Republic of the Philippines

CAGAYAN STATE UNIVERSITY

College of Business, Entrepreneurship and Accountancy
Andrews Campus, Caritan, Tuguegarao City, Cagayan

Business and Transfer Taxation

1st Semester, S.Y. 2021-2022
Midterm Examination

General Instructions: Select the best answer for each of the

following questions. All questions are compulsory and MUST be
attempted. Mark only one answer for each of the item on the
answer sheet provided. Write your solutions on a separate sheet
of paper in good accounting form. Strictly NO ERASURES ALLOWED.
Erasures will render your examination answer sheet invalid. Use
black ballpoint only. 

1. Sweet Tooth, Inc. Manufactures refined sugar. The following

selected data are taken from its books:
Sale of refined sugar, net of VAT P2,000,000
Purchase of sugar cane from farmers 500,000
Purchase of packaging materials, gross of VAT 784,000
Purchase of labels, gross of VAT 112,000
Advance payment of VAT before release from refinery 60,000

How much is the presumptive input tax if any?

a. P60,000
b. P20,000
c. P10,000
d. P25,000
2. How much is the total input taxes?
a. P116,000
b. P104,000
c. P96,000
d. None of the choices
3. How much is the VAT payable using the 12% VAT rate?
a. P124,000
b. P84,000
c. P64,000
d. P20,000
4. Sarangani, a VAT Taxpayer made a sale of real property with a fair
value of P3,000,000 at a selling price of P2,000,000. The sale
qualified for installment reporting of Output VAT. Sarangani is
due to receive the following amounts (net of VAT) in the coming
month:

Installment P200,000
Interest 12,000
Penalty 4,000
 Total P216,000

What is the reportable output VAT on the scheduled collection?

a. P36,000
b. P37,920
c. P25,920
d. P24,420
5. Which is subject to VAT?
a. Life insurance companies
b. International air or sea carrier
c. Operators of hotels, motels and inns
d. Agricultural, credit or multi-purpose cooperative
6. These refers to those persons producing for others poultry,
livestock or other agricultural and marine food products in their
original state?
a. Agricultural contract growers
b. Millers
c. Fishpond operators
d. Agricultural Operators
e. Some other answer
7. Which of the following transactions has no consumption tax?
a. Importation
b. Domestic consumption from VAT suppliers
c. Domestic consumption from non-VAT suppliers
d. Exportation
8. A service provider had the following income during the month:
Fees, paid in cash and in checks P80,000
Fees, paid in notes 150,000
Advances by clients for future services 20,000
Reimbursement for out-of-pocket expenses 40,000
Reimbursement for client expenses 20,000
Total P330,000

Compute the amount subject to business tax.

a. P350,000
b. P140,000
c. P250,000
d. P160,000
9. Chemrex Company, a non-VAT taxpayer paying 3% percentage tax,
exceeded the VAT threshold on September 2020. Chemrex generated
P300,000 and P400,000 sales in October and November and paid
respectively P12,000 and P28,000 input VAT in these months. Chemrex
immediately registered to the VAT system at the start of November
2020. Compute the business tax payable in October assuming no claim
for tax credit was filed.
a. P36,000
b. P9,000
c. P27,000
d. P24,000
10. Compute the business tax payable assuming in October,
assuming Chemrex claimed for tax credit and was approved.
a. P9,000
b. P24,000
c. P36,000
d. P27,000
11. Compute the business tax payable in October, assuming Chemrex
filed a claim for tax refund.
a. P36,000
b. P9,000
c. P24,000
d. P27,000
12. Compute the business tax payable in November.
a. P12,000
b. P36,000
c. P48,000
d. P20,000
13. The following data pertain to a business taxpayer during a
quarter:
Jan Feb Mar
Revenue (Sales) 200,000 240,000 230,000
Cash Collections 180,000 240,000 220,000
Which of these properly reflect the monthly reporting of a non-VAT
service provider?
Jan Feb March
a. 170,000 240,000 640,000
b. 200,000 250,000 220,000
c. 180,000 240,000 220,000
d. 200,000 250,000 670,000
14. Which of these properly reflect the monthly reporting of a
non-VAT seller of goods?
Jan Feb March
a. 170,000 240,000 640,000
b. 200,000 250,000 220,000
c. 180,000 240,000 220,000
d. 200,000 240,000 230,000

