Current Assets	Liabilities	Fixed Assets	Stockholders' Equity
Cash $15,000	Accounts payable $17,000	Plant and equipment (gross) $255,000	Preferred Stock $25,000
Accounts Receivable $20,000	Notes payable $25,000	Less; Accumulated depreciation $51,000	Common stock $60,000
Inventory $30,000	Bonds payable $55,000	Net plant and equipment $204,000	Paid-in capital $30,000
Prepaid Expenses $12,500		Total assets $281,500	Retained earnings $69,500
			Total liabilities and stockholders' equity $281,500

December 31, 20x1, balance sheet for Baxter Corporation (above)

Sales for 20x2 were $245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20x1 balances. The tax rate averaged 20 percent. $2,500 in preferred stock dividends were paid, and $5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding. During 20x2, the cash balances and prepaid expenses balances were unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20x2, at a cost of $40,000. Accounts Payable increased by 20 percent. Notes payable increased by $6,500 and bonds payable decreased by $12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.

a. Prepare an income statement for 20x2.

b. Prepare a statement of retained earnings for 20x2.

c. Prepare a balance sheet as of December 31, 20x2

(This is all the information that is provided in the textbook for this problem)

Foudations of Financial Management- chapter 2 question 27