Quiz 1
cost of Php75,000. The cost of capital is 8% and the corporate
5. X, a “tambay” in Brgy Bagong Ilog, Pasig City in 2020. By
year 2021, X submitted to URC Corp an application as an
accounting staff. As a requirement by URC, X must pay the
community tax to Brgy Bagong Ilog and submit the
community tax certificate as a requirement to his application.
X failed to pay the said tax. URC found out that X willfully and
intentionally evade the payment of community tax to Brgy
Bagong Ilog. URC reported X to the Brgy. Is the non-payment
of the said tax a ground for X’s imprisonment?
• Yes, tax evasion is punishable under the law. The non-
payment of a national tax by X is punished under the Tax
Code.
• Yes, because he failed to pay the required tax under the Tax
Code
• No, because he has no taxable income in 2021
• No, because it is not a ground for imprisonment.
6.X Sari sari store has total sales of 20,000 only due to
pandemic in 2020. Brgy A collected local taxes on sales of X
based on Local govt code. In same year. The City of Manila,
where the sari sari store was located, also collected local
business tax on sales of X. Is the collection of City valid?
• Yes, under the LGC, City has the power to impose local
business taxes.
• Yes, because City has authority to collect local taxes
• No, because City cannot collect from X, instead, X Sari sari
store must pay local business tax to Municipality nearest to
City of Manila.
• None of the above
7.In 2022, X Corp, a resident foreign corporation, plans to
purchase a new machine costing 1,000,000 with salvage value
of 100,000 (non-taxable) and useful life of 5 years. The new
machine will provide annual cash inflow of 200,000 at the end
of each year (for the next 5 years.) Total assets of the
corporation totaled 20M only and taxable net income does
not exceed 5M. Cost of capital is 8%. What is the NPV for
purchasing the new machine? (Pls consider the applicable tax
rate imposable to X Corp under the CREATE law ). Pls round
off up to 4 decimal places the PV factor. (Example;
2.5771).Required to answer. Single choice. (5 Points)
• (221,423.50)
• (121,423.50)
• (153,363.50)
• 121,423.50
8.In order to take advantage of the tax benefits, Dominador is
trying to negotiate with Epifanio either to buy or lease a
coffee maker machine. The cost of the machine if to be
purchased at once is Php750,000 with an expected useful life
of 3 years. If the machine is to be leased for 3 years, annual
lease payment is Php275,000 and to pay additional delivery
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income tax rate is 30%. Pls round off up to 4 decimal places
the PV factor. (Example; 2.5771). What is the NPV of the
machine if it will be purchased by Dominador? (Assuming that
the company is operating on loss)
• (750,000)
• (556,725)
• (675,000)
• 675,000
9.. I. Debt financing requires periodic payment of interest.
Equity financing will dilute earnings per shares as well as
control.
II. The value added through internal financing is potentially
higher than from external financing. This is because neither
the enhanced cash flows nor the increased value of the firm is
shared with anyone other than the original owners.
• TT
• FF
• FT
• TF
10.I. Owners of preferred stock usually have no voting rights
but must be paid a specific dividend before common stock get
its shares. Dividends are tax deductible.
II. A key aspect of debt financing is leverage. Debt adds value
when debt increases operating cash flows in excess of the
required periodic payments of interest and repayments of
principal. Also, firms with higher effective tax rates benefit
less from debt because of the tax shield.
• TT
• FF
• FT
• TF
11.In 2022, A Corporations is planning to invest in a project
that will generate a contribution margin/income of
20,000,000 and projected operating expenses (excluding
interest, if any) of 5,000,000. The project requires 3M capital.
The available earnings/excess fund from the project will be
reinvested in a short-term investment or time deposit that
will earn 10% interest (subject to Final Tax). Projected interest
income, net of tax is 100,000. The corporation is planning to
obtain the capital either from DEBT or EQUITY. Each capital
requires 10% rate of return. Which of the two sources of
capital should the company choose?
• Equity, because earnings available to OS of 10,950,000
• Debt, because earnings available to OS of 10,950,000
• Debt, because earnings available to OS of 11,043,750
• None of the above
