APPENDIX B

Sales Taxes

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE B-1

There are two main types of sales taxes in Canada, the federal Goods and Services Tax (GST) or Harmonized Sales Tax (HST) and the Provincial Sales Tax (PST) sometimes called the Retail Sales Tax.

For a business that is a registrant which charges GST/HST to its customers, all GST/HST paid by the business on all purchases is recovered and does not represent a cost to the business. On the other hand, the PST is not recoverable and the amount paid by the business is included as a cost of purchasing an asset or paying for a service.

From the perspective of a consumer, the two types of taxes are viewed as the same because neither tax is fully recoverable.

BRIEF EXERCISE B-2

Accounts Receivable
1,839.60

Sales 1,600.00 GST Payable ($1,600 × 5%)

80.00 QST Payable ($1,600 × 9.975%)

159.60

Cost of Goods Sold 900.00 Merchandise Inventory 900.00

BRIEF EXERCISE B-3

Sales Returns and Allowances 800.00 GST Payable ($800 × 5%) 40.00 PST Payable ($800 × 9.975%) 79.80 Accounts Receivable 919.80

Merchandise Inventory 450.00 Cost of Goods Sold 450.00

BRIEF EXERCISE B-4

Accounts Receivable 1,839.60 Sales 1,600.00 GST Payable ($1,600 × 5%) 80.00 PST Payable ($1,600 × 9.975%) 159.60

Sales Returns and Allowances 800.00 GST Payable ($800 × 5%) 40.00 PST Payable ($800 × 9.975%)
79.80

Accounts Receivable 919.80

BRIEF EXERCISE B-5

Accounts Receivable
450

Service Revenue 450

BRIEF EXERCISE B-6

Accounts Receivable 735 Service Revenue 700 GST Payable ($700 × 5%)

35

BRIEF EXERCISE B-7

Merchandise Inventory 4,100 GST Recoverable ($4,100 × 5%)
205

Accounts Payable 4,305

BRIEF EXERCISE B-8

Accounts Payable 525 GST Recoverable ($500 × 5%) 25 Merchandise Inventory 500

BRIEF EXERCISE B-9

Merchandise Inventory 4,100 HST Recoverable ($4,100 × 13%)
533

Accounts Payable 4,633

BRIEF EXERCISE B-10

Accounts Payable 565 HST Recoverable ($500 × 13%) 65 Merchandise Inventory 500

BRIEF EXERCISE B-11

Supplies ($600 × 1.05)
630

GST Recoverable ($600 × 5%)
30

Cash 660

BRIEF EXERCISE B-12

Supplies
600

HST Recoverable ($600 × 15%)
90

Cash 690

BRIEF EXERCISE B-13

Vehicles 32,000 HST Recoverable ($32,000 × 14%) 4,480 Accounts Payable 36,480

BRIEF EXERCISE B-14

Vehicles ($32,000 × 1.07)
34,240

GST Recoverable ($32,000 × 5%) 1,600 Accounts Payable 35,840

BRIEF EXERCISE B-15

Merchandise Inventory 5,000 Supplies ($300 × 1.07) 321 GST Recoverable ($5,300 × 5%) 265 Accounts Payable 5,586

BRIEF EXERCISE B-16

GST Payable 6,120 GST Recoverable 940 Cash 5,180

PST Payable
8,570

Cash 8,570

BRIEF EXERCISE B-17

Cash 690 HST Payable 3,920 HST Recoverable 4,610

SOLUTIONS TO EXERCISES

EXERCISE B-1

Province of Manitoba

GENERAL JOURNAL

Date
Account Titles and Explanation
Debit
Credit

May 1
Rent Expense 7,300

GST Recoverable ($7,300 × 5%) 365

Cash

7,665

3
Accounts Receivable—Marvin 28,000

Sales 25,000

GST Payable ($25,000 × 5%) 1,250

PST Payable ($25,000 × 7%) 1,750

Cost of Goods Sold 18,600

Merchandise Inventory 18,600

5
Sales Returns and Allowances 800

GST Payable ($800 × 5%) 40

PST Payable ($800 × 7%) 56

Accounts Receivable—Marvin 896

7
Merchandise Inventory 11,000

GST Recoverable ($11,000 × 5%) 550

Accounts Payable—Macphee 11,550

12
Furniture ($600 × 1.07) 642

GST Recoverable ($600 × 5%) 30

Cash 672

31
GST