Preparing for the CPA REG exam goes beyond multiple-choice questions—it requires mastering Task-Based Simulations (TBSs). In this Part 2 (Scenarios 6–10), we provide realistic CPA REG TBS practice questions with step-by-step solutions. Each scenario covers taxation, ethics, partnerships, corporate contributions, and like-kind exchanges—core topics tested on exam day
CPA REG TBS Part 2 (Scenarios 6–10)
TBS 6 – Individual Taxable Income
Scenario:
Sarah, a single taxpayer, earned the following in 2023:
- Wages: $60,000
- Interest income (bank savings): $2,000
- Long-term capital gain: $5,000
- Traditional IRA deduction: $4,000
- Itemized deductions: $10,000
Requirement:
Calculate Sarah’s taxable income.
Solution:
- Gross Income:
Wages $60,000 + Interest $2,000 + Capital gain $5,000 = $67,000 - Adjustments (Above the Line):
- IRA deduction = $4,000
Adjusted Gross Income (AGI) = $67,000 – $4,000 = $63,000
- IRA deduction = $4,000
- Deductions:
- Standard deduction (2023, single) = $13,850
- Itemized = $10,000
Use larger = $13,850
- Taxable Income:
$63,000 – $13,850 = $49,150
✅ Answer: Sarah’s taxable income = $49,150
Explanation: Always compare itemized vs. standard deduction.
TBS 7 – Partnership Basis Adjustment
Scenario:
John is a 50% partner in J&K Partnership. His beginning basis is $40,000. During the year:
- Share of income: $20,000
- Share of municipal bond interest: $2,000
- Distribution received: $15,000
Requirement:
Compute John’s ending partnership basis.
Solution:
- Beginning basis = $40,000
- Share of income = + $20,000 → $60,000
- Tax-exempt income = + $2,000 → $62,000
- – Distributions = – $15,000 → $47,000
✅ Answer: John’s ending partnership basis = $47,000
Explanation: Basis increases with income (including tax-exempt) and decreases with distributions.
TBS 8 – Corporate Charitable Contribution Limit
Scenario:
XYZ Corp has taxable income of $500,000 before charitable contributions. During the year, it donates $100,000 to qualified charities.
Requirement:
Determine the deductible contribution and carryforward (if any).
Solution:
- Deduction limited to 10% of taxable income (pre-2018) and 25% under CARES Act (temporary). Assume 2023 limit = 10%.
- Limit = 10% × $500,000 = $50,000
- Actual donation = $100,000 → Deductible $50,000
- Excess = $50,000 → Carryforward 5 years
✅ Answer: Deductible = $50,000, Carryforward = $50,000
Explanation: Corporations can deduct up to 10% (or 25% if extended) of taxable income for charitable gifts.
TBS 9 – Like-Kind Exchange
Scenario:
Anna exchanged old equipment (basis $30,000, FMV $50,000) for new equipment (FMV $55,000) plus $5,000 cash paid.
Requirement:
Calculate realized gain, recognized gain, and basis of new equipment.
Solution:
- Realized gain = FMV received – Basis = ($55,000 – $5,000 cash given) – $30,000 = $20,000
- Boot given = $5,000 → No gain recognized (only boot received triggers gain).
- Recognized gain = $0
- Basis new asset = Old basis $30,000 + Boot given $5,000 = $35,000
✅ Answer: Realized = $20,000; Recognized = $0; Basis = $35,000
Explanation: Boot paid increases basis; only boot received causes recognition.
TBS 10 – Circular 230 Ethical Obligation
Scenario:
A CPA discovers that a client failed to report $15,000 of income last year. The client insists on ignoring it for the current year’s return.
Requirement:
What are the CPA’s professional responsibilities under Circular 230?
Solution:
- CPA must advise client of the error and its consequences.
- CPA cannot sign or submit a knowingly false return.
- If client refuses, CPA may continue representation but cannot prepare/submission of incorrect filing.
✅ Answer: CPA must advise the client to correct prior-year omission. If the client refuses, the CPA cannot sign the return.
Explanation: Ethics rules under Circular 230 prevent preparing or filing fraudulent returns.
You’ve now completed CPA REG TBS Part 2 (Scenarios 6–10) with detailed answers. Continue with Part 3 (Scenarios 11–15) to cover additional tax law and regulatory challenges.
Previous Part: CPA REG TBS Part 1
Next Part: CPA REG TBS Part 3
Next Part: CPA REG TBS Part 4
👉 Bookmark this series for free CPA exam prep with TBS practice, explanations, and exam-style problems.
Explore our MCQs CPA FAR, REG , AUD , BAR, TCP, & ISC Master Sets