On January 1, Year 4, Grant Corporation bought 5,000 (80%) of the outstanding common shares of Devy Company for $43,750 cash Devy's shares were trading for $7 per share on the date of acquisition. On that date, Devy had $15,625 of common shares outstanding and $18,750 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 Patent $31,250 6,250 $34,375 12,500 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 Assets Cash Accounts receivable Inventory Investment in Devy Equipment (net) Grant Devy $ 3,125 $ 11,250 115,625 193,750 51,250 62,500 43,750 143,750 128,125 3,250 Patent (net) Liabilities and Shareholders' Equity Accounts payable Other accrued liabilities Income taxes payable $500,000 $254,375 $118,750 $121,875 37,500 31,250 50.000 45.000 Activate Sales INCOME STATEMENT Year ended December 31, Year 7 Cost of goods sold Gross margin Distribution expense Other expenses Income tax expense Net income Grant Devy $ 562,500 $225,000 (212,500) (150,000) 350,000 75,000 (18,750) (112,500) (15,625) (35,000) (75,000) (10,000) $ 143,750 $ 14,375 Additional Information The recoverable amount for goodwill was determined to be $6,250 on December 31, Year 7. The goodwill impairment loss occurred in Year 7. Grant's accounts receivable contains $18,750 owing from Devy. 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 $ and % sign in your response.) Calculation of consolidated retained earnings -Dec 31, Year 7 Retained earnings $ 187500 Grant Retained earnings Devy Retained earnines on acquisition 40625 18750 response.) Calculation of consolidated retained earnings Retained earnings - Grant Retained earnings - Devy Retained earnings on acquisition Increase Grant's share Less: Changes to acquisition differential - Dec 31, Year 7 187500 $ 40625 18750 21875 80 % 17500 (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 S 787,500 Cost of goods sold 362,500 Gross margin S 425,000 Distribution expense 34.375 Other expenses 147,500 Income taxes 85,000 Selling and administrative expense Total S 266,875 Assignment (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 $ 787,500 Cost of goods sold 362,500 Gross margin $ 425,000 Distribution expense 34,375 Other expenses 147,500 Income taxes 85,000 Selling and administrative expense Total $ 266,875 Net income $ 158,125 Attributable to: Grant's shareholders Non-controlling interest $ Grant Corporation Consolidated Balance Sheet - December 31, Year 7 Assets Cash Accounts receivable Inventory Equipment Patent Goodwill Liabilities and Equity Accounts payable Other accrued liabilities Income taxes payable Common shares Retained earnings Non-controlling interest $ 0