On December 31, 2009, the balance sheet of Baxter Corporation was as follows:
Current Assets
Cash Accounts receivable Inventory 25,000
Liabilities
Accounts payable $ Notes payable Bonds payable
Stockholders' Equity
Preferred stock $ Common stock Paid-in capital Retained earnings
12,000 20,000 50,000
20,000 55,000 25,000 80,000
Prepaid expenses
Fixed Assets
12,000
Plant and equipment (gross)
$250,000 depreciation 50,000
Less: Accumulated Net plant and equipment 200,000
Total assets $262,000
Total liabilities and stockholders' equity
$262,000
$ 10,000 15,000
Book value and market value (LO2&3)
Book value and market value (LO2&3)
Sales for 2010 were $220,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $22,000. Depreciation expense
was 8 percent of plant and equipment (gross) at the beginning of the year. Inter- est 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, 2009, balances. The tax rate averaged 20 percent.
Two thousand dollars in preferred stock dividends were paid and $8,400 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.
During 2010, 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, 2010, at a cost of $35,000.
Accounts payable increased by 25 percent. Notes payable increased $6,000 and bonds payable decreased $10,000, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.
a.Prepare an income statement for 2010.
b. Prepare a statement of retained earnings for 2010.
c. Prepare a balance sheet as of December 31, 2010.