Trying to create shape around font, like in the image attached

I'm pretty sure that this logo was created in Illustrator and not in Photoshop, you should move this question in the Ai section and of course if you have Ai.

in Ai you have a text tool that allows you to edit individual letters after using the arc text distortion ... in Ps you should type the letters separately in order to modify the "K" for example.

to get the same path in Ps you should duplicate the text layer 3 times (once placed the whole word with the "K" resized) ... change the color of the second level below to white and resize ... same for the third level below changing to black and resize.

this logo, however, is vector graphics.

     Regards

I am afraid, that will not work as a layer-style. You will have to draw the "arced rectangular" with the pen tool.... Best way to do this is to use Illustrator. You can then place the Text in PS an add layer-effects.

Have you tried addind what want you want usinf layer style effects?  You can gang up on effect these days perhape adding several strokes effects can do it. can do it.