On January 1, 2020, Pinnacle Corporation exchanged $3,625,000 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 $ 293,000 319,000 440,000 2,330,000 3, 370,000 $ 6,752,000 Accounts payable Long-term debt Common stock Retained earnings $ 432,000 3,430,000 1,500,000 1,390,000 Total liabilities and equity $ 6,752,000 Pinnacle prepared the following fair-value allocation: $ 3,625,000 2,890,000 $ 735,000 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 434,000 (133,000) 301,000 434,000 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 $96,400 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. 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 $ (7,813,000) $ (3,659,000) 5, 120,000 2,105,000 273,000 175,000 665,000 418,000 674,000 (60,000) $ (1,815,000) $ (287,000) $ (5,495,000) $ (1,737, 800) (1,815,000) (287,000) 500,000 60,000 $ (6,810,000) $ (1,964,800) $ 257,500 $ 443,800 1,275,000 205,000 1,540,000 1,040,000 3,625,000 5,650,000 2,509,000 2,022,000 575,000 $ 12,922,500 $ 6,219,800 $ (312,500) $ (740,000) (2,800,000) (2,015,000) (3,000,000) (1,500,000) (6,810,000) (1,964, 800) $(12,922,500) $ (6,219,800) 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 Pinnacle Debit Credit Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $(7,813,000) 5,120,000 273,000 665,000 Strata $ (3,659,000) 2,105,000 175,000 418,000 674,000 Consolidated Totals $ 11,472,000 7,225,000 448,000 1,126,400 647,400 43,400 26,600 60,000 0 (60,000) $(1,815,000) $ (287,000) $ 2,025,200 Retained earnings 1/1/21 Net income Dividends declared Retained earnings 12/31/21 (5,495,000) (1,815,000) 500,000 $ (6,810,000) (1,737,800) (287,000) 60,000 $ (1,964,800) (5,842,800) 2,025,200 560,000 $ (8,774,800) $ $ Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 257,500 1,275,000 1,540,000 3,625,000 5,650,000 443,800 205,000 1,040,000 701,300 1,480,000 2,580,000 3,625,000 8,159,000 2,022,000 575,000 19,142,300 2,509,000 2,022,000 575,000 $ 12,922,500 $ 6,219,800 $ (312,500) (2,800,000) (3,000,000) (740,000) (2,015,000) Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 Total Liabilities and Owner's Equity (1,052,500) (4,815,000) (3,000,000) (1,500,000) (8,774,800) $ (19,142,300) (6,810,000) $ (12,922,500) (1,500,000) (1,964,800) $ (6,219,800) 103,400 26,600 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 N Subsidiary income Retained earnings 1/1/21 Investment in Strata 3 On January 1, 2020, Pinnacle Corporation exchanged $3,625,000 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 $ 293,000 319,000 440,000 2,330,000 3, 370,000 $ 6,752,000 Accounts payable Long-term debt Common stock Retained earnings $ 432,000 3,430,000 1,500,000 1,390,000 Total liabilities and equity $ 6,752,000 Pinnacle prepared the following fair-value allocation: $ 3,625,000 2,890,000 $ 735,000 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 434,000 (133,000) 301,000 434,000 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 $96,400 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. 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 $ (7,813,000) $ (3,659,000) 5, 120,000 2,105,000 273,000 175,000 665,000 418,000 674,000 (60,000) $ (1,815,000) $ (287,000) $ (5,495,000) $ (1,737, 800) (1,815,000) (287,000) 500,000 60,000 $ (6,810,000) $ (1,964,800) $ 257,500 $ 443,800 1,275,000 205,000 1,540,000 1,040,000 3,625,000 5,650,000 2,509,000 2,022,000 575,000 $ 12,922,500 $ 6,219,800 $ (312,500) $ (740,000) (2,800,000) (2,015,000) (3,000,000) (1,500,000) (6,810,000) (1,964, 800) $(12,922,500) $ (6,219,800) 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 Pinnacle Debit Credit Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $(7,813,000) 5,120,000 273,000 665,000 Strata $ (3,659,000) 2,105,000 175,000 418,000 674,000 Consolidated Totals $ 11,472,000 7,225,000 448,000 1,126,400 647,400 43,400 26,600 60,000 0 (60,000) $(1,815,000) $ (287,000) $ 2,025,200 Retained earnings 1/1/21 Net income Dividends declared Retained earnings 12/31/21 (5,495,000) (1,815,000) 500,000 $ (6,810,000) (1,737,800) (287,000) 60,000 $ (1,964,800) (5,842,800) 2,025,200 560,000 $ (8,774,800) $ $ Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 257,500 1,275,000 1,540,000 3,625,000 5,650,000 443,800 205,000 1,040,000 701,300 1,480,000 2,580,000 3,625,000 8,159,000 2,022,000 575,000 19,142,300 2,509,000 2,022,000 575,000 $ 12,922,500 $ 6,219,800 $ (312,500) (2,800,000) (3,000,000) (740,000) (2,015,000) Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 Total Liabilities and Owner's Equity (1,052,500) (4,815,000) (3,000,000) (1,500,000) (8,774,800) $ (19,142,300) (6,810,000) $ (12,922,500) (1,500,000) (1,964,800) $ (6,219,800) 103,400 26,600 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 N Subsidiary income Retained earnings 1/1/21 Investment in Strata 3