SOLUTIONS TEST BANK FOR p p p
Advanced Financial Accounting 13th Edition By Theodore Christensen
p p p p p p p
Chapter 1 p Intercorporate Acquisitions and Investments in Other Entities p p p p p p
1) Assuming no impairment in value prior to transfer, assets transferred by a parent company to
p p p p p p p p p p p p p p
another entity it has created should be recorded by the newly created entity at the assets':
p p p p p p p p p p p p p p p p
A) cost to the parent company.
p p p p
B) book value on the parent company's books at the date of transfer.
p p p p p p p p p p p
C) fair value at the date of transfer.
p p p p p p
D) fair value of consideration exchanged by the newly created entity.
p p p p p p p p p
Answer: B p
Difficulty: 1 Easy
p p p
Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities
p p p p p p p p p p
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
p p p p p p p p p p p p p
business expansion, the types of organizational structures, and the types of acquisitions.; 01-03
p p p p p p p p p p p p p
Make calculations and prepare journal entries for the creation of a business entity.
p p p p p p p p p p p p p
Bloom's: Remember
pAACSB: Reflective p
Thinking AICPA: FN
p p p p
Decision Making
p p
2) Given the increased development of complex business structures, which of the following
p p p p p p p p p p p
regulators is responsible for the continued usefulness of accounting reports?
p p p p p p p p p p
A) Securities and Exchange Commission (SEC) p p p p
B) Public Company Accounting Oversight Board (PCAOB)
p p p p p
C) Financial Accounting Standards Board (FASB) p p p p
D) All of the other answers are correct
p p p p p p
Answer: D p
Difficulty: 1 Easy
p p p
Topic: An Introduction to Complex Business Structures
p p p p p p p
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
p p p p p p p p p p p p
business expansion, the types of organizational structures, and the types of acquisitions.
p p p p p p p p p p p p
Bloom's: Remember
AACSB: Reflective
p p
Thinking AICPA: FN
p p p
Reporting
p
3) A business combination in which the acquired company's assets and liabilities are combined
p p p p p p p p p p p p
with those of the acquiring company into a single entity is defined as:
p p p p p p p p p p p p p
A) Stock acquisition p
B) Leveraged buyout p
C) Statutory Merger p
,D) Reverse statutory rollup
p p
,Answer: C p
Difficulty: 1 Easy
p p p
Topic: Organizational Structure and Financial Reporting
p p p p p p
Learning Objective: 01-04 Understand and explain the differences between different forms of
p p p p p p p p p p
business combinations.
p p
Bloom's: Remember
pAACSB: Reflective p
Thinking AICPA: FN
p p p p
Decision Making
p p
4) In which of the following situations do accounting standards not require that the financial
p p p p p p p p p p p p p
statements of the parent and subsidiary be consolidated?
p p p p p p p p
A) A corporation creates a new 100 percent owned subsidiary
p p p p p p p p
B) A corporation purchases 90 percent of the voting stock of another company
p p p p p p p p p p p
C) A corporation has both control and majority ownership of an unincorporated company
p p p p p p p p p p p
D) A corporation owns less-than a controlling interest in an unincorporated company
p p p p p p p p p p
Answer: D p
Difficulty: 1 Easy
p p p
Topic: Organizational Structure and Financial Reporting
p p p p p p
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
p p p p p p p p p p p p
business expansion, the types of organizational structures, and the types of acquisitions.
p p p p p p p p p p p p
Bloom's: Remember
pAACSB: Reflective p
Thinking AICPA: FN
p p p p
Decision Making
p p
During its inception, Devon Company purchased land for $100,000 and a building for $180,000.
p p p p p p p p p p p p p
After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary,
p p p p p p p p p p p p p p p p p
Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses
p p p p p p p p p p p p p p p
straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An
p p p p p p p p p p p p p p p
appraisal revealed that the building has a fair value of $200,000.
p p p p p p p p p p p
5) Based on the information provided, at the time of the transfer, Regan Company should record:
p p p p p p p p p p p p p p
A) Building at $180,000 and no accumulated depreciation.
p p p p p p
B) Building at $162,000 and no accumulated depreciation.
p p p p p p
C) Building at $200,000 and accumulated depreciation of $24,000.
p p p p p p p
D) Building at $180,000 and accumulated depreciation of $18,000.
