In this section we have two comprehensive problems. Complete both to be eligible for credit. Problem 3–1 MI Air, Inc. engages in the following common stock transactions in 2017 for its $1 par value common stock. The firm earned $200 of net income during 2017, its first year of business. January 1—Issued 200 shares to an investor for $8 per share. December 1—Purchased 40 of the shares sold to the investor for $10 per share, and placed them in the corporate treasury. December 10—Issued 75 shares to another investor at $9 per share in order to secure additional financing for the firm. December 12—Issued 30 of the treasury shares when the market price was $11 per share. December 15—Declared a $.20 per share dividend. December 31—Paid the dividend declared on December 15. Requirements: (Use T accounts as necessary to track account balances) Journalize the above transactions. Present the effects of the stock transactions on MI Air’s 2017 income statement, Report stockholders’ equity on the company’s December 31, 2017 balance sheet.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
In this section we have two comprehensive problems. Complete both to be eligible for credit.
Problem 3–1
MI Air, Inc. engages in the following common stock transactions in 2017 for its $1 par value common stock. The firm earned $200 of net income during 2017, its first year of business.
- January 1—Issued 200 shares to an investor for $8 per share.
- December 1—Purchased 40 of the shares sold to the investor for $10 per share, and placed them in the corporate treasury.
- December 10—Issued 75 shares to another investor at $9 per share in order to secure additional financing for the firm.
- December 12—Issued 30 of the treasury shares when the market price was $11 per share.
- December 15—Declared a $.20 per share dividend.
- December 31—Paid the dividend declared on December 15.
Requirements: (Use T accounts as necessary to track account balances)
- Journalize the above transactions.
- Present the effects of the stock transactions on MI Air’s 2017 income statement,
- Report
stockholders’ equity on the company’s December 31, 2017balance sheet .
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