Franklyn A Plus Pass Franklyn A Plus Pass
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
TEST BANK for Advanced Financial 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':
Accounting 13th Edition By Theodore A) cost to the parent company.
Christensen B) book value on the parent company's books at the date of transfer.
C) fair value at the date of transfer.
ALL CHAPTERS 1-20 WITH EXPERT VERIFIED
D) fair value of consideration exchanged by the newly created entity.
QUESTIONS & CORRECT SOLUTIONS| A+ GRADED
Correct Answer: B Difficulty: 1 Easy
Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities 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.; 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)
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D) All of the other answers are correct
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Correct Answer: D Difficulty: 1 Easy
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Topic: An Introduction to Complex Business Structures
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Learning Objective: 01-01 Understand and explain the reasons for and different methods of business
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expansion, the types of organizational structures, and the types of acquisitions.
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Reporting
A
A
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3) A business combination in which the acquired company's assets and liabilities are combined with those
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of the acquiring company into a single entity is defined as:
A) Stock acquisition
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B) Leveraged buyout B) Building at $162,000 and no accumulated depreciation.
C) Statutory Merger C) Building at $200,000 and accumulated depreciation of $24,000.
D) Reverse statutory rollup D) Building at $180,000 and accumulated depreciation of $18,000.
Correct Answer: C Difficulty: 1 Easy Correct Answer: D Difficulty: 2 Medium
Topic: Organizational Structure and Financial Reporting 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 Learning Objective: 01-04 Understand and explain the differences between different forms of
business combinations. business combinations.; 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 Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
Measurement
4) In which of the following situations do accounting standards not require that the financial statements of
the parent and subsidiary be consolidated? 6) Based on the information provided, what amount would be reported by Devon Company as investment
in Regan Company common stock?
A) A corporation creates a new 100 percent owned subsidiary
A) $312,000
B) A corporation purchases 90 percent of the voting stock of another company
B) $180,000
C) A corporation has both control and majority ownership of an unincorporated company
C) $330,000
D) A corporation owns less-than a controlling interest in an unincorporated company
D) $150,000
Correct Answer: D Difficulty: 1 Easy
Correct Answer: A Difficulty: 2 Medium
Topic: Organizational Structure and Financial Reporting
Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of Accounting
Learning Objective: 01-01 Understand and explain the reasons for and different methods of business
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for Business Combinations
expansion, the types of organizational structures, and the types of acquisitions.
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Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Decision entity.; 01-02 Understand the development of standards related to acquisition accounting over time.
Making
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Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After Measurement
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exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan
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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 revealed that
the building has a fair value of $200,000. 7) Based on the preceding information, Regan Company will report
A
A
A) additional paid-in capital of $0.
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5) Based on the information provided, at the time of the transfer, Regan Company should record: B) additional paid-in capital of $150,000.
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A) Building at $180,000 and no accumulated depreciation. C) additional paid-in capital of $162,000.
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, Franklyn A Plus Pass Franklyn A Plus Pass
D) additional paid-in capital of $180,000. C) $301,000
Correct Answer: C Difficulty: 2 Medium D) $345,000
Topic: Accounting for Internal Expansion: Creating Business Entities Correct Answer: C Difficulty: 2 Medium
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of Accounting
entity. for Business Combinations
Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business
Measurement entity.; 01-02 Understand the development of standards related to acquisition accounting over time.
Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
Measurement
At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly
4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in
exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When
purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the 10) Based on the preceding information, Selvick Company will report additional paid-in capital of
time of the transfer revealed that the building has a fair value of $250,000. A) $125,000.
8) Based on the information provided, at the time of the transfer, Selvick Company should record B) $176,000.
A) the building at $220,000 and accumulated depreciation of $44,000. C) $220,000.
B) the building at $220,000 with no accumulated depreciation.
D) $250,000.
C) the building at $176,000 with no accumulated depreciation. Correct Answer: B Difficulty: 2 Medium
D) the building at $250,000 with no accumulated depreciation. Topic: Accounting for Internal Expansion: Creating Business Entities
Correct Answer: A Difficulty: 2 Medium Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating Business Entities entity.
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Learning Objective: 01-04 Understand and explain the differences between different forms of Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
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business combinations.; 01-03 Make calculations and prepare journal entries for the creation of a business Measurement
entity.
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Bloom's: Understand AACSB: Analytical Thinking AICPA: FN 11) Which of the following situations best describes a business combination to be accounted for as a
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Measurement
statutory merger?
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A) Both companies in a combination continue to operate as separate, but related, legal entities.
9) Based on the information provided, what amount would be reported by Peacock Company as B) Only one of the combining companies survives and the other loses its separate identity.
