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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 61
A surety is DISCHARGED if the creditor:
Select an option first.
Correct answer: C — MATERIALLY MODIFIES the underlying contract without the surety's consent (e.g. extends the time for payment)
Explanation: A surety is DISCHARGED by any MATERIAL MODIFICATION of the principal obligation made WITHOUT the surety's consent — because it alters the risk the surety agreed to bear. Release of the principal debtor or of collateral by the creditor likewise discharges the surety (at least to the extent of the value lost).
Question 62
Under the Sarbanes-Oxley Act, the CEO and CFO must:
Select an option first.
Correct answer: A — CERTIFY each periodic report, and FORFEIT bonuses received in the 12 months before a restatement caused by misconduct (clawback)
Explanation: SOX requires CEO/CFO CERTIFICATION of each periodic report (§302). §304 imposes a CLAWBACK: if the issuer restates due to MISCONDUCT, the CEO and CFO must reimburse bonuses and incentive compensation received in the 12 months following the original filing, plus profits from stock sales.
Question 63
A contract is discharged by IMPOSSIBILITY when:
Select an option first.
Correct answer: B — Performance becomes OBJECTIVELY impossible — e.g. destruction of the subject matter, death of a party essential to a personal-services contract, or supervening illegality
Explanation: IMPOSSIBILITY requires OBJECTIVE impossibility ('no one could perform'), not subjective difficulty ('I cannot perform'). Recognised grounds: destruction of the specific subject matter; death or incapacity in a personal-services contract; and supervening ILLEGALITY. Mere increased COST is not impossibility, though extreme cost may support COMMERCIAL IMPRACTICABILITY under the UCC.
Question 64
The parol evidence rule bars:
Select an option first.
Correct answer: C — Evidence of PRIOR or CONTEMPORANEOUS agreements that CONTRADICT a fully integrated written contract
Explanation: The PAROL EVIDENCE RULE excludes PRIOR or CONTEMPORANEOUS agreements that contradict a FULLY INTEGRATED writing. It does NOT bar: SUBSEQUENT modifications; evidence of FRAUD, duress or mistake; evidence to explain an AMBIGUITY; or evidence of a condition precedent.
Question 65
An LLC that does NOT elect corporate status and has two members is taxed as:
Select an option first.
Correct answer: B — A PARTNERSHIP
Explanation: A MULTI-MEMBER LLC defaults to PARTNERSHIP taxation; a SINGLE-MEMBER LLC defaults to a DISREGARDED ENTITY. Either may 'CHECK THE BOX' to be taxed as a corporation, and then potentially elect S status. The LLC's legal form and its tax classification are independent questions.
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Question 66
A buyer rejects non-conforming goods. The buyer's remedies include:
Select an option first.
Correct answer: C — COVER (buy substitute goods and recover the difference), damages for non-delivery, or specific performance for unique goods
Explanation: On the seller's breach, the buyer may: REJECT non-conforming goods; COVER by purchasing substitutes and recover the difference plus incidental and consequential damages; recover damages measured by the market price less the contract price; or seek SPECIFIC PERFORMANCE where the goods are unique.
Question 67
A seller's remedies upon the buyer's breach include:
Select an option first.
Correct answer: D — RESELL the goods and recover the difference, recover the price if resale is impracticable, or recover lost profits (for a lost-volume seller)
Explanation: A seller may RESELL and recover the contract price less the resale price; recover damages measured by the contract price less market price; recover the PRICE where the goods cannot reasonably be resold; and a LOST-VOLUME seller may recover LOST PROFITS, because the resale would have happened anyway.
Question 68
An accord and satisfaction requires:
Select an option first.
Correct answer: D — An AGREEMENT to accept a DIFFERENT performance in satisfaction of an existing duty (the accord), plus PERFORMANCE of it (the satisfaction)
Explanation: An ACCORD is an agreement to accept a substituted performance; SATISFACTION is the actual performance of it. Until the accord is PERFORMED, the ORIGINAL duty is merely suspended, not discharged — so if the debtor defaults on the accord, the creditor may sue on either the accord or the original obligation.
