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1-1 Chapter 1 Intercorporate Acquisitions and Investments in Other Entities Multiple Choice Questions
- Assuming no impairment in value prior to transfer, assets transferred by a parent company to
- cost to the parent company.
- book value on the parent company's books at the date of transfer.
- fair value at the date of transfer.
- fair value of consideration exchanged by the newly created entity.
another entity it has created should be recorded by the newly created entity at the assets':
Answer: B
Learning Objective: 01-01
Learning Objective: 01-04
Topic: Internal Expansion: Creating a Business Entity
Topic: Valuation of Business Entities
Blooms: Remember
AACSB: Reflective Thinking
AICPA: FN Decision Making
Difficulty: 1 Easy
- Given the increased development of complex business structures, which of the following
- Securities and Exchange Commission (SEC)
- Public Company Accounting Oversight Board (PCAOB)
- Financial Accounting Standards Board (FASB)
- All of the above
regulators is responsible for the continued usefulness of accounting reports?
Answer: D
Learning Objective: 01-01
Topic: An Introduction to Complex Business Structures
Blooms: Remember
AACASB: Reflective Thinking
AICPA: FN Reporting
Difficulty: 1 Easy
Advanced Financial Accounting 11e Theodore Christensen David Cottrell Richard Baker (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4
Chapter 1 Intercorporate Acquisitions and Investments in Other Entities 1-2
- A business combination in which the acquired company’s assets and liabilities are combined
with those of the acquiring company into a single entity is defined as:
- Stock acquisition
- Leveraged buyout
- Statutory Merger
- Reverse statutory rollup
Answer: C
Learning Objective: 01-01
Topic: Organizational Structure and Financial Reporting
Blooms: Remember
AACASB: Reflective Thinking
AICPA: FN Decision Making
Difficulty: 1 Easy
- In which of the following situations do accounting standards not require that the financial
statements of the parent and subsidiary be consolidated:
- A corporation creates a new 100 percent owned subsidiary
- A corporation purchases 90 percent of the voting stock of another company
- A corporation has both control and majority ownership of an unincorporated company
- A corporation owns less-than a controlling interest in an unincorporated company
Answer: D
Learning Objective: 01-01
Topic: Organizational Structure and Financial Reporting
Blooms: Remember
AACASB: Reflective Thinking
AICPA: FN Decision Making
Difficulty: 1 Easy
The following data applies to Questions 5 – 7:
During its inception, Devon Company purchased land for $100,000 and a building for $180,000.After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock.Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000.
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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities 1-3
- Based on the information provided, at the time of the transfer, Regan Company should record:
- Building at $180,000 and no accumulated depreciation.
- Building at $162,000 and no accumulated depreciation.
- Building at $200,000 and accumulated depreciation of $24,000.
- Building at $180,000 and accumulated depreciation of $18,000.
Answer: D
Learning Objective: 01-03
Learning Objective: 01-04
Topic: Accounting for Internal Expansion: Creating Business Entities
Topic: Valuation of Business Entities
Blooms: Understand
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 2 Medium
- Based on the information provided, what amount would be reported by Devon Company as
investment in Regan Company common stock?
A. $312,000
B. $180,000
C. $330,000
D. $150,000
Answer: A
Learning Objective: 01-03
Learning Objective: 01-02
Topic: Accounting for Internal Expansion: Creating Business Entities
Topic: The Development of Accounting for Business Combinations
Blooms: Understand
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 2 Medium
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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities 1-4
- Based on the preceding information, Regan Company will report
- additional paid-in capital of $0.
- additional paid-in capital of $150,000.
- additional paid-in capital of $162,000.
- additional paid-in capital of $180,000.
Answer: C
Learning Objective: 01-03
Topic: Accounting for Internal Expansion: Creating Business Entities
Blooms: Understand
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 2 Medium
The following data applies to Questions 8 – 10:
At its inception, Peacock Company purchased land for $50,000 and a building for $220,000.After exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick’s $5 par value stock.Peacock uses straight-line depreciation. When purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair value of $250,000.
- Based on the information provided, at the time of the transfer, Selvick Company should record
- the building at $220,000 and accumulated depreciation of $44,000.
- the building at $220,000 with no accumulated depreciation.
- the building at $176,000 with no accumulated depreciation.
- the building at $250,000 with no accumulated depreciation.
Answer: A
Learning Objective: 01-03
Learning Objective: 01-04
Topic: Accounting for Internal Expansion: Creating Business Entities
Topic: Valuation of Business Entities
Blooms: Understand
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 2 Medium
- Based on the information provided, what amount would be reported by Peacock Company as
investment in Selvick Company common stock?
A. $125,000
B. $250,000
C. $301,000
D. $345,000
Answer: C
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