Goodwill Occurs When a Parent Company

question 16

Multiple Choice

Goodwill occurs when a parent company:

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

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Definitions:

Share Capital

The funds raised by a company through the issuance of shares to investors.

Deferred Tax Liability

A tax obligation that a company owes but does not have to pay until a future date, usually resulting from differences in accounting methods for tax and financial reporting purposes.

Asset Revaluation

The upward or downward adjustment of the book value of an asset to properly reflect its current market value.

Profits

The financial gain obtained when revenues generated from business activities exceed the expenses and costs associated with those activities.