p p p p p p p
Answer: D p
Difficulty: 2 Medium
p p p
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating Business
p p p p p p p p p p
Entities
p
Learning Objective: 01-04 Understand and explain the differences between different forms of
p p p p p p p p p p p
business combinations.; 01-03 Make calculations and prepare journal entries for the creation of a
p p p p p p p p p p p p p p
business entity.
p p
Bloom's: Understand
AACSB: Analytical
p p
Thinking AICPA: FN
p p p
Measurement
p
, 6) Based on the information provided, what amount would be reported by Devon Company as
p p p p p p p p p p p p p
investment in Regan Company common stock?
p p p p p p
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answer: A p
Difficulty: 2 Medium
p p p
Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of
p p p p p p p p p p
Accounting for Business Combinations
p p p p
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
p p p p p p p p p p p p
business entity.; 01-02 Understand the development of standards related to acquisition accounting
p p p p p p p p p p p p
over time.
p p
Bloom's: Understand
AACSB: Analytical
p p
Thinking AICPA: FN
p p p
Measurement
p
7) Based on the preceding information, Regan Company will report
p p p p p p p p
A) additional paid-in capital of $0. p p p p
B) additional paid-in capital of $150,000. p p p p
C) additional paid-in capital of $162,000. p p p p
D) additional paid-in capital of $180,000. p p p p
Answer: C p
Difficulty: 2 Medium
p p p
Topic: Accounting for Internal Expansion: Creating Business Entities
p p p p p p p p
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
p p p p p p p p p p p p p
business entity.
p p
Bloom's: Understand
AACSB: Analytical
p p
Thinking AICPA: FN
p p p
Measurement
p
At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After
p p p p p p p p p p p p p p
exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary,
p p p p p p p p p p p p p p p p
Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses
p p p p p p p p p p p p p p p
straight-line depreciation. When purchased, the building had a useful life of 20 years with no
p p p p p p p p p p p p p p p
expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair
p p p p p p p p p p p p p p p p p p
value of $250,000.
p p p
8) Based on the information provided, at the time of the transfer, Selvick Company should record
p p p p p p p p p p p p p p
A) the building at $220,000 and accumulated depreciation of $44,000.
p p p p p p p p
B) the building at $220,000 with no accumulated depreciation.
p p p p p p p
C) the building at $176,000 with no accumulated depreciation.
p p p p p p p
D) the building at $250,000 with no accumulated depreciation.
p p p p p p p
Advanced Financial Accounting 13th Edition By Theodore Christensen
p p p p p p p
Chapter 1 p Intercorporate Acquisitions and Investments in Other Entities p p p p p p
1) Assuming no impairment in value prior to transfer, assets transferred by a parent company to
p p p p p p p p p p p p p p
another entity it has created should be recorded by the newly created entity at the assets':
p p p p p p p p p p p p p p p p
A) cost to the parent company.
p p p p
B) book value on the parent company's books at the date of transfer.
p p p p p p p p p p p
C) fair value at the date of transfer.
p p p p p p
D) fair value of consideration exchanged by the newly created entity.
p p p p p p p p p
Answer: B p
Difficulty: 1 Easy
p p p
Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities
p p p p p p p p p p
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
p p p p p p p p p p p p p
business expansion, the types of organizational structures, and the types of acquisitions.; 01-03
p p p p p p p p p p p p p
Make calculations and prepare journal entries for the creation of a business entity.
p p p p p p p p p p p p p
Bloom's: Remember
pAACSB: Reflective p
Thinking AICPA: FN
p p p p
Decision Making
p p
2) Given the increased development of complex business structures, which of the following
p p p p p p p p p p p
regulators is responsible for the continued usefulness of accounting reports?
p p p p p p p p p p
A) Securities and Exchange Commission (SEC) p p p p
B) Public Company Accounting Oversight Board (PCAOB)
p p p p p
C) Financial Accounting Standards Board (FASB) p p p p
D) All of the other answers are correct
p p p p p p
Answer: D p
Difficulty: 1 Easy
p p p
Topic: An Introduction to Complex Business Structures
p p p p p p p
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
p p p p p p p p p p p p
business expansion, the types of organizational structures, and the types of acquisitions.
p p p p p p p p p p p p
Bloom's: Remember
AACSB: Reflective
p p
Thinking AICPA: FN
p p p
Reporting
p
3) A business combination in which the acquired company's assets and liabilities are combined
p p p p p p p p p p p p
with those of the acquiring company into a single entity is defined as:
p p p p p p p p p p p p p
A) Stock acquisition p
B) Leveraged buyout p
C) Statutory Merger p
,D) Reverse statutory rollup
p p
,Answer: C p
Difficulty: 1 Easy
p p p
Topic: Organizational Structure and Financial Reporting
p p p p p p
Learning Objective: 01-04 Understand and explain the differences between different forms of
p p p p p p p p p p
business combinations.
