Reference no: EM131731710

Question - 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.