15. Which of these properly reflect the monthly reporting of VAT

service provider?
Jan Feb March
a. 180,000 240,000 640,000
b. 200,000 250,000 220,000
c. 180,000 240,000 220,000
d. 200,000 240,000 230,000
16. Which of these properly reflect the monthly reporting of VAT
seller of goods?
Jan Feb March
a. 180,000 240,000 640,000
b. 200,000 240,000 670,000
c. 180,000 240,000 220,000
d. 200,000 240,000 230,000
17. 1st Statement: The term “in the course of trade or business”
means the regular conduct or pursuit of a commercial or economic
activity, excluding transactions incidental thereto, by a person
who operate business solely for profit.
2nd Statement: Non-resident persons who performs services in the
Philippines are deemed to be making sales in the course of trade
or business, even if the performance of service is not regular.
a. Only the second statement is correct
b. Both statements are correct
c. Both statements are incorrect
d. Only the first statement is correct
18. One of the following is not a transaction deemed sale.
a. Transfer, use or consumption not in the ordinary course of
business of goods or properties originally intended for sale or
for use in the course of business
b. Distribution or transfer to shareholders or investor of goods
or properties as share in the profits of a VAT registered persons
or to creditors in payment of debt
c. Retirement from or cessation of business, with respect to
inventories of taxable goods on hand as of the date of such
retirement or cessation.
d. Consignment of goods if actual sale is made within 60 days
following the date such goods were consigned
19. A VAT registered building contractor who reports under the
calendar year basis had the following billings and collections
(inclusive of VAT) regarding its construction contracts:
Billings Collection
June P448,000 P403,200
July 504,000 453,600
August 336,000 302,400

What is the output VAT in June and July repectively?

a. P53,760; P114,240
b. P43,200; P48,600
c. P48,000; P54,000
d. P5,376; P6,048
e. Some other answer
20. In the immediately preceding problem, what is the output VAT
in August?
a. P32,400
b. P36,000
 c. P124,200
d. P138,000
e. Some other answer
21. Bryan, a VAT registered person, imported machines from
Australia as follows:
Machine Acquisition Cost Purpose
A P100,000 Personal use
B 200,000 Business use
C 300,000 For sale
The importations were subjected to 50% excise tax based on purchased
price. Machine C was sold for P1,000,000 exclusive of VAT. How much
is the VAT on Importation paid to BIR?
a. P108,000
b. P90,000
c. P54,000
d. P36,000
22. Ms. Consuelo Dimagulo receives a package of goods from her
sister who lives in California, United States of America. Ms.
Consuelo will use the goods for personal purposes. She is not VAT-
registered. Which of the following statements is correct in
connection with the receipt of the package?
a. Ms. Consuelo will not be subject to VAT on importation because
she is not VAT-registered.
b. Ms. Consuelo shall be subject to VAT on importation.
c. Ms. Consuelo shall not be subject to VAT on importation but
shall be subject to VAT on sales.
d. Ms. Consuelo’s sister shall be subject to VAT on importation.
23. Sanabinasamoto Company, a VAT taxpayer, had the following
sales and purchase of goods during the month:
VAT Non-VAT
Sales to: P6,000,000 P3,000,000
Purchases from: 3,500,000 2,100,000

Compute the VAT Payable.

a. P660,000
b. P300,000
c. P408,000
d. P108,000
24. A manufacturer purchased capital goods on different occasions
as follows:

