Volume Ii

(SECOND YEAR)

Twelfth Printing

NEW YORK THE RONALD PRESS COMPANY 1922

Copyright, 1918, by THE RONALD PRESS COMPANY

To Nancy

AS A TRIBUTE OF LOVE AND TENDER MEMORY TO HER MOTHER

PREFACE

A knowledge of the subject matter of Volume I is a prerequisite to the profitable study of the present work. Therefore, it may be well to review briefly the contents of the latter as an introduction to this book. In Volume I the attempt was made to formulate and illustrate the basic principles upon which the practice of accounting is founded. The principles of debit and credit were developed and their application explained—as related ultimately to the balance sheet and statement of profit and loss. The chief books of original entry (the voucher register excepted) and the various ledgers were described and illustrated. Columnar books, controlling accounts, methods and devices for preventing and detecting errors, methods for the proper handling of purchases, sales, cash, and trade discounts, and some phases of proportion and interest were discussed in detail.

Some special applications of accounting principles, as viewed in relation to the accounting problems involved therein, were also explained and illustrated under such heads as: notes receivable discounted and dishonored; consignments and approval sales; single and joint venture accounts; accounts current, their reconciliation and adjustment; instalment sales; sales for future delivery; single entry, its methods and the results attainable under it; etc.

From the standpoint of business organization, the accounting problems peculiar to the single proprietorship and the partnership were given full treatment. The advantages and disadvantages of the various types of organization, the rights and duties of owners among themselves and to outsiders, the accounting procedure necessary under different conditions for changing from one form of organization to another, and other like items were set forth. Underlying the entire treatment of the subject was the guiding principle that accounting is never an end in itself, that its right to existence depends solely on the service it can render from the standpoint of administrative and financial management.

In content, the present volume is primarily a study of the corporation, its accounting and financial problems, although most of the material, in so far as it consists of a statement of general principles, is equally applicable to other types of organization. The emphasis of the volume is laid upon the problem of valuation as met in the commercial balance sheet. Chapters IV to XXVII inclusive comprise this portion of the subject matter. The other chapters treat miscellaneous matters, a knowledge of which is essential to the student of accounting. These latter form parts of the work of the second year as mapped out in the author’s scheme of instruction, whereby the whole field of accounting is covered by a well-graded three-year course of study. In this scheme cost accounting should be studied concurrently and as a parallel course with the work of this second volume. Only a bare outline of some of the problems and methods of cost accounting is presented in this volume.

As to the division of the text and its use in the general scheme, it is suggested that the first twenty-seven chapters should comprise the text material for the first semester, leaving the remainder for the second semester in which the chief emphasis should be placed on the solution of problems rather than on the formal classroom lecture. Hence the text material is lessened for this semester’s work, and the student’s main effort is directed towards the application to the problems of business of the principles already established.

Instead of following the plan of the first volume in placing the practice work for the student at the end of each chapter of text, this material is presented separately in three appendices. It is believed that this will be found a more convenient arrangement.

The author desires to emphasize the need of ample practice work and at the same time to take a stand against the method of teaching accounting exclusively by the so-called laboratory or case method. A happy combination of text containing a statement of principles and showing methods of application, together with practice material intelligently made up so as to require a knowledge of principles before solution, is the desideratum in any course of instruction. Principles, theory, without application are barren and soon slip away, even if seemingly understood at the time. Practice without a thorough grounding in fundamental theory can never be sure of itself. An equitable division of the student’s time between theory and practice portions should be aimed at. In the present volume, while the time required for the practice assignments may at times seem heavy, an attempt has been made to keep it to the minimum deemed essential for adequate training either for general or professional use. It cannot be too emphatically stated that accounting as a profession ranks as to subject matter and the need for its services with the other professions. If it is to enjoy equal honor, dignity, and professional standing, teachers and practitioners must condemn without qualification the idea prevalent among many that a few months’ training suffices to turn out a finished product. Too often has such a course given point to the witticism that an accountant is a bookkeeper without a job. As stated in the preface of Volume I, a course of at least three years’ professional study is now quite generally recognized as essential. Accounting is so broad in its many ramifications that less than that gives inadequate training.

