Appendix D

REVIEW QUESTIONS

=Chapter I=

1. Name the two general classes of corporations, and subclassify each.

2. Discuss briefly the working organization of the stock corporation.

3. Name the different classes of stock and discuss each briefly.

4. What is meant by watered stock?

5. How, on the balance sheet, would you show discount on stock? Premium on stock?

6. What are the correct journal entries covering the receipt of treasury stock, and its sale at a discount? At a premium?

7. To what uses is donated surplus restricted?

8. What is bonus stock, and when may it be issued?

9. What kind of an expense does bonus stock constitute when given with an issue of bonds which would otherwise be sold at a discount?

10. When treasury stock is purchased by the issuing company at a discount, how would the transaction appear on the ledger? How if bought at a premium?

11. Contrast the redemption at a premium of a preferred stock issue, with the purchase of treasury stock at a premium.

12. What is meant by stock of no par value? Explain fully.

13. How is the issue of no par value stock handled on the books?

14. Name and discuss those records peculiar to the corporation.

15. Of what value to the accountant are the records kept in the minute book?

=Chapter II=

1. In what way are the purchasing activities of a manufacturing concern more complex than those of a concern selling stock-in-trade?

2. Why is the old purchase journal inadequate to meet the needs of the manufacturing concern? In what way, however, can it be improved to meet these needs?

3. Discuss the development of the voucher register, showing its improvement over the purchase journal.

4. What is a voucher?

5. State the essential characteristics of a formal voucher.

6. Describe in detail the operation of a voucher system.

7. What are the advantages of the voucher check?

8. What are “treasurer’s numbers,” and why are they sometimes put on vouchers?

9. In what way does the use of the voucher register eliminate much of the work that is usually done on the cash book?

10. How is it possible, when using the voucher system, to keep a record of the volume of business done with each creditor?

11. How is the general ledger account, Vouchers Payable, proven?

12. State the steps that must be taken when substituting the voucher system for the old journal method of handling purchases.

13. Explain two methods of treating purchases returns and allowances on the voucher register. Which method is the most satisfactory for a concern doing a large volume of business?

14. Explain in detail the methods of handling the following items on the voucher register: (a) Partial payments on vouchers. (b) Payment by means of a note payable. (c) Cash discounts on purchases.

15. Enumerate the advantages claimed for the voucher system. The disadvantages.

=Chapter III=

1. In what respect does factory accounting differ from financial accounting?

2. What three main elements enter into the manufacture of a product? Discuss each.

3. For what special purposes are cost records kept?

4. What is meant by raw materials from the manufacturer’s viewpoint?

5. Describe the two methods used in accounting for material cost. Which method is preferable for the large concern?

6. How would you classify labor for factory accounting?

7. Explain the use of the time card.

8. Describe the general content of a pay-roll.

9. Why and how should the pay-roll be safeguarded?

10. How are the workmen paid from the pay-roll?

11. How is distribution of the pay-roll made? Distribution of accrued wages?

12. Name a few items which enter into overhead expenses.

13. What constitutes the real difficulty in accounting for factory expense or overhead?

14. Why is a common basis of distribution of expense usually unsatisfactory?

15. What relation has a manufacturing statement to a profit and loss statement?

=Chapter IV=

1. Discuss the growing importance of the balance sheet in its relations to the business world.

2. What relation is there between the trial balance and the balance sheet? Between the post-closing trial balance and the balance sheet?

3. What is the purpose of the balance sheet? What uses may it serve?

4. Differentiate between the English and the American or Continental form of balance sheet.

5. How is the origin of the English form of balance sheet explained?

6. What is the “Statement of Receipts and Expenditures on Capital Account?”

7. Name and criticize a few of the balance sheet titles met with.

8. What is the purpose in classifying the items appearing in the different sections of a balance sheet?

9. What controlling principle usually governs the order of these sections and the items within each section?

10. Give an outline of the group arrangement of the balance sheet.

11. State and describe the two methods of arranging the three main classes of balance sheet items. Which method is usually preferred?

12. How is a valuation account usually shown on the balance sheet? Give examples.

13. Tell what you know of the statutory requirements governing the frequency of financial statements of both financial and public service corporations.

14. What are the reasons for having a condensed balance sheet? What precautions must be taken when condensing a balance sheet?

15. Enumerate several of the purposes which a balance sheet may serve.

=Chapter V=

1. What points demand consideration before an accountant can definitely arrive at the content of a balance sheet?

2. State the chief purpose for valuing the assets of public utilities.

3. Give a few principles involved in the valuation of property for the purpose of sale or purchase.

4. Name three kinds of valuations relating chiefly to the commercial balance sheet.

5. What principles are involved in the valuation of a going concern?

6. What is meant by cost value?

7. Give a few sources of data as to value.

8. What is an “experience figure” in connection with an appraisal?

9. What is the most usual basis for values which are shown in the commercial balance sheet.

10. Define and explain:

(a) Capital expenditures. (b) Revenue expenditures. (c) Capital receipts. (d) Capital expense.

