A corporation had 41000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 25% stock dividend when the market value of each share was $25. The entry to record this dividend is:

1) Debit retained earning $256,250; credit common stock dividend distributable $256,250

2) Debit retained earning $205,000; credit common stock dividend distributable $205,000

3) Debit retained earning $256,250; credit common stock dividend distributable $205,000; credit Paid-in capital in excess of par value common stock $51,250.

4) Debit retained earning $256,250; credit cash $256,250

5) No entry is made until the stock is issued