SOLUTIONS TEST BANK FOR h1 h1 h1
Advanced Financial Accounting 13th Edition By Theodore Christensen
h1 h1 h1 h1 h1 h1 h1
Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
h1 h1 h1 h1 h1 h1 h1
1) Assuming no impairment in value prior to transfer, assets transferred by a parent
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
company to another entity it has created should be recorded by the newly created entity
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
at the assets':
h1 h1 h1
A) cost to the parent company.
h1 h1 h1 h1
B) book value on the parent company's books at the date of transfer.
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
C) fair value at the date of transfer.
h1 h1 h1 h1 h1 h1
D) fair value of consideration exchanged by the newly created entity.
h1 h1 h1 h1 h1 h1 h1 h1 h1
Answer: B h1
Difficulty: 1 Easy
h1 h1 h1
Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities
h 1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Learning Objective:
h1 01-01 Understand and explain the reasons for and different
h1 h 1 h1 h1 h1 h1 h1 h1 h1 h1
methods of business expansion, the types of organizational structures, and the types of
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
acquisitions.; 01-03 Make calculations and prepare journal entries for the creation of a
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
business entity.
h1 h1
Bloom's: Remember
AACSB: Reflective
h 1 h 1
Thinking AICPA:
h1 FN h1 h 1 h 1
Decision Making
h1 h1
2) Given the increased development of complex business structures, which of the
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
following regulators is responsible for the continued usefulness of accounting
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
reports?
h1
A) Securities and Exchange Commission (SEC) h1 h1 h1 h1
B) Public Company Accounting Oversight Board (PCAOB)
h1 h1 h1 h1 h1
C) Financial Accounting Standards Board (FASB) h1 h1 h1 h1
D) All of the other answers are correct
h1 h1 h1 h1 h1 h1
Answer: D h1
Difficulty: 1 Easy
h1 h1 h1
Topic: An Introduction to Complex Business Structures
h 1 h 1 h1 h1 h1 h1 h1
Learning Objective: 01-01 Understand and explain the reasons for and different methods
h1 h 1 h1 h1 h1 h1 h1 h1 h1 h1 h1
of business expansion, the types of organizational structures, and the types of acquisitions.
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Bloom's: Remember
AACSB: Reflective
h1 h 1
Thinking AICPA: FN
h1 h1 h 1
Reporting
h1
3) A business combination in which the acquired company's assets and liabilities are
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
combined with those of the acquiring company into a single entity is defined as:
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
,A) Stock acquisition
h1
B) Leveraged buyout h1
C) Statutory Merger
h1
D) Reverse statutory rollup
h1 h1
,Answer: C h1
Difficulty: 1 Easy
h1 h1 h1
Topic: Organizational Structure and Financial Reporting
h 1 h 1 h1 h1 h1 h1
Learning Objective: 01-04 Understand and explain the differences between different forms
h1 h1 h1 h1 h1 h1 h1 h1 h1
of business combinations.
h1 h1 h1
Bloom's: Remember
AACSB: Reflective
h 1 h 1
Thinking AICPA:
h1 FN h1 h 1 h 1
Decision Making
h1 h1
4) In which of the following situations do accounting standards not require that the
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
financial statements of the parent and subsidiary be consolidated?
h1 h1 h1 h1 h1 h1 h1 h1 h1
A) A corporation creates a new 100 percent owned subsidiary
h1 h1 h1 h1 h1 h1 h1 h1
B) A corporation purchases 90 percent of the voting stock of another company
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
C) A corporation has both control and majority ownership of an unincorporated company
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
D) A corporation owns less-than a controlling interest in an unincorporated company
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Answer: D h1
Difficulty: 1 Easy
h1 h1 h1
Topic: Organizational Structure and Financial Reporting
h 1 h 1 h1 h1 h1 h1
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
h1 h 1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
business expansion, the types of organizational structures, and the types of acquisitions.
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Bloom's: Remember
AACSB: Reflective
h 1 h 1
Thinking AICPA:
h1 FN h1 h 1 h 1
Decision Making
h1 h1
During its inception, Devon Company purchased land for $100,000 and a building for
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
$180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years,
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
with zero residual value. An appraisal revealed that the building has a fair value of
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
$200,000.
h1
5) Based on the information provided, at the time of the transfer, Regan Company should
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
record:
h1
A) Building at $180,000 and no accumulated depreciation.
h1 h1 h1 h1 h1 h1
B) Building at $162,000 and no accumulated depreciation.
h1 h1 h1 h1 h1 h1
C) Building at $200,000 and accumulated depreciation of $24,000.
h1 h1 h1 h1 h1 h1 h1
D) Building at $180,000 and accumulated depreciation of $18,000.
h1 h1 h1 h1 h1 h1 h1
Answer: D h1
Difficulty: 2
h1 h1
Medium
h1
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating
h 1 h1 h1 h1 h1 h1 h1 h1 h1
Business Entities
h1 h1
Learning Objective: 01-04 Understand and explain the differences between different
h1 h 1 h1 h1 h1 h1 h1 h1 h1
forms of business combinations.; 01-03 Make calculations and prepare journal entries for the
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
creation of a business entity.
h1 h1 h1 h1 h1
Bloom's: Understand
AACSB: Analytical
h1 h 1
, Thinking AICPA:
h1 h1 h 1 FN
Measurement
h1
Advanced Financial Accounting 13th Edition By Theodore Christensen
h1 h1 h1 h1 h1 h1 h1
Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
h1 h1 h1 h1 h1 h1 h1
1) Assuming no impairment in value prior to transfer, assets transferred by a parent
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
company to another entity it has created should be recorded by the newly created entity
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
at the assets':
h1 h1 h1
A) cost to the parent company.
h1 h1 h1 h1
B) book value on the parent company's books at the date of transfer.
