Question

Power Drive Corporation designs and produces a line of golf equipment and golf apparel. Power Drive has 100,000 shares of common stock outstanding as of the beginning of 2021. Power Drive has the following transactions affecting stockholders' equity in 2021.

March 1 Issues 52,000 additional shares of $1 par value common stock for $49 per share.
May 10 Purchases 4,700 shares of treasury stock for $52 per share.
June 1 Declares a cash dividend of $1.35 per share to all stockholders of record on June 15. (Hint: Dividends are not paid on treasury stock.)
July 1 Pays the cash dividend declared on June 1.
October 21 Resells 2,350 shares of treasury stock purchased on May 10 for $57 per share.

Required:
Record each of these transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Power Drive Corporation

Journal Entries:

March 1:

Debit Cash Account with $2,548,000

Credit Common Stock with $52,000

Credit APIC - Common Stock with $2,496,000

To record issue of 52,000 additional shares of $1 par value common stock for $49 per share.

May 10:

Debit Treasury Stock with $4,700

Debit APIC - Common Stock with $239,700

Credit Cash Account with 244,400

To record repurchase of 4,700 shares of treasury stock for $52 per share.

June 1:

Debit Dividends- Common Stock with $198,855

Credit Dividends Payable with $198,855

To record cash dividend of $1.35 per share declared (147,300 shares).

June 15:

No records required

July 1:

Debit Dividends Payable with $198,855

Credit Cash Account with $198,855

To record payment of cash dividend.

October 21:

Debit Cash Account with $133,950

Credit Treasury Stock with $2,350

Credit APIC - Common Stock with $131,600

To record reissue of treasury stock for $57 per share.

Step-by-step explanation:

1. Issue of 52,000 additional shares results to a credit to the Common Stock account with 52,000 x $1 par value. This is equal to $52,000. The additional $48 x 52,000 goes to the Additional Paid-in Capital.

2. Treasury stock is the repurchase of outstanding stock by the company. When repurchase at more than the par value, the difference is a debit to the Additional Paid-in Capital account, when the par value method is adopted. The other method, which records the whole costs in the Treasury Stock account is the cost method. Remember that the Treasury Stock account is a contra account to the Common Stock account.

3. Dividends are payable on outstanding stock. The outstanding stock on June 1 to June 15 is calculated as follows:

Opening balance = 100,000 shares

New issue = 52,000 shares

less Treasury = (4,700)

Total = 147,300 shares

Dividends are then payable on 147,300 shares at $1.35 per share. This gives a total of $198,855.

4. The resale of Treasury stock reduces the balance of the treasury stock account at par value and increases the Additional Paid-in Capital account with the premium.