Question

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

Current Assets			Liabilities
Cash	$	19,000	Accounts payable	$	21,000
Accounts receivable		24,000	Notes payable		29,000
Inventory		34,000	Bonds payable		59,000
Prepaid expenses		12,900
Fixed Assets			Stockholders’ Equity
Gross plant and equipment	$	259,000	Preferred stock	$	29,000
Less: Accumulated depreciation		51,800	Common stock		64,000
			Paid in Capital		34,000
Net plant and equipment	$	207,200	Retained earnings		61,100
Total assets	$	297,100	Total liabilities and stockholders’ equity	$	297,100

Sales for 20X2 were $265,000, and the cost of goods sold was 55 percent of sales. Selling and administrative expense was $26,500. Depreciation expense was 12 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 8 percent, while the interest rate on the bonds payable was 16 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 40 percent.

$2,900 in preferred stock dividends were paid, and $6,086 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 8 percent. A new machine was purchased on December 31, 20X2, at a cost of $44,000.

Accounts payable increased by 20 percent. Notes payable increased by $6,900 and bonds payable decreased by $14,500, 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.)

	Baxter Corporation 20X2 Income Statement Earnings available to common stockholders Shares outstanding Earnings per share

  b. Prepare a statement of retained earnings for 20X2.

	Baxter Corporation 20X2 Statement of Retained Earnings Retained earnings balance, January 1, 20X2 Retained earnings balance, December 31, 20X2

c. Prepare a balance sheet as of December 31, 20X2. (Amounts to be deducted should be indicated with parentheses or a minus sign.)

	Baxter Corporation 20X2 Balance Sheet Assets Liabilities and Stockholders’ Equity Current Assets: Total current assets Total liabilities Stockholders' Equity Fixed assets: Net plant and equipment Total stockholders' equity Total assets Total liabilities and stockholders' equity

  

Answer 1

Answer a:

Answer b:

Dividends paid = Preference stock dividends + Dividends paid to common stockholders = 2900 + 6086 = $8,986

Answer c:

Workings:

Accounts receivable = 24000 * (1+8%) = $25,920

Inventory = 34000* (1+8%) = $36,720

Fixed Assets =259000+44000 = $303,000

Accumulated depreciation = 51800 + 31080 =$82,880

Accounts payable =21000*(1+20%) = $25,200

Notes payable =29000 +6900 = $35,900

Bonds payable = 59000-14500 =$44,500