A company declares a 40% stock dividend when there were 4 million common shares outstanding with a $1 par value. The current market price is $20 per common share. Which of the following will be the effect of the stock dividend?
A. Retained earnings will decrease by $1.6 million and contributed capital will increase by $1.6 million.
B. Contributed capital will decrease by $1.6 million and retained earnings will increase by $1.6 million.
C. Retained earnings will decrease by $32 million and contributed capital will increase by $32 million.
D. Contributed capital will decrease by $32 million and retained earnings will increase by $32 million.
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