SOLUTIONS TEST BANK FO DS
Advanced Financial Accounting 13th Edition By Theodo e Ch istensen ds ds
Chapte 1 ds Inte co po ate Acquisitions and Investments in Othe Entities
ds ds ds ds
1) Assuming no impai ment in value p io to t ansfe , assets t ansfe ed by a pa ent company
ds ds ds ds ds ds ds ds ds
to anothe entity it has c eated should be eco ded by the newly c eated entity at the assets':
ds ds ds ds ds
A) cost to the pa ent company. ds
B) book value on the pa ent company's books at the date of t ansfe . ds ds ds
C) fai value at the date of t ansfe .
ds ds ds
D) fai value of conside ation exchanged by the newly c eated entity.
ds ds ds
Answe : B ds
Difficulty: 1 Easy
Topic: Inte nal Expansion: C eating a Business Entity; Valuation of Business Entities Lea
ds ds
ning Objective: 01-01 Unde stand and explain the easons fo and diffe ent methods of
ds ds ds ds ds
business expansion, the types of o ganizational st uctu es, and the types of acquisitions.; 01-03 ds ds ds
Make calculations and p epa e jou nal ent ies fo the c eation of a business entity.
ds ds ds ds ds ds
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN Decision Making
2) Given the inc eased development of complex business st uctu es, which of the following
ds ds ds
egulato s is esponsible fo the continued usefulness of accounting epo ts?
ds ds ds ds ds ds
A) Secu ities and Exchange Commission (SEC)
ds
B) Public Company Accounting Ove sight Boa d (PCAOB) ds ds
C) Financial Accounting Standa ds Boa d (FASB) ds ds
D) All of the othe answe s a e co ect ds ds ds ds ds
Answe : D ds
Difficulty: 1 Easy
Topic: An Int oduction to Complex Business St uctu es
ds ds ds
Lea ning Objective: 01-01 Unde stand and explain the easons fo and diffe ent methods of
ds ds ds ds ds
business expansion, the types of o ganizational st uctu es, and the types of acquisitions. ds ds ds
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN epo ting DS ds
3) A business combination in which the acqui ed company's assets and liabilities a e combined ds ds
with those of the acqui ing company into a single entity is defined as: ds
A) Stock acquisition
B) Leve aged buyout ds
C) Statuto y Me ge ds ds ds
D) eve se statuto y ollup
DS ds ds ds
,Answe : C ds
Difficulty: 1 Easy
Topic: O ganizational St uctu e and Financial epo ting
ds ds ds DS ds
Lea ning Objective: 01-04 Unde stand and explain the diffe ences between diffe ent fo ms
ds ds ds ds ds
of business combinations.
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN Decision Making
4) In which of the following situations do accounting standa ds not equi e that the financial ds ds ds
statements of the pa ent and subsidia y be consolidated?
ds ds
A) A co po ation c eates a new 100 pe cent owned subsidia y
ds ds ds ds ds
B) A co po ation pu chases 90 pe cent of the voting stock of anothe company
ds ds ds ds ds
C) A co po ation has both cont ol and majo ity owne ship of an uninco po ated company
ds ds ds ds ds ds ds
D) A co po ation owns less-than a cont olling inte est in an uninco po ated company
ds ds ds ds ds ds
Answe : D ds
Difficulty: 1 Easy
Topic: O ganizational St uctu e and Financial epo ting
ds ds ds DS ds
Lea ning Objective: 01-01 Unde stand and explain the easons fo and diffe ent methods of
ds ds ds ds ds
business expansion, the types of o ganizational st uctu es, and the types of acquisitions.
ds ds ds
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN Decision Making
Du ing its inception, Devon Company pu chased land fo $100,000 and a building fo $180,000.
ds ds ds ds
Afte exactly 3 yea s, it t ansfe ed these assets and cash of $50,000 to a newly c eated subsidia
ds ds ds ds ds ds
y, egan Company, in exchange fo 15,000 sha es of egan's $10 pa value stock. Devon uses
ds DS ds ds DS ds
st aight-line dep eciation. Useful life fo the building is 30 yea s, with ze o esidual value. An
ds ds ds ds ds ds
app aisal evealed that the building has a fai value of $200,000.
