,TESTBANK for Advanced Accounting, 7th Edition by Debra C. Jeter
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,Package Title: Test Bank Questions
Course Title: Advanced Accounting, 7e
Chapter Number: 1
Question Type: Multiple Choice
1) A(n) ______ occurs when the operations of two or more companies are brought under common control.
a) tender offer
b) vertical combination
c) operating synergy
d) business combination
Answer: d
Question Title: Test Bank (Multiple Choice) Question 01
Difficulty: Easy
Learning Objective: 1 Describe historical trends in types of business combinations.
Section Reference: 1.1
2) Which of the following situations best describes a business combination to be accounted for as 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 are dissolved.
d) One company transfers assets to another company it has created.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 02
Difficulty: Easy
Learning Objective: 5 Distinguish between an asset and a stock acquisition.
Section Reference: 1.5
3) A firm can use which method of financing for an acquisition structured as either an asset or stock
acquisition?
a) Cash
b) Issuing Debt
c) Issuing Stock
d) All of these
Answer: d
Question Title: Test Bank (Multiple Choice) Question 03
Difficulty: Easy
,Learning Objective: 6 Indicate the factors used to determine the price and the method of payment for a
business combination.
Section Reference: 1.5
4) The objectives of FASB 141R (Business Combinations) and FASB 160 (Noncontrolling Interests in
Consolidated Financial Statements) are as follows:
a) to improve the relevance, comparability, and transparency of financial information related to business
combinations.
b) to eliminate the amortization of Goodwill.
c) to facilitate the convergence project of the FASB and the International Accounting Standards Board.
d) to improve the relevance, comparability, and transparency of financial information related to business
combinations and to eliminate the amortization of Goodwill.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 04
Difficulty: Medium
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.1
5) A business combination in which the boards of directors of the potential combining companies negotiate
mutually agreeable terms is a(n):
a) agreeable combination.
b) friendly combination.
c) hostile combination.
d) unfriendly combination.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 05
Difficulty: Easy
Learning Objective: 4 Identify defensive tactics used to attempt to block business combinations.
Section Reference: 1.2
6) A merger between a supplier and a customer is a(n):
a) friendly combination.
b) horizontal combination.
c) unfriendly combination.
d) vertical combination.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 06
Difficulty: Easy
Learning Objective: 2 Identify the major reasons firms combine.
,Section Reference: 1.3
7) The impairment standard as it relates to goodwill is an example of a:
a) consumption of benefit approach.
b) loss or lack of benefit approach.
c) component of other comprehensive income.
d) direct matching of expenses to revenues.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 07
Difficulty: Easy
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.11
8) The defense tactic that involves purchasing shares held by the would-be acquiring company at a price
substantially in excess of their fair value is called:
a) poison pill.
b) pac-man defense.
c) greenmail.
d) white knight.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 08
Difficulty: Meduim
Learning Objective: 4 Identify defensive tactics used to attempt to block business combinations.
Section Reference: 1.2
9) The third period of business combinations started after World War II and is called:
a) horizontal integration.
b) merger mania.
c) operating integration.
d) vertical integration.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 09
Difficulty: Easy
Learning Objective: 1 Describe historical trends in types of business combinations.
Section Reference: Summary
10) Which of the following is not a component of other comprehensive income under GAAP?
,a) earnings.
b) gains and losses that bypass earnings.
c) impairment losses.
d) accumulated other comprehensive income.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 10
Difficulty: Easy
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.10
11) When a new corporation is formed to acquire two or more other corporations and the acquired
corporations cease to exist as separate legal entities, the result is a statutory:
a) acquisition.
b) combination.
c) consolidation.
d) merger.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 11
Difficulty: Easy
Learning Objective: 5 Distinguish between an asset and a stock acquisition.
Section Reference: 1.5
12) The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the:
a) bonus.
b) goodwill.
c) implied offering price.
d) takeover premium.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 12
Difficulty: Easy
Learning Objective: 6 Indicate the factors used to determine the price and the method of payment for a
business combination.
Section Reference: 1.6
13) The difference between normal earnings and expected future earnings is:
a) average earnings.
b) excess earnings.
c) ordinary earnings.