11. Do the expenses of organization constitute capital or revenue expenditures?

12. Define and discuss: (a) Maintenance. (b) Replacements. (c) Renewals. (d) Repairs.

13. When should a renewal be considered an expenditure on capital account?

14. Describe the best method of handling expenses involved in making “cost-cutting” changes.

15. How may expenditures for assets subject to depreciation be considered as deferred charges to operations?

16. The cost of repairs upon second-hand equipment, immediately after purchase, constitutes what kind of an expenditure?

17. Name a few construction costs which may justly be considered as capital expenditures.

18. Upon what is the distinction between capital and revenue expenditures often based?

19. Name the three general heads under which the assets may be classed on the balance sheet.

20. What are the principles of valuation for the assets appearing under each group?

21. Are the principles of valuation applicable to liability items?

22. Would you say that a balance sheet is a statement of fact, or merely an opinion based on experience? Why?

=Chapter VI=

1. Define depreciation and show why the depreciation factor demands consideration.

2. Distinguish between “absolute or actual” and “theoretical” depreciation.

3. Define “accounting” depreciation.

4. What is meant by complete depreciation? Incomplete?

5. How can a consideration of complete depreciation be of value?

6. What is the relation of individual depreciation to composite depreciation?

7. What is meant by “normal” or “average” value in connection with composite depreciation?

8. Define “deferred maintenance,” “accrued depreciation.”

9. What is the attitude of the law in regard to depreciation?

10. Give a clear distinction between repairs and renewals.

11. What relation is there between the reserve for depreciation and the productive efficiency of the plant?

12. Explain how the efficiency of the unit bears a different relation to depreciation than does that of the plant as a whole. Give an example.

13. Is it correct to allow fluctuations in market value to influence the charges to depreciations?

14. Give a clear distinction between depreciation and depletion.

=Chapter VII=

1. Give a complete outline showing the cause of depreciation as related to: (a) Tangible property. (b) Intangible property.

2. In what ways is age a distinct cause of depreciation? Wear and tear?

3. Explain “functional” depreciation.

4. What two main factors or compelling forces may bring about inadequacy?

5. Name and discuss each of the forces of internal origin which may bring about inadequacy. Those of external origin.

6. Discuss obsolescence as a cause of functional depreciation.

7. Do the courts recognize obsolescence as a factor of depreciation?

8. Name the various items comprising contingent depreciation.

9. When must provision be made for the depreciation of intangible property, or rights?

10. What constitutes the effective depreciation for any given asset?

=Chapter VIII=

1. State the real purpose of the depreciation charge as viewed first from the standpoint of the balance sheet, and second from that of the profit and loss statement.

2. Among what items of expense do accountants include depreciation charges?

3. What two methods of distributing depreciation charges over several fiscal periods are possible?

4. Show how the factor of idle time would affect the charges of depreciation for different fiscal periods.

5. What three views must an accountant always consider when making the depreciation charge?

6. Have there been any successful efforts to standardize depreciation rates?

7. Of what importance are local conditions in determining an individual depreciation rate?

8. Name the important normal and contingent factors which must be taken into account in determining the depreciation rate.

9. Upon which of these factors must the rate be based at the time of installation?

10. Upon what considerations is the normal rate based?

11. What influence has the policy as to repairs upon the normal rate?

12. Explain the three methods of handling repairs and renewals on the books.

=Chapter IX=

1. What are the usual factors which enter into the calculation of depreciation charges under most methods?

2. Name and subclassify the four general methods of calculating depreciation charges.

3. Explain and give the essential characteristics of each of the methods used for estimating depreciation.

4. What is meant by condition per cent?

=Chapter X=

1. Name the causes of depreciation as viewed from the aspect of time. As viewed from the aspect of service.

2. What is the ideal basis for distributing the depreciation charge?

3. Discuss the advantages and disadvantages of the various depreciation methods as outlined in Chapter IX, and state the conditions under which each method might work to advantage.

4. Should stability of income on the investment be considered in commercial valuations?

=Chapter XI=

1. What are the two methods of booking depreciation in the ledger? Which method is preferable?

2. Explain and criticize the two methods of handling the depreciation reserve account at the time of the renewal of parts or replacement of the asset.

3. Why are subsidiary records necessary in accounting for a group of assets which are subject to depreciation?

4. Upon what basis are plant assets usually grouped?

5. Name the five headings under which a record of each plant unit should be kept.

6. Discuss the importance of a periodic revision of depreciation rates. Upon what does the frequency of such a revision depend?

7. What is meant by the rate of composite depreciation?

8. Explain, by assuming data from which to work, the two methods of estimating the composite life of a group of assets, and also their composite rate of depreciation.

9. What does a depreciation reserve on the balance sheet show as to the management’s policy in treating plant properties?

10. Upon studying the depreciation reserve account for successive periods, what conclusions might be drawn in the case of: (a) A fluctuating reserve? (b) An increasing reserve? (c) A decreasing reserve?

