A Calendar- Year Corporation Has a $75,000 Current E&P Amount

A calendar- year corporation has a $75,000 current E&P amount, and a $25,000 positive accumulated E&P balance at the beginning of the year. Shareholders of the corporation have a total basis in outstanding shares of $40,000. The corporation pays a $120,000 distribution to the shareholders. The tax results to the shareholders will be

A) dividend income of $60,000 and capital gain of $60,000.
B) dividend income of $100,000 and capital gain of $20,000.
C) dividend income of $100,000 and a tax- free return of capital of $20,000.
D) dividend income of $100,000 and no other consequences.