In a business combination accounted for as a purchase, the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported? 
a. As a gain, after adjusting the balance sheet, including identifiable intangible assets, to fair value. 
b. As a reduction of the values assigned to noncurrent assets and an extraordinary gain for any unallocated portion. 
c. As positive goodwill. 
d. As negative goodwill. 
Explanation 
Choice "a" is correct. When a subsidiary is acquired with an acquisition cost that is less than the fair value of the underlying assets, the following steps are required: 
1. The balance sheet is adjusted to fair value, which creates a negative balance in the acquisition account. 
2. Identifiable intangible assets are recognized at fair value, which increases the negative balance in the acquisition account. 
3. The total negative balance in the acquisition account is recorded as a gain. 
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