RESTRICTIONS ON RETAINED EARNINGS At December 31, 2008, Longfellow Clothing had $107,300 of retained earnings, all unrestricted. During 2009, Longfellow earned net income of $39,500 and declared and paid cash dividends on common stock of $12,400. During 2009, Longfellow sold a bond issue with a covenant that required Longfellow to transfer from retained earnings to restricted retained earnings an amount equal to the principal of the bond issue, $40,000. At December 31, 2009, Longfellow has 10,000 shares of $10 par common stock issued and outstanding. Paid-in capital in excess of par on the common stock is $142,500.

Required:

Prepare the stockholders’ equity portion of Longfellow’s December 31, 2009, balance sheet.

Exercise