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Q: Pilgrim Corporation acquires all of the stock of Sonic Company for $5,000,000 in cash. Sonic's net assets had a book value of $3,000,000 at the date of acquisition. The book values of Sonic's assets and liabilities approximate fair values, except that Sonic reports inventories at $900,000 more than fair value and plant assets at $2,000,000 more than fair value. In addition, Sonic has unrecorded identifiable intangible assets with an estimated fair value of $5,000,000, appropriately capitalized according to GAAP. When recording its investment in Sonic, Pilgrim reports.