On January 1, 2020, Pinnacle Corporation exchanged $3,560,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: Cash 302,000 Accounts payable Accounts receivable 317,000 Long-term debt Inventory 370,000 Common stock Buildings (net) 1,900,000 Retained earnings $ 394,000 2,810,000 1,500,000 1,420,000 Licensing agreements 3,235,000 Total assets $ 6,124,000 Total liabilities and equity $ 6,124,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 3,560,000 2,920,000 $ 640,000 $ 354,000 (138,000) 216,000 $ 424,000 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 $88,800 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 income Retained earnings 1/1/21 Net income Dividends declared Retained Earnings 12/31/21 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/21 Total Liabilities and Owner's equity Pinnacle Strata $ (7,367,000) $ (3,484,000) 4,870,000 305,000 587,000 (45,000) $ $ (1,650,000) 2,015,000 219,000 355,000 647,000 (248,000) $ (5,140,000) $ (1,733,800) (1,650,000) 500,000 (248,000) 45,000 $ (6,290,000) $ (1,936,800) 531,800 415,000 2,159,000 1,941,000 $ 6,481,800 $ 290,000 $ 1,200,000 1,285,000 1,435,000 3,560,000 5,780,000 432,500 $ 12,547,500 $ (417,500) $ (2,840,000) (780,000) (2,265,000) (3,000,000) (1,500,000) (6,290,000) (1,936,800) $(12,547,500) $ (6,481,800)