 12.In 2022, R&D cost of 5M will be incurred by X Corp. The
company, X Corp, is in the loss situation, thus, the company
plans to shift the spending to another corporation. The firm, X
Corp, in a loss position could isolate its R&D spending to its
100%-owned profitable subsidiary. If the subsidiary has
taxable income of 20M before shifting the RD cost, what will
be tax savings for shifting the RD cost to the subsidiary?
• 1,500,000
• No savings
• 1,250,000
• 5,000,000
• None of the above
13.I. Granting of fringe benefits to Managers of 1M worth of
value will be less costly than granting 1M worth of fringe
benefits to rank and file employees
II. Because of the expiring NOLCO this year, you would prefer
to defer more compensation until next year.
• TT
• FF
• TF
• FT
14.I. Fringe benefits like vehicles given to managers worth
1M, where it is used for the convenience of employer, will
result to more cost than fringe benefits given to same level
manager used for personal usage of that manager.
II. If employer’s share in Phil health contribution is 750 pesos
(for one employee), then, we may assume that the monthly
basic salary of that employee is 50,000.Required to answer.
Single choice. (5 Points)
• TT
• FF
• TF
• FT
15.IN 2020, X Corp granted vehicle benefits worth 10M to
managers and supervisors. Later, BIR found out that X Corp’s
managers enjoys fringe benefits from X Corp, vehicles worth
10M, thru the report of one of its resigned managers. BIR
assessed that X Corp has unpaid FBT of 6M. X Corp asked for
your advice, as the company’s accounting manager. What will
be your advice in order to save / avoid payment of taxes?
• The assessment of BIR is incorrect, it must be 5,384,615;
thus, incurring lower tax payables
• The vehicles used by managers were used in company’s
operations such as audit and inventory count and sales
promotion.
• The vehicles were owned by the managers which were sold
by the company for a lower price. It is not a fringe benefits
but a sale of vehicle to managers.
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• The vehicles were owned by Managers, thus, managers
must be held liable.
• None of the above
16.. X Corp paid a total payroll of 3M, net of Phil health
contributions of 10,000 and taxes of 10,000 to various
employees with different level of monthly basic salaries.
Employer’s contributions to SSS and Pagibig are 20,000 and
10,000, respectively. Also, X Corp made contributions to Phil
health, as mandated by law. What are the total expenses of X
Corp?
• 3,060,000
• 3,050,000
• 3,020,000
• 3,040,000
• None of the above
17.In internal financing, the company uses:
• Issuance of shares
• Use of debts
• Cash on hand and borrowings
• Use of cash from cash inflow from operations
• None of the above
18.The company is planning to obtain a bank loan of
1,000,000 with rate of 10% per year. Any interest is not
capitalized. And they plan to used them as follows: Out of
1M, 800,000 will be used to acquire machineries with life of
10 yrs (use SLM in depreciation) and remaining amount will
be invested in bank with int rate of 12% per annum. At
present, 2019, the Total Assets of company is 200M and Gross
income is 100M and Cost / expenses is 50M (which can be
maintained by the company until 2025). If the plan was
implemented in Jan 2019, what is the total allowed
deductions for the corporations in CY 2019 attributable from
this plan?? Required to answer. Single choice. (5 Points)
• 180,000
• 80,000
• 172,080
• 175,200
• None of the above
19.. I. The value added through internal financing is
potentially higher than from external financing. This is
because neither the enhanced cash flows nor the increased
value of the firm is shared with anyone other than the original
owners.
II. Higher credit rankings usually result in lower costs of
acquiring additional external financing.
• TT
• FF
• TF
• FT
 • None of the above
20.ABC Corp has total debts of 100,000,000 and Equity of
50,000,000. If rate of return expected by creditors is 10%, 24.A, resident citizen, investor in X Corp. His investment in
what is the net cost of debt of the corporation in 2022? equity cost 1M. After 3 years, the Corporation was dissolved,
Assuming the total assets is more than 100M and income and A received 3M as return of investment. The corporation
exceeds 5M. was dissolved in 2019. What is the tax due of A?
Required to answer. Single choice. (5 Points) • 490,000
• 10M • 190,000
• 7.5M • 390,000
• 2.5M • Exempted
• 100M • None of the above
• None of the above

