Question

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

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

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.)
  

Answer 1

statement of income for the year ending on 31st december 20X2

particulars amount

sales (given) 320,000

less: cost of goods sold ( 50% of sales) (160,000)

gross profit 160,000

less: operating expenses

selling expenses 32,000

depericiation (8% of plant and machinery 21600

at the beginning , (270,000 *8%)

total operating expense ( 53600)

operating profit 106400

less: non operating expense

interest on notes payable ( 10% of beginning amount) 4000

interest on bonds payable (12% of beginning amount) 8400

total non operating expenses (12400)

profit before tax 94000

tax expense @ 40% ( 37600)

profit after tax 56400

statement of retained earnings

retained earnings at the beginning of the year 38000

earnings of current year 56400

total earnings 94400

less: preferred stock dividend (4000)

less: common stock dividend (7000)

earnings at the end of the year 83400

balance sheet at the 31st december 20X2

assets amount liabilities amount

cash 30,000 accounts payable (32000*125%) 40,000

account receivables 38,500 notes payable 48000

inventory 49,500 bonds payable 50,000

prepaid expenses 14000 preferred stock 40000

plant and machinery (w.n. 1) 194400 common stock 75000

machinery 55000 paid in capital 45000

retained earnings 83400

total assets 381400 total liabilities 381400

working note for plant and machinery

gross value of plant and machinery 270,000

less: accumulated depreciation 54000

less: depreciation for the year 21600

( 8% of gross value of plant )

net value of plant and machinery 194400