A company declares a 40% stock dividend when there were 5.6 million common shares outstanding with a $1 par value.

The current market price is $28 per common share.

Which of the following will be the effect of the stock dividend?

Group of answer choices

Retained earnings will decrease by $2.24 million and contributed capital will increase by $2.24 million.

Retained earnings will decrease by $62.72 million and contributed capital will increase by $62.72 million.

Contributed capital will decrease by $62.72 million and retained earnings will increase by $62.72 million.

Contributed capital will decrease by $2.24 million and retained earnings will increase by $2.24 million.