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On January 1, 2020, Pinnacle Corporation exchanged $3,527,500 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 $ 284,000 311,000 443,000 1,920,000 3,190,000 $ 6,148,000 Accounts payable Long-term debt Common stock Retained earnings 383,000 3,060,000 1,500,000 1,205,000 Total liabilities and equity $ 6,148,000 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) $ 3,527,500 2,705,000 $ 822,500 $ 480,000 (110,000 370,000 452,500 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 $86,600 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. Sales Coat of goods sold Pinnacle strata $17.683,000) (3.320,000) 4,940,000 1,835,000 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 $86,600 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. 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 Pinnacle Strata $ 17,683,000) $ (3,328,000) 4,940,000 1,835,000 338,000 207,000 630,000 448,000 638,000 (35,000) $ (1,810,000) $ (200,000) $(5,160,000) S (1,560,000) (1,810,000) (200,000) 600,000 35,000 $ (6,370,000) S (1,725,000) 282,000 547,000 1,255,000 305,000 1,295,000 1,565,000 3,527,500 6,060,000 2,084,000 1,914,000 408,000 $ 12,827,500 $6,415,000 (337,500) (950,000) (3,120,000) (2,240,000) (3,000,000) (1,500,000) (6,370,000) (1.725,000) $(12,827,500) $ (6,415,000) $ $ Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets Mccounts payable Long-term debt Common stock Retained earnings 12/31/21 Total Liabilities and Owner's equity 2. Prepare a worksheet to consolidate the financial information for these two companies, 3. Compute the following amounts that would appear on Pinnacle's 2021 separate (nonconsolidated) financial records if Pinna 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? Complete this question by entering your answers in the tabs below. Required A Required B Required 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.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2021 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales $ 17,683,000) $ (3,328,000) Cost of goods sold 4,940,000 1,835,000 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.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2021 Consolidation Entries Accounts Pinnacle Strata Debit Credit Consolidated Totals Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income $ (7,683,000) $ (3,328,000) 4,940,000 1,835,000 338,000 207.000 630,000 448,000 638,000 (35,000) $ (1.810,000) $ (200,000) Retained earnings 1/1/21 Net Income Dividends declared Retained earings 12/31/21 (5.160,000) (1,560,000) (1.810,000) (200,000) 600,000 35,000 $ (6,370,000) $ (1.725,000) $ Cash Accounts receivable Inventory Investment in Strata Buildings (net) 282,000 $ 1,255,000 1,295,000 3,527,500 6,060,000 547.000 305,000 1,565.000 2,084,000 Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net Income $. (7.683,000) $ (3,328,000) 4,940,000 1,835,000 338,000 207.000 630,000 448.000 638,000 (35,000) $ (1,810,000) $ (200,000) Retained earnings 1/1/21 Not income Dividends declared Retained earnings 12/31/21 (5,160,000) (1,560,000) (1,810,000) (200,000) 600,000 35,000 $ (6,370,000) $ (1,725,000) $ Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets 282,000 $ 1,255,000 1,295,000 3,527,500 6,060,000 547,000 305,000 1,565,000 2,084,000 1,914,000 408,000 $ 12,827,500 $ 6.415,000 Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 Total Liabilities and Owner's Equity (337,500) (950,000) (3,120,000) (2,240,000) (3,000,000) (1,500,000) (6,370,000) (1,725,000) S (12,827,500) $ (6.415.000) 0 $ Complete this question by entering your answers in the tabs below. Required A Required B Required 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 earings 1/1/21 3 Investment in Strata Complete this question by entering your answers in the tabs below. Required A Required B Required What effect does the parent's internal investment accounting method have on its consolidated financial statements? of parent's indem investor counting method