10 points 1 On January 1, Year 4, Grant Corporation bought 5,000 (80%) of the outstanding common shares of Devy Company for $43,750 cash. Devy's shares were trading for $7 per share on the date of acquisition. On that date, Devy had $15,625 of common shares outstanding and $18,750 retained earnings. Also on that date, the carrying amount of each of Devy's identifiable assets and liabilities was equal to its fair value except for the following: eBook Print Inventory Patent Carrying Amount $31,250 6,250 Fair Value $34,375 12,500 The patent had an estimated useful life of five years at January 1, Year 4, and the entire inventory was sold during Year 4. Grant uses the cost method to account for its Investment. The following are the separate-entity financial statements of Grant and Devy as at December 31, Year 7: References Assets Cash Accounts receivable Inventory Investment in Devy Equipment (net) Patent (net) BALANCE SHEETS At December 31, Year 7 Grant Devy $ 3,125 115,625 193,750 43,750 143,750 $ 11,250 51,250 62,500 128,125 1,250 Liabilities and Shareholders' Equity Accounts payable Other accrued liabilities Income taxes payable Common shares Retained earnings $ 500,000 $ 254,375 $ 118,750 $121,875 37,500 31,250 50,000 45,000 106,250 15,625 187,500 40,625 $500,000 $254,375 Sales INCOME STATEMENT Year ended December 31, Year 7 Cost of goods sold Gross margin Distribution expense Other expenses Income tax expense Net income Grant Devy $ 562,500 $ 225,000 (212,500) (150,000) 350,000 75,000 (18,750) (15,625) (112,500) (35,000) (75,000) (10,000) $ 143,750 $ 14,375