p p
Bloom's: Remember
pAACSB: Reflective p
Thinking AICPA: FN
p p p p
Decision Making
p p
4) In which of the following situations do accounting standards not require that the financial
p p p p p p p p p p p p p
statements of the parent and subsidiary be consolidated?
p p p p p p p p
A) A corporation creates a new 100 percent owned subsidiary
p p p p p p p p
B) A corporation purchases 90 percent of the voting stock of another company
p p p p p p p p p p p
C) A corporation has both control and majority ownership of an unincorporated company
p p p p p p p p p p p
D) A corporation owns less-than a controlling interest in an unincorporated company
p p p p p p p p p p
Answer: D p
Difficulty: 1 Easy
p p p
Topic: Organizational Structure and Financial Reporting
p p p p p p
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
p p p p p p p p p p p p
business expansion, the types of organizational structures, and the types of acquisitions.
p p p p p p p p p p p p
Bloom's: Remember
pAACSB: Reflective p
Thinking AICPA: FN
p p p p
Decision Making
p p
During its inception, Devon Company purchased land for $100,000 and a building for $180,000.
p p p p p p p p p p p p p
After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary,
p p p p p p p p p p p p p p p p p
Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses
p p p p p p p p p p p p p p p
straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An
p p p p p p p p p p p p p p p
appraisal revealed that the building has a fair value of $200,000.
p p p p p p p p p p p
5) Based on the information provided, at the time of the transfer, Regan Company should record:
p p p p p p p p p p p p p p
A) Building at $180,000 and no accumulated depreciation.
p p p p p p
B) Building at $162,000 and no accumulated depreciation.
p p p p p p
C) Building at $200,000 and accumulated depreciation of $24,000.
p p p p p p p
D) Building at $180,000 and accumulated depreciation of $18,000.
p p p p p p p
Answer: D p
Difficulty: 2 Medium
p p p
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating Business
p p p p p p p p p p
Entities
p
Learning Objective: 01-04 Understand and explain the differences between different forms of
p p p p p p p p p p p
business combinations.; 01-03 Make calculations and prepare journal entries for the creation of a
p p p p p p p p p p p p p p
business entity.
p p
Bloom's: Understand
AACSB: Analytical
p p
Thinking AICPA: FN
p p p
Measurement
p
, 6) Based on the information provided, what amount would be reported by Devon Company as
p p p p p p p p p p p p p
investment in Regan Company common stock?
p p p p p p
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answer: A p
Difficulty: 2 Medium
p p p
Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of
p p p p p p p p p p
Accounting for Business Combinations
p p p p
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
p p p p p p p p p p p p
business entity.; 01-02 Understand the development of standards related to acquisition accounting
p p p p p p p p p p p p
over time.
p p
Bloom's: Understand
AACSB: Analytical
p p
Thinking AICPA: FN
p p p
Measurement
p
7) Based on the preceding information, Regan Company will report
p p p p p p p p
A) additional paid-in capital of $0. p p p p
B) additional paid-in capital of $150,000. p p p p
C) additional paid-in capital of $162,000. p p p p
D) additional paid-in capital of $180,000. p p p p
Answer: C p
Difficulty: 2 Medium
p p p
Topic: Accounting for Internal Expansion: Creating Business Entities
p p p p p p p p
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
p p p p p p p p p p p p p
business entity.
p p
Bloom's: Understand
AACSB: Analytical
p p
Thinking AICPA: FN
p p p
Measurement
p
At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After
p p p p p p p p p p p p p p
exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary,
p p p p p p p p p p p p p p p p
Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses
p p p p p p p p p p p p p p p
straight-line depreciation. When purchased, the building had a useful life of 20 years with no
p p p p p p p p p p p p p p p
expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair
p p p p p p p p p p p p p p p p p p
value of $250,000.
p p p
8) Based on the information provided, at the time of the transfer, Selvick Company should record
p p p p p p p p p p p p p p
A) the building at $220,000 and accumulated depreciation of $44,000.
p p p p p p p p
B) the building at $220,000 with no accumulated depreciation.
p p p p p p p
C) the building at $176,000 with no accumulated depreciation.
p p p p p p p
D) the building at $250,000 with no accumulated depreciation.
p p p p p p p
