Question
On January 1, 2019, A Company issued 6,000 new common shares to the shareholders of B Corporation for all of their shares in B Corporation.
On January 1, 2019, A Company issued 6,000 new common shares to the shareholders of B Corporation for all of their shares in B Corporation. Prior to the new share issuance by A Company, it had 5,000 common shares issued and outstanding. The former shareholders of B Corporation would now own 55% (6,000/11,000) of the outstanding shares.
What is the outcome of this transaction?
A. | Since neither A Company nor B Corporation can be identified as the acquirer, consolidated financial statements are not required. Each entity is only required to prepare separate entity financial statements | |
B. | The legal parent, A Company, is treated as the subsidiary and the legal subsidiary, B Corporation, is treated as the parent for reporting purposes. Therefore, the consolidated balance sheet would incorporate B Corporation's net assets at carrying value and A Company's net assets at fair value. | |
C. | Since neither A Company nor B Corporation can be identified as the acquirer, the consolidated balance sheet would incorporate A Company's net assets at carrying value and B Corporation's net assets at carrying value. | |
D. | Since A Company shares were issued to the shareholders of B Company for the purchase, A Company will be the parent company and B Corporation, the subsidiary for reporting purposes. Therefore, the consolidated balance sheet would incorporate A Company's net assets at carrying value and B Corporation's net assets at fair value. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started