2ND PRTC CUP

AUDITING / FAR
EASY
1. An audit of the financial statements of Excel Corporation is being conducted by an external
auditor. The external auditor is expected to
a. Express an opinion as to the fairness of Excel's financial statements.
b. Express an opinion as to the attractiveness of Excel for investment purposes.
c. Certify to the correctness of Excel's financial statements.
d. Critique the wisdom and legality of Excel's business decisions.

2. Which of the following is appropriate about risk assessment?

a. Detection risk is eliminated if an auditor were to examine 100 percent of the account balance
or class of transactions
b. There is an inverse relationship between detection risk and the combined level of inherent and
control risk.
c. The assessed level of inherent and control risk can be sufficiently low, thus resulting to
eliminating the need for substantive tests.
d. Audit risk may be more appropriately determined by assessing inherent and control risk
separately.

3. Which of the following best describes the professional skepticism required by an auditor?
a. An attitude that includes a questioning mind, being alert to conditions that may indicate
possible misstatement due to error or fraud, and a critical assessment of audit evidence.
b. An attitude that assumes management is always correct in their representations, unless there
is fraud involved.
c. An attitude that assumes that management is always biased in their representations.
d. An attitude that recognizes that the financial statements will contain some misstatements due
to error or fraud, once the audit is completed.

AVERAGE
1. The balance in Iwig Co.'s accounts payable account at December 31, 2014 was P400,000 before
any necessary year-end adjustments relating to the following:
 On December 28, 2014, Iwig purchased and received goods for P40,000, terms 2/10, n/30.
Iwig records purchases and accounts payable at net amounts. The invoice was recorded and
paid January 3, 2015.
 Goods were in transit to Iwig from a vendor on December 31, 2014. The invoice cost was
P50,000. The goods were shipped f.o.b. shipping point on December 29, 2014 and were
received on January 4, 2015.
 Goods shipped f.o.b. destination on December 21, 2014 from a vendor to Iwig were received
on January 6, 2015. The invoice cost was P25,000.
 Goods shipped to Iwig, f.o.b. shipping point on December 20, 2014, from a vendor were lost
in transit. The invoice price was P20,000. On January 5, 2015, Iwig filed a P20,000 claim
against the common carrier.
In Iwig's December 31, 2014 statement of financial position, the accounts payable should be
a. P439,200 c. P509,200
b. P489,200 d. P534,200
2. Eagle, Inc. is preparing its financial statements for the year ended December 31, 2014. Accounts
payable amounted to P200,000 before any necessary year-end adjustment related to the
following:
 At December 31, 2014, Eagle has a P50,000 debit balance in its accounts payable to Twist, a
supplier, resulting from a P50,000 advance payment for goods to be manufactured to Eagle's
specifications.
 On December 27, 2014, Eagle wrote and recorded checks to creditors totaling P30,000 that
were mailed on January 10, 2015.
 Checks in the amount of P25,000 were written to vendors and recorded on December 29,
2014. The checks were dated January 5, 2015.
What amount should Eagle report as accounts payable in its December 31, 2014 statement of
financial position?
a. P305,000 c. P275,000
b. P280,000 d. P205,000

3. The information below is from the books of the Seminole Corporation on June 30:
Balance per bank statement P11,164
Receipts recorded but not yet deposited in the bank 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160
Assuming no errors were made, compute the cash balance per books on June 30 before any
reconciliation adjustments.
a. P11,404 c. P10,460
b. P12,348 d. P10,220

4. Mactan Company’s statements for 2012 and 2013 included the following errors:
December 31, 2012 inventory P2,000,000
understated
December 31, 2013 inventory overstated 1,000,000
Depreciation for 2012 understated 400,000
Depreciation for 2013 overstated 800,000
How much should retained earnings be retroactively adjusted on January 1, 2014?
a. P 600,000 increase
b. P 600,000 decrease
c. P1,400,000 decrease
d. P1,400,000 increase

5. The Benson Mfg. Co. in its statement of financial position as of December 31, 2014 has an
inventory in the amount of P176,000 which consists of:
Direct materials P99,000
Direct materials purchases in transit,
FOB destination 21,600
Direct materials purchases in transit,
FOB shipping point 16,200
Prepaid insurance on inventory 3,600
Work-in-process 68,400
Finished goods 81,000
Goods shipped on consignment, at selling
price with 20% profit on sales 27,000
 What is the cost of inventory to be shown in the statement of financial position of Benson Mfg. Co.
as of December 31, 2014?
a. P287,100 c. P268,200
b. P286,200 d. P264,600

