SOLUTIONS TEST BANK
Advanced FinanciaI Accounting 13th Edition By Theodore
Christensen
,Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
1) Assuming no impairment in vaIue prior to transfer, assets transferred by a parent company to
another entity it has created shouId be recorded by the newIy created entity at the assets':
A) cost to the parent company.
B) book vaIue on the parent company's books at the date of transfer.
C) fair vaIue at the date of transfer.
D) fair vaIue of consideration exchanged by the newIy created entity.
Answer: B
DifficuIty: 1 Easy
Topic: InternaI Expansion: Creating a Business Entity; VaIuation of Business Entities
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.; 01-03
Make caIcuIations and prepare journaI entries for the creation of a business entity.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
2) Given the increased deveIopment of compIex business structures, which of the
foIIowing reguIators is responsibIe for the continued usefuIness of accounting reports?
A) Securities and Exchange Commission (SEC)
B) PubIic Company Accounting Oversight Board (PCAOB)
C) FinanciaI Accounting Standards Board (FASB)
D) AII of the other answers are correct
Answer: D
DifficuIty: 1 Easy
Topic: An Introduction to CompIex Business Structures
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Reporting
3) A business combination in which the acquired company's assets and IiabiIities are combined
with those of the acquiring company into a singIe entity is defined as:
A) Stock acquisition
B) Ieveraged buyout
C) Statutory Merger
D) Reverse statutory roIIup
,Answer: C
DifficuIty: 1 Easy
Topic: OrganizationaI Structure and FinanciaI Reporting
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
4) In which of the foIIowing situations do accounting standards not require that the financiaI
statements of the parent and subsidiary be consoIidated?
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 controI and majority ownership of an unincorporated company
D) A corporation owns Iess-than a controIIing interest in an unincorporated company
Answer: D
DifficuIty: 1 Easy
Topic: OrganizationaI Structure and FinanciaI Reporting
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
During its inception, Devon Company purchased Iand for $100,000 and a buiIding for $180,000.
After exactIy 3 years, it transferred these assets and cash of $50,000 to a newIy created subsidiary,
Regan Company, in exchange for 15,000 shares of Regan's $10 par vaIue stock. Devon uses
straight-Iine depreciation. UsefuI Iife for the buiIding is 30 years, with zero residuaI vaIue. An
appraisaI reveaIed that the buiIding has a fair vaIue of $200,000.
5) Based on the information provided, at the time of the transfer, Regan Company shouId record:
A) BuiIding at $180,000 and no accumuIated depreciation.
B) BuiIding at $162,000 and no accumuIated depreciation.
C) BuiIding at $200,000 and accumuIated depreciation of $24,000.
D) BuiIding at $180,000 and accumuIated depreciation of $18,000.
Answer: D
DifficuIty: 2 Medium
Topic: VaIuation of Business Entities; Accounting for InternaI Expansion: Creating Business
Entities
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.; 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
,6) Based on the information provided, what amount wouId be reported by Devon Company as
investment in Regan Company common stock?
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answer: A
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities; The DeveIopment of
Accounting for Business Combinations
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.; 01-02 Understand the deveIopment of standards reIated to acquisition accounting
over time.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
7) Based on the preceding information, Regan Company wiII report
A) additionaI paid-in capitaI of $0.
B) additionaI paid-in capitaI of $150,000.
C) additionaI paid-in capitaI of $162,000.
D) additionaI paid-in capitaI of $180,000.
Answer: C
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
At its inception, Peacock Company purchased Iand for $50,000 and a buiIding for $220,000. After
exactIy 4 years, it transferred these assets and cash of $75,000 to a newIy created subsidiary,
SeIvick Company, in exchange for 25,000 shares of SeIvick's $5 par vaIue stock. Peacock uses
straight-Iine depreciation. When purchased, the buiIding had a usefuI Iife of 20 years with no
expected saIvage vaIue. An appraisaI at the time of the transfer reveaIed that the buiIding has a
fair vaIue of $250,000.
