Entity A and Entity B agree to merge.The capital structure of each entity is:
Entity A - 100 ordinary shares
Entity B - 60 ordinary shares
Entity A issues 2.5 shares in exchange for each ordinary share of Entity B.All of Entity B's shareholders exchange their shares for Entity A shares.
Which of the following statement is correct?
A)Entity A is both the parent and the acquirer in the transaction.
B)Entity B is both the parent and the acquirer in the transaction.
C)Entity A is the parent and Entity B is the acquirer in the transaction.
D)Entity B is the parent and Entity A is the acquirer in the transaction.

Question

Quizplus · Accepted Answer

Entity A is issuing new shares to acquire Entity B, therefore Entity A is the acquirer and Entity B is the target. Since Entity A's capital structure is larger than Entity B's, it is likely that Entity A will be the parent and Entity B will be the subsidiary after the merger.

Entity a and Entity B Agree to Merge