Month of Amount 12% Input Useful No. of monthly

Purchase Tax Life Amortization
January 2018 P8,500,000 P1,020,000 6 years 60
February 2018 P8,500,000 P1,020,000 4 years 48
December 2021 P10,000,000 P1,020,000 5 years 60
January 2022 P10,000,000 P1,020,000 5 years -
What is the last month of amortization of the capital goods purchased
on January 2022 respectively?
 a. No Amortization
b. January 2022
c. November 2022
d. Some other answer
25. A VAT taxpayer had the following transactions during the
first calendar quarter of 2019:
I. Purchases of goods in January but were paid in February-
P50,000
II. Purchase of service rendered in January but was paid in
February- P80,000
III. Importation of goods which arrived in the last week of
February but was released upon payment of VAT on March-
P250,000

Assume all accounts are exclusive of VAT. What is the creditable

input VAT in January 2019?
a. P0
b. P9,600
c. P6,000
d. P15,600
26. Based on the immediately preceding problem, what is the
creditable input VAT in February 2015?
a. P15,600
b. P39,600
c. P45,600
d. P9,600
27. Based on the immediately preceding problem, What is the
creditable input VAT for the 1st quarter of 2019?
a. P45,600
b. P6,000
c. P15,600
d. P39,600
28. Which of the following is not subject to zero-rating?
a. Sale of services to BOI registered enterprise
b. Services to an export-oriented enterprise
c. Sale of services to PEZA locators
d. Sale of services to embassies with VEC
29. Which of the following is not replaced by the value added tax
law?
a. Common carrier’s tax
b. Contractors’ tax
c. Compensating tax
d. Sales tax on original sales
30. Mang Jose had the following records of his horse races in the
month of May 2015:
Horse Types of Gross Cost of
 Winnings Winnings Winnings
Vice Kambing Trifecta P90,000 P40,000
Anne Kurot Ordinary 250,000 50,000
John Mongoloyd Double 60,000 10,000
Cruz
Angelica Sinaniban Ordinary 175,000 25,000

How much is the business tax on winnings?

a. P57,500
b. P45,000
c. P48,500
d. P39,000
31. Using the same information above,assuming that Mang Jose is
a bettor, how much percentage tax was withheld from him?
a. P45,000
b. P48,500
c. P39,000
d. P57,500
32. The Republic of Korea, as an act of goodwill, does not impose
business taxes to Philippine carriers. Korean Air is operating in
the Philippines having two flights a week. If you were engaged by
Korean Air as its tax consultant and asked you whether it is liable
to percentage tax, which of the following will be your advice?
a. Korean Air is liable to percentage tax based on gross receipts
from passengers, goods, cargoes and mails
b. Korean Air is liable to percentage tax based on gross receipts
from passengers only
c. Korean Air is liable to percentage tax based on gross receipts
from goods, cargoes and mails only
d. Korean Air is not liable to percentage tax based on the principle
of reciprocity
33. Mahabaperomadali Corp., a closely held corporation, has an
authorized capital stock of 100,000,000 shares with par value of
P1.00 per share.

Of the 100,000,000 authorized shares, 25,000,000 thereof is

subscribed and fully paid up by the following stockholders:

Mr. Cajucom 5,000,000

Mrs. Clavaton 5,000,000
Mr. Felipe 5,000,000
Mr. Pua 5,000,000
Mr. Ty 5,000,000
Total Shares outstanding 25,000,000

On March 2014, Mahabaperomadali Corp. finally decides to conduct

an IPO and initially offers 25,000,000 of its unissued shares to
the investing public for P1.50 per share.
 At an IPO, one of its existing shareholders, Mrs. Clavaton, has
likewise decided to sell her entire 5,000,000 share to the public
at P1.50 per share.

