Question

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 year 8, Global paid royalties of $20,000 and $25,000 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, year 8. What was Global’s sales estimate for the second half of year 8?

Answer 1

Global's sales were 360,000 in their second half of year 8

Step-by-step explanation:

In October 15th Made payments for 25,000

thus the sales from January to June generate 25,000 royalties.

As during Year 8 it recognize 43,000 income from royalties

July- December generated royalties for:

43,000 - 25,000 = 18,000

As this is 5% of the drug sales then:

18,000 / 0.05 = 360,000 sales revenue