A Corporation Was Organized on January 1

Multiple Choice

A corporation was organized on January 1. At that time, 10,000 shares of common were sold and issued at $10.00 per share cash. $20,000 of the proceeds was used to purchase equipment. The corporation had promised to pay $2.00 per share in dividends during the year if income exceeded $40,000. As it turned out, income was $60,000 however, due to a severe cash shortage the corporation declared a scrip dividend (resulting in a current liability) rather than an immediate cash dividend. If no other transaction occurred which would affect retained earnings, the corporation should report on December 31, retained earnings of:

A) $160,000
B) $40,000
C) $60,000
D) $20,000