2 On January 1, 2020, Pinnacle Corporation exchanged $3,625,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Accounts payable Long-term debt Cash $293,000 $ Accounts receivable 319,000 432,000 3,430,000 1.8/2.5 Inventory 440,000 Common stock 1,500,000 points awarded Buildings (net) 2,330,000 Batained earnings 1,390,000 Licensing agreements 3,370,000 Scored $ 6,752,000 Total liabilities and equity 56,752,000 Pinnacle prepared the following fair-value allocation: Pair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) te licensing agreements (overvalued) to goodwill (indefinite life) $3,625,000 2,890,000 $735,000 $434,000 (133,000) 301,000 434,000 At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. On December 31, 2021. Strata's accounts payable included an $96,400 current liability owed to Pinnacle. Strata Corporation continues its separate legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records. Pinnacle employs the initial value method in its internal accounting for its investment in Strata. The separate financial statements for the two companies for the year ending December 31, 2021, follow. Credit balances are indicated by parentheses. Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net incone Retained earnings 1/1/21 Net incone Dividends declared Pinnacle Strata $ (7,813,000) $ (3,659,000) 5,120,000 2,105,000 273,000 175,000 665,000 (60,000) 418,000 674,000 $ (1,915,000) 5 (287,0001 $ 15,495,000) $ (1,737,8001 (1,815,000) 500,000 (287,000) 60,000