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On January 1, 2014, Pinnacle Corporation exchanged $3,200,000 cash for 100% of the outstanding voting stock of Strata Corporation. On the acquisition date, Strate ahd the following balance sheet:

Cash	122,000
AR	283,000
Inventory	350,000
Buildings (net)	1,875,000
Licensing agreements	3,000,000
AP	375,000
Long-term debt	2,655,000
Common stock	1,500,000
Retained earnings	1,100,000

Pinnacle prepared the following fair-value allocation:

Fair value of Strata (consideration)			3,200,000
Carrying amount required			2,600,000
Excess fair value			600,000
to buildings (undervalued)		300,000
to licensing agreements (overvalued)		(100,000)	200,000
to goodwill (indefinite life)			400,000

At the acquisition date, Stratas buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2015, Strats accounts payable included an $85,000 curent liability owed to Pinnacle. Strata Corporation continues its separate legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records. Pinnalce mploys the initial value method in its intneral accounting for its investment in Strata. The separate financial statements for the two companies for the year ending December 31, 2015, follow. Credit balances are indicated by parentheses.

	Pinnacle	Strata
Sales	(7,000,000)	(3,000,000)
Cost of goods sold	4,650,000	1,700,000
Interest expense	255,000	160,000
Depreciation expense	585,000	350,000
Amortization expense	-	600,000
Dividend income	(50,000)
Net income	(1,560,000)	(190,000)
Retained earnings, 1/1/15	(5,000,000)	(1,350,000)
Net income	(1,560,000)	(190,000)
Dividends declared	560,000	50,000
Retained earnings, 12/31/15	(6,000,000)	(1,490,000)
Cash	433,000	165,000
AR	1,210,000	200,000
Inventory	1,235,000	1,500,000
Investment in Strata	3,200,000	-
Buildings (net)	5,572,000	2,040,000
Licensing agreements	-	1,800,000
Goodwill	350,000
Total assets	12,000,000	5,705,000
Accounts payable	(300,000)	(715,000)
Long-term debt	(2,700,000)	(2,000,000)
Common stock	(3,000,000)	(1,500,000)
Retained earnings, 12/31/15	(6,000,000)	(1,490,000)
Total liabilities/OE	(12,000,000)	(5,705,000)

Answer the following:

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

Compute the following amounts that would appear on Pinnacles 2015 separate (nonconsolidated) financial records if Pinnacles investment accounting was on the equity method.

Subsidiary income

Retained earnings, 1/1/15

Investment in Strata

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

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