The Financial Statements of Plax Inc Retained Earnings Statements Balance Sheets

question 41

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 Statement of Consolidated Retained Earnings for the year ended December 31, 2020 for Plax Inc.

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Definitions:

Term Loans

Loans from financial institutions that are repaid over a set period of time with scheduled payments.

Personal Guarantees

A commitment by an individual to repay a debt if the original borrower defaults, often required in business loans.

Joint and Severable

A legal term indicating that all parties in a contract are equally responsible for fulfilling the terms of the agreement, and each can be held fully accountable.

Interest Rates

The cost of borrowing money or the return on investment, expressed as a percentage of the principal, that lenders charge or pay over a specific period.