On January 1, 2020, Pinnacle Corporation exchanged $3.561,500 cash for 100 percent of the outstanding voting...

Transcribed Image Text:

On January 1, 2020, Pinnacle Corporation exchanged $3.561,500 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 Total assets $ 242,eee 368,000 394,000 1,870,000 3,240,000 $6,114,000 Accounts payable Long-term debt Common stock $ 434,000 2,780,000 Retained earnings 1,500,000 1,480,000 Tetal Liabilities and equity $6,114,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to Licensing agreements (overvalued) to goodwill (indefinite Life) $ 348,eee (136,000) 13,561,500 2,900,000 $ 661,500 212,000 $ 449,500 At the acquisition date, Strata's buildings had a 10-year remaining life and Its licensing agreements were due to expire in 5 years. On December 31, 2021, Strata's accounts payable included an $96,800 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. Sales Cest 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 Tetal assets Accounts payable Long-tere debt Common stock Retained earnings 12/31/21 Tetal Liabilities and Omer's equity Pinnacle Strata s (7,591,000) $ (3,523,000) 2,975,000 4,850,000 250,000 636,000 205,000 390,000 648,000 1 Subsidiary income 2 Retained samings 1/1/21 3 Investment in Sa (55,000) $(1,900,000) $ (284,000) $(5,450,000) s (1,666,600) (1,900,000) 400,000 (204,000) 55,000 Amounts $ (6,980,000) $ (1,815,600) $ 231,000 $ 547,100 367,5ee 1,610,000 $5.739,000 1,415,000 1,545,000 3,561,500 5,745,000 2,082,000 1,944,000 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. 395,000 $ 12,892,500 $ (322,500) S (840,000) (2,590,000) (2,315,000) (3,000,000) (1,500,000) (6,980,000) (1,815,600) $(12,892,500) $ (6,478,600) • 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? 5 6,470,600 Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the following amounts that would appear on Pinnade's 2021 separate (nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity method. (Input all amounts as positive values) On January 1, 2020, Pinnacle Corporation exchanged $3.561,500 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 Total assets $ 242,eee 368,000 394,000 1,870,000 3,240,000 $6,114,000 Accounts payable Long-term debt Common stock $ 434,000 2,780,000 Retained earnings 1,500,000 1,480,000 Tetal Liabilities and equity $6,114,000 Pinnacle prepared the following fair-value allocation: Fair value of Strata (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to Licensing agreements (overvalued) to goodwill (indefinite Life) $ 348,eee (136,000) 13,561,500 2,900,000 $ 661,500 212,000 $ 449,500 At the acquisition date, Strata's buildings had a 10-year remaining life and Its licensing agreements were due to expire in 5 years. On December 31, 2021, Strata's accounts payable included an $96,800 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. Sales Cest 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 Tetal assets Accounts payable Long-tere debt Common stock Retained earnings 12/31/21 Tetal Liabilities and Omer's equity Pinnacle Strata s (7,591,000) $ (3,523,000) 2,975,000 4,850,000 250,000 636,000 205,000 390,000 648,000 1 Subsidiary income 2 Retained samings 1/1/21 3 Investment in Sa (55,000) $(1,900,000) $ (284,000) $(5,450,000) s (1,666,600) (1,900,000) 400,000 (204,000) 55,000 Amounts $ (6,980,000) $ (1,815,600) $ 231,000 $ 547,100 367,5ee 1,610,000 $5.739,000 1,415,000 1,545,000 3,561,500 5,745,000 2,082,000 1,944,000 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. 395,000 $ 12,892,500 $ (322,500) S (840,000) (2,590,000) (2,315,000) (3,000,000) (1,500,000) (6,980,000) (1,815,600) $(12,892,500) $ (6,478,600) • 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? 5 6,470,600 Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the following amounts that would appear on Pinnade's 2021 separate (nonconsolidated) financial records if Pinnacle's investment accounting was based on the equity method. (Input all amounts as positive values)

Answer rating: 100% (QA)

a Prepare a worksheet to consolidate the financial information for Pinnacle Corporation and Strata Corporation Step 1 Prepare the worksheet by combining the balances of Pinnacle and Strata Pinnacle Co... View the full answer