11. Should the depreciation reserve ever serve as a means of financing the replacement of plant equipment?

12. Name the three courses which the management might pursue in financing plant replacements.

13. Explain the secret reserve. Is the policy of carrying a secret reserve advisable? What is the result of carrying too low a reserve?

14. Name the various causes of the appreciation in value of an asset.

15. When is one justified in offsetting depreciation with appreciation?

16. What effect might an over-or under-charge for depreciation have upon the stockholders of the corporation?

=Chapter XII=

1. Discuss some of the items often considered as cash, and give reasons why many of them should not be included in that account.

2. Explain fully the customary method of receiving stamps as cash payments.

3. Discuss the impropriety of accepting and listing I O U’s and due bills as cash.

4. How should the disposition of the various cash funds be shown when listing the cash items?

5. What rate of exchange should be used by the home office in valuing cash held in a foreign branch?

6. What is the important problem in valuing accounts and notes receivable?

7. Why is the title “accounts receivable” objectionable?

8. How may large losses from bad debts be avoided?

9. What relation does the percentage of loss from bad debts bear to the term of credit granted?

10. Explain how customers’ accounts are analyzed as a basis for estimating bad debts. When is such an analysis of value?

11. What three bases are used in estimating the percentage of bad debts? Give a criticism of each base.

12. What allowance should be made for discounts and collection costs when valuing the trade debtor’s accounts?

13. What is the common practice in providing for loss on bad notes receivable?

14. How should non-interest bearing notes be valued?

15. What items should be included under the title of “notes receivable”?

=Chapter XIII=

1. Define the term “stock-in-trade.”

2. What is the most conservative basis upon which to value stock-in-trade? Criticize other bases of valuation which may be used.

3. Explain the use of balance sheet footnotes to indicate the market value of stock-in-trade.

4. What is the proper basis of valuation for depreciated stock-in-trade?

5. Discuss all of the items that may go to make up the cost of stock-in-trade.

6. How may items of cost, which are not directly attributable to any one department, be equitably distributed?

7. Discuss some of the problems met in valuing inventories.

8. In the case of a manufacturing concern, discuss the valuation of the following inventories: (a) Finished goods. (b) Raw materials. (c) Goods in process. (d) Uncompleted contracts. (e) Scrap.

9. State the two rules to be observed when taking a physical inventory and discuss their application.

10. How may a perpetual inventory be kept?

11. Is a physical inventory necessary when a perpetual inventory is kept?

=Chapter XIV=

1. What is the usual basis upon which temporary investments should be valued?

2. What are the advantages in the use of the “Reserve for Investment Fluctuations” account?

3. Explain the method of valuing stock rights.

4. How are temporary investment costs handled on the books?

5. Discuss the principles governing the valuation of bonds purchased at either a discount or a premium for temporary account.

6. What kind of an asset is unissued stock?

7. Differentiate between the valuation of unissued stock and that of treasury stock.

8. Give a summary of the principles of valuation of temporary investment assets.

9. Define and give a few examples of accrued income.

10. Explain the cash method of handling accruals and tell why it is inadequate.

11. Explain the “accrual method.”

12. On what basis should accrued items be valued, and how should they be classed on the balance sheet?

13. Discuss and illustrate the methods of accounting for accrued income.

14. Define and give examples of prepaid expense items.

15. On what basis should they be valued, and how should they be shown on the balance sheet?

=Chapter XV=

1. State the characteristics of permanent investments.

2. In what three ways may a permanent or fixed investment be effected so as to act as an aid in the operation of any business?

3. What is the chief problem in valuing those investments which aid operation?

4. When may the “consolidated balance sheet” be used to advantage by holding companies?

5. Discuss the factors involved in valuing claims against subsidiary concerns on account of advances.

6. Under what conditions would it be advisable to value partial or minor holdings at cost?

7. On what basis should investments producing no income be valued?

8. Explain the influence of interest rates upon the valuation of bonds.

9. Describe the nature of bond discount and of bond premium.

10. Explain the two methods of recording bond investments.

11. What data must necessarily be known in order to calculate the periodic amortization of bond discount or premium?

12. Derive the formula for the present worth of a given sum at compound interest.

13. Derive the formulas for the sum and present worth of an annuity.

14. Explain the three methods for valuing bonds.

15. On what basis should sinking funds be valued?

16. On what basis should investments in land be valued?

=Chapter XVI=

1. What principles are particularly applicable to the valuation of equipment assets?

2. Distinguish clearly between real and personal property.

3. Why is it necessary to keep separate records of machinery and tools?

4. Describe the operation of the machine account where subsidiary records are kept.

5. What is the valuation formula for machinery?

6. Is there any necessity for a periodic revision of the depreciation rate?

7. State the advantages of keeping a life history of units of machinery in the subsidiary records.

8. What effect has the standardization of methods of operation and of use of machinery and tools upon the rates of depreciation of these assets?

