On January 1, 2017, Pinnacle Corporation exchanged $3,608,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Cash $ 159,000 Accounts payable $ 376,000 Accounts receivable 308,000 Long-term debt 2,760,000 Inventory 434,000 Common stock 1,500,000 Buildings (net) 2,000,000 Retained earnings 1,465,000 Licensing agreements 3,200,000 $ 6,101,000 $ 6,101,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) $ 3,608,000 Carrying amount acquired 2,965,000 Excess fair value $ 643,000 to buildings (undervalued) $ 266,000 to licensing agreements (overvalued) (97,000 ) 169,000 to goodwill (indefinite life) $ 474,000 At the acquisition date, Stratas buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2018, Stratas accounts payable included an $85,200 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, 2018, follow. Credit balances are indicated by parentheses. Pinnacle Strata Sales $ (7,617,000 ) $ (3,189,000 ) Cost of goods sold 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 1/1/18 $ (5,390,000 ) $ (1,791,200 ) Net income (1,920,000 ) (196,000 ) Dividends declared 400,000 55,000 Retained Earnings 12/31/18 $ (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 Strata 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 12/31/18 (6,910,000 ) (1,932,200 ) Total Liabilities and OE $ (13,330,000 ) $ (6,519,700 )

On January 1, 2017, Pinnacle Corporation exchanged $3,608,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Cash Accounts receivable Inventory Buildings (net) Licensing agreements $ 159,000 Accounts payable 308,000 434,000 2,000,000 3,200,000 $ 6,101,000 $ 376,000 2,760,000 1,500,000 1,465,000 Long-term debt Common stock Retained earnings 6,101,000 Pinnacle prepared the following fair-value allocation Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value 3,608,000 2,965,000 $643,000 to buildings (undervalued) to licensing agreements (overvalued) $ 266,000 (97,000 169,000 $474,000 to goodwill (indefinite life) At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2018, Strata's accounts payable included an $85,200 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 On January 1, 2017, Pinnacle Corporation exchanged $3,608,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Cash Accounts receivable Inventory Buildings (net) Licensing agreements $ 159,000 Accounts payable 308,000 434,000 2,000,000 3,200,000 $ 6,101,000 $ 376,000 2,760,000 1,500,000 1,465,000 Long-term debt Common stock Retained earnings 6,101,000 Pinnacle prepared the following fair-value allocation Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value 3,608,000 2,965,000 $643,000 to buildings (undervalued) to licensing agreements (overvalued) $ 266,000 (97,000 169,000 $474,000 to goodwill (indefinite life) At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2018, Strata's accounts payable included an $85,200 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