Red Deer Hardware Ltd. had the following shareholders' equity on January 1, 2014:

Preferred shares, $0.50 cumulative, convertible to common on a 2-for-1 basis, 50,000 shares authorized,

20,000 shares issued and outstanding...........................................$ 55,000

Common shares, unlimited number of shares authorized,

50,000 shares issued and outstanding.............................................62,500

Total contributed capital...........................................................117,500

Retained earnings...................................................................110,000

Total shareholders' equity........................................................$227,500

The following information is available for the year ending December 31, 2014:

Mar. 7 Declared a cash dividend of $12,500, payable on April 1 to the shareholders of record on March 15. Indicate the amount payable to each class of shareholder.

Apr. 1 Paid the cash dividend declared on March 7.

Jun. 6 Declared a 5-percent stock dividend on the common shares, distributable on August 5 to the shareholders of record on July 4. The market value of the shares was $1.50 per share.

Aug. 5 Distributed the common shares dividend declared on June 6.

Sept. 15 Received notification from Canada Revenue Agency that Red Deer Hardware Ltd. had made an error in filing 2011 taxes. The reassessment showed that the company had reported and overpaid $4,000 in taxes.

Dec. 31 Red Deer Hardware Ltd.'s records show the following:

Sales for the year........................................................... $212,500

Cost of goods sold............................................................ 95,000

Operating expenses........................................................... 65,000

Income from discontinued operations................................ 4,000

Loss on sale of discontinued operations.......................... (2,500)

Close the Income Summary account, assuming the income tax on all types of income is 40 percent.

Required

1. Record the transactions in the general journal. Explanations are not required.

2. Prepare a combined multi-step statement of income and retained earnings for the year ended December 31, 2014. Include earnings-per-share information.