TEST BANK FOR
ADVANCED
FINANCIAL
ACCOUNTING 13 TH
EDITION BY
THEODORE
CHRISTENSEN ALL
CHAPTERS
COVERED
1
,Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
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':
A) cost to the parent company.
B) book value on the parent company's books at the date of transfer.
C) fair value at the date of transfer.
D) fair value of consideration exchanged by the newly created entity.
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)
D) All of the other ANSWERs are correct
ANSWER: D
Difficulty: 1 Easy
Topic: An Introduction to Complex Business Structures
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.
Bloom's: Remember
AACSB: Reflective
Thinking AICPA: FN
Reporting
3) A business combination in which the acquired company's assets and liabilities are
2
,combined with those of the acquiring company into a single entity is defined as:
A) Stock acquisition
B) Leveraged buyout
C) Statutory Merger
D) Reverse statutory rollup
3
, ANSWER: C
Difficulty: 1 Easy
Topic: Organizational Structure and Financial Reporting
Learning Objective: 01-04 Understand and explain the differences between different
forms of business combinations.
Bloom's: Remember
AACSB: Reflective
Thinking AICPA: FN
Decision Making
4) In which of the following situations do accounting standards not require that the
financial statements of the parent and subsidiary be consolidated?
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 control and majority ownership of an unincorporated company
D) A corporation owns less-than a controlling interest in an unincorporated company
ANSWER: D
Difficulty: 1 Easy
Topic: Organizational Structure and Financial Reporting
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.
Bloom's: Remember
AACSB: Reflective
Thinking AICPA: FN
Decision Making
During its inception, Devon Company purchased land for $100,000 and a building for
$180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly
created subsidiary, Regan 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.
5) Based on the information provided, at the time of the transfer, Regan Company should record:
A) Building at $180,000 and no accumulated depreciation.
B) Building at $162,000 and no accumulated depreciation.
C) Building at $200,000 and accumulated depreciation of $24,000.
D) Building at $180,000 and accumulated depreciation of $18,000.
ANSWER: D
Difficulty: 2 Medium
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating
Business Entities
Learning Objective: 01-04 Understand and explain the differences between different
4
ADVANCED
FINANCIAL
ACCOUNTING 13 TH
EDITION BY
THEODORE
CHRISTENSEN ALL
CHAPTERS
COVERED
1
,Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
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':
A) cost to the parent company.
B) book value on the parent company's books at the date of transfer.
C) fair value at the date of transfer.
D) fair value of consideration exchanged by the newly created entity.
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)
D) All of the other ANSWERs are correct
ANSWER: D
Difficulty: 1 Easy
Topic: An Introduction to Complex Business Structures
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.
Bloom's: Remember
AACSB: Reflective
Thinking AICPA: FN
Reporting
3) A business combination in which the acquired company's assets and liabilities are
2
,combined with those of the acquiring company into a single entity is defined as:
A) Stock acquisition
B) Leveraged buyout
C) Statutory Merger
D) Reverse statutory rollup
3
, ANSWER: C
Difficulty: 1 Easy
Topic: Organizational Structure and Financial Reporting
Learning Objective: 01-04 Understand and explain the differences between different
forms of business combinations.
Bloom's: Remember
AACSB: Reflective
Thinking AICPA: FN
Decision Making
4) In which of the following situations do accounting standards not require that the
financial statements of the parent and subsidiary be consolidated?
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 control and majority ownership of an unincorporated company
D) A corporation owns less-than a controlling interest in an unincorporated company
ANSWER: D
Difficulty: 1 Easy
Topic: Organizational Structure and Financial Reporting
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.
Bloom's: Remember
AACSB: Reflective
Thinking AICPA: FN
Decision Making
During its inception, Devon Company purchased land for $100,000 and a building for
$180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly
created subsidiary, Regan 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.
5) Based on the information provided, at the time of the transfer, Regan Company should record:
A) Building at $180,000 and no accumulated depreciation.
B) Building at $162,000 and no accumulated depreciation.
C) Building at $200,000 and accumulated depreciation of $24,000.
D) Building at $180,000 and accumulated depreciation of $18,000.
ANSWER: D
Difficulty: 2 Medium
Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating
Business Entities
Learning Objective: 01-04 Understand and explain the differences between different
4
