Regulation CPA Exam

Updated August 15, 2019

Most students use our CPA Regulation Exam questions in order to practice the MCQ’s prior to the CPA exam. Our test bank features over 450 practice REG questions with answers. The level of difficulty are similar to the AICPA released MCQ’s that we also include in our test package. 

Below are thirteen sample REG questions from our REG exam test bank.  We have include detailed REG questions and answers to help you understand the study topic.

1. The debtor works at a car mechanic shop. He owes $10,000 on a private loan used for business purposes. How can the private lender collect money from the mechanic’s wages?

A. Debtor must first declare Chapter 7 bankruptcy to collect wages.
B. A non-licensed lender cannot take wages from an individual debtor.
C. After a judge issues a writ of garnishment.
D. After a judge approves of a mechanic’s lien.

ANSWER: C

A writ of garnishment is issued by a judge. The judgment enables a creditor to garnish a debtor’s wages. The wages would have to be under the control of the car mechanic shop in order for the garnishment to be issued. The garnished wages would be applied to satisfy the debt owed to the creditor.

2. Which of the following asset purchases by an individual would be a noncapital asset purchase?

A. Car used strictly for pleasure purposes.
B. Gold Coins held in a Swiss vault.
C. Warehouse property used in the individual’s small business.
D. 100 shares of Microsoft held in a personal retirement account.

ANSWER: C

Depreciable property used in your trade or business or as rental property are noncapital assets. The warehouse property is used in business and it is depreciable.

3. Loiselle wrote an email offering to sell his used I-Phone to Barney for $300. Which of the following statements is correct in regards to the effect of the offer communicated?

A. If Barney accepts the offer, Loiselle will be obligated to sell the I-Phone to Barney.
B. Barney must accept the offer in writing due to the Statute of Frauds.
C. The offer is not revocable if it is a signed in writing and is an offer to sell goods.
D. Barney may accept the offer until the offer is explicitly withdrawn by Loiselle.

ANSWER: A

The contract is formed when the offeree accepts the offer.

4. Brad Ross purchased land and a building which will be used in connection with Ross’ business. The costs associated with this purchase are as follows:

Cash payment $ 300,000
Sales Commission 15,000
Title fees 1,000
Title Insurance 1,000
Casualty Insurance Premium 1,000
Legal costs 3,000
What is Ross’ tax basis for the land and building?

A. $300,000
B. $321,000
C. $305,500
D. $320,000
ANSWER: D

The cost basis of real property includes a number of fees including sales commissions, title fees, title insurance and legal costs. However, casualty insurance premiums are not included in the cost basis.

5. In 2018, Greenberg, a widow living in Florida, made a $10,000 cash gift to his son. He also paid $15,000 in medical expenses directly to a hospital for his granddaughter to have cosmetic surgery. If the gift tax annual exclusion is $15,000, what was Greenberg’s taxable gift for 2018?

A. $10,000
B. $0
C. $11,000
D. $25,000

ANSWER: B

The annual exclusion for each gift to a child is $15,000 for gifts made on or after January 1, 2018. The annual exclusion applies to each gift.

The requirement is to determine the amount of Greenberg’s taxable gifts assuming that the annual exclusion is $15,000. Gifts up to $15,000 are not included when determining the amount of a donor’s taxable gifts. Subsequently, the $10,000 cash gift to his child will not result in a taxable gift.

There is an unlimited exclusion for spousal gifts, political organization gifts and for tuition or medical expenses paid for someone else. The $15,000 medical expense paid directly to the hospital is fully excluded. Therefore the two gifts did not result in a taxable gift.

6. Ron Kaiser is an investor with a annual net income of $120,000. He has a net worth of $900,000 excluding his primary residence. How much can Ron invest in crowdfunding investments?

A. $12,000
B. $100,000
C. $120,000
D. $90,000

ANSWER: D

Ron can invest up to 10% of his annual income or net worth because he makes over $100,000 annually. He is eligible to invest 10% of $900,000. Since he is not an accredited investor, the JOBS Act caps his maximum investment at $100,000.

7. Crowdstarter is an SEC-registered funding portal for start up companies. HotClick has audited financial statements for only 2018. HotClick wants to raise $3,000,000 from 1500 non-accredited investors. Each investor will only invest a maximum of $2000.

A. $1,000,000 because the company only has one year of audited financial statements
B. $3,000,000 if there are over 500 accredited investors
C. $2,000,000 because the company has one year of audited financial statements
D. $4,000,000 if each investor invests less than $2000

ANSWER: C
Under the JOBS act the total amount raised cannot be more than $2,000,000 in any 12 month period. The company has audited financial statements which raise the maximum to $2 mil from $1 mil.

