Question

For December 31, 20X1, the balance sheet of Baxter Corporation was as follows Current Assets Liabilities Cash Accounts receivable Inventory Prepaid expenses $ 22,000 30,000 60,000 S 20,000 Accounts payable 25,000 Notes payable 35,000 Bonds payable 13,000 Fixed Assets Stockholders' Equity $ 30,000 65,000 35,000 59,000 $301,000 Gross plant and equipment Less: Accumulated depreciation $ 260,000 Preferred stock 52,000 Common stock SA Paid in Capital $ 208,000Retained earnings Net plant and equipment Total assets 301,000 Total liabilities and stockholders' equity Sales for 20X2 were $270,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $27,000. 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 20 percent. $3,000 in preferred stock dividends were paid, and $5,400 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 $45,000 Accounts payable increased by 30 percent. Notes payable increased by $7,000 and bonds payable decreased by $15,000, 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.) Baxter Corporation 20X2 Income Statement Earnings available to common stockholders S Shares outstanding Earnings per share

Answer 1

Baster Corperation
20X2 Income Statement
Sales	270000
Cost of good sold (60%)	162000
Gross profit	108000
Selling and administrative expense	27000
Depreciation expense (260000*8%)	20800
Operating profit (EBIT)	60200
Interest expense 30000*0.1+60000*0.12	10200
Earnings before taxes	50000
Taxes (20%)	10000
Earnings after taxes (EAT)	40000
Preferred stock dividends	3000
Earnings available to common stockholder	37000
Shares outstanding	10000
Earnings per share =Earnings available to common stockholder/Shares outstanding=37000/10000	3.70

2

Baster Coperation
20X2 Statement of Retained Earnings
Retained earnings balance, January 1 20X2	59000
Add: Earnings available to common stockholders, 20X2	37000
Deduct: Cash dividend declared in 20X2	5400
Retained earnings balance, December 31, 20X2	90600

Baster Coperation
Balance Sheet 20X2
Assets			Liabilities and Stockholder equity
Current Assets			Account Payable 22000*1.30	28600
Cash	20000		Note Payable +30000+7000	37000
Account Receivable 25000*1.10	27500		Bond Payable +60000-15000	45000
Inventory 35000*1.10	38500		Total Liabilities	110600
Prepaid expenses	13000		Stockholder Equity
Total Current Assets		99000	Preffered stock	30000
			Common stock	65000
Fixed Assets			Paid in capital	35000
Property Plant and Equipment 260000+45000	305000		Retained Earnnings	90600
Less Accu depreciation 52000+20800	72800		Total Stockholder Equity	220600
Net Plant and Equipment		232200
Total Assets		331200	Total Liabilities and Stockholder Equity	331200