Retained Earnings Statement Rolt Company began 2016 with a $120,000 balance in retained earnings. During the year, the following events occurred:

1. The company earned net income of $80,000.
2. A material error in net income from a previous period was corrected. This error correction increased retained earnings by $7,980 after related income taxes of $3,420.
3. Cash dividends totaling $10,500 and stock dividends totaling $16,000 were declared.
4. One thousand shares of callable preferred stock that originally had been issued at $115 per share were recalled and retired at the beginning of 2016 for the call price of $125 per share.
5. Treasury stock (common) was acquired at a cost of $15,000. 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.

Required:

1. Prepare a statement of retained earnings for the year ended December 31, 2016.

2. Prepare the note to disclose the restriction of retained earnings.