Free Questions › CPA › Taxation and Regulation
Free CPA Taxation and Regulation Practice Questions & Answers
498 exam-style Taxation and Regulation questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 1
The six essential elements of a valid contract are:
Select an option first.
Correct answer: B — Offer, acceptance, consideration, capacity, legality and mutual assent
Explanation: A valid contract requires: OFFER, ACCEPTANCE, CONSIDERATION, CAPACITY, LEGALITY and MUTUAL ASSENT. Note that a WRITING is NOT generally required — only contracts falling within the Statute of Frauds must be in writing.
Question 2
Under the COMMON LAW mirror-image rule, an acceptance that adds a new term is:
Select an option first.
Correct answer: D — A COUNTEROFFER, which rejects the original offer
Explanation: At COMMON LAW (services, real estate, employment), acceptance must MIRROR the offer exactly. Any change makes it a COUNTEROFFER, which REJECTS the original offer. The UCC (goods) relaxes this via §2-207, under which additional terms may become part of the contract between merchants.
Question 3
The Statute of Frauds (MY LEGS) requires a writing for a contract involving:
Select an option first.
Correct answer: C — The sale of goods of $500 or more (UCC §2-201)
Explanation: MY LEGS: Marriage consideration; Year (cannot be performed within one year); Land; Executor paying a decedent's debts personally; Goods of $500 or MORE (UCC §2-201); Surety. Note the threshold is $500 OR MORE, and it applies only to GOODS.
Question 4
A contract within the Statute of Frauds that is NOT in writing is:
Select an option first.
Correct answer: B — VOIDABLE / unenforceable — it may still be performed voluntarily, but it cannot be enforced in court
Explanation: An oral contract within the Statute of Frauds is UNENFORCEABLE, not VOID. The parties may perform it voluntarily; what they cannot do is compel performance through the courts. Also note that the writing need be signed only by the party TO BE CHARGED (the one being sued), not by both.
Question 5
Under UCC Article 2, a 'merchant' is one who:
Select an option first.
Correct answer: A — DEALS in goods of the kind, or by occupation holds themselves out as having knowledge or skill peculiar to the goods
Explanation: A MERCHANT deals in goods of the KIND involved, or by occupation holds out as having special knowledge or skill regarding those goods. Merchant status matters because several UCC rules apply ONLY between merchants — including the firm offer rule and the battle-of-the-forms provisions of §2-207.
Get the full CPA question bank — free
Drop your email and we'll send you fresh CPA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 6
A UCC 'firm offer' by a merchant is irrevocable:
Select an option first.
Correct answer: C — For the time stated, or a reasonable time — but in NO EVENT more than 3 months — if made in a SIGNED WRITING
Explanation: A FIRM OFFER requires: a MERCHANT, a SIGNED WRITING, and an assurance the offer will be held open. It is then irrevocable WITHOUT CONSIDERATION for the time stated or a reasonable time, capped at THREE MONTHS. At common law, an option contract would require consideration.
Question 7
Consideration requires:
Select an option first.
Correct answer: C — A bargained-for exchange of legal value — each party gives up something of legal detriment
Explanation: CONSIDERATION is a BARGAINED-FOR EXCHANGE of legal value. Courts do NOT examine the ADEQUACY of consideration (a peppercorn suffices) — only that it exists. Past consideration and a pre-existing legal duty are NOT valid consideration.
Question 8
The four types of agent authority are:
Select an option first.
Correct answer: B — Express, implied, apparent and ratification
Explanation: EXPRESS (explicitly stated); IMPLIED (incidental or customary to the express); APPARENT (the PRINCIPAL'S conduct leads a third party to reasonably believe authority exists); and RATIFICATION (the principal accepts an unauthorised act after the fact).
Question 9
Apparent authority arises from the conduct of:
Select an option first.
Correct answer: C — The PRINCIPAL
Explanation: APPARENT authority arises ONLY from the PRINCIPAL'S conduct — the principal does or says something that leads a third party reasonably to believe the agent has authority. An agent CANNOT create their own authority by claiming to have it; that is the entire doctrinal point.
Question 10
Under UCC Article 9, ATTACHMENT of a security interest requires:
Select an option first.
Correct answer: C — Value given, the debtor has rights in the collateral, and an authenticated security agreement
Explanation: ATTACHMENT (three requirements): (1) VALUE has been given by the secured party; (2) the DEBTOR has RIGHTS in the collateral; and (3) there is an AUTHENTICATED SECURITY AGREEMENT (or the creditor has possession/control). Attachment makes the interest enforceable BETWEEN the parties.
Question 11
PERFECTION of a security interest is what gives the secured party:
Select an option first.
