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 2018. Power Drive has the following transactions affecting stockholders' equity in 2018.
March 1 Issues 50,000 additional shares of $1 par value common stock for $47 per share.
May 10 Purchases 4,500 shares of treasury stock for $50 per share. June 1 Declares a cash dividend of $1.25 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 2,250 shares of treasury stock purchased on May 10 for $55 per share.

Required:
Record each of these transactions

Answer 1

Answer:

See the journal entries below.

Explanation:

Each of these transactions can be recorded in the journal as follows:

Date      Particulars                                         Debit ($)              Credit ($)  

Mar 1     Cash (50,000 * $47)                        2,350,000

             Common stock                                                                 50,000

             Additional Paid-in Capital                                           2,300,000

             (To record Issue of 50,000 additional shares for $47 per share.)  

May 10   Treasury stock (4,500 * $50)           225,000

              Cash                                                                               225,000

              (To record Purchase of 4,500 shares of treasury stock)              

Jun 1      Dividend (w.1)                                     181,875

              Dividend payable                                                           181,875

              (Record dividend declared.)                                                          

Jul 1       Dividend payable                                181,875

              Cash                                                                                181,875

              (Record dividend paid.)                                                                  

Oct 21    Cash (2,250 * $55)                             123,750

              Treasury stock (2,250 * $50)                                         112,500

              Additional Paid-in Capital                                                11,250

              (To record resale of shares of treasury stock.)                          

Working:

w.1. Dividend = Dividend per share * (Shares of common stock outstanding as of the beginning of 2018 + Additional shares issued on March 1 -  Shares of treasury stock purchased on May 10) = $1.25 * (100,000 + 50,000 - 4,500) = $181,875