Test Bank for Advanced Financial Accounting
!| !| !| !| !| !|
! | 13th Edition
!| ! |
By Theodore Christensen
! | !|
,TEST BANK FOR
!| !|
Advanced Financial Accounting 13th Edition By Theodore Christensen
!| !| !| !| !| !| !|
Chapter ! | 1 Intercorporate ! | Acquisitions ! | and !| Investments ! | in ! | Other ! | Entities
1) Assuming !|no !|impairment !| in !|value !|prior !|to !|transfer, !|a ssets!|transferred !|by !|a !|parent !|company !|to
!|another !| entity !|it !| has !| created !| should !| be !|recorded !|by !|t he !| newly !|created !|entity !|at !|the !|assets':
A) cost !|to !|the !|parent !|company.
B) book !|value !|on !|t he !|parent !| company's !|books !|at !|the !|date !|of !|transfer.
C) fair !|value !|at !|the !|date !|of!|transfer.
D) fair !|value !|o f !|consideration !|exchanged !|by !|t he !|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, !|t he !|t ypes !|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 !|t he !|i ncreased !|development !|of !|complex !|business !|structures, !|which !|o f !|t he !|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 !|t he !|other !|answers !|are !|correct
Answer: !|D
!|Difficulty: !|1
!|Easy
Topic: An !| Introduction ! | to ! | Complex ! | Business ! | Structures
Learning !| Objective: 01-01 !|Understand !|and !|explain !|t he !|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 !|b usiness !|combination !|i n !|which !|t he !|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
, Answer: !|C
!|Difficulty: !|1
!|Easy
Topic: Organizational ! | Structure ! | and ! | Financial ! | Reporting
Learning !| Objective: 01-04 !|Understand !|and !|explain !|t he !|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 !|t he !|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!|o f
!|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 !|e xactly !|3 !|years, !|it !|transferred !|t hese !|a ssets !|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 !|t he !|information !|provided, !|at !|t he !|time !|of !|t he !|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
!|M edium
Topic: Valuation !|o f !|Business !|E ntities; !|Accounting !|for !|I nternal !|E xpansion: !|Creating !|Business
!|Entities
Learning !| Objective: 01-04 !| Understand !|and !| explain !|the !|differences !|between !|different !| forms
!|of !|business !|c ombinations.; !|01-03 !|Make !|calculations !|and !|prepare !|journal !|entries !|for !|the !|creation
!|of !|a !|business !|entity.
Bloom's: Understand
!|AACSB: ! | Analytical
!| !| !| !| !| !|
! | 13th Edition
!| ! |
By Theodore Christensen
! | !|
,TEST BANK FOR
!| !|
Advanced Financial Accounting 13th Edition By Theodore Christensen
!| !| !| !| !| !| !|
Chapter ! | 1 Intercorporate ! | Acquisitions ! | and !| Investments ! | in ! | Other ! | Entities
1) Assuming !|no !|impairment !| in !|value !|prior !|to !|transfer, !|a ssets!|transferred !|by !|a !|parent !|company !|to
!|another !| entity !|it !| has !| created !| should !| be !|recorded !|by !|t he !| newly !|created !|entity !|at !|the !|assets':
A) cost !|to !|the !|parent !|company.
B) book !|value !|on !|t he !|parent !| company's !|books !|at !|the !|date !|of !|transfer.
C) fair !|value !|at !|the !|date !|of!|transfer.
D) fair !|value !|o f !|consideration !|exchanged !|by !|t he !|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, !|t he !|t ypes !|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 !|t he !|i ncreased !|development !|of !|complex !|business !|structures, !|which !|o f !|t he !|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 !|t he !|other !|answers !|are !|correct
Answer: !|D
!|Difficulty: !|1
!|Easy
Topic: An !| Introduction ! | to ! | Complex ! | Business ! | Structures
Learning !| Objective: 01-01 !|Understand !|and !|explain !|t he !|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 !|b usiness !|combination !|i n !|which !|t he !|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
, Answer: !|C
!|Difficulty: !|1
!|Easy
Topic: Organizational ! | Structure ! | and ! | Financial ! | Reporting
Learning !| Objective: 01-04 !|Understand !|and !|explain !|t he !|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 !|t he !|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!|o f
!|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 !|e xactly !|3 !|years, !|it !|transferred !|t hese !|a ssets !|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 !|t he !|information !|provided, !|at !|t he !|time !|of !|t he !|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
!|M edium
Topic: Valuation !|o f !|Business !|E ntities; !|Accounting !|for !|I nternal !|E xpansion: !|Creating !|Business
!|Entities
Learning !| Objective: 01-04 !| Understand !|and !| explain !|the !|differences !|between !|different !| forms
!|of !|business !|c ombinations.; !|01-03 !|Make !|calculations !|and !|prepare !|journal !|entries !|for !|the !|creation
!|of !|a !|business !|entity.
Bloom's: Understand
!|AACSB: ! | Analytical