,d) target earnings.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 13
Difficulty: Easy
Learning Objective: 7 Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
Section Reference: 1.8
14) The first step in estimating goodwill in the excess earnings approach is to:
a) determine normal earnings.
b) identify a normal rate of return for similar firms.
c) compute excess earnings.
d) estimate expected future earnings.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 14
Difficulty: Medium
Learning Objective: 7 Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
Section Reference: 1.8
15) Many of FASB’s recent pronouncements indicate a shift away from historical cost accounting toward:
a) an elevated status for the Statements of Financial Accounting Concepts.
b) convergence of standards.
c) fair value accounting.
d) representationally faithful reporting.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 15
Difficulty: Medium
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.10
16) Estimated goodwill is determined by computing the present value of the:
a) average earnings.
b) excess earnings.
c) expected future earnings.
d) normal earnings.
,Answer: b
Question Title: Test Bank (Multiple Choice) Question 16
Difficulty: Easy
Learning Objective: 7 Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
Section Reference: 1.8
17) The acquiring firm should _______ in order to determine the potential impact on a firm’s earnings
realistically.
a) perform due diligence
b) discover all liabilities
c) interview all managers
d) round all numbers up
Answer: a
Question Title: Test Bank (Multiple Choice) Question 17
Difficulty: Medium
Learning Objective: 3 Identify the factors that managers should consider in exercising due diligence in
business combinations.
Section Reference: 1.7
18) The parent company concept of consolidation represents the view that the primary purpose of
consolidated financial statements is:
a) to provide information relevant to the controlling stockholders.
b) to represent the view that the affiliated companies are a separate, identifiable economic entity.
c) to emphasis control of the whole by a single management.
d) to include only a portion of the subsidiary’s assets, liabilities, revenues, expenses, gains, and losses.
Answer: a
Question Title: Test Bank (Multiple Choice) Question 18
Difficulty: Medium
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
19) Which of the following statements is correct?
a) Total elimination is consistent with the parent company concept.
b) Partial elimination is consistent with the economic unit concept.
c) Past accounting standards required the total elimination of unrealized intercompany profit in assets
acquired from affiliated companies.
d) none of these.
,Answer: c
Question Title: Test Bank (Multiple Choice) Question 19
Difficulty: Hard
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
20) During the period between 1880-1904, huge trusts were created. This period of time is referred to as
a) horizontal integration
b) vertical integration
c) merger mania
d) the conglomerate era
Answer: a
Question Title: Test Bank (Multiple Choice) Question 20
Difficulty: Medium
Learning Objective: Describe historical trends in types of business combinations.
Section Reference: 1.1
21) Under the economic unit concept, noncontrolling interest in net assets is treated as:
a) a liability.
b) an asset.
c) stockholders' equity.
d) an expense.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 21
Difficulty: Easy
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
22) The parent company concept adjusts subsidiary net asset values for the:
a) differences between cost and fair value.
b) differences between cost and book value.
c) total fair value implied by the price paid by the parent.
d) total cost implied by the price paid by the parent.
Answer: b
, Question Title: Test Bank (Multiple Choice) Question 22
Difficulty: Hard
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
23) According to the economic unit concept, the primary purpose of consolidated financial statements is to
provide information that is relevant to:
a) majority stockholders.
b) minority stockholders.
c) creditors.
d) both majority and minority stockholders.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 23
Difficulty: Easy
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
24) Which of the following statements is correct?
a) The economic unit concept suggests partial elimination of unrealized intercompany profits.
b) The parent company concept suggests partial elimination of unrealized intercompany profits.
c) The economic unit concept suggests no elimination of unrealized intercompany profits.
d) The parent company concept suggests total elimination of unrealized intercompany profits.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 24
Difficulty: Easy
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
25) When following the parent company concept in the preparation of consolidated financial statements,
noncontrolling interest in combined income is considered a(n):
a) prorated share of the combined income.
b) addition to combined income to arrive at consolidated net income.
