On January 1, Year 4, Grant Corporation bought 28,000 (80%) of the outstanding common shares of Lee Company for $245,000 cash. Lees shares were trading for $7 per share on the date of acquisition. On that date, Lee had $87,500 of common shares outstanding and $105,000 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	$	175,000		$	192,500
Patent		35,000			70,000

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	$	17,500		$	63,000
Accounts receivable		647,500			287,000
Inventory		1,085,000			350,000
Investment in Lee		245,000
Equipment, net		805,000			717,500
Patent, net					7,000
	$	2,800,000		$	1,424,500
Liabilities and Shareholders Equity
Accounts payable	$	665,000		$	682,500
Other accrued liabilities		210,000			175,000
Income taxes payable		280,000			252,000
Common shares		595,000			87,500
Retained earnings		1,050,000			227,500
	$	2,800,000		$	1,424,500

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Lee
Sales	$	3,150,000			$	1,260,000
Cost of goods sold		(1,190,000	)			(840,000	)
Gross margin		1,960,000				420,000
Distribution expense		(105,000	)			(87,500	)
Other expenses		(630,000	)			(196,000	)
Income tax expense		(420,000	)			(56,000	)
Net income	$	805,000			$	80,500

Additional Information

• The recoverable amount for goodwill was determined to be $35,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7.
• Grants accounts receivable contains $105,000 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
Gross margin
Total
Attributable to:
Grants shareholders
Non-controlling interest

Grant Corporation
Consolidated Balance Sheet December 31, Year 7
Assets
Liabilities and Equity