9. Enumerate a few points that demand consideration in the calculation of the depreciation rate for a machine subject to abnormal operation.

10. When should scrap material be disposed of?

11. Due to the possibility of losing small tools, what precautions must be taken in accounting for this class of assets?

12. Why is depreciation often ignored when estimating the value of tools?

13. Upon what basis should tools made in the home factory be valued?

14. When might it be proper to capitalize expenditures made for the rearrangement of machinery within the plant?

15. Will the capitalization of this expense affect profits considered over the life of the asset?

16. State the basis for valuing: (a) Furniture and fixtures. (b) Delivery equipment. (c) Carriers and containers. (d) Patterns, molds, electrotypes, etc.

17. Show the entries necessary to book the disposal of an asset subject to depreciation.

=Chapter XVII=

1. What objection is there to the account title “real estate”?

2. What items enter into the cost of buildings?

3. What is the basis for valuing: (a) Buildings? (b) Betterments on leased buildings?

4. What considerations must be taken into account in applying depreciation to buildings?

5. What is the basis for valuing land used for operations?

6. What account should be taken of depreciation and appreciation of land?

7. How should the carrying costs of land held for investment be treated?

8. State fully the points to be considered in handling and valuing donated land.

9. Where land is stock-in-trade, what objection is there to loading the loss suffered on the sale of some portions onto the carrying value of the unsold portions?

10. Distinguish between depletion and depreciation.

11. How is periodic depletion calculated? Explain fully.

12. Discuss fully the valuation of leaseholds.

=Chapter XVIII=

1. Discuss the valuation of patents: (a) When purchased. (b) When developed within the plant. (c) Patents purchased but not used.

2. What elements of depreciation are effective on patents? In what way?

3. What items enter into the cost of patents?

4. How may the life of basic patents be indefinitely extended?

5. What is the basis of valuation for:

(a) Copyrights? (b) Trade secrets? (c) Trade-marks?

6. Discuss the commercial valuation of franchises as distinguished from the valuation allowed by public service boards.

7. How should organization expenses be handled and valued?

8. Define good-will and state its characteristics. What is its essence?

9. When may good-will be shown on the books? Discuss the several cases.

10. State and explain three ways of valuing good-will.

11. Is good-will subject to depreciation? Discuss.

12. What objection is there to using good-will to absorb the water in watered stock?

=Chapter XIX=

1. State the general problem of valuation as applied to liabilities.

2. How should the liabilities be classified?

3. What considerations must be taken into account to make sure that all liabilities are shown on the balance sheet?

4. How should current liabilities be classified?

5. What different classes of items may be included under the head, accounts payable? Under trade creditors?

6. What classes of items are listed under accrued expenses?

7. In what sense is deferred income a liability?

8. Name six different classes of contingent liabilities and show how they should be treated: (a) On the balance sheet. (b) On the books.

=Chapter XX=

1. What is the basis of separation of fixed from current liabilities?

2. From a financial standpoint, what is the purpose of the incurrence of fixed liabilities?

3. Distinguish between a corporation bond and an ordinary mortgage or bond and mortgage.

4. What financial considerations are involved in the determination of the advisability of a bond issue?

5. State fully the methods of accounting for a bond issue.

6. Explain fully the entries necessary to record properly bond interest, including the amortization of premium or discount.

7. How should unissued bonds be treated on the balance sheet?

8. How should notes payable secured by real estate mortgage be shown on the balance sheet?

9. How would you treat the securities pledged as collateral for a bond or note issue?

10. What are short-term securities and under what conditions are they issued?

=Chapter XXI=

1. What problem is involved in the valuation of capital stock?

2. Define the different kinds of value of stocks.

3. What is watered stock? Illustrate.

4. What is the objection to earning capacity as the basis of capitalization?

5. What attitude does the law take towards capitalization?

6. How would you treat stock discount and premium on the books? On the balance sheet?

7. How would you value: (a) Stock issued for property. (b) Treasury stock.

8. How is the redemption or reduction of capital stock handled on the books? Explain fully.

9. How would you value: (a) Dividend stock. (b) Bonus stock.

10. How should unissued and treasury stock be shown on the balance sheet?

11. What is the problem of a preferred stock covered by a redemption contract imposing definite dates of redemption on the company?

