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) $ 3,518,000 2,785,000 $ 733,000 $ 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. Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend incone 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 $ (7,046,000) $ (3,539,000) 4,660,000 257,000 2,100,000 196,000 639,000 354,000 608,000 (60,000) $ (1,550,000) $ (281,000) $ (5,360,000) $ (1,564,400) (1,550,000) 500,000 (281,000) 60,000 $ (6,410,000) $ (1,785,400) $ 417,000 $ 360,400 1,650,000 300,000 1,270,000 1,275,000 3,518,000 5,680,000 2,506,000 1,824,000 412,500 $ 12,947,500 $ 6,265,400 T (537,500) $ (830,000) (3,000,000) (2,150,000) (3,000,000) (1,500,000) (1,785,400) (6,410,000) $ (12,947,500) $ (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? Accounts 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 Consolidation Worksheet For Year December 31, 2021 Pinnacle Strata $ (7,048,000) $ (3,539,000) 4,660,000 2,100,000 257,000 196,000 639,000 354,000 608,000 (60,000) $ (1,550,000) S (281,000) (5,380,000) (1,564,400) (1,550,000) 500,000 (281,000) 60,000 S (6,410,000) $ (1,785,400) Cash S 417,000 $ 360,400 Accounts receivable 1,650,000 300,000 Inventory 1,270,000 1,275,000 Investment in Strata 3,518,000 Buildings (net) 5,680,000 2,506,000 Licensing agreements 1,824,000 Goodwill 412,500 Total assets $ 12,947,500 $ 6,265,400 Accounts payable Long-term debt (537,500) (830,000) (3,000,000) (2,150,000) Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 (3,000,000) (1,500,000) (6,410,000) (1,785,400) Total Liabilities and Owner's Equity $(12,947,500) $ (6,265,400) $ Debit Consolidation Entries Credit Consolidated Totals 0 $ 0 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 C > 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 Required B Required C >