Practice Final PB Partial

ARTS CPA Review Center
No. 44, Kamagong Avenue, Metroville, Santiago City

0917-5723900
e-mail address: jonathandeveyra_ARTS@yahoo.com.ph

TAXATION
FINAL PRE-BOARD EXAMINATION 8:00 AM – 10:00 AM
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one
answer for each item by SHADING THE CIRCLE corresponding to the letter of your choice on the
official answer sheet. STRICTLY NO ERASURES ALLOWED. Use pencil only.
1. The following are the canons of a sound taxation system, except one. Which one?
a. It must be a progressive tax.
b. It should be exercised to promote public welfare.
c. It should be capable of being effectively enforced.
d. It must be sufficient to meet government expenditures and other public needs.
2. Which one of the following is not a general or indirect constitutional limitations in the
exercise of the State’s power of taxation, police power, and power of eminent domain?
a. Due process clause.
b. Non-impairment clause.
c. Equal protection clause.
d. Non-impairment of the jurisdiction of the Supreme Court in tax cases.
3. Which statement is not correct? A revenue bill:

a. May be recommended by the President to Congress.
b. Must originate from the House of Representatives and on which same bill the Senate may propose
amendments.
c. Must originate from the Senate and on which the same bill the House of Representatives may
propose amendments.
d. May have a House of Representatives version and a Senate version approved separately.
4. Consider the following statements:

I. Taxes are based upon the lifeblood theory.
II. The power of taxation involves the promulgation of rules.
III. There should be no improper delegation of the power to tax.
IV. The State has the power to impose taxes even without a constitutional grant.
Which one is correct from among the following choices?
a. Statements I and II are both manifestations of taxation being legislative in nature.
b. Statements I and IV are both manifestations of taxation being inherent in nature.
c. Statements II and III are both manifestations of taxation being inherent in nature.
d. Statements II and IV are both manifestations of taxation being legislative in nature.
5. First statement: In the legislation of tax laws, a bill should embrace only one subject expressed in the title thereof, three readings on three
separate days, and printed copies in final form distributed three days before passage.
Second statement: Tax avoidance or tax minimization is the use by the taxpayer of illegal means to defeat or lessen the payment of tax while tax
evasion or tax dodging is the use by the taxpayer of legally permissible methods in order to reduce tax liability.
a. Both statements are true.
b. Both statements are false.
c. The first statement is true, but the second statement is false.
d. The first statement is false, but the second statement is true.
6. Statement 1: Jurisdiction is the reason why citizens provide support to the State so the latter could continue to give protection.
Statement 2: Symbolic relation is the reason why the government could impose taxes on the incomes of resident citizens derived from sources
outside the Philippines.
7. Statement 1: The chief officials of the Bureau of Internal Revenue (BIR) are the Commissioner of Internal Revenue and four (4) assistant chiefs as
Deputy Commissioners.
Statement 2: The Commissioner of Internal Revenue is appointed by the Secretary of Finance who is the alter ego of the President of the
Philippines.
FINAL PRE-BOARD EXAMINATION page 02
8. Which one of the following nature of our national internal revenue laws is wrong?
a. Civil in nature. c. Not political in character.
b. Not penal in character. d. Retroactive in application.
9. Which one of the following is violated by direct duplicate taxation?

a. Rule of equality. c. Rule of reciprocity.
b. Rule of uniformity. d. Rule of strictissimi juris
10. Taxpayers under the jurisdiction of the LTS, and those enrolled under the EFPS, shall, through electronic filing facility submit their Summary List
of Sales/Purchases to the RDO/LTDO/LTAD:
a. On or before the 30th day of the month following the close of the taxable quarter.
b. On or before the 25th day of the month following the close of the taxable quarter.
c. On or before the 20th day of the month following the close of the taxable quarter.
d. On or before the 15th day of the month following the close of the taxable quarter.
11. The Income Tax Return (ITR) of Jane, single, for taxable year 2006, reported a taxable income of P 520,240. A careful scrutiny revealed that
some items included as income and expenses are the following:
Income:
Compensation income 180,000
Cash dividend 122,800
Stock dividends 73,500
Property dividends 27,000
Gambling winnings 23,100
Donation received 16,000
Gain on sale of capital assets – 15 months 8,000
Gain on sale of her vacant lot 120,000
Income on rice land 60,000
Total 630,400
----------------
Expenses:
Real estate tax 3,500
Community tax 945
Surcharge for late filing of 2005 income tax return 12,000
Interest on personal loan 24,000
Gambling losses 32,000
Personal and living expenses 50,000
Loss on sale of capital assets – 8 ½ months 5,000
Loss on crops due to flood 27,250
Total 154,695
----------------
The correct amount of Jane’s taxable income is:
a. 246,940 c. 66,040
b. 236,840 d. 256,840
12. XYX, a domestic corporation was determined to be improperly accumulating its earnings for the taxable year 2009 based on its records as
follows:
a. Net income from business 1,000,000
b. Dividends actually or constructively paid 150,000
c. Income tax paid for the year 270,000
d. Income subjected to 20% final tax 60,000
e. Income exempt from tax 50,000
f. Income excluded from gross income 10,000
g. Net operating loss (2008) 100,000
The tax on improperly accumulated earnings is:
a. 81,500 c. 80,000
b. 71,500 d. 70,000
13. The tax identification number (TIN) of a non-resident decedent shall be obtained from:
a. Where the beneficiaries reside. c. The place where properties are situated.
b. The legal residence of the decedent. d. Where the executor or administrator reside.
14. Who is the taxpayer in an estate taxation?

a. Decedent. c. Administrator.
b. Estate. d. Heir.
15. The following data were provided by Air America, international carrier doing business in the Philippines:
Gross receipts, sales of tickets in the Philippines (Manila to Taipei flight) 8,000,000
Gross receipts, sales of tickets in Japan (Manila to Tokyo flight) 5,000,000
Gross receipts, sales of tickets in Japan (Tokyo to Manila flight) 3,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Hongkong flight),
Passengers were endorsed to another international airline which airlifted them from Manila 1,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Los Angeles flight),
Passengers were transshipped in Tokyo to Los Angeles by another airline
(flight from Manila to Tokyo – 5 hrs; flight from Tokyo to Los Angeles – 10 hrs) 4,500,000
Expenses, Philippines 4,000,000
How much was the Philippine income tax due and payable?
a. 5,250,000 c. 387,500
b. 537,500 d. 287,500
16. Which of the following statements is correct?

a. Failure to comply with the provisions of the regulations pertaining to EFPS shall be penalized upon conviction for each act or omission by a fine of
not more than One thousand pesos (P 1,000) or suffer imprisonment of not more than six (6) months or both.
b. Only the first and second offenses in complying with the provisions of the regulations pertaining to EFPS may be settled through a compromise
agreement.
c. For the third and subsequent offenses in complying with the provisions of the regulations pertaining to EFP, no compromise shall be entertained
or allowed.
d. All of the choices.
17. For estate tax purposes, the estate of the decedent shall be valued at the time:
a. Of filing the estate tax return. c. Of death of the decedent.
b. The estate tax is paid. d. The estate is distributed to the heirs.
18. Which of the following is an intangible personal property within the Philippines?
a. Franchise exercised in the USA.
b. Shares or rights in a domestic business partnership.
c. Bonds issued by an American Corporation.
d. Stocks issued by foreign corporation 75% of the business of which is located in the Philippines.
19. One of the following donations is not included as part of gross estate:
a. Revocable transfer. c. Transfer under special power of appointment.
b. Transfer with reservation of certain rights. d. Transfer under general power of appointment.
20. Which is included in the gross estate?

a. Benefits received from GSIS.
b. Benefits received from US Veterans Administration.
c. Benefits received from damages during WWII.
d. Benefits received from a tax exempt employer as a consequence of death of employee.
Use the following information for questions 21 to 24:

Panday Corporation’s computed normal income tax and MCIT, and creditable income taxes withheld from 1 st to 4th quarters including excess MCIT
and excess withholding taxes from prior year/s are as follows:
Excess
Normal Excess Withholding
Income Taxes MCIT Tax
Quarter Tax MCIT Withheld Prior YearPrior Year
1st 100,000 80,000 20,000 30,000 10,000
2nd 120,000 250,000 30,000
3rd 250,000 100,000 40,000
4th 200,000 100,000 35,000
21. How much is the income tax payable for the first quarter?
a. 100,000 c. 60,000
b. 80,000 d. 40,000
22. How much is the income tax payable for the second quarter?
a. 330,000 c. 100,000
b. 230,000 d. 80,000
23. How much is the income tax payable for the third quarter?
a. 470,000 c. 80,000
b. 400,000 d. 70,000
24. How much is the annual income tax payable?

a. 670,000 c. 165,000
b. 505,000 d. 100,000

Mr. Mendoza assigned and conveyed his principal residence with fair market value of P 4,000,000 and in addition paid P 2,000,000 to acquire as
new principal residence of Ms. Co. Ms. Co, on the other hand, conveyed principal residence to Mr. Mendoza with fair market value of P 5,000,000
with the intention of making the property received from Mr. Mendoza as her new principal residence. The historical cost of the old principal
residence of Mr. Mendoza is P 1,000,000 while the historical cost of the old principal residence of Ms. Co is P 500,000.
25. How much was the capital gains tax due on the exchange of property by Mr. Mendoza?
a. 500,000 c. 60,000
b. 360,000 d. none
26. How much was the cost basis of the new principal residence of Mr. Mendoza?
a. 4,000,000 c. 500,000
b. 3,000,000 d. 416,667
27. How much was the capital gains tax due from Ms. Co?
a. 500,000 c. 60,000
b. 360,000 d. none
28. How much was the cost basis of the new principal residence of Ms. Co?
a. 4,000,000 c. 500,000
b. 3,000,000 d. 416,667
29. XYZ Corporation, a domestic corporation had the following data during the calendar year 2011:
Gross income 1,000,000
Business connected expenses 400,000
Dividends from:
 Domestic corporation 100,000
 Foreign corporation, 90% of the gross income
Was derived from the Philippines 100,000
The taxable income is:
a. 920,000 c. 748,000
b. 820,000 d. 750,000
30. Where there are two or more executors or administrators, the one who shall have obligation to pay the estate tax is:
a. The executors only. c. All of the executors and administrators.
b. The administrators only. d. The legal heirs.
31. The BIR shall receive the certified copy of the schedule of the partition of estate upon approval of the Court, within what time?
a. 2 months after death. c. 30 days after promulgation of such order.
b. 2 months after election of administrator. d. 6 months after death.