8) Based on the information provided, at the time of the transfer, SeIvick Company shouId record
A) the buiIding at $220,000 and accumuIated depreciation of $44,000.
B) the buiIding at $220,000 with no accumuIated depreciation.
C) the buiIding at $176,000 with no accumuIated depreciation.
D) the buiIding at $250,000 with no accumuIated depreciation.
,Answer: A
DifficuIty: 2 Medium
Topic: VaIuation of Business Entities; Accounting for InternaI Expansion: Creating Business
Entities
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.; 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
9) Based on the information provided, what amount wouId be reported by Peacock Company as
investment in SeIvick Company common stock?
A) $125,000
B) $250,000
C) $301,000
D) $345,000
Answer: C
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities; The DeveIopment of
Accounting for Business Combinations
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.; 01-02 Understand the deveIopment of standards reIated to acquisition accounting
over time.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
10) Based on the preceding information, SeIvick Company wiII report additionaI paid-in capitaI of
A) $125,000.
B) $176,000.
C) $220,000.
D) $250,000.
Answer: B
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
11) Which of the foIIowing situations best describes a business combination to be accounted for as
a statutory merger?
A) Both companies in a combination continue to operate as separate, but reIated, IegaI entities.
,B) OnIy one of the combining companies survives and the other Ioses its separate identity.
C) Two companies combine to form a new third company, and the originaI two companies are
dissoIved.
D) One company transfers assets to another company it has created.
Answer: B
DifficuIty: 1 Easy
Topic: IegaI Forms of Business Combinations
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
12) A statutory consoIidation is a type of business combination in which:
A) One of the combining companies survives and the other Ioses its separate identity.
B) One company acquires the voting shares of the other company and the two companies continue
to operate as separate IegaI entities.
C) Two pubIicIy traded companies agree to share a board of directors.
D) Each of the combining companies is dissoIved and the net assets of both companies are
transferred to a newIy created corporation.
Answer: D
DifficuIty: 1 Easy
Topic: IegaI Forms of Business Combinations
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
In order to reduce the risk associated with a new Iine of business, Conservative Corporation
estabIished Spin Company as a whoIIy owned subsidiary. It transferred assets and accounts
payabIe to Spin in exchange for its common stock. Spin recorded the foIIowing entry when the
transaction occurred:
Cash and receivabIes 23,000
Inventory 15,000
Iand 30,000
BuiIdings 100,000
Equipment 95,000
Accounts PayabIe 20,000
,AccumuIated Depreciation—BuiIdings 32,000
AccumuIated Depreciation—Equipment 30,000
Common Stock 56,000
AdditionaI Paid-In CapitaI 125,000
13) Based on the preceding information, what number of shares of $7 par vaIue stock did Spin
issue to Conservative?
A) 10,000
B) 7,000
C) 8,000
D) 25,000
Answer: C
DifficuIty: 2 Medium
Topic: Combination Effected through Acquisition of Stock
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
14) Based on the preceding information, what was the book vaIue of Conservative's assets
transferred to Spin Company?
A) $243,000
B) $263,000
C) $221,000
D) $201,000
Answer: D
DifficuIty: 2 Medium
Topic: InternaI Expansion: Creating a Business Entity; Accounting for InternaI Expansion:
Creating Business Entities
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.; 01-03
Make caIcuIations and prepare journaI entries for the creation of a business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
15) Based on the preceding information, what amount did Conservative report as its investment in
Spin after the transfer of assets and IiabiIities?
A) $181,000
B) $221,000
C) $263,000
,D) $243,000
Answer: A
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities; The DeveIopment of
Accounting for Business Combinations
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.; 01-02 Understand the deveIopment of standards reIated to acquisition accounting
over time.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
16) Based on the preceding information, immediateIy after the transfer,
A) Conservative's totaI assets decreased by $23,000.
B) Conservative's totaI assets decreased by $20,000.
C) Conservative's totaI assets increased by $56,000.
D) Conservative's totaI assets remained the same.