The reception accorded the first volume and the report of results achieved in the classroom, through its use leads the author to hope that this second volume may have a courteous hearing and trial. Criticisms and suggestions will be much appreciated. The author hopes to be able to offer in the not too remote future the third and concluding volume in this series on general accounting.

The author is indebted for much assistance and counsel. Acknowledgment is due Miss Nina Miller of the Columbia staff and Eric Bodine for help in gathering and preparing much of the material for Chapters XXVIII to XXXIII; to H. A. Inghram of the University of Georgia, for preparation of a large part of Appendix D; to Leo Greendlinger and David E. Boyce for the use of problems prepared by them; and to his good friend, Joseph Gill, for help in reading the proof. To S. B. Koopman and James F. Hughes of the Columbia staff in second year accounting, the author is under special obligation for many suggestions. Mr. Koopman has furnished most of the problems for Appendix B, and has collected those for Appendix C.

As with Volume I, so in shaping the content of the present volume the author has had the good counsel and ever ready help of his chief, Robert H. Montgomery, and desires again to offer goodly acknowledgment, for his debt is large.

R. B. KESTER. Columbia University, New York City, August 5, 1918.

CONTENTS

CHAPTER PAGE I THE CORPORATION 1 The Corporation Classification and Definitions Method of Ownership Working Organization Different Classes of Stock Common Stock Preferred Stock Guaranteed Stock Founders’ Stock Debenture Stock Stock of No Par Value Watered Stock Treasury Stock Forfeited Stock Bonus Stocks or Bonds

ACCOUNTING FOR STOCKS Discount on Stock Premium on Stock Property Exchanged for Stock Treasury Stock Donated Bonus Stock Treasury Stock Purchased Redemption of Preferred Stock Forfeited Stock Stock of No Par Value Distinctive Records Stock Ledger Minute Book Conclusion

II THE VOUCHER SYSTEM 26 Purchasing for the Manufacturing Business Expansion of the Purchase Journal Development of Voucher System Definition and Description of Voucher Operation of Voucher System Voucher Check Form of Voucher Register Distribution of Vouchers Posting of Summary Totals Effect on Cash Book and Bank Account Payment of Vouchers Voucher Index of Creditors Control of Vouchers Payable Introduction of System Purchase Returns and Allowances Partial Payments Handling of Notes Payable Cash Discount on Purchases Modifications of System Summary of Operation and Advantages

III FACTORY COSTS 49 Difference Between Factory and Financial Accounting Definitions of Terms Special Purposes of Cost Records Nature of Raw Materials and Supplies Accounting for Material Cost Direct and Indirect Labor Time-Keeping Records Pay-Roll Safeguarding the Pay-Roll Distribution of Labor Charges Expense Summary of Manufacturing Cost

IV THE BALANCE SHEET 60 Business Methods under the Microscope The Reading of the Balance Sheet Definition Relation Between Balance Sheet and Trial Balance Form of Balance Sheet Purpose and Uses Types of Balance Sheet Origin of English Form of Balance Sheet Variation of English Form Balance Sheet Titles Grouping and Classification Arrangement of Groups Report and Account Forms Valuation Accounts Statutory Requirements as to Frequency of Balance Sheets Condensation of Information in the Balance Sheet Use of Supporting Schedules

V GENERAL PRINCIPLES OF VALUATION 81 Content of the Balance Sheet Valuations for Rate Regulation Valuation for Sale and Purchase Other Kinds of Valuations Going Concern Valuation Kinds of Value Source of Data as to Values Cost Value the Usual Basis Definition of Capital and Revenue Expenditures Organization Expenses Definition of Replacements, Renewals, Maintenance, etc. Treatment of Renewal of Parts Treatment of Cost-Cutting Changes Asset Subject to Depreciation a Deferred Charge to Operations Authorization of Booking Capital Expenditures Repairs on Second-Hand Plant Construction Costs Distinction Between Capital and Revenue Expenditures Often Based on Opinion Main Groups of Asset Items Valuation of Liability Items Over- and Under-Valuation The Balance Sheet an Expression of Opinion

