TEST BANK
Advanced Accounting
Paul Fischer
12th Edition
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,Table of Contents
1. Business Combinations: New Rules for a Long-Standing Business Practice
2. Consolidated Statements: Date of Acquisition
3. Consolidated Statements: Subsequent to Acquisition
4. Intercompany Transactions: Merchandise, Plant Assets, and Notes
5. Intercompany Transactions: Bonds and Leases
6. Cash Flows, EPS, and Taxation
7. Special Issues in Accounting for an Investment in a Subsidiary
8. Subsidiary Equity Transactions; Indirect Subsidiary Ownership and Subsidiary Ownership of Parent Shares
- Appendix 1: Accounting for Influential Investments
- Appendix 2: Variable Interest Entities
9. The International Accounting Environment (Module: Derivatives and Related Accounting Issues)
10. Foreign Currency Transactions
11. Translation of Foreign Financial Statements
12. Interim Reporting and Disclosures about Segments of an Enterprise
13. Partnerships: Characteristics, Formation, and Accounting for Activities
14. Partnerships: Ownership Changes and Liquidations
15. Governmental Accounting: The General Fund and the Account Groups
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16. Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds
17. Financial Reporting Issues
18. Accounting for Private Not-for-Profit Organizations
19. Accounting for Not-for-Profit Colleges and Universities and Health Care Organizations
20. Estates and Trusts: Their Nature and the Accountant’s Role
21. Debt Restructuring, Corporate Reorganizations, and Liquidations
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,Chapter 01—Business Combinations: New Rules for a Long-Standing Business Practice
Multiple Choice
1. An economic advantage of a business combination includes:
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Shared fixed costs.
d. Horizontally combining levels within the marketing
chain.
ANSWER: c
RATIONALE: Business combinations may viewed as a way to take advantage of economies of scale by
utilizing common facilities and sharing fixed costs.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
2. One large bank’s acquisition of another bank would be an example of a:
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a. market extension merger.
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
ANSWER: d
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RATIONALE: A horizontal merger occurs when two companies offering similar products or services that
are likely competitors in the same marketplace merge.
DIFFICULTY: M
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LEARNING OBJECTIVES: ADAC.FISC.1-1
3. A large nation-wide bank’s acquisition of a major investment advisory firm would be an example of a:
a. market extension merger.
b. conglomerate merger.
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c. product extension merger.
d. horizontal merger.
ANSWER: c
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RATIONALE: A product extension merger occurs when the acquiring company is expanding its product
offerings in the market place in which it sells.
DIFFICULTY: M
LEARNING OBJECTIVES: OBJ: ADAC.FISC.1-1
4. A building materials company’s acquisition of a television station would be an example of a:
a. market extension merger.
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
ANSWER: b
RATIONALE: Because these firms are in unrelated lines of business, this would be a conglomerate
merger.
DIFFICULTY: M
, LEARNING OBJECTIVES: ADAC.FISC.1-1
5. A tax advantage of business combination can occur when the existing owner of a company sells out and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free
reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
ANSWER: b
RATIONALE: If the owners of a business sell their interests for cash or accept debt instruments, they would
have an immediate taxable gain. However, if they accept common stock of another
corporation and the transaction is crafted as such, they may account for the transaction as a
“tax-free reorganization.” If this is the case, no taxes are paid until they sell the shares
received in the transaction.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
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6. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
b. has acquired a majority of the subsidiary's common stock.
c. has paid cash for a majority of the subsidiary's stock.
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d. has transferred common stock for a majority of the subsidiary's outstanding bonds and
debentures.
ANSWER: b
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RATIONALE: Typically, a controlling interest is over 50% of the company’s voting stock.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-2
7. Some advantages of obtaining control by acquiring a controlling interest in stock include all but:
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a. Negotiations are made directly with the acquiree’s management.
b. The legal liability of each corporation is limited to its own assets.
c. The cost may be lower since only a controlling interest in the assets, not the total assets, is
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acquired.
d. Tax advantages may result from preservation of the legal entities.
ANSWER: a
RATIONALE: If a company was acquiring a controlling interest in stock, the negotiations would be with the
target company’s stockholders.
