On January 1, 2017, Pinnacle Corporation exchanged $3,561,500 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 $ 242,000 368,000 394,000 1,870,000 3,240,000 $ 6,114,000 Accounts payable Long-term debt Common stock Retained earnings 434,000 2,780,000 1,500,000 1,400,000 $ 6,114,000 Pinnacle prepared the following fair-value allocation: $ 3,561,500 2,900,000 661,500 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 348,000 (136,000) 212,000 449,500 $ 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 $96,800 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. On January 1, 2017, Pinnacle Corporation exchanged $3,561,500 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 $ 242,000 368,000 394,000 1,870,000 3,240,000 $ 6,114,000 Accounts payable Long-term debt Common stock Retained earnings 434,000 2,780,000 1,500,000 1,400,000 $ 6,114,000 Pinnacle prepared the following fair-value allocation: $ 3,561,500 2,900,000 661,500 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 348,000 (136,000) 212,000 449,500 $ 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 $96,800 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. 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? PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals (10,984,000) Sales Cost of goods sold Interest expense Depreciation expense Amortization expense $ (7,591,000) $ (3,523,000) 4,860,000 2,075,000 250,000 206,000 636,000 390,000 648,000 (55,000) $ (1,900,000) $ (204,000) Dividend income Net income $(10,984,000) Retained earnings 1/1/18 Net income Dividends declared (10,984,000) (5,480,000) (1,666,600) (1,900,000) (204,000) 400,000 55,000 $ 6,980,000) $ (1,815,600) Retained earnings 12/31/18 $(10,984,000) Cash $ Accounts receivable Inventory Investment in Strata 231,000 $ 1,415,000 1,545,000 3,561,500 547,100 367,500 1,610,000 5,745,000 Buildings (net) Licensing agreements 2,002,000 1,944,000 Goodwill 395,000 $ 12,892,500 $ Total assets 6,470,600 $ 0 Accounts payable Long-term debt Common stock - Pinnacle (322,500) (840,000) (2,590,000) (2,315,000) (3,000,000) (1,500,000) (6,980,000) (1,815,600) $(12,892,500) $ (6,470,600) $ Common stock - Strata Retained earnings 12/31/18 Total Liabilities and Owner's Equity (10,984,000) $(10,984,000) 0 $ 0 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 Complete this question by entering your answers in the tabs below. Required A Required B Required C What effect does the parent's internal investment accounting method have on its consolidated financial statements? Effect of parent's internal investment accounting method