Advanced Financial Accounting – 13th Edition by Theodore Christensen | Complete Test Bank

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
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1) Assuming no impairment in value prior to transfer, assets transferred by a parent company t
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oanother entity it has created should be recorded by the newly created entity at the assets':
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A) cost to the parent company. re re re r e



B) book value on the parent company's books at the date of transfer.
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C) fair value at the date of transfer.
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D) fair value of consideration exchanged by the newly created entity.
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Answer: B Diffic re re



ulty: 1 Easy re re



Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities Learning
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Objective:
e 01-
01 Understand and explain the reasons for and different methods of business expansion, the typ
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es of organizational structures, and the types of acquisitions.; 01-
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03 Make calculations and prepare journal entries for the creation of a business entity.
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Bloom's:
Remember AACSB: re



Reflective ThinkingAICPA:
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FN Decision Making re re




2) Given the increased development of complex business structures, which of the followingreg
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ulators is responsible for the continued usefulness of accounting reports?
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A) Securities and Exchange Commission (SEC) re r e re re



B) Public Company Accounting Oversight Board (PCAOB) r e r e re r e re



C) Financial Accounting Standards Board (FASB) r e r e re r e



D) All of the other answers are correct
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Answer: D Diffic re re



ulty: 1 Easy re re



Topic: An Introduction to Complex Business Structures re re re re r e



Learning Objective: 01- re



01 Understand and explain the reasons for and different methods ofbusiness expansion, the typ
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es of organizational structures, and the types of acquisitions.
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Bloom's:
Remember AACSB: re



Reflective ThinkingAICPA:
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FN Reporting re




3) A business combination in which the acquired company's assets and liabilities are combinedwith
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those of the acquiring company into a single entity is defined as:
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A) Stock acquisition re



B) Leveraged buyout re



C) Statutory Merger re

,D) Reverse statutory rollup
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, Answer: C Diffic re re



ulty: 1 Easy re re



Topic: Organizational Structure and Financial Reporting re r e r e re



Learning Objective: 01- re



04 Understand and explain the differences between different forms ofbusiness combinations.
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Bloom's:
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Reflective ThinkingAICPA:
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FN Decision Making re re




4) In which of the following situations do accounting standards not require that the financi
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alstatements of the parent and subsidiary be consolidated?
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A) A corporation creates a new 100 percent owned subsidiary
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B) A corporation purchases 90 percent of the voting stock of another company
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C) A corporation has both control and majority ownership of an unincorporated company
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D) A corporation owns less-than a controlling interest in an unincorporated company
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Answer: D Diffic re re



ulty: 1 Easy re re



Topic: Organizational Structure and Financial Reporting re r e r e re



Learning Objective: 01- re



01 Understand and explain the reasons for and different methods ofbusiness expansion, the types
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of organizational structures, and the types of acquisitions.
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Bloom's:
Remember AACSB: re



Reflective ThinkingAICPA:
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FN Decision Making re re




During its inception, Devon Company purchased land for $100,000 and a building for $180,000. Af
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ter 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-
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line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal re
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vealed that the building has a fair value of $200,000.
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5) Based on the information provided, at the time of the transfer, Regan Company should record:
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A) Building at $180,000 and no accumulated depreciation. re r e re r e r e r e



B) Building at $162,000 and no accumulated depreciation. re r e r e r e r e r e



C) Building at $200,000 and accumulated depreciation of $24,000. r e r e r e r e r e r e re



D) Building at $180,000 and accumulated depreciation of $18,000. r e r e r e r e r e r e re




Answer: D Difficulty rere re



: 2 Medium
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Topic:
Valuation of Business Entities; Accounting for Internal Expansion: Creating Busines re re re r e r e r e r e r e r e



s Entities
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Learning Objective: 01- re



04 Understand and explain the differences between different forms of business combinations.; 01
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-03 Make calculations and prepare journal entries for the creation of a business entity.
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Bloom's:
Understand AACSB re



: Analytical ThinkingAICPA:
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