DIFFICULT
1. On May 6, 2014 a flash flood caused damage to the merchandise stored in the warehouse of
Cabanatuan Co. You were asked to submit an estimate of the merchandise destroyed in the
warehouse. The following data were established:
a. Net sales for 2013 were P800,000, matched against cost of P560,000.
b. Merchandise inventory, Jan. 1, 2014 was P200,000, 90% of which was in the warehouse and
10% in downtown showrooms.
c. For Jan. 1, 2014 to date of flood, you ascertained invoice value of purchases (all stored in the
warehouse), P100,000; freight inward, P4,000; purchases returned, P6,000.
d. Cost of merchandise transferred from the warehouse to show-rooms was P8,000, and net
sales from January 1 to May 6, 2014 (all warehouse stock) were P320,000.
Assuming gross profit rate in 2014 to be the same as in the previous year, the estimated
merchandise destroyed by the flood was
a. P80,000 c. P50,000
b. P66,000 d. P46,000

2. The following accounts and their balances appear in a unadjusted trial balance of RAM Company as
of December 31, 2012:
Cash P 35,500
Accounts receivable (net) 172,000
Inventory 48,000

Additional information gathered for adjustment follows:

a. The cash account includes collection in January 2013 of P10,000 from a customer who was
given a cash discount of P500.
b. It also includes a January 2013 cash sale of P2,000. Gross profit on this sale was 25%. The
entity uses perpetual inventory system.
c. From the amount collected, the following payments were made:
 Accounts payable of P5,000 paid at a discount of 5%.
 A loan of P3,000 with interest of P150 accruing January.

Assuming that there were no accounts under current assets other than the above, the corrected
total current asset balance was
a. P261,900 c. P263,400
b. P263,250 d. P263,250

3. Allspark showed income before income taxes of P250,000 on December 31, 2011. On your year-
end verification of the transactions of the company, you discovered the following errors:
a) P100,000 worth of merchandise was purchased in 2011 and included in the ending inventory.
However, the purchase was recorded only in 2012.
b) A merchandise shipment valued at P150,000 was properly recorded as purchases at year-end.
Since the merchandise were still at the port area, they were inadvertently omitted from the
inventory balance at December 31, 2011.
c) Business taxes for the 4th quarter of 2011, amounting to P50,000, was recorded when
payment was made by the firm in January, 2012.
d) Rental of P30,000 on an equipment , applicable for six months, was received on November 1,
2011. The entire amount was reported as income upon receipt.
 e) Insurance premium covering the period from July 1, 2011 to July 1, 2012, amounting to
P120,000, was paid and recorded as expense on July 31, 2011. The company did not make
any adjustment at the end of the year.
The corrected income before income taxes for 2011 should be
a. P240,000 c. P280,000
b. P290,000 d. P340,000

4. Ovation Company asks you to review its December 31, 2012, inventory values and prepare the
necessary adjustments to the books. The following information is given to you.
a. Ovation uses the periodic method of recording inventory. A physical count reveals P2,348,900
inventory on hand at December 31, 2012.
b. Not included in the physical count of inventory is P134,200 of merchandise purchased on
December 15 from Standing. This merchandise was shipped f.o.b. shipping point on
December 29 and arrived in January. The invoice arrived and was recorded on December 31.
c. Included in inventory is merchandise sold to Oval on December 30, f.o.b. destination. This
merchandise was shipped after it was counted. The invoice was prepared and recorded as a
sale on account for P128,000 on December 31. The merchandise cost P73,500, and Oval
received it on January 3.
d. Included in inventory was merchandise received from Owl on December 31 with an invoice
price of P156,300. The merchandise was shipped f.o.b destination. The invoice, which has
not yet arrived, has not been recorded.
e. Not included in inventory is P85,400 of merchandise purchased from Oxygen Industries. The
merchandise was received on December 31 after the inventory had been counted. The invoice
was received and recorded on December 30.
f. Included in inventory was P104,380 of inventory held by Ovation on consignment from Ovoid
Industries.
g. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise
was shipped after it was counted. The invoice was prepared and recorded as a sale for
P189,000 on December 31. The cost of this merchandise was P105,200, and Kemp received
the merchandise on January 5.
h. Excluded from inventory was carton labeled “Please accept for credit.” This carton contains
merchandise costing P15,000 which had been sold to a customer for P25,000. No entry had
been made to the books to reflect the return, but none of the returned merchandise seemed
damaged.
The adjusted inventory cost of Ovation Company at December 31, 2012 should be
a. P2,217,620 c. P2,411,320
b. P2,396,320 d. P2,373,920

