Question

Moose Jaw Company operates a store in Moose Jaw, Saskatchewan. They purchased inventory from Brandon Inc. for $100,000. Moose Jaw pays 15% HST in addition to the cost. (Assume that Saskatchewan uses the same tax system as Nova Scotia.) Moose Jaw then sells the inventory to customers for cash, $250,000.

Required: (For Moose Jaw Company)

1. Record the journal entry for the purchase of inventory.
2. Record the journal entry for the sale to customers. (Ignore ‘cost of goods sold’ part of entry.)
3. Record the payment to the government for HST.
4. Assume that all the products sold by Moose Jaw Company are HST exempt. In other words, Moose Jaw cannot charge HST to its customers for those products. Assume Moose Jaw gets a rent invoice from its landlord for $20,000 plus HST. Record the journal entry to accrue the rent invoice.

Answer 1

Journal Entries:

S.No.	Particulars	Debit	Credit
a.	Inventory	100,000
	Input HST (100,000*15%)	15,000
	Cash / Accounts Payable		115,000
b.	Cash	250,000
	Sales Revenue		250,000
c.	Cash	15,000
	Input HST		15,000
d.	Rent Expense	20,000
	Input HST (20,000*15%)	3,000
	Rent Payable		23,000

Note: There is no payment of HST to Goverment. Instead, refund of HST paid on the purchase can be claimed. Alternatively, the HST portion on purchase may be added to the cost of inventory and the following entry can be passed:

Inventory [100,000+(100,000*15%)] Dr. $115,000

Cash / Accounts Payable Cr. $115,000