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