Reference no: EM132793305

Problem - On January 1, Year 4, Grant Corporation bought 12,000 (80%) of the outstanding common shares of Lee Company for $105,000 cash. Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $37,500 of common shares outstanding and $45,000 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	$75,000	$82,500
Patent	15,000	30,000

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	$7,500	$27,000
Accounts receivable	277,500	123,000
Inventory	465,000	150,000
Investment in Lee	105,000
Equipment, net	345,000	307,500
Patent, net		3,000
	$1,200,000	$610,500
Liabilities and Shareholders' Equity
Accounts payable	$285,000	$292,500
Other accrued liabilities	90,000	75,000
Income taxes payable	120,000	108,000
Common shares	255, 000	37,500
Retained earnings	450,000	97,500
	$1,200,000	$610,500

Additional Information:

The recoverable amount for goodwill was determined to be $15,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7.

Corner's accounts receivable contains $45,000 owing from Brook.

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.

(b) Prepare consolidated financial statements (Income Statement & Balance Sheet) for Year 7.