Question 1

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. Equity Inc. is
A) a holding company.
B) a parent corporation.
C) a subsidiary corporation.
D) a foreign corporation.

Accepted Answer

Equity Inc. is a holding company because its primary business activity is to hold the shares of Carrier Company and Distribution Corporation.

Question 2

Fact Pattern 31-1 Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains.
Refer to Fact Pattern 31-1. The articles of merger
A) amend the articles of Pinnacle.
B) disappear once the merger is complete.
C) create an entirely new organization.
D) take the place of the articles of Pinnacle.

Accepted Answer

The articles of merger amend the articles of Pinnacle to reflect the changes resulting from the merger, as Pinnacle is the surviving entity.

Question 3

Garden Company and Home Corporation make a plan to consolidate. Once approved, the plan likely will be filed with
A) a holding company.
B) a parent corporation.
C) the appropriate state's secretary of state.
D) the U.S. Department of Commerce.

Accepted Answer

The plan for consolidation of companies is typically filed with the appropriate state's secretary of state to ensure compliance with state laws governing corporate mergers and consolidations.

Question 4

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. The plan for the exchange of shares between Carrier and Distribution must be approved by each corporation's
A) directors only.
B) shareholders only.
C) directors and shareholders.
D) none of the choices.

Accepted Answer

The exchange of shares to create a new entity like Equity Inc. typically requires approval from both the directors and the shareholders of each corporation involved, as it is a significant corporate action affecting ownership and control.

Question 5

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. The plan for Bank and Credit's combination must be approved by the shareholders of
A) both corporations.
B) Bank only.
C) Credit only.
D) neither corporation.

Accepted Answer

The plan for the combination of two corporations typically requires approval from the shareholders of both corporations involved in the merger or consolidation.

Question 6

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc .
Refer to Fact Pattern 31-5. Lender Inc. is
A) an insufficient company.
B) a parent corporation.
C) a subsidiary corporation.
D) a consolidated company.

Accepted Answer

Lender Inc. is a parent corporation because it owns more than 90 percent of the stock of Mortgage Inc., making Mortgage Inc. its subsidiary.

Question 7

Cloud Inc. merges with Data Corporation. Cloud, the surviving corporation, issues shares or pays fair consideration to
A) Cloud's shareholders.
B) Data's shareholders.
C) the state.
D) no one.

Accepted Answer

In a merger where one corporation is surviving and the other is being acquired, the surviving corporation (in this case, Cloud Inc.) is responsible for issuing shares or paying fair consideration to the shareholders of the acquired corporation (in this case, Data Corporation). Therefore, the correct choice is B - Data's shareholders.

Question 8

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. Before a vote is taken on the proposed combination, sufficient information to evaluate the deal must be given to each corporation's
A) shareholders.
B) creditors.
C) officers and other employees.
D) marketing departments.

Accepted Answer

Shareholders must be provided with sufficient information to evaluate the proposed combination as they have the right to vote on significant corporate changes, such as mergers.

Question 9

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. The formation of Fuel Inc. is
A) a takeover.
B) a consolidation.
C) a liquidation.
D) a share exchange.

Accepted Answer

The formation of Fuel Inc. is a consolidation because it involves the combination of two companies, Dynamo Corporation and Energy Company, into a new entity, Fuel Inc., with both original companies ceasing to exist.

Question 10

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. On the exchange of shares between Carrier and Distribution
A) both companies continue to exist.
B) both companies cease to exist.
C) only Carrier survives.
D) only Distribution survives.

Accepted Answer

Both Carrier Company and Distribution Corporation continue to exist as separate entities, while Equity Inc. is created to hold their shares.

Question 11

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. With respect to the assets of Dynamo and Energy, Fuel Inc. acquires
A) none of the assets.
B) only those assets acquired after the combination was proposed.
C) an amount of assets equal to the ratio of the firms' pre-merger market values.
D) all of the assets of both companies.

Accepted Answer

Fuel Inc. acquires all of the assets of both Dynamo Corporation and Energy Company because the combination described is a merger, resulting in the formation of a new entity, Fuel Inc., which takes over all assets and liabilities of the merging companies.

Question 12

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. The plan for Bank and Credit's combination must be approved by the board of directors of
A) both corporations.
B) Bank only.
C) Credit only.
D) neither corporation.

Accepted Answer

The plan for the combination of Bank and Credit must be approved by the board of directors of both corporations, as it involves a significant change in the structure and operations of both entities.

Question 13

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. Mergers, consolidations, and share exchanges of domestic corporations are authorized
A) in all states.
B) in most states.
C) in no states.
D) by the federal government.

Accepted Answer

Mergers, consolidations, and share exchanges of domestic corporations are authorized in all states as part of state corporate law regulations.

