CPA REGULATION (REG) PRACTICE EXAM – PAPER 1
| FOUNDATION LEVEL | COMPREHENSIVE REVIEW
WITH MODEL ANSWERS & DETAILED
EXPLANATIONS | 2026 EDITION
Course Name
Certified Public Accountant (CPA) – Regulation (REG)
Level
Professional Certification
Short Introduction
This original CPA Regulation (REG) Practice Exam – Paper 1 is designed to
help CPA candidates develop foundational knowledge in federal taxation, business
law, ethics, professional responsibilities, and legal concepts affecting accountants.
It includes original exam-style questions with model answers and detailed
italicised explanations to support effective CPA REG preparation.
Instructions
Answer all 40 questions.
Read each question carefully before selecting the best answer.
Apply relevant tax, legal, and ethical principles.
Complete calculations where required.
Review explanations to strengthen understanding.
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
Which of the following is generally included in an individual's gross income for
federal tax purposes?
A. Life insurance proceeds received due to death
B. Gifts received from family members
C. Wages earned from employment
D. Municipal bond interest
Answer: C
Explanation: Wages are taxable income because they represent compensation
received for services performed. Certain items such as gifts, life insurance
proceeds, and municipal bond interest may receive special tax treatment.
Question 2
The primary purpose of the Internal Revenue Code is to:
A. Establish accounting standards
B. Provide federal tax laws and regulations
C. Regulate financial statement audits
D. Govern corporate mergers
Answer: B
, Explanation: The Internal Revenue Code contains federal tax laws governing
taxation of individuals, businesses, estates, and trusts.
Question 3
Which filing status generally provides the most favorable tax treatment for a
qualifying unmarried taxpayer supporting a dependent?
A. Single
B. Married Filing Separately
C. Head of Household
D. Qualifying Widow(er)
Answer: C
Explanation: Head of Household status may provide more favorable tax rates and
a higher standard deduction than Single status for eligible taxpayers.
Question 4
A taxpayer's basis in property generally represents:
A. The property's current market value
B. The taxpayer's investment in the property for tax purposes
C. The amount of annual depreciation expense
D. The property's selling price
Answer: B
Explanation: Tax basis represents the taxpayer's investment in an asset and is used
to determine gain or loss when the property is disposed of.
| FOUNDATION LEVEL | COMPREHENSIVE REVIEW
WITH MODEL ANSWERS & DETAILED
EXPLANATIONS | 2026 EDITION
Course Name
Certified Public Accountant (CPA) – Regulation (REG)
Level
Professional Certification
Short Introduction
This original CPA Regulation (REG) Practice Exam – Paper 1 is designed to
help CPA candidates develop foundational knowledge in federal taxation, business
law, ethics, professional responsibilities, and legal concepts affecting accountants.
It includes original exam-style questions with model answers and detailed
italicised explanations to support effective CPA REG preparation.
Instructions
Answer all 40 questions.
Read each question carefully before selecting the best answer.
Apply relevant tax, legal, and ethical principles.
Complete calculations where required.
Review explanations to strengthen understanding.
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
Which of the following is generally included in an individual's gross income for
federal tax purposes?
A. Life insurance proceeds received due to death
B. Gifts received from family members
C. Wages earned from employment
D. Municipal bond interest
Answer: C
Explanation: Wages are taxable income because they represent compensation
received for services performed. Certain items such as gifts, life insurance
proceeds, and municipal bond interest may receive special tax treatment.
Question 2
The primary purpose of the Internal Revenue Code is to:
A. Establish accounting standards
B. Provide federal tax laws and regulations
C. Regulate financial statement audits
D. Govern corporate mergers
Answer: B
, Explanation: The Internal Revenue Code contains federal tax laws governing
taxation of individuals, businesses, estates, and trusts.
Question 3
Which filing status generally provides the most favorable tax treatment for a
qualifying unmarried taxpayer supporting a dependent?
A. Single
B. Married Filing Separately
C. Head of Household
D. Qualifying Widow(er)
Answer: C
Explanation: Head of Household status may provide more favorable tax rates and
a higher standard deduction than Single status for eligible taxpayers.
Question 4
A taxpayer's basis in property generally represents:
A. The property's current market value
B. The taxpayer's investment in the property for tax purposes
C. The amount of annual depreciation expense
D. The property's selling price
Answer: B
Explanation: Tax basis represents the taxpayer's investment in an asset and is used
to determine gain or loss when the property is disposed of.
