On January 1, Year 4, Grant Corporation bought 1,000 (80%) of the outstanding common shares of Devy Company for $8,750 cash. Devy's shares were trading for $7 per share on the date of acquisition. On that date, Devy had $3,125 of common shares outstanding and $3,750 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: Inventory Patent Carrying Amount Fair Value $6,250 1,250 $6,875 2,500 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: Assets Cash Accounts receivable Inventory Investment in Devy Equipment (net) BALANCE SHEETS At December 31, Year 7. Grant Devy $ 625 $2,250 23,125 10,250 38,750 12,500 8,750 28,750 $ 50,875 25,625 250 Patent (net) Liabilities and Shareholders' Equity Accounts payable Other accrued liabilities Income taxes payable Common shares Retained earnings Sales $100,000 $ 23,750 $ 24,375 7,500 6,250 10,000 9,000 21,250 3,125 37,500 8,125 $100,000 $ 50,875 INCOME STATEMENT Year ended December 31, Year 7 Cost of goods sold Gross margin Distribution expense Other expenses Income tax expense Net income Additional Information Grant $ 112,500 $ (42,500) 70,000 (3,750) Devy 45,000 (30,000) 15,000 (3,125) (22,500) (7,000) (15,000) (2,000) $ 28,750 $ 2,875 The recoverable amount for goodwill was determined to be $1,250 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $3,750 owing from Devy. Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses. Required: (a) Calculate consolidated retained earnings at December 31, Year 7. (Input all values as positive numbers. Omit $ and % sign in your response.) Calculation of consolidated retained earnings - Dec 31, Year 7 Retained earnings Grant $ 37500 Retained earnings - Devy $ 8125 Retained earnings on acquisition 3750 Increase $ Grant's share 4375 80 % 3500 Less: Changes to acquisition differential $ (b) Prepare consolidated financial statements for Year 7. (Input all values as positive numbers.) Grant Corporation Grant Corporation Consolidated Balance Sheet - December 31, Year 7 Consolidated Income Statement Assets Year ended December 31, Year 7 Cash Sales Cost of goods sold Gross margin Distribution expense Other expenses Income taxes $ 157,500 Accounts receivable 72,500 Inventory $ 85,000 Equipment Patent 7,125 Goodwill $ 2,875 29,625 51,250 54,375 500 1,250 30,000 17,000 $ 139,875 Liabilities and Equity Total Net income $ 54,125 $ 30,875 Accounts payable Other accrued liabilities Attributable to: Grant's shareholders Non-controlling interest $ 0 Income taxes payable Common shares Retained earnings 44,375 13,750 19,000 21,250 Non-controlling interest $ 98,375