On January 1, Year 4, Grant Corporation bought 10,000 (80%) of the outstanding common shares of Lee Company for $87,500 cash. Lees 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 Lees identifiable assets and liabilities was equal to its fair value except for the following:

	Carrying Amount			Fair Value
Inventory	$	62,500		$	68,750
Patent		12,500			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:

BALANCE SHEETS
At December 31, Year 7
		Grant			Lee
Assets
Cash	$	6,250		$	22,500
Accounts receivable		231,250			102,500
Inventory		387,500			125,000
Investment in Lee		87,500
Equipment, net		287,500			256,250
Patent, net					2,500
	$	1,000,000		$	508,750
Liabilities and Shareholders Equity
Accounts payable	$	237,500		$	243,750
Other accrued liabilities		75,000			62,500
Income taxes payable		100,000			90,000
Common shares		212,500			31,250
Retained earnings		375,000			81,250
	$	1,000,000		$	508,750

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Lee
Sales	$	1,125,000			$	450,000
Cost of goods sold		(425,000	)			(300,000	)
Gross margin		700,000				150,000
Distribution expense		(37,500	)			(31,250	)
Other expenses		(225,000	)			(70,000	)
Income tax expense		(150,000	)			(20,000	)
Net income	$	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.
• Grants 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
			$

(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 Sales Gross margin S 0 Total S 0 S 0 Attributable to: Grant's shareholders Non-controlling interest S 0 Grant Corporation Consolidated Balance Sheet - December 31, Year 7 Assets S 0 Liabilities and Equity S 0 Grant Corporation Consolidated Income Statement Year ended December 31, Year 7 Sales Gross margin S 0 Total S 0 S 0 Attributable to: Grant's shareholders Non-controlling interest S 0 Grant Corporation Consolidated Balance Sheet - December 31, Year 7 Assets S 0 Liabilities and Equity S 0