On January 1, 2012, Pickle Corporation exchanged $3,200,000 cash for 100 percent of the outstanding voting stock of Sausage Corporation. Pickle plans to maintain Sausage as a wholly owned subsidiary with separate legal status and accounting information systems.At the acquisition date, Pickle prepared the following fair-value allocation schedule:Fair value of Sausage (consideration transferred)3,608,000Book value of net assets acquired2,965,000Excess of cost over fair value643,000to buildings (undervalued)266,000to licensing agreements (overvalued)(97,000)net169,000to goodwill (indefinite life)474,000

On the acquisition date, Sausage had the following balance sheet:

Accounts Sausage

Cash 159,000

Accounts receivable 308,000

Inventory 434,000

• Buildings (net) 2,000,000

Licensing agreements 3,200,000

Goodwill 0

Total assets 6,101,000

Accounts payable (376,000)

Long-term debt (2,760,000)

Common stock (1,500,000)

Retained earnings (1,465,000)

Total liabilities and equities. (6,101,000)

At the acquisition date, Sausage's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. Sausage Corporation continues its separate legal existence as a wholly owned subsidiary of Pickle with independent accounting records. Pickle employs the cost method in its internal accounting for its investment in Sasuage.

Accounts Pickle Sausage Sales (7,617,000) (3,189,000) COGS 4,725,000 1,770,000 Interest expense 347,000 215,000 Depreciation expense 680,000 368,000 Amortization expense 640,000 Dividend Income (55,000) Net Income (1,920,000) (196,000) Retained Earnings, 1 JAN 2013 (5,390,000) (1,791,200) Net Income (1,920,000) (196,000) Dividends paid 400,000 55,000 Retained Earnings, 31 DEC 2013 (6,910,000) (1,932,200) Cash 414,500 517,700 Accounts receivable 1,665,000 235,000 Inventory 1,335,000 1,630,000 Investment in Sausage 3,608,000 Buildings (net) 5,715,000 2,217,000 Licensing agreements 1,920,000 Goodwill 592,500 Total assets 13,330,000 6,519,700 Accounts payable (360,000) (807,500) Long-term debt (3,060,000) (2,280,000) Common stock (3,000,000) (1,500,000) Retained earnings, 31 DEC (6,910,000) (1,932,200) Total liabilities and equities (13,330,000) (6,519,700)