On January 1, 2020, Pinnacle Corporation exchanged $3,568,500 cash for 100 percent of the outstanding voting stock of Strata Corporation. On the acquisition date, Strata had the following balance sheet:

Cash	$	145,000			Accounts payable	$	453,000
Accounts receivable		356,000			Long-term debt		3,110,000
Inventory		432,000			Common stock		1,500,000
Buildings (net)		2,145,000			Retained earnings		1,365,000
Licensing agreements		3,350,000
Total assets	$	6,428,000			Total liabilities and equity	$	6,428,000

Pinnacle prepared the following fair-value allocation:

Fair value of Strata (consideration transferred)					$	3,568,500
Carrying amount acquired						2,865,000
Excess fair value					$	703,500
to buildings (undervalued)	$	328,000
to licensing agreements (overvalued)		(101,000	)			227,000
to goodwill (indefinite life)					$	476,500

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 $100,600 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.

	Pinnacle				Strata
Sales	$	(7,595,000	)		$	(3,383,000	)
Cost of goods sold		4,880,000				1,810,000
Interest expense		318,000				178,000
Depreciation expense		612,000				445,000
Amortization expense						670,000
Dividend income		(35,000	)
Net income	$	(1,820,000	)		$	(280,000	)
Retained earnings 1/1/21	$	(5,200,000	)		$	(1,679,600	)
Net income		(1,820,000	)			(280,000	)
Dividends declared		600,000				35,000
Retained Earnings 12/31/21	$	(6,420,000	)		$	(1,924,600	)
Cash	$	272,000			$	401,600
Accounts receivable		1,420,000				295,000
Inventory		1,445,000				1,680,000
Investment in Strata		3,568,500
Buildings (net)		5,925,000				2,280,000
Licensing agreements						2,010,000
Goodwill		402,000
Total assets	$	13,032,500			$	6,666,600
Accounts payable	$	(542,500	)		$	(887,000	)
Long-term debt		(3,070,000	)			(2,355,000	)
Common stock		(3,000,000	)			(1,500,000	)
Retained earnings 12/31/21		(6,420,000	)			(1,924,600	)
Total Liabilities and Owner's equity	$	(13,032,500	)		$	(6,666,600	)

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.

1. What effect does the parents internal investment accounting method have on its consolidated financial statements?

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. Input all amounts as positive values.)

Complete this question by entering your answers in the tabs below. Red A Required B Required Prepare a varicsheet 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. Input all amounts as positive values.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Congodation Work chat For Year December 31, 2021 Consolidation Entries Pinnacle Brata Debit Credit Consolidated Total Account Sales Cost of Goods sold Interest expense Depreciation expose Amortization expense Dividend income Not income $17.695,000 $13.383.000) 4,890.000 1,810.000 318.000 178.000 612.000 445.000 670.000 25. DOO $ 1.820.000 (280,000 Retained comings 1/1/21 Not income Dividends declared Rotained earnings 1231/21 15.200 DOO) 11.679.000 1.820.000) (290,000) 600.000 35.000 $ 16.420,000 $ 11.924.300) Cash $ Accounts receivable 272.000 $ 1,420.000 1,445.000 3,568.500 5,925.000 401.600 295.000 1,680.000 Inventory Investment in Strata Buildings (not Licensing agreements Goodwl 2.290.000 2.010.000 402.000 Total scots $ 13,022.500 $ 6,80 600 Accounts payable Long-term diebt Common stock - Pinnacle Common stock. Serta Retained Gamings 123121 Total Liables and Owner's Elly (542.500 (887 DOO (3.070.000) 12.355.000 12,000,000) 11.500.000 16.420,000 11.904.300) $(12.032.500 $ 6.606.300) $ 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 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 What effect does the parent's internal investment accounting method have on its consolidated financial statements? Effect of parent's internal investment accounting method Complete this question by entering your answers in the tabs below. Red A Required B Required Prepare a varicsheet 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. Input all amounts as positive values.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Congodation Work chat For Year December 31, 2021 Consolidation Entries Pinnacle Brata Debit Credit Consolidated Total Account Sales Cost of Goods sold Interest expense Depreciation expose Amortization expense Dividend income Not income $17.695,000 $13.383.000) 4,890.000 1,810.000 318.000 178.000 612.000 445.000 670.000 25. DOO $ 1.820.000 (280,000 Retained comings 1/1/21 Not income Dividends declared Rotained earnings 1231/21 15.200 DOO) 11.679.000 1.820.000) (290,000) 600.000 35.000 $ 16.420,000 $ 11.924.300) Cash $ Accounts receivable 272.000 $ 1,420.000 1,445.000 3,568.500 5,925.000 401.600 295.000 1,680.000 Inventory Investment in Strata Buildings (not Licensing agreements Goodwl 2.290.000 2.010.000 402.000 Total scots $ 13,022.500 $ 6,80 600 Accounts payable Long-term diebt Common stock - Pinnacle Common stock. Serta Retained Gamings 123121 Total Liables and Owner's Elly (542.500 (887 DOO (3.070.000) 12.355.000 12,000,000) 11.500.000 16.420,000 11.904.300) $(12.032.500 $ 6.606.300) $ 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 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 What effect does the parent's internal investment accounting method have on its consolidated financial statements? Effect of parent's internal investment accounting method