On January 1, 2020, Pinnacle Corporation exchanged $3,817,000 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 $ 331,000 Accounts payable 321,000 Long-term debt 367,000 Common stock 2,075,000 Retained earnings 3,060,000 $ 6,154,000 Total liabilities and equity Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value. to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) 474,000 2,590,000 1,500,000 1,590,000 $ 6,154,000 $ 3,817,000 3,090,000 $ 727,000 426,000 (117,000) $ 309,000 418,000 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 $104,800 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. 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 Cashi Accounts receivable. Inventory Investment in Strata Buildings (net) Licensing agreements. Goodwill Pinnacle Strata $ (7,522,000) $ (3,636,000) 5,020,000 2,185,000 331,000 596,000 195,000 382,000 612,000 (50,000) $ (1,625,000) $ (262,000) $ (5,030,000) $ (1,906,200) (1,625,000) 560,000 (262,000) 50,000 $ (2,118,200) $ (6,095,000) $ 288,000 $ 607,700 1,045,000 255,000 1,350,000 1,775,000 3,817,000 5,700,000 2,302,000 1,836,000 560,000 $ 12,760,000 $ 6,775,700 $ (530,000) $ (757,500) Long-term debt Common stock Retained earnings 12/31/21 Total Liabilities and Owner's equity. (6,095,000) $ (12,760,000) $ (6,775,700) (3,135,000) (2,400,000) (3,000,000) (1,500,000) (2,118,200) Total assets Accounts payable 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. Input all amounts as positive values.) Sales Accounts PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2021 Pinnacle Strata $ (7,522,000) $ (3,636,000) 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 5,020,000 2,185,000 331,000 195,000 596,000 382,000 612,000 (50,000) $ (1,625,000) $ (262,000) (5,030,000) (1,906,200) (1,625,000) 560,000 (262,000) 50,000 $ (6,095,000) $ (2,118,200) Cash 288,000 $ 607,700 Accounts receivable 1,045,000 255,000 Inventory 1,350,000 1,775,000 Investment in Strata 3,817,000 Buildings (net) 5,700,000 2,302,000 Licensing agreements 1,836,000 Goodwill Total assets 560,000 $ 12,760,000 $ 6,775,700 Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 (530,000) (757,500) (3,135,000) (2,400,000) (3,000,000) (1,500,000) (6,095,000) (2,118,200) Total Liabilities and Owner's Equity $(12,760,000) $ (6,775,700) Consolidation Entries Debit Credit Consolidated Totals Show less 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.) 1 Subsidiary income 2 Retained earnings 1/1/21 3 Investment in Strata Amounts 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