Northern CPAR: Business Laws and Taxation – 1st Pre-Board Examination

NORTHERN CPA REVIEW

4th Floor Pelizloy Centrum, Lower Session Road Baguio City
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail: ncpar@yahoo.com
A. DOMINGO & R. BANGGAWAN
nd
2 PRE-BOARD EXAMINATION – BUSINESS LAWS & TAXATION
Instruction:
Indicate the letter of your choice in the answer sheet provided for. No
erasure allowed.

Multiple Choices Questions:

1. D

2.

36. In implementing the police power of the state, which is mandatorily

observed?
a. Public interest c. Public use
b. Just compensation d. All of the above

37. In exercising eminent domain, the government normally considers

a. Public use c. Both a and b
b. Just compensation d. Neither a nor

38. In exercising taxation, the government not consider

a. Inherent limitations c. Due process of law
b. Constitutional limitations d. Just compensation

39. Income tax may be imposed for the following purposes, except
a. To provide large amounts of revenues
b. To limit corruption
c. To offset regressive sales and consumption taxes
d. To mitigate the evils arising from the inequalities in the
distribution of income and wealth

40. Which of the following acts in taxation is administrative by nature?

a. Determination of the amount to be imposed.
b. Fixing the allocation of the amount to be collected.
c. Levy or distraint of taxpayers’ property with delinquent tax
obligations.
d. Determining the purpose of the tax to impose.

41. Statement 1: The benefit received theory presupposes that some

taxpayers within the territorial jurisdiction of the Philippines will
be exempted from paying tax so long as they do not receive benefits
from the government.
Statement 2: The ability to pay theory suggests that some taxpayers
may be exempted from tax provided they do not have the ability to pay
the same.

Which statement is true?

a. Only statement 1
b. oth statements 1 and 2
c. Only statement 2
d. Neither statement 1 nor 2

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Northern CPAR: Business Laws and Taxation – 1st Pre-Board Examination
42. An educational institution operated by a religious organization was
being required by a local government to pay real property tax. Is the
assessment valid?
a. Yes, with respect to all properties held by such educational
institution.
b. Yes, with respect to properties not actually devoted to educational
purposes.
c. No, with respect to any properties held by such educational
institution.
d. No, with respect to properties not actually devoted to educational
purposes.

43. Which of the following normally pays real property tax?

a. Bantay Bata, a non-profit charitable institution
b. Jesus Crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational
institution
d. SM Property Holdings, a registered property development company

44. Tax exemption bills are approved by

a. majority of all members of congress.
b. solely by the president of the republic.
c. 2/3 of all members of congress.
d. majority of representatives constituting a quorum.

45. The Japanese government invested its P100,000,000 in a Philippine

local bank and earned P10,000,000. Which is correct?
a. The income is exempt on grounds of territoriality.
b. The income is exempt due to international comity.
c. The income is subject to tax on the basis of sovereignty.
d. The income is subject to tax because the income is earned within the
Philippines.

46. A sound tax system according to the father of economics, Adam Smith,
do not include
a. Fiscal adequacy c. Legal enforceability
b. Theoretical justice d. Administrative feasibility

47. The amount imposed is limited to cover the cost of regulations

a. Tax c. Toll
b. License d. Special assessment

48. A foreign corporation which is not authorized to conduct business in

the Philippines
a. Domestic corporation
b. Resident corporation
c. Non-resident corporation
d. De jure corporation

49. A partnership which dominantly operates its business abroad

a. Domestic corporation
b. Resident corporation
c. Non-resident corporation
d. De jure corporation

50. Which is required to pay income tax?

a. Revocable trusts
b. Estates under extrajudicial settlement
c. Co-ownership
d. Business partnership

51. Which is not an income taxpayer?

a. Non-resident foreign corporation
b. Non-resident alien not engaged in trade or business

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Northern CPAR: Business Laws and Taxation – 1st Pre-Board Examination
c. Joint venture engaged in energy operation in pursuant to a service
contract with the government
d. Irrevocable trusts

52. Which is not a national tax?

a. Value added tax c. Professional tax
b. Documentary stamp tax d. Excise tax

53. Which passive income is subject to regular tax?

a. Dividend income from resident corporation
b. P10,000 winnings
c. Royalties from musical composition
d. Interest on Peso bank deposit

54. All of the following are powers of the Commissioner of Internal

Revenue, except?
a. to change a tax period
b. to prescribe real estate values
c. to impose criminal charges against erring BIR officers
d. to refund or credit internal revenue taxes

55. An American citizen has been staying in the Philippines since August
15, 2010. What would be his classification for the year 2010 and 2011,
respectively?
a. Non-resident alien not engaged in trade or business; resident alien
b. Non-resident alien engaged in trade or business; resident alien
c. Non-resident alien not engaged in trade or business; resident
citizen
d. Non-resident alien engaged in trade or business; resident citizen

56. A citizen who left the Philippines on March 1, 2010 would be

classified as (select the best answer)
a. Resident citizen for the year 2010.
b. Non-resident for the year 2011.
c. Non-resident for the year 2010.
d. Resident citizen for the year 2011.

