,SOLUTIONS iTEST iBANK iFOR
Advanced iFinancial iAccounting i13th iEdition iBy iTheodore iChristensen
Chapter i1 Intercorporate iAcquisitions iand iInvestments iin iOther iEntities
1) Assuming ino iimpairment iin ivalue iprior ito itransfer, iassets itransferred iby ia iparent icompany
ito ianother ientity iit ihas icreated ishould ibe irecorded iby ithe inewly icreated ientity iat ithe iassets':
A) cost ito ithe iparent i company.
B) book ivalue ion ithe iparent icompany's ibooks iat ithe idate iof itransfer.
C) fair ivalue iat ithe idate iof itransfer.
D) fair ivalue iof iconsideration iexchanged iby ithe inewly icreated ientity.
Answer: i B
iDifficulty: i1 iEasy
Topic: i Internal iExpansion: iCreating ia iBusiness iEntity; iValuation iof iBusiness iEntities
iLearning iObjective: 01-01 iUnderstand iand iexplain ithe ireasons ifor iand idifferent imethods
iof ibusiness iexpansion, ithe itypes iof iorganizational istructures, iand ithe itypes iof iacquisitions.;
i01-03 iMake icalculations iand iprepare ijournal ientries ifor ithe icreation iof ia ibusiness ientity.
Bloom's: Remember
i AACSB: iReflective iThinking
iAICPA: FN iDecision
iMaking
2) Given ithe iincreased idevelopment iof icomplex ibusiness istructures, iwhich iof ithe
ifollowing iregulators iis iresponsible ifor ithe icontinued iusefulness iof iaccounting ireports?
A) Securities iand iExchange iCommission i(SEC)
B) Public iCompany iAccounting iOversight iBoard i(PCAOB)
C) Financial iAccounting iStandards iBoard i(FASB)
D) All iof ithe iother ianswers iare icorrect
Answer: i D
iDifficulty: i1 iEasy
Topic: An iIntroduction ito iComplex iBusiness iStructures
Learning iObjective: 01-01 iUnderstand iand iexplain ithe ireasons ifor iand idifferent imethods
iof ibusiness iexpansion, ithe itypes iof iorganizational istructures, iand ithe itypes iof
iacquisitions.
Bloom's: Remember
i AACSB: iReflective iThinking
iAICPA: FN iReporting
3) A ibusiness icombination iin iwhich ithe iacquired icompany's iassets iand iliabilities iare
icombined iwith ithose iof ithe iacquiring icompany iinto ia isingle ientity iis idefined ias:
A) Stock i acquisition
B) Leveraged ibuyout
C) Statutory iMerger
D) Reverse istatutory irollup
,Answer: i C
iDifficulty: i1 iEasy
Topic: Organizational iStructure iand iFinancial iReporting
Learning iObjective: 01-04 iUnderstand iand iexplain ithe idifferences ibetween idifferent iforms
iof ibusiness icombinations.
Bloom's: Remember
i AACSB: iReflective iThinking
iAICPA: FN iDecision
iMaking
4) In iwhich iof ithe ifollowing isituations ido iaccounting istandards inot irequire ithat ithe
ifinancial istatements iof ithe iparent iand isubsidiary ibe iconsolidated?
A) A icorporation icreates ia inew i100 ipercent iowned isubsidiary
B) A icorporation ipurchases i90 ipercent i of ithe ivoting istock iof ianother icompany
C) A icorporation ihas iboth icontrol iand i majority iownership iof ian iunincorporated icompany
D) A icorporation iowns iless-than ia icontrolling iinterest iin ian iunincorporated icompany
Answer: i D
iDifficulty: i1 iEasy
Topic: Organizational iStructure iand iFinancial iReporting
Learning iObjective: 01-01 iUnderstand iand iexplain ithe ireasons ifor iand idifferent imethods
iof ibusiness iexpansion, ithe itypes iof iorganizational istructures, iand ithe itypes iof
iacquisitions.
