CPA REGULATION (REG) PRACTICE EXAM – PAPER 2
| INTERMEDIATE LEVEL | COMPREHENSIVE REVIEW
WITH MODEL ANSWERS & DETAILED
EXPLANATIONS | 2026 EDITION
Course Name
Certified Public Accountant (CPA) – Regulation (REG)
Level
Professional Certification (Intermediate)
Short Introduction
This original CPA Regulation (REG) Practice Exam – Paper 2 is designed to
provide intermediate-level preparation in federal taxation, business entity taxation,
property transactions, ethics, professional responsibilities, and business law. It
includes original exam-style questions with model answers and detailed italicised
explanations to help CPA candidates strengthen their understanding of REG
concepts.
Instructions
Answer all 40 questions.
Apply relevant federal tax principles and legal concepts.
Select the best answer for multiple-choice questions.
Provide complete responses for scenario-based questions.
Review explanations to reinforce CPA REG concepts.
Exam Structure
15 Multiple Choice Questions
10 Short Answer Questions
10 Application / Scenario Questions
5 Higher-Order Thinking Questions
,Total Questions: 40
SECTION A – MULTIPLE CHOICE QUESTIONS
Question 1
A taxpayer receives wages of $90,000, interest income of $3,000, and dividend
income of $2,000 during the year.
What is the taxpayer's gross income before adjustments?
A. $90,000
B. $93,000
C. $95,000
D. $98,000
Answer: C
Explanation: Gross income includes taxable wages, interest income, and dividend
income. The total is $90,000 + $3,000 + $2,000 = $95,000.
Question 2
Which of the following is generally considered an itemized deduction?
A. Traditional IRA contribution
B. Student loan interest deduction
C. Charitable contribution deduction
D. Self-employed health insurance deduction
Answer: C
, Explanation: Charitable contributions are generally classified as itemized
deductions, while certain other deductions reduce income before calculating
adjusted gross income.
Question 3
A taxpayer sells an investment asset held for six months at a gain.
How is the gain generally classified?
A. Long-term capital gain
B. Short-term capital gain
C. Ordinary dividend income
D. Tax-exempt income
Answer: B
Explanation: Capital assets held for one year or less generally produce short-term
capital gains or losses.
Question 4
Which entity is generally a pass-through entity for federal income tax purposes?
A. C Corporation
B. Partnership
C. Taxable corporation
D. Public company
Answer: B
| INTERMEDIATE LEVEL | COMPREHENSIVE REVIEW
WITH MODEL ANSWERS & DETAILED
EXPLANATIONS | 2026 EDITION
Course Name
Certified Public Accountant (CPA) – Regulation (REG)
Level
Professional Certification (Intermediate)
Short Introduction
This original CPA Regulation (REG) Practice Exam – Paper 2 is designed to
provide intermediate-level preparation in federal taxation, business entity taxation,
property transactions, ethics, professional responsibilities, and business law. It
includes original exam-style questions with model answers and detailed italicised
explanations to help CPA candidates strengthen their understanding of REG
concepts.
Instructions
Answer all 40 questions.
Apply relevant federal tax principles and legal concepts.
Select the best answer for multiple-choice questions.
Provide complete responses for scenario-based questions.
Review explanations to reinforce CPA REG concepts.
Exam Structure
15 Multiple Choice Questions
10 Short Answer Questions
10 Application / Scenario Questions
5 Higher-Order Thinking Questions
,Total Questions: 40
SECTION A – MULTIPLE CHOICE QUESTIONS
Question 1
A taxpayer receives wages of $90,000, interest income of $3,000, and dividend
income of $2,000 during the year.
What is the taxpayer's gross income before adjustments?
A. $90,000
B. $93,000
C. $95,000
D. $98,000
Answer: C
Explanation: Gross income includes taxable wages, interest income, and dividend
income. The total is $90,000 + $3,000 + $2,000 = $95,000.
Question 2
Which of the following is generally considered an itemized deduction?
A. Traditional IRA contribution
B. Student loan interest deduction
C. Charitable contribution deduction
D. Self-employed health insurance deduction
Answer: C
, Explanation: Charitable contributions are generally classified as itemized
deductions, while certain other deductions reduce income before calculating
adjusted gross income.
Question 3
A taxpayer sells an investment asset held for six months at a gain.
How is the gain generally classified?
A. Long-term capital gain
B. Short-term capital gain
C. Ordinary dividend income
D. Tax-exempt income
Answer: B
Explanation: Capital assets held for one year or less generally produce short-term
capital gains or losses.
Question 4
Which entity is generally a pass-through entity for federal income tax purposes?
A. C Corporation
B. Partnership
C. Taxable corporation
D. Public company
Answer: B
