The ledger of Reno Corporation at Dec 31, 2006 contains the following stockholders equity accounts:

Preferred Stock (10,000 shares issued) $1,000,000

Common stock (400,000 shares issued) 2,000,000

Additional Paid-in Capital- Preferred Stock 200,000

Additional Paid-in Capital- Common Stock 1,200,000

Stock Dividends to be distributed 100,000

Retained Earnings 2,540,000

A review of the accounting records reveals the following:

1. No errors have been made in recording 2006 transactions or in preparing the closing entry for net income.

2. Preferred Stock is 10%, $100 par value, non-cumulative. Since January 1, 2005, 10,000 shares have been outstanding, 20,000 shares are authorized.

3. Common stock is $5 par value per share, 600,000 shares are authorized.

4. The January 1 balance in Retained Earnings is $2,200,000.

5. On October 1, 100,000 shares of common stock were sold for cash at $8 per share.

6. A cash dividend of $400,000 was declared on November 1. No dividends were paid to preferred stockholders in 2005.

7. On December 31, a 5% stock dividend was declared, when the market price per share was $7.

8. Net income for the year was $880,000.

Instructions:

Prepare a statement of retained earnings for the year. (30 points)

Compute the earnings per share at December 31, 2006. (10 points)