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On January 1, 2020, Pinnacle Corporation exchanged $3,200,000 cash for 100 percent of the outstanding voting stock of Strata Corporation on the acquisition date, Strata had the following balance sheet 5 Cash 122,000 283,000 350,000 1,875.000 3.000.000 $ 5,630,000 Accounts receivable Inventory Buildings (net) Licensing agreements Total assets Accounts payable Long-term debt Common stock Retained earnings 375,000 2,655,000 1,500,000 1,100,000 Total Habilities and equity $ 5,630,000 Pinnacle prepared the following fair-value allocation $ 3,200,000 2,600,000 5 600,000 Fair value of Strata consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodudll (indefinite life) $ 300.000 (100,000) 200,000 $ 400,000 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 $85,000 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 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 $(7,000,000) $ (3,000,000) 4,650,000 1,700,000 255,000 160,000 585,000 350,000 680,000 (50,000) $(1,560,000) 5 (190,000) $(5,000,000) $ (1,350,000) (1,560,000) (190,000) 560,000 50.000 $ (6,000,000) $ (1,490,000) 5 433,000 $ 165,000 1,210,000 200,000 1,235,000 1,500,000 3,200,000 5,572,000 2,040,000 1,800,000 350,000 $ 12,000,000 $ 5,705,000 5 (300,000) $ (715,000) (2,700,000) (2,000,000) (3,000,000) (1,500,000) (6,000,000 (1,490,000) $ (12,000,000) $ (5,705,000) 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

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