8. Tony and Robert have a partnership where they fix and maintain recreational boats on the weekend. The partnership income sources for the taxable year ended December 31, 2018 were the following:

Income from operations $72,000
Tax-exempt municipal bond interest income 3,000
Dividends from stock portfolio 2,000
Net rental income of a boat slip 4,000

What is the total ordinary income of the partnership for 2018?

A. $79,000
B. $69,000
C. $63,000
D. $72,000

ANSWER: D

Ordinary income only includes income from operations. Tax-exempt interest, dividends, and net rental income are not included in the calculation of ordinary income. Therefore, total ordinary income for the partnership is $72,000.

9. Martha, Rafaela and Bob intend to form a business where they will sell used textbooks over the Internet. Martha prefers to use a business entity where she will not have to file any organization documents with the state. Which entity should they choose to satisfy Martha’s preference?

A. Limited liability company.
B. Limited partnership.
C. General partnership
D. Limited liability partnership.

ANSWER: C

This answer is correct because most general partnerships are not required to file certificates of business formation with the state.

10. Marianne has bought a vacation home in Florida. The home has fold-away bed that is mounted into a cabinet attached to the bedroom wall. Which piece of evidence is most important in determining whether this item of personal property has become a fixture?

A. A fold-away bed is an uncommon feature in most vacation homes in the region.
B. The sales agreement did not mention whether the fold-away bed was a fixture.
C. The fold-away bed costs $3000 which is over 5% of the value of the home.
D. The method of attachment are metal screws and brackets drilled into the wall.

ANSWER: D

The most important test of a fixture is its method of attachment to real property. Use of nails, bolts, cement or glue indicates permanent attachment.

11. The Mordens purchased a new car by borrowing $40,000 against their home. At the time of the car loan, the fair market value of their home was $600,000. There was no other debt on the home.  The interest on the loan qualifies in 2020 as:

A. Deductible qualified residence interest.

B. Investment interest expense.

C. Nondeductible interest.

D. Deductible personal interest.

ANSWER: C

Qualified residence interest consists of interest on acquisition indebtedness. Starting in 2019, interest on home equity indebtedness is not deductible. It does not matter that the loan was taken out prior to the law change.

12. During 2019, Paul charged $4,000 on his credit card for his dependent daughter’s medical expenses. Payment to the credit card company had not been made by the time Paul filed his income tax return for 2019. However, in 2019, Paul paid a physician $2,800 for the medical expenses of his wife, who died in 2018. Disregarding the adjusted gross income percentage threshold, what amount could Paul claim in his 2019 income tax return for medical expenses?

A. $0

B. $2,800

C. $4,000

D. $6,800

Answer: D

The medical expenses incurred by a taxpayer for himself, spouse, or a dependent are deductible when paid or charged to a credit card. The $4,000 of medical expenses for his dependent daughter is deductible by Paul for 2019 because that was when it was charged to Paul’s credit card. You look at when the payment was charged rather than when the payment was made to the credit card company.

Expenses paid for the medical care of a decedent by the decedent’s spouse are deductible as medical expenses in the year they are paid, whether the expenses are paid before or after the decedent’s death. Thus, the $2,800 of medical expenses for his deceased spouse is deductible by Paul when paid in 2019, even though his spouse died in 2018.

13. Which one of the following credits in not a component of the general business credit?

A. Alcohol fuels credit

B. Work Opportunity credit

C. Child and dependent care credit

D. Disabled access credit

Answer: C

The general business credit is a combination of several credits that provide uniform rules for current and carryback-carryover years. The general business credit is composed of numerous credits including the investment credit, work opportunity credit, alcohol fuels credit, research credit, low-income housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, empowerment zone employment credit, Indian employment credit, employer Social Security credit, orphan drug credit, the new markets credit, the small employer pension plan start-up costs credit, and the employer-provided child care credit. A general business credit in excess of the limitation amount is carried back 1 year and forward 20 years to offset tax liability in those years.

You can find over 450 more Regulation questions with detailed answers in our test bank.

The Regulation CPA Exam is widely regarded as the third most challenging section of the CPA exam.

The REG exam is 4 hours long and is split evenly between Task based simulations and multiple choice questions.

The REG multiple choice questions count for 50% of your total score. The SIM section counts for the other 50%.

During the REG Exam you will take five testlets.
1. 38 question MCQ Testlets
2. 38 question MCQ Testlet
3. Task Base Simulation Testlet with 2 Questions

***15 minute break

4. Task Based Simulation Testlet with 3 Questions
5. Task Based Simulation Testlet with 3 Questions

The study topics for the Regulation CPA exam are:

REGULATION EXAM CONTENT: