For the year ending December 31, 2019, the Income Statement of Dorknell Ltd. is as follows (all amounts are without
For the year ending December 31, 2019, the Income Statement of Dorknell Ltd. is as follows (all amounts are without the inclusion of applicable GST and PST):
Sales of Fully Taxable Goods $216,000
Provision of Exempt Services 78,000 $294,000
Cost Of Goods Sold ($123,000)
Amortization Expense ( 56,000)
Salaries And Wages ( 12,000)
Rent ( 42,000)
Interest Expense ( 9,000)
Other Operating Expenses ( 27,000) ( 269,000)
Income Before Taxes $ 25,000
Less: Federal And Provincial Income Taxes ( 8,000)
Net Income $ 17,000
1. Dorknell Ltd. is a retail business located in Saskatchewan where all of the Company’s revenues and expenses are incurred. In addition to the 5 percent federal GST, Saskatchewan has a provincial sales tax, assessed at a rate of 6 percent. The quick method rates applicable to the province are 1.8 percent for businesses that purchase goods for resale, and 3.6 percent for service providers.
2. For the previous year ending December 31, 2018, Dorknell’s cost of goods purchased for resale totalled $110,000 and the revenue from sales of taxable supplies totalled $302,000. Both amounts are before GST and PST.
3. Inventories of taxable goods decreased by $8,000 during the year.
4. All of the Other Operating Expenses involved the acquisition of fully taxable supplies and were acquired to assist in the provision of fully taxable supplies.
5. Of the Salaries And Wages, 46 percent were paid to employees involved in providing exempt services.
6. A capital expenditure was made during the year at a GST and PST inclusive cost of $62,160. The expenditure was for equipment that will be used 60 percent for the provision of fully taxable goods. GST and PST was paid on the acquisition of all assets on which amortization is being taken during this period.
Required: For the year ending December 31, 2019: YOU MUST SHOW ALL OF YOUR CALCUATIONS FOR FULL MARKS.
A. Determine if Dorknell is eligible to use the Quick Method and the Quick Method remittance rate that would be applicable.
B. Calculate the net GST payable or refund that Dorknell Ltd. will remit or receive using regular GST calculations.
C. Assume that Dorknell is eligible to use the Quick Method. Calculate the net GST payable or refund that Dorknell Ltd. will remit or receive using the Quick Method.