Advanced Financial Accounting –
13th Edition – Theodore E.
Christensen & David M. Cottrell |
Complete Test Bank | All Chapters
N
ur
si
ng
Vi
N
ur
sin
be
gV
ib
NS
e
, Test Bank Advanced Financial Accounting, 13th Edition by Christensen, Cottrell
Chapter 01 13e
1. Award: 10.00 points
Answers Included ✅
Assuming no impairment in value prior to transfer, assets transferred by a parent company to another entity it has created should be
recorded by the newly created entity at the assets':
cost to the parent company.
book value on the parent company's books at the date of transfer.
fair value at the date of transfer.
fair value of consideration exchanged by the newly created entity.
Book value on the parent company's books at the date of transfer is correct. The parent company transfers assets and liabilities to the
created entity at book value. Recognition of fair values of the assets transferred in excess of their carrying values on the books of the
transferring company is not appropriate in accounting for internal expansions. The other choices are incorrect per the above rule. External
expansions use the acquisition method of accounting for business combinations. Under the acquisition method, the acquirer recognizes all
assets acquired and liabilities assumed in a business combination and measures them at their acquisition-date fair values.
References
Multiple Choice Learning Objective: 01-01
Understand and explain the
reasons for and different
methods of business
expansion, the types of
organizational structures, and
the types of acquisitions.
N
Difficulty: 1 Easy Learning Objective: 01-03
Make calculations and
prepare journal entries for
the creation of a business
entity.
ur
2. Award: 10.00 points
si
Given the increased development of complex business structures, which of the following regulators is responsible for the continued
usefulness of accounting reports?
Securities and Exchange Commission (SEC)
ng
Public Company Accounting Oversight Board (PCAOB)
Financial Accounting Standards Board (FASB)
All of the other answers are correct
All of the answer choices are correct; all three regulators contribute to the continued usefulness of accounting reports. The business
Vi
N
environment in the United States is perhaps the most dynamic and vibrant in the world, characterized by rapid change and exceptional
complexity. In this environment, regulators and standard setters such as the Securities and Exchange Commission (SEC), the Financial
ur
Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB) are working to keep pace with a rapidly
changing world in order to ensure the continued usefulness of accounting reports so that they continue to accurately reflect economic
reality.
si
ng
be
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-01 Understand and explain the
V
reasons for and different methods of business expansion,
the types of organizational structures, and the types of
ib
acquisitions.
NS
e
1/38
,17/09/2022, 19:32 Assignment Print View
3. Award: 10.00 points
A business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company into a
single entity is defined as:
Stock acquisition
Leveraged buyout
Statutory merger
Reverse statutory rollup
Statutory merger is the correct answer. A statutory merger is a type of business combination in which only one of the combining companies
survives and the other loses its separate identity. The acquired company’s assets and liabilities are transferred to the acquiring company,
and the acquired company is dissolved, or liquidated.
Stock acquisition is incorrect. A stock acquisition occurs when one company acquires the voting shares of another company and the two
companies continue to operate as separate, but related, legal entities.
Leveraged buyout is incorrect. A leveraged buyout results when an acquiring company borrows the funds to buy another company. This
practice was common in the 1980’s. However, the resulting debt plagued many of those companies for many years.
Reverse statutory rollup is incorrect. A reverse statutory rollup is not a situation in which the acquired company’s assets and liabilities are
combined with those of the acquiring company into a single entity.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-04 Understand and explain the
differences between different forms of business
combinations.
4. Award: 10.00 points
N
In which of the following situations do accounting standards not require that the financial statements of the parent and subsidiary be
ur
consolidated?
A corporation creates a new 100 percent owned subsidiary
A corporation purchases 90 percent of the voting stock of another company
A corporation has both control and majority ownership of an unincorporated company
si
A corporation owns less-than a controlling interest in an unincorporated company
A corporation owns less-than a controlling interest in an unincorporated company is correct. The purchase of a less-than-majority interest in
ng
another corporation does not require that the financial statements of the parent and subsidiary be consolidated.
A corporation creates a new 100 percent owned subsidiary is incorrect. A new 100 percent owned subsidiary requires that the financial
statements of the parent and subsidiary be consolidated.
A corporation purchases 90 percent of the voting stock of another company is incorrect. Financial managers consolidate a holding
company’s financial statements if it owns more than 50 percent of another company’s equity.
