Appendix C

MISCELLANEOUS PROBLEMS FOR SUPPLEMENTARY WORK

PARTNERSHIP

1. A partnership on equal terms between A and B is dissolved July 1, 1917, the books on that date showing the following:

Most of these problems in Appendix C are C. P. A. problems of various states. The dates have been changed to recent dates.

A’s capital paid in was $16,000, and his drawings were $3,500. B’s capital paid in was $2,000, and his drawings were $1,500. Goods purchased $50,000; sales $40,000; business expenses $1,800. A loss of $1,600 was made on a $5,000 consignment of goods to Liverpool. In the settlement A agrees to pay B an old debt of $3,500. Prepare requisite accounts, and show final balance payable by one partner to the other.

2. A and B are partners carrying on a business in Winnipeg. On January 1, 1918, after adding profits for the past half-year, A’s capital amounted to $150,000, and B’s to $100,000. On that date they take into partnership C, upon the following terms: viz.: he is to bring in capital amounting to $25,000, and each partner is to be credited with interest on his capital at 6% per annum. All profits (after debiting interest) up to $25,000 are to be shared by A and B exclusively in proportion to the amounts of their capital at January 1, 1918. All profits in excess of $25,000 are to be shared equally by the three partners. Accounts are to be prepared and profits and interest credited half-yearly. C is to be credited with a salary of $5,000 per annum. On June 30, 1918, the profits divisible after debiting C’s salary, which he has drawn, but before charging interest on partners’ capital, amounted to $75,000. The partners’ withdrawals which are not chargeable with interest were: A $12,500, B $10,000, and C $3,750. Draw up partners’ separate accounts as they should stand on July 1, 1918.

Assume that instead of a profit, a loss of $75,000 had occurred. How would you have treated it in the accounts in the absence of any direct provision in the partnership agreement relative to losses?

3. A, B, and C were partners in business for several years. A died December 31, 1917. The articles of copartnership provided that on any change in the firm the good-will should be taken into account and its value divided—one-half to A and one-quarter each to B and C. The balance sheet at the date of A’s death was as follows:

Assets

Cash $1,500.00 Merchandise on Hand 12,000.00 Sundry Notes and Accounts Receivable 15,000.00 ---------- $28,500.00

Liabilities

Sundry Accounts Payable $8,500.00 A’s Net Investment 10,000.00 B’s Net Investment 5,000.00 C’s Net Investment 5,000.00 ---------- $28,500.00

In January, 1918, B and C arranged with D to come into the firm with $5,000. The good-will is, by agreement, to be valued at $3,000. The new firm, consisting of B, C, and D, takes over the business and good-will in equal shares, subject to an allowance of 2½% on the notes and accounts receivable. It pays the estate of A $5,000, with the understanding that the balance due A’s estate shall remain as a loan at the rate of 5% interest.

Prepare the balance sheet and the capital accounts of B, C, and D as they should appear at the beginning of the new business, writing off the purchase of good-will in equal proportions to the amount of capital invested.

CORPORATION—OPENING THE BOOKS

4. C, D, and E are partners sharing profits in accordance with capital investments. At end of the fiscal year, after all nominal accounts are closed, the books show the following:

Cash $20,051.00 Plant 60,422.00 Inventory of Merchandise 41,300.00 Bills Receivable 18,028.00 Book Accounts Receivable 70,402.00 C, Drawings 8,400.00 D, Drawings 6,000.00 E, Drawings 4,800.00 Bills Payable $5,211.00 C, Capital 100,000.00 D, Capital 50,000.00 E, Capital 50,000.00 Profit and Loss, Undivided Profits 24,192.00 ----------- ----------- $229,403.00 $229,403.00 =========== ===========

The partners thereupon incorporate a company with an authorized capital of $250,000. The company so formed purchased the partnership assets and good-will, not including the cash, for $250,000, payable $200,000 in stock and $50,000 in cash, the last-mentioned cash being the proceeds of sale of stock to F.

It is the intention to divide the purchase-money stock among the vendors in proportion to their former capital and to adjust their accounts by the division of the cash shown in trial balance, which will then be placed to their credit as loans to the company at 6% interest and remain as working capital. The bills payable are to be settled by the partners. As the drawings of the partners are not in proportion to their respective shares in the profits, the partners are charged with the interest thereon in the following amounts, viz.: C $231, D $165, and E $132.

(a) Frame the necessary entries to close the partnership books and show the amount of cash received by each partner.

(b) Referring to question (a), frame the necessary entries to open the books of the company and prepare a balance sheet showing the condition of the company at the beginning of its operations.

5. The Frost Manufacturing Co. was incorporated April 10, 1918, with a capital stock of $200,000, divided into 2,000 shares of a par value of $100 each.

Payments were made on this date as indicated in the following subscription register:

Subscriber No. Shares Amount Form of Payment C. Dunn 100 $10,000.00 Cash E. Ferris 200 20,000.00 Cash G. Hall 400 40,000.00 Cash $10,000, and Hall’s note with interest at 6%, due in one year, the balance.

April 12. Expenses of $1,200 incidental to the organization of the corporation were paid in cash.

April 15. The corporation purchased J. King’s entire plant valued at $170,000 and assumed his liabilities amounting to $70,000, giving in full payment 1,200 shares of stock at par.

April 20. S. Samson subscribed for 50 shares of stock and paid an instalment of $30 per share in cash.

April 22. To provide working capital, each of the following stockholders donated 1/10 of his shares of stock: Dunn, Ferris, Hall, and King.

April 25. Cash was received for 100 shares of donated stock sold at 85.

April 27. Samson gave his note due in six months for the balance due on his stock subscription.

April 28. The directors authorized an issue of $50,000 in bonds, with interest at 5%, to mature in 20 years.

April 30. Bonds having a par value of $30,000 were sold for $28,000 in cash.

(a) Write journal entries to record fully all the above information in the financial books of the corporation. (b) Prepare the corporation balance sheet for April 30, 1918.

