Peter and Mary were enjoying a glass of wine reviewing their financial statements from the two...

  

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Peter and Mary were enjoying a glass of wine reviewing their financial statements from the two gift shops they owned in cottage country. They have been in business ten years and are finally enjoying the success of their business. The gift shops are popular with local residents and cottagers. To enhance sales, they include a café with the gift shop. Of the sales about 20% came from coffee and snack sales and the remainder from gift merchandise. The coffee sales were zero rated supplies. Peter reviewed the financial statements (attached) and was pleased with the profit. The pandemic was not over, but it looks like they will survive and continue in business. Peter commented that they had $65,000 in the bank after the successful year. He thought maybe it was time to take a well-deserved vacation. Mary thought that was a good idea, but first they had to calculate and pay the HST payable and remit any amounts owing to the Canada Revenue Agency (CRA). Mary is extremely busy, as she has decided to teach a tax course at Humber, and has asked you CPA student to calculate her HST return for 2020. You have met with Peter and Mary and gathered the following additional information: There are two store locations. The location in Gravenhurst, Ontario is located on the main street and is a leased storefront. The annual lease is $60,000 and is included in the rent expense on the financial statement. The second store is in Dorest, Ontario and is located in a building Peter and Mary own through a separate related corporation. Gifts 'R' Us pays the related corporation through the rent expense on the financial statements. The building in Dorest had a rental apartment above the store. The rent is $1,000 per month and it was rented for 10 months in 2020. The rent was paid to the related company. The apartment occupied about 30% of the total building square footage. In the lease agreement between Gifts 'R' Us and the building company, all building maintenance and upgrades would be paid by Gifts 'R' Us. During 2020 the total capital expenses were: Store Leasehold Improvements $30,000 Exterior Building upgrades $45,000 Espresso Machines for café $20,000 Peter asked if there was an easier way to calculate and remit the HST. He heard a colleague say their business used the HST Quick Method and it saved them a lot of time. Peter asks if they could use the Quick Method? And finally, Peter would like to know if they can change their reporting period. He would like to know if there is any advantage to reporting either monthly or quarterly returns? They currently report annually. Prepare a memo to Peter and Mary calculating their HST balance explaining any usually situations. Also answer any questions they have asked about HST. (Show all calculations in exhibits to the memo). Gift 'R' Us Limited Income Statement For the year ended December 31, 2020 Revenue 996,719 Merchandise Purchases 475,372 Cafe Purchases 45,756 Gross Margin 475,590 Expenses Advertising Expense 6,317 IT Expense 6,930 Repairs and Maintenance 14,348 Supplies Expense 10,744 Utilities Expense 14,931 Vehicle Expense 6,983 Professional Fees 4,200 Fixtures Depreciation I 6,026 IT Equipment Depreciation 352 Leasehold Improvement Depreciation 17,855 Other General Expenses 23,153 Wages & Benefits 133,957 Rent 81,900 Bank & POS Charges 17,742 345,436 Operating Income 130,154 Interest Expense 22,735 Earnings Before Taxes 107,419 Taxes 13,964 Net Income 93,455 Peter and Mary were enjoying a glass of wine reviewing their financial statements from the two gift shops they owned in cottage country. They have been in business ten years and are finally enjoying the success of their business. The gift shops are popular with local residents and cottagers. To enhance sales, they include a café with the gift shop. Of the sales about 20% came from coffee and snack sales and the remainder from gift merchandise. The coffee sales were zero rated supplies. Peter reviewed the financial statements (attached) and was pleased with the profit. The pandemic was not over, but it looks like they will survive and continue in business. Peter commented that they had $65,000 in the bank after the successful year. He thought maybe it was time to take a well-deserved vacation. Mary thought that was a good idea, but first they had to calculate and pay the HST payable and remit any amounts owing to the Canada Revenue Agency (CRA). Mary is extremely busy, as she has decided to teach a tax course at Humber, and has asked you CPA student to calculate her HST return for 2020. You have met with Peter and Mary and gathered the following additional information: There are two store locations. The location in Gravenhurst, Ontario is located on the main street and is a leased storefront. The annual lease is $60,000 and is included in the rent expense on the financial statement. The second store is in Dorest, Ontario and is located in a building Peter and Mary own through a separate related corporation. Gifts 'R' Us pays the related corporation through the rent expense on the financial statements. The building in Dorest had a rental apartment above the store. The rent is $1,000 per month and it was rented for 10 months in 2020. The rent was paid to the related company. The apartment occupied about 30% of the total building square footage. In the lease agreement between Gifts 'R' Us and the building company, all building maintenance and upgrades would be paid by Gifts 'R' Us. During 2020 the total capital expenses were: Store Leasehold Improvements $30,000 Exterior Building upgrades $45,000 Espresso Machines for café $20,000 Peter asked if there was an easier way to calculate and remit the HST. He heard a colleague say their business used the HST Quick Method and it saved them a lot of time. Peter asks if they could use the Quick Method? And finally, Peter would like to know if they can change their reporting period. He would like to know if there is any advantage to reporting either monthly or quarterly returns? They currently report annually. Prepare a memo to Peter and Mary calculating their HST balance explaining any usually situations. Also answer any questions they have asked about HST. (Show all calculations in exhibits to the memo). Gift 'R' Us Limited Income Statement For the year ended December 31, 2020 Revenue 996,719 Merchandise Purchases 475,372 Cafe Purchases 45,756 Gross Margin 475,590 Expenses Advertising Expense 6,317 IT Expense 6,930 Repairs and Maintenance 14,348 Supplies Expense 10,744 Utilities Expense 14,931 Vehicle Expense 6,983 Professional Fees 4,200 Fixtures Depreciation I 6,026 IT Equipment Depreciation 352 Leasehold Improvement Depreciation 17,855 Other General Expenses 23,153 Wages & Benefits 133,957 Rent 81,900 Bank & POS Charges 17,742 345,436 Operating Income 130,154 Interest Expense 22,735 Earnings Before Taxes 107,419 Taxes 13,964 Net Income 93,455

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Memo To Peter and Mary From Your Name Subject Calculating HST This memo is to provide you with an overview of the HST payable and any amounts owing to ... View the full answer