57. Short accounting period will not exist for tax purposes for which of
the following?
a. Death of the taxpayer
b. Dissolution of business during the year
c. Termination of the accounting period of the taxpayer by the
Commissioner of Internal Revenue
d. Change in address of business establishment of the taxpayer

58. All are Constitutional limitations of the power to tax, except?

a. Equal protection guarantee
b. Tax exemption of the government
c. Non-impairment clause
d. Uniformity and progressive scheme in taxation

59. It operates as a general pardon or intentional disregard by the State

of its authority to impose penalties on persons otherwise guilty of
tax evasion or violations of the tax laws.
a. Tax exemption c. Tax amnesty
b. Tax sparing rule d. Tax condonation

60. Income tax returns should not be filed in which of the following
a. Authorized agent bank c. Bureau of Customs
b. Collection agent d. Revenue district officer

61. On January 1, 2009, Tarlac Company invested P5,000,000 in the 5-year

time deposit of Banco de Oro, a domestic bank. The time deposit earned
12% interest during 2009. Compute the final income tax.

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a. Exempt c. P 60,000
b. P 45,000 d. P 120,000

62. Which of the following is subject to regular income tax?

a. Gain on redemption of shares in mutual funds
b. Gains on sale of long-term bonds with maturity of more than 5 years
c. Sale of foreign stocks directly to buyer
d. Compensation for personal injuries or sickness

63. Which is not subject to income tax?

a. Non-profit hospital
b. Proprietary hospital
c. Non-profit educational institution
d. Proprietary educational institution

64. Kendrick received the following items during the year:

 P200,000 donation from a girlfriend
 P150,000 service fee from professional services
 P300,000 inheritance from his deceased father
 P100,000 income from illegal gambling
 P50,000 gain on sale of his personal car
 P250,000 profits from his bar restaurant

Compute the total income subject to income tax.

a. P1,050,000 c. P550,000
b. P750,000 d. P450,000

65. Jen is engaged in business. The following pertains to her

transactions during 2011:
 Sold his personal car which were purchased at P200,000 to a friend
who paid only half of the car’s P500,000 current fair value.
 Sales of merchandise were P800,000 and the cost of goods sold were
P600,000.
 Jen acquired several stocks from the Philippine Stock Exchange for
speculation. These stocks have aggregate purchase price of P400,000
but with P700,000 fair value at December 31, 2011.
 Jen’s house and lot which he acquired for P1,500,000 in 2010 now
have current fair value of P2,500,000.

Compute Jen’s total income subject to income tax.

a. P1,800,000 c. P250,000
b. P1,550,000 d. P200,000

66. Pines Corporation has a branch in Manila and a 70% owned subsidiary,
Choco Hills, Inc., in Davao. The following data shows Pine’s
Corporation’s sales transactions during the year:
 Pines Corporation billed the Manila branch P1,500,000 for
merchandise shipped to the latter at a mark-up of 50% above
acquisition cost. The branch stock these merchandise and did not
operate during the year.
 Sold merchandise to unrelated parties at a gain of P800,000.
 Sold merchandise to Darrel Asuncion, Pines Corporation’s controlling
stockholder, at a gain of P100,000.
 Sold various merchandise to Choco Hills, Inc. at a gain of P300,000.

Compute the total income of Pines Corporation subject to income tax.

a. P1,700,000 c. P900,000
b. P1,200,000 d. P800,000

67. Kate has the following income in 2010:

 P10,000 interest income from a non-resident Japanese friend
 P40,000 interest income from Philippine residents
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 P500,000 rent income from a commercial complex located in the USA
leased to resident Filipinos
 P200,000 rent income from a boarding house in Baguio City,
Philippines
 P200,000 professional fees rendered to Chinese clients in Hong Kong
 P300,000 salary from a resident employer
 P100,000 gain from sale of merchandise imported and sold to Filipino
residents
 P50,000 gain on sale of merchandise purchased locally and sold
during his business travel in Hong Kong
 P400,000 gain on sale of the boarding house located in Baguio City
to a non-resident buyer

Compute the Kate’s total income earned from sources within the
Philippines?
a. P1,800,000 c. P1,140,000
b. P1,430,000 d. P1,040,000

68. Lovely has the following items of income:

Philippines Abroad
Business income P 200,000 P
100,000
Professional fees 100,000 50,000
Compensation income 400,000 -
Rent income 300,000 200,000
Interest income 30,000 40,000

Assuming Lovely is a resident citizen; compute the total income

subject to Philippine income tax.
a. P1,420,000 c. P1,030,000
b. P1,180,000 d. P390,000

69. Assuming Lovely is a resident alien; compute the total income subject
to Philippine income tax.
a. P1,420,000 c. P1,030,000
b. P1,180,000 d. P390,000

70. Abdul Muhammad, a non-resident citizen, sold the following

investments directly to buyers:

Date Securities Holding Cost Selling

period price
Jan. 15, 2009 Domestic ordinary Short-term P 400,000 P 600,000
shares
Mar. 24, 2009 Domestic ordinary Short-term 700,000 650,000
shares
July 11, 2009 Domestic bonds Long-term 500,000 550,000
Oct. 6, 2009 Foreign shares Short term 300,000 400,000
Nov. 11, 2009 Foreign bonds Long-term 150,000 140,000
Dec. 18, 2009 Domestic preferred Long-term 200,000 350,000
shares

Compute the capital gains tax payable or refundable on April 15, 2010
assuming Abdul Muhammad is not registered as a security dealer.
a. P 2,500 payable c. P 10,000 payable
b. P 2,500 refundable d. P 12,500 payable

---- End of Second Pre-Board Examination ----

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NCPAR Business Laws and Taxation: 2nd Pre-Board Examination – AD & RBB