Answer:
The correct answer is Option A.
Explanation:
The overall effect this declaration would has on the retained earnings would be determined using the current market value, meanwhile the effect on common stock would determined using the par value.
Stock dividend declared = 10% x 80,000 shares x $10 = $80,000
The effect on common stock will be = 10% x 80,000 shares x $5 = $40,000
So, paid in capital in excess of par value common stock is $80,000 - $40,000 = $40,000.
Necessary accounting entries
Debit Retained earnings $80,000
Credit Common stock $40,000
Credit paid in capital in excess of par value common stock $40,000
<em>(To record declaration of 10% stock dividend)</em>