=Chapter XXII=

1. What are profits? Distinguish between the economic, legal, and accounting uses of the term.

2. What two methods are used to determine profits?

3. How are profits related to the problem of valuation?

4. What effect have asset losses on profits? Discuss fully.

5. In what three ways may such losses be treated on the books and balance sheet?

6. How would you treat profit on goods being made for stock?

7. How would you treat profit on long-term contracts?

8. How would you treat profit on goods awaiting delivery?

9. What about profits due to appreciation of assets?

10. How would capital profits be handled?

11. Sum up briefly the considerations governing the determination of profits.

=Chapter XXIII=

1. Define surplus; margin. What are the sources of margin?

2. Explain the booking of the appropriation of profits.

3. In what different ways is the term reserve used?

4. What is the effect of an under-or over-estimate of valuation reserves?

5. How would you handle expected sales discounts on outstanding accounts?

6. How should expected collection costs be handled?

7. Distinguish between reserves and accrued items.

8. What are contingent reserves?

9. What are proprietorship reserves?

10. In what different ways may secret reserves be created?

11. Give the arguments for and against secret reserves.

12. What are covered reserves?

13. What is meant by earmarking reserves? How may continuity of a reserve policy be secured?

14. Give a logical classification of reserves.

15. Under best practice what should the Surplus account represent?

16. Give the form for the statement of surplus.

=Chapter XXIV=

1. What are the stockholders’ rights as to profits? As to dividends?

2. What control have the directors over profits and dividends?

3. How are dividends declared? May they be revoked?

4. What is the liability of directors as to dividends.

5. In what different ways may dividends be paid? Explain fully.

6. What can be said of the policy of borrowing to pay dividends?

7. What is the problem involved in stock dividends in estate accounting?

8. How are the declaration and payment of dividends booked?

9. What is the relation of capital losses to dividends:

(a) From a legal standpoint.

(b) From a business standpoint.

10. What are liquidating dividends? How are such dividends handled as related to wasting assets?

=Chapter XXV=

1. Define a sinking fund and trace its origin.

2. State the problem of the calculation of a sinking fund. Derive the formula.

3. What other basis than the compound interest basis is often used for the accumulation of a sinking fund?

4. Explain fully the relation of the sinking fund to profits.

5. In what four ways may the sinking fund be handled on the balance sheet? Explain the meaning of each.

6. How should the sinking fund assets be shown on the balance sheet?

7. Explain fully the entries needed to book the sinking fund transactions: (a) The origin of the fund. (b) The trustee’s periodic report. (c) The redemption of bonds and final disposition of the fund.

8. Discuss fully the relation between the reserve for depreciation and the sinking fund.

=Chapter XXVI=

1. Is the profit and loss a statement of fact or of opinion? Explain.

2. For what purposes is the periodic profit and loss summary inadequate? Discuss fully.

3. Give the arguments for inclusion of interest as an item of manufacturing cost.

4. Give the arguments against its inclusion. If its inclusion is allowed, how must it be booked?

5. State fully the case of bringing unrealized profits on the books.

6. What distinctive problems arise in closing the books of a corporation? Discuss.

7. How are errors of previous periods to be corrected?

=Chapter XXVII=

1. Give the various titles used for the profit and loss summary and indicate their special uses, if any.

2. Indicate the subsections, and their content, of the manufacturing section.

3. Indicate the content of the trading section.

4. Indicate the content of the general administrative section.

5. Indicate the content of any other sections and show their uses.

6. State and discuss the different methods of handling some items, such as goods in process, discounts, outfreight, rent, insurance, etc.

7. What purpose does the use of schedules serve?

8. Is the profit and loss the proper place to show all adjustments of surplus?

=Chapter XXVIII=

1. Under what conditions may a corporation liquidate? Distinguish between actual and legal insolvency.

2. Name and discuss seven causes or conditions resulting in insolvency.

3. Name the methods of liquidation.

4. What are acts of bankruptcy? Discuss.

5. Outline the process of liquidation under bankruptcy.

6. Outline the process of liquidation under voluntary dissolution.

7. Outline the process of liquidation under receivership.

8. What is the status of the several claimants to shares in the assets of a liquidating concern?

9. What are the fundamental principles of accounting involved in accounting for a liquidation?

=Chapter XXIX=

1. What various kinds of consolidations are there?

2. What is a holding company and how does it operate?

3. Distinguish between a consolidation and a merger.

4. What are some of the problems involved in the valuation of the various companies to a merger or consolidation? Discuss their treatment.

5. In such a valuation, why is it necessary to equalize conditions and what are the conditions which must usually be equalized?

6. In a partnership what particular items must be considered?

7. What is meant by earning capacity?

8. What factors enter into a determination of the amount of capitalization?

9. How may the interests of the various parties to a merger or consolidation be settled?

10. State the method of opening the books of the merger.

11. State the method of closing the books of the merged companies.

=Chapter XXX=

1. Discuss the branch and agency methods of marketing.

2. Differentiate between the branch and agency.

3. Discuss the problem of control over the branch by the head office.

4. What are the fundamental principles of branch accounting?

5. How may agency accounts be kept?

6. Indicate the method of keeping both the branch books and the branch activities on the head office books where goods are billed by the head office to the branch: (a) At cost price. (b) At some other price than cost.

7. Discuss briefly the handling of branch purchases, sales, and cash in order to secure head office control over them.

8. Discuss fully the periodic summary of results and the adjustments necessary at such a time between the branch and head office books.

