Zora
b. Henry
c. Nero
d. Henry & Nero

15. The equity section of the statement of financial position of the partnership of G.Dawn, C.Lion and S. Eagle shows the
following information:
G. Dawn, capital (40%) 64,000
C. Lion, capital (40%) 104,000
S. Eagle, capital (20%) 76,800
Total liabilities and equity 244,800
Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes available. In the
second sale of non-cash assets, the partners received the same amount of cash in the distribution. In the third sale of
non-cash assets, the amount of cash available for distribution is ₱100,000. The carrying amount of the remaining non-
cash assets is ₱260,000. Under the cash priority program, how much cash is distributed to Lion in the third installment
payment?
a. 40,000
b. 38,400
c. 28,200
d. 0

IV. SHAREHOLDER'S EQUITY (20 QUESTIONS)

1. This Code shall be known as “Revised Corporation Code of the Philippines”.

a. RA 11239
b. RA 11469
c. RA 11232
d. RA 11432

2. Which of the following features of preferred stock would most likely be opposed by ordinary shareholders?
a. Par or stated value.
b. Callable.
c. Redeemable.
d. Participating.

3. Which of the following may cause a change in the total shareholders’ equity?
a. “small” share dividends
b. share splits
c. recapitalization
d. “large” share dividends
e. none of these

4. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime of the
corporation unless the corporation is dissolved and all of its liabilities are settled first. For par value shares, legal capital
is
a. the aggregate par value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.

5. Which of the following statements is true?

a. When treasury share is formally retired, the only accounting recognition needed is a note to the financial statements.
b. When treasury share is accounted for by the cost method, the treasury share account is reported as an unallocated
negative element of total shareholders’ equity.
c. No entry is required to record treasury shares declared as dividends.
d. If treasury share is purchased at a cost in excess of its original issuance price and then retired, book value per share
(for the remaining shares) will remain the same.

6. GREED Ban Co. has not declared or paid dividends on its noncumulative preferred stock in the last three years. These
dividends should be
a. recorded as a reduction in stockholders' equity.
b. presented in the note to the financial statements.
c. accrued as a liability when the dividends are declared.
d. ignored.

7. GLUTTONY Merlin Co. issued rights to its existing shareholders to acquire, at P15 per share, 5,000 unissued shares of
ordinary shares with a par value of P10 per share. Ordinary Shares will be credited at
a. P15 per share when the rights are exercised.
b. P15 per share when the rights are issued.
c. P10 per share when the rights are exercised.
d. P10 per share when the rights are issued.

8. LUST Gowther Co. declared a cash dividend on its ordinary share in December 2019, payable in January 2020.
Retained Earnings would
a. increase on the date of declaration.
b. not be affected on the date of payment.
c. not be affected on the date of declaration.
d. decrease on the date of payment.

9. SLOTH King Corporation holds 10,000 shares of its P 10 par common stock as treasury stock, which was purchased in
2019 at a cost of P 120,000. On December 10, 2020, SLOTH sold all 10,000 shares for P 210,000. Assuming that SLOTH
used the cost method of accounting for treasury stock, this sale would result in a credit to
a. Paid-In Capital from Treasury Stock of P 90,000
b. Paid-In Capital from Treasury Stock of P 110,000
c. Gain on Sale of Treasury Stock of P 90,000
d. Retained Earnings of P 90,000.

10. ENVY Diane Corp.’s current balance sheet reports the following stockholders’ equity:
5% cumulative preference shares, P100 par value 250,000
Ordinary share, par value P3.50 per share 350,000
Share premium on ordinary shares 125,000
Retained earnings 300,000
Dividends in arrears on the preference share amount to P 25,000. If ENVY were to be liquidated, the preference
stockholders would receive par value plus a premium of P 50,000. The book value per ordinary share is
a. 7.75
b. 7.50
c. 7.25
d. 7.00

