On January 1, 2017, Pinnacle Corporation exchanged $3,560,000 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance

Cash $ 302,000 Accounts payable $ 394,000

Accounts receivable 317,000 Long-term debt 2,810,000

Inventory 370,000 Common stock 1,500,000 Buildings (net) 1,900,000 Retained earnings 1,420,000 Licensing agreements 3,235,000 $ 6,124,000 $ 6,124,000

Pinnacle prepared the following fair-value

Fair value of Strata (consideration transferred) $ 3,560,000

Carrying amount acquired 2,920,000 Excess fair value $ 640,000 to buildings (undervalued) $ 354,000 to licensing agreements (overvalued) (138,000 ) 216,000 to goodwill (indefinite life) $ 424,000

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 $88,800 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 $ (7,367,000 ) $ (3,484,000 ) Cost of goods sold 4,870,000 2,015,000 Interest expense 305,000 219,000 Depreciation expense 587,000 355,000 Amortization expense 647,000 Dividend income (45,000 ) Net income $ (1,650,000 ) $ (248,000 ) Retained earnings 1/1/18 $ (5,140,000 ) $ (1,733,800 ) Net income (1,650,000 ) (248,000 ) Dividends declared 500,000 45,000 Retained Earnings 12/31/18 $ (6,290,000 ) $ (1,936,800 ) Cash $ 290,000 $ 531,800 Accounts receivable 1,200,000 415,000 Inventory 1,285,000 1,435,000 Investment in Strata 3,560,000 Buildings (net) 5,780,000 2,159,000 Licensing agreements 1,941,000 Goodwill 432,500 Total assets $ 12,547,500 $ 6,481,800 Accounts payable $ (417,500 ) $ (780,000 ) Long-term debt (2,840,000 ) (2,265,000 ) Common stock (3,000,000 ) (1,500,000 ) Retained earnings 12/31/18 (6,290,000 ) (1,936,800 ) Total Liabilities and OE $ (12,547,500 ) $ (6,481,800 )

A. consolidation worksheet

B.

subsidiary income
retained earnings 1/1/18
investment in Strata

C.

effect of parent's internal investment accountng method