On January 1, 2007 Franklin Company had a retained earnings balance of $206,000. During 2007 the following

Question:

On January 1, 2007 Franklin Company had a retained earnings balance of $206,000. During 2007 the following events occurred:
1. Treasury stock (common) was acquired at a cost of $14,000. State law requires a restriction of retained earnings in an equal amount. The company reports its retained earnings restrictions in a note to the financial statements.
2. Cash dividends totaling $9,000 and stock dividends totaling $6,000 were declared and distributed.
3. Net income was $58,000.
4. Two thousand shares of callable preferred stock were recalled and retired at a price of $150 per share. This stock had originally been issued at $130 per share.
5. A material error in net income for a previous period was corrected. This error correction decreased retained earnings by $12,600 after a related income tax credit of $5,400.

Required
1. Prepare a statement of retained earnings for the year ended December 31, 2007.
2. Prepare a note to disclose the restriction of retained earnings.