11. WRATH Meliodas had 100,000, P 10 par, 10% cumulative preference shares outstanding all throughout 2019.
WRATH reported profit after tax of P 2,800,000 for the year ended December 31, 2019. The movements in the number
of ordinary shares are as follows:
1/1/2019 Ordinary shares outstanding 120,000
3/1/2019 Shares issued for cash 42,000
9/30/2019 Subscribed shares 20,000
11/1/2019 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000
What is the basic earnings per share?
a. 18.07
b. 16.98
c. 18.92
d. 17.09

12. The following data are extracted from the stockholders' equity section of the balance sheet of PRIDE Escanor
Corporation:
12/31/19 12/31/20
Common stock (P 1 par value) P 50,000 P 51,000
Paid-In capital in excess of par 25,000 29,000
Accumulated Profit/Loss 50,000 52,300
During 2020, the corporation declared and paid cash dividends of P 7,500 and also declared and issued a stock dividend.
There were no other changes in stock issued and outstanding during 2020. Net income for 2020 was
a. P 2,300
b. P 9,800.
c. P 10,800.
d. P 14,800.

13. The Retained Earnings account of SAIHA Company shows the following postings:
Debit:
Share Dividends 324,000
Uninsured fire loss 86,000
Prior year’s errors 63,000
Reserved for bond redemption 150,000
Credit
Beginning Balance 780,000
Net income for the year 450,000
Excess of par value 72,000
Gain on sale of treasury share 27,000
Ending Balance 607,000
What is the correct balance of the Retained Earnings account to be reported in the company’s year-end financial
statement?
a. 607,000
b. 508,000
c. 706,000
d. 832,000

14. On August 24, 2019, The NADARE Corporation declared property dividends of equipment with carrying amount of P
750,000. The property dividend payable is settled on March 15, 2020. Information on fair values is shown below:
Date Fair Value
August 24, 2019 P 600,000
December 31, 2019 800,000
March 15, 2020 700,000
14.1 What is the amount of gain on impairment recovery on December 31, 2019?
a. 0
b. 50,000
c. 100,000
d. 150,000
e. 200,000

14.2 What is the amount of loss on distribution on settlement date?

a. 0
b. 50,000
c. 100,000
d. 150,000
e. 200,000

15. HOMURA Corporation was organized at the beginning of the current year with 100,000 authorized shares of P100
par value. During the current year, the following transactions occurred:
January 1 Sold 30,000 shares at P150 per share
February 1 Issued 2,000 shares for legal services with a fair value of P 250,000.
The shares on this date are quoted at P140 per share.
March 1 Purchased 5,000 treasury shares at a cost of P120 per share.
October 31 Issued P 5,000,000 convertible bonds at 120. The bonds are quoted at 98 without the conversion feature.
November 15 Declared a 2-for-1 share split when the market value of the share was P160.
December 15 Sold 10,000 shares at P75 per share.
December 31 The net income for the year was P 2,000,000.
What is the total shareholder’s equity at year-end?
P8M

16. SETSUNA Corporation was organized on January 1, 2017. On that date, the entity issued 200,000 shares with P10 par
value at P15 per share. During the period January 1, 2017 through December 31, 2018, the entity reported an income of
P 2,000,000 and paid cash dividends of P 500,000. On January 5, 2018, the entity purchased 10,000 shares at P20 per
share to be held as treasury. On December 31, 2018, 5,000 treasury shares were sold at P30 per share and the remaining
treasury shares were retired.
What is the total shareholders’ equity on 2017 and 2018 year-end respectively?
P4.5M & P4.45M

17. MADOKA Corporation had issued 100,000 ordinary shares. Of these, 5,000 shares were held as treasury at the
beginning of current year. During the current year, 1,000 shares of treasury were sold. It also acquired additional 10,000
shares that were previously issued. The corporation took effect a 1-for-2 share split.
At year-end, how many shares are outstanding?
P43K SHARES

18. The RUI Corporation was incorporated on January 1, 2020, with the following authorized capitalization:
• 100,000 shares of ordinary share, no par value, stated value P 50 per share
• 50,000 shares of 5 percent cumulative preference share, par value P 10 per share
During 2020, RUI issued 24,000 shares of ordinary share at a price of P 75 per share. P 20,000 shares of preference share
were also issued in exchanged for a property with a fair value of P 800,000.
What should RUI report as total contributed capital on its December 31, 2020, balance sheet?
P2.6M

