On January 1, 2017, 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:

Pinnacle prepared the following fair-value allocation:
Fair value of Strata (consideration transferred) . . . . . . . . . . . . . . . . . . . . . . . $3,200,000
Carrying amount acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, 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 $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, 2018, follow. Credit balances are indicated by parentheses.

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.
ˆ™ Subsidiary income.
ˆ™ Retained earnings, 1/1/18.
ˆ™ Investment in Strata.
c. What effect does the parent's internal investment accounting method have on its consolidated financial statements?

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$122,000 Accounts payable $ 375,000 2,655,000 1.!XXXXX) 1,100,000 $5,630,000 283,000 Long-term debt 350,000 Common stock Accounts receivable Inventory Buildings (net) Licensing agreements 875,000 Retained earnings 3,000,000 .-. . $5,630,000 Pinnacle Strata Sales . Cost of goods sold Interest expense Depreciation expense... Amortization expense Dividend income $ (7,000,000) 4,650,000 255,000 585,000 $(3,000,000) 1,700,000 160,000 350,000 600,000 (1,560,000) $ (5,000,000) (1,560,000) 560,000 Net income $(190.000) Retained earnings 1/1/18 Net income Dividends declared. S(1,350,000) (190,000) 50,000 Retained earnings 12/31/18 $(1.490,000 Cash Accounts receivable Inventory Investment in Strata Buildings (net) Licensing agreements... Goodwill $ 433,000 1,210,000 1,235,000 3,200,000 5,572,000 $ 165,000 200,000 1,500,000 2,040,000 1,800,000 350,000 $12,000,000 Total assets $5.705.000 Accounts payable Long-term debt Common stock Retained earnings 12/31/18 $ (300,000) (2,700,000) (3,000,000) $(715,000) (2,000,000) (1,500,000) (,000) 1,490 705 Total liabilities and OE 12,000,0