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Exam Code: REG
Exam Name: CPA Regulation
Updated: Aug 02, 2026
Q & A: 70 Questions and Answers
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| Section | Weight | Objectives |
|---|---|---|
| Topic 1: Federal Taxation of Entities | 28-38% | - C Corporations - Book-tax differences and distributions - Tax-exempt organizations - S Corporations - Partnerships and LLCs |
| Topic 2: Ethics, Professional Responsibilities, and Federal Tax Procedures | 10-20% | - Treasury Department Circular 230 rules - Tax preparer penalties and due diligence - Ethics and responsibilities in tax practice - Licensing and disciplinary systems - IRS audit, appeals, and collection procedures |
| Topic 3: Federal Taxation of Property Transactions | 12-22% | - Recognition of gains and losses - Like-kind exchanges and involuntary conversions - Capital vs ordinary asset classification - Cost recovery, depreciation, and amortization - Basis and holding periods of assets |
| Topic 4: Business Law | 10-20% | - Business structure legal framework - Agency relationships - Secured transactions (UCC Article 9) - Debtor-creditor relationships and bankruptcy - Contracts and UCC Article 2 |
| Topic 5: Federal Taxation of Individuals | 15-25% | - Filing status and exemptions - Gross income inclusions and exclusions - Pass-through entity income reporting - Adjustments, deductions, and credits - Loss limitations and tax computation |
1. A cash basis taxpayer should report gross income:
A) Only for the year in which income is actually received in cash.
B) For the year in which income is either actually or constructively received in cash only.
C) Only for the year in which income is actually received whether in cash or in property.
D) For the year in which income is either actually or constructively received, whether in cash or in
property.
2. Capital assets include:
A) A corporation's accounts receivable from the sale of its inventory.
B) A corporate real estate developer's unimproved land that is to be subdivided to build homes, which will
be sold to customers.
C) Seven-year MACRS property used in a corporation's trade or business.
D) A manufacturing company's investment in U.S. Treasury bonds.
3. Allen owns 100 shares of Prime Corp., a publicly-traded company, which Allen purchased on January 1,
2 001, for $10,000. On January 1, 2003, Prime declared a 2-for-1 stock split when the fair market value
(FMV) of the stock was $120 per share. Immediately following the split, the FMV of Prime stock was $62
per share. On February 1, 2003, Allen had his broker specifically sell the 100 shares of Prime stock
received in the split when the FMV of the stock was $65 per share. What amount should Allen recognize
as long-term capital gain income on his Form 1040, U.S. Individual Income Tax Return, for 2003?
A) $300
B) $750
C) $1,500
D) $2,000
4. Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market
value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of
Thompson's gain on the disposition?
A) $1,300
B) $0
C) $2,500
D) $1,100
5. DAC Foundation awarded Kent $75,000 in recognition of lifelong literary achievement. Kent was not
required to render future services as a condition to receive the $75,000. What condition(s) must have
been met for the award to be excluded from Kent's gross income?
I. Kent was selected for the award by DAC without any action on Kent's part.
II. Pursuant to Kent's designation, DAC paid the amount of the award either to a governmental unit or to a
charitable organization.
A) II only.
B) Both I and II.
C) Neither I nor II.
D) I only.
Solutions:
| Question # 1 Answer: D | Question # 2 Answer: D | Question # 3 Answer: C | Question # 4 Answer: A | Question # 5 Answer: B |
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