The capital structure of Knightsbridge, Inc., at December 31, 2006, included 20,000 shares of \(\$ 1.25\) preferred stock and 40,000 shares of common stock. Common stock outstanding during 2007 totaled 40,000 shares. Income from continuing operations during 2007 was \(\$ 105,000\). The company discontinued a segment of the business at a gain of \(\$ 20,000\), and also had an extraordinary gain of \(\$ 10,000\). The Knightsbridge board of directors restricts \(\$ 100,000\) of retained earnings for contingencies.

Requirement 

1. Compute Knightsbridge's earnings per share for 2007. Start with income from continuing operations. All income and loss amounts are net of income tax. 

2. Show two ways of reporting Knightsbridge's retained earnings restriction. Retained earnings at December 31,2006 , was \(\$ 100,000\), and the company declared preferred dividends of \(\$ 25,000\) during 2007.