On January 4, 2011, 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:
Building(20 years life),book value:1,000,000. Fair value:1,800,000.
Equipment(5 years life),book value:1,500,000. Fair value:2,000,000.
Franchise(10 years life), book value:0. Fair value: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 2011, and paid dividends of $200,000 during that year.
What is the amount of the excess of purchase price over book value?
A. $(2,000,000).
B. $800,000.
C. $1,000,000.(correct)
D. $2,000,000.
E. $3,000,000.