Earth Star Diamonds Inc. began a potentially lucrative mining operation on October 1, 2020. It is authorized to issue 100,000 shares of $0.60 cumulative preferred shares and 500,000 common shares. The company uses the cash dividends account to keep track of all dividends declared.

Part A

Required:

Prepare journal entries for each of the transactions listed.

Oct.1Issued for cash, 1,000 shares of the preferred shares at $5.70 each.10Issued for cash, 59,000 shares of the common stock at $4.50 per share.15Earth star purchased land for $195,000, paying cash of $70,500 and borrowing the balance from the bank (to be repaid in two years).2019,500 preferred shares were issued today for total cash proceeds of $111,735.24In addition to the declaration of the annual dividend on the preferred shares, dividends of $26,970 were declared on the common shares today, payable November 15, 2020.31Revenues of $990,000 were earned during the month; all cash. Expenses, all cash, totalling $345,000 were incurred in October. Close the Income Summary and dividend accounts.

transaction list

1

Record the issue of preferred shares.

2

Record the issue of common shares.

3

Record the purchase of land in exchange for cash and a note.

4

Record the issue of preferred shares for cash.

5

Record the dividends declared on common and preferred shares.

6

Record the revenues earned.

7

Record the expenses incurred.

b.Based on the transactions in Part A, prepare the balance sheet as at October 31, 2020.

On March 1, the board of directors declared a cash dividend of $0.75 per common share to shareholders of record on March 10, payable March 31. There were 131,000 shares issued and outstanding on March 1 and no additional shares had been issued during the month. Record the entries for March 1, 10, and 31. The cash dividends account is used.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

transaction list

• 1
• Record the declaration of cash dividend on common shares of $0.75 per share.
• 2
• Record the declaration of cash dividend of $0.75 per share to share holders on record.
• 3
• Record the payment of dividends declared on March 1.