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Statement (1): We can say the burning of paper is a physical change.
Because
Statement (2): Energy is either gained or lost by the reactants, when a chemical change occurs.
A. True, true (respectively).
B. False, false (respectively).
C. True, false (respectively).
D. False, true (respectively).
E. True, true, correct explanation.

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Answer
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Hint: In physical change, only the appearance of the substance changes but not their chemical composition (chemical formula) whereas in chemical change the substance completely changes into a new substance with a new chemical formula changing its chemical composition.

Complete answer:
> Combustion is the process of burning a substance in the presence of oxygen.
Burning of paper is an example of combustion reaction and all combustion reactions involve chemical change. Because when a substance is burnt it undergoes combustion, during combustion state of the substance changes from solid or liquid to gaseous state. Hence burning of paper is not a physical change, it’s a chemical change.
> When reactants undergo chemical reaction to form products, that chemical process may take place either by absorbing energy to form products or by releasing energy as one of the products.
Thus when a chemical change occurs, energy is either gained or lost by the reactants.
Therefore, burning of paper is a chemical change and energy is either gained or lost by the reactants in a chemical change.

Hence Option D is correct. Given statement 1 is False and statement 2 is true.

Note: The conversion of reactants into products in a chemical reaction is often accompanied by some features which can be observed easily. They are (i) Evolution of gas, (ii) Change in state, (iii) Change in color, (iv) Change in temperature and (v) Evolution of gas.
When reactants lose their energy to form products then the reaction is called exothermic and when the reactants gain energy to form products then the reaction is called endothermic.