On January 4, 2018, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000. Bailey properly accounts for this investment using the equity method. At the time of the investment, Emery's total stockholders' equity was $5,000,000. Bailey gathered the following information about Emery's assets and liabilities whose book values and fair values differed: Book Value Fair Value ?Buildings (20-year life)$1,000,000 $1,800,000 ?Equipment (5-year life) 1,500,000 2,000,000 ?Franchises (10-year life)$0 $700,000 ?? Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Emery Co. reported net income of $400,000 for 2018, and paid dividends of $200,000 during that year.What is the amount of the excess of
purchase price over book value?
A. $3,000,000.
B. $(2,000,000).
C. $2,000,000.
D. $800,000.
E. $1,000,000.
Answer: E
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