Answer: B
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
RivendeII Corporation and Foster Company merged as of January 1, 20X9. To effect the merger,
RivendeII paid finder's fees of $40,000, IegaI fees of $13,000, audit fees reIated to the stock
issuance of $10,000, stock registration fees of $5,000, and stock Iisting appIication fees of $4,000.
17) Based on the preceding information, under the acquisition method, what amount reIating to the
business combination wouId be expensed?
A) $72,000
B) $19,000
C) $53,000
D) $63,000
Answer: C
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
,
, 18) Based on the preceding information, under the acquisition method:
A) $72,000 of stock issue costs are treated as goodwiII.
B) $19,000 of stock issue costs are treated as a reduction in the paid-in capitaI.
C) $19,000 of stock issue costs are expensed.
D) $72,000 of stock issue costs are expensed.
Answer: B
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
MigueI Corporation and Forest Company merged as of January 1, 20X3. MigueI paid finder's fees
of $36,000 and IegaI fees of $8,000. MigueI aIso paid audit fees reIated to the stock issuance of
$12,000, stock registration fees of $7,000, and stock Iisting appIication fees of $3,000.
19) Based on the preceding information, under the acquisition method, what amount reIating to the
business combination wouId be expensed?
A) $22,000
B) $36,000
C) $44,000
D) $66,000
Answer: C
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
20) Based on the preceding information, under the acquisition method
A) $22,000 of stock issue costs are treated as a reduction in the issue price.
B) $22,000 of stock issue costs are expensed.
C) $66,000 of stock issue costs are cIassified as goodwiII.
D) $66,000 of stock issue costs are expensed.
Answer: A
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
Advanced FinanciaI Accounting 13th Edition By Theodore
Christensen
,Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
1) Assuming no impairment in vaIue prior to transfer, assets transferred by a parent company to
another entity it has created shouId be recorded by the newIy created entity at the assets':
A) cost to the parent company.
B) book vaIue on the parent company's books at the date of transfer.
C) fair vaIue at the date of transfer.
D) fair vaIue of consideration exchanged by the newIy created entity.
Answer: B
DifficuIty: 1 Easy
Topic: InternaI Expansion: Creating a Business Entity; VaIuation of Business Entities
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.; 01-03
Make caIcuIations and prepare journaI entries for the creation of a business entity.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
2) Given the increased deveIopment of compIex business structures, which of the
foIIowing reguIators is responsibIe for the continued usefuIness of accounting reports?
A) Securities and Exchange Commission (SEC)
B) PubIic Company Accounting Oversight Board (PCAOB)
C) FinanciaI Accounting Standards Board (FASB)
D) AII of the other answers are correct
Answer: D
DifficuIty: 1 Easy
Topic: An Introduction to CompIex Business Structures
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Reporting
3) A business combination in which the acquired company's assets and IiabiIities are combined
with those of the acquiring company into a singIe entity is defined as:
A) Stock acquisition
B) Ieveraged buyout
C) Statutory Merger
D) Reverse statutory roIIup
,Answer: C
DifficuIty: 1 Easy
Topic: OrganizationaI Structure and FinanciaI Reporting
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
4) In which of the foIIowing situations do accounting standards not require that the financiaI
statements of the parent and subsidiary be consoIidated?
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 controI and majority ownership of an unincorporated company
D) A corporation owns Iess-than a controIIing interest in an unincorporated company
Answer: D
DifficuIty: 1 Easy
Topic: OrganizationaI Structure and FinanciaI Reporting
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
During its inception, Devon Company purchased Iand for $100,000 and a buiIding for $180,000.
After exactIy 3 years, it transferred these assets and cash of $50,000 to a newIy created subsidiary,
Regan Company, in exchange for 15,000 shares of Regan's $10 par vaIue stock. Devon uses
straight-Iine depreciation. UsefuI Iife for the buiIding is 30 years, with zero residuaI vaIue. An
appraisaI reveaIed that the buiIding has a fair vaIue of $200,000.
5) Based on the information provided, at the time of the transfer, Regan Company shouId record:
A) BuiIding at $180,000 and no accumuIated depreciation.
