On January 1, Year 4, Grant Corporation bought 18,000 (80%) of the outstanding common shares of Lee Company for $157,500 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $56,250 of common shares outstanding and $67,500 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 $112,500 22,500 Fair Value $123,750 45,000 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. 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 $ $ 40,500 Assets Cash Accounts receivable Inventory Investment in Lee Equipment, net Patent, net 11.250 416,25e 697,500 157.500 517.500 461,250 $1,800,000 *015. Se Liabilities and Shareholders' Equity Accounts payable other accrued liabilities Income taxes payable Common shares Retained earnings $ 27.500 135,000 180,000 382,500 675.000 $1,800,000 $38,750 112,500 162,000 56,250 146,250 $915,750 Che $ INCOME STATEMENT Year ended December 31, Year 7 Grant Sales $ 2,025,000 Cost of goods sold (765,000) Gross margin 1,260,000 Distribution expense (67,500) Other expenses (405,000) Income tax expense (270,000) $ Net income 517,500 Lee 810,000 (540,000) 270,000 (56,250) (126,000) (36,000) 51,750 $ Additional Information The recoverable amount for goodwill was determined to be $22,500 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $67,500 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.) - Dec 31, Year 7 Calculation of consolidated retained earnings Retained earnings - Grant Retained earnings - Lee $ Retained earnings on acquisition Increase $ Grant's share Less: Changes to acquisition differential % $ i Saved (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 $ 0 Total $ 0 $ 0 Attributable to: Grant's shareholders Grant Corporation Consolidated Balance Sheet - December 31, Year 7 Assets $ 0 Liabilities and Equity