21.ABC Corp has total debts of 100,000,000 and Equity of

50,000,000. If rate of return expected by shareholders is 10%,
what is the net cost of equity of the corporation in 2022?
Assuming the total assets is more than 100M and income
exceeds 5M. Required to answer. Single choice. (5 Points)
• 10M
• 3.750M
• 2.5M
• 100M
• None of the above

22.I. From the point of view of providers of fund, investing in

equity is riskier than investing in debt. If the creditor defaults
on debt, the remaining balance becomes a tax-deductible loss
to the lender. If the lender is in the business of making loans,
the loss is fully deductible. But if the lender is not in that
business such as investment in bonds, the loss is considered a
capital loss, which is deductible only to the extent of capital
gain.

II. Investing in equity is riskier, yet, there are possible tax

offsets to reduce risk. Share price appreciation is not taxable
until the investments are sold. In case the stocks investments
were sold directly to another investors, any gain or loss on
such a sale is considered capital gain or loss. If the sale results
in a capital loss, such a loss shall be deductible only to the
extent of capital gains from the same type of transaction
during the same period. The resulting net capital gains shall
be subject to 15 percent capital gains tax.
• TT
• FF
• TF
• FT

23.In 2019, A, investor in X Corp, has investment in equity

costing 1M. After 3 years, he sold the shares outside the PSE
for 3M. what is the CGT?
• 300,000
• None or zero
• Exempted
• 450,000
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 Quiz 2
5 • Second, Donate the property mortis causa (if Mr and Mrs’
BDO, a bank, deposited money with BPI, another bank, which properties will not exceed 5M)
earns interest income at rate of 10%. At the same time, BDO • Third, Split the donation inter vivos, one in 2019 and
earned interest income on loan transactions to customers. another half in 2020.
Under the tax code, BDO shall be subject to? • Either the second or third
• Final income tax on its passive income • All of the above
• Gross receipts tax
• Corporate income tax 9
• Gross receipts tax and corporate income tax only X made the following gifts to Y; Dec 2019, 300,000; January
• All of the above 2020 of 400,000 and on March 2020 of 500,000. What is the
taxable net gift, per donor’s tax return, on March 2020?
6 • 1,200,000
Mr. A sells shoes in Municipality of X, Province of Rizal, • 500,000
through a retail store. He pays the VAT on his gross sales to • 900,000
the BIR and the local tax based on the same gross sales to the • 400,000
Province of Rizal. He comes to you for advice because he • None of the above
thinks he is being subjected to double taxation. What advice
will you give him? 10
• Yes, there is double taxation and it is oppressive. X and Y, married for 10 years. Their total conjugal properties
• The Province of Rizal does not have this power to collect worth 5,000,000. In 2020, X died due to COVID. X was
that local tax survived by Y and Z, only child. Later, Y renounced his share in
• Yes, there is double taxation, and this is illegal m the the conjugal property. What is the donor’s tax due?
Philippines. • 135,000
• The impositions are both valid as there is no double • 150,000
taxation, one is national govt and the other is local govt. • 285,000
• Zero
7 • None of the above
On January 1, 2019, Mr and Mrs Mayaman donated a house
and lot, a conjugal property, at fair market value of 620,000 11
to their legitimate son on account of his marriage on January X, died in 2020 with properties in USA worth 4,000,000.
15, 2021. Mr and Mrs Mayaman asked your advice if they Assuming X is a resident alien, what is the taxable net estate?
need to file a separate tax return and the amount of taxable • Zero because he is taxable only within the Philippines
net gift. Decide. • 4,000,000
• They will file one tax return and declare a taxable net gift of • 2,000,000
600,000 (net of dowry of 10,000 each) • Zero, because there will be no taxable net estate due to
• They will file one tax return and declare a taxable net gift of deductions
620,000 • None of the above
• They shall file a separate tax returns and declare taxable net
gift of 310,000 each. 12