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
,Package Title: Test Bank Questions
Course Title: Advanced Accounting, 7e
Chapter Number: 1
Question Type: Multiple Choice
1) A(n) ______ occurs when the operations of two or more companies are brought under common control.
a) tender offer
b) vertical combination
c) operating synergy
d) business combination
Answer: d
Question Title: Test Bank (Multiple Choice) Question 01
Difficulty: Easy
Learning Objective: 1 Describe historical trends in types of business combinations.
Section Reference: 1.1
2) Which of the following situations best describes a business combination to be accounted for as 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 are dissolved.
d) One company transfers assets to another company it has created.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 02
Difficulty: Easy
Learning Objective: 5 Distinguish between an asset and a stock acquisition.
Section Reference: 1.5
3) A firm can use which method of financing for an acquisition structured as either an asset or stock
acquisition?
a) Cash
b) Issuing Debt
c) Issuing Stock
d) All of these
Answer: d
Question Title: Test Bank (Multiple Choice) Question 03
Difficulty: Easy
,Learning Objective: 6 Indicate the factors used to determine the price and the method of payment for a
business combination.
Section Reference: 1.5
4) The objectives of FASB 141R (Business Combinations) and FASB 160 (Noncontrolling Interests in
Consolidated Financial Statements) are as follows:
a) to improve the relevance, comparability, and transparency of financial information related to business
combinations.
b) to eliminate the amortization of Goodwill.
c) to facilitate the convergence project of the FASB and the International Accounting Standards Board.
d) to improve the relevance, comparability, and transparency of financial information related to business
combinations and to eliminate the amortization of Goodwill.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 04
Difficulty: Medium
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.1
5) A business combination in which the boards of directors of the potential combining companies negotiate
mutually agreeable terms is a(n):
a) agreeable combination.
b) friendly combination.
c) hostile combination.
d) unfriendly combination.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 05
Difficulty: Easy
Learning Objective: 4 Identify defensive tactics used to attempt to block business combinations.
Section Reference: 1.2
6) A merger between a supplier and a customer is a(n):
a) friendly combination.
b) horizontal combination.
c) unfriendly combination.
d) vertical combination.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 06
Difficulty: Easy
Learning Objective: 2 Identify the major reasons firms combine.
,Section Reference: 1.3
7) The impairment standard as it relates to goodwill is an example of a:
a) consumption of benefit approach.
b) loss or lack of benefit approach.
c) component of other comprehensive income.
d) direct matching of expenses to revenues.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 07
Difficulty: Easy
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.11
8) The defense tactic that involves purchasing shares held by the would-be acquiring company at a price
substantially in excess of their fair value is called:
a) poison pill.
b) pac-man defense.
c) greenmail.
d) white knight.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 08
Difficulty: Meduim
Learning Objective: 4 Identify defensive tactics used to attempt to block business combinations.
Section Reference: 1.2
9) The third period of business combinations started after World War II and is called:
a) horizontal integration.
b) merger mania.
c) operating integration.
d) vertical integration.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 09
Difficulty: Easy
Learning Objective: 1 Describe historical trends in types of business combinations.
Section Reference: Summary
10) Which of the following is not a component of other comprehensive income under GAAP?
,a) earnings.
b) gains and losses that bypass earnings.
c) impairment losses.
d) accumulated other comprehensive income.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 10
Difficulty: Easy
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.10
11) When a new corporation is formed to acquire two or more other corporations and the acquired
corporations cease to exist as separate legal entities, the result is a statutory:
a) acquisition.
b) combination.
c) consolidation.
d) merger.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 11
Difficulty: Easy
Learning Objective: 5 Distinguish between an asset and a stock acquisition.
Section Reference: 1.5
12) The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the:
a) bonus.
b) goodwill.
c) implied offering price.
d) takeover premium.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 12
Difficulty: Easy
Learning Objective: 6 Indicate the factors used to determine the price and the method of payment for a
business combination.
Section Reference: 1.6
13) The difference between normal earnings and expected future earnings is:
a) average earnings.
b) excess earnings.
c) ordinary earnings.
