On January 1, 2017, Pinnacle Corporation exchanged $3,527,500 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 $ 284,000 Accounts payable $ 383,000 3,060,000 1,500,000 1,205,000 311,000 Long-term debt 443,000 Common stock 1,920,000 Retained earnings 3,190,000 s 6,148,000 s 6,148,000 Pinnacle prepared the following fair-value allocation Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value s 3,527,500 2,705,000 $ 822,500 to buildings (undervalued) to licensing agreements (overvalued) $ 480,000 110,000) 370,000 $ 452,500 to goodwill (indefinite life) 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 $86,600 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 Pinnacle $(7,683,000) (3,328,000) Strata Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income 4,940,000 338,000 630,000 1,835,000 207,000 448,000 638,000 35,000 $ (1,810,000) (200,000) Net income Retained earnings 1/1/18 Net income Dividends declared $ (5,160,000) (1,560,000) (200,000) (1,810,000) 600,000 35,000 $ (6,370,000) (1,725,000) Retained Earnings 12/31/18 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill 282,000 $547,000 305,000 1,565,000 1,255,000 1,295,000 3,527,500 6,060,000 2,084,000 1,914,000 408,000 $ 12,827,500 6,415,000 Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE $ (337,500) (950,000) (3,120,000)(2,240, 000) (3,000,000) (1,500, 000) (6,370,000) 1,725,000 $ (12,827,500) (6,415,000) 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 methoo . 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