A
A
investment in Selvick Company common stock?
C) Two companies combine to form a new third company, and the original two companies are
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A) $125,000
dissolved.
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B) $250,000 D) One company transfers assets to another company it has created.
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Correct Answer: B Difficulty: 1 Easy
Topic: Legal Forms of Business Combinations Accumulated Depreciation—Buildings 32,000
Learning Objective: 01-04 Understand and explain the differences between different forms of Accumulated Depreciation—Equipment 30,000
business combinations.
Common Stock 56,000
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Decision
Making Additional Paid-In Capital 125,000
12) A statutory consolidation is a type of business combination in which: 13) Based on the preceding information, what number of shares of $7 par value stock did Spin issue to
Conservative?
A) One of the combining companies survives and the other loses its separate identity.
A) 10,000
B) One company acquires the voting shares of the other company and the two companies continue to
operate as separate legal entities. B) 7,000
C) Two publicly traded companies agree to share a board of directors. C) 8,000
D) Each of the combining companies is dissolved and the net assets of both companies are D) 25,000
transferred to a newly created corporation. Correct Answer: C Difficulty: 2 Medium
Correct Answer: D Difficulty: 1 Easy
Topic: Combination Effected through Acquisition of Stock
Topic: Legal Forms of Business Combinations Learning Objective: 01-05 Make calculations and business combination journal entries in the presence
Learning Objective: 01-04 Understand and explain the differences between different forms of of a differential, goodwill, or a bargain purchase element.
business combinations. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Decision Measurement
Making
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In order to reduce the risk associated with a new line of business, Conservative Corporation established
14) Based on the preceding information, what was the book value of Conservative's assets transferred to
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Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in Spin Company?
exchange for its common stock. Spin recorded the following entry when the transaction occurred:
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A) $243,000
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B) $263,000
Cash and receivables 23,000
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C) $221,000
Inventory 15,000
D) $201,000
A
A
Land 30,000
Correct Answer: D Difficulty: 2 Medium
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Buildings 100,000
Topic: Internal Expansion: Creating a Business Entity; Accounting for Internal Expansion: Creating
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Equipment 95,000 Business Entities
Accounts Payable 20,000
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Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
TEST BANK for Advanced Financial 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':
Accounting 13th Edition By Theodore A) cost to the parent company.
Christensen B) book value on the parent company's books at the date of transfer.
C) fair value at the date of transfer.
ALL CHAPTERS 1-20 WITH EXPERT VERIFIED
D) fair value of consideration exchanged by the newly created entity.
QUESTIONS & CORRECT SOLUTIONS| A+ GRADED
Correct Answer: B Difficulty: 1 Easy
Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities 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.; 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)
Fr
Fr
D) All of the other answers are correct
an
an
Correct Answer: D Difficulty: 1 Easy
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Topic: An Introduction to Complex Business Structures
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Learning Objective: 01-01 Understand and explain the reasons for and different methods of business
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ne
expansion, the types of organizational structures, and the types of acquisitions.
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Reporting
A
A
pl
pl
3) A business combination in which the acquired company's assets and liabilities are combined with those
us
us
of the acquiring company into a single entity is defined as:
A) Stock acquisition
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Page | 1 Page | 2
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ss
, Franklyn A Plus Pass Franklyn A Plus Pass
B) Leveraged buyout B) Building at $162,000 and no accumulated depreciation.
C) Statutory Merger C) Building at $200,000 and accumulated depreciation of $24,000.
D) Reverse statutory rollup D) Building at $180,000 and accumulated depreciation of $18,000.
Correct Answer: C Difficulty: 1 Easy Correct Answer: D Difficulty: 2 Medium
Topic: Organizational Structure and Financial Reporting 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 Learning Objective: 01-04 Understand and explain the differences between different forms of
business combinations. business combinations.; 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 Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
Measurement
4) In which of the following situations do accounting standards not require that the financial statements of
the parent and subsidiary be consolidated? 6) Based on the information provided, what amount would be reported by Devon Company as investment
in Regan Company common stock?
A) A corporation creates a new 100 percent owned subsidiary
A) $312,000
B) A corporation purchases 90 percent of the voting stock of another company
B) $180,000
C) A corporation has both control and majority ownership of an unincorporated company
C) $330,000
D) A corporation owns less-than a controlling interest in an unincorporated company
D) $150,000
Correct Answer: D Difficulty: 1 Easy
Correct Answer: A Difficulty: 2 Medium
Topic: Organizational Structure and Financial Reporting
Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of Accounting
Learning Objective: 01-01 Understand and explain the reasons for and different methods of business
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for Business Combinations
expansion, the types of organizational structures, and the types of acquisitions.
an
an
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Decision entity.; 01-02 Understand the development of standards related to acquisition accounting over time.