9. What reports should the branch make the head office?

=Chapter XXXI=

1. What problems beyond those of the domestic branch are met in accounting for the foreign branch?

2. What control accounts are usually carried on the head office books?

3. State and explain the principles of the conversion of branch results and their incorporation with the head office results.

4. How are fluctuations of exchange handled? Discuss fully.

5. What peculiarities of regulation over accounts are sometimes met in foreign countries?

6. Explain fully the method of keeping foreign customers’ accounts on the head office books and the periodic adjustment of their control account.

7. Explain the similar method of keeping creditors’ accounts.

=Chapter XXXII=

1. What are suspense accounts? Give several examples of different kinds of suspense accounts.

2. In what sense are valuation accounts suspense accounts?

3. What is the suspense ledger? What does its use indicate? What information should such a ledger present?

4. What is the process of hypothecating accounts receivable? What does such a practice usually indicate?

5. Discuss fully the problem of accounting for hypothecated accounts.

6. What advantage has the system of numbering accounts over that of naming them?

7. Show how a numeric-alphabetic system may be constructed.

8. Present a complete schedule of numbered accounts.

9. Explain the insurance contract.

10. How should fire-damaged property be handled in order to base a claim for loss?

11. How is the amount of the liability of the insurance company determined?

12. What is the effect of the coinsurance clause? Illustrate the three cases.

13. How should the records be kept to facilitate adjustment of fire losses?

14. Explain fully the method of booking a fire loss and its adjustment.

=Chapter XXXIII=

1. State some of the uses to which statistics may be put in business.

2. What is the importance of statistics in railroad accounting and management?

3. What kinds of manufacturing data may be presented in statistical form?

4. What kinds of trading data may be presented in statistical form?

5. Discuss the use of graphs in the presentation of statistics.

6. What principles should be observed in graphical presentation?

7. Explain the purpose, content, and operation of private books.

8. What is a journal voucher, its purpose and method of use?

9. Explain the two ways in which income and expenses of buildings owned may be treated and the purposes each method serves.

10. How should the expense of social betterment work be treated?

=Chapter XXXIV=

1. In what respects is the balance sheet of the holding company deficient and unsatisfactory?

2. Differentiate between the consolidated balance sheet and the holding company’s balance sheet.

3. When, in the case of partial ownership of the subsidiaries, does the consolidated balance sheet reflect true condition?

4. State fully how partial ownership may best be shown.

5. How are intercompany accounts handled on the consolidated balance sheet?

6. How are the various inventories valued for the consolidated balance sheet?

7. Explain the manner of showing capital stock on the consolidated balance sheet.

8. Explain the manner of showing surplus (or deficit) on the consolidated balance sheet.

9. Explain how the consolidated profit and loss summary should be drawn up. How does it differ from the holding company’s profit and loss summary?

=Chapter XXXV=

1. Distinguish between assignee, receiver, and trustee, and state their respective duties.

2. What accounts should a receiver in equity keep? What reports should he make to the court?

3. What initial statements are presented to the court in: (a) Voluntary bankruptcy proceedings? (b) In involuntary bankruptcy?

