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Free Questions › CPA › Taxation and Regulation
Free CPA Taxation and Regulation Practice Questions & Answers
500 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 31
An offer terminates on:
Select an option first.
Correct answer: D — Rejection, counteroffer, lapse of time, revocation, or death/incapacity of the offeror
Explanation: An offer terminates by: REJECTION; COUNTEROFFER; LAPSE of the stated or a reasonable time; REVOCATION by the offeror (before acceptance); DEATH or INCAPACITY of either party; or DESTRUCTION of the subject matter. Silence alone is generally NOT acceptance.
Question 32
The mailbox rule provides that acceptance is effective:
Select an option first.
Correct answer: B — WHEN DISPATCHED (mailed), provided the means is reasonable
Explanation: Under the MAILBOX RULE, an ACCEPTANCE is effective WHEN SENT. By contrast, REVOCATIONS, REJECTIONS and COUNTEROFFERS are effective only on RECEIPT. So a mailed acceptance can beat a revocation already in transit.
Question 33
A contract entered into by a MINOR is:
Select an option first.
Correct answer: D — VOIDABLE at the minor's option — the minor may disaffirm
Explanation: A minor's contract is VOIDABLE AT THE MINOR'S OPTION — the minor may DISAFFIRM (before, or within a reasonable time after, reaching majority). The ADULT party remains bound. Exception: contracts for NECESSARIES (food, shelter, medical care), for which the minor is liable in quantum meruit.
Question 34
Fraud in the INDUCEMENT makes a contract:
Select an option first.
Correct answer: D — VOIDABLE by the defrauded party
Explanation: FRAUD IN THE INDUCEMENT (a lie about a material fact that induced assent) makes the contract VOIDABLE. FRAUD IN THE FACTUM (the signer did not know they were signing a contract at all) makes it VOID. That distinction also determines whether the defence works against a holder in due course.
Question 35
Consequential damages are recoverable only if:
Select an option first.
Correct answer: C — They were FORESEEABLE to the breaching party at the time of contracting (Hadley v Baxendale)
Explanation: CONSEQUENTIAL (special) damages are recoverable only if they were REASONABLY FORESEEABLE at the time of CONTRACTING — the rule of Hadley v Baxendale. The plaintiff must also MITIGATE. COMPENSATORY damages, by contrast, flow naturally from the breach.
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Question 36
Specific performance is available:
Select an option first.
Correct answer: A — When the subject matter is UNIQUE — typically real estate or a rare good; NOT for personal services contracts
Explanation: SPECIFIC PERFORMANCE is an equitable remedy granted where money damages are inadequate because the subject matter is UNIQUE — real estate (always deemed unique) or a rare chattel. It is NOT available for PERSONAL SERVICES contracts, which would amount to involuntary servitude.
Question 37
Under UCC §2-207, additional terms in an acceptance BETWEEN MERCHANTS:
Select an option first.
Correct answer: C — BECOME PART of the contract, unless they materially alter it, the offer expressly limits acceptance, or the offeror objects
Explanation: UCC §2-207 (battle of the forms) rejects the mirror-image rule. BETWEEN MERCHANTS, additional terms BECOME PART of the contract UNLESS: (a) the offer expressly limits acceptance to its terms; (b) the terms MATERIALLY ALTER the contract; or (c) the offeror OBJECTS within a reasonable time.
Question 38
A third-party INTENDED beneficiary:
Select an option first.
Correct answer: C — MAY ENFORCE the contract once their rights have VESTED
Explanation: An INTENDED beneficiary (creditor or donee) MAY ENFORCE the contract once rights VEST — by assenting, suing, or materially relying on it. An INCIDENTAL beneficiary (who merely happens to benefit) has NO enforceable rights.
Question 39
A novation:
Select an option first.
Correct answer: A — SUBSTITUTES a new party for an original party, DISCHARGING the original party's obligations, with all parties' consent
Explanation: A NOVATION substitutes a NEW party for an original one, with the CONSENT OF ALL PARTIES, and DISCHARGES the original party. Contrast a mere DELEGATION of duties, which does NOT release the delegating party — they remain secondarily liable.
Question 40
Under agency law, a principal is liable for an agent's TORTS committed:
Select an option first.
Correct answer: A — WITHIN THE SCOPE OF EMPLOYMENT (respondeat superior)
Explanation: Under RESPONDEAT SUPERIOR, a principal/employer is VICARIOUSLY liable for torts an EMPLOYEE commits WITHIN THE SCOPE OF EMPLOYMENT. A 'frolic' (a substantial personal detour) falls outside the scope. Principals are generally NOT liable for the torts of INDEPENDENT CONTRACTORS.
Question 41
A disclosed principal is one whose:
Select an option first.
