Choice "A" is correct. Bank should record the 2% stock dividend received from Guard with a memorandum entry that reduces the unit cost of all Guard stock owned. The total investment in Guard, Inc. will simply be spread over a larger amount of shares, thereby reducing the unit cost of all Guard stock owned.
Choices "d" and "b" are incorrect as dividend revenue is not recorded when a stock dividend of the same shares in the same company are received.
Choice "c" is incorrect. Band Co. uses the equity method to account for its investment in Guard, Inc. The initial investment (or cost) of the total Guard stock owned should not be changed simply because additional shares of stock are obtained. The total investment in Guard, Inc. will now be spread over a larger amount of shares.