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 58,000 additional shares of $1 par value common stock for $55 per share. May 10 Purchases 5,300 shares of treasury stock for $58 per share. June 1 Declares a cash dividend of $1.65 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 2,650 shares of treasury stock purchased on May 10 for $63 per share. Power Drive Corporation has the following beginning balances in its stockholders' equity accounts on January 1, 2021: Common Stock, $100,000; Additional Paid-in Capital, $4,800,000; and Retained Earnings, $2,300,000. Net income for the year ended December 31, 2021, is $630,000.

Required: Prepare the stockholders' equity section of the balance sheet for Power Drive Corporation as of December 31, 2021.

Answer 1

Power drive corporation
December 31 2021
Stockholders equity
Common stock $ 1 par
158,000 shares issued and 155,350 outstanding	$158,000
Paid in capital excess of par common  stock	$7,932,000
Paid in capital from treasury stock	$13,250
Total paid in capital	$8,103,250
Retained earnings	$2,678,045
Less treasury stock (2,650 shares at cost)	-$153,700
Total stockholders equity	$10,627,595

Working notes-

1- Issued common stock 58,000 shares

Common stock credited= $1*58,000= $58,000

Additional paid-in capital excess of par= (55-1)*58,000

Additional paid-in capital excess of par=$3,132,000

2

Treasury stock sold at $58 per share

=58*5,300= $307,400

Treasury stock debited at $307,400 and cash credited at $307,400

3

July 1Divdiend paid are transferred to retained earnings on date of declaration, on date of payment no affect on stockholders equity account

Cash dividend paid of $1.65 on outstanding shares

Outstanding shares= 100,000+58,000-5,300=152,700 shares

Dividend paid= 152,700*1.65= $251,955

4

Sold 2,650 shares of treasury stock at $63

Trasury stock should be credited at cost which they were purchased i.e. $58

Amount credited to treasury stock= $58*2,650= $153,700

Amount credited to Additional paid in capital-Traesury stcok= (63-58)*2,650

Amount credited to Additional paid in capital-Traesury stcok=$13,250

Balances on Dec 31 2019

Common stock balance at end of Dec 31 2021=Opening balance+New Share issued

=100,000+58,000= $158,000

Additional paid in capital balnve at end of Dec 31 2021= Opening balance +additional capital on new shares issued

=4,800,000+3,132,000=$7,932,000

Treasury stock=Treasury stock purchased-Treasury stock sold

=307,400-153,700=$153,700

Additional paid in capital-Excess of treasury stock=$13,250

Retained earnings=Opening balance+Net income-Divdiend

=2,300,000+630,000-251,955=$2,678,045

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