Correct answer: D — EXISTENCE and IDENTITY are known to the third party — the agent is generally NOT personally liable on the contract
Explanation: With a DISCLOSED principal, the third party knows both the existence and identity of the principal; the AGENT is NOT personally liable. With a PARTIALLY DISCLOSED principal (existence known, identity unknown) or an UNDISCLOSED principal, the AGENT IS personally liable on the contract.
Question 42
Under UCC Article 9, a filed financing statement (UCC-1) is generally effective for:
Select an option first.
Correct answer: C — 5 years, and may be continued
Explanation: A UCC-1 financing statement is effective for FIVE YEARS. It may be extended by filing a CONTINUATION STATEMENT within the SIX MONTHS before expiry. If it lapses, the security interest becomes UNPERFECTED and loses its priority.
Question 43
In an involuntary bankruptcy petition where the debtor has 12 or more creditors, the petition must be filed by:
Select an option first.
Correct answer: B — At least 3 creditors holding a specified minimum of unsecured claims
Explanation: With 12 OR MORE creditors, an INVOLUNTARY petition requires at least THREE creditors holding unsecured claims meeting a statutory minimum amount. With FEWER than 12 creditors, ONE creditor may file. The debtor must generally be failing to pay debts as they come due.
Question 44
A debt NOT dischargeable in bankruptcy includes:
Select an option first.
Correct answer: A — Domestic support obligations, most student loans, recent taxes, and debts arising from fraud or wilful injury
Explanation: NON-DISCHARGEABLE debts include: domestic support (alimony, child support); most STUDENT LOANS; certain TAXES; debts from FRAUD, embezzlement or larceny; debts for WILFUL AND MALICIOUS INJURY; and DUI-related liabilities. Ordinary consumer debt IS dischargeable.
Question 45
The 1934 Act requires an issuer to file Form 8-K to report:
Select an option first.
Correct answer: A — MATERIAL EVENTS between periodic reports — generally within 4 business days
Explanation: FORM 8-K is the CURRENT report, disclosing MATERIAL EVENTS as they occur — a change of auditor, a major acquisition, bankruptcy, entry into or termination of a material agreement — generally within FOUR BUSINESS DAYS. The 10-K is annual and the 10-Q is quarterly.
Question 46
Insider trading liability under Rule 10b-5 attaches to:
Select an option first.
Correct answer: C — Trading on MATERIAL NON-PUBLIC information in breach of a DUTY — including TIPPEES who know of the breach
Explanation: Insider trading requires trading on MATERIAL NON-PUBLIC information in BREACH OF A FIDUCIARY DUTY (or a duty of trust). TIPPEES are liable if the tipper breached a duty for a PERSONAL BENEFIT and the tippee KNEW or should have known. The MISAPPROPRIATION theory extends liability to outsiders who misuse confidential information.
Question 47
Under the ADEA, protected employees are those aged:
Select an option first.
Correct answer: B — 40 and over
Explanation: The AGE DISCRIMINATION IN EMPLOYMENT ACT protects workers aged 40 AND OVER, and applies to employers with 20+ employees. Note it does NOT protect younger workers from 'reverse' age discrimination.
Question 48
Workers' compensation is generally:
Select an option first.
Correct answer: B — A NO-FAULT system — the exclusive remedy for work-related injuries, barring most tort suits against the employer
Explanation: WORKERS' COMPENSATION is a NO-FAULT system: the employee need not prove employer negligence, and contributory negligence is not a defence. In exchange, it is the EXCLUSIVE REMEDY — the employee generally cannot sue the employer in tort. It is administered at the STATE level.
Question 49
A corporation's SHAREHOLDERS generally have the right to:
Select an option first.
Correct answer: A — ELECT DIRECTORS, approve fundamental changes (mergers, dissolution, charter amendments), and inspect books for a proper purpose
Explanation: SHAREHOLDERS elect DIRECTORS, approve FUNDAMENTAL corporate changes, and may inspect books and records for a PROPER PURPOSE. DIRECTORS set policy and appoint OFFICERS; OFFICERS run daily operations. Shareholders do NOT manage the business.
Question 50
Piercing the corporate veil may occur when:
Select an option first.
Correct answer: D — The corporation is a mere ALTER EGO — undercapitalised, with commingled funds and disregarded formalities — or is used to commit fraud
Explanation: Courts PIERCE THE CORPORATE VEIL, imposing personal liability on shareholders, where the corporation is an ALTER EGO: grossly undercapitalised, funds commingled, corporate formalities ignored, or the entity used to perpetrate FRAUD. Merely being small or closely held is not enough.
Question 51
Grantham Ltd offers to sell equipment to Vance Corp. Before Vance accepts, Grantham sends a revocation, but Vance mails an acceptance BEFORE receiving it. There is:
Select an option first.
