E1-2B The following information was taken from the 2010 financial statements of phar- maceutical giant Merck and Co. All dollar amounts are in millions. Retained earnings, January 1, 2010 $41,405 Materials and production expense 18,396 Marketing and administrative expense 13,245 Dividends 4,730 Sales revenue 45,987 Research and development expense 10,991 Tax expense 671 Other expense 1,823 Instructions (a) After analyzing the data, prepare an income statement and a retained earnings state- ment for the year ending December 31, 2010. (b) Suppose that Merck decided to reduce its research and development expense by 50%. What would be the short-term implications? What would be the long-term implica- tions? How do you think the stock market would react?