3 QUESTION 1: On January 1, Year 4, Grant Corporation bought 24,000 (80%) of the outstanding common shares of Lee Company for $210,000 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $75,000 of common shares outstanding and $90,000 retained earnings. Also on that date, the carrying amount of each of Lee's identifiable assets and liabilities was equal to its fair value except for the following: Inventory Patent Carrying Amount Fair Value $150,000 30,000 $165,000 60,000 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 Lee as at December 31, Year 7: BALANCE SHEETS At December 31, Year 7 Assets Grant Lee Cash $ Accounts receivable 15,000 555,000 $' 54,000 246,000 Inventory 930,000 300,000 Investment in Lee 210,000 Equipment, net 690,000 615,000 Patent, net 6,000 $ 2.400.000 $ 1.221.000 Sales Cost of goods sold Gross margin Distribution expense Other expenses Income tax expense Net income Grant INCOME STATEMENT Year ended December 31, Year 7 $ 2,700,000 (1,020,000) 1,680,000 (90,000) (540,000) (360,000) 690,000 Lee $ 1,080,000 (720,000) 360,000 (75,000) (168,000) (48,000) 69,000 Additional Information The recoverable amount for goodwill was determined to be $30,000 on December 31, Year goodwill impairment loss occurred in Year 7. Grant's accounts real- Income tax expense Net income Additional Information . . Required: (360,000) 690,000 (168,000) (48,000) 69,000 The recoverable amount for goodwill was determined to be $30,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $90,000 owing from Lee. Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses. NCI is recognized using Fair Value Enterprise method (100% of goodwill to be considered) a. Calculate goodwill b. Calculate consolidated retained earnings at December 31, Year 7 c. Prepare consolidated financial statements for Year 7 "Hint: The chart below is formatted so you can easily show me your numbers and understanding. I recommend that you also have a blank piece of paper to use for your rough work. The only numbers will be marked, are the numbers within the chart Paragraph BI I UA + a) Goodwill Calculation Acquisition cost