• They shall file a separate tax returns and declare taxable net X, 90 years old, married to Y (88 yrs old), both were still alive
gift of 300,000 each. as of Dec 2020, living in Manila. They have conjugal properties
• NO need to file donor s tax return because it is exempted, of 10M. If X will die in 2021, what will be his taxable net
since donation between family members are void. estate?
• 10M
8 • 5M
On January 1, 2019, Mr and Mrs Mayaman plans to donate • 2.5M
their property, a conjugal property, at fair market value of • Zero
620,000 (with cost of 100,00) to their legitimate son on • None of the above
account of his marriage on January 15, 2021. To avoid the
payment of tax, what will be your advice? 13
• First, Do not donate. Instead, sell the property. Manny, owner of a “restaurant” located in Manila, selling
special lechon manok. He bought fresh chickens from Manila
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 Market at a price of 1M, net. His supplier is MANOK MANOK
Company, a VAT registered taxpayer. Later, he sold the
chickens (as special adobo manok, a Vatable goods) to its
customers. On Dec 25, Christmas, all the “special adobo
manok” were sold at price of 5M, net of any tax (50% are on
credit). What is the “total cash” to be collected or received by
Manny from selling lechon manok (OR, in preparing journal
entry, amount to be debited to cash is)?
• 5M
• 5,600,000
• 2,500,000
• 2,500,000 PLUS 125 VAT
• None of the above
14
X bought liquors and cigarettes from Y, producer in Manila. X
later on, sold them to Z worth 1,000, exclusive of any tax.
Assuming that X is a VAT registered taxpayer (12% VAT rate)
and the excise tax on these sin products is 10% under RA
10963. How much is the excise tax to be paid by X as a result
of sale to Z?
• 100
• 112
• 120
• 10
• None of the above
15
On August 31, 2020, H Corporation (HC), thru its authorized
representative Ms. Pares, sold a 16-storey “commercial”
building to Mr. B for P100 million. Mr. B, in turn, sold the
same property on the same day to Gates, Inc. (BGI) for P150
million. These two (2) transactions were evidenced by two (2)
separate Deeds of Absolute Sale notarized on the same day by
the same notary public. Per tax declaration, in 2020, Mr B,
Resident Citizen, declared that the property is not used in
business and not related to any business transactions of Mr B.
So, Mr B paid the capital gains tax to BIR for the sale made to
BGI. Per investigation of BIR, it was determined that the
building is leased to various customers of Mr B. What is the
deficiency tax of Mr B? (unpaid tax Or the difference between
the correct tax due vs incorrect tax paid). Ignore any penalty
and interest.
Correct answers:
8110000
16
I. Tax management should strive to enhance the firm’s
strategy and should cause the firm to engage in tax-
minimizing transactions legally that is aligned with its strategic
plan.
II. Before an entity enters into a contract with another, the
firm’s tax management has to think of how they can minimize
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their tax exposure illegally, either by way of shifting burdens
to another or shared tax costs. This ability is called as tax
shifting.
• TT
• FF
• FT
• TF
17
In 2020, X Corp has total sales of 1,000,000, cost of sales of
500,000 and operating expenses 100,000. In 2019, X Corp
incurred net loss of 50,000, which is disclosed in FS and ITR
(carried as NOLCO). In 2019, X Corp enjoys the benefit of
Income tax Holiday under a special law, which was effective
until Dec 31, 2019 only. Thus, in 2020, X Corp is now subject
to corporate income tax. What will be the taxable net income
of X Corp in 2020?
• 400,000
• 350,000
• 500,000 (MCIT higher than RCIT)
• None of the above
18
X, resident citizen, engaged in business. In 2023, X declared
the following: Sales of 1,000,000; Cost of sales and expenses
of 600,000 and Lotto winnings in USA amounting to 20,000. X
claimed in his income tax return a personal exemption of
50,000, as head of the family. What is the basic income tax
due of X?
• 26,500
• 18,000
• 35,000
• 24,500
• None of the above
19
X, a resident citizen, sole owner of ABC Company. In 2020,
ABC Company reported a Net income of 600,000. Included in
the net income reported by ABC Company are the following:
