For December 31 20X1 the balance sheet of Baxter Corporation

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

Current Assets

Liabilities

$

30,000

$

32,000

35,000

40,000

45,000

70,000

14,000

Fixed Assets

$

270,000

$

40,000

75,000

45,000

$

216,000

38,000

$

340,000

$

340,000

Sales for 20X2 were $320,000, and the cost of goods sold was 50 percent of sales. Selling and administrative expense was $32,000. 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 40 percent.

$4,000 in preferred stock dividends were paid, and $7,000 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 $55,000.

Accounts payable increased by 25 percent. Notes payable increased by $8,000 and bonds payable decreased by $20,000, 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.)
  

Current Assets			Liabilities
Cash	$	30,000	Accounts payable	$	32,000
Accounts receivable		35,000	Notes payable		40,000
Inventory		45,000	Bonds payable		70,000
Prepaid expenses		14,000
Fixed Assets			Stockholders’ Equity
Gross plant and equipment	$	270,000	Preferred stock	$	40,000
Less: Accumulated depreciation		54,000	Common stock		75,000
			Paid in Capital		45,000
Net plant and equipment	$	216,000	Retained earnings		38,000
Total assets	$	340,000	Total liabilities and stockholders’ equity	$	340,000

Solution

A) Income Statement for the Period of 20X2 for Baxter Corporation Detail Amount ( in $) Amount ( in $) Refer Sales 320000 Cost of Good sold ( 50% of Sales) 160000 320000* 50% Gross profit ( A) 160000 160000 Selling & Administrative expense 32000 Deperciation Expense 21600 270000*8% Interest Expense on Note Payable 10% 4000 40000*10% Interest Expense on Bond payable 12% 8400 70000*12% Total Expense ( B) 66000 Net Profit ( A-B) 94000 Income Tax @ 40% 37600 94000*40% Profit after Tax 56400 No. of Sharehlder 10000 EPS ( Profit After Tax/ No. of Shareholder 5.64 (b) Statement of Retained Earning for the Period of 20X2   Detail Amount ( in $) Retaining earning as on 31 Dec 20X1 38000 Proft Earned during the current Period 56400 Less : Dividend paid to prefrence sharholder 4000 Less: Dividend paid to Common Shar holder 7000 Retaining earning balance 83400 C) Balance Sheet for Baxter Corporation as on Dec 31 20X2 Current Asset Liabilities Cash 30000 Account Payable ( 32000*125%) 40000 Account Receivable ( Increased by 10%) 38500 Notes Payable ( including incresed by 8000) 48000 Inventory ( Increased by 10%) 49500 Bonds Payable (Decreased by 20000) 50000 Prepaid Expense 14000 Fixed Asset Stockholder\'s Equity Gross Palnt Equiment including New Machinery of $ 55000 325000 Preferred Stock 40000 Less Accumaled Depreciation 75600 Common Stock 75000 ( 54000+21600) Paid in Capital 45000 Net Plant & Equipment 249400 Retained Earning ( As shown above) 83400 Total Asset 381400 Total Liability & Equity 381400