For December 31,2006, the Balance Sheet of Baxter Corporation is as follows.

Assets Libilities

Current Assets Account payable $12,000

cash $10,000 Notes payable $20,000

A/c Receivable $15,000 Bonds payable $50,000

Inventory $25,000

prepaid Expenses $12,000 Stockholders'Equity

Fixed Assets Preferred stock $20,000

property, plant and Equipment $250,000 Commons stock of 1$ for each $50,000

Less: Accumulated depre. ($50,000) Capital surplus $30,000

Net property, plant and Equl. $200,000 Retained earning $80,000

Total liabilities and

Total asset $262,000 stockholder's equity $262,00

Sale for 2007 were $220,000 and the cost of goods sold was 60% of sales. Selling and administrative expense was $220,000. Depreciation expense was 8% of property , plant and equipment (gross) at beginning of the year. Interest expense for the notes payable was 10%, and interest expense on the bond payable was 12%. These interest expenses are based on December 31,2006. The tax rate averaged 20%.

Two thousand dollars in preferred stock dividends were paid and $8,400 were paid to common stock holders. There were 10,000 shares of common stock outstanding.

During 2007, the cash balance and prepaid expense balance were unchanged. Account receivable and Inventory increased by 10%. A new machine was purchased on December 31,2007, at a cost of $35,000.

Account payable increased by 25%. notes payable increased by $6,000 and bonds payable decreased by $10,000, both at the end of the year. The common stock and capital surplus did not change.

Required

1. Prepare an Income Statement for December 31,2007.

2. Prepare a balance sheet as of December 31,2007.