MANUFACTURING STATEMENT

6. The Marine Equipment Co., a corporation, manufactures metal boats and deals in marine supplies. A trial balance of the general ledger, December 31, 1917, is given below:

Land $20,000.00 Buildings 50,000.00 Machinery and Tools 40,000.00 Automobile Trucks 5,000.00 Patents 7,000.00 Office Furniture and Fixtures. 700.00 Accounts Receivable 19,000.00 Notes Receivable 10,700.00 Notes Receivable Discounted $6,000.00 Raw Materials Inventory, January 1, 1917 20,000.00 Goods in Process Inventory, January 1, 1917 5,000.00 Metal Boats Finished Inventory, January 1, 1917 8,000.00 Marine Supplies Inventory, January 1, 1917 12,000.00 Union National Bank 8,740.00 Capital Stock 100,000.00 Surplus 18,000.00 Treasury Stock 10,000.00 Bonds Payable, 5% First Mortgage 40,000.00 Reserve for Depreciation, Buildings 1,200.00 Reserve for Depreciation, Machinery and Tools 1,000.00 Reserve for Depreciation, Automobile Trucks 200.00 Notes Payable 2,000.00 Accounts Payable 24,000.00 Purchases, Raw Material 40,000.00 Purchases, Marine Supplies 30,000.00 Freight Inward, Raw Materials 2,450.00 Freight Inward, Marine Supplies 1,340.00 Freight and Cartage Outward 824.00 Sales, Metal Boats 131,130.00 Sales, Marine Supplies 58,960.00 Productive Labor 32,400.00 Non-Productive Labor 15,230.00 Superintendence 3,420.00 Heat, Light, and Power 8,500.00 Shop Supplies 2,490.00 Miscellaneous Factory Expense 1,300.00 Insurance 300.00 Repairs to Machinery and Tools 2,146.00 Taxes 400.00 Advertising 3,420.00 Returned Sales and Allowances, Metal Boats 1,200.00 Returned Sales and Allowances, Marine Supplies 862.00 Discount on Sales 3,710.00 Discount on Purchases 5,071.00 Salesmen’s Salaries 6,570.00 Salesmen’s Traveling Expenses 2,354.00 Advances to Salesmen 450.00 Office Salaries 8,630.00 Legal Expense 540.00 Stationery and Printing 1,200.00 Postage 190.00 Interest 315.00 Miscellaneous Selling Expense 1,180.00 ----------- ----------- $387,561.00 $387,561.00 =========== ===========

Additional information to be considered:

Inventories, December 31, 1917: Raw Materials $21,000.00 Goods in Process 7,000.00 Metal Boats Finished 13,000.00 Marine Supplies 8,000.00

Accrued Items: Interest on Bonds Payable, 1 year at 5% $2,000.00 Interest on Notes Payable 40.00 Interest on Notes Receivable 75.00 Taxes (estimated) 100.00

Unexpired insurance $100.

Provide for Reserve for depreciation on: buildings, 5% on original value; machinery and tools, 10% on diminishing value; automobile trucks, 20% on diminishing value. Also provide a 2% reserve for bad debts. Write off depreciation of 10% on the original cost of furniture and fixtures. Patents expire 14 years from January 1, 1917. One-half of advertising is to be carried to the next period.

Distribute as follows:

Item Mfg. Selling P. L. Insurance ¾ ¼ 0 Depreciation Auto Trucks ½ ½ 0 Taxes ¾ 0 ¼

From the trial balance and the additional information prepare:

(a) Income statement. (b) Balance sheet. (c) Journal entries to record the additional information and close the ledger.

CONSIGNMENTS, COMMISSIONS, JOINT VENTURE

7. December 1, 1917, a New York merchant ships goods of the value of $5,000 on consignment to a commission merchant at Rio de Janeiro, insuring them in the Atlantic Mutual against loss or damage in transit and prepaying freight and insurance amounting to $250. On arrival the goods are found to be in a partially damaged condition and the loss is adjusted at $1,000, the certificates for which the consignee transmits to the consignor together with an account sales for $3,000, dated March 1, 1918, and a final account sales for $2,000, dated April 1, 1918. A draft on New York for $4,300 accompanied this final account, being the balance due after deducting duty paid and commission earned.

Give expression to these transactions on the books of the consignor.

8. On November 15, 1917, Isaac Cohen & Co., Ltd. sent for sale on their account a consignment of goods valued at $5,000 to John Stimson & Sons, factors of Boston; sale to be on a 5% basis with 1% additional for guaranty of collection of accounts. Prepaid freight amounted to $25.40. December 26, an account sales from Stimson & Sons showed sales of $5,775.20, and expenses in connection therewith, exclusive of commission and guaranty, of $42.25. The net proceeds were placed to Cohen & Co.’s credit, subject to sight draft.

(a) Show the alternative treatment of all the accounts affected on Cohen & Co.’s books in order either to show the profit or loss on this consignment, or to include the profit or loss with their regular sales.

(b) Stimson & Sons’ fiscal year ended November 30. On November 25 they had sold one-fourth of the Cohen & Co. consignment for $1,500 and had incurred the expenses of $42.25 mentioned above but applicable to the whole consignment. Show Stimson & Son’s accounts affected properly closed.

(c) If Cohen & Co.’s fiscal year ends on November 30, what entries would be needed to make the record in accord with the additional data of question (b) above?

9. A, B & Co. and C, D & Co. enter a joint adventure to ship machinery to New Zealand. C, D & Co., October 5, 1917, handed A, B & Co. $600 in cash and granted them their acceptance at 6 months for $1,500. A, B & Co. were to provide balance of cash required, to manage the venture, to receive a commission of 2% on amount of invoice for machinery. Profits of venture to be divided equally.

On October 6, 1917, A, B & Co. paid J, K & Co. for machinery $2,500, and on the same date discounted acceptance of C, D & Co. for $1,500, paying $30 for discount thereon. On the following day A, B & Co. paid $210 for freight and $30 for insurance. On March 25, 1918, A, B & Co. received from New Zealand to account of proceeds of machinery a draft payable in London for $1,600, out of which, April 8, 1918, they paid $1,500 to retire bills for that amount.

On August 8, 1918, A, B & Co. received from New Zealand a draft for $1,550, being balance of proceeds for machinery, after deducting agent’s commission charges and duty. They thereupon closed the accounts and sent C, D & Co. check for balance due to them.

Make up an account showing result of venture, also C, D & Co.’s account with A, B & Co. Do not regard interest.

10. A B, a commission merchant, doing business on a 5% basis, hands you the following abstract of his ledger, showing his transactions for the year.

Furnish A B’s capital account, showing his original investment; also a balance sheet and a detailed cash account.

Sales $45,000.00 $60,000.00 Freight 2,100.00 1,400.00 Claims and Allowance on Settled Account only 600.00 1,500.00 Expense 900.00 Customers’ Accounts 60,000.00 45,000.00 Creditors’ Accounts 37,950.00 39,850.00 Cash 59,000.00 40,950.00 Discounts Lost 400.00 ---------- ----------- $205,950.00 $188,700.00 =========== ===========

11. A and B, commission merchants, suspect their cashier of embezzlement. From the following data determine whether or not their suspicions are well founded, and produce a balance sheet and profit and loss statement to prove or disprove the suspicion.

Sales $42,000.00 Cash Receipts, Customers $42,000.00 Freight 4,240.00 2,480.00 Duty 2,120.00 1,240.00 Dock Charges 212.00 124.00 Custom House Charges 90.00 45.00 Interest (account sales at 6%) 248.00 Commission (5% on sales) 1,240.00 Office Expense 2,000.00 Documentary Advances 20,000.00 12,000.00 Acceptances against Shipments 12,000.00 20,000.00

Analysis of account sales ledger debits, duty $875, freight $1,560, dock charges $70, custom house charges $40.

ANALYSIS BY COMPARISON

12. The trading accounts of a company covering two years are herewith submitted.

Analyze the accounts and make a report to the company showing the reasons for the difference in results.

