Choose the response that correctly completes the next sentence, describing the tax consequences for a C corporation that earns enough profits in its first year of business to pay dividends to its shareholders. The corporation will:

Increase their earnings and profits by the amount distributed to shareholders.

Reduce its taxable income by the amount distributed.

Pay a flat tax rate of 21% on total income, including the amount distributed to shareholders.

Be subject to a maximum tax rate of 35% on total income, including the amount distributed to shareholders.