5. The accounts below were taken from the unadjusted trial balance of VECO Co., a Small and
Medium-Sized Entity, as at December 31, 2011:
Cash P124,000
Trading securities, at cost 87,000
Notes receivable 92,000
Trade accounts receivable 122,000
Allowance for doubtful accounts 6,000
Merchandise inventory 136,000
Notes payable 150,000
Trade accounts payable 75,000
Employees’ income tax withheld 4,000
Bonds payable 250,000
Share dividends payable 15,000
Income tax payable 28,000
Analysis of the above accounts disclosed the following:
 Bank overdraft of P13,000 was deducted from cash balance.
 Trade accounts receivable was net of customers’ deposit of P7,000.
  Merchandise worth P15,000 received December 30, 2011 was included in the inventory but
was not recorded as a purchase.
 Accounts payable was net of accounts with debit balance of P12,000.
 A bank loan of P30,000 due December 31, 2013 was included in the notes payable
balance.
 Bonds payable which was issued in 2011 will mature in five annual installments
beginning June 1, 2012.
 Trading securities are investment in 10,000 ordinary shares with publish price quotation at
December 31, 2011 of P9 per share.

How much total current liabilities should be reported on the statement of financial position as of
December 31, 2011?
a. P272,000 c. P324,000
b. P289,000 d. P339,000

AFAR

EASY
1. In a job order costing system, indirect labor used should be
debited to
a. Payroll liability
b. Work in process control
c. Finished goods control
d. Factory overhead control

2. Working paper eliminations are entered in

a. Both the parent company’s and the subsidiary’s
accounting records
b. The parent company’s accounting records only
c. Neither the parent company’s nor the subsidiary’s
accounting records
d. The subsidiary’s accounting records only

On July 1, 2016 Pyramid Company paid P755,000 cash for the net
assets of Stir Company. The recorded assets and liabilities of Stir
are: Cash, P74,000; Inventory, P215,000; Land, P200,000;
Building (net), P208,000; and liabilities of P220,000. At the same
date Stir’s inventories had a fair value of P184,000; the land,
P271,500; and the building (net) , P187,500.
3. Determine the amount of goodwill resulting from the business
combination.
a. P285,000 c. P258,000
b. P280,500 d. P250,800

Cost of investment @ FV P755,000

Less Fair value of Stir’s net assets 497,000
Goodwill recognized P258,000

AVERAGE
During 2016, there was no change in either the raw material or
the work in process beginning and ending inventories. However,
finished goods, which had a beginning balance of P25,000,
increased by P 15,000.
4. If the manufacturing costs incurred totaled P 600,000 during
2016, the goods available for sale must have been:
a. P 585,000 c. P 610,000
b. P 600,000 d. P 625,000

Total manufacturing cost 600,000

Finished goods inventory, beg. 25,000
Total goods available for sale 625,000

GREATWITZ Company began operations on January 1, 2016 and

appropriately uses the installment method of accounting. The
following information pertains to the operations of the company
for 2016.

Cost of installment sales, P525,000; Gross profit rate based on

cost, 25%; Collections on installment sales (including interest of
P11,000), P297,500.
5. Determine the realized gross profit for 2016.
a. P 37,500 c. P 35,750
b. P 37,950 d. P 57,300

Realized gross profit: (P297,500 – P11,000) x 25/125 P 57,30

On January 1, 2016, E, F, and G establish a joint arrangement to
manufacture a product that they will share equally They will each
contribute P200,000. E and F are to contribute cash while G is to
contribute a piece of equipment with a fair value of P200,000. In
the books of G, the carrying value of the equipment is P185,000.
Assume the equipment has a remaining life of 10 years from this
date.

6. On December 31, 2016, in G Corporation balance sheet, the

Equipment in JO account will be presented at:
a. P45,000 c. P60,000
b. P55,500 d. P58,500

Machinery, net of Acc. Depn. (per JO’s books) P180,000

Divide by 3
G’s share before adjustment P 60,000
Less unamortized gain (P5,000 * 90%) 4,500
Machinery in JO, 12/31/16 (P185,000 * 90%) / 3 P 55,500

DIFFICULT
Parker Corporation sells equipment with a book value of P80,000
to Sheaffer Enterprises, its 75%-owned subsidiary, for P100,000
on January 1, 2017. Sheaffer determines that the remaining
useful life of the equipment is four years and that straight-line
depreciation is appropriate. The December 31, 2017 separate
company financial statements of Parker and Sheaffer show
equipment-net of P500,000 and P300,000, respectively.
7. The consolidated equipment-net will be:
a. P 800,000 c. P780,000
b. P 785,000 d P650,000

Recorded Equipment- net ( 500,000 + 300,000) P 800,000

Adjustments- Deferred Gain P (20,000)
Realized Deferred Gain 5,000 (15,000)
Consolidated Equipment- Net P 785,000
TANTE Contractors was recently awarded a P6,720,000 contract
to construct a trade center for SOUND Lending, Inc. TANTE
Contractors estimates it will take about 4 years to complete the
contract. The company uses the percentage of completion
method to report profits.
The following information details the actual and estimated costs
from 2013 to 2016.
Year Actual cost each year Estimated cost to complete
2013 P3,120,000 P3,264,000
2014 1,584,000 1,800,000
2015 1,152,000 912,000
2016 1,080,000 -

8. Using zero-profit-method instead, how much is the realized

gross profit (loss) in 2015?
a. P(168,000) c. P 48,000
b. P127,000 d. P (48,000)
The project was profitable thru the end of 2014, hence no profit was recognized in 2013 and in 2014
under the zero-profit-method. The estimated loss-to-date of P48,000 will be the recognized loss for 2015.