19. On April 16, 2020, KOKUU Corporation issued 2,000 shares of its P10 par value ordinary shares and 4,000 shares of
its P10 par value preference share for a lump sum of P 480,000. At this date, KOKUU's preference share was selling for
P15 per share and the ordinary share for P20.00 per share. The amount of proceeds allocated to KOKUU's ordinary share
should be
a. 130,909
b. 349,091
c. 288,000
d. 192,000

20. RESSHIN Corp.’s outstanding capital stock at December 15, 2019, consisted of the following:
• 30,000, 5% cumulative preference shares, par value P10 per share, fully participating as to dividends. No dividends
were in arrears.
• 200,000 ordinary shares, par value P1 per share.
On December 15, 2019, RESSHIN declared dividends of P 100,000. What was the amount of dividends payable to
RESSHIN’s preference stockholders?
a. 40,000
b. 15,000
c. 45,000
d. 60,000

V. CORPORATE TAX (20 QUESTIONS)

1. The optional standard deductions for corporations

A. excludes cost of goods sold and cost of services

B. includes cost of goods sold and cost of services
C. includes personal exemption
D. excludes actual items of deductions

2. Which of the following entities is improper accumulation of profits not presumed?

A. Closely held corporations

B. Investment companies
C. Holding companies
D. Finance companies

3. MCIT shall commence on the:

A. 5th year of operation

B. 3rd year of operation
C. 4th taxable year following the year of start of operations
D. 3rd taxable year following the year of start of operations

4. Which of the following statements is correct?

I. A minimum corporate income tax (MCIT) of 2% of gross income as of the end

of the taxable year is imposed upon any domestic corporation beginning the 40
taxable year immediately following the taxable year in which such corporation
commenced its business operations.
II. MCIT shall be imposed whenever such corporation has zero or negative
taxable income, or when the amount of MCIT is greater than normal income tax
due from such corporation.
III. The computation and the payment of MCIT, shall likewise apply at the time
of filing the quarterly corporate income tax.
A. I only
B. II only
C. I and II only
D. I, II and III

5. A tax imposed in the nature of a penalty to the corporation to prevent the scheme of accumulating income rather
than distribute the same to the stockholders for the purpose of avoiding tax on dividends.

A. Minimum corporate income tax

B. Optional corporate income tax
C. Improperly accumulated earnings tax
D. Capital gains tax

6. One of the following is not acceptable as basis of relief from the MCIT

A. Prolonged labor dispute

B. Force majeure
C. Legitimate business reverse
D. Lawsuits filed by the company

7. CPA University, a private educational institution organized in 2010, had the following data for 2017.

Tuition fees P 850, 000

Rental income 150, 000
School related expenses 820, 000
The income tax due for 2017 is
A. P 57, 000
B. P 18, 000
C. P 9, 600
D. P 20, 000

8. CPA college, a private educational institution organized in 2010, had the following data for 2017.

Tuition fees P 480 000

Rental income 520, 000
School related expenses 950, 000
The income tax due for 2017 is
A. P 50,000
B. P 300,000
C. P 15,000
D. P 20,000

9. CPA Airlines, a resident foreign international carrier has the following records of income for the period. (The income
represents gross Phil. billings)

A. Continuous flight from Manila to Tokyo=1, 000 tickets at P 2, 000 per ticket
B. Flight form Manila to Singapore ; transfer flight from Singapore to Tokyo=2, 000 tickets at P 2, 000 per ticket
C. Continuous flight from Manila to Singapore= 3, 000 tickets at P1,000 per ticket
The income tax due is
A. P225, 000
B. P100, 000
C. P125, 000
D. P 175, 000

10. Which of the following is subject to income tax?

A. SSS and GSIS
B. Philippine Health Insurance Corporation (PHIC)
C. Local Water Districts
D. Philippine Amusement and Gaming Corporation (PAGCOR)