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
C) fair value at the date of transfer.
h1 h1 h1 h1 h1 h1
D) fair value of consideration exchanged by the newly created entity.
h1 h1 h1 h1 h1 h1 h1 h1 h1
Answer: B h1
Difficulty: 1 Easy
h1 h1 h1
Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities
h 1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Learning Objective:
h1 01-01 Understand and explain the reasons for and different
h1 h 1 h1 h1 h1 h1 h1 h1 h1 h1
methods of business expansion, the types of organizational structures, and the types of
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
acquisitions.; 01-03 Make calculations and prepare journal entries for the creation of a
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
business entity.
h1 h1
Bloom's: Remember
AACSB: Reflective
h 1 h 1
Thinking AICPA:
h1 FN h1 h 1 h 1
Decision Making
h1 h1
2) Given the increased development of complex business structures, which of the
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
following regulators is responsible for the continued usefulness of accounting
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
reports?
h1
A) Securities and Exchange Commission (SEC) h1 h1 h1 h1
B) Public Company Accounting Oversight Board (PCAOB)
h1 h1 h1 h1 h1
C) Financial Accounting Standards Board (FASB) h1 h1 h1 h1
D) All of the other answers are correct
h1 h1 h1 h1 h1 h1
Answer: D h1
Difficulty: 1 Easy
h1 h1 h1
Topic: An Introduction to Complex Business Structures
h 1 h 1 h1 h1 h1 h1 h1
Learning Objective: 01-01 Understand and explain the reasons for and different methods
h1 h 1 h1 h1 h1 h1 h1 h1 h1 h1 h1
of business expansion, the types of organizational structures, and the types of acquisitions.
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Bloom's: Remember
AACSB: Reflective
h1 h 1
Thinking AICPA: FN
h1 h1 h 1
Reporting
h1
3) A business combination in which the acquired company's assets and liabilities are
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
combined with those of the acquiring company into a single entity is defined as:
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
,A) Stock acquisition
h1
B) Leveraged buyout h1
C) Statutory Merger
h1
D) Reverse statutory rollup
h1 h1
,Answer: C h1
Difficulty: 1 Easy
h1 h1 h1
Topic: Organizational Structure and Financial Reporting
h 1 h 1 h1 h1 h1 h1
Learning Objective: 01-04 Understand and explain the differences between different forms
h1 h1 h1 h1 h1 h1 h1 h1 h1
of business combinations.
h1 h1 h1
Bloom's: Remember
AACSB: Reflective
h 1 h 1
Thinking AICPA:
h1 FN h1 h 1 h 1
Decision Making
h1 h1
4) In which of the following situations do accounting standards not require that the
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
financial statements of the parent and subsidiary be consolidated?
h1 h1 h1 h1 h1 h1 h1 h1 h1
A) A corporation creates a new 100 percent owned subsidiary
h1 h1 h1 h1 h1 h1 h1 h1
B) A corporation purchases 90 percent of the voting stock of another company
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
C) A corporation has both control and majority ownership of an unincorporated company
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
D) A corporation owns less-than a controlling interest in an unincorporated company
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Answer: D h1
Difficulty: 1 Easy
h1 h1 h1
Topic: Organizational Structure and Financial Reporting
h 1 h 1 h1 h1 h1 h1
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
h1 h 1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
business expansion, the types of organizational structures, and the types of acquisitions.
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
Bloom's: Remember
AACSB: Reflective
h 1 h 1
Thinking AICPA:
h1 FN h1 h 1 h 1
Decision Making
h1 h1
During its inception, Devon Company purchased land for $100,000 and a building for
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
$180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years,
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
with zero residual value. An appraisal revealed that the building has a fair value of
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
$200,000.
h1
5) Based on the information provided, at the time of the transfer, Regan Company should
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
record:
h1
A) Building at $180,000 and no accumulated depreciation.
h1 h1 h1 h1 h1 h1
B) Building at $162,000 and no accumulated depreciation.
h1 h1 h1 h1 h1 h1
C) Building at $200,000 and accumulated depreciation of $24,000.
h1 h1 h1 h1 h1 h1 h1
D) Building at $180,000 and accumulated depreciation of $18,000.
h1 h1 h1 h1 h1 h1 h1
Answer: D h1
Difficulty: 2
h1 h1
Medium
h1
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating
h 1 h1 h1 h1 h1 h1 h1 h1 h1
Business Entities
h1 h1
Learning Objective: 01-04 Understand and explain the differences between different
h1 h 1 h1 h1 h1 h1 h1 h1 h1
forms of business combinations.; 01-03 Make calculations and prepare journal entries for the
h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1 h1
creation of a business entity.
h1 h1 h1 h1 h1
Bloom's: Understand
AACSB: Analytical
h1 h 1
, Thinking AICPA:
h1 h1 h 1 FN
Measurement
h1
