Advanced Financial Accounting Exam 1
MC Questions & Answers
Growth in the complexity of the U.S. business environment
A. Has had no particular impact on the organizational structures or the way in which
companies are managed.
B. Has encouraged companies to reduce the number of operating divisions and product
lines so they may better control those they retain.
C. Has led to increasingly complex organizational structures as management has
attempted to achieve its business objectives.
D. Has led to increased use of partnerships to avoid legal liability. - ANSWERSGrowth
in the complexity of the U.S. business environment
C. Has led to increasingly complex organizational structures as management has
attempted to achieve its business objectives.
Which of the following is not an appropriate reason for establishing a subsidiary?
A. The parent wishes to protect existing operations by shifting new activities with greater
risk to a newly created subsidiary.
B. The parent wishes to be able to increase its reported sales by transferring products
to the subsidiary at the end of the fiscal year.
C. The parent wishes to reduce its taxes by establishing a subsidiary that focuses its
operations in areas where special tax benefits are available.
D. The parent wishes to avoid subjecting all of its operations to regulatory control by
establishing a subsidiary that focuses its operations in regulated industries. -
ANSWERSWhich of the following is not an appropriate reason for establishing a
subsidiary?
B. The parent wishes to be able to increase its reported sales by transferring products
to the subsidiary at the end of the fiscal year.
Which of the following actions is likely to result in recording goodwill on Poker
Company's books?
A. Poker acquires a majority of Spade's common stock in a business combination and
continues to operate it as a subsidiary.
B. Poker distributes ownership of a newly created subsidiary in a distribution considered
to be a spin-off.
C. Poker distributes ownership of a newly created subsidiary in a distribution considered
to be a split-off.
D. Poker acquires Spade Corporation in a business combination recorded as a merger.
- ANSWERSWhich of the following actions is likely to result in recording goodwill on
Poker Company's books?
D. Poker acquires Spade Corporation in a business combination recorded as a merger.
, When an existing company creates a new subsidiary and transfers a portion of its
assets and liabilities to the new entity
A. The new entity records both the assets and liabilities it received at the carrying
values of the original company.
B. The original company records the difference between the carrying values and the fair
values of the assets transferred to the new entity as goodwill.
C. The new entity records both the assets and liabilities it received at fair values.
D. The original company records a gain or loss on the difference between its carrying
values and the fair values of the assets transferred to the new entity. - ANSWERSWhen
an existing company creates a new subsidiary and transfers a portion of its assets and
liabilities to the new entity
A. The new entity records both the assets and liabilities it received at the carrying
values of the original company.
When a company assigns goodwill to a reporting unit acquired in a business
combination, it must record an impairment loss if
A. The fair value of the reporting unit decreases.
B. The fair value of the net identifiable assets held by a reporting unit decreases.
C. The fair value of the reporting unit is less than its carrying value.
D. The carrying value of the reporting unit is less than the fair value of the reporting unit.
- ANSWERSWhen a company assigns goodwill to a reporting unit acquired in a
business combination, it must record an impairment loss if
C. The fair value of the reporting unit is less than its carrying value.
Goodwill represents the excess of the sum of the fair value of the (1) consideration
given, (2) shares already owned, and (3) the noncontrolling interest over the
A. Book value of an acquired company.
B. Sum of the fair values assigned to identifiable assets acquired less liabilities
assumed.
C. Sum of the fair values assigned to intangible assets acquired less liabilities assumed.
D. Sum of the fair values assigned to tangible assets acquired less liabilities assumed. -
ANSWERSGoodwill represents the excess of the sum of the fair value of the (1)
consideration given, (2) shares already owned, and (3) the noncontrolling interest over
the
B. Sum of the fair values assigned to identifiable assets acquired less liabilities
assumed.
In a business combination, costs of registering equity securities to be issued by the
acquiring company are a(n)
A. Direct addition to stockholders' equity of the combined company.
B. Reduction of the recorded value of the securities.
C. Expense of the combined company for the period in which the costs were incurred.
MC Questions & Answers
Growth in the complexity of the U.S. business environment
A. Has had no particular impact on the organizational structures or the way in which
companies are managed.
