SOLUTIONS TEST BANK
Advanced Financial Accounting 13th Edition By Theodore
Christensen.
,Chapter`1 Intercorporate`Acquisitions`and`Investments`in`Other`Entities
1) 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':
A) cost`to`the`parent`company.
B) book`value`on`the`parent`company's`books`at`the`date`of`transfer.
C) fair`value`at`the`date`of`transfer.
D) fair`value`of`consideration`exchanged`by`the`newly`created`entity.
Answer:` B`Difficult
y:`1`Easy
Topic:` Internal`Expansion:`Creating`a`Business`Entity;`Valuation`of`Business`Entities`Learnin
g`Objective: 01-
01`Understand`and`explain`the`reasons`for`and`different`methods`of`business`expansion,`the`typ
es`of`organizational`structures,`and`the`types`of`acquisitions.;`01-
03`Make`calculations`and`prepare`journal`entries`for`the`creation`of`a`business`entity.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Decision`Making
2) Given`the`increased`development`of`complex`business`structures,`which`of`the`following`
regulators`is`responsible`for`the`continued`usefulness`of`accounting`reports?
A) Securities`and`Exchange`Commission`(SEC)
B) Public`Company`Accounting`Oversight`Board`(PCAOB)
C) Financial`Accounting`Standards`Board`(FASB)
D) All`of`the`other`answers`are`correct
Answer:` D`Difficult
y:`1`Easy
Topic: An`Introduction`to`Complex`Business`Structures
Learning`Objective: 01-
01`Understand`and`explain`the`reasons`for`and`different`methods`of`business`expansion,`the`ty
pes`of`organizational`structures,`and`the`types`of`acquisitions.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Reporting
3) 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:
A) Stock`acquisition
B) Leveraged`buyout
C) Statutory`Merger
D) Reverse`statutory`rollup
,Answer:` C`Difficult
y:`1`Easy
Topic: Organizational`Structure`and`Financial`Reporting
Learning`Objective: 01-
04`Understand`and`explain`the`differences`between`different`forms`of`business`combinations.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Decision`Making
4) In`which`of`the`following`situations`do`accounting`standards`not`require`that`the`financial`
statements`of`the`parent`and`subsidiary`be`consolidated?
A) A`corporation`creates`a`new`100`percent`owned`subsidiary
B) A`corporation`purchases`90`percent`of`the`voting`stock`of`another`company
C) A`corporation`has`both`control`and` majority`ownership`of`an`unincorporated`company
D) A`corporation`owns`less-than`a`controlling`interest`in`an`unincorporated`company
Answer:` D`Difficult
y:`1`Easy
Topic: Organizational`Structure`and`Financial`Reporting
Learning`Objective: 01-
01`Understand`and`explain`the`reasons`for`and`different`methods`of`business`expansion,`the`ty
pes`of`organizational`structures,`and`the`types`of`acquisitions.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Decision`Making
During`its`inception,`Devon`Company`purchased`land`for`$100,000`and`a`building`for`$180,000.`
After`exactly`3`years,`it`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`straig
ht-
line`depreciation.`Useful`life`for`the`building`is`30`years,`with`zero`residual`value.`An`appraisal`re
vealed`that`the`building`has`a`fair`value`of`$200,000.
5) Based`on`the`information`provided,`at`the`time`of`the`transfer,`Regan`Company`should` record:
A) Building`at`$180,000`and`no`accumulated`depreciation.
B) Building`at`$162,000`and`no`accumulated`depreciation.
C) Building`at`$200,000`and`accumulated`depreciation`of`$24,000.
D) Building`at`$180,000`and`accumulated`depreciation`of`$18,000.
Answer:` D`Difficult
y:`2`Medium
Topic:
Valuation`of`Business`Entities;`Accounting`for`Internal`Expansion:`Creating`Business`
Entities
Learning`Objective: 01-
04`Understand`and`explain`the`differences`between`different`forms`of`business`combinations.;`01
-03`Make`calculations`and`prepare`journal`entries`for`the`creation`of`a`business`entity.
, Bloom's:
Understand`AACSB:
`Analytical`Thinking`
AICPA: FN`Measurement
Advanced Financial Accounting 13th Edition By Theodore
Christensen.
