On January 1, 2021, Waddington Company acquired Middleton Co. by issuing 55,000 shares of its common stock with a market value of $20 per share. A building on sub's books was undervalued by $100,000, resulting in annual amortization of $10,000. Also, there was an unrecorded customer list valued at $150,000, resulting in annual amortization of $15,000, as well as a 10-year franchise agreement valued at $125,000. The separate 2021 financial statements for Waddington and Middleton follow.
Waddington
Sales revenue: $3,600,000
Cost of goods sold: $2,520,000
Gross profit: $1,080,000
Operating expenses: $684,000
Equity income: $99,000
Net income: $495,000
Retained Earnings, 1/1/21: $1,830,500
Dividends: $32,040
Retained Earnings, 12/31/21: $2,293,460
Cash and receivables: $772,275
Inventory: $698,400
Equity investment: $1,178,525
Property, plant & equipment (Net): $3,719,520
Total Assets: $6,368,720
Accounts payable: $263,520
Accrued liabilities: $313,200
Notes payable: $1,250,000
Common stock: $407,000
Additional paid-in capital: $1,824,040
Retained Earnings, 12/31/11: $2,293,400
Total Liabilities and Equities: $6,368,720
Middleton
Sales revenue: $975,000
Cost of goods sold: $585,000
Gross profit: $390,000
Operating expenses: $253,500
Net income: $136,500
Retained Earnings, 1/1/21: $503,750
Dividends: $20,475
Retained Earnings, 12/31/21: $619,775
Cash and receivables: $477,425
Inventory: $290,550
Property, plant & equipment (Net): $537,550
Total Assets: $1,305,525
Accounts payable: $92,950
Accrued liabilities: $121,550
Notes payable: $325,000
Common stock: $65,000
Additional paid-in capital: $81,250
Retained Earnings, 12/31/11: $619,775
Total Liabilities and Equities: $1,305,525