Test Bank For Advanced Accounting 12th Edition Paul M Fischer William J Taylor Rita H Cheng
ISBN-13: 978-1305084858 ISBN-10: 1305084853
1. An economic advantage of a business combination includes:
|
a. |
Utilizing duplicative assets. |
|
b. |
Creating separate management teams. |
|
c. |
Shared fixed costs. |
|
d. |
Horizontally combining levels within the marketing chain. |
| ANSWER: |
c |
| RATIONALE: |
Business combinations may viewed as a way to take advantage of economies of scale by utilizing common facilities and sharing fixed costs. |
| DIFFICULTY: |
E |
| LEARNING OBJECTIVES: |
ADAC.FISC.1-1 |
|
2. One large bank’s acquisition of another bank would be an example of a:
|
a. |
market extension merger. |
|
b. |
conglomerate merger. |
|
c. |
product extension merger. |
|
d. |
horizontal merger. |
| ANSWER: |
d |
| RATIONALE: |
A horizontal merger occurs when two companies offering similar products or services that are likely competitors in the same marketplace merge. |
| DIFFICULTY: |
M |
| LEARNING OBJECTIVES: |
ADAC.FISC.1-1 |
|
3. A large nation-wide bank’s acquisition of a major investment advisory firm would be an example of a:
|
a. |
market extension merger. |
|
b. |
conglomerate merger. |
|
c. |
product extension merger. |
|
d. |
horizontal merger. |
| ANSWER: |
c |
| RATIONALE: |
A product extension merger occurs when the acquiring company is expanding its product offerings in the market place in which it sells. |
| DIFFICULTY: |
M |
| LEARNING OBJECTIVES: |
OBJ: ADAC.FISC.1-1 |
|
4. A building materials company’s acquisition of a television station would be an example of a:
|
a. |
market extension merger. |
|
b. |
conglomerate merger. |
|
c. |
product extension merger. |
|
d. |
horizontal merger. |
| ANSWER: |
b |
| RATIONALE: |
Because these firms are in unrelated lines of business, this would be a conglomerate merger. |
| DIFFICULTY: |
M |
| LEARNING OBJECTIVES: |
ADAC.FISC.1-1 |
|
5. A tax advantage of business combination can occur when the existing owner of a company sells out and receives:
|
a. |
cash to defer the taxable gain as a “tax-free reorganization.” |
|
b. |
stock to defer the taxable gain as a “tax-free reorganization.” |
|
c. |
cash to create a taxable gain. |
|
d. |
stock to create a taxable gain. |
| ANSWER: |
b |
| RATIONALE: |
If the owners of a business sell their interests for cash or accept debt instruments, they would have an immediate taxable gain. However, if they accept common stock of another corporation and the transaction is crafted as such, they may account for the transaction as a “tax-free reorganization.” If this is the case, no taxes are paid until they sell the shares received in the transaction. |
| DIFFICULTY: |
E |
| LEARNING OBJECTIVES: |
ADAC.FISC.1-1 |
|
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