Vi
A corporation has both control and majority ownership of an unincorporated company is incorrect. A corporation that has both control and
N
majority ownership of an unincorporated company is required to consolidate the financial statements of the parent and subsidiary.
ur
References
si
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-01 Understand and explain the
ng
be
reasons for and different methods of business expansion,
the types of organizational structures, and the types of
acquisitions.
V ib
NS
e
2/38
, 17/09/2022, 19:32 Assignment Print View
During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, Devon transferred
these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value
stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal at the time of
transfer revealed that the building has a fair value of $200,000.
5. Award: 10.00 points
Based on the information provided, at the time of the transfer, Regan Company should record:
building at $180,000 and no accumulated depreciation.
building at $162,000 and no accumulated depreciation.
building at $200,000 and accumulated depreciation of $24,000.
building at $180,000 and accumulated depreciation of $18,000.
Building at $180,000 and accumulated depreciation of $18,000 is correct. This situation requires the accounting for internal expansion
which uses book value to transfer assets and liabilities. Annual depreciation on the building is $6,000, and accumulated depreciation at the
end of year 3 is $18,000. ($180,000 ÷ 30 years = $6,000 per year. $6,000 × 3 years = $18,000.) Thus, Regan Company should record the
building at book value, $180,000, and accumulated depreciation of $18,000.
Building at $180,000 and no accumulated depreciation is incorrect. Regan Company must transfer over $18,000 of accumulated
depreciation.
Building at $162,000 and no accumulated depreciation is incorrect. Regan Company must separately report the building and the
accumulated depreciation. Netting the two amounts is not allowed.
Building at $200,000 and accumulated depreciation of $24,000 is incorrect. Fair values are not used in a situation of internal expansion,
only book values are used.
N
References
Multiple Choice Learning Objective: 01-03
Make calculations and
ur
prepare journal entries for
the creation of a business
entity.
Difficulty: 3 Hard Learning Objective: 01-04
Understand and explain the
si
differences between different
forms of business
combinations.
ng
Vi
N
ur
si
ng
be
V ib
NS
e
3/38
13th Edition – Theodore E.
Christensen & David M. Cottrell |
Complete Test Bank | All Chapters
N
ur
si
ng
Vi
N
ur
sin
be
gV
ib
NS
e
, Test Bank Advanced Financial Accounting, 13th Edition by Christensen, Cottrell
Chapter 01 13e
1. Award: 10.00 points
Answers Included ✅
Assuming no impairment in value prior to transfer, assets transferred by a parent company to another entity it has created should be
recorded by the newly created entity at the assets':
cost to the parent company.
book value on the parent company's books at the date of transfer.
fair value at the date of transfer.
fair value of consideration exchanged by the newly created entity.
Book value on the parent company's books at the date of transfer is correct. The parent company transfers assets and liabilities to the
created entity at book value. Recognition of fair values of the assets transferred in excess of their carrying values on the books of the
transferring company is not appropriate in accounting for internal expansions. The other choices are incorrect per the above rule. External
expansions use the acquisition method of accounting for business combinations. Under the acquisition method, the acquirer recognizes all
assets acquired and liabilities assumed in a business combination and measures them at their acquisition-date fair values.
References
Multiple Choice Learning Objective: 01-01
Understand and explain the
reasons for and different
methods of business
expansion, the types of
organizational structures, and
the types of acquisitions.
N
Difficulty: 1 Easy Learning Objective: 01-03
Make calculations and
prepare journal entries for
the creation of a business
entity.
ur
2. Award: 10.00 points
si
Given the increased development of complex business structures, which of the following regulators is responsible for the continued
usefulness of accounting reports?
Securities and Exchange Commission (SEC)
ng
Public Company Accounting Oversight Board (PCAOB)
Financial Accounting Standards Board (FASB)
All of the other answers are correct
All of the answer choices are correct; all three regulators contribute to the continued usefulness of accounting reports. The business
Vi
N
environment in the United States is perhaps the most dynamic and vibrant in the world, characterized by rapid change and exceptional
complexity. In this environment, regulators and standard setters such as the Securities and Exchange Commission (SEC), the Financial
ur
Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB) are working to keep pace with a rapidly
changing world in order to ensure the continued usefulness of accounting reports so that they continue to accurately reflect economic
reality.
si
ng
be
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-01 Understand and explain the
V
reasons for and different methods of business expansion,
the types of organizational structures, and the types of
ib
acquisitions.
