On January 1, 2017, Pinnacle Corporation exchanged $3,767,500 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet: $ 403,000 3,050,000 1,500,000 1,545,000 Cash Accounts receivable Inventory Buildings (net) Licensing agreements $ 315,000 Accounts payable Long-term debt Common stock 355,000 433,000 2,250,000 Retained earnings 3,145,000 6,498,000 6,498,000 Pinnacle prepared the following fair-value allocation Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value $ 3,767,500 3,045,000 $ 722,500 to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 412,000 (119,000)293,000 $ 429,500 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 $90,600 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 (7,620,000) Strata (3,283,000) Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $. 4,800,000 295,000e 620,000 1,825,000 167,000 387,000 629,000 55,000 $(1,960,000) $ (275,000) $ (5,385,000) (1,812,400) Retained earnings 1/1/18 Net income Dividends declared (1,960,000) (275,000) 55,000 6,945,000) $ (2,932,400) 563,400 355,00e 1,465,000 400,000 Retained Earnings 12/31/18 Cash Accounts receivable Inventory Investment in Strata Buildings (net) 370,000$ 1,515,000 1,535,000 3,767,500 5,915,000 2,442,000 On January 1, 2017, Pinnacle Corporation exchanged $3,767,500 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 S 315,989 Accounts payable $ 43,989 Long-tern debt Comnon stack 3,850,0e 433,080 3,145,983 S 6,498,989 1,5ee,e09 1,545,909 2,258,9 Retained earnings 6,498,969 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value 3,767,500 5 722,500 to buildings (undervalued) to licensing egreenents (overvalued) to goodwill (indefinite 1ife) (119,8)293,998 429,50e 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 $90,600 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 Pinnacle Strata (7,62,) (3,283,2a8) Sales Cost of goods sold Interest expense Depreciatian expense Amortization expense Dividend incone 4,0,80e 295,090 167,890 55,890 (1,96,896) $(275,89) $ (5,385,) (1,812,4a8) 890 Net income Retained carnings 1/1/18 Met income Dividends declared (1,968,80e) (275,890) 408,896 (6,945,896) (2,832,49) Retained Earnings 12/31/18 Cash Accounts receivable Inventory Investment in Strata Buildings (net) 37, 563,400 1,465,898 2,442,890 1,515,880 1,535,836 5,915,800 Investment in Strata Buildings (net) Licensing agreements Goodwil1 Total assets 3, 767,500 5,915,000 2,442,000 1,887,000 390,000 $ 13,492,500 $6,712,400 $ (522,500) (960,000) (2,220,000) (1,500,000) Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE (3,025,000) (3,000,00e) (6,945,000)2,832O $ (13,492,500) (6,712,400) 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 Consolidated Totals Accounts Pinnacle Strata Debit Credit Sales $ (7,620,000)$ (3,283,000) 1,825,000 Cost of goods sold 4,800,000 Show more PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Yea r December 31, 2018 Consolidation Entries Consolidated Strata Accounts Pinnacle Debit Credit Totals Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income $ (7,620,000)$ (3,283,000) 1,825,000 167,000 387,000 629,000 4,800,000 295,000 620,000 (55,000) $ (1,960,000)$275,000) Net income Retained earnings 1/1/18 Net income Dividends declared (5,385,000)1,812,400) (275,000) 55,000 $ (6,945,000)$ (2,032,400) (1,960,000) 400,000 Retained earnings 12/31/18 $ 370,000$ 1,515,000 1,535,000 3,767,500 5,915,000 563,400 355,000 1,465,000 Cash unts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwil 2,442,000 1,887,000 390,000 $ 13,492,500$ 6,712,400 Total assets Accounts payable Long-term debt Common stock Pinnacle Common stock - Strata Retained earnings 12/31/18 (960,000) 3,025,000)(2,220,000) (522,500) (3,000,000) 1,500,000) (6,945,000)(2,032,400) Total Liabilities and Owner's Equity $(13,492,500) $ (6,712,400)S 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) 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 RequiredC What effect does the parent's internal investment accounting method have on its consolidated financial statements? Effect of parent's internal investment accounting method