VI DEPRECIATION—ASPECTS AND DEFINITIONS OF TERMS 99 Aspects of Depreciation Definitions Authoritative Opinions Why the Depreciation Factor Arises Actual or Absolute Depreciation Theoretical Depreciation Comparison of Actual and Theoretical Depreciation “Accounting” and “Fair” Depreciation Complete and Incomplete Depreciation Individual and Composite Depreciation Physical and Functional Depreciation Deferred Maintenance and Accrued Depreciation Attitude of the Law Decision of Supreme Court Recognition of the Depreciation Factor Distinction Between Repairs and Renewals Depreciation and Plant Efficiency Unit Efficiency Depreciation and Fluctuations in Market Value Distinction Between Depreciation and Depletion Effect on Different Kinds of Business

VII DEPRECIATION—ITS CAUSES 120 Analysis of Causes Age as a Cause of Depreciation Wear and Tear of Use Functional Depreciation Inadequacy as a Factor Inadequacy Through Change of Policy Inadequacy Through Motives of Economy Inadequacy Due to Unforeseen Development Inadequacy Imposed from Without Obsolescence as a Cause Treatment of Obsolescence Contingent Depreciation Terminable Rights Effective Depreciation

VIII DEPRECIATION—FACTORS OF RATE DETERMINATION 136 Fundamental Purpose of Depreciation Depreciation a Cost of Operation Complication of Short Fiscal Periods The Factor of Idle Time Depreciation a Means of Financing Danger of the Financing Viewpoint The Standardization of Depreciation Rates Effect of Local Conditions Factors in Determining Depreciation Rate Bases of Normal Rate Policies as to Repairs Depreciation Rate an Engineering Problem Attitude of Regulatory Bodies Methods of Handling Repairs

IX DEPRECIATION—METHODS OF CALCULATING 150 Methods of Calculation Factors of Calculation Symbols to be Used

1. PROPORTIONAL METHODS (a) Straight Line Method (b) Working Hours Method (c) Composite Life Method (d) Service Output Method

2. VARIABLE PERCENTAGE METHODS (a) Fixed Percentage of Diminishing Value Method (b) Changing Percentage of Cost Less Scrap Method (c, d) Arbitrary Methods

3. COMPOUND INTEREST METHODS (a) Sinking Fund Method (b) Annuity Method (c) Unit Cost Method

4. MISCELLANEOUS METHODS (a) Maintenance Method (b) Replacement Method (c) The Fifty Per Cent Method (d) Appraisal Method (e) Insurance Method (f) Gross Earnings Method Condition Per Cent

X DEPRECIATION—APPRAISEMENT OF THE VARIOUS METHODS 173

General Considerations Ideal Basis for Distribution of Depreciation Charge

1. PROPORTIONAL METHODS (a) Straight Line Method (b) Working Hours Method (c) Composite Life Method (d) Service Output Method

2. VARIABLE PERCENTAGE METHODS (a) Fixed Per Cent of Diminishing Value Method (b) Sum of Expected Life-Periods Method (c, d) Arbitrary Methods

3. COMPOUND INTEREST METHODS General Considerations (a) Sinking Fund Method (b) Annuity Method (c) Unit Cost Method

4. MISCELLANEOUS METHODS (a) Maintenance Method (b) Replacement Method (c) Fifty Per Cent Method (d) Appraisal Method (e) Insurance Method (f) Percentage of Gross Earnings Method Effect on Return on Investment

XI RECORDING DEPRECIATION ON THE BOOKS 187 Methods Commonly Employed Renewals and Replacements Subsidiary Records Grouping and Classification of Plant Assets Form of Plant Ledger Asset Record Periodic Revision of Rates Frequency of Revision of Rates Test of Condition Per Cent Composite and Group Rates The Reserve as an Index of Financial Condition The Reserve in Relation to Expanding Plant Reserve as Related to Efficiency Reserve Not Based on Cost of Replacement The Financing of Replacements Secret Reserve Insufficient Charge Appreciation as an Offset to Depreciation Appreciation Due to Physical Changes Appreciation Due to Adaptation to Use Unearned Increment Depreciation Policy and Stockholders