11. Which of the following statements is correct?

I. The term "domestic", when applied to a corporation, means created or
organized in the Philippines or under the laws of a foreign country as long as it
maintains a Philippine branch.
II. A corporation which is not domestic may be a resident (engaged in business
in the Philippines) or nonresident corporation (not engaged in business in the
Philippines).
III. Resident foreign corporations are subject to income tax based on net income
from sources within the Philippines.
A. I only
B. II only
C. II and III only
D. I, II and III

12. Which of the following corporations shall pay a tax equal to thirty percent (30%) of the gross income received during
each taxable year from all sources within the Philippines?

A. Domestic corporation
B. Resident foreign corporation
C. Non-resident foreign corporation
D. None of the choices

13. A domestic corporation had the following data on income and expenses during the year 2018.

Gross income, Philippines P10,000,000

Business expenses, Philippines 2,000,000
Gross income, China 5,000,000
Business expenses, China 1,500,000
Interest income. Metrobank, Philippines 300,000
Interest income. Shanghai Banking Corporation, China 100,000
Rent income, net of 5% withholding tax 190,000
How much was the income tax payable?
A. P3,540,000
B. P3,530,000
C. P3,440,000
D. P2,480,000

14. It is important to know the sources of income for tax purposes, i.e., from within and without the Philippines,
because:

A. Some individual and corporate taxpayers are taxed on their worldwide

income while others are taxable only from sources within the Philippines.
B. The Philippines imposes income tax only on income from sources within.
C. Some individual taxpayers are citizens while other are aliens.
D. Export sales are not subject to income tax.

15. The minimum corporate income tax (MCIT) does not apply to a corporation, if

A. Imposition was suspended by the Secretary of Finance due to a corporation's

heavy losses arising from prolonged labor dispute.
B. Corporation is in its initial year of operation.
C. Corporation is exempt from income tax by virtue of tax holidays granted to it
by the Board of Investment.
D. All of the above
16&17. A domestic corporation, already on its 5, year of operation as of 2017, has the following data:

2017
Sales 1,700,000
Cost of Sales 1,050,000
Operating Expense 675,000
2018
Sales 2,300,000
Cost of Sales 1,425,000
Operating Expenses 480,000
16. The income tax payable in 2017 was:
A. P13,000
B. P10,500
C. P35,000
D. NIL
17. Income tax payable in 2018 is:
A. P111,000
B. P17,500
C. P98,000
D. NIL

18. A domestic proprietary educational institution improved its library facilities by adding a new wing to its old library
building The capital outlay on library improvement, for income tax purposes, may be:

A. Deducted at full at the time of completion of the improvement

B. Capitalized or expensed outright at the option of the school owners
C. Capitalized and depreciated over the estimated life of the improvement
D. Capitalized or expensed outright at the option of the Government

19. The Royale Air Corporation is an international carrier doing business in the Philippines. Its taxable base for income
tax purposes is –

A. Gross Philippine Billings

B. Gross Philippine Billings minus deductible expenses
C. Regular rate of 30% of its net taxable income
D. Allocation of income from sources and without the Philippines, as well as
expenses.

20. Which of the following shall pay a tax of ten percent (10%) of their taxable

income?
I - Regional or area headquarters
II - Regional operating headquarters
A. I only
B. II only
C. Both I and II
D. Neither I nor II

VI. TAX REMEDIES (20 QUESTIONS)

1.) Preliminary assessment notice is not required in the following cases, except:
A. Tax deficiency is due to mathematical error
B. Tax deficiency is due to unpaid VAT
C. Tax deficiency is due to unpaid excise taxes
D. Tax deficiency is due to withholding tax

2.) Running of statute of limitation shall be suspended in this case, EXCEPT:

A.For the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for 60 days thereafter.
B.When the taxpayer requests for reinvestigation which is granted by the Commissioner.
C.When the taxpayer cannot be located in the address given by him in the return filed upon which, tax is being assessed
or collected, except if the taxpayer informs the Commissioner of any change in address.
D.None of the above.