Making
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Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After Measurement
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exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan
ne
ne
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 revealed that
the building has a fair value of $200,000. 7) Based on the preceding information, Regan Company will report
A
A
A) additional paid-in capital of $0.
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pl
5) Based on the information provided, at the time of the transfer, Regan Company should record: B) additional paid-in capital of $150,000.
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us
A) Building at $180,000 and no accumulated depreciation. C) additional paid-in capital of $162,000.
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, Franklyn A Plus Pass Franklyn A Plus Pass
D) additional paid-in capital of $180,000. C) $301,000
Correct Answer: C Difficulty: 2 Medium D) $345,000
Topic: Accounting for Internal Expansion: Creating Business Entities Correct Answer: C Difficulty: 2 Medium
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of Accounting
entity. for Business Combinations
Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business
Measurement entity.; 01-02 Understand the development of standards related to acquisition accounting over time.
Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
Measurement
At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly
4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in
exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When
purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the 10) Based on the preceding information, Selvick Company will report additional paid-in capital of
time of the transfer revealed that the building has a fair value of $250,000. A) $125,000.
8) Based on the information provided, at the time of the transfer, Selvick Company should record B) $176,000.
A) the building at $220,000 and accumulated depreciation of $44,000. C) $220,000.
B) the building at $220,000 with no accumulated depreciation.
D) $250,000.
C) the building at $176,000 with no accumulated depreciation. Correct Answer: B Difficulty: 2 Medium
D) the building at $250,000 with no accumulated depreciation. Topic: Accounting for Internal Expansion: Creating Business Entities
Correct Answer: A Difficulty: 2 Medium Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a business
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating Business Entities entity.
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Learning Objective: 01-04 Understand and explain the differences between different forms of Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
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business combinations.; 01-03 Make calculations and prepare journal entries for the creation of a business Measurement
entity.
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Bloom's: Understand AACSB: Analytical Thinking AICPA: FN 11) Which of the following situations best describes a business combination to be accounted for as a
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Measurement
statutory merger?
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A) Both companies in a combination continue to operate as separate, but related, legal entities.
9) Based on the information provided, what amount would be reported by Peacock Company as B) Only one of the combining companies survives and the other loses its separate identity.
A
A
investment in Selvick Company common stock?
C) Two companies combine to form a new third company, and the original two companies are
pl
pl
A) $125,000
dissolved.
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B) $250,000 D) One company transfers assets to another company it has created.
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Page | 5 Page | 6
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, Franklyn A Plus Pass Franklyn A Plus Pass
Correct Answer: B Difficulty: 1 Easy
Topic: Legal Forms of Business Combinations Accumulated Depreciation—Buildings 32,000
Learning Objective: 01-04 Understand and explain the differences between different forms of Accumulated Depreciation—Equipment 30,000
business combinations.
Common Stock 56,000
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Decision
Making Additional Paid-In Capital 125,000
12) A statutory consolidation is a type of business combination in which: 13) Based on the preceding information, what number of shares of $7 par value stock did Spin issue to
Conservative?
A) One of the combining companies survives and the other loses its separate identity.
A) 10,000
B) One company acquires the voting shares of the other company and the two companies continue to
operate as separate legal entities. B) 7,000
C) Two publicly traded companies agree to share a board of directors. C) 8,000
D) Each of the combining companies is dissolved and the net assets of both companies are D) 25,000
transferred to a newly created corporation. Correct Answer: C Difficulty: 2 Medium
Correct Answer: D Difficulty: 1 Easy
Topic: Combination Effected through Acquisition of Stock
Topic: Legal Forms of Business Combinations Learning Objective: 01-05 Make calculations and business combination journal entries in the presence
Learning Objective: 01-04 Understand and explain the differences between different forms of of a differential, goodwill, or a bargain purchase element.
business combinations. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN
Bloom's: Remember AACSB: Reflective Thinking AICPA: FN Decision Measurement
Making
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Fr
In order to reduce the risk associated with a new line of business, Conservative Corporation established
14) Based on the preceding information, what was the book value of Conservative's assets transferred to
an
an
Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in Spin Company?
exchange for its common stock. Spin recorded the following entry when the transaction occurred:
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A) $243,000
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B) $263,000
Cash and receivables 23,000
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ne
C) $221,000
Inventory 15,000
D) $201,000
A
A
Land 30,000
Correct Answer: D Difficulty: 2 Medium
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pl
Buildings 100,000
Topic: Internal Expansion: Creating a Business Entity; Accounting for Internal Expansion: Creating
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us
Equipment 95,000 Business Entities
Accounts Payable 20,000
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