On January 1, 2020, Pinnacle Corporation exchanged $3,424,500 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet:

At the acquisition date, Stratas buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. On December 31, 2021, Stratas accounts payable included an $85,600 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, 2021, follow. Credit balances are indicated by parentheses.

1. Prepare a worksheet to consolidate the financial information for these two companies.

1. Compute the following amounts that would appear on Pinnacles 2021 separate (nonconsolidated) financial records if Pinnacles investment accounting was based on the equity method.

• Subsidiary income.
• Retained earnings, 1/1/21.
• Investment in Strata.

$ Cash Accounts receivable Inventory Buildings (net) Licensing agreements Total assets $ 118,000 313,000 372,000 1,970,000 3,470,000 $ 6,243,000 Accounts payable Long-term debt Common stock Retained earnings 378,000 3,135,000 1,500,000 1,230,000 Total liabilities and equity $ 6,243,000 Pinnacle prepared the following fair-value allocation: $ 3,424,500 2,730,000 $ 694,500 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 370,000 (120,000) 250,000 444,500 $ Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income Retained earnings 1/1/21 Net income Dividends declared Retained Earnings 12/31/21 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/21 Total Liabilities and Owner's equity Pinnacle Strata $ (7,178,000) $ (3,725,000) 4,720,000 2,125,000 262,000 247,000 656,000 432,000 694,000 (45,000) $ (1,585,000) $ (227,000) $ (5,235,000) $ (1,504,000) (1,585,000) (227,000) 500,000 45,000 $ (6,320,000) $ (1,686,000) $ 265,500 $ 386,000 1,560,000 335,000 1,500,000 1,270,000 3,424,500 5,720,000 2,098,000 2,082,000 372,500 $ 12,842,500 $ 6,171,000 $ (532,500) $ (885,000) (2,990,000) (2,100,000) (3,000,000) (1,500,000) (6,320,000) (1,686,000) $ (12,842,500) $ (6,171,000) For Year December 31, 2021 Consolidation Entries Accounts Pinnacle Strata Debit Credit Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $(7.178,000) 4,720,000 262.000 656,000 $ (3,725,000) 2,125,000 247,000 432,000 694,000 Consolidated Totals $ 10,903,000) 6,845,000 509,000 1,125,000 670,000 37,000 24,000 45,000 (45,000) $(1,585,000) $ (227,000) $ (1,754,000) 1,504,000 Retained earnings 1/1/21 Net income Dividends declared Retained earnings 12/31/21 (5,235,000) (1,585,000) 500,000 $ (6,320,000) (1,504,000) (227,000) 45,000 $ (1,686,000) (1,754,000) 500,000 45,000 $ $ 651,500 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 265,500 1,560,000 1,500,000 3,424,500 5,720,000 386,000 335,000 1,270,000 37,000 2,098,000 2,082,000 24,000 372,500 $ 12.842,500 $ 6,171,000 (532,500) (2,990,000) (3,000,000) (885,000) (2,100,000) (5,090,000) (3,000,000) Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 Total Liabilities and Owner's Equity 1,500,000 0 (1,500,000) (1,686,000) (6,320,000) $ (12.842,500) $ (6,171,000) $ 3,110,000 106,000 Required A Required B Required C Compute the following amounts that would appear on Pinnacle's 2021 se Pinnacle's investment accounting was based on the equity method. (Inp Amounts $ 214,000 1 2 Subsidiary income Retained earnings 1/1/21 Investment in Strata 3