Test Bank For Advanced Financial Accounting, 11th Edition

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-1Chapter 1Intercorporate Acquisitions and Investments in Other EntitiesMultiple Choice Questions1. Assuming no impairment in value prior to transfer, assets transferred by a parent company toanother entity it has created should be recorded by the newly created entity at the assets':A. cost to the parent company.B. book value on the parent company's books at the date of transfer.C. fair value at the date of transfer.D. fair value of consideration exchanged by the newly created entity.Answer: BLearning Objective:01-01Learning Objective:01-04Topic: Internal Expansion: Creating a Business EntityTopic:Valuation of Business EntitiesBlooms:RememberAACSB: Reflective ThinkingAICPA: FNDecision MakingDifficulty:1 Easy2. Given the increased development of complex business structures, which of the followingregulators isresponsible for the continued usefulness of accounting reports?A. Securities and Exchange Commission (SEC)B. Public Company Accounting Oversight Board (PCAOB)C. Financial Accounting Standards Board (FASB)D. All of the aboveAnswer: DLearningObjective:01-01Topic: An Introduction to Complex Business StructuresBlooms: RememberAACASB: Reflective ThinkingAICPA: FNReportingDifficulty: 1 Easy

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-23. A business combination in which the acquired company’s assets and liabilities are combinedwith those of the acquiring company into a single entity is defined as:A.Stock acquisitionB.Leveraged buyoutC.StatutoryMergerD.Reverse statutory rollupAnswer: CLearning Objective:01-01Topic:Organizational Structure and Financial ReportingBlooms: RememberAACASB: Reflective ThinkingAICPA: FNDecision MakingDifficulty: 1 Easy4. In which of the following situations do accounting standards not require that the financialstatementsofthe parent and subsidiary be consolidated:A. Acorporation creates a new 100 percent ownedsubsidiaryB. Acorporationpurchases90 percent of the voting stock of anothercompanyC.A corporationhasbothcontrol and majority ownershipof an unincorporated companyD.A corporation ownsless-thanacontrolling interestin an unincorporated companyAnswer: DLearning Objective:01-01Topic:Organizational Structure and Financial ReportingBlooms: RememberAACASB: Reflective ThinkingAICPA: FNDecision MakingDifficulty: 1 EasyThe following data applies to Questions5–7:During its inception, Devon Companypurchased 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 createdsubsidiary, 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 residualvalue. 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 Entities1-35. Based on the information provided, at the time of the transfer, Regan Company should record:A. Building at $180,000 and no accumulated depreciation.B. Building at $162,000 and no accumulated depreciation.C. Building at $200,000 and accumulated depreciation of $24,000.D. Building at $180,000 and accumulated depreciation of $18,000.Answer: DLearning Objective:01-03Learning Objective:01-04Topic: Accounting for Internal Expansion: Creating Business EntitiesTopic:Valuation of Business EntitiesBlooms: UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty: 2 Medium6. Based on the information provided, what amount would be reported by Devon Company asinvestment in Regan Company common stock?A. $312,000B. $180,000C. $330,000D. $150,000Answer: ALearning Objective:01-03Learning Objective:01-02Topic: Accounting forInternal Expansion: Creating Business EntitiesTopic: The Development of Accounting for Business CombinationsBlooms: UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty: 2 Medium

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-47. Based on the preceding information, Regan Company will reportA. 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.Answer: CLearning Objective:01-03Topic: Accounting for Internal Expansion: Creating Business EntitiesBlooms: UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty: 2 MediumThe following data applies to Questions8–10:At its inception, Peacock Company purchased land for $50,000 and a building for $220,000.After exactly 4years, it transferred these assets and cash of $75,000 to a newly createdsubsidiary, 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 20years with no expected salvage value. An appraisal at the time of the transfer revealed that thebuilding has a fair value of $250,000.8. Based on the information provided, at the time of the transfer, Selvick Company should recordA.thebuilding at $220,000 and accumulated depreciation of $44,000.B.the building at $220,000 with no accumulated depreciation.C.the building at $176,000 with no accumulated depreciation.D.the building at $250,000 with no accumulated depreciation.Answer: ALearning Objective: 01-03Learning Objective: 01-04Topic: Accounting for Internal Expansion: Creating Business EntitiesTopic: Valuation of Business EntitiesBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium9. Based on the information provided, what amount would be reported by Peacock Company asinvestment in Selvick Company common stock?A.$125,000B.$250,000C.$301,000D.$345,000Answer: C

