If 100% of a subsidiary's voting stock is acquired in the purchase of the subsidiary, goodwill is defined as the amount by which the purchase price paid by the parent company exceeds the:
A) carrying amount of the net assets of the subsidiary
B) balance in the investment in subsidiary account
C) total shareholders' equity of the subsidiary
D) fair value of the net assets of the subsidiary

Question

Quizplus · Accepted Answer

Goodwill is defined as the excess of the purchase price over the fair value of the net assets acquired. When 100% of a subsidiary's voting stock is acquired, the parent company is acquiring all the assets and liabilities of the subsidiary. Therefore, the fair value of the net assets acquired will be equal to the carrying amount of the net assets of the subsidiary. Hence, choice D is the correct answer.

If 100% of a Subsidiary's Voting Stock Is Acquired in the Purchase