Reference no: EM132994622

On January 2, 2021, Barley Corp. purchased 40% of the voting common stock of Wheat Co., paying $3,000,000. Barley properly accounts for this investment using the equity method. At the time of the investment, Wheat's total stockholders' equity was $5,000,000.

Barley gathered the following information about Wheat'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. Wheat Co. reported net income of $400,000 for 2021, and paid dividends of $200,000 during that year.

Problem 1: What is the amount of the excess of purchase price over book value?

Multiple Choice

Option 1: $3,000,000.
Option 2: $(2,000,000).
Option 3: $1,000,000.
Option 4: $800,000.
Option 5: $2,000,000.