This is an advanced accounting class question. The answer is B. However, I need a detailed EXPLANATION of WHY it is B. Please explain and do not just give me the answer.

Penny Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance; Debit Credit 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 1,000 Equipment (net (2 year life) Land 900 Accounts payable 400 Long-term liabilities (due 12/31/15 1,800 1,000 Common stock Additional paid -in capital 600 Retained earnings 1,500 Total $5,300 $5,300 Net income and dividends reported by Hurley for 2012 and 2013 follow: 2012 2013 $100 Net income $120 Dividends 30 40 The fair value of Hurley's net assets that differ from their book values are listed below: Fair Value 900 Inventory Buildings 1,200 1,250 Equipment 1,300 Land Long-term liabilities 1,700