ds ds ds
5) Based on the info mation p ovided, at the time of the t ansfe , egan Company should eco d:
ds ds ds ds DS ds ds
A) Building at $180,000 and no accumulated dep eciation. ds
B) Building at $162,000 and no accumulated dep eciation. ds
C) Building at $200,000 and accumulated dep eciation of $24,000. ds
D) Building at $180,000 and accumulated dep eciation of $18,000. ds
Answe : D ds
Difficulty: 2 Medium
Topic: Valuation of Business Entities; Accounting fo Inte nal Expansion: C eating Business ds ds ds
Entities
Lea ning Objective: 01-04 Unde stand and explain the diffe ences between diffe ent fo ms of
ds ds ds ds ds
business combinations.; 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a ds ds ds ds ds ds
business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
,6) Based on the info mation p ovided, what amount would be epo ted by Devon Company as
ds ds ds ds
investment in egan Company common stock?
DS
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answe : A ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities; The Development of
ds ds ds
Accounting fo Business Combinations
ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.; 01-02 Unde stand the development of standa ds elated to acquisition accounting
ds ds ds
ove time. ds
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
7) Based on the p eceding info mation, egan Company will epo t
ds ds DS ds ds
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.
Answe : C ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities
ds ds ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
At its inception, Peacock Company pu chased land fo $50,000 and a building fo $220,000. Afte
ds ds ds ds
exactly 4 yea s, it t ansfe ed these assets and cash of $75,000 to a newly c eated subsidia y,
ds ds ds ds ds ds
Selvick Company, in exchange fo 25,000 sha es of Selvick's $5 pa value stock. Peacock uses
ds ds ds
st aight-line dep eciation. When pu chased, the building had a useful life of 20 yea s with no
ds ds ds ds
expected salvage value. An app aisal at the time of the t ansfe evealed that the building has a fai
ds ds ds ds
dsvalue of $250,000.
8) Based on the info mation p ovided, at the time of the t ansfe , Selvick Company should eco d
ds ds ds ds ds ds
A) the building at $220,000 and accumulated dep eciation of $44,000. ds
B) the building at $220,000 with no accumulated dep eciation. ds
C) the building at $176,000 with no accumulated dep eciation. ds
D) the building at $250,000 with no accumulated dep eciation. ds
, Answe : A
ds
Difficulty: 2 Medium
Topic: Valuation of Business Entities; Accounting fo Inte nal Expansion: C eating Business
ds ds ds
Entities
Lea ning Objective: 01-04 Unde stand and explain the diffe ences between diffe ent fo ms of
ds ds ds ds ds
business combinations.; 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of
ds ds ds ds ds ds
a business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
9) Based on the info mation p ovided, what amount would be epo ted by Peacock Company as
ds ds ds ds
investment in Selvick Company common stock?
A) $125,000
B) $250,000
C) $301,000
D) $345,000
Answe : C
ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities; The Development of
ds ds ds
Accounting fo Business Combinations
ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.; 01-02 Unde stand the development of standa ds elated to acquisition accounting
ds ds ds
ove time.
ds
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
10) Based on the p eceding info mation, Selvick Company will epo t additional paid-in capital of
ds ds ds ds
A) $125,000.
B) $176,000.
C) $220,000.
D) $250,000.
