ADVANCED FINANCIAL ACCOUNTING - CHAPTER
1QUESTIONS WITH ACCURATE ANSWERS
Reasons for enterprise expansion - CORRECT ANSWER✅✅✅Size often allows economies
of scale
New earning potential
Earnings stability through diversification
Management rewards for bigger company size
Prestige associated with company size
a corporation that is controlled by another corporation, referred to as a parent company. -
CORRECT ANSWER✅✅✅Subsidiary
Control of a subsidiary is often through - CORRECT ANSWER✅✅✅majority ownership of
its common stock
Because a subsidiary is a separate legal entity, the parent's risk associated with the subsidiary's
activities is - CORRECT ANSWER✅✅✅limited
special purpose entities - CORRECT ANSWER✅✅✅SPE
The use of _______ or other entities to borrow money without reporting the debt on their balance
sheets - CORRECT ANSWER✅✅✅subsidiaries; manipulate financial reporting
Ethical consideration; using special purpose entities (SPE) to - CORRECT
ANSWER✅✅✅manipulate profits
SPE may be in the form of - CORRECT ANSWER✅✅✅corporation, trust, partnership
, The FASB has done away with _______ __ ______ because it allowed for manipulation of
financial reporting and instead modified acquisition accounting - CORRECT
ANSWER✅✅✅Pooling of interests
Two types of expansion - CORRECT ANSWER✅✅✅Internal and External
an identifiable segment of the company's existing assets is transferred to the new entity
(Subsidiary), and in exchange, the transferring company (Parent) receives equity ownership. -
CORRECT ANSWER✅✅✅Internal expansion
In an internal expansion, new entities are created like - CORRECT
ANSWER✅✅✅Subsidiaries
Partnerships
Joint ventures
Special entities
Motivating factors of an internal expansion - CORRECT ANSWER✅✅✅Helps establish
clear lines of control and facilitate the evaluation of operating results
Special tax incentives
Regulatory reasons
Protection from legal liability
Disposing of a portion of existing operations
Occurs when the ownership of a newly created or existing subsidiary is distributed to the parent's
stockholders without the stockholders surrendering any of their stock in the parent company -
CORRECT ANSWER✅✅✅Spin Off
Occurs when the subsidiary's shares are exchanged for shares of the parent, thereby leading to a
reduction in the outstanding shares of the parent company - CORRECT
ANSWER✅✅✅Split Off
1QUESTIONS WITH ACCURATE ANSWERS
Reasons for enterprise expansion - CORRECT ANSWER✅✅✅Size often allows economies
of scale
New earning potential
Earnings stability through diversification
Management rewards for bigger company size
Prestige associated with company size
a corporation that is controlled by another corporation, referred to as a parent company. -
CORRECT ANSWER✅✅✅Subsidiary
Control of a subsidiary is often through - CORRECT ANSWER✅✅✅majority ownership of
its common stock
Because a subsidiary is a separate legal entity, the parent's risk associated with the subsidiary's
activities is - CORRECT ANSWER✅✅✅limited
special purpose entities - CORRECT ANSWER✅✅✅SPE
The use of _______ or other entities to borrow money without reporting the debt on their balance
sheets - CORRECT ANSWER✅✅✅subsidiaries; manipulate financial reporting
Ethical consideration; using special purpose entities (SPE) to - CORRECT
ANSWER✅✅✅manipulate profits
SPE may be in the form of - CORRECT ANSWER✅✅✅corporation, trust, partnership
, The FASB has done away with _______ __ ______ because it allowed for manipulation of
financial reporting and instead modified acquisition accounting - CORRECT
ANSWER✅✅✅Pooling of interests
Two types of expansion - CORRECT ANSWER✅✅✅Internal and External
an identifiable segment of the company's existing assets is transferred to the new entity
(Subsidiary), and in exchange, the transferring company (Parent) receives equity ownership. -
CORRECT ANSWER✅✅✅Internal expansion
In an internal expansion, new entities are created like - CORRECT
ANSWER✅✅✅Subsidiaries
Partnerships
Joint ventures
Special entities
Motivating factors of an internal expansion - CORRECT ANSWER✅✅✅Helps establish
clear lines of control and facilitate the evaluation of operating results
Special tax incentives
Regulatory reasons
Protection from legal liability
Disposing of a portion of existing operations
Occurs when the ownership of a newly created or existing subsidiary is distributed to the parent's
stockholders without the stockholders surrendering any of their stock in the parent company -
CORRECT ANSWER✅✅✅Spin Off
Occurs when the subsidiary's shares are exchanged for shares of the parent, thereby leading to a
reduction in the outstanding shares of the parent company - CORRECT
ANSWER✅✅✅Split Off