3.) Which of the following is a possible ground for compromise?

A.The tax or any portion thereof appears to be unjustly or excessively assessed.
B.The administration and collection costs involved do not justify the collection of the amount due.
C.A reasonable doubt as to validity of the claim against the taxpayer exists.
D.None of the above.

4.) Individual self-employed taxpayers are required to file their Income Tax Returns:
A.On a yearly basis,, once a year.
B.On a quarterly basis, non-cumulative system
C.On a quarterly basis, cumulative system
D.On a quarterly basis, cumulative system and on a yearly basis, once a year.

5.) The individual income tax return of a fixed earner (employee) is filed on or before
A.April 15 of the current taxable year
B.April 15 of the following taxable year.
C.May 15 of the current taxable year
D.May 15 of the following taxable year.

6.) All criminal violations may be compromised:

Except those already filed in court.
Except those involving fraud.
A.True; True C. False; True
B.True; False D. False; False

7.) For filing a false and fraudulent return, a surcharge is imposed at:
A.25% as criminal penalty
B.25% as administrative penalty
C.50% as criminal penalty
D.50% as administrative penalty

8.) A compromise for a tax liability on the ground of financial incapacity to pay shall still involve a payment of tax from
the taxpayer at a minimum compromise rate of
A.10% of the basic assessed tax
B.20% of the basic assessed tax
C.30% of the basic assessed tax
D.40% of the basic assessed tax

9.) A final assessment notice shall become final if not protested administratively, if such protest is not filed with the BIR,
from receipt of the assessment within
A.30 days C. 90 days
B.60 days D. 180 days

10. Relevant supporting documents must also be presented to the BIR, from filing the protest on the assessment within
A.30 days C. 90 days
B.60 days D. 180 days

11. An appeal on an assessment may be made to the CTA if the BIR does not act on the protest within, how many days
from the taxpayer’s submission of documents supporting his protest?
A.30 days C. 90 days
B.60 days D. 180 days

12.
I - The taxpayer shall respond to a pre assessment notice, and if he fails to respond, a final assessment notice shall be
issued.
II - An assessment issued may be questioned administratively with the BIR.
A.True; True C. False; True
B.True; False D. False; False

13. Where a return was filed, as a general rule, the prescriptive period for assessment after the date the return was due
or was filed, whichever is later, is within
A.3 years C. 7 years
B.5 years D. 10 years

14. Where any national internal revenue tax is alleged to have been erroneously or illegally collected. As a remedy, the
taxpayer should first file an action for refund with the
A.Regional Trial Court C. BIR
B.Court of Tax Appeals D. Court of Appeals

15. In case of an assessment of a tax

A.The assessment should be made within 3 years from date of filing of the return.
B.The assessment should be made within 3 years from date of the return is due.
C.A protest should be made on time, otherwise the assessment becomes final and executory.
D.A protest may be filed anytime before the BIR collects the tax.

16. Which of the following statement is correct?

A.A protest should be filed by a taxpayer, otherwise the assessment becomes final and can no longer be questioned in
court.
B.A protest may be filed by the taxpayer anytime before the BIR collects the tax.
C.The assessment should be made by the BIR within five years from the filing of the return.
D.The assessment shall include only tax proper.
17. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the Tax Code or other laws administered by the BIR is vested
with
A.The Commissioner of the BIR
B.The Secretary of Finance
C.The Court of Tax Appeals
D.The Regular Courts

18. Which of the following is not the remedies of the government in tax collection?
A.Tax lien C. Forfeiture
B.Compromise D. Protest

19. Date of payment of tax erroneously paid

April 15, 2019
Date of claim for refund was filed
January 15, 2020
Date decision of denial by the BIR was received September 15, 2020
Last day to appeal to the CTA is
A.April 15, 2021 C. November 15, 2020
B.January 15, 2021 D. October 15, 2020

20. Using the preceding number, if date of decision of denial by the BIR was received on March 31, 2011, the last day to
appeal to the CTA is
A.April 30, 2021 C. March 31, 2022
B.April 15, 2021 D. May 30, 2021