Vanguard Corporation is a distributor of food products. The corporation has approximately 1,000 stockholders, and its stock, which is traded “over-the-counter,” is sold throughout 2008 at about \($7\) a share with little fluctuation. The corporation's balance sheet at December 31, 2007 follows.

Information concerning the corporation and its activities during 2008 follows:
1. Sales for the year were \($15,650,000.\) The gross profit percentage for the year was 30% of
sales. Merchandise purchases and freight-in totaled \($10,905,000.\) Depreciation and other
expenses do not enter into cost of goods sold.
2. Administrative, selling, and general expenses (including provision for state taxes) other
than interest, depreciation, and provision for doubtful accounts amounted to
\($2,403,250.
3.\) The December 31, 2008, accounts receivable amounted to \($3,350,000,\) and the corporation
maintains an allowance for doubtful accounts equal to 3% of the accounts receivable outstanding.
During the year \($50,000\) of 2007 receivables were deemed uncollectible and
charged off to the allowance account.
4. The rate of depreciation of fixed assets is 13% per annum, and the corporation consistently
follows the policy of taking one-half year’s depreciation in the year of acquisition.
The depreciation expense for 2008 was \($474,500.
5.\) The notes are payable in 20 equal quarterly installments commencing March 31, 2008,
with interest at 5% per annum also payable quarterly.
6. Accounts payable and accrued liabilities at December 31, 2008, were \($2,221,000.
7.\) The balance of the 2007 federal income tax paid in 2008 was in exact agreement with the amount accrued on the December 31, 2007, balance sheet.
8. The 2008 estimated tax payments made in 2008 totaled \($400,000.\) Income tax expense for
2008 on an accrual accounting basis was \($530,000.
9.\) During the second month of each quarter of 2008, dividends of \($0.10\) a share were
declared and paid. In addition, in July 2008, a 5% stock dividend was declared
and paid.
Required:
Prepare the following statements in good form and support them by well-organized and developed computations for the year ending December 31, 2008:

a. Balance sheet

b. Income statement

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Balance Sheet December 31, 2007 Assets Current assets Cash Accounts receivable Less allowance for doubtful accounts Inventories--at the lower of cost (FIFO) or market Total current assets Fixed assets-at cost Less accumulated depreciation Total assets Liabilities and Stockholders' Equity Current liabilities Notes payable due within one year Accounts payable and accrued liabilities Federal income taxes payable Total current liabilities Notes payable due after one year Stockholders' equity Capital stock-authorized 2,000,000 shares of $1 par value; issued and outstanding 1,000,000 shares Additional paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 4,386,040 $3,150,000 (94,500) 3,055,500 2,800,000 10,241,540 $3,300,000 (1,300,000) 2,000,000 $12,241,540 $1,000,000 2,091,500 300,000 3,391,500 4,000,000 $1,000,000 1,500,000 2,350,040 4,850,040 $12,241,540