PERFECT PRODUCTS, Inc. produces two joint products, AA and

BB. The joint production cost for March were P15,000. During
March, further processing costs beyond the split-off point, needed
to convert the products into salable form, were P8,000 and
P12,000 for 800 units of AA and 400 units of BB, respectively. AA
sells for P25 per unit and BB sells for P50 per unit.
9. Assuming that PERFECT PRODUCTS used the approximated
market value method for allocating joint production costs, what
were the joint costs allocated to product AA for March?
a. P 5,000 c. P 9,000
b. P 6,000 d. P 10,000

Units USV at TSV at NRV at Allocated

Product Produced Final Point Final Point APC Split-off Joint Cost
AA 800 P25 P20,000 P 8,000 P12,000 P 9,000
BB 400 50 20,000 12,000 8,000 6,000
1,200 P40,000 P20,000 P20,000 P15,000
MAS
EASY QUESTIONS
1. The primary purpose of management advisory services is to
A. conduct special studies, preparation of recommendation, development plans and programs,
and provision of advise and assistance in their implementation.
B. provide service or to fulfill some social need.
C. improve the client’s use of its capabilities & resources to achieve the objectives of the
organization.
D. earn the best rate of return on resources entrusted to its care with safety of investment being
taken into account and consistent with the firm’s social and legal responsibilities.

2. If in the opinion of a given investor a stock’s expected return exceeds its required return, this
suggests that the investor thinks
a. the stock is experiencing supernormal growth.
b. the stock should be sold.
c. the stock is good to buy.
d. management is probably not trying to maximize the price per share.

3. Galaxy Company is preparing a flexible budget for the coming year and the following maximum
capacity estimates for Department 05 are available:
Direct labor hours 60,000
Variable factory overhead P150,000
Fixed factory overhead P240,000
Assume that Galaxy’s normal capacity is 80% of maximum capacity. What would be the total
factory overhead rate, based on direct labors, in a flexible budget at normal capacity?
a. P6.00 c. P7.50
b. P6.50 d. P8.13

4. Tyson Enterprises has decided to take its company public by offering a total of 80,000 shares of
common stock to the public in an initial public offering (IPO). Tyson has hired an underwriter who
arranges a full commitment underwriting and suggests an initial selling price of P32 a share with
a 9 percent spread. As it turns out, the underwriters only sell 68,500 shares. How much cash will
Tyson receive from the IPO? 
a.  P1,840,400
b.  P1,994,720
c.  P2,192,000
d.  P2,329,600

5. Using the Capital Asset Pricing Model (CAPM), the required rate of return for a firm with a beta of
1.25 when the market return is 14% and the risk-free rate is 6% is
a. 14% c. 6%
b. 7.5% d. 16%

AVERAGE QUESTIONS
1. A firm's balance sheet as of December 31 is shown below. The firm's sales for the year were
P1,000,000,000, and its after-tax margin on sales was 5%. Sales are expected to increase next
year to P1,300,000,000, and it plans to distribute 50% of its net profits to stockholders. Based on
the percentage-of-sales method, the amount of funds that must be obtained externally by
borrowing or by selling new stock is
Assets (P millions) Liabilities (P millions)
Cash P 50 Accounts payable P 30
Receivables 130 Accrued taxes & wages 40
Inventories 150 Mortgage bonds 130
Net fixed assets 220 Common stock 150
Retained earnings 200
A. P111.50 million. C. P65 million.
 B. P165 million. D. P144 million.

2. Top Notch, Inc. is expanding and needs P5 million to help fund this growth. Top Notch estimates
they can sell new shares of stock for P25 a share. They also estimate that it will cost an
additional P200,000 for filing and legal fees related to the stock issue. The underwriters have
agreed to an 8 percent spread. How many shares of stock must Top Notch sell if they are going
to have P5 million available for their expansion needs? 
a.  226,087 shares
b.  208,696 shares
c.  217,391 shares
d.  224,640 shares

3. GMA corporation is preparing to issue common stock. The Chief Financial Officer is attempting to
estimate GMR’s cost of new common stock. The next dividend is expected to be P4.25 and will be
paid one year from now. The current market price reflects an 18% expected annual return on
investors. Dividends are expected to grow at a constant 8% per year. Flotation costs on the new
issue will be P 1.25 per share. GMR’s cost of new common stock is nearest:
a. 18.30% c. 19.25%
b. 18% d. 19.44%

