On January 1, 2017, Pinnacle Corporation exchanged $3,360,500 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet:

Cash $ 379,000 Accounts payable $ 392,000 Accounts receivable 350,000 Long-term debt 2,955,000 Inventory 353,000 Common stock 1,500,000 Buildings (net) 1,880,000 Retained earnings 1,140,000 Licensing agreements 3,025,000 $ 5,987,000 $ 5,987,000

Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) $ 3,360,500 Carrying amount acquired 2,640,000 Excess fair value $ 720,500 to buildings (undervalued) $ 406,000 to licensing agreements (overvalued) (147,000 ) 259,000 to goodwill (indefinite life) $ 461,500

At the acquisition date, Stratas buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2018, Stratas accounts payable included an $88,400 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. Pinnacle Strata Sales $ (7,524,000 ) $ (3,505,000 ) Cost of goods sold 4,710,000 2,025,000 Interest expense 304,000 188,000 Depreciation expense 645,000 405,000 Amortization expense 605,000 Dividend income (40,000 ) Net income $ (1,905,000 ) $ (282,000 ) Retained earnings 1/1/18 $ (5,475,000 ) $ (1,400,200 ) Net income (1,905,000 ) (282,000 ) Dividends declared 450,000 40,000 Retained Earnings 12/31/18 $ (6,930,000 ) $ (1,642,200 ) Cash $ 447,000 $ 637,700 Accounts receivable 1,500,000 245,000 Inventory 1,550,000 1,595,000 Investment in Strata 3,360,500 Buildings (net) 5,770,000 2,052,000 Licensing agreements 1,815,000 Goodwill 400,000 Total assets $ 13,027,500 $ 6,344,700 Accounts payable $ (517,500 ) $ (772,500 ) Long-term debt (2,580,000 ) (2,430,000 ) Common stock (3,000,000 ) (1,500,000 ) Retained earnings 12/31/18 (6,930,000 ) (1,642,200 ) Total Liabilities and OE $ (13,027,500 ) $ (6,344,700 )

Prepare a worksheet to consolidate the financial information for these two companies.

Compute the following amounts that would appear on Pinnacles 2018 separate (nonconsolidated) financial records if Pinnacles investment accounting was based on the equity method.

Subsidiary income.

Retained earnings, 1/1/18.

Investment in Strata.

What effect does the parents internal investment accounting method have on its consolidated financial statements?