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 55,000 additional shares of $1 par value common stock for $52 per share.
May 10 Purchases 5,000 shares of treasury stock for $55 per share.
June 1 Declares a cash dividend of $1.50 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 2,500 shares of treasury stock purchased on May 10 for $60 per share.
Required:
Record each of these transactions.

Answer 1

Answer and Explanation:

The journal entries are shown below:

On March 1

Cash Dr (55,000 × $52)   $2,860,000

       To Common stock (55,000 × $1 per share)  $55,000

       To Additional paid in capital - common stock $2,805,000

(Bein the issuance of the common shares are recorded)

On May 10

Treasury stock Dr (5,000 shares × $55) $275,000

         To Cash $275,000

(being the purchase of treasury stock)

On June 1

Dividend Dr  (150,000 shares × $1.50)  $225,000

      To Dividend payable $225,000

(Being the cash dividend is declared)

On July 1

Dividend payable Dr  (150,000 shares × $1.50)  $225,000

       To cash $225,000

(being the dividend paid is recorded)

On October 21

Cash Dr (2,500 shares × $60) $150,000

     To Treasury stock (2,500 shares × $55)  $137,500

     To Additional paid in capital - treasury stock $12,500

(Being the reissuance of the treasury stock is recorded)