4. Sorento Systems Inc. is expected to pay a P2.50 dividend at year end (D 1 = P2.50), the dividend
is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for
P52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital
structure consists of 45% debt and 55% common equity. What is the company’s WACC if all the
equity used is from retained earnings?
a. 7.07% c. 7.67%
b. 7.36% d. 7.98%

DIFFICULT QUESTIONS
1. A management advisory services engagement involves the following activities in what order?
I. Post-engagement follow-up.
II. Implementing the recommendation.
III. Conducting the engagement.
IV. Negotiating the engagement.
V. Preparing for and starting the engagement.
VI. Evaluating the engagement.
VII. Preparing and presenting report and recommendations.
A. VII, VI, V, IV, III, II and I. C. IV, III, V, VI, II, VII, and I.
B. III, IV, V, VI, VII, I and II. D. IV, V, III, VII, II, VI, and I.

2. MetalCraft produces three inexpensive socket wrench sets that are popular with do-it-yourselves.
Budgeted information for the upcoming year is as follows.

Selling Price Variable Cost Estimated Sales Volume

Model
No. 19 P 10 P 5.50 30,000 sets
No. 45 15 P 8.00 75,000 sets
No. 53 20 P 14.00 45,000 sets

Total fixed costs for the socket wrench product line is P961,000. If the company's actual
experience remains consistent with the estimated sales volume percentage distribution, and the
firm desires to generate total operating income of P161,200, how many Model No. 53 socket
sets will MetalCraft have to sell?
a. 54,300 c. 26,000
b. 155,000 d. 181,000

3. Renault Company produces convertible cubicles that sell for P400. Standard variable
manufacturing cost is P100 and the standard fixed manufacturing cost is P150, based on
 budgeted fixed costs of P15,000,000 and budgeted production of 100,000 units. During
2016, Renault produced 96,000 units of convertible cubicles and sold P90,000 units. Actual
costs incurred were:

Fixed manufacturing P14,870,000

Variable manufacturing 9,550,000
Selling and administrative (all fixed) 10,550,000

There were no beginning inventories.

For the year 2016:
a. Renault’s income under absorption costing is P1,630,000.
b. Renault’s actual cost of goods sold is P22,920,000
c. Renault’s contribution margin under variable costing is P30,000,000.
d. The total fixed costs charged to expense during the period under variable costing is
P25,550,000.

4. The Blackberry Co. plans on raising P10 million through a rights offering. The subscription price is
set at P16. Currently, the company has 1.6 million shares outstanding with a current market price
of P19.50 a share. Each shareholder will receive one right for each share of stock they currently
own. How many rights will be needed to purchase one new share of stock in this offering?
a.  .56 rights
b.  1.60 rights
c.  2.56 rights
d.  3.12 rights

RFBT
Easy
1. The following contract must be in a public instrument for purpose of convenient. Which is the exception:
a. Repudiation of hereditary right
b. Power to administer property
c. Cession of conjugal partnership of gain.
d. Donation of real property
2. M, as maker of a promissory note, promised to pay to order of P, payee, P1,000,000 on or before December 15,
2014. The benefit of the period belongs –
a. To M only c. To both M and P
b. To P only d. Neither to M and P
3. MARK Company, is a partnership engaged in the trading business, with Marquez, Alconcer, Ramos, and
Kanapi as partners. Marquez, Alconcer and Ramos are capitalist partners contributing P100,000.00,
P60,000.00, and P40,000.00 respectively. Kanapi is an industrial partner. The partners have a stipulation that
Marquez shall not be liable for partnership liabilities. After three years of continued losses, the partnership
incurred liabilities of P200,000.00 at which time its assets had dwindled to P140,000.00. After partnership
assets have been exhausted, partnership creditors may go after the separate assets of:
a. all the partners.
b. Marquez, Alconcer and Ramos, but not those of Kanapi.
c. Alconcer, Ramos and Kanapi, but not those of Marquez.
d. Alconcer and Ramos only.

