Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2018 (credit balances indicated by parentheses). Michael acquired all of Aaron's outstanding voting stock on January 1, 2014, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company's stock actively traded at $24.00 per share. $ $ Revenues Cost of goods sold Amortization expense Dividend income Net income Retained earnings, 1/1/18 Net income (above) Dividends declared Retained earnings, 12/31/18 Cash Receivables Inventory Investment in Aaron Company Copyrights Royalty agreements Total assets Liabilities Preferred stock Common stock Michael Company 12/31/18 (742,000) 336,000 142,500 15,000) $ (268,500) (934,000) (268,500) 90,000 $(1, 112,500) $ 208,000 390,000 656,000 480,000 555,000 1,011,000 $ 3,300,000 $(1,087,500) (300,000) (500,000) Aaron Company 12/31/18 $ (417,000) 163,500 88,000 0 $ (165,500) $ (549,000) (165,500) 5,000 $ (709,500) $ 24,100 307,000 354,000 0 403,000 471,000 $ 1,559,100 S (719.600) 0 (100,000) Additional paid-in capital Retained earnings, 12/31/18 Total liabilities and equity (300,000) |(1,112,500) $(3,300,000) (30,000) (709,500) $(1,559, 100) On the date of acquisition, Aaron reported retained earnings of $240,000 and a total book value of $370,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period. a. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2018. b. Assuming that Michael applied the equity method to this investment, what account balances would differ on the parent's individual financial statements? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Assuming that Michael applied the equity method to this investment, what account balances would differ individual financial statements? Equity in Earnings of Aaron Retained Earnings 1/1/18 Investment in Aaron 150,500 $ 1,183,000 874,500 Required A On January 1, 2017, Pinnacle Corporation exchanged $3,570,500 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 $ 101,000 336,000 414,000 1,910,000 3,135,000 $ 5,896,000 Accounts payable Long-term debt Common stock Retained earnings 391,000 2,750,000 1,500,000 1,255,000 $ 5,896,000 Pinnacle prepared the following fair value allocation: $ 3,570,500 2,755,000 $ 815,500 Pair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 492,000 (104,000) 388,000 427,500 $ 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 $88,200 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. Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income Retained earnings 1/1/18 Net income Dividends declared Retained Earnings 12/31/18 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets Pinnacle Strata $ (7,757,000) $ (3,227,000) 5,040,000 1,745,000 299,000 190,000 633,000 434,000 627,000 (45,000) $ (1,830,000) $ (231,000) $ (5,280,000) $ (1,537,400) (1,830,000) (231, 000) 500.000 45,000 $ (6,610,000) $ (1,723, 400) S 242,000 545,400 1,100,000 362,000 1,430,000 1,585,000 3,570,500 5,910,000 1,995,000 1,881,000 442,500 $ 12,695,000 $ 6,368, 400 65 Return to question Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE $ (325,000) $ (725,000) (2,760,000) (2,420,000) (3,000,000) (1,500,000) (6,610,000) (1,723,400) $(12,695,000) $ (6,368,400) a. Prepare a worksheet to consolidate the financial information for these two companies. b. Compute the following amounts that would appear on Pinnacle's 2018 separate (nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity method. Subsidiary income. Retained earnings, 1/1/18. Investment in Strata. c. What effect does the parent's internal investment accounting method have on its consolidated financial statements? Answer is not complete. Complete this question by entering your answers in the tabs below. PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Accounts Pinnacle Strata Debit Credit Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $(7.757,000) 5,040,000 299,000 633,000 $ (3,227,000) 1,745,000 190,000 434,000 627,000 Consolidated Totals (10,984,000) 6,785,000 489,000 1,116,200 606,200 49,200 20,800 45,000 (45,000) $(1,830,000) S (231.000) S (1,987.600) 1,537,400 254,000 Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 (5,280,000) (1.830,000) 500,000 $(6,610,000) (1,537,400) (231,000) 45,000 $ (1.723,400) (5,534,000) (1.987,600) 500,000 S (7.021,600) 45,000 Gash 242.000 S 545.400 787.400 Retained earnings 12/31/18 $(6,610,000) $ (1,723,400) $ (7,021,600) $ $ 545,400 362,000 1,585,000 88,200 242,000 1,100,000 1,430,000 3,570,500 5,910,000 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill 787,400 1,373,800 3,015,000 1,995,000 1,881,000 442,800 20,800 427,500 3,570,500 49,2007 83,200 8,298,600 1,818,600 870,000 $ 16,163,400 442,500 $ 12,695,000 Total assets $ 6,368,400 88,200 (325,000) (2.760,000) (3,000,000) (725,000) (2,420,000) Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/18 Total Liabilities and Owner's Equity (961,800) (5.180,000) (3,000,000) 1,500,000 (6,610,000) S (12,695,000) (1,500,000) (1.723,400) $ (6,368,400) $ 4,110,900 (7,021.600) $ (16,163.400) $ 4,110,900 Required 3 > After the death of Lennie Pope, his will was read. It contained the following provisions: $165,000 in cash goes to decedent's brother, Ned Pope. Residence and other personal property go to his sister, Sue ope. Proceeds from the sale of Ford stock go to uncle, Harwood Pope. $300,000 goes into a charitable remainder trust. All other estate assets are to be liquidated with the cash going to Victoria Jones. a. Prepare journal entries for the following transactions that subsequently occur. (1) Discovered the following assets (at fair value); Cash Certificates of deposit Dividends receivable Life insurance policy Residence and personal effects Shares of Ford Motor Company Shares of Xerox Corporation $ 25,000 90,000 4,100 505,000 525,000 83,000 90,000 (2) Collected life insurance policy, (3) Collected dividends of $6.200. (2) Collected life insurance policy. (3) Collected dividends of $6,200. (4) Discovered debts of $82,000. (5) Conveyed title to the residence to Sue Pope along with the decedent's personal effects. (6) Discovered title to land valued at $26,000. (7) Discovered additional debts of $48,000. Paid all of the debt totaling $130,000. (8) Paid funeral expenses of $42,000. (9) Conveyed cash of $165,000 to Ned Pope. (10) Sold the shares of Ford for $97,500. (11) Pald administrative expenses of $27,000. (12) Made the appropriate payment to Harwood Pope. b. Prepare a charge and discharge statement Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B ESTATE OF LENNIE POPE Charge and Discharge Statement As to Principal and income I charge myself with: Assets per original inventory 1,322,100 Assets subsequently discovered: Land 26,000 Gain on sale of Ford Motor Co. stock 14,500 Dividend income 2,100 1,364,700 Total charges I credit myself with: Debts of decedent Funeral and administrative expenses (130,000) (69,000) Legacies distributed: Sue Pope Ned Pope 525,000 165,000 525,000 165,000 97,500 00 DIO 787,500 588,500 $ 776,200 Legacies distributed: Sue Pope Ned Pope Harwood Pope Total credits Balance on hand As: Estate principal: Cash Certificates of deposit Land Shares of Xerox $ 570,200 90,000 26,000 90,000 $ 776,200 Estate principal Estate Income: Cash Required A