TEST BANK
Advanced Accounting | 12th Edition
by Paul M. Fischer, William J. Taylor, Rita H. Cheng
SC
O
R
EG
U
ID
ES
, Table Content
Part 1: Combined Corporate Entities and Consolidations
Ch 1: Business Combinations: New Rules for a Long-Standing Business Practice
Ch 2: Consolidated Statements: Date of Acquisition
Ch 3: Consolidated Statements: Subsequent to Acquisition
Ch 4: Intercompany Transactions: Merchandise, Plant Assets, and Notes
Ch 5: Intercompany Transactions: Bonds and Leases
Ch 6: Cash Flow, EPS, and Taxation
Ch 7: Special Issues in Accounting for an Investment in a Subsidiary
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Ch 8: Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and
Subsidiary Ownership of Parent Shares
Special Appendix 1: Accounting for Influential Investments
Special Appendix 2: Variable Interest Entities
Part 2: Multinational Accounting and Other Reporting Concerns
Ch 9: The International Accounting Environment
O
Ch 10: Foreign Currency Transactions
Ch 11: Translation of Foreign Financial Statements
R
Ch 12: Interim Reporting and Disclosures about Segments of an Entity
Part 3: Partnerships
Ch 13: Partnerships: Characteristics, Formation, and Accounting for Activities
EG
Ch 14: Partnerships: Ownership Changes and Liquidations
Part 4: Governmental and Not-for-Profit Accounting
Ch 15: Governmental Accounting: The General Fund and the Account Groups
Ch 16: Governmental Accounting: Other Governmental Funds, Proprietary
Funds, and Fiduciary Funds
Ch 17: Financial Reporting Issues
U
Ch 18: Accounting for Private Not-for-Profit Organizations
Ch 19: Accounting for Not-for-Profit Colleges and Universities and Health Care
ID
Organizations
Part 5: Fiduciary Accounting
Ch 20: Estates and Trusts: Their Nature and the Accountant's Role
Ch 21: Debt Restructuring, Corporate Reorganizations, and Liquidations
ES
,Chapter 01—Business Combinations: New Rules for a Long-Standing Business Practice
Multiple Choice
1. An economic advantage of a business combination includes:
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Shared fixed costs.
d. Horizontally combining levels within the marketing
chain.
ANSWER: c
RATIONALE: Business combinations may viewed as a way to take advantage of economies of scale by
SC
utilizing common facilities and sharing fixed costs.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
2. One large bank’s acquisition of another bank would be an example of a:
a. market extension merger.
O
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
R
ANSWER: d
RATIONALE: A horizontal merger occurs when two companies offering similar products or services that
are likely competitors in the same marketplace merge.
EG
DIFFICULTY: M
LEARNING OBJECTIVES: ADAC.FISC.1-1
3. A large nation-wide bank’s acquisition of a major investment advisory firm would be an example of a:
a. market extension merger.
b. conglomerate merger.
U
c. product extension merger.
d. horizontal merger.
ANSWER: c
ID
RATIONALE: A product extension merger occurs when the acquiring company is expanding its product
offerings in the market place in which it sells.
DIFFICULTY: M
LEARNING OBJECTIVES: OBJ: ADAC.FISC.1-1
ES
4. A building materials company’s acquisition of a television station would be an example of a:
a. market extension merger.
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
ANSWER: b
RATIONALE: Because these firms are in unrelated lines of business, this would be a conglomerate
merger.
DIFFICULTY: M
Cengage Learning Testing, Powered by Cognero Page 1
, Chapter 01—Business Combinations: New Rules for a Long-Standing Business Practice
LEARNING OBJECTIVES: ADAC.FISC.1-1
5. A tax advantage of business combination can occur when the existing owner of a company sells out and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free
reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
ANSWER: b
SC
RATIONALE: If the owners of a business sell their interests for cash or accept debt instruments, they would
have an immediate taxable gain. However, if they accept common stock of another
corporation and the transaction is crafted as such, they may account for the transaction as a
“tax-free reorganization.” If this is the case, no taxes are paid until they sell the shares
received in the transaction.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
O
6. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
R
b. has acquired a majority of the subsidiary's common stock.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's outstanding bonds and
EG
debentures.
ANSWER: b
RATIONALE: Typically, a controlling interest is over 50% of the company’s voting stock.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-2
U
7. Some advantages of obtaining control by acquiring a controlling interest in stock include all but:
a. Negotiations are made directly with the acquiree’s management.
b. The legal liability of each corporation is limited to its own assets.
ID
c. The cost may be lower since only a controlling interest in the assets, not the total assets, is
acquired.
d. Tax advantages may result from preservation of the legal entities.
ANSWER: a
ES
RATIONALE: If a company was acquiring a controlling interest in stock, the negotiations would be with the
target company’s stockholders.
