SOLUTIONS TEST BANK FOR z z z
Advanced Financial Accounting 13th Edition By Theodore Christensen
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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities
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1) Assuming no impairment in value prior to transfer, assets transferred by a parent company to
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another entity it has created should be recorded by the newly created entity at the assets':
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A) cost to the parent company.
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B) book value on the parent company's books at the date of transfer.
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C) fair value at the date of transfer.
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D) fair value of consideration exchanged by the newly created entity.
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Answer: B z
Difficulty: 1
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Easy
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Topic: Internal Expansion: Creating a Business Entity; Valuation of Business Entities
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Learning Objective: 01-01 Understand and explain the reasons for and different methods of
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business expansion, the types of organizational structures, and the types of acquisitions.; 01-03
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Make calculations and prepare journal entries for the creation of a business entity.
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Bloom's: Remember
AACSB: Reflective Thinking
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AICPA: FN Decision Making
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2) Given the increased development of complex business structures, which of the following
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regulators is responsible for the continued usefulness of accounting reports?
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A) Securities and Exchange Commission (SEC) z z z z
B) Public Company Accounting Oversight Board (PCAOB)
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C) Financial Accounting Standards Board (FASB)
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D) All of the other answers are correct
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Answer: D z
Difficulty: 1
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Easy
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Topic: An Introduction to Complex Business Structures
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Learning Objective: 01-01 Understand and explain the reasons for and different methods of
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business expansion, the types of organizational structures, and the types of acquisitions.
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Bloom's: Remember
AACSB: Reflective Thinking
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AICPA: FN Reporting
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3) A business combination in which the acquired company's assets and liabilities are combined
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with those of the acquiring company into a single entity is defined as:
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A) Stock acquisition z
B) Leveraged buyout z
C) Statutory Merger z
D) Reverse statutory rollup z z
,Answer: C z
Difficulty: 1
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Easy
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Topic: Organizational Structure and Financial Reporting z z z z
Learning Objective: 01-04 Understand and explain the differences between different forms of
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business combinations.
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Bloom's: Remember
AACSB: Reflective Thinking
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AICPA: FN Decision Making
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4) In which of the following situations do accounting standards not require that the financial
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statements of the parent and subsidiary be consolidated?
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A) A corporation creates a new 100 percent owned subsidiary
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B) A corporation purchases 90 percent of the voting stock of another company
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C) A corporation has both control and majority ownership of an unincorporated company
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D) A corporation owns less-than a controlling interest in an unincorporated company
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Answer: D z
Difficulty: 1
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Easy
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Topic: Organizational Structure and Financial Reporting z z z z
Learning Objective: 01-01 Understand and explain the reasons for and different methods of
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business expansion, the types of organizational structures, and the types of acquisitions.
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Bloom's: Remember
AACSB: Reflective Thinking
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AICPA: FN Decision Making
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During its inception, Devon Company purchased land for $100,000 and a building for $180,000.
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After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary,
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Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses
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straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An
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appraisal revealed that the building has a fair value of $200,000.
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5) Based on the information provided, at the time of the transfer, Regan Company should record:
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A) Building at $180,000 and no accumulated depreciation.
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B) Building at $162,000 and no accumulated depreciation.
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C) Building at $200,000 and accumulated depreciation of $24,000.
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D) Building at $180,000 and accumulated depreciation of $18,000.
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Answer: D z
Difficulty: 2 Medium
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Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating Business
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Entities
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Learning Objective: 01-04 Understand and explain the differences between different forms of
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business combinations.; 01-03 Make calculations and prepare journal entries for the creation of a
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business entity.
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Bloom's: Understand
AACSB: Analytical Thinking
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AICPA: FN Measurement
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,6) Based on the information provided, what amount would be reported by Devon Company as
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investment in Regan Company common stock?
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A) $312,000
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B) $180,000
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C) $330,000
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D) $150,000
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Answer: A z
Difficulty: 2 Medium
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Topic: Accounting for Internal Expansion: Creating Business Entities; The Development ofz z z z z z z z z
Accounting for Business Combinations
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Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
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business entity.; 01-02 Understand the development of standards related to acquisition accounting
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over time.
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Bloom's: Understand
AACSB: Analytical Thinking
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AICPA: FN Measurement
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7) Based on the preceding information, Regan Company will report
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A) additional paid-in capital of $0. z z z z
B) additional paid-in capital of $150,000. z z z z
C) additional paid-in capital of $162,000. z z z z
D) additional paid-in capital of $180,000. z z z z
Answer: C z
Difficulty: 2 Medium
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Topic: Accounting for Internal Expansion: Creating Business Entities z z z z z z
Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
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business entity.
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Bloom's: Understand
AACSB: Analytical Thinking
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AICPA: FN Measurement
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At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After
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exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary,
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Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses
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straight-line depreciation. When purchased, the building had a useful life of 20 years with no
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expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair
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value of $250,000.
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8) Based on the information provided, at the time of the transfer, Selvick Company should record
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A) the building at $220,000 and accumulated depreciation of $44,000.
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B) the building at $220,000 with no accumulated depreciation.
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C) the building at $176,000 with no accumulated depreciation.
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D) the building at $250,000 with no accumulated depreciation.
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, Answer: A z
Difficulty: 2 Medium
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Topic: Valuation of Business Entities; Accounting for Internal Expansion: Creating Business
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Entities
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Learning Objective: 01-04 Understand and explain the differences between different forms of
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business combinations.; 01-03 Make calculations and prepare journal entries for the creation of a
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business entity.
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Bloom's: Understand
AACSB: Analytical Thinking
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AICPA: FN Measurement
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9) Based on the information provided, what amount would be reported by Peacock Company as
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investment in Selvick Company common stock?
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A) $125,000
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B) $250,000
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C) $301,000
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D) $345,000
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Answer: C z
Difficulty: 2 Medium
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Topic: Accounting for Internal Expansion: Creating Business Entities; The Development of
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Accounting for Business Combinations
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Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
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business entity.; 01-02 Understand the development of standards related to acquisition accounting
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over time.
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Bloom's: Understand
AACSB: Analytical Thinking
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AICPA: FN Measurement
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10) Based on the preceding information, Selvick Company will report additional paid-in capital of
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A) $125,000.
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B) $176,000.
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C) $220,000.
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D) $250,000.
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Answer: B z
Difficulty: 2 Medium
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Topic: Accounting for Internal Expansion: Creating Business Entities
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Learning Objective: 01-03 Make calculations and prepare journal entries for the creation of a
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business entity.
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Bloom's: Understand
AACSB: Analytical Thinking
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AICPA: FN Measurement
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11) Which of the following situations best describes a business combination to be accounted for asa
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statutory merger?
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A) Both companies in a combination continue to operate as separate, but related, legal entities.
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