Question

1 Delloel Ltd. on the note's maturity date. X EXERCISE 12-3 Baldwin Inc. operates in a jurisdiction that levies two types of sales taxes: a federal, 6%, refundable goods and services tax and a provincial, 4% non-refundable sales tax. Both taxes are calculated on the base cost of the item, that is, there is no tax on the tax, and apply to all transactions. During the current year, the following transactions occurred: a. Inventory was purchased on account at a cost of $10,000, plus applicable taxes. b. Equipment was purchased for cash at a cost of $3,000, plus applicable taxes. C. Sales on account were made for proceeds of $16,000 plus applicable taxes. d. Cash sales were made for proceeds of $5,000 plus applicable taxes. e. At the end of the year, the net amounts of all sales taxes owing were remitted to the federal and provincial government authorities. Required: Prepare journal entries to record the transactions detailed above.

Answer 1

The non refundable taxes of 4% are to be added to the cost at the time of purchase .

The refundable taxes of 6% are to be treated as assets as they are eligible for credit in future.

At the time of sales , all the sales tax are to be treated as one single tax.

A detailed answer is given below.

Date Page I Journal entries:- Refundable Tan (6+). Alle • Purchase Alo (1041) De ! To, cash. (Bring goods Purchased ). 600 10,400 W.000. Refundable Tanc (6t.) Alc de Equipment (1044.) Ak de To , Cash Ale 180 3,120 3.300 Bring equipment Purchased ). Recivable Gath All be To, Sales Alc To, Tances ALC (104) 17,600. 16.000 1,600 Leing Sales Made) Cash AL De To, Sales A To, Tances Sales . 5,500 5.000 Soo ALC (10x.) (Being

Date Page Tonces All Dr To, Refundable To, Bank (Being Taxes 2, 100 Tax ALC 780 All 1.320. paid).