On January 1, Year 4, Grant Corporation bought 12,000 (80%) of the outstanding common shares of Devy Company for $105,000 cash. Devy’s shares were trading for $7 per share on the date of acquisition. On that date, Devy had $37,500 of common shares outstanding and $45,000 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:

 

	Carrying Amount			Fair Value
Inventory	$	75,000		$	82,500
Patent		15,000			30,000

 

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 Devy as at December 31, Year 7:

 

BALANCE SHEETS
At December 31, Year 7
		Grant			Devy
Assets
Cash	$	7,500		$	27,000
Accounts receivable		277,500			123,000
Inventory		465,000			150,000
Investment in Devy		105,000
Equipment (net)		345,000			307,500
Patent (net)					3,000
	$	1,200,000		$	610,500
Liabilities and Shareholders’ Equity
Accounts payable	$	285,000		$	292,500
Other accrued liabilities		90,000			75,000
Income taxes payable		120,000			108,000
Common shares		255,000			37,500
Retained earnings		450,000			97,500
	$	1,200,000		$	610,500

 

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Devy
Sales	$	1,350,000			$	540,000
Cost of goods sold		(510,000	)			(360,000	)
Gross margin		840,000				180,000
Distribution expense		(45,000	)			(37,500	)
Other expenses		(270,000	)			(84,000	)
Income tax expense		(180,000	)			(24,000	)
Net income	$	345,000			$	34,500

 

Additional Information

 

• The recoverable amount for goodwill was determined to be $15,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7.
• Grant’s accounts receivable contains $45,000 owing from Devy.
• Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses

Prepare consolidated financial statements for Year 7.