Bloom's: Remember
i AACSB: iReflective iThinking
iAICPA: FN iDecision
iMaking
During iits iinception, iDevon iCompany ipurchased iland ifor i$100,000 iand ia ibuilding ifor
i$180,000. iAfter iexactly i3 iyears, iit itransferred ithese iassets iand icash iof i$50,000 ito ia inewly
icreated isubsidiary, iRegan iCompany, iin iexchange ifor i15,000 ishares iof iRegan's i$10 ipar ivalue
istock. iDevon iuses istraight-line idepreciation. iUseful ilife ifor ithe ibuilding iis i30 iyears, iwith
izero iresidual ivalue. iAn iappraisal irevealed ithat ithe ibuilding ihas ia ifair ivalue iof i$200,000.
5) Based ion ithe iinformation iprovided, iat ithe itime iof ithe itransfer, iRegan iCompany ishould i record:
A) Building iat i$180,000 iand ino iaccumulated idepreciation.
B) Building iat i$162,000 iand ino iaccumulated idepreciation.
C) Building iat i$200,000 iand iaccumulated idepreciation iof i$24,000.
D) Building iat i$180,000 iand iaccumulated idepreciation iof i$18,000.
Answer: i D
iDifficulty: i2
iMedium
Topic: Valuation iof iBusiness iEntities; iAccounting ifor iInternal iExpansion: iCreating
iBusiness iEntities
Learning iObjective: 01-04 iUnderstand iand iexplain ithe idifferences ibetween idifferent iforms
iof ibusiness icombinations.; i01-03 iMake icalculations iand iprepare ijournal ientries ifor ithe
icreation iof ia ibusiness ientity.
Bloom's: Understand
iAACSB: iAnalytical iThinking
iAICPA: FN iMeasurement
, 6) Based ion ithe iinformation iprovided, iwhat iamount iwould ibe ireported iby iDevon iCompany
ias iinvestment iin iRegan iCompany icommon istock?
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answer: i A
iDifficulty: i2
iMedium
Topic: Accounting ifor iInternal iExpansion: iCreating iBusiness iEntities; iThe iDevelopment
iof iAccounting ifor iBusiness iCombinations
Learning iObjective: 01-03 iMake icalculations iand iprepare ijournal ientries ifor ithe icreation iof ia
ibusiness ientity.; i01-02 iUnderstand ithe idevelopment iof istandards irelated ito iacquisition
iaccounting iover itime.
Bloom's: Understand
iAACSB: iAnalytical iThinking
iAICPA: FN iMeasurement
7) Based ion ithe ipreceding iinformation, iRegan iCompany iwill ireport
A) additional ipaid-in icapital iof i$0.
B) additional ipaid-in icapital iof i$150,000.
C) additional ipaid-in icapital iof i$162,000.
D) additional ipaid-in icapital iof i$180,000.
Answer: i C
iDifficulty: i2
iMedium
Topic: Accounting ifor iInternal iExpansion: iCreating iBusiness iEntities
Learning iObjective: 01-03 iMake icalculations iand iprepare ijournal ientries ifor ithe icreation iof
ia ibusiness ientity.
Bloom's: Understand
iAACSB: iAnalytical iThinking
iAICPA: FN iMeasurement
At iits iinception, iPeacock iCompany ipurchased iland ifor i$50,000 iand ia ibuilding ifor i$220,000.
iAfter iexactly i4 iyears, iit itransferred ithese iassets iand icash iof i$75,000 ito ia inewly icreated
isubsidiary, iSelvick iCompany, iin iexchange ifor i25,000 ishares iof iSelvick's i$5 ipar ivalue istock.
iPeacock iuses istraight-line idepreciation. iWhen ipurchased, ithe ibuilding ihad ia iuseful ilife iof i20
iyears iwith ino iexpected isalvage ivalue. iAn iappraisal iat ithe itime iof ithe itransfer irevealed ithat ithe
ibuilding ihas ia ifair ivalue iof i$250,000.
8) Based ion ithe iinformation iprovided, iat ithe itime iof ithe itransfer, iSelvick iCompany ishould irecord
A) the ibuilding iat i$220,000 iand iaccumulated idepreciation iof i$44,000.
B) the ibuilding iat i$220,000 iwith ino iaccumulated idepreciation.
C) the ibuilding iat i$176,000 iwith ino iaccumulated idepreciation.
D) the ibuilding iat i$250,000 iwith ino iaccumulated idepreciation.