Answe : B
ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities
ds ds ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
11) Which of the following situations best desc ibes a business combination to be accounted fo as
ds ds
a statuto y me ge ?
ds ds ds
A) Both companies in a combination continue to ope ate as sepa ate, but elated, legal entities.
ds ds ds
Advanced Financial Accounting 13th Edition By Theodo e Ch istensen ds ds
Chapte 1 ds Inte co po ate Acquisitions and Investments in Othe Entities
ds ds ds ds
1) Assuming no impai ment in value p io to t ansfe , assets t ansfe ed by a pa ent company
ds ds ds ds ds ds ds ds ds
to anothe entity it has c eated should be eco ded by the newly c eated entity at the assets':
ds ds ds ds ds
A) cost to the pa ent company. ds
B) book value on the pa ent company's books at the date of t ansfe . ds ds ds
C) fai value at the date of t ansfe .
ds ds ds
D) fai value of conside ation exchanged by the newly c eated entity.
ds ds ds
Answe : B ds
Difficulty: 1 Easy
Topic: Inte nal Expansion: C eating a Business Entity; Valuation of Business Entities Lea
ds ds
ning Objective: 01-01 Unde stand and explain the easons fo and diffe ent methods of
ds ds ds ds ds
business expansion, the types of o ganizational st uctu es, and the types of acquisitions.; 01-03 ds ds ds
Make calculations and p epa e jou nal ent ies fo the c eation of a business entity.
ds ds ds ds ds ds
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN Decision Making
2) Given the inc eased development of complex business st uctu es, which of the following
ds ds ds
egulato s is esponsible fo the continued usefulness of accounting epo ts?
ds ds ds ds ds ds
A) Secu ities and Exchange Commission (SEC)
ds
B) Public Company Accounting Ove sight Boa d (PCAOB) ds ds
C) Financial Accounting Standa ds Boa d (FASB) ds ds
D) All of the othe answe s a e co ect ds ds ds ds ds
Answe : D ds
Difficulty: 1 Easy
Topic: An Int oduction to Complex Business St uctu es
ds ds ds
Lea ning Objective: 01-01 Unde stand and explain the easons fo and diffe ent methods of
ds ds ds ds ds
business expansion, the types of o ganizational st uctu es, and the types of acquisitions. ds ds ds
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN epo ting DS ds
3) A business combination in which the acqui ed company's assets and liabilities a e combined ds ds
with those of the acqui ing company into a single entity is defined as: ds
A) Stock acquisition
B) Leve aged buyout ds
C) Statuto y Me ge ds ds ds
D) eve se statuto y ollup
DS ds ds ds
,Answe : C ds
Difficulty: 1 Easy
Topic: O ganizational St uctu e and Financial epo ting
ds ds ds DS ds
Lea ning Objective: 01-04 Unde stand and explain the diffe ences between diffe ent fo ms
ds ds ds ds ds
of business combinations.
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN Decision Making
4) In which of the following situations do accounting standa ds not equi e that the financial ds ds ds
statements of the pa ent and subsidia y be consolidated?
ds ds
A) A co po ation c eates a new 100 pe cent owned subsidia y
ds ds ds ds ds
B) A co po ation pu chases 90 pe cent of the voting stock of anothe company
ds ds ds ds ds
C) A co po ation has both cont ol and majo ity owne ship of an uninco po ated company
ds ds ds ds ds ds ds
D) A co po ation owns less-than a cont olling inte est in an uninco po ated company
ds ds ds ds ds ds
Answe : D ds
Difficulty: 1 Easy
Topic: O ganizational St uctu e and Financial epo ting
ds ds ds DS ds
Lea ning Objective: 01-01 Unde stand and explain the easons fo and diffe ent methods of
ds ds ds ds ds
business expansion, the types of o ganizational st uctu es, and the types of acquisitions.
ds ds ds
Bloom's: emembe DS ds
AACSB: eflective Thinking DS
AICPA: FN Decision Making
Du ing its inception, Devon Company pu chased land fo $100,000 and a building fo $180,000.
ds ds ds ds
Afte exactly 3 yea s, it t ansfe ed these assets and cash of $50,000 to a newly c eated subsidia
ds ds ds ds ds ds
y, egan Company, in exchange fo 15,000 sha es of egan's $10 pa value stock. Devon uses
ds DS ds ds DS ds
st aight-line dep eciation. Useful life fo the building is 30 yea s, with ze o esidual value. An
ds ds ds ds ds ds
app aisal evealed that the building has a fai value of $200,000.