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-5Learning Objective: 01-03Learning Objective: 01-02Topic: Accounting for Internal Expansion: Creating Business EntitiesTopic: The Development of Accounting for Business CombinationsBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium10. Based on the preceding information, Selvick Company willreport additional paid-in capitalofA.$125,000.B.$176,000.C.$220,000.D.$250,000.Answer: BLearning Objective: 01-03Topic: Accounting for Internal Expansion: Creating Business EntitiesBlooms: UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty: 2 Medium11. Which of the following situations best describes a business combination to be accounted foras a statutory merger?A. Both companies in a combination continue to operate as separate, but related, legal entities.B. Only one of the combining companies survives and the other loses its separate identity.C. Two companies combine to form a new third company, and the original two companies aredissolved.D. One company transfers assets to another company it has created.Answer: BLearning Objective:01-04Topic:Forms of Business CombinationsBlooms: RememberAACSB: Reflective ThinkingAICPA: FNDecision MakingDifficulty: 1 Easy

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-612. A statutory consolidation is a type of business combination in which:A. one of the combining companies survives and the other loses its separate identity.B. one company acquires the voting shares of the other company and the two companiescontinue to operate as separate legal entities.C. two publicly traded companies agree to share a board of directors.D. each of the combining companies is dissolved and the net assets of both companies aretransferred to a newly created corporation.Answer: DLearning Objective:01-04Topic:Forms of Business CombinationsBlooms: RememberAACSB: Reflective ThinkingAICPA: FNDecision MakingDifficulty: 1 EasyThe following data applies to Questions13-16:In order to reduce the risk associated with a new line of business, Conservative Corporationestablished Spin Company as a wholly owned subsidiary. It transferred assets and accountspayable to Spin in exchange for its common stock. Spin recorded the following entry when thetransaction occurred:

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-713. Based on the preceding information, what number of shares of $7 par value stock did Spinissue to Conservative?A. 10,000B. 7,000C. 8,000D. 25,000Answer: CLearning Objective:01-05Topic:Combination Effected through Acquisition of StockBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium14. Based on the preceding information, what was Conservative's book value of assetstransferred to Spin Company?A. $243,000B. $263,000C. $221,000D. $201,000Answer: DLearning Objective:01-01Learning Objective:01-03Topic: Internal Expansion: Creating a Business EntityTopic: Accounting for Internal Expansion: Creating Business EntitiesBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-815. Based on the preceding information, what amount did Conservative report as its investmentin Spin after the transfer of assets and liabilities?A. $181,000B. $221,000C. $263,000D. $243,000Answer: ALearning Objective:01-03Learning Objective:01-02Topic: Accounting for Internal Expansion: Creating Business EntitiesTopic: The Development of Accounting for Business CombinationsBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium16. Based on the preceding information, immediately after the transfer,A. Conservative's total assets decreased by $23,000.B. Conservative's total assets decreased by $20,000.C. Conservative's total assets increased by $56,000.D. Conservative's total assets remained the same.Answer: BLearning Objective:01-03Topic: Accounting for Internal Expansion: Creating Business EntitiesBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-9The following data applies to Questions17–18:Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger,Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stockissuance of $10,000, stock registration fees of $5,000, and stock listing application fees of$4,000.17. Based on the preceding information, under the acquisition method, what amount relating tothe business combination would be expensed?A. $72,000B. $19,000C. $53,000D. $63,000Answer: CLearning Objective:01-05Topic:Applying the Acquisition MethodBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium18. Based on the preceding information, under the acquisition method:A.$72,000 of stock issue costs are treated as goodwill.B.B. $19,000 of stock issue costs are treated as a reduction in the issue price.C.C. $19,000 of stock issue costs are expensed.D.D. $72,000 of stock issue costs are expensed.Answer: BLearning Objective: 01-05Topic: Applying the Acquisition MethodBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-10The following data applies to Questions19–20:Miguel Corporation and Forest Company merged as of January 1, 20X3. Miguel paid finder’sfees of $36,000 and legal fees of $8,000. Miguel also paid audit fees related to the stockissuance of $12,000, stock registration fees of $7,000, and stock listing application fees of$3,000.19. Based on the preceding information, under the acquisition method, what amount relating tothe business combination would be expensed?A.$22,000B.$36,000C.$44,000D.$66,000Answer: CLearning Objective: 01-05Topic: Applying the Acquisition MethodBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium20. Based on the preceding information, under the acquisition methodA.$22,000 of stockissue costs are treated as a reduction in the issue price.B.$22,000 of stock issue costs are expensed.C.$66,000 of stock issue costs are classified as goodwill.D.$66,000 of stock issue costs are expensed.Answer: ALearning Objective: 01-05Topic: Applying the Acquisition MethodBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-1121. Burrough Corporation paid $80,000 to acquire all of Helyar Company’s net assets. Helyarreported assets with a book value of $60,000 and fair value of $98,000 and liabilities with a bookvalue and fair value of $23,000 on the date of combination. Burrough also paid $3,000 to asearch firm for finder's fees related to the acquisition. What amount will be recorded as goodwillby Burrough Corporation while recording its investment in Helyar?A. $0B. $5,000C. $8,000D. $13,000Answer: BLearning Objective:01-05Topic: GoodwillBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium22.Simmons Corporation paid $170,000 to acquire all of Bush Company’s net assets. Bushreported assets with a book value of $189,000 and a fairvalue of $206,000 and liabilities with abook value and fair value of $48,000 on the date of the combination. Simmons also paid $8,000to a search firm for finder’s fees related to the acquisition. What amount will be recorded asgoodwill by Simmons Corporation when recording its investment in Bush?A.$29,000B.$20,000C.$12,000D.$10,000Answer:CLearning Objective: 01-05Topic: GoodwillBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 MediumThe following data applies to Questions23–25:Plummet Corporation reported the book value of its net assets at $400,000 when ZenithCorporation acquired 100 percent ownership. The fair value of Plummet's net assets wasdetermined to be $510,000 on that date.

