s of December 31, 2016, Warner Corporation reported the following:

Dividends payable 20,000
Treasury stock 600,000
Paid-in capital - share repurchase 20,000
Other paid-in capital accounts 4,000,000
Retained earnings 3,000,000
During 2017, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000.

The 2017 sale of half of the treasury stock would:
Reduce income before tax by $60,000.
Reduce retained earnings by $60,000.
Increase total shareholders' equity by $300,000.
Reduce retained earnings by $40,000.