Question 69
A liquidated damages clause is enforceable if:
Select an option first.
Correct answer: B — The actual damages were DIFFICULT TO ESTIMATE at contracting AND the stated amount is a REASONABLE forecast — not a penalty
Explanation: A LIQUIDATED DAMAGES clause is enforceable only if damages were DIFFICULT to estimate at the time of contracting and the amount is a REASONABLE FORECAST of the probable loss. If it operates as a PENALTY (grossly disproportionate, designed to coerce performance), courts will strike it down.
Question 70
An anticipatory repudiation occurs when a party:
Select an option first.
Correct answer: A — CLEARLY and UNEQUIVOCALLY indicates, BEFORE performance is due, that they will not perform — the other party may sue IMMEDIATELY
Explanation: ANTICIPATORY REPUDIATION requires a CLEAR, UNEQUIVOCAL statement (or a voluntary act making performance impossible) BEFORE performance is due. The aggrieved party may sue IMMEDIATELY, await performance for a commercially reasonable time, or suspend their own performance. Mere doubt is not repudiation — but it permits a DEMAND FOR ADEQUATE ASSURANCES.
Question 71
Under the UCC, a merchant who receives a written confirmation of an oral contract for goods over $500 and does NOT object within 10 days:
Select an option first.
Correct answer: B — IS BOUND — the merchant's confirmatory memo exception satisfies the Statute of Frauds against the non-signing merchant
Explanation: The MERCHANT'S CONFIRMATORY MEMO exception: between MERCHANTS, a signed written confirmation satisfies the Statute of Frauds against the RECIPIENT — even though they never signed — unless they OBJECT IN WRITING within 10 DAYS. Silence binds them.
Question 72
A promissory estoppel claim requires:
Select an option first.
Correct answer: C — A PROMISE, REASONABLE and FORESEEABLE RELIANCE, actual reliance to the promisee's DETRIMENT, and injustice avoidable only by enforcement
Explanation: PROMISSORY ESTOPPEL substitutes for CONSIDERATION where: a promise was made; the promisor reasonably expected reliance; the promisee actually relied to their detriment; and injustice can be avoided only by enforcing the promise. It is an equitable doctrine, and recovery may be limited to reliance damages.
Question 73
A security interest in a DEPOSIT ACCOUNT is perfected by:
Select an option first.
Correct answer: B — CONTROL only — filing does NOT perfect a security interest in a deposit account
Explanation: A security interest in a DEPOSIT ACCOUNT (as original collateral) can be perfected ONLY by CONTROL — the secured party is the bank, or becomes the account customer, or has a control agreement. FILING does NOT work. This is one of the most-tested Article 9 exceptions.
Question 74
A PMSI in INVENTORY has priority over an earlier perfected interest only if the PMSI holder:
Select an option first.
Correct answer: C — PERFECTS BEFORE the debtor receives the goods AND sends AUTHENTICATED NOTICE to prior perfected inventory financers
Explanation: A PMSI in INVENTORY requires TWO steps for superpriority: (1) PERFECT (file) BEFORE the debtor receives possession of the inventory; AND (2) send AUTHENTICATED NOTIFICATION to holders of conflicting perfected security interests. A PMSI in EQUIPMENT, by contrast, needs only perfection within 20 days of the debtor receiving possession.
Question 75
On default, a secured party may repossess collateral:
Select an option first.
Correct answer: A — WITHOUT judicial process, provided it can be done WITHOUT A BREACH OF THE PEACE
Explanation: SELF-HELP repossession is permitted WITHOUT judicial process, so long as there is NO BREACH OF THE PEACE. Entering a locked garage, using force, or proceeding over the debtor's objection breaches the peace and exposes the secured party to liability. Otherwise, the secured party must use judicial process.
Question 76
After repossession, a secured party's disposition of collateral must be:
Select an option first.
