On January 1, 2020, Pinnacle Corporation exchanged $3,518,000 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 Total assets $ 104,000 373, 000 437,000 2, 335,000 3,040,000 $ 6, 289,000 Accounts payable Long-term debt Common stock Retained earnings 424,000 3,080,000 1,500,000 1, 285,000 Total liabilities and equity $ 6, 289,000 Pinnacle prepared the following fair-value allocation: $ 3,518,000 2, 785,000 733, 000 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 382,000 (134,000) 248,000 485,000 $ At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. On December 31, 2021, Strata's accounts payable included an $94.800 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, 2021, follow. Credit balances are indicated by parentheses. $ Pinnacle $ (7,046, 000) 4, 660,000 257,000 639,000 Strata (3,539, 000) 2,100,000 196,000 354,000 608,000 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 (60,000) $ (1,550,000) $ (5, 360, 000) (1,550,000) 500,000 $ (6,410,000) $ 417,000 1,650,000 1, 270,000 3,518,000 5,680,000 $ (281, 000) (1,564, 400) (281,000) 60,000 $ (1,785, 400) $ 360, 400 300,000 1,275,000 2,506, 000 1,824,000 412,500 $ 12, 947,500 $ (537, 500) (3,000,000) (3,000,000) (6, 410, 000) (12, 947, 500) $ 6,265, 400 (830, 000) (2,150,000) (1,500,000) (1, 785, 400) $ (6,265, 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 2021 separate (nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity method. Subsidiary income. Retained earnings, 1/1/21. 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, 2021 Consolidation Entries Accounts Debit Credit Consolidated Totals Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Pinnacle Strata $ 7,046,000) $ (3,539,000) 4,660,000 2,100,000 257,000 196,000 639.000 354,000 608,000 (60,000) $ (1,550,000) $ (281,000) Net income Retained earnings 1/1/21 Net income Dividends declared Retained earnings 12/31/21 (5,360,000) (1,564,400) (1,550,000) (281,000) 500,000 60,000 $ 6,410,000) $ (1,785,400) Cash $ 417,000 $ 360,400 300,000 1,275,000 Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill 1,650,000 1,270,000 3,518,000 5,680.000 2,506,000 1,824,000 412,500 $ 12,947,500 $ Total assets 6,265,400 Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 Total Liabilities and Owner's Equity (537,500) (830,000) (3,000,000 (2,150,000) (3,000,000) (1,500,000) (6,410,000) (1,785,400) $(12,947,500) $ (6,265,400) $ 0 $ 0 mm 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 2021 separate (nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity method. (Input all amounts as positive values.) Amounts 1 Subsidiary income 2 Retained earnings 1/1/21 3 Investment in Strata 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