The Capital and reserves of a company appear as shown. On this day the directors of the company resolve to make a bonus issue of one for every five ordinary shares, using to maximum profits not available for distribution. Which of the following entries is correct?

(a) Dr Share premium £160,000, Cr Share capital £160,000
(b) Dr Share premium £120,000, Cr Share capital £120,000
(c) Dr Retained earnings £160,000, Cr Share capital £160,000
(d) Dr Share premium £120,000, Dr Retained earnings £40,000, Cr Share capital £160,000

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Ordinary shares of 50p Share premium account Retained earnings £800,000 £120,000 £195,500