Question 14

Through a certain transaction, Coffee Café Inc. acquires all of the shares of Deli Corporation for some of Coffee's shares. Both Coffee and Deli continue to exist. This is
A) a consolidation.
B) a share exchange.
C) a short-form merger.
D) a purchase of assets.

Accepted Answer

This transaction is a share exchange, where Coffee Café Inc. acquires all shares of Deli Corporation in exchange for its own shares, allowing both companies to continue existing independently.

Question 15

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc .
Refer to Fact Pattern 31-5. A copy of a plan for a merger of Lender and Mortgage must be sent to each shareholder of
A) both corporations.
B) Lender.
C) Mortgage.
D) neither corporation.

Accepted Answer

When a parent company owns more than 90% of a subsidiary, a short-form merger can occur, which typically requires sending a copy of the merger plan only to the subsidiary's shareholders, not the parent company's.

Question 16

Burgers Inc. merges with Chicken Corporation with Burgers as the surviving corporation. After the merger, the shareholders of Chicken
A) will be paid out or will own shares of Burgers.
B) will be creditors of Burgers.
C) will lose their investment value in Chicken.
D) will have the option of becoming employees of Burgers in order to receive their value.

Accepted Answer

After a merger, shareholders of the non-surviving corporation (Chicken) typically receive shares of the surviving corporation (Burgers) or are paid out for their shares, depending on the terms of the merger agreement.

Question 17

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. With respect to the liabilities of Dynamo and Energy, Fuel Inc. acquires
A) none of the liabilities.
B) only those liabilities acquired after the combination was proposed.
C) an amount of liability equal to the ratio of the firms' pre-merger market values.
D) all the liabilities of both companies.

Accepted Answer

Fuel Inc. acquires all the liabilities of both Dynamo Corporation and Energy Company because, in a merger, the new entity assumes all assets and liabilities of the merging companies.

Question 18

A merger between Beverage Corporation and Creamery Inc. can be expressed as Beverage + Creamery =
A) Creamery.
B) Dairy Company.
C) Dairy Company + EZ Sip Inc.
D) EZ Sip Inc.

Accepted Answer

The answer of A merger between Beverage Corporation and Creamery...

Question 19

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. Once the formalities are satisfied, a certificate of the exchange is issued by
A) Equity Inc.
B) none of the choices.
C) the appropriate state.
D) the U.S. Department of Commerce.

Accepted Answer

The appropriate state issues a certificate of exchange once the formalities of the exchange are satisfied, as corporate transactions like mergers or exchanges are typically governed by state law.

Question 20

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. The agreement between Dynamo and Energy that sets out the capital structure and other features of Fuel Inc.
A) amends the articles of Dynamo and Energy.
B) disappears once the combination is complete.
C) combines with the articles of Dynamo and Energy.
D) takes the place of the articles of Dynamo and Energy.

Accepted Answer

The agreement to form Fuel Inc. replaces the articles of incorporation of Dynamo and Energy, as both companies cease to exist and are succeeded by the new entity, Fuel Inc.

Quiz 31: Combining and Dissolving a Corporation

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies. Refer to Fact Pattern 31-4. Equity Inc. is

Fact Pattern 31-1 Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains. Refer to Fact Pattern 31-1. The articles of merger

Garden Company and Home Corporation make a plan to consolidate. Once approved, the plan likely will be filed with

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations. Refer to Fact Pattern 31-3. The plan for Bank and Credit's combination must be approved by the shareholders of

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc . Refer to Fact Pattern 31-5. Lender Inc. is

Cloud Inc. merges with Data Corporation. Cloud, the surviving corporation, issues shares or pays fair consideration to

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist. Refer to Fact Pattern 31-2. The formation of Fuel Inc. is

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist. Refer to Fact Pattern 31-2. With respect to the assets of Dynamo and Energy, Fuel Inc. acquires

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations. Refer to Fact Pattern 31-3. The plan for Bank and Credit's combination must be approved by the board of directors of

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations. Refer to Fact Pattern 31-3. Mergers, consolidations, and share exchanges of domestic corporations are authorized

Through a certain transaction, Coffee Café Inc. acquires all of the shares of Deli Corporation for some of Coffee's shares. Both Coffee and Deli continue to exist. This is

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc . Refer to Fact Pattern 31-5. A copy of a plan for a merger of Lender and Mortgage must be sent to each shareholder of

Burgers Inc. merges with Chicken Corporation with Burgers as the surviving corporation. After the merger, the shareholders of Chicken

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist. Refer to Fact Pattern 31-2. With respect to the liabilities of Dynamo and Energy, Fuel Inc. acquires

A merger between Beverage Corporation and Creamery Inc. can be expressed as Beverage + Creamery =

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist. Refer to Fact Pattern 31-2. The agreement between Dynamo and Energy that sets out the capital structure and other features of Fuel Inc.