Question

Pino Inc. is a BC-based wine producer. In anticipation of a particularly bounteous grape harvest and a potential problem in obtaining a sufficient volume of shipping crates, Pino entered into a noncancellable agreement with Lumber Products Ltd. to supply 160,000 wooden crates at a price of $21 per crate plus 7% PST and 5% GST. During the current fiscal year, Pino purchased 40,000 crates. Near the end of the year, however, a restrictive tariff on the import of crates from the United States was lifted. Crates then became readily available from other suppliers for only $16 plus tax. Required: 1. Prepare the journal entry to record the purchase of crates during the current fiscal year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1	Journal entries to record purchase of crates during fiscal year
	Crates Purchased during fiscal year	40,000
	Cost price ($ 21)	840,000
	PST (7%)	58,800
	GST (5%)	42,000
a	Raw Material	a/c	Dr	840,000
	PST	a/c	Dr	58,800
	GST	a/c	Dr	42,000
	To Lumber Products Ltd	a/c	Cr	(940,800)
b	Lumber Products Ltd	a/c	Dr	940,800
	Bank	a/c	Cr	(940,800)
2	Journal entries to record the impact of price drop (Provision for loss of contract)
	Pending crates to be purchased as per contract	120,000
	Cost price ($ 21)	2,520,000
	PST (7%)	176,400
	GST (5%)	126,000
	Provision for purchase of Raw Material	a/c	Dr	2,520,000
	PST	a/c	Dr	176,400
	GST	a/c	Dr	126,000
	To Lumber Products Ltd	a/c	Cr	(2,822,400)