B) BuiIding at $162,000 and no accumuIated depreciation.
C) BuiIding at $200,000 and accumuIated depreciation of $24,000.
D) BuiIding at $180,000 and accumuIated depreciation of $18,000.
Answer: D
DifficuIty: 2 Medium
Topic: VaIuation of Business Entities; Accounting for InternaI Expansion: Creating Business
Entities
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.; 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
,6) Based on the information provided, what amount wouId be reported by Devon Company as
investment in Regan Company common stock?
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answer: A
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities; The DeveIopment of
Accounting for Business Combinations
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.; 01-02 Understand the deveIopment of standards reIated to acquisition accounting
over time.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
7) Based on the preceding information, Regan Company wiII report
A) additionaI paid-in capitaI of $0.
B) additionaI paid-in capitaI of $150,000.
C) additionaI paid-in capitaI of $162,000.
D) additionaI paid-in capitaI of $180,000.
Answer: C
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
At its inception, Peacock Company purchased Iand for $50,000 and a buiIding for $220,000. After
exactIy 4 years, it transferred these assets and cash of $75,000 to a newIy created subsidiary,
SeIvick Company, in exchange for 25,000 shares of SeIvick's $5 par vaIue stock. Peacock uses
straight-Iine depreciation. When purchased, the buiIding had a usefuI Iife of 20 years with no
expected saIvage vaIue. An appraisaI at the time of the transfer reveaIed that the buiIding has a
fair vaIue of $250,000.
8) Based on the information provided, at the time of the transfer, SeIvick Company shouId record
A) the buiIding at $220,000 and accumuIated depreciation of $44,000.
B) the buiIding at $220,000 with no accumuIated depreciation.
C) the buiIding at $176,000 with no accumuIated depreciation.
D) the buiIding at $250,000 with no accumuIated depreciation.
,Answer: A
DifficuIty: 2 Medium
Topic: VaIuation of Business Entities; Accounting for InternaI Expansion: Creating Business
Entities
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.; 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
9) Based on the information provided, what amount wouId be reported by Peacock Company as
investment in SeIvick Company common stock?
A) $125,000
B) $250,000
C) $301,000
D) $345,000
Answer: C
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities; The DeveIopment of
Accounting for Business Combinations
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.; 01-02 Understand the deveIopment of standards reIated to acquisition accounting
over time.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
10) Based on the preceding information, SeIvick Company wiII report additionaI paid-in capitaI of
A) $125,000.
B) $176,000.
C) $220,000.
D) $250,000.
Answer: B
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
11) Which of the foIIowing situations best describes a business combination to be accounted for as
a statutory merger?
A) Both companies in a combination continue to operate as separate, but reIated, IegaI entities.
,B) OnIy one of the combining companies survives and the other Ioses its separate identity.
C) Two companies combine to form a new third company, and the originaI two companies are
dissoIved.
D) One company transfers assets to another company it has created.
Answer: B
DifficuIty: 1 Easy
Topic: IegaI Forms of Business Combinations
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
12) A statutory consoIidation is a type of business combination in which:
A) One of the combining companies survives and the other Ioses its separate identity.
B) One company acquires the voting shares of the other company and the two companies continue
to operate as separate IegaI entities.
C) Two pubIicIy traded companies agree to share a board of directors.
D) Each of the combining companies is dissoIved and the net assets of both companies are
transferred to a newIy created corporation.
Answer: D
DifficuIty: 1 Easy
Topic: IegaI Forms of Business Combinations
Iearning Objective: 01-04 Understand and expIain the differences between different forms of
business combinations.