On January 02, 2008, Palito died. He was survived by his wife Zorayda, whom he married 10 years ago, his 2 legitimate children by a former
marriage and his 2 legitimate children with Zorayda. The eldest child was born on January 01, 1987. Palito’s estate which is under administration
shows the following on January 02, 2008:
Palito Zorayda
Property (A) owned before marriage 2,000,000 3,000,000
Income of property (A) earned during marriage 500,000 750,000
Property (B) acquired during marriage through gratuitous title 1,900,000 2,200,000
Income of property (B) earned during marriage 300,000 350,000
Property (C) acquired during marriage through onerous title 4,000,000 2,000,000
Income of property (C) earned during marriage 800,000 200,000
Proceeds of Palito’s insurance policies where the designated beneficiaries are his:
Youngest brother (revocable) 1,200,000
Mother (irrevocable) 800,000
32. The gross estate of Palito is:
a. 15,450,000 c. 16,500,000
b. 16,460,000 d. 16,650,000
33. The exclusive property of Zorayda is:

a. 2,300,000 c. 3,450,000
b. 2,550,000 d. 5,650,000
34. The common property of the spouses is:

a. 10,900,000 c. 11,950,000
b. 11,259,000 d. 13,750,000
35. X died leaving a property acquired by purchase from Y who died 3.5 years ago. The property is now in X’s gross estate. The estate’s vanishing
deduction rate is:
a. 0% c. 40%
b. 20% d. 60%

Mr. and Mrs. Rigalo gave the following conjugal donations in 2016:
08.20 - Son on account of marriage on Sept. 20, 2015 P 100,000with mortgage of P 20,000 assumed by donee.
09.15 - Daughter on account of marriage on September 01, 2015, P 160,000.
10.20 - Niece of Mrs. Rigalo on account of marriage on Nov. 22, 2015, P 60,000.
12.20 - Grandson on account of marriage on Dec. 20, 2016, P 140,000.
36. The aggregate net gifts of Mrs. Rigalo is:

a. 200,000 c. 220,000
b. 210,000 d. 250,000
37. The aggregate net gifts of Mr. Rigalo on donations to:

Relatives Stranger Relatives Stranger
a. 220,000 None c. 180,000 20,000
b. 180,000 30,000 d. 210,000 None
38. In computing the donor’s tax on a subsequent donation to non-strangers, the donor must consider:
a. The present donation only. c. All prior net gifts during the donor’s lifetime.
b. All prior net gifts during the calendar year. d. The present and the immediately preceding donations only.
39. Going back to the problem, the donor’s tax payable by Mr. Rigalo only on December 20, 2016 is:
a. 1,400 c. 10,400
b. 1,800 d. 10,800
40. Taxpayers are required to register with the BIR:

a. Every month. c. Every year on January 31.
b. Every quarter. d. Once only before commencement of business.
41. For the year 2015, the following gross sales and/or gross receipts are recorded by a taxpayer who is not VAT-registered:
Gross sales, grocery store 800,000
Gross sales, agricultural food products in their original state 300,000
Gross receipts, practice of profession 700,000
Gross receipts, transport of goods and cargoes 1,000,000
Based on the above data, will he be subject to VAT?
a. No, he is not subject to VAT because he is not VAT-registered.
b. Yes ,he is subject to VAT because aside from the practice of profession, he also derives revenue from other lines of business which are subject to
VAT and applying the aggregation rule his combined gross sales and/or gross receipts subject to VAT exceed the threshold amount.
c. No, he is not subject to VAT because his gross sales and/or gross receipts in each business do not exceed the VAT threshold amount.
d. Answer not given.
42. Where is the documentary stamp tax return filed?

I – Through the authorized agent bank within the territorial jurisdiction of the Revenue District Office which has jurisdiction over the residence or
principal place of business of the taxpayer.
II - In places where is no authorized agent bank, the return shall be filed with the Revenue District Officer, collection agent, or duly authorized
Treasurer of the city or municipality in which the taxpayer has his legal residence or principal place of business.
a. Both I and II are correct. c. Only I is correct.
b. Both I and II are incorrect. d. Only II is correct.
43. One of the following statements is wrong:

a. The Commissioner may, in meritorious cases, grant extension of time within which the donor’s tax return may be filed, and such extention shall
not exceed thirty days.
b. The return may be filed in one municipality and the tax paid in another municipality.
c. When a donor’s tax is assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no
extension of time for payment of the tax may be granted by the Commissioner of Internal Revenue.
d. A gross gift of P 50,000 for the whole year to non-strangers need not be covered by a donor’s tax return.
44. The following data were provided by Air America, international carrier doing business in the Philippines:
Gross receipts, sales of tickets in the Philippines (Manila to Taipei flight) 8,000,000
Gross receipts, sales of tickets in Japan (Manila to Tokyo flight) 5,000,000
Gross receipts, sales of tickets in Japan (Tokyo to Manila flight) 3,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Hongkong flight),
Passengers were endorsed to another international airline which airlifted them from Manila 1,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Los Angeles flight),
Passengers were transshipped in Tokyo to Los Angeles by another airline
(flight from Manila to Tokyo – 5 hrs; flight from Tokyo to Los Angeles – 10 hrs) 4,500,000
Expenses, Philippines 4,000,000
How much was the Philippine income tax due and payable?
a. 5,250,000 c. 387,500
b. 537,500 d. 287,500
45. Research and development expenses treated as deferred expenses shall be allowed as deduction ratably distributed over a period of not less
than:
a. 60 months beginning with the month ending the taxpayer’s taxable year.
b. 60 months beginning with the month in which the taxpayer first realizes benefits from such expenditures.
c. 30 months beginning with the month in which the taxpayer first realizes benefits from such expenditures.
d. 6 months beginning with the month in which the taxpayer first realizes benefits from such expenditures.
46. A taxpayer under calendar year has the following selected transactions:
Sept. 09, 2010 Purchased 100 shares of Kaye Co. ordinary for P 5,000.
Dec. 21, 2011 Purchased 50 shares of Kaye Co. ordinary for P 2,750.
Dec. 26, 2011 Sold the 100 shares purchased on Sept. 09, 200 for P 4,000.
Jan. 02, 2012 Purchased 25 shares of Kaye Co. ordinary for P 1,125.
How much is the loss on wash sale and the capital loss?
Loss on wash sale Capital loss
a. 500 250
b. 750 250
c. 1,000 None
d. None None
47. Export sales amounting to P 1,950,000 by a non-VAT registered enterprise is:

a. Subject to 0% VAT. c. Exempt from VAT.
b. Subject to 12% VAT. d. Subject to percentage tax.
48. The gross receipts by a Lessor of residential units for the year 2015 follow:
Monthly rent per unit Number of units Total
9,000 5 540,000
10,000 5 600,000
11,000 5 660,000
12,000 5 720,000
The output VAT is:
a. 0 c. 237,600
b. 165,600 d. 300,000
49. The VAT-registered taxpayer in 2015 and for the past several years was classified as non-VAT registrant has the following data for January 2016:
Sales (invoice price) 560,000
Purchases (net of VAT) 40,000
Value of inventory as of 12.31.15
(purchases from VAT-registered persons) 80,000
VAT paid 6,200
Purchases from VAT-exempt persons
Whose goods are VAT-exempt 70,000
Input tax on purchase returns 700
The VAT payable is:
a. 48,500 c. 54,300
b. 49,700 d. 562,200
50. Bay Co. imported an article from Japan. The invoice value of the imported article was Y 1,000,000 (Y1= P 0.35). The following were incurred in
connection with the importation:
Insurance 15,000 Arrastre charges 8,000
Freight 10,000 Brokerage fees 25,000
Postage 5,000 Facilitation fee 3,000
Wharfage dues 7,000
The imported article was subject to P 50,000 customs duties and to P 30,000 excise tax. After the release from the Bureau of Customs, Bay Co. paid
P 5,000 net of VAT, for trucking to a warehouse in Quezon City. It also paid warehousing rent of P 10,000 net of VAT. How much was the VAT on
importation using 12% VAT rate?
a. 60,360 c. 51,600
b. 60,000 d. 50,400
51. If an individual performs services for a creditor who, in consideration thereof, cancels the debt, the cancellation of indebtedness may amount:
a. To a gift. c. To a donation inter vivos
b. To a capital contribution. d. To a payment of income
Use the following information for questions 52 & 53:

Cool Corporation has the following income and expenses for the years 2009 and 2010. During 2009, bad debts worth P 10,000 were written off and
allowed as deductions by the BIR. The whole amount, however, was recovered during 2010.
2009: Income 100,000
Less: Bad debts 10,000
Other expenses 95,000 105,000
Net income (loss) ( 5,000 )
2010: Income 120,000
Less: Expenses 100,000
Net income 20,000
52. How much is the tax benefit to Cool Corp. as a result of the BIR allowing bad debt write off as deduction?
a. 10,000 c. 1,500
b. 5,000 d. none of the choices
53. How much is the additional tax in 2010 as a consequence of bad debts recovery?
a. 10,000 c. 1,750
b. 5,000 d. 1,500
54. If the required documentary stamp is not affixed on a document, one of the following is correct. The document:
a. Will be notarized because the document is still valid.
b. Will not be admitted as evidence in court because the document is void.
c. Will not be registered in the proper registry even if the document is valid.
d. Is still valid and if already notarized should be registered and admitted as evidence in court.
55. How long must the books of accounts be kept?

a. For a period beginning the preceding taxable year until the last day of the current taxable year.
b. For a period beginning the current taxable until the last day of the following taxable year.
c. For a period beginning from the last entry in each book until the last day prescribed within which the Commissioner is allowed to make an
assessment.
d. For a period of 3 years beginning from the current taxable year until the last day of the third taxable year.
56. On Janaury 02, 2015, A acquired 1,000 shares of F Corporation, a resident corporation for P 100,000. On April 20, 2015, A sold the shares for P
80,000 . On May 08, 2015, A acquired 800 shares of F Corporation for P 85,000. On September 12, 2015, A sold the shares on May 08, 2015 for P
110,000. The gain (loss) on the second sale is:
a. 25,000 c. 9,000
b. 5,000 d. 4,500

A stockholder of a closely held corporation owns 100,000 shares before the IPO. The par value of the share is P 1,000,000. During the IPO, the
shares are selling at P 12 per share. His broker-friend advises him not to sell his shares during the IPO but instead wait until after the IPO. After the
IPO, the outstanding shares of the closely held corporation are 1,000,000 shares and are now selling at P 14 per share at the local stock exchange.
The stockholder of the closely held corporation approaches you to seek your advice because he is also planning to sell the shares directly to his
friend and, therefore, not traded through the local stock exchange at P 15 per share.
57. How much is the percentage tax if he sells his shares during the IPO?
a. 48,000 c. 12,000
b. 24,000 d. answer not given
58. How much is the percentage if he sells the shares after the IPO?
a. 14,000 c. 4,000
b. 7,000 d. answer not given.
59. How much is the capital gains tax if he sells the shares directly to his friend?
a. 50,750 c. 15,000
b. 45,000 d. answer not given.
60. Nicolas placed a property under trust in favor of his son, Nicolas II. He designated Julian as a trustee. Under the term of the trust, Julian has
full discretion on what to do with the income of the property under the trust. Who is the taxpayer for income tax purposes?
a. Nicolas c. Julian
b. Nicolas II d. Trust
61. Mr. Jose Vicente is a sole proprietor engaged in trading business. He consults you as to what income tax returns he will file. What will your
answer be?
a. He is required to file quarterly income tax returns only because he is engaged in business.
b. He is not required to file quarterly income tax returns because individuals are required to file annual returns only.
c. He is required to file quarterly returns and annual returns because he is engaged in business.
d. He is not required to file any income tax return because he is a sole proprietor, hence, exempted from filing returns.

