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AICPA CPA-Regulation Exam Questions
- Topic 1: Review engagement and evaluate information
- Topic 2: Planning and measurement
- Topic 3: Accounting and reporting for governmental entities.
Free AICPA CPA-Regulation Exam Actual Questions
Note: Premium Questions for CPA-Regulation were last updated On Aug. 30, 2026 (see below)
Darr, an employee of Sorce C corporation, is not a shareholder. Which of the following would be included in a taxpayer's gross income?
Choice 'd' is correct. An individual receiving common stock for services rendered must recognize the fair market value as ordinary income. Any dividends received on that stock would also result in income recognition.
Choice 'a' is incorrect. Employer-provided medical insurance is a tax-free fringe benefit.
Choices 'b' and 'c' are incorrect. Gifts and inheritances are both tax-free to the recipient. (Remember tax is often paid by the person giving the gift or the estate at death.)
Adams owns a second residence that is used for both personal and rental purposes. During 2001, Adams used the second residence for 50 days and rented the residence for 200 days. Which of the following statements is correct?
Choice 'c' is correct. Because the second property was personally used more than 14 days, any net loss from the rental of the property will be disallowed.
All related expenses must be prorated between the personal use portion and the rental activity portion.
Prorated depreciation is permitted for the rental activity.
John and Mary were divorced in 1991. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child's 18th birthday. During 1992, John paid $7,000 directly to Mary and $3,000 to Spring College for Mary's tuition. What amount of these payments should be reported as income in Mary's 1992 income tax return?
Choice 'b' is correct. Alimony would be income to Mary while child support would not. Funds qualify as child support only if 1) a specific amount is fixed or is contingent on the child's status (e.g., reaching a certain age), 2) it is paid solely for the support of minor children, and 3) it is payable by decree, instrument or agreement. The actual use of the funds is irrelevant to the issue. In this case, $2,000 (20% $10,000) qualifies as child support. The other $8,000 is alimony, which would be income to Mary.
Choice 'a' is incorrect. Take 80% of the $10,000 paid, not 80% of the $7,000 received by Mary.
Choice 'c' is incorrect. Only $8,000 would be alimony per the divorce decree (80% $10,000).
Choice 'd' is incorrect. The 20% reduction when the child turns 18 makes 20% of the $10,000 payment, or $2,000, child support, which is nontaxable to Mary.
The uniform capitalization method must be used by:
I Manufacturers of tangible personal property.
II Retailers of personal property with $2 million dollars in average annual gross receipts for the 3 preceding years.
Choice 'a' is correct. I only.
Rule: The uniform capitalization rules apply to the following:
1. Real or tangible personal property produced by the taxpayer for use in a trade or business.
2. Real or tangible personal property produced by the taxpayer for sale to customers.
3. Real or personal property acquired by the taxpayer for resale.
4. However, the uniform capitalization rules do not apply to property acquired for resale if the taxpayer's annual gross receipts for the preceding three tax years do not exceed $10,000,000 (not $2 million).
Elm Corp. is an accrual-basis calendar-year C corporation with 100,000 shares of voting common stock issued and outstanding as of December 28, 1996. On Friday, December 29, 1996, Hall surrendered 2,000 shares of Elm stock to Elm in exchange for $33,000 cash. Hall had no direct or indirect interest in Elm after the stock surrender. Additional information follows:
What amount of income did Hall recognize from the stock surrender?
Choice 'd' is correct. $17,000 capital gain.
Amount realized:
Choices 'a' and 'b' are incorrect. Dividends are distributions of earnings. These proceeds are from the sale of stock.
Choice 'c' is incorrect, per above. Accumulated earnings and profits do not effect the gain calculation, they only affect the taxability of dividends paid to shareholders.
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