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 legal parent of the subsidiary Entity B 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 the legal parent of Entity B as it is issuing shares in exchange for Entity B's shares. However, Entity B's shareholders are exchanging their shares for Entity A shares, making Entity A the acquirer. Therefore, Entity A is the legal parent of the subsidiary Entity B, and Entity B is the acquired entity.

Entity a and Entity B Agree to Merge