Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
Chapter 01
Intercorporate Acquisitions and Investments in Other Entities
Multiple Choice Questions
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.
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 above
3. A business combination in which the acquired company's assets and liabilities are
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
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
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,Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
In order to reduce the risk associated with a new line of business, Conservative Corporation
established Spin Company as a wholly owned subsidiary. It transferred assets and accounts
payable to Spin in exchange for its common stock. Spin recorded the following entry when
the transaction occurred:
5. Based on the preceding information, what number of shares of $7 par value stock did Spin
issue to Conservative?
A. 10,000
B. 7,000
C. 8,000
D. 25,000
6. Based on the preceding information, what was Conservative's book value of assets
transferred to Spin Company?
A. $243,000
B. $263,000
C. $221,000
D. $201,000
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,Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
7. Based on the preceding information, what amount did Conservative report as its investment
in Spin after the transfer of assets and liabilities?
A. $181,000
B. $221,000
C. $263,000
D. $243,000
8. Based on the preceding information, immediately after the transfer,
A. Conservative's total assets decreased by $23,000.
B. Conservative's total assets decreased by $20,000.
C. Conservative's total assets increased by $56,000.
D. Conservative's total assets remained the same.
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.
9. 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.
10. Based on the information provided, what amount would be reported by Devon Company
as investment in Regan Company common stock?
A. $312,000
B. $180,000
C. $330,000
D. $150,000
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, Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
11. Based on the preceding information, Regan Company will report
A. additional paid-in capital of $0.
B. additional paid-in capital of $150,000.
C. additional paid-in capital of $162,000.
D. additional paid-in capital of $180,000.
12. Which of the following situations best describes a business combination to be accounted
for as a statutory merger?
A. Both companies in a combination continue to operate as separate, but related, legal entities.
B. Only one of the combining companies survives and the other loses its separate identity.
C. Two companies combine to form a new third company, and the original two companies are
dissolved.
D. One company transfers assets to another company it has created.
13. A statutory consolidation is a type of business combination in which:
A. one of the combining companies survives and the other loses its separate identity.
B. one company acquires the voting shares of the other company and the two companies
continue to operate as separate legal entities.
C. two publicly traded companies agree to share a board of directors.
D. each of the combining companies is dissolved and the net assets of both companies are
transferred to a newly created corporation.
Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the
merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the
stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees
of $4,000.
14. Based on the preceding information, under the acquisition method, what amount relating
to the business combination would be expensed?
A. $72,000
B. $19,000
C. $53,000
D. $63,000
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Chapter 01
Intercorporate Acquisitions and Investments in Other Entities
Multiple Choice Questions
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.
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 above
3. A business combination in which the acquired company's assets and liabilities are
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
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
1-1
,Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
In order to reduce the risk associated with a new line of business, Conservative Corporation
established Spin Company as a wholly owned subsidiary. It transferred assets and accounts
payable to Spin in exchange for its common stock. Spin recorded the following entry when
the transaction occurred:
5. Based on the preceding information, what number of shares of $7 par value stock did Spin
issue to Conservative?
A. 10,000
B. 7,000
C. 8,000
D. 25,000
6. Based on the preceding information, what was Conservative's book value of assets
transferred to Spin Company?
A. $243,000
B. $263,000
C. $221,000
D. $201,000
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,Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
7. Based on the preceding information, what amount did Conservative report as its investment
in Spin after the transfer of assets and liabilities?
A. $181,000
B. $221,000
C. $263,000
D. $243,000
8. Based on the preceding information, immediately after the transfer,
A. Conservative's total assets decreased by $23,000.
B. Conservative's total assets decreased by $20,000.
C. Conservative's total assets increased by $56,000.
D. Conservative's total assets remained the same.
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.
9. 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.
10. Based on the information provided, what amount would be reported by Devon Company
as investment in Regan Company common stock?
A. $312,000
B. $180,000
C. $330,000
D. $150,000
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, Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
11. Based on the preceding information, Regan Company will report
A. additional paid-in capital of $0.
B. additional paid-in capital of $150,000.
C. additional paid-in capital of $162,000.
D. additional paid-in capital of $180,000.
12. Which of the following situations best describes a business combination to be accounted
for as a statutory merger?
A. Both companies in a combination continue to operate as separate, but related, legal entities.
B. Only one of the combining companies survives and the other loses its separate identity.
C. Two companies combine to form a new third company, and the original two companies are
dissolved.
D. One company transfers assets to another company it has created.
13. A statutory consolidation is a type of business combination in which:
A. one of the combining companies survives and the other loses its separate identity.
B. one company acquires the voting shares of the other company and the two companies
continue to operate as separate legal entities.
C. two publicly traded companies agree to share a board of directors.
D. each of the combining companies is dissolved and the net assets of both companies are
transferred to a newly created corporation.
Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the
merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the
stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees
of $4,000.
14. Based on the preceding information, under the acquisition method, what amount relating
to the business combination would be expensed?
A. $72,000
B. $19,000
C. $53,000
D. $63,000
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