Correct answer: C — PRIORITY against THIRD PARTIES (other creditors and purchasers)
Explanation: ATTACHMENT creates rights BETWEEN the parties. PERFECTION establishes PRIORITY against the WORLD — other creditors, purchasers and a bankruptcy trustee. Methods include filing a UCC-1, possession, control (deposit accounts), and automatic perfection (a PMSI in consumer goods).
Question 12
A purchase money security interest (PMSI) in CONSUMER GOODS is perfected:
Select an option first.
Correct answer: D — AUTOMATICALLY on attachment — no filing is required
Explanation: A PMSI in CONSUMER GOODS perfects AUTOMATICALLY upon attachment — no filing needed. (A PMSI in INVENTORY, by contrast, requires filing BEFORE the debtor receives the goods AND notice to prior perfected inventory financers.) This automatic perfection is a frequently tested exception.
Question 13
A holder in due course (HDC) takes an instrument:
Select an option first.
Correct answer: C — For value, in good faith, and without notice of defects, dishonour or claims
Explanation: An HDC takes: (1) for VALUE, (2) in GOOD FAITH, and (3) WITHOUT NOTICE of any defect, dishonour, or claim. An HDC takes free of PERSONAL defences but remains subject to REAL defences.
Question 14
A REAL defence (good even against an HDC) includes:
Select an option first.
Correct answer: A — FRAUD IN THE FACTUM (the signer did not know they were signing an instrument)
Explanation: REAL defences (good against everyone, including an HDC): Fraud in the FACTUM, Forgery, Infancy, Illegality, Duress, Incapacity, Discharge in Bankruptcy, Material Alteration, and Statute of Limitations. PERSONAL defences (cut off by an HDC) include lack of consideration, fraud in the INDUCEMENT, and breach of warranty.
Question 15
Chapter 7 bankruptcy involves:
Select an option first.
Correct answer: A — LIQUIDATION — a trustee sells non-exempt assets and unsecured debts are discharged
Explanation: CHAPTER 7 = LIQUIDATION. A trustee collects and sells the non-exempt assets, distributes the proceeds, and the remaining unsecured debts are DISCHARGED. Chapter 11 = REORGANISATION (debtor-in-possession). Chapter 13 = a wage-earner's REPAYMENT plan over 3–5 years.
Question 16
In bankruptcy, which claim has the HIGHEST priority among unsecured claims?
Select an option first.
Correct answer: C — Domestic support obligations (alimony and child support)
Explanation: The priority order for unsecured claims begins with: (1) DOMESTIC SUPPORT OBLIGATIONS; (2) administrative expenses of the estate; (3) gap claims in involuntary cases; (4) employee WAGES (subject to a cap and a lookback period); (5) employee benefit plan contributions; and so on, with TAXES and finally GENERAL unsecured creditors further down.
Question 17
A preferential transfer that a bankruptcy trustee may avoid is one made:
Select an option first.
Correct answer: B — To a creditor, for an antecedent debt, while INSOLVENT, within 90 DAYS before filing (or 1 YEAR for insiders), giving the creditor more than they would receive in Chapter 7
Explanation: A PREFERENCE has five elements: to or for a CREDITOR; on account of an ANTECEDENT debt; while the debtor was INSOLVENT; within 90 DAYS of filing (extended to ONE YEAR for INSIDERS); and enabling the creditor to receive MORE than under a Chapter 7 distribution. The trustee may AVOID it, clawing the payment back into the estate.
Question 18
The Securities Act of 1933 governs:
Select an option first.
Correct answer: C — The ISSUANCE of new securities — registration and prospectus requirements
Explanation: The 1933 ACT governs the ISSUANCE (initial distribution) of securities: registration on Form S-1 and delivery of a prospectus. The 1934 ACT governs the ongoing TRADING of securities: periodic reporting (10-K, 10-Q, 8-K), proxy rules, and antifraud provisions such as Rule 10b-5. Remember it as '33 gets it out, '34 keeps it honest.
Question 19
Under Section 11 of the 1933 Act, a plaintiff must prove:
Select an option first.
Correct answer: A — A material misstatement or omission in the registration statement and damages — reliance and scienter are NOT required
Explanation: §11 imposes near-STRICT liability on the issuer: the plaintiff need only show a MATERIAL misstatement or omission in the REGISTRATION STATEMENT, and damages. SCIENTER and RELIANCE are NOT required. Non-issuer defendants (directors, underwriters, experts) may assert a DUE DILIGENCE defence — a defence NOT available to the issuer itself.
Question 20
Rule 10b-5 under the 1934 Act requires proof of:
Select an option first.