ds ds ds
5) Based on the info mation p ovided, at the time of the t ansfe , egan Company should eco d:
ds ds ds ds DS ds ds
A) Building at $180,000 and no accumulated dep eciation. ds
B) Building at $162,000 and no accumulated dep eciation. ds
C) Building at $200,000 and accumulated dep eciation of $24,000. ds
D) Building at $180,000 and accumulated dep eciation of $18,000. ds
Answe : D ds
Difficulty: 2 Medium
Topic: Valuation of Business Entities; Accounting fo Inte nal Expansion: C eating Business ds ds ds
Entities
Lea ning Objective: 01-04 Unde stand and explain the diffe ences between diffe ent fo ms of
ds ds ds ds ds
business combinations.; 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a ds ds ds ds ds ds
business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
,6) Based on the info mation p ovided, what amount would be epo ted by Devon Company as
ds ds ds ds
investment in egan Company common stock?
DS
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answe : A ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities; The Development of
ds ds ds
Accounting fo Business Combinations
ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.; 01-02 Unde stand the development of standa ds elated to acquisition accounting
ds ds ds
ove time. ds
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
7) Based on the p eceding info mation, egan Company will epo t
ds ds DS ds ds
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.
Answe : C ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities
ds ds ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
At its inception, Peacock Company pu chased land fo $50,000 and a building fo $220,000. Afte
ds ds ds ds
exactly 4 yea s, it t ansfe ed these assets and cash of $75,000 to a newly c eated subsidia y,
ds ds ds ds ds ds
Selvick Company, in exchange fo 25,000 sha es of Selvick's $5 pa value stock. Peacock uses
ds ds ds
st aight-line dep eciation. When pu chased, the building had a useful life of 20 yea s with no
ds ds ds ds
expected salvage value. An app aisal at the time of the t ansfe evealed that the building has a fai
ds ds ds ds
dsvalue of $250,000.
8) Based on the info mation p ovided, at the time of the t ansfe , Selvick Company should eco d
ds ds ds ds ds ds
A) the building at $220,000 and accumulated dep eciation of $44,000. ds
B) the building at $220,000 with no accumulated dep eciation. ds
C) the building at $176,000 with no accumulated dep eciation. ds
D) the building at $250,000 with no accumulated dep eciation. ds
, Answe : A
ds
Difficulty: 2 Medium
Topic: Valuation of Business Entities; Accounting fo Inte nal Expansion: C eating Business
ds ds ds
Entities
Lea ning Objective: 01-04 Unde stand and explain the diffe ences between diffe ent fo ms of
ds ds ds ds ds
business combinations.; 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of
ds ds ds ds ds ds
a business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
9) Based on the info mation p ovided, what amount would be epo ted by Peacock Company as
ds ds ds ds
investment in Selvick Company common stock?
A) $125,000
B) $250,000
C) $301,000
D) $345,000
Answe : C
ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities; The Development of
ds ds ds
Accounting fo Business Combinations
ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.; 01-02 Unde stand the development of standa ds elated to acquisition accounting
ds ds ds
ove time.
ds
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
10) Based on the p eceding info mation, Selvick Company will epo t additional paid-in capital of
ds ds ds ds
A) $125,000.
B) $176,000.
C) $220,000.
D) $250,000.
Answe : B
ds
Difficulty: 2 Medium
Topic: Accounting fo Inte nal Expansion: C eating Business Entities
ds ds ds
Lea ning Objective: 01-03 Make calculations and p epa e jou nal ent ies fo the c eation of a
ds ds ds ds ds ds ds
business entity.
Bloom's: Unde stand ds
AACSB: Analytical Thinking
AICPA: FN Measu ement ds
11) Which of the following situations best desc ibes a business combination to be accounted fo as
ds ds
a statuto y me ge ?
ds ds ds
A) Both companies in a combination continue to ope ate as sepa ate, but elated, legal entities.
ds ds ds