4. What reports does the court require of the trustee? How often?

5. What is a liquidating dividend?

6. In a case of bankruptcy what classes of creditors are there?

7. What is the statement of affairs and what information does it attempt to present?

8. What basis of valuation of the assets is used for the statement of affairs?

9. What is the realization and liquidation statement? What purpose does it serve?

10. What theories underlie its make-up?

11. How are cash and valuation reserves best handled?

12. What problem is involved in partnership liquidation by instalments?

13. How should it be solved theoretically? How is it often solved in practice?

INDEX

A ACCIDENTS, CONTINGENT DEPRECIATION, 131 ACCOUNTING, branch house (See “Branch house accounting”) department, organization, manufacturing business, 26 difference between factory and financial, 49 ACCOUNTS, branch (See “Branch house accounting”) current, reconcilement of, consolidated balance sheet, 607 deficiency, 633 Forms, 635, 638 doubtful, reserve for, a suspense account, 558 head office, 531 impairment of capital, 633 valuation of, 222 manufacturing, 690 numbered (See “Numbered accounts”) open, discounted, accounting for, 562 discounting, 560 operating expense, classification, 567 operating revenue, classification, 566 payable, 345 consigned goods sold, 349 definition, 347 deposits, 348 dividends not yet paid, 349 future deliveries, 349 long-term notes, 349 “not due” and “past due,” 348 realization and liquidation, 639-650 Forms, 642 receivable, analysis of customers’ accounts as basis for estimate of bad debts, 217 basis of estimate of bad debts, 219 discounted, 560 discounted, accounting for, 562 items included, 215 objection to title, 215 “trade debtors,” 216 valuation of, 215 receivers’ (See “Receivers”) reserve (See “Reserves”) salvage, 188 showing of intercompany, 606 surplus (See “Surplus”) suspense (See “Suspense accounts”) trustee (See “Trustee”) valuation, 187 bond investments, 267 showing on the balance sheet, 77 ACCRUAL METHOD, 250 ACCRUED DEPRECIATION (See “Depreciation”) ACCRUED EXPENSES (See “Expenses”) ACCRUED INCOME (See “Income”) ADAPTATION, APPRECIATION DUE TO, 207 ADJUSTMENT, fire losses (See “Fire losses”) plant ledger, 193 ADMINISTRATIVE SCHEDULES, PROFIT AND LOSS SUMMARY, 491 ADVANCES, to subsidiaries, 262 rules for valuation, 263 ADVERTISING, creation of good-will by, 334 statistics, 584 AGENCY, accounts, 525 branch and, differentiated, 522 foreign purchasing, 555 foreign sales, 552 periodic conversion of results, 553 ALLOWANCES, purchase, under voucher system, 40 AMORTIZATION, bond discount and premium, 269 schedule showing, 270 leaseholds, 315 ANNUITY, compound interest, formulas, 164 formulas, 272-276 method of calculating depreciation, Chart, 166 appraisal of, 181 compound interest method, 161, 163-167 fixed periodic amount, 165 interest, 165 APPRAISAL METHOD OF CALCULATING DEPRECIATION, 169, 170, 183 APPRAISAL SCHEDULE, sinking fund method of calculating depreciation, 162 APPRAISALS (See “Valuation, principles of”) APPRECIATION, due to physical changes, 207 adaptation, 207 solidification and seasoning, 207 land values, 304 issue of bonds, 305 sale of old and erection of plant on less valuable land, 305 offset to depreciation, 206 profits due to, 404 unearned increment, 209 ASSESSMENT, STOCK, creation of a margin, 409 ASSETS, contingent, 81 current, depreciation, 119 transfer of, into fixed assets common cause of insolvency, 494 disposal of, 295 effect of losses on future profits, 393 grouping on balance sheet, 70-74 immovable tangible fixed, buildings, land, and wasting assets, 297-315 intangible, 316-338 losses, charged against current profits, 396 charged to capital, 397 legal decisions as to, 394 treated as deferred expense charge, 396 movable fixed, machinery and tools, furniture and fixtures, and other equipment, 279-296 plant, grouping and classification of, 191 profits due to appreciation of, 404 subject to depreciation a deferred charge to operations, 93 undervaluation, creating a secret reserve, 418 valuation of, current assets, 96 deferred charges to operation, 96 fixed assets, 96 wasting (See “Wasting assets”) ASSIGNEE, accounting features same as for receiver and trustee, 621 appointment of, 620 function of, 620 AVERAGE CLAUSE, fire insurance contract, 574 AVERAGES, theory of, repairs, 147

