Agency, Contracts and Sales
This topic covers agency authority, principal and agent liability, contract formation, performance, breach, remedies, UCC sales, warranties, and risk of loss.
How to study for CPA REG
Build every answer around taxpayer type, tax year, filing obligation, basis, character, limitation, and procedural consequence.
Core concepts
Concept 1
Agency, Contracts and Sales questions test whether a CPA candidate can apply tax law, federal procedure, business law, or entity tax rules to a practical client fact pattern.
Exam cue: Identify the taxpayer type, tax year, transaction, return, authority, and dollar amount or deadline being tested.
Concept 2
The best REG answer usually identifies the taxpayer, transaction, year, tax basis, filing obligation, limitation, and procedural consequence before calculating.
Exam cue: Decide whether the task is inclusion, deduction, credit, basis, gain or loss, filing, penalty, representation, or legal liability.
Concept 3
Eliminate answers that skip statutory requirements, mix individual and entity rules, ignore basis, overlook filing deadlines, or choose a tax result without checking limitations.
Exam cue: Check limitations, character, timing, basis ordering, related-party rules, and whether the amount belongs on an individual or entity return.
Risk pitfalls and guardrails
Calculating taxable income before separating exclusions, adjustments, deductions, credits, and separately stated items.
Guardrail: Use a 15-second safety pause before finalizing your action.
Applying entity-level tax rules to owners, or owner-level limitations to the entity itself.
Guardrail: Use a 15-second safety pause before finalizing your action.
Ignoring statute of limitations, preparer penalty, Circular 230, estimated tax, or filing-status details that control the answer.
Guardrail: Use a 15-second safety pause before finalizing your action.
Memory anchors
Actual Authority
Actual authority is authority the principal intentionally gives the agent.
Apparent Authority
Apparent authority arises when a third party reasonably believes the agent has authority because of principal manifestations.
Ratification
Ratification occurs when a principal later accepts an unauthorized act with knowledge of material facts.
Contract Formation
Contract formation generally requires offer, acceptance, consideration, capacity, and legal purpose.
Breach
A breach occurs when a party fails to perform a contractual duty without legal excuse.
Remedy
A remedy seeks to compensate, enforce, rescind, or otherwise address breach of contract.
UCC Sales
UCC Article 2 governs contracts for the sale of goods.
Warranty
A warranty is a promise or assurance about goods or performance.
Risk of Loss
Risk of loss determines which party bears loss when goods are damaged before final acceptance.
Statute of Frauds
The statute of frauds requires certain contracts to be evidenced by a signed writing.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A principal tells an agent privately that the agent may purchase supplies up to $25,000. What type of authority has been created?
A store manager has repeatedly ordered inventory while the owner watched and paid the invoices. The owner later secretly revokes the manager's authority but does not notify a regular supplier. The manager places another ordinary order. Which doctrine most strongly protects the supplier?
Answer all questions to submit.
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