1916 Merchandise Inventory, January 1, 1916 $150,000.00 Merchandise Purchases 633,000.00 Merchandise Sales, Travelers 600,000.00 Merchandise Sales, Domestic 150,000.00 Merchandise Sales, Cash 10,000.00 Commissions Paid Travelers 30,000.00 Salaries Paid Travelers 30,000.00 Salaries, Domestic Sales 15,000.00 Rental 5,000.00 Stationery, etc. 3,000.00 Expense 22,000.00 Interest 4,000.00 Inventory, January 1, 1917 125,000.00

1917 Merchandise Inventory, January 1, 1917 $125,000.00 Merchandise Purchases 600,000.00 Merchandise Sales, Travelers 600,000.00 Merchandise Sales, Domestic 150,000.00 Merchandise Sales, cash 10,000.00 Commissions Paid Travelers 30,000.00 Salaries Paid Travelers 10,000.00 Salaries, Domestic Sales 10,000.00 Rental 5,000.00 Stationery, etc. 3,000.00 Expense 15,000.00 Interest 1,000.00 Merchandise Inventory, January 1, 1918 125,000.00

13. A corporation’s balance sheets for August, 1918, and September, 1918, were respectively as follows:

August, 1918 Assets

Plant and Equipment $4,000,000.00 Furniture 6,000.00 Tools 3,000.00 Stable 3,811.28 Cash 15,250.36 Material Supplies 30,750.28 Accounts Receivable 28,920.13 Unexpired Insurance 510.29 ------------- Total $4,088,242.34

Liabilities

Capital Stock $2,500,000.00 Bonds 1,350,000.00 Accounts Payable 31,336.28 Bills Payable 26,240.12 Accrued Taxes 3,500.00 Accrued Interest 5,625.00 Profit and Loss 171,540.94 ---------- Total $4,088,242.34

September, 1918 Assets

Plant and Equipment $4,012,310.21 Furniture 6,205.58 Tools 3,218.86 Stable 4,009.37 Cash 8,328.29 Material Supplies 39,280.17 Accounts Receivable 32,321.83 Unexpired Insurance 832.12 ------------- Total $4,106,506.43

Liabilities

Capital Stock $2,500,000.00 Bonds 1 ,362,000.00 Accounts Payable 33,445.59 Bills Payable 18,240.12 Accrued Taxes 4,000.00 Accrued Interest 11,250.00 Profit and Loss 177,570.72 ------------- Total $4,106,506.43

Analyze the differences in the corresponding accounts for the period and show disposition of increased resources.

14. The board of directors of the X, Y, Z Company removed their manager on April 30, 1918, on the general suspicion that his books misrepresented the true financial condition of the business. Prepare a statement showing the nature and the probable extent of the misrepresentation, also an approximate statement of income and profit and loss for the four months ending April 30, 1918, and a balance sheet as of April 30, 1918.

The following is a trial balance taken from the books April 30, 1918:

Capital Stock $75,000.00 Fixtures $10,000.00 Inventory, January 1, 1918 128,600.00 Cash 15,450.00 Accounts Receivable 24,600.00 Accounts Payable 39,000.00 Loans Payable 10,000.00 Sales 51,000.00 Purchases 40,700.00 Salaries, Salesmen 2,200.00 Advertising 1,650.00 Salaries, Office 1,100.00 Rent 400.00 Interest 200.00 Insurance, January 1 to December 31, 1918 999.00 Stationery and Printing 105.00 Reserve for Depreciation of Fixtures 2,710.00 Surplus, January 1, 1918 48,294.00 ----------- ----------- $226,004.00 $226,004.00 =========== ===========

An analysis of the Purchases and Sales accounts revealed the following: purchases, year 1915, $122,000; sales, year 1915, $153,750; inventory, January 1, 1915, $101,000; purchases, year 1916, $123,000; sales, year 1916, $153,170; inventory, January 1, 1916, $100,000; purchases, year 1917, $121,000; sales, year 1917, $154,722; inventory, January 1, 1917, $102,000.

15. Robert Adams and William Stevens are equal partners. On the night of July 3, their stock and fixtures were destroyed by fire. A trial balance, which Adams had at his home, showed the following condition of the ledger at the close of business, June 30:

Robert Adams $600.00 $7,450.00 William Stevens 600.00 7,450.00 Cash 3,309.00 Fixtures 1,500.00 Merchandise Purchases 32,600.00 Merchandise Sales 24,800.00 Notes Receivable 1,000.00 Notes Payable 2,000.00 Interest 120.00 50.00 Expense 780.00 Customers 4,500.00 Creditors 3,259.00 ---------- ---------- $45,009.00 $45,009.00 ========== ==========

The property is fully covered by insurance. The insurance company, for the purpose of estimating the value of the merchandise destroyed has agreed to allow 35% as the average gross gain on the sales, and to pay 66⅔% on the value of the fixtures as shown by the ledger.

On the basis of this agreement, state the result of the business and the capital of each partner.

STATEMENT OF AFFAIRS

16. C. C. Carter and A. D. Walker were unable to meet their obligations. From the books of the firm and additional information you ascertained the following:

Real Estate (estimated to produce $18,000; subject to a mortgage of $12,000) $20,000.00 Notes Receivable 6,000.00 Expense 7,820.00 Furniture and Fixtures (estimated to produce $2,700) 3,500.00 D. L. & W. Stock (estimated to produce $12,000 pledged with fully secured creditors) 14,000.00 Horse and Wagon (estimated to produce $500) 700.00 Other Securities (pledged with partially secured creditors)3,000.00 Accounts Receivable (good $3,000; doubtful $1,800, but estimated to produce $1,440; bad $600) 5,400.00 Notes Payable 2,000.00 Creditors, Unsecured 18,000.00 Creditors, Partially Secured 8,000.00 Creditors, Fully Secured 10,000.00 Wages, Salaries and Taxes, preferred by law 560.00 Carter, Capital 15,000.00 Walker, Capital 5,000.00 Carter, Drawings (debit) 3,050.00 Walker, Drawings (debit) 1,000.00 Cash 870.00 Sundry Losses 5,220.00

Prepare statement of affairs and deficiency account as of September 30, 1918.

17. On December 1, 1918, the following particulars are furnished of the position of John Mapleton, insolvent: factory equipment cost $15,000, estimated to realize $10,000; stock of finished goods $10,000, estimated worth $7,500; material and supplies $2,500, estimated worth $1,000; furniture and fixtures $900, estimated worth $200; investments valued at $25,275, of which $15,000 is held by bankers as security for loan of $12,000; accounts receivable $6,250, of which $2,500 are good, $1,250 bad, and $2,500 estimated to realize $1,500; cash $575, of which $25 represents petty expense items not charged up, and $50 an I O U of a former employee which is worthless; accounts payable $28,500; bills payable $25,000, of which $12,000 is due bankers; wages due $500; rent due and past due $1,000; capital on January 1, 1918, as shown by the books, $15,000; loss by sale of investment May 1, 1918, $5,000; loss in trading account January 1, 1918, to December 1, 1918, $3,500; drawings charged personal account of John Mapleton $1,000.

