For Problem 5-7, you use the direct method. You are not required to complete a worksheet but you are required to provide the journal entries that would be done to complete the worksheet.

Xnip Problem 5-7 LO1, 2, 3 On January 1, Year 4, Grant Corporation bought 8,000(80%) of the outstanding common shares of Lee Company for $70,000 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $25,000 of 285 CHAPTER 5 Consolidation Subsequent to Acquisition Date commun shares outstanding and S30,000 retained earnings. Also on that date, the carrying amount of each of Lee's identifiable assets and liabilities was equal to its fair value cxcept for the following: Currying Amount Fair Value Inventory $50,000 $55,000 Patent 10,000 20,000 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 Al December 31, Year 7 Grand Tee Arves Cash S 5.000 $ 18,000 Accounts receivable 185.000 12.00 Inventory 310.000 100,000 Investment in Lec 70.000 Equipment (pet) 230,000 205,000 Patent (net) 2,000 S800,000 $407,000 Liabilities and Shareholders' Equity Accounts payable $190,000 $195.000 Other accrued liabilities 60,000 50,000 Inconxe taxes payable 80.000 72.000 Common shares 120.000 25.000 Retained carnings 300.000 65.000 S800.000 $ AU. Sales Cost of goods sold Gross murgin Distribution expense Other expenses Income Tax expense Net income INCOME STATEMENT Year ended December 31. Year 7 7 Grant $900,000 (340,000) 560,00 (30,000) (180,000) (120,000) $230.000 Lee $360,000 (240.000) TO 120,000 ... (25,000 (56,000) (16,000) $ 23,000 Additional Information The recoverable amount for goodwill was determined to be $10,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $30,000) owing from I.cc. Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses. Required (a) Calculate consolidated retained carings at December 31, Year 7. (b) Prepare consolidated financial statements for Year 7. Xnip Problem 5-7 LO1, 2, 3 On January 1, Year 4, Grant Corporation bought 8,000(80%) of the outstanding common shares of Lee Company for $70,000 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $25,000 of 285 CHAPTER 5 Consolidation Subsequent to Acquisition Date commun shares outstanding and S30,000 retained earnings. Also on that date, the carrying amount of each of Lee's identifiable assets and liabilities was equal to its fair value cxcept for the following: Currying Amount Fair Value Inventory $50,000 $55,000 Patent 10,000 20,000 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 Al December 31, Year 7 Grand Tee Arves Cash S 5.000 $ 18,000 Accounts receivable 185.000 12.00 Inventory 310.000 100,000 Investment in Lec 70.000 Equipment (pet) 230,000 205,000 Patent (net) 2,000 S800,000 $407,000 Liabilities and Shareholders' Equity Accounts payable $190,000 $195.000 Other accrued liabilities 60,000 50,000 Inconxe taxes payable 80.000 72.000 Common shares 120.000 25.000 Retained carnings 300.000 65.000 S800.000 $ AU. Sales Cost of goods sold Gross murgin Distribution expense Other expenses Income Tax expense Net income INCOME STATEMENT Year ended December 31. Year 7 7 Grant $900,000 (340,000) 560,00 (30,000) (180,000) (120,000) $230.000 Lee $360,000 (240.000) TO 120,000 ... (25,000 (56,000) (16,000) $ 23,000 Additional Information The recoverable amount for goodwill was determined to be $10,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $30,000) owing from I.cc. Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses. Required (a) Calculate consolidated retained carings at December 31, Year 7. (b) Prepare consolidated financial statements for Year 7