XII CASH AND MERCANTILE CREDITS 210 Introduction What Cash Includes Stamps Remitted as Cash Temporary Cash Disbursements Disposition of Cash Funds Cash Held Abroad Accounts and Notes Receivable Objection to the Title, Accounts Receivable Risk for Credit Losses Risk and Length of Credit Period Analysis of Customers’ Accounts as the Basis for Estimate of Bad Debts Basis of Estimate of Bad Debts Discounts and Collection Costs Valuation of Other Receivable Items on Open Account Loss on Notes Receivable Interest on Notes Receivable Balance Sheet Titles for Notes Receivable

XIII MERCHANDISE STOCK-IN-TRADE 225 Definition and Scope of Term Valuation at Market or Cost Price Objections to Valuation at Less than Cost Anticipation of Profits or Losses Undesirable Method of Treatment and Summary Depreciation of Stock-in-Trade Full Costs of Stock-in-Trade The Distribution of Costs Over Stock-in-Trade The Pricing of the Inventory Valuation of Manufacturing Inventory Contracts and Length of Cost Period Valuation of Scrap Inventory-Taking Perpetual Inventory

XIV TEMPORARY INVESTMENTS; ACCRUED AND DEFERRED ITEMS 241 TEMPORARY INVESTMENTS Nature of Temporary Investments Valuation of Temporary Investments Reserve for Investment Fluctuations “Stock Rights” on Investments Cost of Investments Valuation of Bonds Valuation of Unissued Stock Valuation of Treasury Stock Summary of Valuation Formula

ACCRUED AND DEFERRED ITEMS Nature of Accrued Income Inadequacy of Cash Method of Handling Accruals Correct Method of Handling Accruals Showing of Accrued Items on Balance Sheet Valuation of Accrued Items Accounting for Accrued Income Illustration of Different Methods of Recording Accrued Items Prepaid Items—Definitions and Kinds Valuation of Prepaid Items Danger of Overvaluation Accounting for Deferred Debit and Other Items

XV PERMANENT INVESTMENTS 258 Nature of Permanent Investments Permanent Investments as an Aid to Operation Valuation of Permanent Investments Holding Company and Subsidiary Enterprises Controlling Investments Advances to Subsidiary Concerns Rules for Valuation Investments in Partial Holdings Investments Producing No Income Bond Values and Market Interest Rates Nature of Bond Discount or Premium Record of Bond Investments Amortization of Bond Discount and Premium Formulas for Compound Interest Formulas for Annuities Formulas for Bond Valuation Valuation of Sinking Funds Valuation of Investments in Land

XVI MACHINERY AND TOOLS, FURNITURE AND FIXTURES, AND OTHER EQUIPMENT 279 General Considerations Distinction between Personalty and Real Property Machinery and Tools Accounting Records Operation of Machine Accounts Valuation of Machinery and Tools Estimate of Depreciation History of Machine Standards of Operation Abnormal Operation Map of Machine Location Methods of Application of Depreciation Basis of Valuation Scrap Material Accounting for Tools Depreciation on Hand Tools Valuation of Home-Made Machinery and Tools Expenditure for Rearrangement of Machinery Definition of Furniture and Fixtures Valuation of Furniture and Fixtures Delivery Equipment—Definition and Valuation Carriers and Containers—Valuation Patterns, Molds, etc.—Valuation Disposal of Assets

XVII BUILDINGS, LAND, AND WASTING ASSETS 297 Definition of Real Property Cost of Buildings Valuation of Buildings Betterments on Leased Buildings Application of Depreciation Accounting for Land Valuation of Land Depreciation or Appreciation of Land Appreciation of Land Values Depreciation in Land Values Valuation of Land Investments Mortgages on Land Donated Land Land as Stock-in-Trade Wasting Assets—Definition and Characteristics Dividends May Include Return of Capital Basis of Depletion Charge Application of Income Tax to Wasting Assets Depreciation on Buildings and Machinery of a Wasting Asset Unusual Risks Water Rights Leaseholds

