Both scenarios will relatively answer the cash flow problems of the subsidiary (in this case, Island Ltd.). The difference now lies in the amount of the acquisition cost in order to determine whether the acquisition rendered a gain on bargain purchase or goodwill. First, let us have a grasp of what these two are, and how this may impact both entities.

1. Gain on bargain purchase - this happens when the fair value of the net assets of the subsidiary exceeds the acquisition cost. This is recognized as a gain that is attributable to the parent only. In simple terms, it is like a loss to the subsidiary because its current value was bought by the parent at a lesser price.

2. Goodwill - this occurs when the acquisition cost exceeds the fair value of the net assets of the subsidiary. This is recognized in the consolidated financial statements as a noncurrent asset. To further explain this, goodwill happens because there is an additional price that the parent is willing to pay up because it believes that the acquisition of the subsidiary will further enhance the image of the parent.

Going back to the acquisition made by Pine Ltd, one stated case is that "the CEO made a statement that the acquisition was to help Pine Ltd.'s results look better". This implies that acquisition resulting in goodwill, rather than gain on bargain purchase, is better. Given that the subsidiary's reputation to its suppliers is an attraction to the parent's directors, it is notable that it tends to acquire the subsidiary for the further benefit of the parent's operations. This is the reason for the additional acquisition cost that the parent is willing to pay up. Now, let us identify which among the options will result in goodwill. As seen in the image below, option 2 resulted in goodwill. option 2 is better.

Required,:

Please paraphrase and explain more where its possible