Question

Bramble Corp. recorded journal entries for the declaration of $250000 of dividends, the $159500 increase in accounts receivable for services rendered, and the purchase of equipment for $105000. What net effect do these entries have on stockholders equity?

Answer 1

Answer:

$90,500 decrease

Explanation:

Given that

Declaration of dividend = $250,000

Increase in account receivable = $159,500

Purchase of equipment = $105,000

As we see that the purchase of equipment has no impact because on one side the fixed asset increases and on the other side the cash is decreased.  

We know that

Total assets = Total liabilities + stockholders equity

So, the net effect would be  

$159,500 = $250,000 + stockholder equity

So, stockholder equity would be

= $159,500 - $250,000

= -$90,500

This negative sign reflects the decrease in stockholder equity