
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:On January 1, Year 4, Grant Corporation bought 10,000 (80%) of the outstanding common shares of Lee Company for $87,500 cash.
Lee's shares were trading for $7 per share on the date of acquisition. On that date, Lee had $31,250 of common shares outstanding
and $37,500 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:
Inventory
Patent
Carrying Amount
$62,500
12,500
Assets
Cash
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:
Accounts receivable
Inventory
Investment in Lee
Equipment, net
Patent, net
Liabilities and Shareholders' Equity
Accounts payable
Other accrued liabilities
Income taxes payable:
Common shares
Retained earnings
Fair Value
$68,750
25,000
Sales
Cost of goods sold
Gross margin
Distribution expense
BALANCE SHEETS
At December 31, Year 7
Other expenses
Income tax expense
Net income
Additional Information
INCOME STATEMENT
Year ended December 31, Year 7
Grant
$1,125,000
$
(425,000)
700,000
(37,500)
(225,000)
(150,000)
$ 287,500
Grant
87,500
287,500
$1,000,000
$ 237,500 $243,750
75,000
62,500
90,000
31,250
81,250
$1,000,000 $508,750
6,250
231,250
$22,500
102,500
387,500 125,000
Retained earnings on acquisition
Increase
Grant's share
Less: Changes to acquisition differential.
100,000
212,500
375,000
Lee
Lee
$450,000
256,250
2,500
$508,750
The recoverable amount for goodwill was determined to be $12,500 on December 31, Year 7. The goodwill impairment loss occurred
in Year 7.
Grant's accounts receivable contains $37,500 owing from Lee.
. Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses.
(300,000)
150,000
(31,250)
(70,000)
(20,000)
28,750
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
$
(b) Prepare consolidated financial statements for Year 7. (Input all values as positive numbers.)

Transcribed Image Text:es
(b) Prepare consolidated financial statements for Year 7. (Input all values as positive numbers.)
Gross margin
Total
Attributable to:
Grant's shareholders
Non-controlling interest
Grant Corporation
Consolidated Income Statement
Year ended December 31, Year 7
Grant Corporation
Consolidated Balance Sheet- December 31, Year 7
Assets
Liabilities and Equity
4
+
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