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

Current Assets			Liabilities
Cash	$	29,000	Accounts payable	$	31,000
Accounts receivable		34,000	Notes payable		39,000
Inventory		44,000	Bonds payable		69,000
Prepaid expenses		13,900
Fixed Assets			Stockholders Equity
Gross plant and equipment	$	269,000	Preferred stock	$	39,000
Less: Accumulated depreciation		53,800	Common stock		74,000
			Paid in Capital		44,000
Net plant and equipment	$	215,200	Retained earnings		40,100
Total assets	$	336,100	Total liabilities and stockholders equity	$	336,100

Sales for 20X2 were $315,000, and the cost of goods sold was 55 percent of sales. Selling and administrative expense was $31,500. Depreciation expense was 12 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 8 percent, while the interest rate on the bonds payable was 16 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 40 percent. $3,900 in preferred stock dividends were paid, and $5,676 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 8 percent. A new machine was purchased on December 31, 20X2, at a cost of $54,000. Accounts payable increased by 35 percent. Notes payable increased by $7,900 and bonds payable decreased by $19,500, 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.)

Baxter Corporation
20X2 Income Statement
Sales	$315,000
Cost of goods sold	173,250
Gross profit	$141,750
Selling and administrative expense	31,500
Depreciation expense	32,280
Operating profit	$77,970
Interest expense	(14,160)
Earnings before taxes	$63,810
Taxes	(25,524)
Earnings after taxes	$38,286
Preferred stock dividends	(3,900)
Earnings available to common stockholders	$34,386
Shares outstanding	10,000
Earnings per share	$3.44

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

Baxter Corporation
20X2 Statement of Retained Earnings
Retained earnings balance, January 1, 20X2	$40,100
Add: Earnings available to common stockholders, 20X2	34,386
Less: Cash dividend declared in 20X2	5,676
Retained earnings balance, December 31, 20X2	$68,810

Baxter Corporation
20X2 Balance Sheet
Assets			Liabilities and Stockholders Equity
Current Assets:			Accounts payable	$41,850
Cash			Notes payable	46,900
Accounts receivable			Bonds payable	49,500
Inventory
Prepaid expenses
Total current assets		$0	Total liabilities	$138,250
			Stockholders' Equity
Fixed assets:			Preferred stock	$39,000
Gross plant and equipment			Common stock	$74,000
Less: Accumulated depreciation	(86,080)		Capital paid in excess of par	$44,000
Net plant and equipment		$(86,080)	Retained earnings	$68,810
			Total stockholders' equity	$225,810
Total assets		$(86,080)	Total liabilities and stockholders' equity	$364,060