CPA REG Practice Questions and Sample Test

How to use these REG practice questions

These original examples are short teaching exercises, not recalled or official CPA questions. They cover selected individual tax, property, entity and business-law reasoning. Use them to practise reading the facts and explaining a rule; they do not represent the full REG blueprint or predict the content of a future exam.

Attempt each item before reading the answer. Write down the relevant taxpayer or entity, transaction date, tax year and fact that controls the result. If a question depends on a rule that changes by year, follow the effective-date assumption stated in the prompt. Verify technical study against the current AICPA blueprint and reliable tax materials.

Question 1: accountable plan reimbursement

A calendar-year corporation reimburses an employee for $640 of documented business travel under a plan requiring timely substantiation and return of excess advances. The employee submits receipts and a business purpose within the plan deadline. How should the reimbursement generally be treated for federal income tax purposes under an accountable plan?

• A. Include the reimbursement in wages because the employee received cash.
• B. Exclude the properly substantiated reimbursement from wages under the stated accountable-plan facts.
• C. Treat the amount as a dividend because the corporation paid an employee.
• D. Defer all reimbursement until the employee files an individual tax return.

Answer: B. Under the stated facts, the employee substantiates a business expense and the plan requires excess advances to be returned. Those are central accountable-plan features, so the reimbursement generally is not treated as wages. Cash payment alone does not make the reimbursement compensation. A different result may follow if the employee fails to substantiate or retains excess funds.

Question 2: adjusted basis and sale

A taxpayer bought business equipment for $30,000 and claimed $18,000 of depreciation deductions before selling it for $16,000. Ignore selling costs and assume the stated basis and deductions are complete. What is the adjusted basis and realized gain or loss before applying character and recognition rules?

• A. Adjusted basis $30,000; realized loss $14,000.
• B. Adjusted basis $12,000; realized gain $4,000.
• C. Adjusted basis $18,000; realized loss $2,000.
• D. Adjusted basis $12,000; realized loss $4,000.

Answer: B. Adjusted basis is $30,000 cost minus $18,000 depreciation, or $12,000. Amount realized is $16,000, so realized gain is $4,000. This calculation does not by itself determine the gain’s character or whether any special rule applies. The other choices either fail to reduce basis for depreciation or subtract in the wrong direction.

Question 3: contract acceptance

A buyer sends a signed offer to purchase equipment, stating that acceptance must be communicated by Friday. On Thursday, the seller mails an unconditional acceptance, but the buyer receives it the following Monday. Which fact is most important when analyzing whether a contract was formed under the stated communication requirement?

• A. Whether the buyer required receipt by Friday and whether the acceptance complied with that condition.
• B. Whether the equipment is depreciable.
• C. Whether the seller reports on a cash basis.
• D. Whether the buyer has filed a tax return for the year.

Answer: A. The question makes the stated communication condition central. Analyze the offer’s terms and applicable acceptance rule; the unrelated tax and accounting details do not decide contract formation. In a real fact pattern, additional facts and governing law could affect the result.

Simulation-style case: compare entity-level and owner-level facts

A corporation reports $90,000 of taxable income before a proposed distribution to its sole shareholder. The shareholder has stock basis of $14,000 and receives $20,000 cash. Assume the corporation has sufficient earnings and profits, the distribution is not part of liquidation, and no other facts alter the general federal tax treatment. Identify the first two questions to resolve before determining the shareholder’s full tax result.

1. Confirm the entity classification and whether the distribution is treated as a dividend to the extent of earnings and profits.
2. Determine the remaining distribution treatment after the dividend portion, applying the shareholder’s stock basis and the facts given.

Explanation: The corporate income and shareholder distribution are separate tax questions. Begin by determining the distribution’s treatment under the stated earnings-and-profits assumption, then consider any amount beyond that portion and the shareholder’s basis. Do not subtract the cash distribution from the corporation’s taxable income or treat the shareholder’s stock basis as a deduction against the corporation’s income. The case is intentionally limited; real outcomes depend on complete records and applicable law.