DIFFICULTY: M
LEARNING OBJECTIVES: ADAC.FISC.1-2
8. A(n) ________________ occurs when the management of the target company purchases a controlling interest in that
company and the company incurs a significant amount of debt as a result.
a. greenmail
b. statutory merger
c. poison pill
d. leveraged buyout
Cengage Learning Testing, Powered by Cognero Page 2
Advanced Accounting | 12th Edition
by Paul M. Fischer, William J. Taylor, Rita H. Cheng
SC
O
R
EG
U
ID
ES
, Table Content
Part 1: Combined Corporate Entities and Consolidations
Ch 1: Business Combinations: New Rules for a Long-Standing Business Practice
Ch 2: Consolidated Statements: Date of Acquisition
Ch 3: Consolidated Statements: Subsequent to Acquisition
Ch 4: Intercompany Transactions: Merchandise, Plant Assets, and Notes
Ch 5: Intercompany Transactions: Bonds and Leases
Ch 6: Cash Flow, EPS, and Taxation
Ch 7: Special Issues in Accounting for an Investment in a Subsidiary
SC
Ch 8: Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and
Subsidiary Ownership of Parent Shares
Special Appendix 1: Accounting for Influential Investments
Special Appendix 2: Variable Interest Entities
Part 2: Multinational Accounting and Other Reporting Concerns
Ch 9: The International Accounting Environment
O
Ch 10: Foreign Currency Transactions
Ch 11: Translation of Foreign Financial Statements
R
Ch 12: Interim Reporting and Disclosures about Segments of an Entity
Part 3: Partnerships
Ch 13: Partnerships: Characteristics, Formation, and Accounting for Activities
EG
Ch 14: Partnerships: Ownership Changes and Liquidations
Part 4: Governmental and Not-for-Profit Accounting
Ch 15: Governmental Accounting: The General Fund and the Account Groups
Ch 16: Governmental Accounting: Other Governmental Funds, Proprietary
Funds, and Fiduciary Funds
Ch 17: Financial Reporting Issues
U
Ch 18: Accounting for Private Not-for-Profit Organizations
Ch 19: Accounting for Not-for-Profit Colleges and Universities and Health Care
ID
Organizations
Part 5: Fiduciary Accounting
Ch 20: Estates and Trusts: Their Nature and the Accountant's Role
Ch 21: Debt Restructuring, Corporate Reorganizations, and Liquidations
ES
,Chapter 01—Business Combinations: New Rules for a Long-Standing Business Practice
Multiple Choice
1. An economic advantage of a business combination includes:
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Shared fixed costs.
d. Horizontally combining levels within the marketing
chain.
ANSWER: c
RATIONALE: Business combinations may viewed as a way to take advantage of economies of scale by
SC
utilizing common facilities and sharing fixed costs.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
2. One large bank’s acquisition of another bank would be an example of a:
a. market extension merger.
O
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
R
ANSWER: d
RATIONALE: A horizontal merger occurs when two companies offering similar products or services that
are likely competitors in the same marketplace merge.
EG
DIFFICULTY: M
LEARNING OBJECTIVES: ADAC.FISC.1-1
3. A large nation-wide bank’s acquisition of a major investment advisory firm would be an example of a:
a. market extension merger.
b. conglomerate merger.
U
c. product extension merger.
d. horizontal merger.
ANSWER: c
ID
RATIONALE: A product extension merger occurs when the acquiring company is expanding its product
offerings in the market place in which it sells.
DIFFICULTY: M
LEARNING OBJECTIVES: OBJ: ADAC.FISC.1-1
ES
4. A building materials company’s acquisition of a television station would be an example of a:
a. market extension merger.
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
ANSWER: b
RATIONALE: Because these firms are in unrelated lines of business, this would be a conglomerate
merger.
DIFFICULTY: M
Cengage Learning Testing, Powered by Cognero Page 1
, Chapter 01—Business Combinations: New Rules for a Long-Standing Business Practice
LEARNING OBJECTIVES: ADAC.FISC.1-1
5. A tax advantage of business combination can occur when the existing owner of a company sells out and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free
reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
ANSWER: b
SC
RATIONALE: If the owners of a business sell their interests for cash or accept debt instruments, they would
have an immediate taxable gain. However, if they accept common stock of another
corporation and the transaction is crafted as such, they may account for the transaction as a
“tax-free reorganization.” If this is the case, no taxes are paid until they sell the shares
received in the transaction.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
O
6. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
R
b. has acquired a majority of the subsidiary's common stock.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's outstanding bonds and
EG
debentures.
ANSWER: b
RATIONALE: Typically, a controlling interest is over 50% of the company’s voting stock.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-2
U
7. Some advantages of obtaining control by acquiring a controlling interest in stock include all but:
a. Negotiations are made directly with the acquiree’s management.
b. The legal liability of each corporation is limited to its own assets.
ID
c. The cost may be lower since only a controlling interest in the assets, not the total assets, is
acquired.
d. Tax advantages may result from preservation of the legal entities.
ANSWER: a
ES
RATIONALE: If a company was acquiring a controlling interest in stock, the negotiations would be with the
target company’s stockholders.
DIFFICULTY: M
LEARNING OBJECTIVES: ADAC.FISC.1-2
8. A(n) ________________ occurs when the management of the target company purchases a controlling interest in that
company and the company incurs a significant amount of debt as a result.
a. greenmail
b. statutory merger
c. poison pill
d. leveraged buyout
Cengage Learning Testing, Powered by Cognero Page 2
