Answer: B. Change "it" to "the dog."
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Step-by-step explanation:
The "it" at the very end could refer to the dog or could refer to the baseball. It's not clear if Annabelle wants to keep the dog or the baseball. This is especially the case when the mention of the baseball comes after the mention of the dog. Changing "it" to "the dog" clears up that confusion.
Updated sentence: "Annabelle got off her bike and grabbed hold of the dog. There was a baseball in its mouth. Oh, how she wanted to keep the dog!"