Correct answer: C — SCIENTER (intent to deceive or reckless disregard), a material misstatement, reliance, causation and damages
Explanation: Rule 10b-5 requires SCIENTER — an intent to deceive, manipulate or defraud, or recklessness. Mere NEGLIGENCE is insufficient. The plaintiff must also show a MATERIAL misrepresentation, RELIANCE, CAUSATION and DAMAGES, in connection with the purchase or sale of a security. That scienter requirement is the key difference from §11.
Question 21
Federal employment law thresholds: Title VII and the ADA apply to employers with:
Select an option first.
Correct answer: D — 15 or more employees
Explanation: TITLE VII and the ADA: 15+ employees. ADEA (age, protecting those 40 and over): 20+ employees. FMLA: 50+ employees. The ladder 15 / 20 / 50 is worth memorising — a small employer can be entirely exempt from Title VII, which surprises candidates.
Question 22
The FLSA requires overtime pay at:
Select an option first.
Correct answer: B — 1.5 times the regular rate for hours worked over 40 in a workweek
Explanation: The FAIR LABOR STANDARDS ACT requires overtime at ONE-AND-A-HALF times the regular rate for hours worked over 40 in a WORKWEEK (not per day). It also sets the federal minimum wage. EXEMPT employees (executive, administrative, professional) are not entitled to overtime.
Question 23
A general partner's liability for partnership debts is:
Select an option first.
Correct answer: B — UNLIMITED and JOINT AND SEVERAL
Explanation: A GENERAL PARTNER has UNLIMITED, JOINT AND SEVERAL personal liability for partnership obligations. A LIMITED partner's liability is limited to their capital contribution — provided they do not participate in CONTROL of the business, which would strip that protection.
Question 24
A limited liability company (LLC) member's liability is generally:
Select an option first.
Correct answer: A — LIMITED to their investment — members are shielded from the LLC's debts
Explanation: An LLC provides LIMITED LIABILITY to all members — the central reason for its popularity — while permitting PASS-THROUGH taxation. It combines the liability shield of a corporation with the tax flexibility of a partnership.
Question 25
The business judgement rule protects a director who acts:
Select an option first.
Correct answer: D — In GOOD FAITH, on an INFORMED basis, and in the honest belief the action is in the corporation's best interests
Explanation: The BUSINESS JUDGEMENT RULE shields directors from liability for decisions that turn out badly, PROVIDED they acted in GOOD FAITH, on an INFORMED basis, and in the honest belief they were serving the corporation's best interests. It does NOT protect fraud, self-dealing, bad faith, or gross negligence.
Question 26
A corporation's directors owe fiduciary duties of:
Select an option first.
Correct answer: D — Care and loyalty
Explanation: Directors owe the duty of CARE (act with the care an ordinarily prudent person would exercise) and the duty of LOYALTY (act in the corporation's interest, not their own — no self-dealing, no usurping corporate opportunities). The business judgement rule protects the duty of care, but NOT breaches of loyalty.
Question 27
Under the Uniform Commercial Code, risk of loss for goods shipped FOB SHIPPING POINT passes to the buyer:
Select an option first.
Correct answer: A — When the goods are delivered to the CARRIER
Explanation: FOB SHIPPING POINT: risk of loss passes when the goods are DELIVERED TO THE CARRIER. FOB DESTINATION: risk passes when the goods are TENDERED at the destination. The shipping term governs both risk of loss and, for accounting, the timing of the sale.
Question 28
The perfect tender rule under the UCC allows a buyer to reject goods that:
Select an option first.
Correct answer: D — Fail in ANY respect to conform to the contract
Explanation: The PERFECT TENDER rule permits the buyer to reject goods that fail in ANY RESPECT to conform — a strict standard unique to the UCC. It is softened by the seller's right to CURE within the contract time, and by course of dealing and usage of trade.
Question 29
An implied warranty of MERCHANTABILITY arises when:
Select an option first.
Correct answer: A — The seller is a MERCHANT with respect to goods of that kind
Explanation: The implied warranty of MERCHANTABILITY (the goods are fit for their ordinary purpose) arises automatically whenever the seller is a MERCHANT in goods of that kind. The implied warranty of FITNESS FOR A PARTICULAR PURPOSE arises when the seller knows the buyer's particular purpose AND the buyer relies on the seller's skill — and it applies to ANY seller, merchant or not.
Question 30
A surety who pays the principal debtor's obligation is entitled to:
Select an option first.
Correct answer: A — REIMBURSEMENT from the principal debtor, and SUBROGATION to the creditor's rights
Explanation: A SURETY who pays has the right of REIMBURSEMENT (recover from the principal debtor), SUBROGATION (step into the creditor's shoes, including any security interests), and — where co-sureties exist — CONTRIBUTION from the other co-sureties for their proportionate shares.
More free CPA topics
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.