Make up a statement of affairs and a deficiency account as on December 1, 1918.

18. John Thompson exhibits the following balance sheet of his business dated June 30, 1918:

Cash $750 Sundry creditors $6,000 Book debts 9,500 Bills Payable 7,500 Stock on hand 6,500 Bank (overdraft) 3,000 Fixtures, etc. 1,750 Balance 2,000 ------- ------- Total $18,500 Total $18,500

On questioning Thompson it was found that he had omitted the following from his balance sheet: $250 owing for rent; $75 owing for taxes; $2,500 borrowed at 5% from his wife three years ago, no payment having been made on account of either principal or interest; a draft for $500 accepted by a firm without consideration, falling due in 30 days. His private and household debts amounted to $600.

The item entered on his balance sheet as cash included his personal I O U’s for $600.

Of the book debts about $3,500 might be considered bad and the rest good. The stock was good except $1,000, which would not produce more than $100. The fixtures, if sold, would not realize more than $250. The only other assets were household furniture worth about $1,250 and residence valued at $7,500, subject to a first mortgage for $5,000 at 4%, and also a second mortgage held by his bank as security for overdraft.

Prepare a statement of affairs and deficiency account.

19. June 30, 1918, as a result of careless management, the firm of Howard, Mason & Co. finds itself in a critical financial condition.

The following trial balance shows the accounts as they appear on the books after closing the ledger.

POST-CLOSING TRIAL BALANCE, JUNE 30, 1918

Land $10,000.00 Buildings 42,000.00 Reserve for Depreciation, Buildings $6,000.00 Delivery Equipment 7,000.00 Reserve for Depreciation, Equipment 1,500.00 Furniture and Fixtures 4,200.00 Good-Will 5,000.00 Cash 2,316.00 F. D. Co. Stock 4,000.00 Accounts Receivable 16,000.00 Reserve for Bad Debts 1,996.00 Notes Receivable 9,400.00 Notes Receivable Discounted 3,800.00 Merchandise Inventory, Bags, June 30, 1918. 4,780.00 Merchandise Inventory, Trunks, June 30, 1918 8,910.00 Mortgage Payable 25,000.00 Accounts Payable 21,000.00 Notes Payable 12,000.00 Thomas J. Howard, Loan 6,000.00 Thomas J. Howard, Capital 15,000.00 Thomas J. Howard, Drawing 1,700.00 Joseph Mason, Loan 4,000.00 Joseph Mason, Capital 9,000.00 Joseph Mason, Drawing 1,000.00 John H. Bartlett, Loan 3,000.00 John H. Bartlett, Capital 6,000.00 Accrued Interest, Mortgage 1,500.00 Accrued Interest, Notes Payable 300.00 Accrued Interest, Notes Receivable 150.00 Prepaid Insurance 60.00 Taxes Accrued 300.00 Accrued Labor 200.00 Miscellaneous Office Supplies 80.00 ----------- ----------- $116,596.00 $116,596.00 =========== ===========

There is dissatisfaction among the partners and they finally agree to dissolve partnership. Preparatory to dissolving they appraise the assets and rank the liabilities on a liquidating basis.

It has been found that the buildings had been damaged by fire to the extent of $3,000 but that no adjustment had been made in the buildings account. The delivery equipment is estimated to produce $4,800. Furniture and fixtures have a value of $3,600. The land has increased in value $6,000.

Of the notes payable, $5,000 has been partially secured by all the F. D. Co. Stock, which is expected to yield 80% of its book value. Collateral in the form of good notes receivable of $4,500 has been given to creditors whose claims amount to $3,700.

Among the cash there are I O U’s in the amount of $180 that cannot be considered as worth more than $50. The accounts receivable are classified as worthless $3,000; doubtful $2,000, which are expected to produce $1,400; the balance are good. Both inventories of merchandise were reduced by 10%.

The accrued taxes and labor are claims preferred by law. Prepaid insurance, miscellaneous office supplies, and good-will were assumed to have no value in case of liquidation.

From the information at hand:

(a) Prepare a statement of affairs showing the financial condition of the partnership in anticipation of liquidation. (b) Prepare a statement accounting for the impairment of capital.

REALIZATION AND LIQUIDATION

20. It has been mutually agreed that Joseph Mason shall act as liquidating partner with full authority to sell all property, pay all debts and distribute liquidating dividends among the partners. Mason’s fee as liquidator shall be 5% commission on the converted value of all the assets and is to be paid at each dividend date.

Interest is to be allowed on the loan accounts, and profits and losses are to be shared ½ by Howe, and ¼ each by Mason and Bartlett, during the period of liquidation.

Settlements are to be made on the last day of each month.

Based on the post-closing trial balance in the preceding problem and the information given below:

(a) Prepare a working sheet which will present the information in convenient form for preparing the statements incidental to liquidation. (b) Show the partners’ loan accounts properly closed for each period. (c) Set up the partners’ capital accounts, and balance them after the payment of each liquidating dividend.

During the month ended July 31, 1918, delivery equipment having a book value of $3,300 was sold for $3,000 in cash; accounts receivable in the amount of $4,000 were collected and $980 in bad debts were charged off. A sale of the land and buildings granted the use of the premises during the liquidation. The land was sold for $17,000 and the buildings for $31,500, the mortgage (with accrued interest to July 3) being assumed by the purchaser as part payment. The partially secured creditors accepted the F. D. Co. Stock held as collateral at 90% of its book value and the balance of their claim was paid in cash. Incidental expenses of $350 and the liquidating fees were paid in cash. From the goods in the inventories there were sold bags of a book value of $1,200 for $1,120, and trunks, book value $2,530, for $2,280. There was paid to holders of unsecured notes payable $2,000 and interest of $100. The accrued labor was paid and $10,000 in unsecured accounts payable were settled. The balance of the cash was applied in paying off partners’ loans and capital as a liquidating dividend.

The next month the delivery equipment was sold for $1,850. Furniture and fixtures having a book value of $2,100 were sold for $1,700. Of the I O U’s $70 was collected; the balance proved worthless. The notes receivable as collateral in the hands of fully secured creditors were settled in full and our equity was paid to us in cash, also accrued interest of $120. Bags having a book value of $2,500 were sold for $2,100, and trunks at book $3,700 brought $3,200. Mason accepted $4,200 in settlement of $5,000 in accounts receivable.

Legal fees of $150; sundry expenses of $460; all the existing debts and the liquidating fees were paid in cash. The cash remaining was distributed as a liquidating dividend.

In the course of the last month the remaining furniture and fixtures were sold for $1,900. The good-will went to the same purchaser for $1,000 additional.

The prepaid insurance is without value. Office supplies yielded $20. The notes receivable, together with the balance of accrued interest were collected in full. There was lost in bad debts $740. The bags were sold at a 10% reduction. The partners divided the trunks among themselves one-third to each, taking them at book value.