Correct answer: A — COMMERCIALLY REASONABLE in every aspect — method, manner, time, place and terms — with notice to the debtor
Explanation: Every aspect of the disposition must be COMMERCIALLY REASONABLE, and the debtor must receive reasonable NOTICE. A commercially unreasonable sale exposes the secured party to liability and may bar a DEFICIENCY judgement. The debtor also retains a right to REDEEM the collateral before disposition.
Question 77
In a Chapter 7, the debtor's EXEMPT property:
Select an option first.
Correct answer: C — Is RETAINED by the debtor — exemptions are set by federal or state law, and some states require the state list
Explanation: EXEMPT property is RETAINED by the debtor (a homestead allowance, a vehicle, tools of the trade, retirement accounts). Exemptions may be federal or state; some states have 'OPTED OUT' and require debtors to use the STATE list. Only NON-EXEMPT property is liquidated by the trustee.
Question 78
A fraudulent transfer may be avoided by the trustee if made:
Select an option first.
Correct answer: C — Within 2 YEARS before filing, with actual intent to hinder/delay/defraud creditors, OR for less than reasonably equivalent value while insolvent
Explanation: A FRAUDULENT TRANSFER (§548) may be avoided if made within TWO YEARS of filing, and either (a) with ACTUAL INTENT to hinder, delay or defraud creditors, or (b) constructively — for LESS THAN REASONABLY EQUIVALENT VALUE while the debtor was insolvent or became so. Contrast a PREFERENCE, which has a 90-day (or 1-year insider) lookback.
Question 79
A Chapter 11 reorganisation plan is confirmed if:
Select an option first.
Correct answer: A — Each impaired class ACCEPTS, or the plan is 'CRAMMED DOWN' — fair and equitable and not unfairly discriminatory to a dissenting class
Explanation: Confirmation requires acceptance by each IMPAIRED class (by more than half in number and at least two-thirds in amount of those voting), OR a CRAM DOWN, under which the court confirms over a dissenting class if the plan does not unfairly discriminate and is FAIR AND EQUITABLE (satisfying the absolute priority rule).
Question 80
Under Regulation D, a private placement exemption from 1933 Act registration:
Select an option first.
Correct answer: B — Limits sales to ACCREDITED INVESTORS and a restricted number of non-accredited investors, with resale restrictions
Explanation: REGULATION D exemptions turn on the class of purchaser: unlimited ACCREDITED investors, plus (under Rule 506(b)) up to 35 non-accredited but sophisticated purchasers, with no general solicitation. Rule 506(c) PERMITS general solicitation but restricts sales to accredited investors only, with verification. Securities sold are RESTRICTED and cannot be freely resold.
Question 81
A short-swing profit under §16(b) of the 1934 Act must be disgorged by:
Select an option first.
Correct answer: A — Officers, directors and 10% BENEFICIAL OWNERS, for profits on purchase-and-sale (or sale-and-purchase) within any 6-MONTH period
Explanation: §16(b) requires DISGORGEMENT of SHORT-SWING PROFITS by officers, directors and beneficial owners of MORE THAN 10%. It is a STRICT LIABILITY rule — NO scienter, NO proof of inside information, and no defence of good faith. Any matched purchase and sale within SIX MONTHS triggers it.
Question 82
A limited partner who participates in CONTROL of the business:
Select an option first.
Correct answer: D — May LOSE limited liability to third parties who reasonably believed them to be a general partner
Explanation: A LIMITED partner who participates in the CONTROL of the business risks losing limited liability — but only to persons who TRANSACTED with the partnership REASONABLY BELIEVING them to be a general partner. Modern statutes provide extensive 'safe harbours' (voting on fundamental matters, consulting, serving as an agent) that do NOT constitute control.
Question 83
A partner's transfer of their partnership INTEREST to an outsider conveys:
Select an option first.
Correct answer: B — Only the TRANSFERABLE INTEREST (the right to distributions) — NOT management rights or partner status, absent consent
Explanation: A partner may transfer their TRANSFERABLE INTEREST — the right to receive DISTRIBUTIONS — without the other partners' consent. But the transferee does NOT become a PARTNER and gains NO management or inspection rights without unanimous consent. This 'pick your partner' principle is fundamental to partnership law.
