For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:

Current Assets Liabilities Cash $ 20,000 Accounts payable $ 22,000 Accounts receivable

25,000 Notes payable 30,000Inventory 35,000 Bonds payable 60,000 Prepaid expenses

13,000 Fixed Assets Stock holders’ Equity Gross plant and equipment $ 260,000Preferred

stock $ 30,000 Less: Accumulated depreciation 52,000Common stock 65,000 Paid in Capital

35,000 Net plant and equipment$ 208,000 Retained earnings 59,000 Total assets $ 301,000

Total liabilities and stock holders’ equity $ 301,000 Sales for 20X2 were$270,000, and

the cost of goods sold was 60 percent of sales. Selling and administrative expense was

$27,000. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning

of the year. Interest expense for the notes payable was10 percent, while the interest rate on

the bonds payable was 12percent. This interest expense is based on December 31,

20X1balances. The tax rate averaged 20 percent.

$3,000 in preferred stock dividends were paid, and $5,400 in dividends were paid to common

stockholders. There were 10,000 shares of common stock outstanding.

During 20X2, the cash balance and prepaid expenses balances were unchanged.

Accounts receivable and inventory increased by 10 percent. A new machine was purchased

on December31, 20X2, at a cost of $45,000.

Accounts payable increased by 30percent. Notes payable increased by $7,000 and

bonds payable decreased by $15,000, both at the end of the year. The preferred stock,

common stock, and capital paid in excess of par accounts did not change.

a. Prepare an income statement for 20X2. (Round EPS answer to 2decimal places.)

b. Prepare a statement of retained earnings for20X2.

c. Prepare a balance sheet as of December 31,20X2.

 Baxter Corporation
Income Statement
For the year ended December 31, 20X2

Sales 270,000

Cost of Goods Sold 162,000

Gross Profit 108,000

Selling and Administrative Expenses 27,000

EBITDA 81,000

Depreciation Expense 20,800

EBIT 60,200

Interest Expense 10,200

EBT 50,000

Income Tax Expense ( 20 % ) 10,000

Net Income $ 40,000

Preferred Dividend 3,000

Earnings available for common stockholders $ 37,000

Common Shares Outstanding 10,000

Earnings per Share ( EPS ) $ 3.70

b.

Baxter Company
Statement of Retained Earnings
For the year ended December 31, 20X2

Beginning balance $ 59,000

Add: Net Income 40,000

 Less: Dividends (8,400)

Ending balance $ 90,600

c.

Baxter Company
Balance Sheet
December 31, 20X2

Liabilities and
Assets $ $ Stockholders' $ $
Equity

28,60
Cash 20,000 Accounts Payable
0

37,00
Accounts Receivable 27,500 Notes Payable
0

Total Current
Inventory 38,500 65,600
Liabilities

Prepaid Expenses 13,000 Bonds Payable 45,000

Total Current Assets 99,000 Total Liabilities 110,600

Stockholders’
Fixed Assets
Equity

305,00 30,00
Equipment, at Cost Preferred Stock
0 0

Less: Accumulated (72,80 65,00

232,200 Common Stock
Depreciation 0) 0

35,00
Paid-in Capital
0

90,60
Retained Earnings
0

Total
Stockholders' 220,600
Equity
 Total Liabilities
$ $
Total Assets and Stockholders'
331,200 331,200
Equity