Reference no: EM132951626

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:

Problem 1: Prepare journal entries for each of the transactions listed.

Oct.1 Issued for cash, 1,000 shares of the preferred shares at $5.20 each.

10 Issued for cash, 54,000 shares of the common stock at $4.00 per share.

15 Earth star purchased land for $190,000, paying cash of $68,000 and borrowing the balance from the bank (to be repaid in two years).

20 17,000 preferred shares were issued today for total cash proceeds of $96,560.

24 In addition to the declaration of the annual dividend on the preferred shares, dividends of $26,920 were declared on the common shares today, payable November 15, 2020.

31 Revenues of $940,000 were earned during the month; all cash. Expenses, all cash, totalling $320,000 were incurred in October. Close the Income Summary and dividend accounts.

Part B

Required:

Problem 2: Based on the transactions in Part A, prepare the balance sheet as at October 31, 2020.