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:

Multiple Choice

• $20,000

• $160,000

• $60,000

• $40,000