On January 1, Year 4, Grant Corporation bought 8,000 (80%) of the outstanding common shares of Lee Company for $70,000 cash. Lee’s shares were trading for

$7 per share on the date of acquisition. 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:

Â	Carrying amount	Fair value
Inventory	$50,000	$55,000
Patent	10,000	20,000

The patent had an estimated useful life of 5 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.

Additional Information

• The recoverable amount for goodwill was determined to be $10,000 on

^{December 31, Y ear 6. The goodwill impairment loss occur r ed in Y ear 6.}

^{• Grant’s accounts r eceivable contains $30,000 owing f r om Lee.}

^{• Amortization expense is g r ouped with distribution expenses and impairment}

^{losses a r e g r ouped with other expenses.}

The following are the separate-entity financial statements of Grant and Lee as at December 31, Year 6.

BALANCE SHEETS

December 31, Year 6

  Assets Cash	Grant   $ 5,000	Â	Lee   $ 18,000
Accounts receivable	185,000	Â	82,000
Inventory	310,000	Â	100,000
Investment in Lee	70,000	Â	—
Equipment, net	230,000	Â	205,000
Patent, net	—	Â	2,000
Â	$800,000	Â	$407,000
  Liabilities and Shareholders’ Equity Accounts payable	    $190,000	Â	    $195,000
Other accrued liabilities	60,000	Â	50,000
Income taxes payable	80,000	Â	72,000
Common shares	170,000	Â	25,000
Retained earnings	300,000	Â	65,000
Â	$800,000	Â	$407,000
  INCOME STATEMENT	Â	Â	Â
Year ended December 31, Year 6	  Grant	Â	  Lee
Sales	$900,000	Â	$360,000
Cost of goods sold	(340,000)	Â	(240,000)
Gross margin	560,000	Â	120,000
Distribution expense	(30,000)	Â	(25,000)
Other expenses	(180,000)	Â	(56,000)
Income tax expense	(120,000)	Â	(16,000)
Net income	$230,000	Â	$ 23,000

^Required:

1. Calculate consolidated retained earnings at December 31, Year 6. (b) Prepare consolidated financial statements for Year 6.