A married taxpayer has one (1) qualified dependent child. His compensation income and that of his spouse amounted to P 50,000 and P 70,000,
respectively. He and his wife each took health and hospitalization insurance and paid a yearly premium of P 3,000 for each policy. In addition to his
compensation income of P 50,000, he derived gross income of P 130,000 from his merchandising business and paid P 30,000 business-related
expenses.
62. How much can the family claim as deduction for health and hospitalization insurance premium?
a. 3,000 c. 1,400
63. How much is the total deductions of the husband?
a. 107,400 c. 57,400
64. How much is the total deductions of the wife?
a. 75,000 c. 50,000
65. How much is the taxable net income of the husband?
a. 107,600 c. 72,500
66. How much is the taxable net income of the wife?
a. 70,000 c. 17,600

A VAT-registered practitioner, single and resident citizen, has five (5) dependents living with and dependent upon him for chief support. Two (2) of
the dependents are minors who are legally adopted. One is a child out of wedlock, person with disability, 25 years old. The other two (2) are his
brothers , who are both minors. During the first quarter of the current year, he earns and spends the following (net of applicable taxes):
Gross receipts from practice of profession, net of 10% withholding tax 1,710,000
Cost of services (40% VAT-subject) 500,000
Salary from part-time teaching job, net of 5% withholding tax 123,500
Expenses in connection with the practice of profession (80% VAT-subject) 100,000
VAT payments for January and February 100,000
67. How much is the personal exemption for the quarter?
a. 150,000 c. 75,000
68. How much is the tax payable when the VAT return is filed for the quarter?
a. 228,000 c. 192,096
69. How much is the taxable net income using itemized deductions?
a. 1,300,000 c. 1,140,000
b. 1,175,000 d. answer not given
70. How much is the taxable net income using OSD?
a. 1,300,000 c. 1,140,000
b. 1,175,000 d. answer not given
- end of examination -
Tax Table for Estate Tax

Over Not over Tax Plus Of Excess Over
200,000 Exempt
200,000 500,000 0 5% 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 - 1,215,000 20% 10,000,000
Tax Table for Donor’s Tax

Over Not over Tax Plus Of Excess Over
100,000 Exempt
100,000 200,000 0 2% 100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 - 1,004,000 15% 10,000,000
0917-5723900

REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
FINAL PRE-BOARD EXAMINATION 10:15 AM – 12:15 PM
1. P, O and A are partners in an import and export business. Customers desiring to place an order for imported articles are always required to make
a deposit of 25% of the total cost of the order. B, regular customer, deposited P 6,000 to P for his order. P, instead of turning over the said amount
to the partnership, misappropriated it. As a result, one is not correct:
a. A may institute a claim against the partnership and all the partners.
b. The personal liability of the partners is joint.
c. The partnership is bound to make good the loss where one partner acting within the scope of his apparent authority receives money or property
of a third person and misapplies it.
d. All the partners are liable solidarily with the partnership for everything chargeable to the partnership.
2. The duty to make disclosure, where otherwise there would be a great and unfair relation of directors to stockholders:
a. Special circumstances rule. c. Doctrine of corporate opportunity.
b. Trust fund theory. d. Incorporation theory.
3. A, B and C are partners in a universal partnership of profits engaged in operation of taxis. The partners contributed:
A - 100 Toyota Vios
B - 3,000 sqm land
C - Fuel and oils
Which of the following is correct?
a. In case of loss due to fortuitous event, the partnership bears the loss.
b. The partnership becomes the owner of the things contributed to the partnership.
c. The partners retained the ownership over the things they contributed hence, they will bear the risk of loss.
d. The partnership begins from the moment of the execution of the contract, except if stipulated otherwise.
4. As regards the corporate by-laws, which of the following is true?

a. To adopt, amend or repeal – 2/3 of the outstanding capital stock is needed.
b. To delegate to the board of directors the power to amend, repeal or adopt new by-laws, majority of the outstanding capital stock.
c. To revoke the power delegated to the board to amend, repeal or adopt new by-laws, 2/3 of the outstanding capital stock.
d. To amend, repeal or adopt new by-laws, majority of the outstanding capital stock.
5. On August 05, 2006, Jose of Legaspi City is obliged to give to Ruben, Jose’s red crew cab. There was no delivery until August 15, 2006 when the
garage of the red crew cab collapsed due to heavy ash and sand spewed by Mt. Mayon and the red crew cab was totally destroyed. After the crew
cab was destroyed and lost, is Jose still liable?
a. No. Even if Jose was already in default, he could plead impossibility of performance.
b. Yes. The obligation to deliver the crew cab is changed to pay the equivalent value because Jose is in legal delay.
c. No. Because there was no demand by Ruben to deliver the crew cab and the specific object was lost due to fortuitous event. The obligation is
extinguished.
d. Yes. Because the contract is perfected.
6. Don owes Cena P 20,000 due on April 20, 2007. When the debt matured, Don is paying Cena a manager’s check worth P 20,000.
Question 1: Can Cena accept the check?
Question 2: Can Cena refuse to accept the check?
Question 3: If Cena accepts the check, is the acceptance equivalent to payment?
Question 1 Question 2 Question 3
a. Yes Yes Yes
b. Yes Yes No
c. No Yes Yes
d. No No Yes
7. A and B, neighbors, orally agreed that from that day, B would not erect a garage on his property until after three years. A week later, B begun to
erect a garage violation of the agreement. A complains and B sets up the defense of the contract being unenforceable. Decide:
a. The contract is unenforceable because it is not to be performed within one year from the making thereof, and it is oral.
b. B can be compelled to demolish the fence because he failed in his obligation not to do.
c. A can have a third person to undo what has been done by B in violation of his obligation not to do.
d. A has the right to complain and enforce the contract because it is enforceable.

8. X borrowed money from Y and gave a piece of land as security by way of mortgage. It was agreed between the parties that upon nonpayment of
the loan, the land would already belong to Y. If X failed to pay the debt, would Y now become the owner of the land?
a. Y would become the owner because it was agreed upon by them based on the principle of autonomy of contracts.
b. Y would not become the owner because the agreement that he would become the owner upon default of X is against the law.
c. Y would not become the owner but with right of redemption by X.
d. Y would not become owner if X annuls the voidable agreement.
9. A contract of antichresis is:

a. A contract of mortgage whereby possession of the mortgaged property is given to the creditor.
b. A contract of loan secured by real property, where possession is retained by the debtor.
c. A contract of loan without security.
d. A consensual contract as it is perfected by mere consent.
10. A was giving his house repaired by B, who needed construction materials, so A orally told the seller C, “Give B the materials, I shall be
responsible. I shall pay in 30 days, C delivered the materials.” As a result,
a. The contract is unenforceable because A made an oral agreement to answer for the debt of B.
b. The contract is enforceable because A did not make a special promise to answer for the default of another person.
c. The contract shall be enforceable if there is ratification by A.
d. The contract shall be unenforceable if the value is at least P 500.
11. A and B are co-owners of a parcel of land from where they share the profits equally as co-heirs in inheritance. Is there a partnership?
a. There is a prima facie presumption of partnership because of the equal sharing of profits.
b. There is no partnership because co-ownership by itself does not establish a partnership despite the sharing of profits.
c. There is no partnership since in partnership, division of profits is not always necessary among partners.
d. There is prima facie presumption of partnership they being co-owners and co-possessors.
12. In order that a stipulation in favor of a third person in a contract would be valid and binding upon the parties thereto, three of the requisites are
mentioned in the following enumerations. Which among them is not a requisite?
a. There must be a stipulation in favor of a third person.
b. The contracting parties must have clearly and deliberately conferred a favor upon that third person.
c. The third person communicated his acceptance to the obligor before its revocation.
d. That there must be an existing agency between either of the contracting parties and the third person.
13. On July 01, Aba offered in writing to sell to Batang his car for P 300,000. Batang accepted the offer and mailed the letter of acceptance on July
10 which was received by Aba on July 20. However, on July 15 Batang had already mailed a letter revoking his acceptance. Is there a perfected
contract?
a. Yes despite the revocation made by Batang.
b. None if the acceptance was received by Aba ahead of the letter of revocation.
c. Yes, even if the letter of revocation was received ahead of the acceptance.
d. None because at the time of the receipt of the letter of acceptance, there had already been a prior revocation of said acceptance.
14. In one of the following cases, compensation cannot take place because one of the requisites thereof is not present, that is, creditor and debtor
of each other:
a. One of the debts arises from the obligation of a depository or of a bailee in commodatum.
b. One of the debts consists in a civil liability arising from a penal offense.
c. Guarantor setting up compensation as regards what the creditor may owe the principal debtor.
d. A partner setting up compensation against the partnership which obtained profits and benefits by his industry.
15. A, B and C are partners engaged in retail business. Their contribution is P 20,000 each. D is admitted as new partner with a contribution of P
8,000. At the time of his admission, the partnership has an outstanding obligation to E in the amount of P 80,000. In this case:
a. D is liable to E for this obligation so that after the assets of the partnership amounting to P 68,000 will be exhausted leaving a balance of P
12,000, only A, B and C shall be liable jointly or pro rata, out of their separate property.
b. D is not liable to E for this obligation.
c. D is liable to E for this obligation so that assets of the partnership will be exhausted, leaving a balance of P 12,000 all the partners shall be liable
jointly or pro rata of their separate property.
16. Within what period must recovery be made if the debtor did not know that payment was not yet due?
a. Before maturity with regard to both what was paid and the interest.
b. Even after maturity with regard to both the interest and what was paid.
c. Before maturity with regard to what was paid and even after maturity with regard to the interest.
d. Before maturity with regard to interest and even after the maturity with regard to what was paid.
17. Which of the follow is wrong in alternative obligations?

a. The obligor shall completely perform one of them.
b. The oblige cannot be compelled to receive part of one and part of the other undertaking.
c. The right of choice belongs to the creditor, unless it has been expressly granted to the debtor.
d. The debtor shall have no right to choose those prestations which are impossible.

