The Financial Statements of Plax Inc Retained Earnings Statements Balance Sheets

question 45

Essay

The financial statements of Plax Inc. and Slate Corp for the year ended December 31, 2018 are shown below:
Income Statements $\begin{array}{|l|l|l|} \hline& \text { Plax Inc. } & \text { Slate Corm } \\\hline \text { Miscellaneous Revenues } & \$ 1,300,000 & \$ 400,000 \\\hline \text { Interest Revenues } & \$ 11,250 &- \\\hline \text { Dividend Revenue } & \$ 15,000 & -\\\hline \text { Less: Expenses } & & \\\hline \text { Miscellaneous Expense } & \$ 864,000 & \$ 259,200 \\\hline \text { Interest Expense } & & \$ 19,400 \\\hline \text { Income Tax Expense } & \$ 198,000 & \$ 48,000 \\\hline \text { Net Income } & \$ 264,250 & \$ 73,400 \\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|l|l|}\hline & \text { Plax Inc. } & \text { Slate Com } \\\hline \text { Balance, J anuary 1, 2018 } & \$ 490,000 & \$ 180,000 \\\hline \text { Net Income } & \$ 264,250 & \$ 73,400 \\\hline \text { Less: Div idends } & \$(126,000) & (\$ 20,000) \\\hline \text { Retained Earnings } & \$ 628,250 & \$ 233,400 \\\hline & & \\\hline\end{array}$ Balance Sheets
$\begin{array}{l|l|l|} \hline& \text { Plax Inc. } & \text { State Corp } \\\hline \text { Miscellaneous Assets } & \$ 1,210,000 & \$ 745,200 \\\hline \text { Investment in Slate Shares } & \$ 196,000 & -\\\hline \text { Investment in Slate Bonds } & \$ 122,250 &- \\\hline \text { Total Assets } & \$ 1,528,250 & \$ 745,200 \\\hline\\\hline \text { Miscellaneous Liabilities } & \$ 600,000 & \$ 150,000 \\\hline \text { Bonds Pay able } &- & \$ 200,000 \\\hline \text { Bond Premium } &- & \$ 1,800 \\\hline \text { Common Shares } & \$ 300,000 & \$ 160,000 \\\hline \text { Retained Earnings } & \$ 628,250 & \$ 233,400 \\\hline \text { Total Liabilities and Equity } & \$ 1,528,250 & \$ 745,200 \\\hline\end{array}$ Other Information:
> Plax acquired 75% of Slate on January 1, 2014 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 2015 and 2018 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, 2021. The bonds were issued at a premium. On January 1, 2018 the unamortized premium amounted to $2,400 Slate uses the straight line method to amortize the premium.
> On January 1, 2018, 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 summary of intercompany interest revenues and expenses.

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Definitions:

Standardized Product

Products that are uniform in quality and features, offering no significant difference from the same products offered by other sellers.

Differentiated Product

A product that is distinct from similar products offered by competitors, often through quality, features, or branding.

Kinked Demand Curve

A demand curve in oligopolistic market structures characterized by a distinct bend or kink at the current price; it reflects that price increases by one firm will not be followed by others, while price decreases will be.

Price Cut

A reduction in the selling price of products or services, often used as a strategy to increase consumer demand or compete more effectively.