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For December 31, 20X1, the balance sheet of Baxter Corporation was as follows: Current Assets Liabilities Cash $ 15,000 Accounts payable $ 17,000 Accounts receivable

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

Current Assets Liabilities
Cash $ 15,000 Accounts payable $ 17,000
Accounts receivable 20,000 Notes payable 25,000
Inventory 30,000 Bonds payable 55,000
Prepaid expenses 12,500
Fixed Assets Stockholders Equity
Gross plant and equipment $ 255,000 Preferred stock $ 25,000
Less: Accumulated depreciation 51,000 Common stock 60,000
Paid in Capital 30,000
Net plant and equipment $ 204,000 Retained earnings 69,500
Total assets $ 281,500 Total liabilities and stockholders equity $ 281,500

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 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 $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 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.

c. Prepare a balance sheet as of December 31, 20X2. (Amounts to be deducted should be indicated with parentheses or a minus sign.)

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