On January 1, Year 4, Grant Corporation bought 10,000 (80%) of the outstanding common shares of Lee Company for $87,500 cash Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $31,250 of common shares outstanding and $37,500 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 $62,500 12,500 $68,750 25,000 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: Assets Cash Accounts receivable Inventory Investment in Lee Equipment, net Patent, net BALANCE SHEETS At December 31, Year 7 Grant Lee $ 6,250 231,250 $ 22,500 102,500 387,500 125,000 87,500 287,500 256,250 2,500 $1,000,000 $508,750 Liabilities and Shareholders' Equity Common shares Accounts payable Other accrued liabilities Income taxes payable Retained earnings $ 237,500 $243,750 75,000 62,500 100,000 90,000 212,500 31,250 375,000 81,250 $1,000,000 $508,750 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 $1,125,000 (425,000) 700,000 (37,500) (225,000) (150,000) Lee $ 450,000 (300,000) 150,000 (31,250) (70,000) (20,000) $ 287,500 $ 28,750 Additional Information The recoverable amount for goodwill was determined to be $12,500 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $37,500 owing from Lee. 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 $ sign in your response.) Calculation of consolidated retained earnings -Dec 31, Year 7 Retained earnings - Grant Retained earnings - Lee Retained earnings on acquisition Increase Grant's share Less: Changes to acquisition differential $ es (b) Prepare consolidated financial statements for Year 7. (Input all values as positive numbers.) Grant Corporation Consolidated Income Statement Year ended December 31, Year 7 Gross margin Total Attributable to: Grant's shareholders Non-controlling interest Grant Corporation Consolidated Balance Sheet - December 31, Year 7 Assets Cash Accounts receivable Inventory Equipment Patent Goodwill $ 0 Liabilities and Equity 0