1. Prepare a worksheet to consolidate the financial information for these two companies.
2. 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.

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

this is what I have done for part 1 so far

On January 1, 2020, Pinnacle Corporation exchanged $3,608,000 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 $ 159,000 308,000 434,000 2,000,000 3,200,000 $ 6,101,000 Accounts payable Long-term debt Common stock Retained earnings 376,000 2,760,000 1,500,000 1,465,000 Total liabilities and equity $ 6,101,000 Pinnacle prepared the following fair-value allocation: $ 3,608,000 2,965,000 $ 643,000 Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $ 266,000 (97,000) 169,000 474,000 $ 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 $85,200 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. 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 $ (7,617,000) $ (3,189,000) 4,725,000 1,770,000 347,000 215,000 680,000 368,000 640,000 (55,000) $ (1,920,000) $ (196,000) $ (5,390,000) $ (1,791,200) (1,920,000) (196,000) 400,000 55,000 $ (6,910,000) $ (1,932,200) $ 414,500 $ 517,700 1,665,000 235,000 1,335,000 1,630,000 3,608,000 5,715,000 2,217,000 1,920,000 592,500 $ 13,330,000 $ 6,519,700 $ (360,000) $ (807,500) (3,060,000) (2,280,000) (3,000,000) (1,500,000) (6,910,000) (1,932,200) $ (13,330,000) $ (6,519,700) Accounts Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2021 Consolidation Entries Pinnacle Strata Debit Credit $ (7.617,000) $ (3,189,000) 4.725,000 1,770,000 347,000 215,000 680,000 388,000 288,000 840,000 (55,000) 55,000 $ (1.920,000) $ (196,000) Consolidated Totals $(10.808,000) 6.495,000 562,000 1,314,000 $ 2,116,000 1,791,200 2,116,000 Retained earnings 1/1/21 Net income Dividends declared Retained earnings 12/31/21 (5,390,000) (1.791,200) (1.920,000) (198,000) 400,000 55,000 $ (6.910,000) $ (1.932,200) 55,000 $ 517,700 235,000 1,630,000 807,500 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill 414,500 1,685,000 1,335,000 3,608,000 5,715,000 288,000 2,217,000 1,920,000 474,000 592,500 $ 13,330,000 $ Total assets 8,519,700 807,500 Accounts payable Long-term debt Common stock - Pinnacle Common stock - Strata Retained earnings 12/31/21 Total Liabilities and Owner's Equity (380,000) (807,500) (3,050,000) (2.280,000) (3.000.000) (1.500,000) (6.910,000) (1.932 200) $(13.330,000) $ (6.519,700) 1,500,000 $ 4,893,700 $ 1,128,500