On January 1, Year 4, Grant Corporation bought 5,000 (80%) of the outstanding common shares of Lee Company for $43,750 cash. Lees shares were trading for $7 per share on the date of acquisition. On that date, Lee had $15,625 of common shares outstanding and $18,750 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	$	31,250		$	34,375
Patent		6,250			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 Lee as at December 31, Year 7:

BALANCE SHEETS
At December 31, Year 7
		Grant			Lee
Assets
Cash	$	3,125		$	11,250
Accounts receivable		115,625			51,250
Inventory		193,750			62,500
Investment in Lee		43,750
Equipment, net		143,750			128,125
Patent, net					1,250
	$	500,000		$	254,375
Liabilities and Shareholders Equity
Accounts payable	$	118,750		$	121,875
Other accrued liabilities		37,500			31,250
Income taxes payable		50,000			45,000
Common shares		106,250			15,625
Retained earnings		187,500			40,625
	$	500,000		$	254,375

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Lee
Sales	$	562,500			$	225,000
Cost of goods sold		(212,500	)			(150,000	)
Gross margin		350,000				75,000
Distribution expense		(18,750	)			(15,625	)
Other expenses		(112,500	)			(35,000	)
Income tax expense		(75,000	)			(10,000	)
Net income	$	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.
• Grants accounts receivable contains $18,750 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.)

On January 1, Year 4, Grant Corporation bought 5,000 (80%) of the outstanding common shares of Lee Company for $43,750 cash. Lees shares were trading for $7 per share on the date of acquisition. On that date, Lee had $15,625 of common shares outstanding and $18,750 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	$	31,250		$	34,375
Patent		6,250			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 Lee as at December 31, Year 7:

BALANCE SHEETS
At December 31, Year 7
		Grant			Lee
Assets
Cash	$	3,125		$	11,250
Accounts receivable		115,625			51,250
Inventory		193,750			62,500
Investment in Lee		43,750
Equipment, net		143,750			128,125
Patent, net					1,250
	$	500,000		$	254,375
Liabilities and Shareholders Equity
Accounts payable	$	118,750		$	121,875
Other accrued liabilities		37,500			31,250
Income taxes payable		50,000			45,000
Common shares		106,250			15,625
Retained earnings		187,500			40,625
	$	500,000		$	254,375

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Lee
Sales	$	562,500			$	225,000
Cost of goods sold		(212,500	)			(150,000	)
Gross margin		350,000				75,000
Distribution expense		(18,750	)			(15,625	)
Other expenses		(112,500	)			(35,000	)
Income tax expense		(75,000	)			(10,000	)
Net income	$	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.
• Grants accounts receivable contains $18,750 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.)