Question 84
A corporation's ULTRA VIRES act (beyond its stated purposes) is:
Select an option first.
Correct answer: B — Generally ENFORCEABLE by third parties; the corporation, shareholders or the state may challenge it in limited circumstances
Explanation: Modern statutes have largely ABOLISHED the ultra vires defence — a third party can enforce the contract. Ultra vires may still be raised: by a SHAREHOLDER seeking to enjoin the act; by the CORPORATION against a director or officer; or by the STATE ATTORNEY GENERAL in a dissolution proceeding.
Question 85
A director with a personal interest in a transaction may avoid liability if:
Select an option first.
Correct answer: B — The transaction is DISCLOSED and approved by disinterested directors or shareholders, OR is FAIR to the corporation
Explanation: A CONFLICTED transaction is not automatically voidable. It is protected if: (a) the material facts were DISCLOSED and it was approved by a majority of DISINTERESTED DIRECTORS; (b) it was disclosed and approved by DISINTERESTED SHAREHOLDERS; or (c) the transaction was ENTIRELY FAIR to the corporation. Any one route suffices.
Question 86
The corporate opportunity doctrine prohibits a director from:
Select an option first.
Correct answer: B — TAKING FOR THEMSELVES a business opportunity within the corporation's LINE OF BUSINESS, without first offering it to the corporation
Explanation: A director may NOT usurp a CORPORATE OPPORTUNITY — one within the corporation's line of business, which the corporation has an interest or expectancy in, and could financially undertake. The director must first DISCLOSE the opportunity and allow the corporation to reject it. This is an aspect of the duty of LOYALTY, not protected by the business judgement rule.
Question 87
Under the Worker Adjustment and Retraining Notification (WARN) Act, an employer must generally give:
Select an option first.
Correct answer: A — 60 DAYS' notice of a mass layoff or plant closing (employers with 100+ employees)
Explanation: The WARN Act requires employers with 100+ employees to give 60 DAYS' advance notice of a PLANT CLOSING or MASS LAYOFF. Exceptions include a faltering company, unforeseeable business circumstances, and natural disaster. The remedy is back pay and benefits for the notice period.
Question 88
The Fair Labor Standards Act EXEMPTS from overtime:
Select an option first.
Correct answer: A — Bona fide EXECUTIVE, ADMINISTRATIVE, PROFESSIONAL, outside sales and certain computer employees who meet BOTH a salary and a duties test
Explanation: The 'white collar' exemptions require BOTH: a SALARY BASIS test (a minimum guaranteed salary) AND a DUTIES test (the employee's primary duty must be executive, administrative or professional). Simply paying a salary does NOT create an exemption — a common and expensive employer misconception.
Question 89
An employer's liability for an INDEPENDENT CONTRACTOR's torts is:
Select an option first.
Correct answer: B — Generally NONE — unless the work is inherently dangerous, the duty is non-delegable, or the employer was negligent in selection
Explanation: An employer is generally NOT vicariously liable for an INDEPENDENT CONTRACTOR's torts. Exceptions: INHERENTLY DANGEROUS activities; NON-DELEGABLE duties; and NEGLIGENT SELECTION of the contractor. The distinction between employee and contractor turns on the RIGHT TO CONTROL the manner of work.
Question 90
A negotiable instrument must contain:
Select an option first.
Correct answer: B — An UNCONDITIONAL promise or order to pay a FIXED amount of money, payable on demand or at a definite time, to order or bearer, and be signed
Explanation: NEGOTIABILITY requires: a WRITING; SIGNED by the maker/drawer; an UNCONDITIONAL promise or order; to pay a FIXED AMOUNT of money; ON DEMAND or at a DEFINITE TIME; payable TO ORDER or TO BEARER; and NO other undertaking. Adding a condition ('payable if the goods conform') destroys negotiability.
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