Carr Corporation had the following stockholders’ equity account balances at December 31, 2006:

Preferred stock .................... $1,800,000

Additional paid-in capital from preferred stock ......... 90,000

Common stock .................... 5,150,000

Additional paid-in capital from common stock ....... 3,500,000

Retained earnings .................. 4,000,000

Unrealized decrease in value of marketable equity securities .. 245,000

Treasury common stock ................ 270,000

Transactions during 2007 and other information relating to the stockholders’ equity accounts were as follows:

1. Carr’s preferred and common shares are traded on the over-the-counter market. At December 31, 2006, Carr had 100,000 authorized shares of $100 par, 10%, cumulative preferred stock; and 3,000,000 authorized shares of no-par common stock with a stated value of $5 per share.

2. On January 9, 2007, Carr formally retired all 30,000 shares of its treasury common stock and had them revert to an unissued basis. The treasury stock had been acquired on January 20, 2006. The shares were originally issued at $10 per share.

3. Carr owned 10,000 shares of Bush, Inc. common stock purchased in 2004 for $750,000. The Bush stock was included in Carr’s short-term marketable securities portfolio at the end of 2006 at a value of $650,000. On February 13, 2007, Carr declared a dividend-in-kind of one share of Bush for every hundred shares of Carr common stock held by stockholders of record on February 27, 2007. The market price of Bush common stock was $63 per share on February 13, 2007. The dividend-in-kind was distributed on March 12, 2007.

4. On April 2, 2007, 250,000 stock rights were issued to the common stockholders permitting the purchase of one new share of common stock in exchange for one right and $11 cash. On April 23, 2007, 210,000 stock rights were exercised when the market price of Carr’s common stock was $13 per share. Carr issued new shares to settle the transaction. The remaining 40,000 rights were not exercised and expired.

5. On December 10, 2007, Carr declared the yearly cash dividend on preferred stock, payable on January 14, 2008 to stockholders of record on December 31, 2007.

6. After the year-end adjustment, the Unrealized Decrease in Value of Marketable Equity Securities account had a debit balance of $135,000 at December 31, 2007.

7. On January 14, 2008, before the accounting records were closed for 2007, Carr became aware that rent income for the year ended December 31, 2006 was overstated by $500,000. The after-tax effect on 2006 net income was $275,000. The appropriate correcting entry was recorded the same day.

8. After correcting the rent income, net income for 2007 was $2,600,000.

Required

1. Prepare Carr’s statement of retained earnings for the year ended December 31, 2007. Assume that only single-period financial statements for 2007 are presented.

2. Prepare the stockholders’ equity section of Carr’s balance sheet at December 31, 2007.