18. If a third person pays an obligation. What are the rights, which are available to him if he pays the obligation with the knowledge and consent of
the debtor?
First answer – He can recover from the debtor the entire amount, which he has paid.
Second answer – He is subrogated to all of the rights of the creditor.
a. True, true c. False, true
b. True, false d. False, false
19. Which of the following statements is not correct?

a. The validity and compliance of a contract cannot be left to the will of one of the parties.
b. In case of foreclosure and the price of the sale is less than the amount due, the pledgee cannot recover any deficiency.
c. Persons who are prohibited by law to enter into contract of donation cannot form universal partnership.
d. Actions for fraud cannot be waived.
20. A, B and C executed a promissory note binding themselves to pay P 9,000 to X, Y and Z. The note is now due and demandable. Can the
creditors proceed against A alone for the payment of the entire debt?
a. No, each creditor can collect only P 3,000 from A.
b. Yes, either X, Y or Z can collect P 9,000 from A.
c. No, each creditor can collect only P 1,000 from A.
d. Yes, since the promissory note is silent with respect to the rights of the creditors, the obligation is presumed to be solidary.
21. Using the preceding number, suppose that C is insolvent, can A and B be held liable for C’s share in the obligation?
a. Yes, the debt shall be presumed to be divided into as many equal shares as there are debtors.
b. Yes, but A and B will be liable proportionately.
c. No, the debts are considered distinct from one another.
d. No, only either A or B but not both will be liable.
22. Using item no. 20, suppose that the obligation was about to prescribe, but X wrote a letter to A demanding for payment of the entire debt. Will
this have the effect of interrupting the running of the period of prescription?
a. Yes, because the demand made by X covers the entire debt and will therefore inure to the benefit of the other creditors.
b. Yes, insofar as A is concerned but not with regard to B and C.
c. No, because the demand should have been made to all the debtors.
d. No, all the creditors should have made the demand.
23. Using the preceding item, and prescription sets in, how much can Y collect from A?
a. 9,000 c. 1,000
b. 3,000 d. 0
24. Using the preceding item, how much can X collect from A?
a. 9,000 c. 1,000
b. 3,000 d. 0
25. A filed a suit for ejectment against B for non-payment of condominium rentals amounting to P 150,000. During the pendency of the case, B
offered and A accepted the full amount due as rentals from B who then filed a motion to dismiss the suit. Is B correct?
a. Yes, the acceptance of the payment constitutes a waiver of the ejectment case.
b. Yes, because there is a novation.
c. No, the payment should first result to benefit to A.
d. No, the payment by B of the rentals in arrears is not an abandonment of the ejectment case.
26. Which of the following statements is not correct?

a. Actual delivery of the thing or payment of the price is not required for the perfection of the sale.
b. A stipulation that even when the object is delivered to the buyer, ownership will not pass until the price is fully paid is not valid.
c. A sale is consummated upon delivery of the thing and the payment of the purchase price.
d. Sales through letters or telegrams are deemed perfected only when the seller has received acceptance by the buyer.
27. Which one of the following is not a requisite to make an instrument negotiable?
a. If addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
b. It must contain an unconditional promise or order to pay a sum certain in money.
c. Where the instrument is payable to bearer, the payee must be named or otherwise indicated therein with reasonable certainty.
d. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
28. A subscribed to 1,000 shares of stock of X Corporation. She paid 25% of the said subscription. During the stockholders meeting, can A vote all
her subscribed shares?
a. No, because the subscription has not yet been fully paid.
b. No, because A’s shares have become delinquent which cannot be voted.
c. No as to the unpaid percentage of subscription.
d. Yes, because unpaid shares not delinquent can be voted.

29. A makes a note payable to B or order. The following are the indorsers of the note in the order of their indorsements: B, C, D, E, F (holder) and G
(subsequent holder). The note is dishonored in the hands of F, who notifies B, C, D and E. Which is not correct?
a. The notice given by F to B operates to the benefit of C, D, E and G.
b. The notice to C insures to the benefits of D, E and G.
c. The notice to C insures to the benefits of B.
d. The notice to D insures to the benefits of E and G.
30. Where it is stipulated that the repurchase of the property sold could be made at any time, the repurchase shall be exercised:
a. Within four years from the date of contract. c. After ten years from the date of the contract.
b. Within ten years from the date of contract. d. Within six years from the date of the contract.
31. In case the members of the board of directors of a corporation still constitute a quorum, and there are vacancies, who will fill up such
vacancies?
Removal Resignation Expiration of term Increase in the no. of directors
a. Stockholders Board Stockholders Board
b. Board Board Stockholders Stockholders
c. Stockholders Board Stockholders Stockholders
d. Stockholders Stockholders Board Stockholders
32. Which of the following is not correct?

a. A partnership begins from the moment of the execution of the articles of partnership, unless it is otherwise stipulated.
b. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership.
c. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking or the exercise of a profession or
vocation.
d. Articles of universal partnership entered into without specifications of its nature, only constitutes a universal partnership of profits.
33. A sells to B a Sony colored TV for P 12,000 payable in twelve equal monthly installments beginning May 05, 2010 and every 5 th day of each
month thereafter. The contract provides that upon failure to pay any installment due, the whole balance becomes due and demandable. To secure
the obligation, a chattel mortgage over the TV set was executed. When B defaulted on the seventh and eighth installments, A sued B for the
payment of the whole balance of P 6,000. The TV set was levied and subsequently sold at a public sale for P 5,000. Can A still recover the
deficiency of P 1,000 from B?
a. Yes, if there was stipulation to that effect. c. No, any stipulation allowing recovery is void.
b. Yes, even though there was no stipulation. d. No, if there was no stipulation to that effect.
34. Debtor Aban issued a promissory note in the amount of P 10,000 in favor of Metrobank secured by mortgage of his properties worth P 30,000.
When Aban failed to pay his indebtedness, despite demands made by Metrobank, the latter instituted a collection suit to enforce payment of the P
10,000 account. Subsequently, Metrobank also filed foreclosure proceedings against Aban for the security given for the account. Which of the
following statements is false?
a. If the amount realized in the auction sale is P 15,000, Aban can collect from Metrobank the excess amount of P 5,000.
b. If it is P 9,000 Metrobank can collect from Aban the deficiency of P 1,000.
c. Metrobank can institute an action for collection and at the same time foreclosure the mortgaged property.
d. In letter (a), Aban can only collect the excess amount if there is an stipulation to that effect.
35. Adine Company wrote a letter to Better Educational Supply which introduced Bontoc as its newly authorized agent. Better Educational Supply
then dealt with the company thru Bontoc. After six (6) months, the authority of Bontoc was revoked without informing the customer of the
revocation. Better Educational Supply continued to deal with Bontoc. Is Adine Company liable for the acts of Bontoc?
a. Yes, but until the revocation of the agency only.
b. Yes, but effective only from the time the letter was received until the authority of the agent was revoked by the company.
c. Yes, even after the revocation for the customer was in good faith not having been informed by circular or otherwise of the revocation.
d. No, the company was never become liable for the acts of Bontoc.
36. On September 25, 2011, A sent a telegram to B in Cebu, offering to sell to B his house and lot for P2M, cash. On the same date, B send to A a
telegram offering to buy A’s same house and lot for P 2M, is there a perfected contract?
a. No, because both telegram are mere offers.
b. Yes, a promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
c. No, because B did not offer to buy the house and lot for cash.
d. Yes, being a consensual contract, it is perfected by, mere consent.
37. J is the sole owner of one hectare of land. In need of money, she sold ½ of the land without specifying which portion she is selling to H. In this
case, the sale is:
a. Void, because co-ownership is discouraged by law.
b. Void, because the ½ part is not determinate.
c. Valid, only if H has paid the purchase price.
d. Valid as the sole owner of a thing may sell an undivided interest therein.
38. In which of the following cases will delivery transfers ownership over the thing sold:
a. In case of express reservation by the seller until certain conditions have been fulfilled, particularly the full payment of the purchase price.
b. In case of implied reservation of title as when goods are deliverable to the order of the seller or his agent.
c. In sale or approval, or on trial or on satisfaction.
d. In sale or return within seven days.

39. Which of the following statement is false?
a. P in writing appoints A as his agent to sell his specific 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 A as his agent to sell his land for P 40,000. 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.
40. Should there be a reasonable ground to fear the destruction or impairment of the thing pledged, without the fault of the pledgee, what is the
obligation of the pledgee and what then is the right of the pledger.
First answer – the pledgee is bound to advice the pledger, without delay of any danger to the thing pledged.
Second answer – the pledger can demand the return of the thing pledged upon offering another thing in pledge which is of the same kind as the
former and not of inferior quality.
41. M, T and E decided to form a universal partnership of all present property. The contract of partnership was executed on October 10, 2010 but
they commenced business on October 18, 2011. One of the following is not correct?
a. If the partnership is for 15 years, but one of the partners withdraws from the partnership on the 12 th year, the firm is dissolved.
b. The partnership began its existence on October 10, 2010.
c. If after the expiration of its term, the partners continue to transact business, the partnership is converted to a partnership at will.
d. In the absence of any partnership agreement specifically covering the division of losses among the partners, they will be deemed to share the
losses in accordance with their capital contributions.
42. The partners agreed that only the use and fruits of the objects contributed shall pertain to the partnership (Universal partnership of profits).
Which of the following statements is true?
a. The partnership upon delivery shall be the owner of the objects contributed.
b. Upon dissolution, the objects shall be converted into cash and the proceeds shall be divided equally among the partners including the fruits.
c. During the term of the partnership, the contributing partner remains to be the naked owner of the object contributed thereto but upon
dissolution all objects contributed are to be converted into cash and proceeds shall be divided equally among the partners.
d. During the term of the partnership, the loss of the objects contributed due to fortuitous events shall be borne by the partner concerned except if
the object contributed is fungible.
43. At an annual meeting of stockholders, a resolution was approved empowering the president of the corporation to enter into a contract with a
New York firm. Can the president validly act by virtue of such resolution?
1st answer – Yes, the action of the stockholders was approved during annual stockholders meeting.
2nd answer – No, the power to contract for and in behalf of the corporation resides primarily in the board of directors.
44. To whom notice of dishonor should be given?

