Sarnia Hardware Ltd. reported the following shareholders’ equity on December 31, 2019:

Contributed capital
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 ended December 31, 2020:

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

Required

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

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.

Sep. 15 Received notification from the Canada Revenue Agency that Sarnia Hardware Ltd. had made an error in filing its 2019 taxes. The reassessment showed that the company had reported and overpaid $4,000 in taxes.

Dec. 31 Close the Income Summary account, assuming the income tax on all types of income is 40 percent.

2. Prepare a combined multi-step statement of income and retained earnings for the year ended December 31, 2020. Use a three-column format to break out the information for discontinued operations. Include earnings per share information.