Question

the following are selected transactions of Monty Department Store Ltd. for the current year ended December 31. Monty is a private company operating in the province of Manitoba where PST is 8% and GST is 5%. PDSL follows ASPE and has a periodic inventory system.Prepare jornal entry.

1.		On February 2, Monty placed an order to buy goods for resale from Hashmani Limited for $48,000 plus GST. Terms of purchase are f.o.b. destination, net 15. The goods arrived February 6 and the invoice was paid on February 20. (Hint: Inventory for resale is purchased PST exempt.)
2.		On April 1, Monty purchased a truck for $48,000 from Schuler Motors Limited, paying $11,040 cash and signing a one-year, 8% note for the balance of the purchase price. Provincial sales tax of 8% and GST of 5% were charged by the supplier on the purchase price.
3.		On May 1, Monty borrowed $71,000 from First Provincial Bank by signing a $82,100 non–interest-bearing note due one year from May 1.
4.		On June 30 and December 31, Monty remitted cheques for $20,500 each as instalments on its current year tax liability.
5.		On August 14, Monty's board of directors declared a $19,000 cash dividend that was payable on September 10 to shareholders of record on August 31.

Answer 1

Refer below Journal entries for the transactions / events given in the question.  

S.No.	Date	Accounts title / Particulars	Debit $	Credit $
1	February 6	Merchandise Inventory	48,000
		GST Input claim	2,400
		To Hashmani Limited / Accounts payable		50,400
		[Being recording of purchase of goods on credit @5% GST i.e. $48,000*5% = $2,400]
2	February 20	Hashmani Limited	50,400
		To Cash		50,400
		[Being recording of payment to Hashmani Limited for purchase of goods on February 6]
3	April 1	Truck / Motor Vehicle	54,240
		To Cash		11,040
		To 8% Note payable		43,200
		[Being recording of purchase of truck assuming input credit is not available for PST and GST considering it a capital item]
		Working note:
		Truck purchase price	48,000
		Provincial sales tax @8% of $48,000	3,840
		GST of 5% of $48,000	2,400
		Total truck purchase cost		54,240
4	May 1	Bank	71,000
		To Borrowing from bank		71,000
		[Being recording of loan from First Provincial Bank by signing a $82,100 Non-interest bearing note]
5	June 30	Tax expense	20,500
		To Bank		20,500
		[Being recording and payment of tax instalment for current year]
6	August 31	Dividend	19,000
		To Dividend payable		19,000
		[Being recording of dividend payable to shareholders]
7	September 10	Dividend payable	19,000
		To Cash		19,000
		[Being recording of payment of dividend to shareholders]
8	December 31	Tax expense	20,500
		To Bank		20,500
		[Being recording and payment of tax instalment for current year]
9	December 31	Interest expense	7,400
		To Borrowing from Bank		7,400
		[Being recording of interest expense from May-December i.e. 8 months]
		Working Note:
		Borrowing amount	71,000
		Note payable after 1 year	82,100
		Interest component for 1 year note	11,100
		May-December (8 months) interest component - [11,100/12*8]	7,400
10	December 31	Interest expense	2,592
		To 8% Note payable		2,592
		[Being recording of interest expense from Apr-December i.e. 9 months]
		Working Note:
		8% Note payable amount	43,200
		Apr-December (9 months) interest component @8% - [43,200*8%*9/12]	2,592

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