On January 1, Year 4, Grant Corporation bought 48,000 (80%) of the outstanding common shares of Lee Company for $420,000 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $150,000 of common shares outstanding and $180,000 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:

Carrying AmountFair ValueInventory$300,000$330,000Patent60,000120,000

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 SHEETSAt December 31, Year 7GrantLeeAssetsCash$30,000$108,000Accounts receivable1,110,000492,000Inventory1,860,000600,000Investment in Lee420,000Equipment, net1,380,0001,230,000Patent, net12,000$4,800,000$2,442,000Liabilities and Shareholders' EquityAccounts payable$1,140,000$1,170,000Other accrued liabilities360,000300,000Income taxes payable480,000432,000Common shares1,020,000150,000Retained earnings1,800,000390,000$4,800,000$2,442,000

INCOME STATEMENTYear ended December 31, Year 7GrantLeeSales$5,400,000$2,160,000Cost of goods sold(2,040,000)(1,440,000)Gross margin3,360,000720,000Distribution expense(180,000)(150,000)Other expenses(1,080,000)(336,000)Income tax expense(720,000)(96,000)Net income$1,380,000$138,000

Additional Information

• The recoverable amount for goodwill was determined to be $60,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7.
• Grant's accounts receivable contains $180,000 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 acquisitionIncrease$Grant's share%Less: Changes to acquisition differential$

(b)Prepare consolidated financial statements for Year 7.(Input all values as positive numbers.)