Answer 1 – Where the parties to be notified are partners, notice to any one partner is notice to the firm, even though there has been dissolution.
Answer 2 – Notice to persons jointly liable who are partners must be given to each of them unless one of them has authority to receive such notice
for the others.
a. Both answers are correct. c. Only answer 1 is correct.
b. Both answers are not correct. d. Only answer 2 is correct.
45. The sale shall not be presumed to be an equitable mortgage when?

a. The price of the sale is usually adequate.
b. The vendor remains in possession of the thing sold.
c. The vendor allows the extension of time to repurchase the thing sold.
d. The purchaser retains for himself a part of the purchase price.
46. Alonte mortgaged his land to Barbonio to obtain a debt of P 100,000. Alonte then sold the land to Cadores. When the debt falls due, to whom
should Barbonio demand payment?
a. From Alonte only, the mortgagor.
b. From Cadores only, the possessor.
c. From Alonte and if he fails to pay, from Cadores. If the latter does not pay, the mortgage may be foreclosed and in case of deficiency, Cadores
cannot be held liable for such deficiency, even if there is a stipulation to the contrary.
d. From Alonte and if he fails to pay, from Cadores. If the latter does not pay, the mortgage may be foreclosed and in case of deficiency, Cadores
cannot be held liable for such deficiency, in the absence of a contrary stipulation.
47. Which of the following conditions will allow corporation formation and SEC registration?
Authorized Subscribed Paid up
Capital Stock Capital Stock Capital
a. 90,000 12,500 3,125
b. 100,000 20,000 5,000
c. 120,000 25,000 5,000
d. 60,000 15,000 6,000

48. The legal personality of the corporation begins from:
a. The time the Articles of Incorporation are signed by the incorporators.
b. The time the corporate name is approved in the Securities and Exchange Commission.
c. The time the Securities and Exchange Commission issues the Certificate of Registration to the corporation.
d. The time the Articles of Incorporation and the By-laws are released by the Securities and Exchange Commission.
49. Mr. Renato Tallod owns a mango tree bearing fruits, ready for havest. He sells all the fruits of that tree to Mr. Marcel Abalos who pays Tallod
the sum of P 5,000. Tallod tells Abalos that he can just harvest the fruits anytime he likes pointing at the particular tree. For legal purposes, Tallod
has fulfilled his obligation to deliver the mango fruits to Abalos by:
a. Traditio brevi manu c. Tradition longa manu
b. Traditio simbolica d. Answer not given
50. Ricardo Montejo owes Pablo Mendez P 15,000. Upon maturity of the debt, Montejo fails to pay and so Mendez sues him in complaint.
Montejo answers the complaint and before actual hearing, Mendez assigns the promissory note signed by Montejo to Alfredo Castro, for P 10,000,
because Mendez needs the money badly. Now Castro demands payment from Montejo. In the case at bar, Montejo is:
a. Not liable to Castro for the amount.
b. Liable only to the extent of P 10,000 plus cost and interest.
c. Liable for the entire amount of P 15,000 plus cost and interest.
51. The distinction between subscription of shares from purchase of shares is that in subscription of shares:
a. It is an independent agreement between the individual and he corporation to buy shares of stock from it at a stipulated price.
b. It takes place before or after incorporation and is generally paid in installment or upon call.
c. In case of insolvency of the corporation, the subscription can no longer perform its obligation to deliver the certificate of stock.
52. Mr. Monte entered into a contract with Mr. Villa by which Mr. Monte promised to deliver 1,000 cases of glasswares of the class and at the price
stipulated in the contract. Such delivery was to be made during the month of February and March, 2001. In this case, no further demand or notice
by Mr. Villa on Mr. Monte was necessary because:
a. Time is of the essence of the contract. c. The demand would be useless.
b. The obligation expressly so provides. d. Answer not given.
53. Which of the following is not correct?

a. A partnership begins from the moment of the execution of the articles of partnership, unless it is otherwise stipulated.
b. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership.
c. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking or the exercise of a profession or
vocation.
d. Articles of universal partnership entered into without specifications of its nature, only constitutes a universal partnership of profits.
54. A sells to B a Sony colored TV for P 12,000 payable in twelve equal monthly installments beginning May 05, 2010 and every 5 th day of each
month thereafter. The contract provides that upon failure to pay any installment due, the whole balance becomes due and demandable. To secure
the obligation, a chattel mortgage over the TV set was executed. When B defaulted on the seventh and eighth installments, A sued B for the
payment of the whole balance of P 6,000. The TV set was levied and subsequently sold at a public sale for P 5,000. Can A still recover the
deficiency of P 1,000 from B?
a. Yes, if there was stipulation to that effect. c. No, any stipulation allowing recovery is void.
b. Yes, even though there was no stipulation. d. No, if there was no stipulation to that effect.
55. Debtor Aban issued a promissory note in the amount of P 10,000 in favor of Metrobank secured by mortgage of his properties worth P 30,000.
When Aban failed to pay his indebtedness, despite demands made by Metrobank, the latter instituted a collection suit to enforce payment of the P
10,000 account. Subsequently, Metrobank also filed foreclosure proceedings against Aban for the security given for the account. Which of the
following statements is false?
a. If the amount realized in the auction sale is P 15,000, Aban can collect from Metrobank the excess amount of P 5,000.
b. If it is P 9,000 Metrobank can collect from Aban the deficiency of P 1,000.
c. Metrobank can institute an action for collection and at the same time foreclosure the mortgaged property.
d. In letter (a), Aban can only collect the excess amount if there is an stipulation to that effect.
56. Adine Company wrote a letter to Better Educational Supply which introduced Bontoc as its newly authorized agent. Better Educational Supply
then dealt with the company thru Bontoc. After six (6) months, the authority of Bontoc was revoked without informing the customer of the
revocation. Better Educational Supply continued to deal with Bontoc. Is Adine Company liable for the acts of Bontoc?
a. Yes, but until the revocation of the agency only.
b. Yes, but effective only from the time the letter was received until the authority of the agent was revoked by the company.
c. Yes, even after the revocation for the customer was in good faith not having been informed by circular or otherwise of the revocation.
d. No, the company was never become liable for the acts of Bontoc.
57. On September 25, 2011, A sent a telegram to B in Cebu, offering to sell to B his house and lot for P2M, cash. On the same date, B send to A a
telegram offering to buy A’s same house and lot for P 2M, is there a perfected contract?
a. No, because both telegram are mere offers.
b. Yes, a promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
c. No, because B did not offer to buy the house and lot for cash.
d. Yes, being a consensual contract, it is perfected by, mere consent.

58. J is the sole owner of one hectare of land. In need of money, she sold ½ of the land without specifying which portion she is selling to H. In this
case, the sale is:
a. Void, because co-ownership is discouraged by law.
b. Void, because the ½ part is not determinate.
c. Valid, only if H has paid the purchase price.
d. Valid as the sole owner of a thing may sell an undivided interest therein.
59. In which of the following cases will delivery transfers ownership over the thing sold:
a. In case of express reservation by the seller until certain conditions have been fulfilled, particularly the full payment of the purchase price.
b. In case of implied reservation of title as when goods are deliverable to the order of the seller or his agent.
c. In sale or approval, or on trial or on satisfaction.
d. In sale or return within seven days.
60. Which of the following statement is false?

a. P in writing appoints A as his agent to sell his specific 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 A as his agent to sell his land for P 40,000. 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.
61. Should there be a reasonable ground to fear the destruction or impairment of the thing pledged, without the fault of the pledgee, what is the
obligation of the pledgee and what then is the right of the pledger.
First answer – the pledgee is bound to advice the pledger, without delay of any danger to the thing pledged.
Second answer – the pledger can demand the return of the thing pledged upon offering another thing in pledge which is of the same kind as the
former and not of inferior quality.
62. M, T and E decided to form a universal partnership of all present property. The contract of partnership was executed on October 10, 2010 but
they commenced business on October 18, 2011. One of the following is not correct?
a. If the partnership is for 15 years, but one of the partners withdraws from the partnership on the 12 th year, the firm is dissolved.
b. The partnership began its existence on October 10, 2010.
c. If after the expiration of its term, the partners continue to transact business, the partnership is converted to a partnership at will.
d. In the absence of any partnership agreement specifically covering the division of losses among the partners, they will be deemed to share the
losses in accordance with their capital contributions.
63. The partners agreed that only the use and fruits of the objects contributed shall pertain to the partnership (Universal partnership of profits).
Which of the following statements is true?
a. The partnership upon delivery shall be the owner of the objects contributed.
b. Upon dissolution, the objects shall be converted into cash and the proceeds shall be divided equally among the partners including the fruits.
c. During the term of the partnership, the contributing partner remains to be the naked owner of the object contributed thereto but upon
dissolution all objects contributed are to be converted into cash and proceeds shall be divided equally among the partners.
d. During the term of the partnership, the loss of the objects contributed due to fortuitous events shall be borne by the partner concerned except if
the object contributed is fungible.
64. At an annual meeting of stockholders, a resolution was approved empowering the president of the corporation to enter into a contract with a
New York firm. Can the president validly act by virtue of such resolution?
1st answer – Yes, the action of the stockholders was approved during annual stockholders meeting.
2nd answer – No, the power to contract for and in behalf of the corporation resides primarily in the board of directors.
65. To whom notice of dishonor should be given?

Answer 1 – Where the parties to be notified are partners, notice to any one partner is notice to the firm, even though there has been dissolution.
Answer 2 – Notice to persons jointly liable who are partners must be given to each of them unless one of them has authority to receive such notice
for the others.
a. Both answers are correct. c. Only answer 1 is correct.
b. Both answers are not correct. d. Only answer 2 is correct.
66. The authorized capital stock of a proposed corporation is P 100,000 divided into 1,000 shares with a par value of P 100 each. At least P 25,000
or 250 shares was subscribed by 25 subscribers. To meet the minimum amount of subscription that must be paid:
a. It is enough that 25% of the total subscription is paid, regardless of the amount paid by each individual subscription.
b. Each and every subscriber must always paid P 250 which is 25% of their individual subscription.
c. Seven of the subscribers paid P 6,250 and the rest of the subscribers.
d. None of the above.

0917-5723900

MANAGEMENT ACCOUNTING & SERVICES
FINAL PRE-BOARD EXAMINATION 1:00 PM – 4:00 PM

An organization has four investment proposals with the following costs and expected cash inflows:
Expected Cash Inflows
Project Cost End of Year 1 End of Year 2 End of Year 3
A Unknown 10,000 10,000 10,000
B 20,000 5,000 10,000 15,000
C 25,000 15,000 10,000 5,000
D 30,000 20,000 Unknown 20,000
Note: Round present value factors to four (4) decimal places.
1. If Project A has an internal rate of return (IRR) of 15%, then it has a cost of:
a. 8,696 c. 24,869
b. 22,832 d. 27,232
2. If the discount rate is 10%, the net present value (NPV) of Project B is:
a. 4,079 c. 9,869
b. 6,789 d. 39,204
3. The payback period of Project C is:

a. 0 c. 2 years
b. 1 year d. 3 years
4. If the discount rate is 5% and the discounted payback period of Project D is exactly two years, then the year two cash inflow for Project D is:
a. 5,890 c. 12,075
b. 10,000 d. 14,301

A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and reduce
the ratio of credit sales to total revenue from 70% to 60%. The company estimates that projected sales would be 5% less if the proposed new credit
policy were implemented. The firm’s short term interest cost is 10%.
5. Projected sales for the coming year are P 50 million. Calculate the peso impact on accounts receivable of this proposed change in credit policy.
Assume a 360-day year.
a. 3,819,445 decrease c. 3,333,334 decrease
b. 6,500,000 decrease d. 18,749,778 increase
6. What effect would the implementation of this new credit policy have on income before taxes?
a. 2,500,000 decrease c. 83,334 increase
b. 2,166,667 decrease d. 33,334 increase
7. Which type of economic market structure is characterized by a few large sellers of a product or service, engaging primarily in nonprice
competition?
a. Monopoly c . Perfect competition
b. Oligopoly d. Monopolistic competition
8. The following information was taken from a computer printout generated with the least squares method for use in estimating overhead costs:
Slope 90
Intercept 11,400
Correlation coefficient 0.6
Activity variable Direct labor hours
The cost formula is:
a. Overhead = 11,400 – 90X c. Overhead = 11,400 + 90X
b. Overhead = 11,400 + (45 x .6) d. Overhead = 11,400 x .6

