The Financial Statements of Plax Inc Retained Earnings Statements Balance Sheets

question 13

Essay

The financial statements of Plax Inc. and Slate Corp for the year ended December 31, 2020 are shown below:
Income Statements
$\begin{array}{|l|r|r|}\hline & \text { PlaxInc. } & \text { Slate Corp } \\\hline \text { Miscellaneous Revenues } & \$ 1,300,000 & \$ 400,000 \\\hline \text { Interest Revenues } & \$ 11,250 & \\\hline \text { Dividend Revenue } & \$ 15,000 & \\\hline \text { Less: Expenses } & & \\\hline \text { Miscellaneous Expense } & \$ 864,000 & \$ 259,200 \\\hline \text { Interest Expense } & & \$ 19,400 \\\hline \text { Income Tax Expense } & \$ 198,000 & \$ 48,000 \\\hline \text { Net Income } & \$ 264,250 & \$ 73,400\\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Plax Inc. } & \text { Slate Corp } \\\hline \text { Balance, January 1, 2020 } & \$ 490,000 & \$ 180,000 \\\hline \text { Net Income } & \$ 264,250 & \$ 73,400 \\\hline \text { Less: Dividends } & \$(126,000) & (\$ 20,000) \\\hline \text { Retained Earnings } & \$ 628,250 & \$ 233,400\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Plax Inc. } & \text { Slate Corp } \\\hline \text { Miscellaneous Assets } & \$ 1,210,000 & \$ 745,200 \\\hline \text { Investment in Slate Shares } & \$ 196,000 & \\\hline \text { Investment in Slate Bonds } & \$ 122,250 & \\\hline \text { Total Assets } & \$ 1,528,250 & \$ 745,200 \\\hline \text { Miscellaneous Liabilities } & \$ 600,000 & \$ 150,000 \\\hline \text { Bonds Payable } & & \$ 200,000 \\\hline \text { Bond Premium } & & \$ 1,800 \\\hline \text { Common Shares } & \$ 300,000 & \$ 160,000 \\\hline \text { Retained Earnings } & \$ 628,250 & \$ 233,400 \\\hline \text { Total Liabilities and Equity } & \$ 1,528,250 & \$ 745,200\\\hline\end{array}$ Other Information:
 Plax acquired 75% of Slate on January 1, 2016 for $196,000, when Slate's retained earnings was $80,000 and the acquisition differential was attributable entirely to goodwill. There were impairment losses to the goodwill of $6,400 and $1,600 in 2017 and 2020, respectively.
 Plax uses the cost method to account for its investment.
 Slate has 10% par value bonds outstanding in the amount of $200,000 which mature on December 31, 2023. The bonds were issued at a premium. On January 1, 2020 the unamortized premium amounted to $2,400 Slate uses the straight line method to amortize the premium.
 On January 1, 2020, Plax acquired $120,000 face value of Slate's bonds for $123,000 Plax also uses the straight line method to amortize any bond premium or discount.
 Both companies are subject to a 40% tax rate.
 Gains and losses from intercompany bond holdings are to be allocated to the two companies when consolidated financial statements are prepared.
Prepare a detailed calculation of consolidated retained earnings as at December 31, 2020. Do not prepare a Statement of Retained Earnings for this requirement.

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Definitions:

Actual Level

The real, observed or measured value of a variable or condition, as opposed to an estimated or theoretical level.

Flexible Budget

A dynamic budget that changes according to the business activity levels, offering a more adaptable financial planning tool.

Level of Activity

A measure of the volume of production or operations, often influencing cost behavior and used to allocate fixed costs to units of product.

Revenue Variance

The difference between the actual revenue earned and the budgeted or expected revenue.