Correct answer: B — A CONTRACT — acceptance is effective on DISPATCH; revocation is effective only on RECEIPT
Explanation: Under the MAILBOX RULE, ACCEPTANCE is effective WHEN SENT, whereas a REVOCATION is effective only on RECEIPT. Vance's acceptance was dispatched before it received the revocation, so a CONTRACT was formed. The timing asymmetry is the whole point of the rule.
Question 52
A creditor holds a PERFECTED security interest in inventory. A buyer purchases from the debtor's store in the ordinary course of business. The buyer:
Select an option first.
Correct answer: B — Takes FREE of the security interest (buyer in the ordinary course of business), even though it is perfected and the buyer knows of it
Explanation: A BUYER IN THE ORDINARY COURSE OF BUSINESS takes FREE of a security interest created by the seller — EVEN IF it is perfected and EVEN IF the buyer KNOWS of it. Without this rule, no one could safely buy from a store with a floor-plan financer, and commerce would seize up.
Question 53
Two creditors hold security interests in the same collateral: Creditor A filed a UCC-1 first but did not attach until later; Creditor B attached first but filed later. Priority goes to:
Select an option first.
Correct answer: A — The FIRST to FILE OR PERFECT, provided perfection is continuous — so priority turns on the earlier of filing or perfection
Explanation: The general Article 9 rule is FIRST TO FILE OR PERFECT. Creditor A FILED first, so once its interest attaches, its priority dates back to the FILING. Attachment alone (Creditor B) does not establish priority against another secured party — you must FILE or otherwise PERFECT.
Question 54
An agent exceeds their authority. The principal later learns of the act and accepts its benefits. This is:
Select an option first.
Correct answer: A — RATIFICATION — the principal is bound as if the act had been authorised from the outset
Explanation: RATIFICATION occurs when the principal, with FULL KNOWLEDGE of the material facts, ACCEPTS the benefit of an unauthorised act. The principal is then bound RETROACTIVELY, as if the agent had been authorised from the start. The principal must ratify the ENTIRE act — they cannot cherry-pick the favourable parts.
Question 55
Under §11 of the 1933 Act, a DIRECTOR (not the issuer) may escape liability by proving:
Select an option first.
Correct answer: A — DUE DILIGENCE — a reasonable investigation and a reasonable belief the statements were true
Explanation: NON-ISSUER defendants (directors, officers, underwriters, experts) may assert the DUE DILIGENCE defence: they conducted a reasonable investigation and reasonably believed the statements were true. The ISSUER itself has NO due diligence defence — its liability under §11 is effectively strict.
Question 56
A partnership dissolves. A creditor of the partnership may recover from:
Select an option first.
Correct answer: D — Partnership assets first, and then the PERSONAL assets of any general partner (joint and several liability)
Explanation: Partnership creditors reach PARTNERSHIP assets first, then the PERSONAL assets of the GENERAL partners, whose liability is JOINT AND SEVERAL. Conversely, a PERSONAL creditor of a partner reaches that partner's individual assets first — the 'marshalling of assets' rule.
Question 57
A corporation's articles of incorporation authorise 1,000,000 shares; 600,000 are issued and 100,000 are held in treasury. Shares OUTSTANDING are:
Select an option first.
Correct answer: B — 500,000
Explanation: Shares OUTSTANDING = ISSUED − TREASURY = 600,000 − 100,000 = 500,000. Authorised (1,000,000) is merely the ceiling in the charter. Only OUTSTANDING shares vote and receive dividends — treasury shares do neither.
Question 58
Under the UCC, a seller who delivers non-conforming goods before the contract time may:
Select an option first.
Correct answer: C — CURE by making a conforming delivery within the contract time, after seasonable notice
Explanation: The seller has a RIGHT TO CURE: if the time for performance has NOT expired, the seller may notify the buyer and make a conforming delivery within the contract time. A limited right to cure may also exist AFTER the deadline where the seller had reasonable grounds to believe the tender would be acceptable.
Question 59
An employee is injured while running a personal errand during work hours, having deviated 20 miles from the delivery route. The employer is:
Select an option first.
Correct answer: C — NOT liable — the employee was on a FROLIC (a substantial personal deviation) outside the scope of employment
Explanation: A FROLIC is a SUBSTANTIAL personal deviation, taking the employee OUTSIDE the scope of employment — so respondeat superior does not apply and the employer is NOT vicariously liable. A minor deviation (a 'detour') remains WITHIN the scope, and the employer IS liable.
Question 60
A shareholder brings a DERIVATIVE suit. Any recovery belongs to:
Select an option first.
Correct answer: C — The CORPORATION — the shareholder sues on the corporation's behalf
Explanation: In a DERIVATIVE suit the shareholder sues on the CORPORATION'S behalf, to enforce a right belonging to the corporation (typically against directors for breach of duty). Any RECOVERY goes to the CORPORATION, not the shareholder — though the shareholder may recover attorney's fees. A DIRECT suit, by contrast, vindicates the shareholder's own rights.
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