NS
e
1/38
,17/09/2022, 19:32 Assignment Print View
3. Award: 10.00 points
A business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company into a
single entity is defined as:
Stock acquisition
Leveraged buyout
Statutory merger
Reverse statutory rollup
Statutory merger is the correct answer. A statutory merger is a type of business combination in which only one of the combining companies
survives and the other loses its separate identity. The acquired company’s assets and liabilities are transferred to the acquiring company,
and the acquired company is dissolved, or liquidated.
Stock acquisition is incorrect. A stock acquisition occurs when one company acquires the voting shares of another company and the two
companies continue to operate as separate, but related, legal entities.
Leveraged buyout is incorrect. A leveraged buyout results when an acquiring company borrows the funds to buy another company. This
practice was common in the 1980’s. However, the resulting debt plagued many of those companies for many years.
Reverse statutory rollup is incorrect. A reverse statutory rollup is not a situation in which the acquired company’s assets and liabilities are
combined with those of the acquiring company into a single entity.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-04 Understand and explain the
differences between different forms of business
combinations.
4. Award: 10.00 points
N
In which of the following situations do accounting standards not require that the financial statements of the parent and subsidiary be
ur
consolidated?
A corporation creates a new 100 percent owned subsidiary
A corporation purchases 90 percent of the voting stock of another company
A corporation has both control and majority ownership of an unincorporated company
si
A corporation owns less-than a controlling interest in an unincorporated company
A corporation owns less-than a controlling interest in an unincorporated company is correct. The purchase of a less-than-majority interest in
ng
another corporation does not require that the financial statements of the parent and subsidiary be consolidated.
A corporation creates a new 100 percent owned subsidiary is incorrect. A new 100 percent owned subsidiary requires that the financial
statements of the parent and subsidiary be consolidated.
A corporation purchases 90 percent of the voting stock of another company is incorrect. Financial managers consolidate a holding
company’s financial statements if it owns more than 50 percent of another company’s equity.
Vi
A corporation has both control and majority ownership of an unincorporated company is incorrect. A corporation that has both control and
N
majority ownership of an unincorporated company is required to consolidate the financial statements of the parent and subsidiary.
ur
References
si
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-01 Understand and explain the
ng
be
reasons for and different methods of business expansion,
the types of organizational structures, and the types of
acquisitions.
V ib
NS
e
2/38
, 17/09/2022, 19:32 Assignment Print View
During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, Devon transferred
these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value
stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal at the time of
transfer revealed that the building has a fair value of $200,000.
5. Award: 10.00 points
Based on the information provided, at the time of the transfer, Regan Company should record:
building at $180,000 and no accumulated depreciation.
building at $162,000 and no accumulated depreciation.
building at $200,000 and accumulated depreciation of $24,000.
building at $180,000 and accumulated depreciation of $18,000.
Building at $180,000 and accumulated depreciation of $18,000 is correct. This situation requires the accounting for internal expansion
which uses book value to transfer assets and liabilities. Annual depreciation on the building is $6,000, and accumulated depreciation at the
end of year 3 is $18,000. ($180,000 ÷ 30 years = $6,000 per year. $6,000 × 3 years = $18,000.) Thus, Regan Company should record the
building at book value, $180,000, and accumulated depreciation of $18,000.
Building at $180,000 and no accumulated depreciation is incorrect. Regan Company must transfer over $18,000 of accumulated
depreciation.
Building at $162,000 and no accumulated depreciation is incorrect. Regan Company must separately report the building and the
accumulated depreciation. Netting the two amounts is not allowed.
Building at $200,000 and accumulated depreciation of $24,000 is incorrect. Fair values are not used in a situation of internal expansion,
only book values are used.
N
References
Multiple Choice Learning Objective: 01-03
Make calculations and
ur
prepare journal entries for
the creation of a business
entity.
Difficulty: 3 Hard Learning Objective: 01-04
Understand and explain the
si
differences between different
forms of business
combinations.
ng
Vi
N
ur
si
ng
be
V ib
NS
e
3/38
