CPA REG Practice Test

CPA REG Agency & Contracts Practice Questions

Agency & Contracts makes up 5 of every 50 questions on a Tigertest CPA REG practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on the AICPA's 2026 REG blueprint. Original multiple-choice questions; 50 per test, weighted like the real section's five areas, 75% target. Not affiliated with the AICPA or NASBA.

1. 1. A principal fires a purchasing agent but tells no one. The agent then signs a contract with a longtime supplier who knew of the agency but not the firing. The principal is bound because of:

   • A.Ratification
   • B.Apparent authority
   • C.Express authority
   • D.Implied authority

   Answer: B. Apparent authority continues until third parties who dealt with the agent get notice of the termination. The principal's earlier conduct created the supplier's reasonable belief.

2. 2. An agent signs a contract with no authority. Knowing all the facts, the principal later accepts the contract's benefits. The principal is bound by:

   • A.Apparent authority
   • B.Express authority
   • C.Implied authority
   • D.Ratification

   Answer: D. Ratification occurs when a principal with full knowledge affirms an unauthorized act, here by accepting its benefits. It binds the principal as if the agent had authority from the start.

3. 3. Which event ends an ordinary agency by operation of law?

   • A.The principal's death
   • B.End of the stated term
   • C.The agent's resignation
   • D.Mutual agreement to end it

   Answer: A. Death or incapacity of either party, bankruptcy and illegality end an agency by operation of law. Resignation, agreement and expiry of a term end it by act of the parties.

4. 4. An employee causes a car accident while making a delivery for her employer. The injured driver may recover from:

   • A.Only the employer
   • B.Neither, if the car is insured
   • C.Both the employee and employer
   • D.Only the employee

   Answer: C. Under respondeat superior an employer is liable for an employee's torts within the scope of employment. The employee remains personally liable for her own negligence.

5. 5. A business is generally NOT liable for the negligence of:

   • A.A partner doing firm work
   • B.An agent on an assigned task
   • C.An independent contractor
   • D.An employee on the job

   Answer: C. Respondeat superior reaches employees acting in the scope of employment, not independent contractors, because the business does not control how they work.

6. 6. An agent asked to find a building for his principal secretly buys it for himself. The agent breached the duty of:

   • A.Loyalty
   • B.Accounting
   • C.Reasonable care
   • D.Obedience

   Answer: A. Loyalty bars an agent from competing with the principal or taking an opportunity meant for the principal. The principal can recover the property or the profit.

7. 7. An agent contracts for a principal whose identity is hidden from the third party. If the principal does not perform, the third party may sue:

   • A.No one until disclosure
   • B.Only the principal
   • C.Only the agent
   • D.The agent or the principal

   Answer: D. An agent for an undisclosed principal is personally liable on the contract. Once the principal is identified, the third party may elect to hold the principal liable instead.

8. 8. To appoint an agent to enter contracts, which party must have contractual capacity?

   • A.The agent's employer
   • B.The principal
   • C.The agent
   • D.The third party

   Answer: B. The contracts are the principal's, so the principal needs capacity. An agent may be a minor, because the agent is not a party to the contract.

9. 9. A non-merchant promises in writing to keep an offer to sell his house open for 10 days, but gets nothing for the promise. He may revoke the offer:

   • A.Never during the 10 days
   • B.Any time before acceptance
   • C.Only after 10 days
   • D.Only with notarized notice

   Answer: B. Without consideration there is no option contract, and the UCC firm offer rule covers only merchants selling goods. The offer can be revoked before acceptance.

10. 10. A merchant signs a written offer to sell goods that says it will be held open but gives no time. The offer is irrevocable for:

    • A.A reasonable time, up to 30 days
    • B.Exactly 90 days from signing
    • C.A reasonable time, up to 6 months
    • D.A reasonable time, up to 3 months

    Answer: D. Under UCC 2-205 a merchant's signed firm offer is irrevocable for the time stated or, if none, a reasonable time, in either case no more than 3 months.