Question

On January 1, Year 4, Grant Corporation bought 28,000 (80%) of the outstanding common shares of Lee Company for $245,000 cash. Lee’s shares were trading for $7 per share on the date of acquisition. On that date, Lee had $87,500 of common shares outstanding and $105,000 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	$	175,000		$	192,500
Patent		35,000			70,000

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	$	17,500		$	63,000
Accounts receivable		647,500			287,000
Inventory		1,085,000			350,000
Investment in Lee		245,000
Equipment, net		805,000			717,500
Patent, net					7,000
	$	2,800,000		$	1,424,500
Liabilities and Shareholders’ Equity
Accounts payable	$	665,000		$	682,500
Other accrued liabilities		210,000			175,000
Income taxes payable		280,000			252,000
Common shares		595,000			87,500
Retained earnings		1,050,000			227,500
	$	2,800,000		$	1,424,500

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Lee
Sales	$	3,150,000			$	1,260,000
Cost of goods sold		(1,190,000	)			(840,000	)
Gross margin		1,960,000				420,000
Distribution expense		(105,000	)			(87,500	)
Other expenses		(630,000	)			(196,000	)
Income tax expense		(420,000	)			(56,000	)
Net income	$	805,000			$	80,500

Additional Information

• The recoverable amount for goodwill was determined to be $35,000 on December 31, Year 7. The goodwill impairment loss occurred in Year 7.
• Grant’s accounts receivable contains $105,000 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 acquisition
Increase	$
Grant's share		%
Less: Changes to acquisition differential
			$

(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 Gross margin Total Attributable to: Grant’s shareholders Non-controlling interest

	Grant Corporation Consolidated Balance Sheet – December 31, Year 7 Assets Liabilities and Equity

Answer 1

consolidated financial statements for yeau 7 80,500 829500 Balance sheet Assets CASH Al Receivable (64770 + 237000 - JO200) . Goodwill (W.N. 2) Inventory (108900073 10,000) Equipment (80 10 00 + 717000) Palenk. (70,000 - 56,000) 35000 1433000 1522500 14000 3916700 595000 1242500 Share Capital Account Payable (660000 +682000 - Jaroo) other accorved Cicho ( 280,000+ p 8000) Sncome tax payable (280000 €252000 Retained Ewrning NCI 387000 532000 J094100 67 900 3916100

u Retained Earning. 2050,000 75,600 closing Balance - Gront Add: post Acg. Profit Tess! Impairment of Glw less. Inventory (14000) (1790) Iogy LCD

Calculation of Identutte Net Asset. changes DOC 82 va 227500 122, a 122, roo DOR shoces. 87500 Ret Fay. 105000 192700 Add: Invent 17700 Patent 35000 lessi Deporect 22.000 Recea / 35000x4 26.5000 Parent NCT 1.500 43200 77600 133640 18900 W.N. 2 _ o Calculation of Goodwill Investment 240000 Mon controlling Int. I 49000 (24700x 2014 Con cost busis) o Identifiable Net Asset. (245000) G Docwall 49000 Impairment 14.000 closing Goodwill 35000 Couwurion of NCI - Opg. bulance 49000 £ Be , (nh 18900 3700 62960 3