,d) target earnings.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 13
Difficulty: Easy
Learning Objective: 7 Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
Section Reference: 1.8
14) The first step in estimating goodwill in the excess earnings approach is to:
a) determine normal earnings.
b) identify a normal rate of return for similar firms.
c) compute excess earnings.
d) estimate expected future earnings.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 14
Difficulty: Medium
Learning Objective: 7 Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
Section Reference: 1.8
15) Many of FASB’s recent pronouncements indicate a shift away from historical cost accounting toward:
a) an elevated status for the Statements of Financial Accounting Concepts.
b) convergence of standards.
c) fair value accounting.
d) representationally faithful reporting.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 15
Difficulty: Medium
Learning Objective: 9 Discuss the Statements of Financial Accounting Concepts (SFAC).
Section Reference: 1.10
16) Estimated goodwill is determined by computing the present value of the:
a) average earnings.
b) excess earnings.
c) expected future earnings.
d) normal earnings.
,Answer: b
Question Title: Test Bank (Multiple Choice) Question 16
Difficulty: Easy
Learning Objective: 7 Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
Section Reference: 1.8
17) The acquiring firm should _______ in order to determine the potential impact on a firm’s earnings
realistically.
a) perform due diligence
b) discover all liabilities
c) interview all managers
d) round all numbers up
Answer: a
Question Title: Test Bank (Multiple Choice) Question 17
Difficulty: Medium
Learning Objective: 3 Identify the factors that managers should consider in exercising due diligence in
business combinations.
Section Reference: 1.7
18) The parent company concept of consolidation represents the view that the primary purpose of
consolidated financial statements is:
a) to provide information relevant to the controlling stockholders.
b) to represent the view that the affiliated companies are a separate, identifiable economic entity.
c) to emphasis control of the whole by a single management.
d) to include only a portion of the subsidiary’s assets, liabilities, revenues, expenses, gains, and losses.
Answer: a
Question Title: Test Bank (Multiple Choice) Question 18
Difficulty: Medium
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
19) Which of the following statements is correct?
a) Total elimination is consistent with the parent company concept.
b) Partial elimination is consistent with the economic unit concept.
c) Past accounting standards required the total elimination of unrealized intercompany profit in assets
acquired from affiliated companies.
d) none of these.
,Answer: c
Question Title: Test Bank (Multiple Choice) Question 19
Difficulty: Hard
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
20) During the period between 1880-1904, huge trusts were created. This period of time is referred to as
a) horizontal integration
b) vertical integration
c) merger mania
d) the conglomerate era
Answer: a
Question Title: Test Bank (Multiple Choice) Question 20
Difficulty: Medium
Learning Objective: Describe historical trends in types of business combinations.
Section Reference: 1.1
21) Under the economic unit concept, noncontrolling interest in net assets is treated as:
a) a liability.
b) an asset.
c) stockholders' equity.
d) an expense.
Answer: c
Question Title: Test Bank (Multiple Choice) Question 21
Difficulty: Easy
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
22) The parent company concept adjusts subsidiary net asset values for the:
a) differences between cost and fair value.
b) differences between cost and book value.
c) total fair value implied by the price paid by the parent.
d) total cost implied by the price paid by the parent.
Answer: b
, Question Title: Test Bank (Multiple Choice) Question 22
Difficulty: Hard
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
23) According to the economic unit concept, the primary purpose of consolidated financial statements is to
provide information that is relevant to:
a) majority stockholders.
b) minority stockholders.
c) creditors.
d) both majority and minority stockholders.
Answer: d
Question Title: Test Bank (Multiple Choice) Question 23
Difficulty: Easy
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
24) Which of the following statements is correct?
a) The economic unit concept suggests partial elimination of unrealized intercompany profits.
b) The parent company concept suggests partial elimination of unrealized intercompany profits.
c) The economic unit concept suggests no elimination of unrealized intercompany profits.
d) The parent company concept suggests total elimination of unrealized intercompany profits.
Answer: b
Question Title: Test Bank (Multiple Choice) Question 24
Difficulty: Easy
Learning Objective: 8 Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
Section Reference: 1.9
Section Reference: 1.9
25) When following the parent company concept in the preparation of consolidated financial statements,
noncontrolling interest in combined income is considered a(n):
a) prorated share of the combined income.
b) addition to combined income to arrive at consolidated net income.
