Problem
The Rico Company began 2017 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 required. The company reports the restriction in a note to the financial statements.
5.) A material error overstating net income for a previous period was corrected. The amount was $20,000 before taxes. The company is subject to a 30% tax rate.
Required: Prepare the statement of retained earnings for the year ending 2017. Prepare any note disclosures separately.