The Rona Company uses activity-based costing and provides this information:
Manufacturing Cost driver used as Conversion cost per
Activity area application base unit of base
Materials handling Number of parts 0.45
Machinery Machine hours 51.00
Assembly Number of parts 2.85
Inspection Number of finished units 30.00
Assume that 75 units of a component for packaging machines have been manufactured. Each unit required 105 parts and 3 machine hours. Direct
materials cost P 600 per finished unit. All other manufacturing costs are classified into one category, conversion costs.
9. The total manufacturing costs is:
a. 87,412.50 c. 84,712.50
b. 78,412.50 d. 82,712.50
10. The unit cost of the 75 units is:

a. 1,219.50 c. 912.50
b. 1,129.50 d. 1,050.00

Dugong Company has developed a new project that will be marketed for the first time during the next fiscal year. Although the Marketing
Department estimates that 35,000 units could be sold at P 36 per unit, Dugong management has allocated only enough manufacturing capacity to
produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at P 450,000 for
the year, which includes P 60,000 for depreciation on new manufacturing equipment. Data associated with each unit of product are presented
below. Dugong is subject to a 40% income tax rate.
Variable cost
Direct materials 7.00
Direct labor 3.50
Manufacturing overhead 4.00
Total variable manufacturing cost 14.50
Selling expenses 1.50
Total variable cost 16.00
=======
11. The maximum after-tax income that can be earned by Dugong from sales of the new product during the next fiscal year is:
a. 30,000 c. 110,000
b. 50,000 d. 66,000
12. Dugong’s management has stipulated that it will not approve the continued manufacture of the new product after the next year unless the
after tax income is at least P 75,000 the first year. The unit selling price to achieve this target income must be at least:
a. 37.00 c. 34.60
b. 36.60 d. 39.00

Management of Delo Corporation is considering the following two potential capital structures for a newly acquired business:
Alternative 1
Long term debt, 6% interest 3,000,000
Common equity 3,000,000
Cost of common equity 10%
Income tax rate 15%
Alternative 2
Long term debt, 7% interest 5,000,000
Common equity 1,000,000
Cost of common equity 12%
Income tax rate 15%
13. Which of the following statements is not true if management decides to accept Alternative 1?
a. Alternative 1 is the more conservative capital structure.
b. Alternative 1 provides the greatest amount of financial leverage.
c. Net income will be less variable under Alternative 1.
d. Total interest expense will be less under Alternative 1.
14. Which of the alternative has the lowest weighted average cost of capital and how much is the differential?
a. Alternative 1 by 1.5% c. Alternative 1 by 0.167%
b. Alternative 2 by 0.59% d. The alternatives have equal weighted average cost of capital
15. Tores Company has failed to attain its planned capacity level of 80,000 units per year during its first two (2) years of operations. The company’s
actual production and sales for the past 2 years and projected production and sales for the 3 rd year are as follows:
Production Sales
2004 72,000 72,000
2005 76,000 76,000
2006 72,000 72,000

All prices and costs have remained the same for the past 2 years and are expected to do so in 2006. Income has been positive in years 2004 and
2005. If Tores Company uses the absorption costing system, the gross margin for 2006 should be:
a. Equal to 2005. c. Greater than 2004.
b. Equal to 2004. d. Greater than 2005.

Bugoy, Inc. manufactures leather bags with 3-zipper-type pockets. The company outsources the zippers at P 8 per unit. Each bag requires 5 direct
labor hours to produce at a rate of P 10 per hour. Budgeted sales of bags for the first quarter of the year and the first month of the following
quarter is as follows:
January 900 units
February 1,000 units
March 1,500 units
April 1,800 units
Inventory data are as follows:
January 01: Leather bags 360
Zipper 1,620
End of each month:Leather bags - 40% of the following month’s budgeted sales
Zipper - 60% of the following month’s production requirement
16. What is the budgeted production of leather bags for the first quarter?
a. 3,760 c. 4,400
b. 3,040 d. 3,400
17. What is the budgeted purchases of zipper for February?
a. 2,844 c. 4,356
b. 1,956 d. 3,600
18. What is the total budgeted zipper and labor costs for the month of March?
a. 55,080 c. 122,472
b. 29,160 d. 119,880
19. Assume that on the average, a full-time factory worker works 188 hours per month and no overtime is allowed, how many full time equivalent
factory workers are needed to produce the budgeted output of leather bags in January?
a. 5 c. 100.00
b. 25 d. 23.94

Super Corporation, a computer disk storage and backup company, uses accrual accounting. The company’s statement of financial position for the
year ended November 30, 2008 is as follows:
Super Corporation
Statement of Financial Position
November 30, 2008
Assets
Cash 52,000
Accounts receivable, net 150,000
Inventory 315,000
Property, plant and equipment 1,000,000
Total assets 1,517,000
==========
Liabilities and Stockholders’ Equity
Accounts payable 175,000
Common stock 900,000
Retained earnings 442,000
Total liabilities and stockholders’ equity 1,517,000
==========
Additional information regarding Super’s operations include the following:
 Sales are budgeted at P 520,000 for December 2008 and P 500,000 for January 2009.
 Collections are expected to be 40% in the month following the sale.
 80% of the disk drive components are purchased in the month prior to the month of sale, and 20% are purchased in
the month of sale. Purchased components are 40% of the cost of goods sold.
 Payment for the components is made in the month following the purchase.
 Cost of goods sold is 80% of sales.
20. The budgeted cash collections for the month of December 2008 are:
a. 208,000 c. 402,000
b. 520,000 d. 462,000
21. The projected balance in accounts payable on December 31, 2008 is:
a. 161,280 c. 416,000
b. 166,400 d. 201,600
22. The projected gross profit for the month ending December 31, 2008 is:
a. 416,000 c. 536,000
b. 104,000 d. 0

Agua Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per water pump are based on direct
labor hours and are as follows:
Variable overhead (4 hours at P 8 per hour) 32
Fixed overhead (4 hours at P 5* per hour) 20
Total overhead cost per unit 52
======
* Based on a capacity of 100,000 direct labor hours per month.
The following additional information is available for the month of November:
 22,000 pumps were produced although 25,000 had been scheduled for production.
 94,000 direct labor hours were worked at a total cost of P 940,000.
 The standard direct labor rate is P 9 per hour.
 The standard direct labor time per unit is 4 hours.
 Variable overhead costs were P 740,000
 Fixed overhead costs were P 540,000.
23. The fixed overhead spending variance for November was:
a. 40,000 unfavorable. c. 460,000 unfavorable.
b. 70,000 unfavorable. d. 240,000 unfavorable.
24. The variable overhead spending variance for November was:

a. 60,000 favorable c. 48,000 unfavorable
b. 12,000 favorable. d. 40,000 unfavorable.
25. The variable overhead efficiency variance for November was:

a. 48,000 unfavorable c. 96,000 unfavorable
b. 60,000 favorable d. 200,000 unfavorable
26. The direct labor price variance for November was:

a. 54,000 unfavorable c. 60,000 favorable
b. 94,000 unfavorable d. 148,000 unfavorable
27. The direct labor efficiency variance for November was:

a. 108,000 favorable c. 60,000 favorable
b. 120,000 favorable d. 54,000 unfavorable
28. An organization has an opportunity to establish a zero balance account system using four different regional banks. The total amount of the
maintenance and transfer fees is estimated to be P 6,000 per annum. The organization believes that it will increase the float on its operating
disbursements by an average of four days, and its cost of short term funds is 4.5%. Assuming the organization estimates its average daily operating
disbursements to be P 40,000 what decision should the organization make regarding this opportunity?
a. Do not establish the zero balance account system because it results in estimated additional net costs of P 6,000.
b. Do not establish the zero balance account system because it results in estimated additional net costs of P 1,200.
c. Establish the zero balance account system because it results in estimated net savings of P 1,200.
d. Establish the zero balance account system because it results in estimated net savings of P 7,200.
29. Alta Manufacturing Co. has had a problem with its product quality. The company has had a large amount of costs related to product recalls. In
considering cost of quality methodology, if the company wants to reduce these costs, the most likely place to incur costs would be for:
a. Prevention c. Internal failure
b. Appraisal d. External failure
30. Ming Co. is budgeting sales of 53,000 units of Product A for October 2012. The manufacture of one unit of A requires four kilos of chemical
Loire. During October 2012, Ming plans to reduce the inventory of Loire by 50,000 kilos and increase the finished goods inventory of A by 6,000
units. There is no A work in process inventory. How many kilos of Loire is Ming budgeting to purchase in October 2012?
a. 138,000 c. 186,000
b. 162,000 d. 238,000

Gary Manufacturing has assembled the data appearing in the next column pertaining to two products. Past experiences has shown that the
unavoidable fixed factory overhead included in the cost per machine hour averages P 10. Gary has a policy of filling all sales orders, even if it means
purchasing units from outside suppliers.
Blender Electric Mixer
Direct materials 6 11
Direct labor 4 9
Factory overhead at P 16 per hour 16 32
Cost if purchased from an outside supplier 20 38
Annual demand (units) 20,000 28,000
31. If 50,000 machine hours are available, and Gary desires to follow an optimal strategy, it should:
a. Produce 25,000 electric mixers and purchase all other units as needed.
b. Produce 20,000 blenders and 15,000 electric mixers and purchase all other units as needed.
c. Produce 20,000 blenders and purchase all other units as needed.
d. Produce 28,000 electric mixers and purchase all other units as needed.
32. With all other things constant, if Gary is able to reduce the direct materials for an electric mixer to P 6 per unit, the company should:
a. Produce 25,000 electric mixers and purchase all other units as needed.
b. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed.
c. Produce 20,000 blenders and purchase all other units as needed.
d. Purchase all units as needed.
33. The ABC Company is trying to decide between keeping an existing machine and replacing it with a new machine. The old machine was
purchased just two years ago for P 50,000 and had an expected life of 10 years. It now costs P 1,000 a month for maintenance and repairs due to a
mechanical problem. A new machine is being considered to replace it at a cost of P 60,000. The new machine is more efficient and it will only cost
P 200 a month for maintenance and repairs. The new machine has an expected life of 10 years. In deciding to replace the old machine, which of
the following factors, ignoring income taxes, should ABC not consider?
a. Any estimated salvage value on the old machine. c. The estimated useful life of the new machine.
b. The original cost of the old machine. d. The lower maintenance cost on the new machine.

