On January 1, 2017 Pinnacle Corporation exchanged $3,424,500 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 $ 118,000 313,000 372,000 1,970,000 3,470,000 $ 6,243,000 Accounts payable Long-term debt Common stock Retained earnings 378,000 3,135,000 1,500,000 1,230,000 $ 6,243,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 370,000 (120,000) $ 3,424,500 2,730,000 $ 694,500 250,000 444,500 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 $85,600 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 Pinnacle Strata $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 656,000 432,000 694,000 (45,000) $ (1,585,000) $ (227,000) 5 (5,235,000) (1,504,000) (1,585,000) (227,000) 500,000 45,000 (6,320,000) (1,686,000) 5 265,500 386,000 1,560,000 335,000 1,500,000 1,270,000 3,424,500 5,720,000 2,098,000 2,082,000 372.500 Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE $ 12,842,500 $ $ (532,500) 5 (2,990,000) (3,000,000) (6,320,000) $ (12,842,500) 6,171,000 (885,000) (2,100,000) (1,500,000) (1,686,000 (6,171,000) 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare a worksheet to consolidate the financial information for these two companies. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales Cost of goods sold Interest expense $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 656,000 432,000 694,000 (45,000) $ (1,585,000) $ (227,000) $ 0 Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 (5,235,000) (1,504,000) (1,585,000) (227,000) 500,000 45,000 $ (6,320,000) $ (1,686,000) $ 0 Cash $ 265,500 $ 1,560,000 Accounts receivable 386,000 335,000 1,270,000 1,500,000 3,424.500 5,720,000 Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 2,098,000 2,082,000 372,500 $ 12,842,500 $ 6,171,000 $ Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/18 Total Liabilities and Owner's Equity (532,500) (885,000) (2,990,000) (2,100,000) (3,000,000) (1,500,000) (6,320,000) (1,686,000) $(12.842,500) $ (6,171,000) $ 0 0 $ 0 $ 0 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? Complete this question by entering your answers in the tabs below. Required A Required B Required c 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. 1 Subsidiary income 2 Retained earnings 1/1/18 3 Investment in Strata On January 1, 2017 Pinnacle Corporation exchanged $3,424,500 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 $ 118,000 313,000 372,000 1,970,000 3,470,000 $ 6,243,000 Accounts payable Long-term debt Common stock Retained earnings 378,000 3,135,000 1,500,000 1,230,000 $ 6,243,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 370,000 (120,000) $ 3,424,500 2,730,000 $ 694,500 250,000 444,500 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 $85,600 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 Pinnacle Strata $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 656,000 432,000 694,000 (45,000) $ (1,585,000) $ (227,000) 5 (5,235,000) (1,504,000) (1,585,000) (227,000) 500,000 45,000 (6,320,000) (1,686,000) 5 265,500 386,000 1,560,000 335,000 1,500,000 1,270,000 3,424,500 5,720,000 2,098,000 2,082,000 372.500 Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE $ 12,842,500 $ $ (532,500) 5 (2,990,000) (3,000,000) (6,320,000) $ (12,842,500) 6,171,000 (885,000) (2,100,000) (1,500,000) (1,686,000 (6,171,000) 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare a worksheet to consolidate the financial information for these two companies. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales Cost of goods sold Interest expense $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 656,000 432,000 694,000 (45,000) $ (1,585,000) $ (227,000) $ 0 Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 (5,235,000) (1,504,000) (1,585,000) (227,000) 500,000 45,000 $ (6,320,000) $ (1,686,000) $ 0 Cash $ 265,500 $ 1,560,000 Accounts receivable 386,000 335,000 1,270,000 1,500,000 3,424.500 5,720,000 Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 2,098,000 2,082,000 372,500 $ 12,842,500 $ 6,171,000 $ Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/18 Total Liabilities and Owner's Equity (532,500) (885,000) (2,990,000) (2,100,000) (3,000,000) (1,500,000) (6,320,000) (1,686,000) $(12.842,500) $ (6,171,000) $ 0 0 $ 0 $ 0 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? Complete this question by entering your answers in the tabs below. Required A Required B Required c 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. 1 Subsidiary income 2 Retained earnings 1/1/18 3 Investment in Strata