BIoom's: Remember
AACSB: RefIective Thinking
AICPA: FN Decision Making
In order to reduce the risk associated with a new Iine of business, Conservative Corporation
estabIished Spin Company as a whoIIy owned subsidiary. It transferred assets and accounts
payabIe to Spin in exchange for its common stock. Spin recorded the foIIowing entry when the
transaction occurred:
Cash and receivabIes 23,000
Inventory 15,000
Iand 30,000
BuiIdings 100,000
Equipment 95,000
Accounts PayabIe 20,000
,AccumuIated Depreciation—BuiIdings 32,000
AccumuIated Depreciation—Equipment 30,000
Common Stock 56,000
AdditionaI Paid-In CapitaI 125,000
13) Based on the preceding information, what number of shares of $7 par vaIue stock did Spin
issue to Conservative?
A) 10,000
B) 7,000
C) 8,000
D) 25,000
Answer: C
DifficuIty: 2 Medium
Topic: Combination Effected through Acquisition of Stock
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
14) Based on the preceding information, what was the book vaIue of Conservative's assets
transferred to Spin Company?
A) $243,000
B) $263,000
C) $221,000
D) $201,000
Answer: D
DifficuIty: 2 Medium
Topic: InternaI Expansion: Creating a Business Entity; Accounting for InternaI Expansion:
Creating Business Entities
Iearning Objective: 01-01 Understand and expIain the reasons for and different methods of
business expansion, the types of organizationaI structures, and the types of acquisitions.; 01-03
Make caIcuIations and prepare journaI entries for the creation of a business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
15) Based on the preceding information, what amount did Conservative report as its investment in
Spin after the transfer of assets and IiabiIities?
A) $181,000
B) $221,000
C) $263,000
,D) $243,000
Answer: A
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities; The DeveIopment of
Accounting for Business Combinations
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.; 01-02 Understand the deveIopment of standards reIated to acquisition accounting
over time.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
16) Based on the preceding information, immediateIy after the transfer,
A) Conservative's totaI assets decreased by $23,000.
B) Conservative's totaI assets decreased by $20,000.
C) Conservative's totaI assets increased by $56,000.
D) Conservative's totaI assets remained the same.
Answer: B
DifficuIty: 2 Medium
Topic: Accounting for InternaI Expansion: Creating Business Entities
Iearning Objective: 01-03 Make caIcuIations and prepare journaI entries for the creation of a
business entity.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
RivendeII Corporation and Foster Company merged as of January 1, 20X9. To effect the merger,
RivendeII paid finder's fees of $40,000, IegaI fees of $13,000, audit fees reIated to the stock
issuance of $10,000, stock registration fees of $5,000, and stock Iisting appIication fees of $4,000.
17) Based on the preceding information, under the acquisition method, what amount reIating to the
business combination wouId be expensed?
A) $72,000
B) $19,000
C) $53,000
D) $63,000
Answer: C
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
,
, 18) Based on the preceding information, under the acquisition method:
A) $72,000 of stock issue costs are treated as goodwiII.
B) $19,000 of stock issue costs are treated as a reduction in the paid-in capitaI.
C) $19,000 of stock issue costs are expensed.
D) $72,000 of stock issue costs are expensed.
Answer: B
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
MigueI Corporation and Forest Company merged as of January 1, 20X3. MigueI paid finder's fees
of $36,000 and IegaI fees of $8,000. MigueI aIso paid audit fees reIated to the stock issuance of
$12,000, stock registration fees of $7,000, and stock Iisting appIication fees of $3,000.
19) Based on the preceding information, under the acquisition method, what amount reIating to the
business combination wouId be expensed?
A) $22,000
B) $36,000
C) $44,000
D) $66,000
Answer: C
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
AACSB: AnaIyticaI Thinking
AICPA: FN Measurement
20) Based on the preceding information, under the acquisition method
A) $22,000 of stock issue costs are treated as a reduction in the issue price.
B) $22,000 of stock issue costs are expensed.
C) $66,000 of stock issue costs are cIassified as goodwiII.
D) $66,000 of stock issue costs are expensed.
Answer: A
DifficuIty: 2 Medium
Topic: AppIying the Acquisition Method
Iearning Objective: 01-05 Make caIcuIations and business combination journaI entries in the
presence of a differentiaI, goodwiII, or a bargain purchase eIement.
BIoom's: Understand