The Verba Corporation which produces and sells to wholesalers a highly successful line of summer lotions and insect repellents, has decided to
diversify in order to stabilize sales over the year. A natural area for the company to consider is the production of special lotion and cream to prevent
dry and chapped skin. After considerable research, a special product line has been developed. However, because of the conservatism of the
company management, Verba’s president has decided to introduce only one of the new products for this coming rainy season. If the product is a
success, further expansion will be initiated in future years. The product selected (called Chaps) is a lip balm that will be sold in a lipstick-type tube.
The product will be sold to wholesalers in boxes of 24 tubes for P 800 per box. Because of available capacity, no additional fixed charges will be
incurred to produce the product. However, a P 10,000,000 fixed charge will be absorbed by the new product to allocate a fair share of the
company’s present fixed costs to it. Using the estimated sales and production of 100,000 boxes of Chaps as the standard volume, the accounting
department has developed the following costs:
Direct labor 200 per box
Direct materials 300 per box
Total overhead 150 per box
Total 650 per box
Verba has approached a cosmetics manufacturer to discuss the possibility of purchasing the tubes for Chaps. The purchase price of the empty
tubes from the cosmetics manufacturer would be P 90 per 24 tubes. If the Verba Corporation accepts the purchase proposal, it is estimated that
direct labor and variable overhead costs would be reduced by 10% and direct material costs would be reduced by 20%.
34. What is the variable overhead rate per box of Chaps?

a. 100 c. 50
b. 150 d. 200
35. What is the material cost per box of Chaps saved by purchasing them?
a. 300 c. 60
b. 240 d. 30
36. How much would it cost Verba to produce the tubes per box?
a. 60 c. 90
b. 85 d. 120
37. How much cost would Verba incur by making 125,000 boxes, assuming that additional equipment, at an annual rental of P 1,000,000, must be
acquired to produce this volume?
a. 10,625,000 c. 11,250,000
b. 11,625,000 d. 12,500,000
38. Referring to the previous question, what is the impact on its profit if Verba were to buy 125,000 boxes?
a. Increase profit by P 1,000,000 c. Increase profit by P 375,000
b. Increase profit by P 1,250,000 d. Decrease profit by P 625,000
39. The proper discount rate to use in calculating certainty equivalent net present value is the:
a. Risk-adjusted discount rate c. Cost of equity capital
b. Risk-free rate d. Cost of debt
40. Following are taken from a PERT diagram for a project:

Network Paths Expected Time to Complete
Path A: 0 – 1 – 2 - 5 – 7 72 weeks
Path B: 0 – 1 – 2 – 4 – 7 52 weeks
Path C: 0 – 1 – 3 – 4 – 7 36 weeks
Path D: 0 – 1 – 3 – 6 – 7 56 weeks
What is the critical path?
a. 72 weeks c. Path C
b. Path A d. 36 weeks.

41. Sago Company is a manufacturer of small appliances. For which of the following activities would Sago be more likely to use a static budget than
a flexible budget?
a. For planning the amount of direct materials that will need to be purchased in the upcoming year.
b. For the evaluation of whether or not actual direct labor costs were reasonably close to budgeted direct labor costs.
c. For the evaluation of whether or not actual manufacturing overhead costs were under or over applied during the year.
d. For the evaluation of whether or not employees made the most efficient use of their time.
42. Which of the following statements is correct regarding financial decision making?
a. Opportunity cost is recorded as a normal business expense.
b. The accounting rate of return considers the time value of money.
c. A strength of the payback method is that it is based on profitability.
d. Capital budgeting is based on predictions of an uncertain future.
43. A company will produce 20,000 units of Product A at a unit variable cost of P 7 and a unit selling price of P 13. Fixed costs are P 40,000.
However, the company will still have 40% idle capacity. The company can use this idle capacity to produce 6,000 units of a different Product B,
which it can sell for P 7 per unit. The incremental variable cost of producing a unit of B is P 6. Present fixed costs that will be allocated to B amount
to P 10,000. To decide whether to produce B, the company should use:
a. Markov chain analysis c. Information economics
b. Differential cost analysis d. Regression analysis
44. When the number of units manufactured increases, the most significant change in average unit cost will be reflected as:
a. An increase in the semivariable element. c. A decrease in the variable element
b. An increase in the novariable element d. A decrease in the novariable element
45. The IMA Statement of Ethical Professional Practice includes an Integrity Standard, which requires an IMA member to:
a. Refuse gifts from anyone.
b. Disclose confidential information when authorized by his/her firm or required under the law.
c. Report any relevant information that could influence users of financial statements.
d. Identify and make known anything that may hinder his/her judgment or prevent satisfactory completion of any duties.

Annie Corporation is evaluating four (4) capital investment projects. It uses a 14% hurdle rate and has computed the following for each of the four
projects:
Project 1 Project 2 Project 3 Project 4
Cost 200,000 300,000 240,000 270,000
Net present value ( 11,485 ) ( 9,255 ) 11,325 5,710
Profitability index 94% 97% 105% 102%
46. Assuming that Annie Corporation has no budget restrictions, which project (s) should it undertake?
a. Project 3 c. Project 3 & 4
b. Project 4 d. Projects 1, 2, 3 and 4
47. Which project (s) should Annie Corporation undertake if it has only P 300,000 of funds available?
a. Project 3 c. Project 3 & 4
b. Project 4 d. Projects 1, 2, 3 and 4

Canor Corp. which has 250 business days per year, manufactures desks for desktop workstations. The annual demand for the desks is estimated to
be 5,000 units. The annual cost of carrying one unit in inventory is P 10, and the cost to initiate a production run is P 1,000. Canor has scheduled
four equal production runs for the coming year, the first to begin immediately.
Currently, there are no desks on hand. Assume that sales occur uniformly throughout the year and that production is instantaneous.
48. If Canor does not maintain a safety stock, the estimated total carrying costs for the desks for the coming year is:
a. 5,000 c. 4,000
b. 6,250 d. 10,250
49. If Canor were to schedule only two equal production runs of the desks for the coming year, the sum of carrying costs and set-up costs would
increase (decrease) by:
a. 4,250 c. 6,250
b. (2,000) d. ( 250)
50. A safety stock for a five-day supply of desks would increase the number of units in Canor’s planned average inventory by:
a. 0 c. 100
b. 50 d. 250

The Solar Inc. a multinational company, is expanding its research and production capacity to introduce a new line of products. Current plans call for
the expenditure of P 100 million on four projects of equal size (P 25 million each), but different returns. Project A is in blood clotting proteins and
has an expected return of 18%. Project B relates to a hepatitis vaccine and carries a potential return of 14%. Project C, dealing with a
cardiovascular compound, is expected to earn 11.8% and Project D, an investment in orthopedic implants, is expected to show a 10.9% return.

The firm has P 15 million in retained earnings. After a capital structure with P 15 million in retained earnings is reached (in which retained earnings
represent 60% of the financing), all additional equity financing must come in the form of new common stock. Common stock is selling for P 25 per
share and underwriting costs are estimated at P 3 if new shares are issued. Dividends for the next year will be P .90 per share and retained earnings
and dividends have grown consistently at 11%.
The yield on comparative bonds has been hovering at 11%. The investment banker feels that the first P 20 million of bonds could be sold to yield
11% while additional debt might require a 2% premium and be sold to yield 13%. The corporate tax rate is 30%. Debt represents 40% of the capital
structure.
51. The expected returns on common equity are:
Retained earnings Common shares
a. 14.6% 15.1%
b. 15.0% 15.5%
c. 15.1% 14.6%
d. 15.5% 15.0%
52. What is the initial weighted average cost of capital?

a. 13.2% c. 11.8%
b. 12.1% d. 9.2%
53. At what size of the capital structure would there be a change in the cost of equity component?
a. 15 million c. 25 million
b. 20 million d. 50 million
54. What is the marginal cost of capital at retained earnings breakpoint?

a. 11.84% c. 12.38%
b. 9.42% d. 12.14%
55. At what size of capital structure will there be a change in the cost of debt?
a. 20 million c. 50 million
b. 25 million d. 75 million
56. The selection of the project is based on ranking of profitability. What is the expected marginal cost of capital of financing Project C?
a. 12.9% c. 12.7%
b. 12.4% d. 10.2%
57. Which of the four project will be accepted by the company?

a. Project A only c. Projects A, B and C
b. Projects A and B only d. All of the projects.
58. At the end of 2010, Song Corporation implemented a new labor process and redesigned its product with theexpectation that input usage
efficiency would increase. At the end of 2011, the president of the company wants an assessment of the changes on the company’s productivity.
The data needed for the assessment are as follows:
2010 2011
Output 30,000 38,000
Output prices 12 12
Materials (lbs) 10,000 10,400
Materials unit price 8 7
Labor hours 14,000 15,000
Labor rate per hour 6 7
Power (KwH) 12,000 13,000
Price per KwH 3 4
By how much did profits change as a result of productivity changes in materials?
a. 13,000 decrease c. 23,400 decrease
b. 15,870 increase d. 20,800 increase
59. Which one of the following variances is of least significance from a behavioral control perspective?
a. Fixed factory overhead volume variance resulting from management’s decision midway through the fiscal year to reduce its budgeted output by
20%.
b. Favorable materials price variance obtained by purchasing raw materials from a new vendor.
c. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained.
d. Unfavorable materials quantity variance amounting to 20% of the quantity allowed for the output attained.
60. Sim Company’s master budget shows straight line depreciation on factory equipment of P 258,000. The master budget was prepared at an
annual production volume of 103,200 units of product. This production volume is expected to occur uniformly throughout the year. During
September, Sim produced 8,170 units of product, and the accounts reflected actual depreciation on factory machinery of P 20,500. Sim controls
manufacturing costs with a flexible budget. The flexible budget amount for depreciation on factory machinery for September should be:
a. 20,500 c. 19,875
b. 21,500 d. 20,425

61. A company manufactures banana hooks for retail sale. The bill of materials for this item and the parts inventory for each material required are
as follows:
Bill of Materials
Raw materials Quantity Required On Hand
Wooden neck 1 0
Wooden base 1 0
Swag hook 1 300
Wood screws 2 400
Foot pads 4 1,000
An incoming order calls for delivery of 2,000 banana hooks in 2 weeks. The company has 200 finished banana hooks in current inventory. If no
safety stocks are required for inventory, what are the company’s net requirements for swag hooks and screws needed to fill this order?
Swag Hooks Wood Screws
a. 1,800 3,600
b. 1,700 3,600
c. 1,500 3,200
d. 1,500 1,400
62. The following selected data pertain to the Wee Division of Boy Co. for the year just ended:
Sales 400,000
Operating income 40,000
Capital turnover 4
Imputed interest rate 10%
What was Wee’s residual income for the year?
a. 30,000 c. 4,000
b. 10,000 d. 0
63. A company has two divisions, A and B, each operated as a profit center. A charges B P 35 per unit for each unit transferred to B. Other data
follow:
A’s variable cost per unit P 30
A’s fixed costs 10,000
A’s annual sales to B – units 5,000
A’s sales to outsiders – units 50,000
64. The following information is available for Pong Company for its past two fiscal years:
Year 1 Year 2
Statistical process control 70,000 100,000
Quality audits 35,000 50,000
Training 40,000 80,000
Inspection and testing 100,000 150,000
Rework 90,000 50,000
Spoilage 80,000 55,000
Warranties 180,000 80,000
Estimated customer losses 800,000 450,000
Net sales 3,000,000 3,200,000
In its cost of quality report for Year 2, Pong will disclose that the ratio of:
a. Conformance costs to net sales equaled 8.17% in Year 2.
b. Nonconformance costs to net sales equaled 19.84% in Year 1.
c. Nonconformance costs to total quality costs increased from 62.56% in Year 1 to 82.44% in Year 2.
d. Conformance costs to total quality costs increased from 17.56% in Year 1 to 37.44% in Year 2.

