Question

1. Which of the following is generally false when a consolidation occurs?

           (a) The consolidated entity assumes the debts of the original corporations.

           (b) The consolidated entity takes on the rights of the original companies.

           (c) The consolidated entity obtains the original corporations’ assets.

           (d) The new corporation has independent legal status.

           (e) The original corporations continue to exist legally.

2. Which of the following is true regarding the type of intangible item that may constitute an asset?

          (a) A company name is a type of intangible item that may constitute an asset, but goodwill and a company logo are not.

          (b) Goodwill, a company name, and a company logo all constitute types of intangible items that may constitute assets.

          (c) Goodwill is a type of intangible item that may constitute an asset, but a company name and a company logo are not.

          (d) Goodwill and a company name are types of intangible items that may constitute assets, but a company logo is not.

          (e) A company name and a company logo are types of intangible items that may constitute assets, but goodwill is not.

3.

What key piece of information does an aggressor generally need in order to gain control of a target corporation through proxies?

               (a) The income statements of the target.

               (b) The list of members of the board of directors of the target.

               (c) A list of target shareholders.

               (d) A list of target officers.

               (e) The balance sheet of the target.

4.

In a consolidation, which of the following is true regarding the property of the original corporations?

                 (a) It must be held in trust for at least one year to satisfy claims of creditors.

                 (b) It is acquired by the new corporation.

                 (c) It must be sold and distributed to the respective shareholders.

                 (d) It must be placed within the jurisdiction of the secretary of state for at least one year in order to satisfy the claims of creditors.

                 (e) It must be held in trust for at least six months to satisfy claims of creditors.

5. In a consolidation, which of the following is true regarding the property of the original corporations?.

(a) It must be held in trust for at least one year to satisfy claims of creditors.

(b) It is acquired by the new corporation.

(c) It must be sold and distributed to the respective shareholders.

(d) It must be placed within the jurisdiction of the secretary of state for at least one year in order to satisfy claims of creditors.

(e) It must be held in trust for at least six months to satisfy claims of creditors.

Answer 1

Question 4 & 5 are same.

1. Consolidation is a reporting process where by holding entity shows its investment in other companies. So it is just for the purpose of reporting and no actual movement of asset or creation of new entity. Since it is just for reporting purpose, no new corporation comes into the place. Hence the answer is D.

2. Intangible asset (IA) are assets that cannot be seen, feel etc. but bring values/benefits to the company

Company name & Company Logo, most of the time are protected by intellectual property rights with the relevant authority to restrict the use by other, and an amount is paid for the same. Given the nature of benefit it create, they both are IA.

Goodwill is an internally created IA, based on the market perception of the organisation and also the premium paid to acquire a new organisation. Hence is also a part of IA [Please note sometimes Goodwill is just created to window dress the accounts, so in that case it should not be considered while making any financial decision]

Then answer is B.

3. Income statement, List of Board of Directors and Balance sheet are generally available in the public domain the aggressor can assess them to determine the weak areas and possibility of any gain.

Target Officers might just lead to some information inside the working of the company but no real help.

Target Shareholder list is the key piece as it contains the people whom the aggressor can target to get the voting rights by paying them and get control over the company Hence the answer is C

4 & 5 Give the context of the question, here consolidation refers to the corporate action of Merger.

A, D & E - To satisfy creditors’ claim – the process is only applicable in case of dissolution/winding up hence is not the correct answer

Generally, the assets are not distributed to the shareholders unless it is a part of the process, which is very rare.

In most of the scenario the property is acquired by the new corporation, unless stated otherwise in the deal.

Hence the answer is B.