On January 1, 2017, Pinnacle Corporation exchanged $3,570,500 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 $ 101,000 336,000 414,000 1,910,000 3,135,000 $ 5,896,000 Accounts payable Long-term debt Common stock Retained earnings 391,000 2,750,000 1,500,000 1,255,000 $ 5,896,000 Pinnacle prepared the following fair-value allocation: Pair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 3,570,500 2,755,000 $ 815,500 $ 492,000 (104,000) 388,000 427,500 $ 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 $88,200 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 Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE Pinnacle Strata $ (7,757,000) $ (3,227,000) 5,040,000 1,745,000 299,000 190,000 633,000 434,000 627,000 (45,000) $ (1,830,000) $ (231.000) $ (5,280,000) $ (1,537,400) (1,830,000) (231,000) 500,000 45,000 $ (6,610,000) $ (1,723,400) $ 242,000 $ 545.400 1,100,000 362,000 1,430,000 1,585,000 3,570,500 5,910,000 1,995,000 1,881.000 442,500 $ 12,695,000 $ 6,368,400 $ (325,000) $ (725,000) (2,760,000) (2,420,000) (3,000,000) (1,500,000) (6.610,000) (1.723,400) $(12,695,000) $ (6,368,400) ook nt ances . Prepare a worksheet to consolidate the financial information for these two companies. 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. 1. What effect does the parent's internal investment accounting method have on its consolidated financial statements? della mutuin VIREIAF in the tahe hala 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 $ (7,757.000) S (3,227,000) 5,040,000 1,745,000 299,000 190,000 633,000 434,000 627.000 (45,000) $ (1.830,000) S (231.000) $ 0 0 Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 (5,280,000) (1,537,400) (1.830.000) (231.000) 500,000 45,000 S (6.610,000) S (1.723,400) $ $ Cash Accounts receivable Inventory 242.000 $ 1.100,000 1.430,000 545,400 362,000 1,585.000 Dividends declared Retained earnings 12/31/18 500,000 45,000 $ (6,610,000) $ (1.723 400) $ 0 $ Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 242,000 $ 1,100,000 1,430,000 3,570.500 5,910,000 545,400 362,000 1,585,000 1,995,000 1,881,000 442.500 $ 12,695,000 $ 6,368,400 $ 0 Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/18 Total Liabilities and Owner's Equity (325,000) (725,000) (2.760,000) (2.420,000) (3,000,000) (1.500,000) (6,610,000) (1.723 400) S (12,695,000) S (6,368,400) 0 0 $ OS 0 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 $3,570,500 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 $ 101,000 336,000 414,000 1,910,000 3,135,000 $ 5,896,000 Accounts payable Long-term debt Common stock Retained earnings 391,000 2,750,000 1,500,000 1,255,000 $ 5,896,000 Pinnacle prepared the following fair-value allocation: Pair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 3,570,500 2,755,000 $ 815,500 $ 492,000 (104,000) 388,000 427,500 $ 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 $88,200 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 Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE Pinnacle Strata $ (7,757,000) $ (3,227,000) 5,040,000 1,745,000 299,000 190,000 633,000 434,000 627,000 (45,000) $ (1,830,000) $ (231.000) $ (5,280,000) $ (1,537,400) (1,830,000) (231,000) 500,000 45,000 $ (6,610,000) $ (1,723,400) $ 242,000 $ 545.400 1,100,000 362,000 1,430,000 1,585,000 3,570,500 5,910,000 1,995,000 1,881.000 442,500 $ 12,695,000 $ 6,368,400 $ (325,000) $ (725,000) (2,760,000) (2,420,000) (3,000,000) (1,500,000) (6.610,000) (1.723,400) $(12,695,000) $ (6,368,400) ook nt ances . Prepare a worksheet to consolidate the financial information for these two companies. 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. 1. What effect does the parent's internal investment accounting method have on its consolidated financial statements? della mutuin VIREIAF in the tahe hala 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 $ (7,757.000) S (3,227,000) 5,040,000 1,745,000 299,000 190,000 633,000 434,000 627.000 (45,000) $ (1.830,000) S (231.000) $ 0 0 Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 (5,280,000) (1,537,400) (1.830.000) (231.000) 500,000 45,000 S (6.610,000) S (1.723,400) $ $ Cash Accounts receivable Inventory 242.000 $ 1.100,000 1.430,000 545,400 362,000 1,585.000 Dividends declared Retained earnings 12/31/18 500,000 45,000 $ (6,610,000) $ (1.723 400) $ 0 $ Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 242,000 $ 1,100,000 1,430,000 3,570.500 5,910,000 545,400 362,000 1,585,000 1,995,000 1,881,000 442.500 $ 12,695,000 $ 6,368,400 $ 0 Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/18 Total Liabilities and Owner's Equity (325,000) (725,000) (2.760,000) (2.420,000) (3,000,000) (1.500,000) (6,610,000) (1.723 400) S (12,695,000) S (6,368,400) 0 0 $ OS 0 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 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