The correct answer is diagram B or second diagram
Step-by-step explanation:
When diagramming a sentence the two elements that go in the horizontal line are the subject (agent of the action), and the predicate including the verb. Moreover, other elements such as articles, modifiers, etc. derive from the main horizontal line.
In the sentence "The neighbor's dog howled loudly" the subject is the dog, and the verb is howled. In this context, these two words should be placed in the horizontal line, which only occurs in diagram B or the second diagram. Moreover, other words such as "the" (article) or "loudly" (adverb) should derive from the horizontal line; this was also included in diagram B. This means you are correct.