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Company A spins off two operating businesses (B and C) into a newly incorporated Company D. New investors fund D via a prospectus and end up holding 99% of D (Company A retains 1%). D then buys B and C in cash. Identify the accounting acquirer of B and C.
ACompany D — D pays cash and the new owners (via D) obtain control of B and C from A
BCompanies B and C jointly
CCompany A — because A's businesses are being acquired
DThe investors directly
Answer & Solution
Correct answer: A. Company D — D pays cash and the new owners (via D) obtain control of B and C from A
Although D is newly formed, it is identified as the acquirer because it actually paid cash and, crucially, the new investors who fund D have *obtained control* of B and C from A through D. Newly-formed shell entities can be acquirers when they have substance and acquire control on behalf of new owners.
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