Bonus issue recorded at nominal value

Steps:

• Calculate bonus shares: 100,000 shares × 1/10 = 10,000 new shares.
• Determine nominal amount: 10,000 shares × $1 =$10,000.
• Record entry: Debit reserves $10,000, credit ordinary shares$10,000.
• Exclude market value ($1.20) as it does not affect accounting.

Why C is correct:

• Credits ordinary shares $10,000, matching nominal value per IAS 33 share capitalization rules.

Why the others are wrong:

• A: Ordinary shares $10,000 both sides implies net zero change, violating bonus issue mechanics.
• B: "Divided shares" is invalid account; $12,000 uses market value, not nominal.
• D: "Ordinary earnings" misnames reserves; $12,000/$10,000 mismatch ignores nominal value.

Final answer: C