How much is the percentage tax due on the primary offering?

a. P375,000
b. P1,500,000
c. P750,000
d. Nil
34. How much is the percentage tax due on the secondary offering?
a. P75,000
b. P150,000
c. P300,000
d. Nil
35. If in January 2019, Mahabaperomadali Corp. again decides to
increase capitalization by offering another 30,000,000 of unissued
shares to the public at P2.00 per share, how much is the percentage
tax due?
a. P600,000
b. P1,200,000
c. P2,400,000
d. Nil
36. If in February 2019, Mr. Cajucom decides to sell his entire
stock ownership to the public at P2.00 per share, how much is the
percentage tax due?
a. P60,000
b. P200,000
c. P50,000
d. P400,000
37. Which of the following sales of residential property
where the instrument of sale (whether the instrument is
nominated as a deed of absolute sale, deed of conditional
sale or otherwise) is executed on or after January 1, 2018
shall not be subject to VAT?
a. Sale of residential lot the value of which does not
exceed P1,919,500
b. Sale of residential house and lot or other residential
dwellings the value of which exceed P3,199,200
c. Sale of parking lot which may or may not be included in
the sale of condominium units regardless of amount of
selling price
d. All of the choices
38. Sale of orchids and other ornamental plants is:
a. Subject to 12% VAT
b. Subject to 0% VAT
c. Exempt from VAT
d. None of the choices
39. A lessor rents his 15 residential units for P14,500
per month. During the taxable year, his accumulated gross
receipts amounted to P2,610,000. To what business taxes
will he be liable?
I. Value-Added Tax
II. 3% Percentage under Section 116 of the Tax Code
a. Both I and II
b. Neither I nor II
c. I only
d. II only
40. Which is not a transaction deemed sales?
a. Withdrawal of goods by the proprietor for personal use
b. Corporate merger or consolidation
c. Retirement from or cessation of business
d. Declaring business properties as property dividends
41. Which is not a zero-rated sale of goods or services?
a. Transmission of messages originating from the Philippines
to abroad other than news services, embassies and
diplomatic calls
b. Sale to economic zones
c. Sale of electricity from hydropower and solar power
plants
d. Transport of passengers by air or sea from Philippines to
abroad
42. A manufacturer of perfume oils which is newly
registered as VAT taxpayer during the quarter shall not be
allowed of which of the following?
a. Transitional input VAT
b. Presumptive input VAT
c. Regular input VAT
d. None of these
43. Desiring to expand business outside his accounting
profession, Mr. Zeus Millan is planning to set-up a hair
parlor business to be named “Hairdo Does It All” or simply
“HDIA” to meet the hair styling demands of highly effective
individuals like him.

Which of the following is least likely to be required by

the BIR in the registration of his business?
a. DTI certification
b. Contract of lease or land title
c. Mayor’s permit
d. Certificate of incorporation
44. If Mr. Millan starts his business as a non-VAT
business, which of the following books will least likely to
be required by the BIR?
 a. Journals and ledgers
b. Subsidiary sales journal
c. Cash receipts journal
d. Cash disbursement journal
45. Mr. Zap Palaran is an accountant by profession. He
rents an office for his practice and employs two accounting
staffs. Mr. Palaran has regular clients which pay his firm
P300,000 monthly retainer. As for his own tax obligations,
which of the following is not required of Mr. Palaran to
file?
a. BIR form 1701Q
b. BIR form 1701
c. BIR form 2551M
d. BIR form 2550Q
46. Mayon Corporation had the following summary of output
and input VAT for the first and second quarter of 2020:
1st Quarter April May
Output VAT P200,000 P300,000 P250,000
Input VAT 240,000 320,000 240,000
What is the creditable input VAT carryover to be credited
in May?
a. P20,000
b. P40,000
c. P60,000
d. P70,000
47. What is the total creditable input VAT in April?
a. P360,000
b. P340,000
c. P320,000
d. P300,000
48. What is the input VAT carryover to be credited in
June?
a. P0
b. P10,000
c. P40,000
d. P70,000
49. Lai Yuanmo Co. imported beef cattle from China with a
total invoice cost in Philippine pesos of P3,000,000.
Freight cost were P250,000 with insurance cost of P50,000.
Wharfage and arrastre charge were P250,000 and P150,000
respectively. Other processing cost were P80,000. Customs
duties were P15%.
Compute the customs duties on dutiable value.
a. P402,000
b. P495,000
 c. P502,500
d. P559,500
50. Compute the value added tax on importation
a. P447,600
b. P514,740
c. P507,900
d. P0