Goodwill Arises When a Parent Company

question 101

Multiple Choice

Goodwill arises when a parent company:

• A) pays less to acquire a subsidiary company than the market value of the subsidiary's net assets
• B) pays more to acquire a subsidiary company than the market value of the subsidiary's net assets
• C) pays less to acquire a subsidiary company than the book value of the subsidiary's net assets
• D) pays more to acquire a subsidiary company than the book value of the subsidiary's net assets

---

Definitions:

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Debt Investments

Debt investments refer to investments made in bonds or other debt instruments where the investor lends money to an issuer in exchange for periodic interest payments and the return of the principal at maturity.

Guaranteed Investment Certificates

A type of Canadian investment that offers a guaranteed rate of return over a fixed period, typically issued by banks or financial institutions.

Effective-Interest Method

A technique for calculating the amortized cost of a bond and the amount of interest income over each period based on the bond's yield at issuance.