Question

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

Current Assets			Liabilities
Cash	$	13,000	Accounts payable	$	15,000
Accounts receivable		18,000	Notes payable		23,000
Inventory		28,000	Bonds payable		53,000
Prepaid expenses		12,300
Fixed Assets			Stockholders’ Equity
Gross plant and equipment	$	253,000	Preferred stock	$	23,000
Less: Accumulated depreciation		50,600	Common stock		58,000
			Paid in Capital		28,000
Net plant and equipment	$	202,400	Retained earnings		73,700
Total assets	$	273,700	Total liabilities and stockholders’ equity	$	273,700

Sales for 20X2 were $235,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $23,500. Depreciation expense was 11 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 9 percent, while the interest rate on the bonds payable was 15 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.

$2,300 in preferred stock dividends were paid, and $9,560 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 9 percent. A new machine was purchased on December 31, 20X2, at a cost of $38,000.

Accounts payable increased by 35 percent. Notes payable increased by $6,300 and bonds payable decreased by $11,500, 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.)
  

Answer 1

a. Statement showing an income statement for 20X2. (Round EPS answer to 2 decimal places.)

Particulars	Amounts($)
Sales	235000
Less: Cost of Goods Sold (60% of sales)	-141000
Gross Profits	94000
Less: Selling & Administ.Exps	-23500
Less: Depreciation (11% of 253000)	-27830
Operating Profits or EBIT	42670
Less: Interest Exps.(9%of 23000+15% of 53000)	-10020
Earning before taxes or EBT	32650
Less: Tax Expenses (20%)	-6530
Earning After Taxes	26120
Less: Preferred Dividend	-2300
Earning For common stock holders	23820
Total share outstandings	10000
Earning per share (EPS)	2.38

(b) Statement Showing the Retained Earning Balance

Begining Balance of Retained earnings Jan.1.20X1	73700
Add: Earning after taxes available for Equity stock holders	23820
Less: dividend paid to Equity stock holders	-9560
Retained earning Ending Balance	87960

Calculation of Net Value of plant & Machinary

Gross value of plant & machinary	253000
Add:Purchase during the year	38000
Less: Accumulated depreciation (50600+27830)	-78430
Net value of plant & machinary	212570

(C) Balance sheet as of December 31, 20X2.

Liabilities	Amounts	Assets	Amounts
Accounts payables(15000*1.35)	20250	Cash Balance	13000
Notes Payable	29300	Accounts Receivables	19620
Bonds Payables	41500	Inventory (28000*1.09)	30520
Equity stock holders		Prepaid Expenses	12300
Preferred stock	23000
Common stocks	58000	Fixed Assets
Paid in Capitals	28000	Net Plant & Machinary	212570
Retained Earnings	87960
	288010		288010