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-1223. Based on the preceding information, what amount of goodwill will be reported inconsolidated financial statements presented immediately following the combination if Zenithpaid $550,000 for the acquisition?A. $0B. $50,000C. $150,000D. $40,000Answer: DLearning Objective:01-05Topic: GoodwillBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium24. Based on the preceding information, what amount will be recorded by Zenith as itsinvestment in Plummet, if it paid $500,000 for the acquisition?A. $610,000B. $400,000C. $500,000D. $510,000Answer: DLearning Objective:01-05Learning Objective:01-02Topic:Combination Effected through the Acquisition of Net AssetsTopic: The Development of Accounting for Business CombinationsBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 Medium

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-1325. Based on the preceding information, what amount of goodwill will be reported inconsolidated financial statements presented immediately following the combination if Zenithpaid $500,000 for the acquisition?A. $0B. $50,000C. $150,000D. $40,000Answer: ALearning Objective:01-05Topic: GoodwillBlooms:UnderstandAACSB: AnalyticAICPA: FNMeasurementDifficulty:2 MediumThe following information applies to Questions26–28:Mercury Corporation acquired 100 percent of the stock of JupiterCompany when the book valueof Jupiter’s net assets was $250,000. The fair value of Jupiter’s net assets was $280,000 on theacquisition date.26. Based on the preceding information, what amount of goodwill will be reported inconsolidated financial statements presented immediately following the combination if Mercurypaid $295,000 for the acquisition?A.$0B.$5,000C.$15,000D.$45,000Answer: CLearning Objective: 01-05Topic: GoodwillBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium27. Based on the preceding information, what amount will be recorded by Mercury as itsinvestment in Jupiter if it paid $275,000 for the acquisition?A.$250,000B.$275,000C.$280,000D.$300,000Answer: CLearning Objective: 01-05

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-14Learning Objective: 01-02Topic: Combination Effected through the Acquisition of Net AssetsTopic: The Development of Accounting for Business CombinationsBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium28. Based on the preceding information, what amount of goodwill will be reported inconsolidated financial statements presented immediately following the combination if Mercurypaid $275,000 for the acquisition?A.($5,000)B.$0C.$5,000D.$25,000Answer: BLearning Objective: 01-05Topic: GoodwillBlooms: UnderstandAACSB: AnalyticAICPA: FN MeasurementDifficulty: 2 Medium29. The fair value of net identifiable assets of a reporting unit of X Company is $300,000. On XCompany's books, thecarrying value of this reporting unit's net assets is $350,000, including$60,000 goodwill. If the fair value of the reporting unitas a wholeis $335,000, what amount ofgoodwill impairment will be recognized for this unit?A. $0B. $10,000C. $25,000D. $35,000Answer: CLearning Objective:01-05Topic: GoodwillBlooms:ApplyAACSB: AnalyticAICPA: FNMeasurementDifficulty:3 Hard

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Chapter 1 Intercorporate Acquisitions and Investments in Other Entities1-1530. The fair value of net identifiable assets of a reporting unit of Y Company is $270,000. Thecarrying value of the reporting unit's net assets on Y Company's books is $320,000, including$50,000 goodwill. If the reported goodwill impairment for the unit is $10,000, what would be thefair value of the reporting unit?A. $320,000B. $310,000C. $270,000D. $290,000Answer: BLearning Objective:01-05Topic: GoodwillTopic:Fair Value MeasurementsBlooms:ApplyAACSB: AnalyticAICPA: FNMeasurementDifficulty:3 HardThe following data applies to Questions31–33:Following its acquisition of the net assets of DanCompany, Empire Company assigned goodwillof $60,000 to one of the reporting divisions. Information for this division follows:31. Based on the preceding information, what amount of goodwill(after any impairment)will bereported for this division if its fair value is determined to be $200,000?A. $0B. $60,000C. $30,000D. $10,000Answer: DLearning Objective:01-05Topic: GoodwillBlooms:ApplyAACSB: AnalyticAICPA: FNMeasurementDifficulty:3 Hard

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