XVIII INTANGIBLE ASSETS—PATENTS, FRANCHISES, GOOD-WILL 316 General Considerations Patents a Monopoly Grant Purchase of Patents Patents Developed Within the Plant Patents Purchased and Not Used Elements of Depreciation on Patents Service Life of Patents Booking Depreciation on Patents Accounting Classification of Depreciation on Patents Royalties Relation of Depreciation Rate to Cost of Manufacture Sale Price of Patents Copyrights Trade Secrets Trade-Marks Franchises—Definition and Kinds Depreciation on Franchises Organization Expenses Good-Will—Definition and Nature Local and Personal Character of Good-Will Difficulty of Valuing Good-Will Creation of Good-Will by Advertising Valuation of Good-Will Based on Normal Profits Valuation of Good-Will Based on Excess Profits Valuation of Good-Will Based on Capitalization of Profits False Good-Will to Cover Capital Deficiency Periodic Revaluation of Good-Will

XIX LIABILITIES ON THE BALANCE SHEET; CURRENT AND CONTINGENT LIABILITIES 339 Form and Valuation Arrangement on Balance Sheet Items Within Groups Cancellation of Liabilities Against Assets Inventory of Liabilities Contingent Liabilities

CURRENT LIABILITIES Loans from Bank General Classification of Notes Accounts Payable Accrued Expenses Booking of Accrued Expenses Deferred Credits

NATURE OF CONTINGENT LIABILITIES Statement of Contingent Liabilities Notes and Drafts Transferred Guarantees as a Contingent Liability Long-Term Leases Purchases for Future Delivery Pending Lawsuits Stock Not Fully Paid Accumulated Dividends on Preferred Stock Signature to Surety Bond

XX FIXED LIABILITIES—BONDS AND MORTGAGES 356 Nature of Fixed Liabilities Purpose of Fixed Liabilities Corporation Bonds Nature of Bonds Difference Between Bond and Real Estate Mortgages Kinds of Corporation Bonds Authority for the Issue of Bonds Financial Considerations Involved in Issue Bonds versus Stock Issues Accounting for Bond Issue Entry of Issue on Books Entry of Premium or Discount on Books Entry of Interest Payments on Books Relation of Bond Interest to Premium or Discount Example of True Interest Cost Presentation on Balance Sheet Other Fixed Liabilities

XXI CAPITAL STOCK AND ITS VALUATION 372 Problems in Valuation Kinds of Stock Par, Real, and Market Values Value Dependent upon Earning Capacity Increase of Book Capitalization Capitalization on Cost The Law and Stock Issues Treatment of Discount or Premium Valuation of Stock Issued for Property Valuation of Treasury Stock Redemption and Reduction of Capital Stock Dividend Stock Stock Issued as a Bonus Unissued and Treasury Stock on the Balance Sheet Preferred Stock Covered by Redemption Contract

XXII PROFITS 387 Difficulty of Determining Profits Economic Definition Legal Definition Accounting Definition Methods of Determining Profits The Problem a Question of Valuation Effect of Asset Losses on Future Profits Legal Decisions as to Asset Losses Loss Charged Against Current Profits Loss Treated as Deferred Expense Charge Loss Charged to Capital Profit on Work in Progress Goods Made for Stock but Not Sold Goods Made to Order Profits on Long-Term Contracts Profit on Goods Awaiting Delivery Interdepartment Profits Profits Due to Appreciation of Assets Capital Profits

XXIII SURPLUS AND RESERVES 407 Definition Creation of Margin Disposition of Profits Reserves Different Meanings of Reserves Reserve for Bad Debts Under- and Over-Estimate of Reserves Depletion Reserves Operating Reserves for Accrued Costs Collection Costs Not under Contract Sales Discounts on the Balance Sheet Distinction Between Reserves and Accrued Items Contingent Reserves Deferred Income—Misuse of Term Proprietorship Reserves Secret Reserves Argument for Secret Reserve Argument Against Secret Reserve Earmarking of Reserves Continuity of Reserve Policy Covered Reserves Classification of Reserves Legitimate Use of Surplus Account Statement of Surplus