DIFFICULTY: M
LEARNING OBJECTIVES: ADAC.FISC.1-2
8. A(n) occurs when the management of the target company purchases a controlling interest in that
company and the company incurs a significant amount of debt as a result.
a. greenmail
b. statutory merger
c. poison pill
d. leveraged buyout
Advanced Accounting
Paul Fischer
12th Edition
PR
O
FD
O
C
,Table of Contents
1. Business Combinations: New Rules for a Long-Standing Business Practice
2. Consolidated Statements: Date of Acquisition
3. Consolidated Statements: Subsequent to Acquisition
4. Intercompany Transactions: Merchandise, Plant Assets, and Notes
5. Intercompany Transactions: Bonds and Leases
6. Cash Flows, EPS, and Taxation
7. Special Issues in Accounting for an Investment in a Subsidiary
8. Subsidiary Equity Transactions; Indirect Subsidiary Ownership and Subsidiary Ownership of Parent Shares
- Appendix 1: Accounting for Influential Investments
- Appendix 2: Variable Interest Entities
9. The International Accounting Environment (Module: Derivatives and Related Accounting Issues)
10. Foreign Currency Transactions
11. Translation of Foreign Financial Statements
12. Interim Reporting and Disclosures about Segments of an Enterprise
13. Partnerships: Characteristics, Formation, and Accounting for Activities
14. Partnerships: Ownership Changes and Liquidations
15. Governmental Accounting: The General Fund and the Account Groups
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16. Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds
17. Financial Reporting Issues
18. Accounting for Private Not-for-Profit Organizations
19. Accounting for Not-for-Profit Colleges and Universities and Health Care Organizations
20. Estates and Trusts: Their Nature and the Accountant’s Role
21. Debt Restructuring, Corporate Reorganizations, and Liquidations
O
FD
O
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,Chapter 01—Business Combinations: New Rules for a Long-Standing Business Practice
Multiple Choice
1. An economic advantage of a business combination includes:
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Shared fixed costs.
d. Horizontally combining levels within the marketing
chain.
ANSWER: c
RATIONALE: Business combinations may viewed as a way to take advantage of economies of scale by
utilizing common facilities and sharing fixed costs.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
2. One large bank’s acquisition of another bank would be an example of a:
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a. market extension merger.
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
ANSWER: d
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RATIONALE: A horizontal merger occurs when two companies offering similar products or services that
are likely competitors in the same marketplace merge.
DIFFICULTY: M
FD
LEARNING OBJECTIVES: ADAC.FISC.1-1
3. A large nation-wide bank’s acquisition of a major investment advisory firm would be an example of a:
a. market extension merger.
b. conglomerate merger.
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c. product extension merger.
d. horizontal merger.
ANSWER: c
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RATIONALE: A product extension merger occurs when the acquiring company is expanding its product
offerings in the market place in which it sells.
DIFFICULTY: M
LEARNING OBJECTIVES: OBJ: ADAC.FISC.1-1
4. A building materials company’s acquisition of a television station would be an example of a:
a. market extension merger.
b. conglomerate merger.
c. product extension merger.
d. horizontal merger.
ANSWER: b
RATIONALE: Because these firms are in unrelated lines of business, this would be a conglomerate
merger.
DIFFICULTY: M
, LEARNING OBJECTIVES: ADAC.FISC.1-1
5. A tax advantage of business combination can occur when the existing owner of a company sells out and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free
reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
ANSWER: b
RATIONALE: If the owners of a business sell their interests for cash or accept debt instruments, they would
have an immediate taxable gain. However, if they accept common stock of another
corporation and the transaction is crafted as such, they may account for the transaction as a
“tax-free reorganization.” If this is the case, no taxes are paid until they sell the shares
received in the transaction.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-1
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6. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
b. has acquired a majority of the subsidiary's common stock.
c. has paid cash for a majority of the subsidiary's stock.
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d. has transferred common stock for a majority of the subsidiary's outstanding bonds and
debentures.
ANSWER: b
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RATIONALE: Typically, a controlling interest is over 50% of the company’s voting stock.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.1-2
7. Some advantages of obtaining control by acquiring a controlling interest in stock include all but:
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a. Negotiations are made directly with the acquiree’s management.
b. The legal liability of each corporation is limited to its own assets.
c. The cost may be lower since only a controlling interest in the assets, not the total assets, is
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acquired.
d. Tax advantages may result from preservation of the legal entities.
ANSWER: a
RATIONALE: If a company was acquiring a controlling interest in stock, the negotiations would be with the
target company’s stockholders.
DIFFICULTY: M
LEARNING OBJECTIVES: ADAC.FISC.1-2
8. A(n) occurs when the management of the target company purchases a controlling interest in that
company and the company incurs a significant amount of debt as a result.
a. greenmail
b. statutory merger
c. poison pill
d. leveraged buyout