,Chapter`1 Intercorporate`Acquisitions`and`Investments`in`Other`Entities
1) 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':
A) cost`to`the`parent`company.
B) book`value`on`the`parent`company's`books`at`the`date`of`transfer.
C) fair`value`at`the`date`of`transfer.
D) fair`value`of`consideration`exchanged`by`the`newly`created`entity.
Answer:` B`Difficult
y:`1`Easy
Topic:` Internal`Expansion:`Creating`a`Business`Entity;`Valuation`of`Business`Entities`Learnin
g`Objective: 01-
01`Understand`and`explain`the`reasons`for`and`different`methods`of`business`expansion,`the`typ
es`of`organizational`structures,`and`the`types`of`acquisitions.;`01-
03`Make`calculations`and`prepare`journal`entries`for`the`creation`of`a`business`entity.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Decision`Making
2) Given`the`increased`development`of`complex`business`structures,`which`of`the`following`
regulators`is`responsible`for`the`continued`usefulness`of`accounting`reports?
A) Securities`and`Exchange`Commission`(SEC)
B) Public`Company`Accounting`Oversight`Board`(PCAOB)
C) Financial`Accounting`Standards`Board`(FASB)
D) All`of`the`other`answers`are`correct
Answer:` D`Difficult
y:`1`Easy
Topic: An`Introduction`to`Complex`Business`Structures
Learning`Objective: 01-
01`Understand`and`explain`the`reasons`for`and`different`methods`of`business`expansion,`the`ty
pes`of`organizational`structures,`and`the`types`of`acquisitions.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Reporting
3) 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:
A) Stock`acquisition
B) Leveraged`buyout
C) Statutory`Merger
D) Reverse`statutory`rollup
,Answer:` C`Difficult
y:`1`Easy
Topic: Organizational`Structure`and`Financial`Reporting
Learning`Objective: 01-
04`Understand`and`explain`the`differences`between`different`forms`of`business`combinations.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Decision`Making
4) In`which`of`the`following`situations`do`accounting`standards`not`require`that`the`financial`
statements`of`the`parent`and`subsidiary`be`consolidated?
A) A`corporation`creates`a`new`100`percent`owned`subsidiary
B) A`corporation`purchases`90`percent`of`the`voting`stock`of`another`company
C) A`corporation`has`both`control`and` majority`ownership`of`an`unincorporated`company
D) A`corporation`owns`less-than`a`controlling`interest`in`an`unincorporated`company
Answer:` D`Difficult
y:`1`Easy
Topic: Organizational`Structure`and`Financial`Reporting
Learning`Objective: 01-
01`Understand`and`explain`the`reasons`for`and`different`methods`of`business`expansion,`the`ty
pes`of`organizational`structures,`and`the`types`of`acquisitions.
Bloom's:
Remember` AACSB:
`Reflective`Thinking`
AICPA: FN`Decision`Making
During`its`inception,`Devon`Company`purchased`land`for`$100,000`and`a`building`for`$180,000.`
After`exactly`3`years,`it`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`straig
ht-
line`depreciation.`Useful`life`for`the`building`is`30`years,`with`zero`residual`value.`An`appraisal`re
vealed`that`the`building`has`a`fair`value`of`$200,000.
5) Based`on`the`information`provided,`at`the`time`of`the`transfer,`Regan`Company`should` record:
A) Building`at`$180,000`and`no`accumulated`depreciation.
B) Building`at`$162,000`and`no`accumulated`depreciation.
C) Building`at`$200,000`and`accumulated`depreciation`of`$24,000.
D) Building`at`$180,000`and`accumulated`depreciation`of`$18,000.
Answer:` D`Difficult
y:`2`Medium
Topic:
Valuation`of`Business`Entities;`Accounting`for`Internal`Expansion:`Creating`Business`
Entities
Learning`Objective: 01-
04`Understand`and`explain`the`differences`between`different`forms`of`business`combinations.;`01
-03`Make`calculations`and`prepare`journal`entries`for`the`creation`of`a`business`entity.
, Bloom's:
Understand`AACSB:
`Analytical`Thinking`
AICPA: FN`Measurement