Average
1. X subscribed 10,000 shares in the capital stocks of AAA Corporation. He paid 50% of the 10,000 shares. X
asked the Corporate Secretary to issue him the corresponding stock certificate representing the 50% of what he
already paid. The Corporate Secretary of the corporation refused. Was the Corporate Secretary correct?
a. The Corporate Secretary is correct because the Corporation Code provides that no certificate of stock shall
be issued to a subscriber until the shares as subscribed have been fully paid.
 b. The Corporate Secretary cannot refuse because a Stock Certificate can be issued corresponding to the
percentage of shares which were paid.
c. The Corporate Secretary cannot refuse because a Certificate of Stock can be issued provided it is indicated
in the Certificate the actual percentage of what has been paid.
d. The Corporate Secretary cannot refuse because it is his legal duty to issue a stock certificate corresponding
to the number of shares actually subscribed regardless of the actual payment.
2. In three of the following corporate proposals, a dissenting stockholder has the right to surrender his shares of
stock to the corporation and demand for the payment of their fair market value. Which is the exception?
a. Sale, mortgage or disposition of all or substantially all of the corporate assets
b. Shortening or extending the corporate term
c. Investment of corporate funds in another corporation or business
d. Entering into management contract with another corporation
3. Which of the following instance wherein non-voting shares is not allowed to vote:
a. Issuance of additional Capital Stock
b. Payment of Bonded indebtedness.
c. Mortgaging substantially all of the corporate property.
d. Investment of corporate fund in another corporation not for primary purpose of the corporation.

Difficult
1. On Oct 3, 2015, D requested for a loan of P10,000.00 from C and he offered to pledge his ring as security for
the loan. C granted his request and promised to give him the money on Oct 5, 2015. On Oct 5, 2015, C handed
the amount of P10,000.00 to D and on Oct 6, 2015, D delivered his ring to C. Which of the following
statements is correct?
a. The contract of loan between them was perfected when C accepted the offer of D on Oct 3, 2015
b. The contract of loan was perfected when C gave the money to D on Oct 5, 2015
c. The contract of pledge was perfected when C gave the money to D on Oct 5, 2015
d. Both contracts of loan and pledge were perfected only on Oct 6, 2015
2. D drawn a bill of exchange in favor of X or order for P10,000. The bill was address to D. The bill was
negotiated by X to Y. Which of the following statement is not correct?
a. The liability of D is primary
b. Y the holder may treat the instrument as a promissory note.
c. Presentment for payment is necessary to charge the Drawer.
d. Notice of dishonor is not necessary to charge the Drawer.
3. Juan de la Cruz signs a promissory note payable to Pedro Lim or Bearer, and delivers it personally to Pedro
Lim. The latter somehow misplaces the said note and Carlos Ros finds the note lying around the corridor of the
building. Carlos Ros endorses the promissory note to Juana Bond, for value, by forging the signature of Pedro
Lim. May Juana Bond hold Juan de la Cruz liable on the note?
a. No, because forgery is a real defense
b. Yes, because the forge signature is not necessary for the negotiation of the instrument.
c. No, because Juana Bond cannot become a holder because the indorsement is forged.
d. Yes, because forgery is just a personal defense.

TAX
EASY
1. Allan, single, is a minimum wage earner of EDT Corporation. He is also engaged in trading various
consumer products every weekend. He derived profit therefrom amounting to P200,000 for the
current taxable year. In addition to his basic minimum wage of P144,000 for the year, he likewise
received the following additional benefits from his employer:
 De miniminis, P40,000 (all within the ceiling)
 13th month pay and other benefits, P35,000

Allan’s taxable income should be:

a. P344,000 c. P200,000
 b. P294,000 d. P150,000

2. Statement 1: The Constitution cannot take away the inherent powers of the State but may only
prescribe its limitations.
Statement 2: No laws are necessary to confer the inherent powers of the State upon any
government exercising sovereignty.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

3. Determine the correct classification of the following individual taxpayers (Use “RC” for Resident
Citizen and “NRC” for Nonresident Citizen):
I. Manny, a Filipino businessman, went on a business trip abroad and stayed there
most of the time during the year.
II. Kyla, a Filipino professional singer, held a series of concerts in various countries
around the world during the current taxable year. She stayed abroad most of the time
during the year.
III. Efren, a Filipino “cue” artist who went to Canada during the taxable year to train and
participate in the world cup of pool. He stayed therein most of the time during the
year.
A. B. C. D.
I NRC RC RC RC
II NRC NRC RC RC
III NRC NRC NRC RC

4. The deductible expenses from gross income of an estate may consist of:
a. Deductible expenses allowed to an individual taxpayer
b. Income distributed to beneficiaries
c. Both (a) and (b)
d. Neither (a) nor (b)

5. Which of the following is subject to 3% percentage tax under Section 116 of the Tax Code?
I. Fruit dealer whose gross receipts for the year amounted to P1,200,000 only.
II. An individual taxpayer whose gross sales for the year amounted to P100,000.
III. School bus operator whose gross receipts for the year amounted to P1,919,500
a. I and II only c. All of the above
b. I and III only d. None of the above

