Sales Cost of goods sold Interest expense Depreciation expense Amortization expense Dividend income Net income Retained earnings 1/1/18 Net income Dividends declared Retained Earnings 12/31/18 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/18 Total Liabilities and OE Pinnacle Strata $ (7,563,800) $ (3,351,080) 4,845,000 1,880,000 322, eee 243,800 681, eee 353, eee 645,000 (60,000) $ (1,775, e90) S (230,000) $ (5,165, eee) $ (1,462,400) (1,775, eee) (238,eee) see, eee 60,000 $ (6,448, eee) $ (1,632,400) $ 25e, eee $ 378,400 1,240,000 360,000 1,495,000 1,570,000 3,347,500 5,990, eee 2,219,000 1,935,000 360,000 $ 12,682,500 $ 6,462,400 $ (467,500) $ (895,000) (2,775,000 (2,435,000) (3,000,000) (1,500,000) (6,440,000) (1,632,400 $ (12,682,500) $ (6,462,400) a. Prepare a worksheet to consolidate the financial information for these two companies. b. Compute the following amounts that would appear on Pinnacle's 2018 separate (nonconsolidated) financial records if Pinnacle's Investment accounting was based on the equity method. Subsidiary income Retained earnings, 1/1/18. Investment in Strata c. What effect does the parent's internal investment accounting method have on its consolidated financial statements? On January 1, 2017 Pinnacle Corporation exchanged $3,347.500 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 $ 146,000 374,600 397, eee 2,845,000 3,225,800 $ 6, 187,000 Accounts payable Long-term debt Common stock Retained earnings 422,000 3,085,800 1,500,eee 1,180,000 $ 6, 187, eee Pinnacle prepared the following fair-value allocation: $ 3,347, see 2,680, eee 667,500 Fair value of Strata consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) $352, eee (124, eee) 228, eee 439,500 $ At the acquisition date, Strata's buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2018. Strata's accounts payable included an $94.400 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, 2018, follow. Credit balances are indicated by parentheses. Net income $ (1,775,000) $ (230,000) Retained earnings 1/1/18 Net income Dividends declared Retained earnings 12/31/18 (5,165,000) (1,462,400) (1,775,000) (230,000) 500,000 60,000 $ (6,440,000) $ (1,632,400) Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements Goodwill Total assets $ 250,000 $ 378,400 1,240,000 360,000 1,495,000 1,570,000 3,347,500 5,990,000 2,219,000 1,935,000 360,000 $ 12,682,500 $ 6,462,400 Accounts payable (467,500) (895,000) Long-term debt (2.775,000) (2,435,000) Common stock - Pinnacle (3,000,000) Common stock - Strata (1,500,000) Retained earnings 12/31/18 (6.440,000) (1.632,400) Total Liabilities and Owner's Equity S(12,682,500) $ (6,462,400) Required A Required B > 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. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) Show less PINNACLE COMPANY AND SUBSIDIARY STRATA Consolidation Worksheet For Year December 31, 2018 Consolidation Entries Consolidated Accounts Pinnacle Strata Debit Credit Totals Sales $ (7,563,000) $ (3,351,000) Cost of goods sold 4,845,000 1.880,000 Interest expense 322,000 243,000 Depreciation expense 681,000 353,000 Amortization expense 645,000 Dividend income (60,000) Net income $ (1.775,000) $ (230,000) Retained earnings 1/1/18 Not income Dividends declared Retained earnings 12/31/18 (5.165,000) (1,462,400) (1.775,000) (230,000) 500,000 60,000 $ (6.440,000) $ (1,632,400) $ Cash Accounts receivable Inventory 250,000 $ 1,240,000 1,495,000 378,400 360,000 1.570,000