Turn wrong answers into study actions

For each miss, name the type of error. A rule gap calls for focused learning; a fact-reading miss calls for slower issue spotting; a calculation error calls for a written sequence; confusion between entity and owner treatment calls for a comparison table. Then solve a fresh problem with different numbers or facts rather than memorizing this answer.

For longer simulations, inspect the exhibits, note dates and taxpayer identities, identify the requested deliverable, and separate computation from legal classification. Check that each response answers the field asked for and that a tax-year assumption is consistent throughout.

The AICPA sample test is for software familiarity, not a readiness score. Use the blueprint to check scope and a complete current resource for technical coverage.

Applied examples and planning

Use these original mini-cases to practice the reasoning chain. They are not copied exam questions and do not reproduce an official testlet. Question 1: An individual has wages of $61,000 and taxable interest of $700. No exclusion is stated. The task asks for gross income. Answer: $61,700. The common distractor of $61,000 omits interest; subtracting an adjustment not requested would answer a different measure. The first step is to mark “gross income,” not to proceed through the entire return. Question 2: Equipment is sold for $22,000. Selling costs are $1,000 and adjusted basis is $15,500. What is amount realized and realized gain? Amount realized is $21,000; realized gain is $5,500. The distractor $6,500 subtracts basis from gross price and misses selling costs. Keep the two requested outputs separate. Question 3: A corporation employee routinely signs customer orders up to $10,000. The company tells customers about that limit. The employee signs a $7,500 order with a customer. What fact most directly supports the company being bound? The established role and communicated limit support apparent authority. The employee’s title alone is not the reason; the company’s conduct gives the customer a reasonable basis to believe the authority exists. A $40,000 loan signed by the same employee would require different facts. Question 4: An owner begins with basis of $9,000, contributes $2,000, is allocated $1,500 of income, and receives a $3,000 distribution. What is the preliminary ending basis before other adjustments? $9,500. The calculation is 9,000 + 2,000 + 1,500 - 3,000. The $3,000 distribution is not simply added to income. Check for other supplied adjustments before treating the figure as final. In reviewing practice questions, explain each distractor as a specific error: omitted item, wrong tax measure, incorrect taxpayer, double-counted cost, or unsupported assumption. Then change one fact and solve again. For example, change the sale price but hold basis and selling costs constant; your method should still work. A practice set is most valuable when it exposes a rule you can retrieve and use in a different scenario, not when it produces a familiar percentage. For a full practice cycle, combine multiple-choice questions with at least one simulation. Track accuracy by domain and time, but do not treat a commercial score as an official scaled score. Complete the set without pausing to inspect explanations, then review. On a later day, retest the rule with fresh facts. This is a better readiness signal than repeating a question bank until you recognize the answer wording.

Additional application and review

Question 5: A taxpayer asks for adjusted gross income. The facts state gross income of $52,400 and an allowed adjustment of $1,600, with no other relevant items. The answer is $50,800. A choice of $52,400 reports gross income, while a choice subtracting an unstated standard deduction answers a later tax measure. The command phrase controls the stage. Question 6: A prompt says an agent signed an agreement. The principal had previously instructed the agent to sign contracts up to $5,000, and the agreement is $4,000. Which fact supports authority? The principal’s communicated instruction supports actual authority. A distractor relying only on the agent’s title overlooks the source of authorization. If the agreement were $9,000, the stated limit would matter and more facts would be needed to decide whether apparent authority or ratification applies. Question 7: A tax simulation includes a current-year purchase record and a prior-year depreciation schedule. The task asks for current adjusted basis. Both exhibits may matter: the purchase record gives cost, and the depreciation schedule shows basis reductions. A distractor using purchase price alone omits depreciation. First check dates and asset identity so you do not apply a schedule to the wrong item. After each question, write a one-line explanation for every tempting distractor. A distractor usually represents a predictable shortcut: omit interest, use gross sale proceeds, report the wrong tax stage, or assume an authority fact not given. Naming that shortcut helps you recognize it in a new problem. Do not memorize these practice numbers; change the amounts and re-solve the same structure.