AVERAGE
6. Question 1: Pedro, a CPA, Lorna, an employee are husband and wife with four (4) minor children.
Lorna supports her brother, a PWD who is living with them. Pedro claims the additional
exemptions for their four (4) minor children. Can Lorna claim additional exemption for her brother
who is a PWD?
Question 2: Suppose Pedro and Lorna have only three (3) qualified dependent children, can Lorna
claim for additional exemption for her brother who is a PWD?
Question 1 Question 2
a. Yes Yes
b. No No
c. Yes No
d. No Yes
 7. Statement 1: CGT on sale of real properties shall be paid within 30 days from sale or
disposition.
Statement 2: The CGT on the unutilized portion of the proceeds in case of sale of a real
property classified as a principal residence shall be paid within 30 days after the expiration of
the eighteen (18) month period.
A. B. C. D.
Statement 1 True False True False
Statement 2 True False False True

8. Who of the following may avail of substituted filing of Income Tax Return (ITR)?
ANA:
 Deriving compensation income from ABC Company, her only employer for the taxable
year.
 The correct amount of tax was withheld by ABC Company
 She also sold her personal car and some of her jewelries resulting to a capital gain of
P100,000.

PEDRO:
 Deriving purely compensation income from XYZ Corporation, his only employer for the
taxable year.
 The correct amount of tax was withheld by XYZ
 Pedro’s spouse is engaged in business
a. Ana only c. Ana and Pedro
b. Pedro only d. Neither Ana nor Pedro

9. The Congress, after much public hearing and consultations with various sectors of society, came
to the conclusion that it will be good for the country to have only one system of taxation by
centralizing the imposition and collection of all taxes in the national government. Accordingly,
passed law that would abolish the taxing power of all local government units. Would such a law
be valid under the present Constitution?
I. Yes, the law centralizing the imposition and collection of all taxes in the national
government would not contravene the Constitution as long as a new law is enacted
for the common good of the people.
II. No because under the present Constitution, each local government unit shall have
the power to create their own sources of revenue and to levy taxes, fees, and
charges subject to such guidelines and limitations as Congress may provide
consistent with the basic policy of local autonomy.
III. No. It is clear that Congress can only give the guidelines and limitations on the
exercise by the local governments of the power to tax but what was granted by the
fundamental law cannot be withdrawn by Congress.
a. I only c. I, II and III
b. II and III only d. None of the above

10. Vincent sold his principal residence for P10,000,000 to his friend. Its FMV when he inherited it
from his father was P12,000,000 although its present FMV is P15,000,000. He used ½ of the
proceeds to buy a new principal residence within eighteen (18) months after the sale. Assume
further that Vincent properly informed the BIR about the sale within the required period. It shall
be:
a. Exempt from capital gains tax
b. Subject to P300,000 capital gains tax
c. Subject to P450,000 capital gains tax
d. Subject to P600,000 capital gains tax

11. Determine the business taxes of the following:

 I. Lease of residential units with a monthly rental per unit not exceeding P12,800
(regardless aggregate annual gross rentals).
II. Lease of residential units with a monthly rental per unit exceeding P12,800 but the
aggregate of such rentals of during the year do not exceed P1,919,500.
III. Lease of commercial units regardless of monthly rental per unit.
A B C D
I None None None Vat
II OPT OPT OPT Vat
III Vat OPT Vat Vat

DIFFICULT
Use the following data for the next two (2) questions
Hajib, a Russian national who is an employee in the regional area headquarter of a multinational
corporation, occupying managerial position, had the following data for taxable year 2015:
Salaries received P600,000
Allowances and honoraria 50,000
Other emoluments 100,000
Monetary value of fringe benefits subject to fringe 170,000
benefit tax
De minimis benefits (within the ceiling) 50,000
Dividend income from a domestic corporation 40,000
Interest income from peso bank deposit 50,000
Interest income from foreign currency deposit under 20,000
FCDS
PCSO winnings (gross) 1,000,000
Raffle draw winnings 80,000
Gain from sale of shares of a domestic corporation
sold directly to a buyer 150,000
Gain from sale of a vacant lot in Quezon City held as 500,000
investment
(SP=P2,500,000; Cost=P2,000,000; Zonal
Value=P2,500,000)

12. The total income tax expense of Hajib in the Philippines is:
a. P535,000 c. P570,000
b. P565,000 d. P315,000

13. Assuming the taxpayer is a Special Filipino Employee, his total combined taxes on all income
from the Philippines is:
a. P380,500 c. P595,000
b. P304,000 d. P410,500

14. Joseph provided the following data on sale of his personal property sold in 2013 held by him for
15 months:
Cost P225,000
Mortgage assumed by the 270,000
buyer
Installment Collection
Schedule:
- 2013 67,500
- 2014 67,500
 - 2015 45,000

How much is the income subject to income tax in 2013, 2014, and 2015?
a. P56,250, P33,750 and P22,500, respectively
b. P112,500, P67,500 and P45,000, respectively
c. P225,000, P0 and P0, respectively
d. None of the choices

15. A resident alien had the following data in 2014:

Gross income, Philippines P2,000,000
Business expenses 1,200,000

Dividends received:
From domestic corporation (net)
60% of its income came from the Philippines 90,000
40% of its income came from the Philippines 72,000
From resident foreign corporation (gross)
60% of its income came from the Philippines 50,000
40% of its income came from the Philippines 40,000

The taxpayer’s taxable income is

a. P750,000 c. P796,000
b. P780,000 d. P800,000

INCOME TAX TABLE FOR INDIVIDUALS

Over But not over The Tax Shall be Plus Of excess over
10,000 - 5% -
10,000 30,000 500 10% 10,000
30,000 70,000 2,500 15% 30,000
70,000 140,000 8,500 20% 70,000
140,000 250,000 22,500 25% 140,000
250,000 500,000 50,000 30% 250,000
500,000 - 125,000 32% 500,000

CLINCHER QUESTIONS
1. Which of the following is not classifiable as a management advisory service by CPAs?
A. Annual financial planning and budgeting.
B. Public relations work.
C. Information systems.
D. Lease-or-buy analysis.

2. Which of the following is not an area related to the performance of management services by
independent accounting firms?
A. Introducing new ideas, concepts and methods to management.
B. Improving existing policies, methods and procedures
C. Performing special studies, preparing recommendations, and formulating plans and programs
D. Performing management functions and making decisions

1. Which of the following audit procedures is least likely to detect an unrecorded liability?
a. Analysis and recomputation of interest expense.
b. Analysis and recomputation of depreciation expense.
c. Mailing of standard bank confirmation forms.
d. Reading of the minutes of meetings of the board directors.

2. Which of the following is the least effective audit procedure regarding the existence assertion for
the securities held by the auditee?
a. Examination of paid checks issued in payment of securities purchased.
b. Vouching all changes during the year to supporting documents.
c. Simultaneous count of liquid assets.
d. Confirmation from the custodian.

3. Which of the following procedures would an auditor most likely perform for year-end accounts
receivable confirmations when the auditor did not receive replies to second requests?
a. Review the cash receipts journal for the month prior to year-end.
b. Intensify the study of internal control concerning the revenue cycle.
c. Increase the assessed level of detection risk for the existence assertion
d. Inspect the shipping records documenting the merchandise sold to the debtors.

4. The auditor should ordinarily mail confirmation requests to all banks with which the client has
conducted any business during the year, regardless of the year-end balance, since
a. The confirmation form also seeks information about indebtedness to the bank.
b. This procedure will detect kiting activities which otherwise not be detected.
c. The mailing of confirmation forms to all such banks is required by GAAS.
d. This procedure relieves the auditor of any responsibility with respect to non-detection of
forged checks.

3. Budget slack is a condition in which

a. demand is low at various times of the year.
b. excess machine capacity exists in some areas of the plant.
c. there is an intentional overestimation of expenses or an underestimation of revenues.
d. managers grant favored employees extra time off.

4. Which of the following is NOT a capital component when calculating the weighted average cost of
capital (WACC) for use in capital budgeting?
a. Long-term debt.
b. Accounts payable.
c. Retained earnings.
d. Common stock.

5. Mover Company produces a specialty item. Management has provided the following information:
 Actual sales 60,000 units
Budgeted production 50,000 units
Selling price P40.00 per unit
Direct material costs P10.00 per unit
Variable manufacturing overhead P3.00 per unit
Variable administrative costs P5.00 per unit
Fixed manufacturing overhead P4.00 per unit
What is the cost per statue if throughput costing is used?
a. P22 c. P15
b. P19 d. P10

Use the following data for the next two (2) questions:
The estate of Pedro (died on November 1, 2014), resident citizen decedent, married, are as follows:
House and lot (Family Home) P1,200,000
The lot was acquired at a cost of P200,000 before marriage
while the house was constructed on October 1, 2014, during
marriage, at a cost of P700,000 from partnership funds. The lot
had a fair market value of P500,000 after construction of the
house.
Car acquired during marriage 700,000
Jewelry inherited on September 30, 2013, during marriage, then 100,000
with a fair market value of P80,000
Bank deposit in ABN Amro-Washington D.C. branch in the U.S., 1,200,000
received as gift from a friend on February 14, 2013, during marriage
Interest on the bank deposit above up to time of death 250,000
Expenses:
Funeral expenses 120,000
Judicial expenses 80,000
Medical expenses within 1 year prior to death, only half was 400,000
receipted

16. How much is the net taxable estate under Conjugal Partnership of Gains?
a. P444,855 c. P414,710
b. P519,855 d. P264,710

17. How much is the net taxable estate under Absolute Community of Property?
a. P444,855 c. P414,710
b. P519,855 d. P264,710

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