Problem 3-1 MI Air, Inc. engages in the following common stock transactions in 2
ID: 2542083 • Letter: P
Question
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.
Problem 3-2
Subtle Edge, Inc. presents the following excerpts from its December 31, 2017 balance sheet:
The accounting department also conveys the following information: Risk-free rate of return — 3%
Risk premium — 4.05% Tax rate — 30%
Current Liabilities:
Notes payable, 8%
$ 200,000
Long-term Liabilities:
Bonds payable, 10%
1,000,000
Shareholders’ Equity
Common stock, par
50,000
Additional paid-in-capital, common stock
350,000
Total contributed capital
400,000
Retained earnings
250,000
Total shareholders’ equity
650,000
Compute Subtle Edge’s weighted average cost of capital. (MacQueen)
MacQueen, Peter Bergevin M. Introduction to Accounting and Finance. BVT Publishing, 07/2017. VitalBook file.
Explanation / Answer
Prob: 3 -1
1. In the books of MI Air Inc. :
MI Air Inc.
Balance Sheet ( Partial)
December 31, 2017
Date General Journal Debit Credit $ $ Jan 1 Cash 1,600 Common Stock 200 Paid-in Capital in Excess of Par 1,400 Dec 1 Treasury Stock 400 Cash 400 Dec 10 Cash 675 Common Stock 75 Paid-in Capital in Excess of Par 600 Dec 12 Cash 330 Treasury Stock 300 Paid-in Capital : Treasury Stock 30 Dec 15 Retained Earnings 53 Dividends Payable: Common Stock ( 265 x $ 0.20) 53 Dec 31 Dividends Payable : Common Stock 53 Cash 53 Dec 31 Income Summary 200 Retained Earnings 200Related Questions
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