Interest income earned from BDO, Philippine bank,
amounting to 10,000, Gain on sale of real property, not used
in business, located in the Philippines, amounting to 40,000
and rental income earned in Canada of 30,000. In addition,
during the year, X, sole owner of ABC, received royalties on
books sold in Manila amounting to 20,000, net of tax, from Z
Corp and rental income in Philippines of 10,000. The royalties
and rental income in Philippines are not recorded in the books
of ABC Company. What is the basic income tax due of X?
• None, because his taxable income is 10,000 only (rental
income). The royalties are subject to final tax at 10%
• Exempted, because his total income does not exceed
250,000. However, ABC Company, as a separate juridical
entity shall be liable for basic income tax
• 70,000
 • 67,500
• None of the above
20
A, resident citizen, engaged in business of selling fresh fish
and vegetables in San Mateo Market. His sales are 2,900,000.
Cost of sales is 1,000,000 and OPEX is 300,000. A is registered
as NON-VAT taxpayer. A also earned compensation income of
1M from ABC Corp as a Acctg manager. In 2019, A would like
to choose the 8% Optional income tax rate claiming that he
can avail the 8% income tax rate since he is engaged in
business of selling fresh fish and vegetables with sales below
3M threshold. Given the above data, what “should” be the
basic income tax due of A (correct income tax due)?Required
to answer. Single choice. (5 Points)
• 422,000
• 232,000
• 190,000
• 682,000
• None of the above
21
X, financial manager of ABC Corp, has the following data for
CY 2019:
• 154,900
• 139,900
• 132,900
• 117,900
• None of the above
22
X, sole owner of ABC company. ABC Company was registered
to DTI. In 2020, X sold assets not used in business resulting to
gain of 1M. These assets were held for almost 9 months.
Business net income of ABC was reported at 600,000. On
December 31, 2020, X is planning to sell some personal assets
bought on Jan 1, 2020 with book value of 500,000. If sold in
Dec 31, 2020, proceeds of sale will be 100,000 only. But, if
sold on February 2021, proceeds of sale will be higher by
5,000. What should be your advice to X?
• Sell the property on Feb 2021 for additional proceeds of
10,000
• Sell the property on Feb 2021 for lesser income taxes
• Sell the property on Dec 31, 2020
• Either sell the asset on Dec 31 or Feb 2021; because it will
give X the same tax benefits.
law to be enacted in 2024, where tax rate on dividends to be
declared by Corp and to be received by shareholders, will be
subject to 1% only. Under the tax code, as amended, is X Corp
liable for non-declaration and non-payment of dividends to
stockholders?
• Yes, under the tax code, X is liable for income tax
• Yes, under the tax code, as amended, X is liable for payment
of IAET
• No, under the tax code, as amended, X is not liable for
payment of IAET
• None of the above
24
In 2020, X leases a commercial lot with Market value of 10M
in Pasig City, used as a parking lot of X’s delivery trucks. Lease
payment of X is 950,000 pe year. He’s planning to purchase
the lot for 10M, at market value. If he purchased the lot at
market value in 2020, obviously, X will not pay the lease
payment of 950,000. Thus, in 2021 and so on, if X will
purchase the land on 2020 from the lessor, X will not pay the
950,000 and, X shall have no tax obligations to the
government in relation to that commercial lot. Do you agree
with X?
• Yes, because in 2021, X has no taxable income and no
business transactions arising from that commercial lot, except
that it is used for parking of its delivery trucks. Thus, X has no
tax obligations to the government.
• No, X has tax obligations to Pasig City
• Yes, X has no tax obligations to the government, both local
and national
• No, X has constructive income from the use of the
commercial lot, thus, has income tax liability to BIR.

23
In 2023, X Corp has a total earnings of 10M. According to the
news, the Congress proposed a lower tax rate for dividend
income received by shareholders from 10% to 1% only. A,
having a controlling interest in X Corp, and a member of the
BOD, intentionally delayed the declaration of dividends to
shareholders in 2023 in order to be benefited from the new
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