XXIV DIVIDENDS 428 Introduction Disposition of Corporation Profits Shareholders’ Rights as to Profits Directors’ Control over Profits Provisos as to Declaration of Dividends Stockholders’ Rights to Dividends Declaration of Dividends Liability of Director Revocation of Dividends Payment of Dividends Dividends Paid as Salaries Methods of Paying Dividends Borrowing to Pay Dividends Dividends Paid in Property, or by Borrowing on Property Bond and Scrip Dividends Stock Dividends Dividends Proportional to Holdings To Whom Payable Accounting Record Relation of Capital Losses to Dividends Liquidating Dividends

XXV THE SINKING FUND 447 Origin and Use Definitions Mathematical Principles on which Based Accumulation Based on Agreement Effect of Settlement of Debt Relation of Fund to Profits Accounting for Sinking Fund The Sinking Fund on the Balance Sheet Entries to Sinking Fund Booking the Trustee’s Report Treatment of Income and Expense Final Disposition of Fund Treatment of Sinking Fund Reserve Relation Between Depreciation and Sinking Fund

XXVI PROBLEMS IN CONNECTION WITH THE PROFIT AND LOSS SUMMARY 466 Interrelation of Profit and Loss and Balance Sheet Periodic Adjustments Interest as a Cost of Manufacture Arguments Against the Inclusion of Interest Problem of Charging Interest on Books Unrealized Profits Corporation Dividends Discount on Bonds Sinking Funds Working Capital The Correction of Closing Errors

XXVII THE PROFIT AND LOSS SUMMARY—FORM AND CONTENT 477 Standardization of Form Synonymous Terms Cost of Goods Sold—Manufacturing Concern Cost of Goods Sold—Trading Concern Further Differentiation of Terms Desirability of Uniformity in Terms Used Profit and Method of Showing Form of Presentation—Account Form Non-Technical or Report Form Examples of Forms of Presentation Form for Manufacturers and Merchants Content and Manner of Showing Supporting Schedules Adjustment of Inventories Selling Expense and Administrative Schedules Schedules for Special Needs

XXVIII LIQUIDATION OF A CORPORATION 493 Reasons for Liquidating—Partial and Complete Liquidation Current Assets Transferred into Fixed Assets Tying up Cash in Stocks of Material Unwise Use of Cash for Paying Dividends Inability to Secure Cash for Refunding Operations Excessive Borrowing on Short-Term Securities Losses in Conducting the Business Loss Through Fraud, Theft, or Unavoidable Causes Methods of Liquidation Liquidation under Bankruptcy Liquidation under Voluntary Dissolution Liquidation under Receivership Status of Creditors in Liquidation Accounting for Liquidation

XXIX COMBINATIONS AND CONSOLIDATIONS 507 Reason for Combination Types of Consolidation Accounting for the Holding Company Distinction between Consolidation and Merger Formation of Consolidation and Merger Principles of Valuation of the Constituent Companies Fundamental Principle of Equalization of Conditions Valuation of Partnership Earning Capacity Good-Will Capitalization of a Consolidation or a Merger Payment of Amalgamated Interests Closing the Books of the Merged Concerns Opening the Books of the Merger

XXX BRANCH HOUSE ACCOUNTING 521 Advantages of Branch and Agency System Agency and Branch Differentiated Degree of Control Desired Factors of Successful Management Main Principles of Branch Accounting Agency Accounts Branch Accounting Records Illustration of Simple Branch Accounts Illustration of More Complex Branch Accounts Purchases Sales Adjustments on Branch and Head Office Books Example of Adjusting Entries Reports from the Branch Examples of Reports

XXXI BRANCH HOUSE ACCOUNTING (Continued) 542 Foreign Exchange The Accounting Problem of the Foreign Branch Accounts Opened on Books Handling Fluctuations in Foreign Exchange Conversion of Branch Results Illustrative Bookkeeping Problems Local Supervision of the Foreign Branch The Foreign Sales Agency Method of Conversion of Results The Foreign Purchasing Agency

XXXII SUSPENSE ACCOUNTS; NUMBERED ACCOUNTS; ADJUSTMENT OF FIRE LOSSES 556

SUSPENSE ACCOUNTS Definition of Suspense Accounts—General Purpose Reserve for Doubtful Accounts as a Suspense Account Use of Suspense Ledger Accounts Receivable Hypothecated Accounting for Accounts Receivable Discounted

