On January 1, Year 4, Grant Corporation bought 8,000 (80%) of the outstanding common shares of Lee Company for $70,000 cash. On that date, Lee had $25,000 of common shares outstanding and $30,000 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 amount Fair value Inventory $50,000 $55,000 Patent 10,000 20.000BALANCE SHEETS December 31, Year 6 Grant Lee Assets Cash $ 5,000 $ 18,000 Accounts receivable 185,000 82,000 Inventory 310,000 100,000 Investment in Lee 70,000 Equipment, net 230,000 205,000 Patent, net 2,000 $800,000 $407,000 Liabilities and Shareholders' Equity Accounts payable $190,000 $195,000 Other accrued liabilities 60,000 50,000 Income taxes payable 80,000 72,000 Common shares 170,000 25,000 Retained earnings 300,000 65,000 $800,000 $407,000INCOME STATEMENT Year ended December 31, Year 6 Grant Lee Sales $900,000 $360,000 Cost of goods sold (340,000) (240,000 Gross margin 560,000 120,000 Distribution expense (30,000) (25,000 Other expenses (180,000) (56,000 Income tax expense (120,000) (16,000 Net income $230,000 $ 23,000