Sundry expenses of $340 and the liquidating fees were paid in cash, after which the cash on hand was distributed.

Note: Converted value means the value at which any asset is disposed of, whether for cash or in the cancellation of any claim.

21. Show on the books of the firm of Howard, Mason & Co. all the entries necessary to carry into effect the liquidation of the business under the conditions set forth in the foregoing problem.

22. The firm of Norton & Brown decided to liquidate at a time when their condition, as shown by the balance sheet given below, was still solvent.

BALANCE SHEET, MARCH 31, 1918 ================================+============================ Assets | Liabilities | Plant and Equipment $20,000.00 | Notes Payable $6,000.00 Office Furniture 2,000.00 | Accounts Payable 17,000.00 Inventory, Material 12,000.00 | Norton, Loans 5,000.00 Notes Receivable 5,000.00 | Brown, Loans 3,000.00 Accounts Receivable 29,000.00 | Norton, Capital 25,000.00 Cash 3,000.00 | Brown, Capital 15,000.00 ---------- | ---------- $71,000.00 | $71,000.00 ========== | ==========

Profits and losses were shared three-fourths by Norton and one-fourth by Brown. Interest was allowed on the loan accounts but not on the capital accounts. At the end of the first month, April 30, it was found that material inventoried at $5,000 had produced $3,600; accounts receivable to the amount of $15,000 had been collected in cash and $2,800 in bad debts charged off; notes receivable collected in cash $2,000; expenses of $600 had been paid in cash; equipment valued at $4,000 produced $3,000. Interest on partner’s loan accounts was not entered this month.

During the month ended May 31, office furniture valued at $1,600 was sold for $1,000. Material costing $4,000 produced $3,200 and the balance of material was divided equally between the partners at cost. Plant equipment listed at $6,000 was sold for $6,200. A $200 note proved worthless and was charged off. Accounts receivable to the amount of $6,065 and notes receivable of $2,000 were collected in cash. Bad debts charged off $435. Expenses paid in cash $300. Interest was credited on Norton’s loan account $40 and Brown’s loan account $25.

Arrange your solution to show:

(a) Your method of obtaining the proper cash distribution.

(b) A statement showing each partner’s capital and loan at the end of each month, or a detailed capital and loan account for each partner with a balance entered in each account each month. (c) A balance sheet at the close of the second month.

23. Walter Hopkins, while perfectly solvent and doing a profitable manufacturing business, had so tied up his capital in plant and materials that he was on the point of suspending for want of funds to pay for labor, and his creditors were preparing to commence legal proceedings to enforce a settlement. The condition of his affairs at this time was as follows:

BALANCE SHEET =====================================+====================== Assets | Liabilities | Plant $25,198.00 | Creditors $20,230.00 Cash 212.00 | Capital 50,000.00 Materials, Raw and Surplus 4,900.00 | Partly Finished 40,400.00 | Finished Goods 6,070.00 | Accounts Receivable 3,250.00 | ---------- | ---------- $75,130.00 | $75,130.00 ========== | ==========

At a meeting of creditors he said that while his plant was entirely efficient, it was all of special character and would realize on forced sale only the value of scrap, that the unfinished goods would require the employment of skill and processes known to him only, and that while forced suspension would yield to his creditors not over 50%, it would ruin him absolutely.

The creditors decided to advance him a loan of $5,000 to continue operations and allow him additional credit for materials and expenses. A trustee was appointed to see that the proceeds were used solely for recuperation of the business.

The subsequent operations under the supervision of the trustee were as follows:

Purchases on book account, charged to materials $5,100, to expense $12,100; sales on book account $57,802; losses on bad debts $300; cash receipts (loan from creditors) $5,000; settlement from debtors $58,100; cash payments for labor $12,500, for expense $4,350; for plant $600; creditors $42,030; Walter Hopkins’ personal drawings $3,000.

There remained raw materials $4,000, finished goods $22,388.

Prepare:

(a) Realization and liquidation account. (b) Trustee’s cash account. (c) Balance sheet of the estate as restored to Walter Hopkins.

24. X, Y, and Z, foundrymen, unable to meet their obligations, suspended payment January 1, 1918, and appointed a trustee to realize and liquidate for the benefit of their creditors. The books showed the following assets and liabilities:

Assets

Land and Buildings $125,000.00 Machinery and Tools 75,000.00 Furniture and Fixtures 10,000.00 Materials and Supplies 95,000.00 Bills Receivable 15,000.00 Accounts Receivable 115,000.00 Cash 450.00 Total Assets $435,450.00

Liabilities

Mortgage on Foundry Premises $100,000.00 Bills Payable 135,000.00 Accounts Payable 105,000.00 Interest Accrued on Mortgage 1,250.00 Taxes Accrued (estimated) 835.00 Capital 93,365.00 Total Liabilities $435,450.00

The trustee’s cash receipts and payments during the year 1918 were as follows:

Receipts

Bills Receivable (outstanding January 1, 1918) $15,000.00 Accounts Receivable (outstanding January 1, 1918) 106,500.00 Cash Sales 5,435.00 Bills Receivable (contracted during year 1918) 13,500.00 Accounts Receivable (contracted during year 1918) 212,000.00 ---------- Total Receipts $352,435.00

Payments

Bills Payable $25,000.00 Accounts Payable 35,000.00 Interest on Mortgage (one year at 5%) 5,000.00 Taxes for the year 1917 865.00 Purchases of Materials and Supplies 98,000.00 Labor 135,000.00 General Expenses 45,000.00 Interest on Bills Payable (to September 30, 1918, at 5%) 2,800.00 ---------- Total Payments $346,665.00

Other transactions were as follows:

Sales on Credit $335,000.00 Bad Debts Written Off: Accounts prior to January 1, 1918 $8,000.00 Accounts subsequent to January 1, 1918 2,000.00 10,000.00 --------- Discounts and Allowances to Customers: Accounts prior to January 1, 1918 $500.00 Accounts subsequent to January 1, 1918 300.00 800.00 --------- Notes Received from Customers 20,000.00 Notes Given to Creditors ($110,000 being renewals) 180,000.00 Inventory of Materials and Supplies, December 31, 1918, amounted to 92,000.00

The trust terminated at the end of the year and the business was turned back to the owners.

Prepare realization and liquidation account; also a balance sheet showing the financial condition of the business at the termination of the trust. Accrued taxes for the year in the usual manner, i.e., on the basis of the charge for previous year.

BRANCHES

25. The trial balance of Jones & Smith, Chicago branch, shows December 31, 1918, the following:

Home Office $2,000.00 Due from Customers $2,500.00 Cash on Hand 1,000.00 Expenses 1,900.00 Merchandise 3,400.00 --------- --------- $5,400.00 $5,400.00 ========= =========

Inventory $1,000.

Draft the necessary journal entries to close the accounts on the branch books, and the entries to be made in the home office to make the books agree.

