On January 1, 2019, a Company Issued 6,000 New Common

question 32

Multiple Choice

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) 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.
• B) 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.
• 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 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

---

Definitions:

Bulleted Lists

A list format that includes bullet points for each item, offering clear and concise presentation of information.

Visuals

Graphical elements such as charts, pictures, videos, or diagrams used to supplement text, making content more appealing and easier to understand.

Effective Communication

The ability to convey information to others clearly and unambiguously, ensuring the message is understood as intended.

Scale Distortion

A misrepresentation or alteration of the true size, proportion, or degree of an object or concept, especially in visual representations.