Choice "C" is correct. Look at each item given and decide how it affects retained earnings: income since incorporation equals unadjusted ending retained earnings (RE), that is, current year income is included; cash dividends is a direct deduction from RE on the date of declaration; property dividends are deducted from RE at market value on the date of declaration; the excess proceeds from the sale of treasury stock is considered additional paid-in capital. Thus, ending RE. RE - cash dividends - property dividends$420,000 - $130,000 - $30,000$260,000.
Choice "b" is incorrect. This amount does not include the effect of the property dividends. Property dividends are deducted from RE at market value on the date of declaration.
Choice "a" is incorrect. This amount incorrectly includes the proceeds from the sale of the treasury stock. The cost method of accounting for treasury stock affects retained earnings only if the shares are sold below cost and the difference exceeds any additional paid-in capital from treasury stock.
Choice "d" is incorrect. This amount omits property dividends and incorrectly includes the proceeds from the sale of the treasury stock. Property dividends are deducted from RE at market value on the date of declaration. Treasury stock sold in excess of cost does not affect retained earnings.