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

Current Assets			Liabilities
Cash	$	25,000	Accounts payable	$	27,000
Accounts receivable		30,000	Notes payable		35,000
Inventory		40,000	Bonds payable		65,000
Prepaid expenses		13,500
Fixed Assets			Stockholders Equity
Gross plant and equipment	$	265,000	Preferred stock	$	35,000
Less: Accumulated depreciation		53,000	Common stock		70,000
			Paid in Capital		40,000
Net plant and equipment	$	212,000	Retained earnings		48,500
Total assets	$	320,500	Total liabilities and stockholders equity	$	320,500

Sales for 20X2 were $295,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $29,500. 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. $3,500 in preferred stock dividends were paid, and $4,950 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 December 31, 20X2, at a cost of $50,000. Accounts payable increased by 35 percent. Notes payable increased by $7,500 and bonds payable decreased by $17,500, 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 2 decimal places.)

b. Prepare a statement of retained earnings for 20X2.