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On January 1, Year 4, Grant Corporation bought 9,000 (80%) of the outstanding common shares of Lee Company for $78,750 cash. Lees shares were trading for $7 per share on the date of acquisition. On that date, Lee had $28,125 of common shares outstanding and $33,750 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	$	56,250		$	61,875
Patent		11,250			22,500

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	$	5,625		$	20,250
Accounts receivable		208,125			92,250
Inventory		348,750			112,500
Investment in Lee		78,750
Equipment, net		258,750			230,625
Patent, net					2,250
	$	900,000		$	457,875
Liabilities and Shareholders Equity
Accounts payable	$	213,750		$	219,375
Other accrued liabilities		67,500			56,250
Income taxes payable		90,000			81,000
Common shares		191,250			28,125
Retained earnings		337,500			73,125
	$	900,000		$	457,875

INCOME STATEMENT
Year ended December 31, Year 7
		Grant				Lee
Sales	$	1,012,500			$	405,000
Cost of goods sold		(382,500	)			(270,000	)
Gross margin		630,000				135,000
Distribution expense		(33,750	)			(28,125	)
Other expenses		(202,500	)			(63,000	)
Income tax expense		(135,000	)			(18,000	)
Net income	$	258,750			$	25,875

Additional Information

• The recoverable amount for goodwill was determined to be $11,250 on December 31, Year 7. The goodwill impairment loss occurred in Year 7.
• Grants accounts receivable contains $33,750 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.)

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