26. A branch office business was started at the first of the year, the head office advancing $5,000 cash. During the first year merchandise was shipped to branch, invoiced at $75,000.

An auditor checking up the business at the close of the year finds the following: Merchandise sales were $60,000, with selling price of goods 20% advance on invoice. Proper vouchers were on file duly receipted for following payments: rebates and allowances on damaged goods $1,500; salaries and other expenses $4,500; freights $2,500.

The books also showed: remittances to head office $35,000; uncollected accounts $15,000. The balance of the sales having been realized in cash, less rebates and allowances as noted.

The cash on hand and inventory of unsold goods, together with the foregoing records, properly accounts for everything.

Prepare statement, such as an auditor would make in reporting to the head office, balancing the business of the branch house.

27. The condition of the Atlantic Co. at the close of business December 31, 1918, is reported by them as follows:

================================+=================================== Assets | Liabilities | Real Estate $150,000.00 | Capital Stock $500,000.00 Machinery 200,000.00 | Mortgage on Real Estate 100,000.00 Cash 24,500.40 | Accounts Payable 67,000.00 Accounts Receivable 320,800.50 | Notes Payable 100,000.00 Merchandise 375,480.70 | Surplus 200,000.00 | Profit and Loss 103,781.60 | ------------- | ------------- $1,070,781.60 | $1,070,781.60 ============= | =============

The company has a branch to which it sells its goods at 20% over inventory prices and carries this account, together with other branch assets, as a receivable. The statement of the branch on the same date was:

=================================+=============================== Assets | Liabilities | Fixtures $6,205.79 | Atlantic Co. $25,033.43 Cash 1,107.55 | Accounts Receivable 12,478.14 | Merchandise at price | billed to Branch 5,241.95 | ---------- | --------- $25,033.43 | 25,033.43 ========== | =========

(a) What was the inventoried value of the branch merchandise? (b) Prepare a corrected statement of the Atlantic Co.

SINKING FUND

28. A corporation issues 10-year bonds to the amount of $50,000, securing same by a mortgage on its property, which is placed in the hands of a trust company.

The trust deed provides for the establishment of a sinking fund to retire the bonds at maturity and that equal annual payments be made on the first of January in each year. Give the amount of this annual payment, interest compounded at 6%.

29. The United Manufacturing Co., on January 1, 1918, placed in service a piece of machinery which would depreciate, according to its chief engineer, at the rate of 15% per annum. The original cost of this machinery was $84,000 and the board of directors agreed to set aside annually a sinking fund which, together with interest thereon, will amount to the original cost at the end of the prospective life of the machinery.

This sinking fund is to be deposited with a trust company on December 31 of each year, and a proportionate amount at the end of the last partial year of the life of the machine. Interest is to be credited by the trust company at each of these dates at the rate of 4% per annum.

Show how the amount of the annual sinking fund payments may be arrived at, and prepare a detailed statement for the board of directors proving that the amount so obtained is correct.

CONSOLIDATIONS, MERGERS, AND REORGANIZATIONS

30. Three manufacturers, each having an independent business and wishing to effect a consolidation of their respective interests, organize the United States Manufacturing Corporation, with an authorized capital stock of $1,500,000, consisting of 7,500 shares of preferred stock and 7,500 shares of common stock, of $100 each. They sell to the new company all of their real estate, buildings, machinery, tools, fixtures, merchandise, and supplies, in consideration of $1,500,000, and agree to accept in payment $750,000 of preferred and $750,000 of common stock of the United States Manufacturing Corporation at par. The vendors donate to the treasury of the company $150,000 of preferred stock and $150,000 of common stock to provide for working capital. The company sells $100,000 of its preferred stock in the treasury for 80% cash, giving a bonus to the purchaser of 20% in common stock.

For the purpose of raising additional funds for improvements and additions to plants, the company mortgages its real estate and buildings, as security for an issue of bonds amounting to $250,000. These bonds the company sells to bankers at 90%, giving as a bonus 10% of preferred stock and 20% of common stock.

Draft entries to express correctly the above transaction on the books of the corporation, and prepare a statement of assets and liabilities of the company.

31. It is proposed to organize a corporation for the purpose of acquiring the stock and controlling three existing corporations, A, B, and C, two of which latter, A and B, have been in operation for five and three years, respectively, while C has been newly organized. The assets and liabilities of the several existing companies and the dividends paid are as follows:

Assets A B C Plant $400,000.00 $300,000.00 Material 295,000.00 425,000.00 Cash 40,000.00 15,000.00 $500,000.00 ----------- ----------- ----------- $735,000.00 $740,000.00 $500,000.00 =========== =========== ===========

Liabilities A B C Capital $100,000.00 $300,000.00 $500,000.00 Surplus 60,000.00 40,000.00 6% Bond at 5 years 500,000.00 300,000.00 Current Liabilities 75,000.00 100,000.00 ----------- ----------- ----------- $735,000.00 $740,000.00 $500,000.00 =========== =========== ===========

Dividends Paid $120,000.00 $30,000.00

For the purpose of the issuance of stock in the new company to the holders of stock in the three existing companies, it is proposed to capitalize the latter upon the following basis:

Money assets at double their value; plant at 80% of book values; material at 70% of book values; annual net earnings at 8%; and the liabilities at par.

The new company will be organized with a capital stock of $2,200,000, all of which is to be used in acquiring the stock of the existing companies.

(a) What amount of stock in the new company are the owners of the stock in each of the existing companies entitled to receive? (b) Give a short criticism attacking the above basis of stock allotment and submit a more equitable basis.

32. The Smith Brewing Co. with $1,000,000 capital stock, the Young Brewing Co. with $500,000 capital stock, and the Star Brewery with $400,000 capital stock, agree to consolidate as the Universal Brewing Corporation, the new company to buy all the properties of the old companies at a valuation to be fixed by appraisal, payment therefor to be made in full-paid stock of the new company, the old companies to pay off their own indebtedness.

The appraised values of the old companies are as follows:

==========+========+========+=======+=======+=======+======+========== | Real | | | Bills |Horses,|Office| | Estate | Plant | Cash |Receiv-|Wagons |Furni-| Total | and | | | able | and | ture | | Build- | | | |Harness| | | ings | | | | | | ----------+--------+--------+-------+-------+-------+------+---------- | | | | | | | Smith |$680,000|$390,000|$15,000|$10,000|$4,000 |$1,000|$1,100,000 Young | 327,000| 160,000| 3,000| 6,000| 3,000 | 1,000| 500,000 Star | 126,000| 71,000| 1,000| | 1,500 | 500| 200,000 Total | | | | | | | Appraised| | | | | | |---------- Value | | | | | | |$1,800,000 ----------+--------+--------+-------+-------+-------+------+----------

On this valuation, the Universal Brewing Corporation issued $2,000,000 of stock, shares $100 each, which was divided pro rata among the old companies on the basis of their appraised value, no fractional shares of stock to be issued, odd amounts to be paid old companies in cash.

Give journal entries necessary to set up property accounts and credit old companies with their pro rata on books of the new company.

