Question $1(50$ points$)$:

Union Street Entertainment $($Union Street$)$ is an SEC registrant that operates $16$ network$-$

affiliated media companies in the United States. Union Street$$s common stock is listed on the

New York Stock Exchange, and the company had assets of $$650$ million as of December $31,$

$20$X$0.$ In addition, Union Street had revenue of $$400$ million and net income of $$125$ million for

the year ended December $31,20$X$0.$

Tolerable Media Inc. $($Tolerable$)$ is a private entity that operates $10$ network$-$affiliated media

companies in the United States. Tolerable had assets of $$750$ million as of December $31,20$X$0,$

and revenue of $$300$ million and net income of $$145$ million for the year ended December $31,$

$20$X$0.$

On June $5,20$X$1,$ Union Street and Tolerable entered into an agreement and plan of merger $($the

$$Merger Agreement$),$ providing for an all$-$stock business combination transaction between

Union Street and Tolerable. At the close of the transaction in November $20$X$1($the $$Closing

Date$),$ Union Street will acquire all of the outstanding equity securities of Tolerable and as a

result, Tolerable will become a wholly owned subsidiary of Union Street.

As part of the merger, Union Street will issue approximately $25$ million shares of Union Street$$s

common voting stock $($the $$Merger Consideration$)$ to the shareholders of Tolerable$$s issued and

outstanding common stock $($the $$Tolerable Shareholders$).$

After the Closing Date:

$$ It is estimated that $(1)$ immediately following the closing of the transaction, the Tolerable

Shareholders will own $57\mathrm{.}5$ percent of the issued and outstanding shares of Union Street

common stock, on a fully diluted basis, and $(2)$ the shareholders of Union Street

immediately before the transaction $($Union Street Shareholders$)$ will own $42\mathrm{.}5$ percent

of the issued and outstanding shares of Union Street common stock, on a fully diluted

basis.

$$ The largest former Tolerable shareholder will hold approximately $28$ percent of the

combined company, and the largest former Union Street shareholder will hold

approximately $10$ percent of the combined company.

$$ From the Closing Date until the annual meeting in March $20$X$2,$ the board of directors

will consist of seven former Union Street directors and five former Tolerable directors.

Decisions are made by majority vote except for certain decisions that require approval by

at least one board member appointed by Union Street and one appointed by Tolerable

$($e$.$g$.,$ annual budgets; hiring, terminating, or setting the compensation of senior

management; mergers; change in board size; change in executive officers$)$ until the $20$X$2$

annual meeting. At the $20$X$2$ annual meeting, the board of directors will be reduced to

eleven members:

o Four appointed by former Union Street Shareholders.

o Five appointed by former Tolerable Shareholders.

o Two independent directors selected by the nominating committee, which consists of

three Tolerable directors and two Union Street directors. Selection of the independent

board members requires a simple majority vote of the independent members.

$$ The senior management of the combined company will include the former Union Street

CEO as the continuing CEO, the former Union Street CFO as the continuing CFO, and

the former Tolerable CEO as the COO.

$$ On the basis of the valuation of the Merger Consideration, neither party appears to have

received a premium over fair value in the merger.

$$ The combined company will operate under the Union Street name and have corporate

headquarters in the current Union Street location.

$$ Neither company is a variable interest entity.

Required

Assume the merger between Union Street and Tolerable is a business combination to be

accounted for using the acquisition method of accounting under ASC $805.$ Which of the

combining companies, Union Street or Tolerable, should be identified as the acquirer in the

transaction?