Question

6. Mune Company recorded journal entries for the declaration of $160,000 of dividends, the $250,000 increase in accounts receivable for services rendered, and the payment for purchase of equipment for $105,000. What net effect do these entries have on stockholders! equity? a. Increase of $90,000 b. Increase of $145,000. c. Increase of $250,000. d. Decrease of $15,000. e. Decrease of $160,000. f. Decrease of $265,000. 7. Clement Corp., a pharmaceutical manufacturer, licensed a drug patent to Global Corp. for royalties of 5% of drug sales. Royalties are payable twice yearly on April 15 for sales from July through December of the previous year and on October 15 for January - June same year sales. In 2019, Global paid royalties of $25,000 and $23,000 on April 15 and October 15, respectively. In response to Global's estimate of July - December sales of the drug, Clement correctly recognized $43,000 in royalty revenue in its financial statements dated December 31, 2019. What was Global's sales estimate for second half (July through December) of 2019? a. $460,000 b. $860,000 c. $400,000 d. $500,000 e. $960,000

Answer 1

(6)

Particulars	Amount($)
Reduction in other shareholders funds due to declaration of Dividend	(160000)
Total effect on equity	(160000)

The other two transactions will not effect the equity, as one deals with sales which is a nominal account transaction, while the other is Purchase of euipment a real account transaction.Equity is a personal account.

SO the answer is Option e.

(7)Income given for second half as on 31 dec,2019 is 5%=$43000

The sales value estimated is ?

We can use cross multiplication technique,

If 5% ------------------- $43000

100% ------------------ ?

So, sales estimated for second half july to december is =100%×$43000÷5%=$860000

So, the answer is Option b.