The Rico company began 2014 with $90,000 balance in retained earnings. The following events occurred during the year:
1) Cash dividends of $15,000 were declared.
2) Three thousand shares of callable preferred stock were recalled and retired for a price of $125 per share. The stock was originally issued for $110 per share.
3) Net income was $125,000.
4) Treasury stock was acquired at a cost of $25,000. The state of Rico's incorporation requires by a law a restriction of retained earnings equal to the amount acquired. The company reports the restriction in a note to the financial statements.
5) A material error in net income for a previous period was corrected. The error decrease retained earnings by $15,000 after a related income tax credit of $$5,250. The company is subject to a 35% tax rate.
Required:
Prepare the statement of retained earnings for the year ended 2014, prepare any note disclosures separately.

Question

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The Answer of The Rico company began 2014 with $90,000 balance in retained earnings. The following events occurred during the year:
1) Cash dividends of $15,000 were declared.
2) Three thousand shares of callable preferred stock were recalled and retired for a price of $125 per share. The stock was originally issued for $110 per share.
3) Net income was $125,000.
4) Treasury stock was acquired at a cost of $25,000. The state of Rico's incorporation requires by a law a restriction of retained earnings equal to the amount acquired. The company reports the restriction in a note to the financial statements.
5) A material error in net income for a previous period was corrected. The error decrease retained earnings by $15,000 after a related income tax credit of $$5,250. The company is subject to a 35% tax rate.
Required:
Prepare the statement of retained earnings for the year ended 2014, prepare any note disclosures separately.

The Rico Company Began 2014 with $90,000 Balance in Retained $$5,250 the Company Is Subject to a 35% Tax Rate