For a less-than-wholly-owned subsidiary,goodwill under the parent theory:
A) exceeds goodwill under the proprietary theory.
B) exceeds goodwill under the entity theory.
C) is less than goodwill under the entity theory.
D) is less than goodwill under the proprietary theory.

Question

Quizplus · Accepted Answer

Goodwill under the parent theory is calculated as the difference between the parent's investment in the subsidiary and the fair value of the subsidiary's net assets acquired. As the parent does not own 100% of the subsidiary, the calculation is based on the fair value of the net assets acquired, rather than the subsidiary's total net assets. This usually results in a lower value for goodwill compared to the entity theory, where goodwill is calculated as the excess of the purchase price over the total fair value of the subsidiary's net assets.

For a Less-Than-Wholly-Owned Subsidiary,goodwill Under the Parent Theory