B. Has encouraged companies to reduce the number of operating divisions and product
lines so they may better control those they retain.
C. Has led to increasingly complex organizational structures as management has
attempted to achieve its business objectives.
D. Has led to increased use of partnerships to avoid legal liability. - ANSWERSGrowth
in the complexity of the U.S. business environment
C. Has led to increasingly complex organizational structures as management has
attempted to achieve its business objectives.
Which of the following is not an appropriate reason for establishing a subsidiary?
A. The parent wishes to protect existing operations by shifting new activities with greater
risk to a newly created subsidiary.
B. The parent wishes to be able to increase its reported sales by transferring products
to the subsidiary at the end of the fiscal year.
C. The parent wishes to reduce its taxes by establishing a subsidiary that focuses its
operations in areas where special tax benefits are available.
D. The parent wishes to avoid subjecting all of its operations to regulatory control by
establishing a subsidiary that focuses its operations in regulated industries. -
ANSWERSWhich of the following is not an appropriate reason for establishing a
subsidiary?
B. The parent wishes to be able to increase its reported sales by transferring products
to the subsidiary at the end of the fiscal year.
Which of the following actions is likely to result in recording goodwill on Poker
Company's books?
A. Poker acquires a majority of Spade's common stock in a business combination and
continues to operate it as a subsidiary.
B. Poker distributes ownership of a newly created subsidiary in a distribution considered
to be a spin-off.
C. Poker distributes ownership of a newly created subsidiary in a distribution considered
to be a split-off.
D. Poker acquires Spade Corporation in a business combination recorded as a merger.
- ANSWERSWhich of the following actions is likely to result in recording goodwill on
Poker Company's books?
D. Poker acquires Spade Corporation in a business combination recorded as a merger.
, When an existing company creates a new subsidiary and transfers a portion of its
assets and liabilities to the new entity
A. The new entity records both the assets and liabilities it received at the carrying
values of the original company.
B. The original company records the difference between the carrying values and the fair
values of the assets transferred to the new entity as goodwill.
C. The new entity records both the assets and liabilities it received at fair values.
D. The original company records a gain or loss on the difference between its carrying
values and the fair values of the assets transferred to the new entity. - ANSWERSWhen
an existing company creates a new subsidiary and transfers a portion of its assets and
liabilities to the new entity
A. The new entity records both the assets and liabilities it received at the carrying
values of the original company.
When a company assigns goodwill to a reporting unit acquired in a business
combination, it must record an impairment loss if
A. The fair value of the reporting unit decreases.
B. The fair value of the net identifiable assets held by a reporting unit decreases.
C. The fair value of the reporting unit is less than its carrying value.
D. The carrying value of the reporting unit is less than the fair value of the reporting unit.
- ANSWERSWhen a company assigns goodwill to a reporting unit acquired in a
business combination, it must record an impairment loss if
C. The fair value of the reporting unit is less than its carrying value.
Goodwill represents the excess of the sum of the fair value of the (1) consideration
given, (2) shares already owned, and (3) the noncontrolling interest over the
A. Book value of an acquired company.
B. Sum of the fair values assigned to identifiable assets acquired less liabilities
assumed.
C. Sum of the fair values assigned to intangible assets acquired less liabilities assumed.
D. Sum of the fair values assigned to tangible assets acquired less liabilities assumed. -
ANSWERSGoodwill represents the excess of the sum of the fair value of the (1)
consideration given, (2) shares already owned, and (3) the noncontrolling interest over
the
B. Sum of the fair values assigned to identifiable assets acquired less liabilities
assumed.
In a business combination, costs of registering equity securities to be issued by the
acquiring company are a(n)
A. Direct addition to stockholders' equity of the combined company.
B. Reduction of the recorded value of the securities.
C. Expense of the combined company for the period in which the costs were incurred.