At the time of the consolidation the ledger accounts of the Star Brewery were as follows:

======================================+============================= Real Estate and Buildings $250,000.00 | Bills Capital Plant 247,000.00 | Stock $400,000.00 Cash 1,000.00 | Payable 50,000.00 Horses, Wagons, | Accounts Payable 51,000.00 and Harness 1,800.00 | Office Furniture 1,200.00 | ----------- | ----------- $501,000.00 | $501,000.00 =========== | ===========

Make the proper journal entries to liquidate in stock of the new company the liabilities other than capital stock, to apportion the remaining stock and cash, and to close the books of the Star Brewery.

33. The Elton Manufacturing Co. and the Star Manufacturing Co. were engaged in manufacturing the same kind of goods. To avoid the losses due to competition, the two companies decided to combine their plants into one corporation under the name of the Union Manufacturing Co. and finally agreed upon the following plan for the merger:

The assets received from, and the liabilities assumed for, the separate companies were taken at the values given in the respective balance sheets, subject to the following adjustments: the buildings, machinery, and patents at 90% of their stated value; delivery equipment, and furniture and fixtures at 80% of their value. A reserve of 2% on accounts receivable was established by the Star Manufacturing Co.

ELTON MANUFACTURING CO. BALANCE SHEET, JUNE 30, 1918 ==================================+================================ Land $10,000.00 | Accounts Payable $30,000.00 Buildings 60,000.00 | Mortgage Payable 14,000.00 Machinery and Tools 30,000.00 | Accrued Wages 1,500.00 Delivery Equipment 3,500.00 | Reserve for Bad Debts 1,500.00 Furniture and Fixtures 1,500.00 | Stock, Capital 100,000.00 Inventory, Materials 10,000.00 | Surplus 10,000.00 Finished Goods 2,500.00 | Accounts Receivable 35,000.00 | Unexpired Insurance 500.00 | Cash 4,000.00 | ---------- | ----------- $157,000.00 | $157,000.00 =========== | ===========

STAR MANUFACTURING CO. BALANCE SHEET, JUNE 30, 1918 =====================================+============================= Machinery and Tools $35,000.00 | Accounts Payable $30,000.00 Motor Trucks 4,000.00 | Notes Payable 19,000.00 Patents 6,000.00 | Capital Stock 50,000.00 Furniture and Fixtures 500.00 | Surplus 11,000.00 Inventory, Materials, etc. 8,000.00 | Finished Goods 5,000.00 | Accounts Receivable 50,000.00 | Cash 1,500.00 | ----------- | ----------- $110,000.00 | $110,000.00 =========== | ===========

After making the adjustments and allowing interest at 6% on the invested capital, the excess earnings were capitalized on a basis of 10% to obtain the amount of the good-will.

Average net profits for a period of three years: Elton Manufacturing Co. $17,000; Star Manufacturing Co. $10,800.

The Union Manufacturing Co. was capitalized at an amount equal to the net assets (after adjustments) and the good-will of the two merged companies.

(a) Find the capitalization of the Union Manufacturing Co. and the amount of preferred and common stock allotted to each of the merged companies. (b) Write the journal entries to open the books of the Union Manufacturing Co. (c) Prepare the balance sheet for the Union Manufacturing Co. (d) Write the closing journal entries for the Star Manufacturing Co.

34. The following is abstracted from an agreement of merger and consolidation made December 31, 1917, between the Pennsylvania Tool Co., party of the first part, and the Keystone Tool Co., party of the second part. Said parties of both parts being corporations duly organized and existing under the laws of the State of Pennsylvania, by this agreement merge and consolidate into a single corporation.

The name of the corporation hereby formed by said consolidation shall be the Pennsylvania Tool Co.

The amount of capital stock of the new corporation is $100,000, all of which shall be common stock divided into 1,000 shares of a par value of $100. The manner of distributing capital stock shall be as follows:

The capital stock of the Pennsylvania Tool Co., party of the first part, shall be exchangeable for capital stock of the new corporation, share for share, and the balance of the capital stock of the new corporation hereby formed shall be distributed to the stockholders of the Keystone Tool Co., in proportion to their present holdings.

The Pennsylvania Tool Co., party of the first part, was incorporated shortly before the date of the merger, and had transacted no business other than the issuance of ten shares of capital stock, $100 each, for which payment of $1,000 had been received, and which was on hand in the treasury of the company on the date of the merger, and directly after the merger transferred to the bank deposit account of the consolidated company and credited to an account called “Suspense.”

The Keystone Tool Co. had for a number of years been actively engaged in business. Its fiscal year ended September 30, 1917, at which time an inventory was taken and its accounts had been properly closed. At the date of the merger the following trial balance was drawn from the books:

Cash $20,000.00 Accounts Receivable 15,000.00 Merchandise Inventory, September 30, 1917 130,000.00 Merchandise Purchased 250,000.00 Expenses 25,000.00 Accounts Payable $10,000.00 Sales 300,000.00 Capital Stock 30,000.00 Undivided Profits Balance, September 30, 191 100,000.00 ----------- ----------- $440,000.00 $440,000.00 =========== ===========

The account books of this concern were not closed at the date of the merger and no inventory was taken, although the exchange of capital stock was effected and also all business after December 31, 1917, was transacted under the name of the Pennsylvania Tool Co., and it was not until March 31, 1918, that an accountant was asked to state the accounts of the new company from the date of the consolidation.

At March 31, 1918, before the accountant had commenced his work, an inventory was taken which showed the value of merchandise on hand as at that date, to be $216,250, and the following trial balance was abstracted from the books:

TRIAL BALANCE, MARCH 31, 1918

Cash $26,000.00 Accounts Receivable 10,000.00 Merchandise Inventory, September 30, 1917 130,000.00 Merchandise Purchased 600,000.00 Expenses 60,000.00 Accounts Payable $10,000.00 Sales 685,000.00 Suspense 1,000.00 Capital Stock 30,000.00 Undivided Profits 100,000.00 ----------- ----------- $826,000.00 $826,000.00 =========== ===========

Prepare:

(a) Balance sheet of the consolidated company as at March 31, 1918. (b) Profit and loss account arranged to show the profits of the consolidated company for the three months ended March 31.

(c) Profit and loss account of the Keystone Tool Co., for the three months ended December 31.

(d) Statement showing the disposition of profits taken over by the new company.

(e) State what basis you make use of in determining the approximate value of merchandise on hand at December 31.

MISCELLANEOUS

35. A manufacturer is desirous of selling his business, and furnishes a statement showing the condition of affairs for the past five years as follows:

Amount of Sales averaging per year $800,000.00 Wages Paid ” ” ” 200,000.00 Expenses Paid ” ” ” 80,000.00 Raw Material Purchased ” ” 350,000.00 Supplies on Hand at present time 40,000.00 Machinery in use at commencement of the five years 150,000.00 (50% of the above amount has been in use for 10 years previous, and all additions made at cost prices, and nothing marked off for depreciation.) Carried at present at $225,000.00 (All repairs have been charged to expense.) Real Estate valued at 200,000.00

What report would you make as to a fair valuation of this business? Explain fully your reasons for same.

