Question
Gear Out There (GOT) Inc., is a wholesale company selling supplies and materials for climbing, hiking and other outdoor activities mainly to the retail supply
Gear Out There (GOT) Inc., is a wholesale company selling supplies and materials for climbing, hiking and other outdoor activities mainly to the retail supply stores in British Columbia.
Gear Out There (GOT) Inc. is incorporated under the laws of British Columbia, and is required to remit GST, Goods and Services Tax, at the rate of 5% on all its sales and must remit taxes collected to the federal government on a quarterly basis. GST amounts charged by its suppliers can be deducted from this remittance (these deductions called an ITC credit) however this is not the case for PST.
Gear Out There (GOT) Inc. is required to remit PST, Provincial Sales Tax, at the rate of 7% on all its sales and must remit taxes collected to the provincial government on a monthly basis. Gear Out There (GOT) Inc. is considering an IPO (Initial Public Offering) and listing on the TSX, Toronto Stock Exchange. Management is discussing the potential to expand into global adventure tourism. Therefore, IFRS accounting standards are used. Gear Out There (GOT) Inc. negotiated with most of its trade suppliers 1% discount if paid within 20 days (1%, n/20). Otherwise the net amount is due within 21 to 30 days without penalty. Be sure to correct for GST actually paid on purchase when recording the discount given.
Gear Out There (GOT) Inc. pays its workforce according to the Employment Standards Act of British Columbia. The employer remits 1.4 times the employee portion of EI. The employer remittance of CPP is equal to the employee portion. All regulatory source deductions should be accounted for (both employee and employer portion). The WorkSafe BC assessment rate is 1% of gross salaries.
Transactions for June, 2020
June 2 - Sold merchandise to East Robson Inc. at invoice price of $30,000 + GST + PST; on credit; Invoice No. 1001
June 3 - Received merchandise from Everest Company at invoice cost of $4,000 + GST; credit terms, 1%, n /20; Purchase Order No. 5001. No PST since the manager provided the provincial vendor number to the supplier. There will be no PST paid on any merchandise purchased.
June 4 - Sold merchandise to West Rupert Co. for $5,000 + GST + PST; on credit terms; Invoice No. 1002
June 5 - Received merchandise from Katmandu Ltd. at an invoice cost of $3,000 + GST on credit; terms, 1%, n/20; Purchase Order No. 5002
June 6 - Sold merchandise for cash to Tabor Equipment for $7,000 + GST + PST
June 7 - Received merchandise from Colton Manufacturing Company at a cost of $2,000 + GST; paid cash.
June 8 - Purchased a capital asset (store equipment) at a cost of $19,100 + GST + PST; gave a 90-day, 6 percent, interest-bearing note payable for the purchase price; assume date was June 1, 2020 for interest and depreciation calculations (at adjustments stage)
June 9 - Sold a tract of land for $10,000 + GST which previously was used by the company and originally cost $3,000; collected cash
June 10- Collected the account receivable from West Rupert Co.; Invoice No. 1002 June 11- Paid $1,200 for a one-year insurance policy on property, plant and equipment starting June 1, 2020
June 11- Obtained a $6,000 bank loan; signed a one-year, 7 percent, interest-bearing bank loan agreement. Assume date was June 1, 2020 for interest calculation (at adjustments stage)
June 12- Paid the account payable to Katmandu Ltd. within the discount period. Purchase Order No. 5002
June 13- Paid monthly rent, $2,000 + GST
June 14- Sold merchandise for cash, $4,000 + GST + PST
June 15- Purchased merchandise from Logan Ltd. for cash, $4,000 + GST terms 1% n/20. INV 10021
June 15- Paid May 31st source deductions to the Canada Revenue Agency (CRA), payable to the Receiver General; CPP $370; EI $135; taxes $1675
June 16- Sold merchandise on credit to Purdon Co. for $6,000 + GST + PST; Invoice No. 1003
June 17- Received merchandise on credit from Mountain Co-Op at an invoice cost of $8,000 + GST; terms 1% n/20; Purchase Order No. 5003
June 18- Collected the account receivable from East Robson Inc. Invoice No. 1001
June 19- Paid the account payable to Everest Company. Purchase Order No. 5001
June 20- Returned merchandise purchased on account from Logan Ltd.; amount $4,000 + GST invoice 10021.
June 21- Received dividend revenue of $2,000 from the held-for-trading investments.
June 25- Paid May 31st PST payable to the Minister of Finance
June 29- Purchased 500 held-for-trading shares of Ocean Electronics Inc. at $20.00 per share.
June 30- Paid May 31st Worksafe BC payable to Worksafe BC, the assessment department of the Workers Compensation Board
June 30- Paid May 31st GST payable to the Receiver General of Canada
June 30- Paid monthly salaries: gross earnings $7,000 less; employee CPP $343; employee EI $123; employee income taxes $1,313. Remember to include employer portions of CPP and EI and $70 for Worksafe BC premiums as well.
Adjustments Data developed by Gear Out There (GOT) Inc. as a basis for the adjusting entries at June 30, 2020 were:
a) The average loss rate for bad debts is estimated to be 1 percent of net sales (as per chart of accounts). Record for the month of June.
b) The store equipment is depreciated on the straight-line basis of an estimated 10-year useful life with no residual value. The equipment purchased in the period can be depreciated for the entire month. Record one-month depreciation.
c) On June 30, 2020, the periodic inventory count of goods remaining on hand reflected $25,000. GOT records purchases, returns, and discounts to their respective expense account during the year; GOT then allocates to Inventory at period end according to what the ending inventory count shows. ***Purchases (Acct.5010), Purchases Returns (Acct.5020) and Purchase Discounts (Acct.5030) must be nil ($0) at the end of the period, and reallocated to Cost of Goods Sold. From there, inventory is adjusted.
d) Account for the Interest expense on the Note Payable and the Bank Loan; round to the nearest dollar. Record one month interest expense. e) Uncollectible amounts written off from accounts receivable total $560. f) Account for the Insurance expense, if applicable. g) Unrecorded corporate income tax expense is $2,500
QUESTION -
Take the Gear Out There (GOT) Inc. Balance Sheet, as at May 31, 2020, and continue recording transactions for the fiscal year end of June 30, 2020 as follows:
1. Analyze each of the June transactions and prepare a journal entry in the General Journal (use the template provided). Please number your journal entries, and include the date as well as a description for full marks.
2. Post the above journal entries to the General Ledger (T-Accounts). Use General Ledger account numbers as per the Chart of Accounts and fill in the beginning balances before posting the June transactions.
3. Journalize and post the adjusting journal entries to the General Ledger.
4. Prepare the June 30, 2020 Adjusted Trial Balance (Includes ordinary business journal entries, as well as adjusting entries).
5. Prepare the multi-step Income Statement for the month of June and the classified Statement of Financial Position/Balance Sheet (same as assignment/beginning May financials) as at June 30, 2020. (Amounts may be rounded to the nearest dollar)
6. Briefly comment on the financial health of Gear Out There (GOT) Inc.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started