Actually, Mr. Daniels, with his two children, was in the store. is correct. Sometimes the subject is separated from the verb by words such as along with, as well as, besides, or not. Ignore these expressions when determining whether to use a singular or plural verb. The subject of the sentence is Mr. Daniels and (with his two children is a clause that is ignored when determining subject/verb agreement.) You can read here, under rule number 7:
www.grammarbook.com/grammar/subjectVerbAgree.asp