36. The factory of an automobile company assembles its cars only on receipt of orders from the main office. A summary of the factory operations for a certain period is as follows:

Parts Purchased $162,500.00 Parts Manufactured (material cost) 562,500.00 Productive Labor (125% of material) 703,125.00 Factory Expense 1,128,000.00 Cost of Cars: Parts Purchased, Consumed 137,500.00 Parts Manufactured (material cost) 187,500.00 Productive Labor (145% of material) 471,250.00 Factory Expense 565,500.00 Material on Hand, Unmanufactured 500,000.00

Prepare a technical trial balance of the cost ledger and an inventory of the stock room.

37. John Doe commenced business with a cash capital of $15,000. At the close of his fiscal period the ledger accounts were: accounts receivable $4,312.50; merchandise debit balance $5,062.50; accounts payable $5,375; expense $900. Doe’s total loss was $2,775.

Prepare a statement of assets and liabilities and the profit or loss.

38. John Adams lost his stock of merchandise May 1, 1918, through a flood in the Mississippi River.

Adams applied to the local Mutual Flood Insurance Society for reimbursements, claiming a loss of $5,886.35 on merchandise stock. From the following data ascertain his merchandise inventory:

Net profits May 1, 1918, $4,452.91; drawings $1,598; legal expenses $17.50; interest debit $313; advertising $14; commissions debit $961.01; insurance $196.23; sales $81,688.04; inventory, December, 1917, $1,568.62; purchases $55,415.82; labor, productive $19,499.58; telephone $416.06; sundry factory expenses $3,201.92; repairs $16; surplus May 1, 1918, $2,854.91.

39. The directors of a manufacturing company, before the closing and auditing of the books for the half-year ending December 31, declared out of the net earnings of the company a dividend for the half-year of 4% on the preferred stock of $100,000 and 3% on the common stock of $100,000. There has been brought forward from the last half-year, an undivided balance of profit of $4,000, and after the audit of the books the trial balance is found to be as follows:

TRIAL BALANCE, DECEMBER 31

Real Estate and Building $32,500.00 Plant and Machinery 40,000.00 Patents and Good-Will 80,000.00 Inventory, July 1 29,000.00 Purchases 82,500.00 Labor 88,000.00 Coal 6,000.00 Salaries, General 11,000.00 Salaries, Management 5,000.00 Insurance 875.00 Allowances 6,250.00 Freight 1,500.00 Discount and Interest 750.00 Cash in Bank 8,000.00 Investments 15,500.00 Miscellaneous Expense 4,300.00 Book Debts 42,000.00 Preferred Stock in Treasury 5,000.00 Repairs 1,000.00 Preferred Stock 100,000.00 Common Stock 100,000.00 Sales 219,175.00 Notes Payable 26,000.00 Accounts Payable 14,000.00 ----------- ----------- $459,175.00 $459,175.00 =========== ===========

Stock on hand $26,500.

From the above prepare profit and loss and income statement and balance sheet, giving effect in accounts to depreciation at the rate of 7½% a year, on plant and machinery, and making an allowance of 5% on the book debts to provide for bad debts; also create a liability in the balance sheet for dividend as stated.

40. Wm. Bates commenced business June 1, 1917, with a capital consisting of cash $60,000, and a building and lot worth $85,000, subject to a mortgage of $25,000, dated June 1, 1917, bearing interest at 6%.

One year later, June 1, 1918, an abstract of his books disclosed the following accounts: purchases $78,000; sales $85,000; sinking fund $8,000; cash drawings $6,000; goods returned to creditors $5,000; expenses paid in cash $9,000; profit and loss, debit $3,500; contingent fund $3,000; due to creditors $49,000; reserve for bad debts $4,250; due from customers $32,620; discounts allowed customers on accounts paid $755; returned sales $4,520; discounts on accounts paid to creditors $650. No goods were sold to creditors or purchased from customers. Unsold goods June 1, 1918, $9,500.

From the above data, prepare a trial balance, income statement, and balance sheet.

Note: Two items affecting accounts in the trial balance are missing and must be supplied.

41. In taking off a trial balance a bookkeeper finds that his debit footings exceed the credit by $131.56, which he carried to a suspense account. Later, he discovers that a purchase amounting to $417.50 has been debited to a creditor as $192.94; that $312.50 for depreciation of furniture has not been posted to depreciation account; that $500 withdrawn by the proprietor has been charged against wages account; that a discount of $76.13 allowed to a customer has been credited to him as $71.13, and that the total of sales returned was footed $5 short. Give detailed entries showing how you would remedy these errors, and starting with the original difference prepare a supplemental trial balance showing whether the books balance or not.

42. A and B are partners owning two retail stores, one in Paterson and the other in Newark. They agree to dissolve partnership as of July 1, 1918. The two stores are valued July 1, 1918, as follows: Paterson $4,573.50; Newark $3,600. On this basis B contemplates purchasing A’s interest. On being furnished with the following data, B requests you to inform him if the inventory of the Paterson store, January 1, 1918, was correct as A claims:

Value of alleged Inventory, January 1, 1918, in the Paterson store $3,800.00 Purchases for both stores, January to July, paid for 5,128.80 Due to Creditors on account of both stores, July 1 1,500.00 Cash Sales, Newark store 1,875.00 Cash Sales, Paterson store 3,105.00 Purchases, Paterson store, January to July 3,326.00 Profits 50% of Sales

Prepare a statement proving whether or not the inventory of the Paterson store, January 1, 1918, was correct as stated.

43. On paper ruled as for a stock ledger, make entry of the following stock transactions of William Henderson, closing the account as of October 31, 1918, and carrying down the balance:

100 shares (par value $100) originally issued, full paid at par to William Henderson by certificate No. 5. August 16, 1918.

William Henderson sells 50 shares of the original 100 to Charles Gibbons at $120, September 14, 1918, receiving certificate No. 37 for shares retained.

October 28, 1918, William Henderson purchases from John Hogan 25 shares at $115 and receives certificate No. 78.

44. Stockholders of the Deep Canal Company donated 400 shares of stock of a par value of $100 per share for the purpose of providing working capital.

Three hundred shares of the treasury stock were sold by agents at 90. A commission of 10% and expenses of $516 was allowed the agents for selling. The 300 shares of treasury stock were sold on the instalment plan, 10% down and 10% a month for the balance. Certificates of stock not to be issued until paid in full.

Six months later you are to enter the total amount of cash paid on instalments, excluding the initial payment which was made at the time of subscription.

At the end of eight months 100 subscribers defaulted on their subscription contracts. Their subscriptions were canceled and the payments they had made declared forfeited.

The balance of all subscription accounts except those canceled by default have been paid in full and stock certificates therefor duly issued.

(a) Write all the necessary journal entries.

(b) Construct a suitable instalment book and record in it the above transactions.