NUMBERED ACCOUNTS Allotment of Numbers to Accounts

ADJUSTMENT OF FIRE LOSSES The Insurance Contract Requirements in Case of Loss Determination of Value of Loss Adjustment of Differences Effect of Coinsurance Clause Method of Record-Keeping to Facilitate Ready Adjustment Adjusting Entries for Fire Losses

XXXIII STATISTICS IN BUSINESS; PRIVATE BOOKS; JOURNAL VOUCHERS; BUILDING EXPENSES AND INCOME 581

STATISTICS IN BUSINESS Value of Business Statistics Railroad Statistics Manufacturing Statistics Mercantile Statistics Use of Graphs in the Presentation of Statistics Advantages of the Use of Graphs Principles of Graph Construction

PRIVATE BOOKS Purpose and Content Operation of Private Books

JOURNAL VOUCHERS Need for the Journal Voucher Index to Journal Vouchers Content of Voucher Other Methods of Authorizing Entries

BUILDING EXPENSES AND INCOME Allocation of Building Expense

XXXIV THE CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS SUMMARY 600 Purpose and Function Problem of Partial Ownership Conditions under which Used The Setting Up of the Consolidated Balance Sheet Showing of Intercompany Accounts Showing of Notes Discounted Reconcilement of Current Accounts Valuation of Inventory Reserve for Intercompany Profits Valuation of Inventory—Minority Interests Valuation of Liabilities Showing of Capital Stock Showing of Surplus Showing of Deficit Showing of Profit and Loss Summary The Consolidated Profit and Loss Summary Illustration of Consolidated Balance Sheet

XXXV ACCOUNTS AND REPORTS OF RECEIVERS AND TRUSTEES 620 Appointment of Assignee or Receiver Appointment of Trustee Accounts and Reports of a Receiver in Equity Reports to the Court

ACCOUNTS AND REPORTS IN BANKRUPTCY PROCEEDINGS Initial Statements Presented to the Court Reports and Accounts of Receiver or Trustee Liquidating Dividends Relative Standing of the Creditors Statement of Affairs Basis of Valuations in Statement of Affairs Deficiency Account Illustration of Statement of Affairs and Deficiency Account

REALIZATION AND LIQUIDATION ACCOUNT Evolution of the Realization and Liquidation Account Supporting Schedules The Question of Cash The Handling of Valuation Reserves Illustration of Realization and Liquidation Statement Uses to which Realization and Liquidation Statement May be Put

LIQUIDATION OF A PARTNERSHIP BY INSTALMENTS Nature of the Problem Illustration of Liquidation by Instalments

APPENDIX A—PRACTICE WORK FOR STUDENT—FIRST HALF-YEAR 655 B—PRACTICE WORK FOR STUDENT—SECOND HALF-YEAR 694 C—MISCELLANEOUS PROBLEMS FOR SUPPLEMENTARY WORK 727 D—REVIEW QUESTIONS 755

FORMS AND CHARTS

PAGE Stock Book or Stock Ledger 22 Stock Book to be Kept by Brokers (New York Form Prescribed by Comptroller) 23 Stock Book to be Kept by Corporations and Transfer Agents (New York Form Prescribed by Comptroller) 23 Voucher 30, 31 Voucher Check—Double 33 Voucher Check—Single 34 Voucher Register 35 Chart Showing Actual and Theoretical Depreciation 105 Chart Showing Progress of Uniform Depreciation and of Diminishing Efficiency 115 Graphic Chart—Straight Line Method 153 Graphic Chart—Working Hours Method 155 Graphic Chart—Fixed Percentage of Diminishing Value Method 158 Graphic Chart—Sinking Fund Method 162 Graphic Chart—Annuity Method 166 Plant Ledger 193 Branch Report to Head Office 541 Head Office Ledger Account—Summary of Branch Expenses 541 Chart Showing Comparison of Sales with Cost of Advertising 585 Chart Showing Comparison of Sales with Gross Profits 586 Chart Showing Comparison of Sales, Purchases, and Sales Salaries 587 Chart Showing Comparison of Sales with Cost of Sales 588 Journal Voucher 593 Card Index for Journal Vouchers 594, 595

Accounting—Theory and Practice