Can Corporation manufactures one product. Its total fixed costs calculated according to traditional cost volume profit (CVP) analysis and activity-
based costing (ABC) equal to P 300,000 and P 100,000, respectively. Unit selling price is P 40, and unit-based variable cost per unit is P 20. In
addition, total cost also varies with one batch-level and one product-level driver. Relevant information about non-unit based drivers includes the
following:
Batch-Level Driver Product-Level Driver
Cost per driver 2,000 60
Quantity of driver 40 2,000
65. According to traditional CVP analysis, how many units must be sold to generate operating income of P 30,000?
a. 21,500 c. 6,500
b. 16,500 d. 5,000
66. According to ABC analysis, how many units must be sold to generate operating income of P 30,000?
a. 16,500 c. 12,500
b. 15,000 d. 10,500
67. Assume that Can’s product is redesigned. The result is that unit-based variable cost per unit is reduced to P 16. If fixed costs are assumed to
remain at P 300,000 and operating income of P 30,000 is desired, how many units must be sold according to traditional CVP analysis?
a. 16,500 c. 12,500
b. 13,750 d. 11,250

68. Assume that an ABC analysis of the effects of the redesign of the product mentioned in the fact pattern unexpectedly revealed an increase in
the batch-level cost per driver to P 2,400 and in the quantity of the product-level driver to 2,600. According to ABC analysis, how many units must
be sold to generate operating income of P 30,000 if fixed costs are unchanged?
a. 16,500 c. 13,750
b. 15,917 d. 13,167

A new company requires P 1 million of financing and is considering two arrangements as shown in the table below:
Amount of Amount of Before tax
Arrangement equity raised debt financing cost of debt
#1 700,000 300,000 8% per annum
#2 300,000 700,000 10% per annum
In the first year of operations, the company is expected to have sales revenues of P 500,000, cost of sales of P 200,000 and general and
administrative expenses of P 100,000. The tax rate is 30% and there are no other items on the income statement. All earnings are paid out as
dividends at year end.
69. If the cost of equity were 12%, then the weighted average cost of capital under arrangement #1, to the nearest full percentage point, would be:
a. 8% c. 11%
b. 10% d. 12%
70. Which of the following statements comparing the two financing arrangements is true?
a. The company will have a higher expected gross margin under arrangement #1.
b. The company will have a higher degree of operating leverage under arrangement #2.
c. The company will have a higher interest expense under arrangement #1.
d. The company will have higher expected tax expense under arrangement #1.
71. The return on equity will be <List A> and the debt ratio will be <List B> under arrangement #2, as compared with arrangement #1.
List A List B
a. Higher Higher
b. Higher Lower
c. Lower Higher
d. Lower Lower
72. A small manufacturing company recently stated its sales goal for a period was P 100,000. At this level of activity, its budgeted expenses were P
80,000. Its actual sales were P 100,000, but its actual expenses were P 85,000. This company operated:
a. Effectively and efficiently c. Effectively but not efficiently
b. Neither effectively nor efficiently d. Efficiently but not effectively
73. The management of Sab Corporation asks you to prepare an analysis of the gross profit variance based on their comparative income statements
for 200A and 200B:
200B 200A Variance
Sales 990,000 800,000 190,000 F
Cost of goods sold 760,000 640,000 120,000 U
Gross profit 230,000 160,000 70,000 F
The only known information given to you is that volume increased from 200A to 200B by 10%. The variance in gross profit due to the change in
volume is:
a. 80,000 favorable c. 16,000 favorable
b. 64,000 unfavorable d. 70,000 favorable
74. When 10,000 units are produced, fixed costs are P 14 per unit. Therefore, when 20,000 units are produced fixed costs will:
a. Increase to P 28 per unit. c. Decrease to P 7 per unit.
b. Remain at P 14 per unit. d. Total P 280,000.
75. Bam Co. is applying for a loan in which the bank requires a quick ratio of at least 1. Bam’s quick ratio is 0.8. Which of the following actions
would increase Bam’s quick ratio?
a. Purchasing inventory through the issuance of a long term note.
b. Implementing stronger procedures to collect accounts receivable at a faster rate.
c. Paying an existing account payable.
d. Selling obsolete inventory at a loss.
76. To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following
attributes would that selected sales volume reflect?
a. The midpoint of the range. c. The greatest probability.
b. The median. d. The expected value.
77. If everything else remains constant and a firm increases its cash conversion cycle, its profitability will likely:
a. Increase c. Decrease
b. Increase if earnings are positive. d. Not be affected.

White Corporation produces chemicals used in the cleaning industry. During the previous month, White incurred P 300,000 of joint costs in
producing 60,000 units of AM-12 and 40,000 units of BM 36. White uses the units of production method to allocate joint costs. Currently, AM-12 is
sold at split off for P 3.50 per unit. Frank Corporation has approached White to purchase all of the production of AM-12 after further processing.
The further processing will cost White P 90,000.
78. Concerning AM-12, which one of the following alternatives is most advantageous?
a. White should process further and sell to Frank if the total selling price per unit after further processing is greater than P 3.00 which covers the
joint costs.
b. White should continue to sell at split off unless Frank offers at least P 4.50 per unit after further processing which covers White’s total costs.
c. White should process further and sell to Frank if the total selling price per unit after further processing is greater than P 5.00.
d. White should process further and sell to Frank if the total selling price per unit after further processing is greater than P 5.25, which maintains
the same gross profit percentage.
79. Assume that White Corporation agreed to sell AM-12 to Frank for P 5.50 per unit after further processing. During the first month of production,
White sold 50,000 units with 10,000 units remaining in inventory at the end of the month. With respect to AM-12, which one of the following
statements is correct?
a. The operating profit last month was P 50,000, and the inventory value is P 15,000.
b. The operating profit last month was P 50,000, and the inventory value is P 45,000.
c. The operating profit last month was P 125,000, and the inventory value is P 30,000.
d. The operating profit last month was P 200,000, and the inventory value is P 30,000.
80. A company’s product has an expected 4-year life cycle from research, development and design through its withdrawal from the market.
Budgeted costs are:
Upstream costs (R & D, design) 2,000,000
Manufacturing costs 3,000,000
Downstream costs (marketing, distribution, customer service) 1,200,000
After purchase costs 1,000,000
The company plans to produce 200,000 units and price the product at 125% of the whole life unit cost. Thus, the budgeted unit selling price is:
a. 15 c. 36
b. 31 d. 45
81. Arnold Enterprises uses the EOQ model for inventory control. The company has an annual demand of 50,000 units for part number 191 and has
computed an optimal lot size of 6,250 units. Per unit carrying costs and stockout costs are P 13 and P 3, respectively. The following data have been
gathered in an attempt to determine an appropriate safety stock level:
Units Short Because of Number of times short
Excess Demand During in the last 40
The lead time period reorder cycles
200 6
300 12
400 6
The annual cost of establishing a 200-unit safety stock is expected to be:
a. 2,600 c. 4,260
b. 4,040 d. 5,200

The College Honor Society sells hot pretzels at the home football games. The pretzels are sold for P 1.00 each, and the cost per pretzel is P .30. Any
unsold pretzels are discarded. The frequency distribution of the demand for pretzels per game is presented on the next page:
Unit Sales Volume Probability
2,000 pretzels 10
3,000 pretzels 15
4,000 pretzels 20
5,000 pretzels 35
6,000 pretzels 20
82. The estimated demand for pretzels at the next home football game using an expected value approach is:
a. 4,000 pretzels c. 5,000 pretzels
b. 4,400 pretzels d. some amount other than those given.
83. The estimated demand for pretzels at the next home football game using a deterministic approach based on the most likely outcome is:
a. 4,000 pretzels c. 5,000 pretzels
b. 4,400 pretzels d. 6,000 pretzels
84. The conditional profit per game of having 4,000 pretzels available but only selling 3,000 pretzels is:
a. 1,800 c. 2,800
b. 2,100 d. some amount other than those given.
85. The conditional profit per game of having 4,000 pretzels available and selling all 4,000 pretzels is:
a. 1,200 c. 2,800
b. 2,100 d. 800
.

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ARTS CPA Review Center

No. 44, Kamagong Avenue, Metroville, Santiago City

e-mail address: jonathandeveyra_ARTS@yahoo.com.ph

3. Which statement is not correct? A revenue bill:

4. Consider the following statements:

9. Which one of the following is violated by direct duplicate taxation?

14. Who is the taxpayer in an estate taxation?

16. Which of the following statements is correct?

20. Which is included in the gross estate?

Use the following information for questions 21 to 24:

24. How much is the annual income tax payable?

Use the following information for questions 25 to 28:

Use the following information for questions 32 to 34:

33. The exclusive property of Zorayda is:

34. The common property of the spouses is:

Use the following information for questions 36 to 39:

36. The aggregate net gifts of Mrs. Rigalo is:

37. The aggregate net gifts of Mr. Rigalo on donations to:

40. Taxpayers are required to register with the BIR:

42. Where is the documentary stamp tax return filed?

43. One of the following statements is wrong:

47. Export sales amounting to P 1,950,000 by a non-VAT registered enterprise is:

Use the following information for questions 52 & 53:

55. How long must the books of accounts be kept?

Use the following information for questions 57 to 59:

Use the following information for questions 62 to 66:

Use the following information for questions 67 to 70:

Tax Table for Estate Tax

Tax Table for Donor’s Tax

e-mail address: jonathandeveyra_ARTS@yahoo.com.ph

4. As regards the corporate by-laws, which of the following is true?

FINAL PRE-BOARD EXAMINATION page 02

9. A contract of antichresis is:

17. Which of the follow is wrong in alternative obligations?

FINAL PRE-BOARD EXAMINATION page 03

19. Which of the following statements is not correct?

26. Which of the following statements is not correct?

FINAL PRE-BOARD EXAMINATION page 04

32. Which of the following is not correct?

FINAL PRE-BOARD EXAMINATION page 05

44. To whom notice of dishonor should be given?

45. The sale shall not be presumed to be an equitable mortgage when?

FINAL PRE-BOARD EXAMINATION page 06

53. Which of the following is not correct?

FINAL PRE-BOARD EXAMINATION page 07

60. Which of the following statement is false?

65. To whom notice of dishonor should be given?

ARTS CPA Review Center

e-mail address: jonathandeveyra_ARTS@yahoo.com.ph

Use the following information for questions 1 to 4:

Note: Round present value factors to four (4) decimal places.

3. The payback period of Project C is:

Use the following information for questions 5 & 6:

FINAL PRE-BOARD EXAMINATION page 02

Use the following information for questions 9 & 10:

10. The unit cost of the 75 units is:

Use the following information for questions 11 & 12:

Use the following information for questions 13 & 14:

FINAL PRE-BOARD EXAMINATION page 03