B BAD DEBTS (See “Debts, bad”) BALANCE SHEET, 60-80 account form of, 74-76 accrued items, 250 anticipation of profits or losses on stock-in-trade, 227 bonds, presentation of, 369 valuation, 266 business methods under the microscope, 60 capital stock, 374, 383 cash, 210-214 classification, 70 comparative, receiver’s report to the court, 627 condensation of information in, 77 condensed, 693 consolidated (See “Consolidated balance sheet”) content and valuation, 81 contingent assets, 81 contingent liabilities, 81 contingent liabilities, kinds of, 352 definition, 62 depreciation reserve, 199 accounts, 187 English form, double-account form, 68 Form, 69 origin of, 65 variation of, 67 form of, 63 groups, 70 arrangement of, 72 distinction between current and working assets, 71 main, of asset items, 95 suggested scheme, 74 titles, 71 intangible assets, 316-338 interrelation of profit and loss and, 466 lack of clearness, 79 estimates rather than facts, 80 purposeful misrepresentation, 80 vagueness of terminology, 79 land, donated, contingent value of, 713 liabilities, 339-342 arrangement, 340 cancellation of, against assets, 341 items within groups, 341 notes payable, classification of, 346, 347 purposes and uses, 64, 77 reading of, 61 knowledge of accounts, 61 knowledge of the principles of valuation, 61 relation between, and trial balance, 62, 77 report form of, 74-76 sales discounts on, 415 sinking fund, 457 valuation of, 276 statutory requirements as to frequency of, 77 stock-in-trade, 225-240 temporary investments; accrued and deferred items, 241-257 titles, 70 notes receivable, 223 treasury stock, 383 types of, 65 Continental, 65 English, 65 use of supporting schedules, 79 valuation accounts, 77 valuation and content rather than form, the problem, 97 BANK, account, voucher checks given a new series of numbers to facilitate reconciliation with, 37 disposition of cash funds, 211, 213 loans, 347 BANKRUPTCY, 620-654 appointment, receiver, 621, 622 trustee, 621, 622 creditors’, first meeting of, 622 deficiency account, 633 Form, 635, 638 disposing of property, 629 duty of trustee, 502 involuntary, 622 liquidating dividends, declaration of, in hands of referee, 630 method of liquidating, 502 proceedings, initial statements presented to the court, 627 realization and liquidation account, 639-650 Forms, 642 receiver, reports to the court, 625 relative standing of creditors, 630 statement of affairs, 631 Forms, 634-638 basis of valuation, 633 voluntary, 622 BARRELS, VALUATION OF, 293 BASKETS, VALUATION OF, 293 BETTERMENTS, 89-93 distinction between repairs and renewals, 113 leased buildings, 300 recording depreciation on the books, 189 BONDS, accounting for issue of, 363 entry of interest payments on books, 366 entry of premium or discount on books, 365 entry on books, 364 relation of interest to premiums or discount, 367 amortization of discount and premium, 269 authority for issue of, 361 bonus, 13 classification, 359-361 character of issuing corporation, 359 conditions incident upon payment of principal and interest, 360 purpose of the issue, 359 security underlying, 359 difference between, and real estate mortgages, 358 discount, nature of, 266 profit and loss summary, 474 example of true interest cost, 368 financial considerations involved in issue, 361 fixed liability, 357 interest rate, 267 issue of, on appreciated land values, 305 kinds of, 358 methods of valuing, annuities, formulas for, 272-276 compound interest, formulas for, 271 nature of, 357 payment of dividends in, 438 premium, 343 nature of, 266 presentation on balance sheet, 369 priority of lien, 361 record of investments, 267 sinking fund, 447-465 surety, signature to, contingent liability, 355 valuation of, when held for temporary investment, 245 values and market interest rates, 265 versus stock issues, 362 BONUS, bonds, 13 stock, 13, 16 stock issued as, 383 treated as entries to a margin account, 409 BOOKS (See “Records”) private (See “Private books”) BORROWING, TO PAY DIVIDENDS, 436 BOTTLES, VALUATION OF, 293 BOXES, VALUATION OF, 293 BRANCH HOUSE ACCOUNTING, 521-555 adjustment on branch and head office books, 535 advantages of branch and agency system, 521 agency accounts, 525 agency and branch differentiated, 522 agency, foreign sales, 552 periodic conversion of results, 553 books, 529 degree of control desired, 523 example of adjusting entries, 537 factors of successful management, 523 foreign branch accounts opened on books, 544 conversion of branch results, 546 example of a London control account, 550 example of journal entries to adjust New York books, 549, 550 example of trial balance, 548, 549 handling fluctuations in exchange, 545 illustrative bookkeeping problem, 548 local supervision of, 552 problem of, 543 foreign exchange, 542 handling fluctuations in, 545 foreign purchasing agency, 555 head office accounts, 531 illustration of complex accounts, 529 illustration of simple accounts, 526 main principles of, 524 purchases, 533 records, 526 reports from branch, 539 customers’ accounts collected, 541 examples of, 540 periodic cash summary, 540 sales, 534 BROKERS, stocks and bonds as stock-in-trade, valuation of, 245 BUILDINGS, cost of, 298 issue of stocks or bonds, 298 purchased outright for cash, 298 put up by the concern itself, 299 depreciation, application of, 301 rates, 301 uses and construction determine life, 301 expense and income, allocation of, 596 methods of bookkeeping, 598 workmen’s dwellings and social betterment work, 599 leased betterments on, 300 owned as freehold for life, 302 ownership versus renting, 597 real property, 297 valuation of, 300 BURDEN, definition of, 50

C CAPITAL, deficiency, false good-will to cover, 336 expenditures (See “Capital expenditures” below) liquidating dividends, 445 losses, charged to, 397 relation to dividends, 443 profits, 405 return of, in form of dividends when property is subject to depletion, 311 working, donated, disposition of, 475 CAPITAL EXPENDITURES, 87 asset subject to depreciation a deferred charge to operations, 93 authorization for booking, 94 construction costs, 94 defined, 87 distinction between, and revenue, 95 repairs on second-hand plant, 94 treatment of cost-cutting changes, 92 CAPITALIZATION, combinations and consolidation, 516 cost, 376 earnings, 375 increase of book, 375 of profits, valuation of good-will based on, 335 CAPITAL RECEIPTS, 87 CAPITAL STOCK (See “Stock”) CARRIERS, VALUATION OF, 293 CASH, 210-214 disposition of funds, 213 bank, 213 petty cash, 213 safe or drawer, 213 various working funds, 213 held abroad, 214 petty, 211 imprest system, 211 principles of valuation, 210 realization and liquidation statement, 643 sale of capital stock or bond issues, 213 stamps remitted as, 212 statistics, 584 temporary disbursements, 213 tying up, in stocks of material, cause of insolvency, 494 unwise use of, for paying dividends, 495 what the term includes, 210 working funds, 211 imprest system, 211 CASH BOOK, separate, for special bank account, 670 CASKS, VALUATION OF, 293 CERTIFICATE OF STOCK, 9, 10 CHARTS (See “Graphs”) CHECK, voucher, 32 canceled, 32 distribution of charges, 32 folded, 32 Forms, 33 given a new series of numbers to facilitate reconciliation with bank account, 37 single, 32 Forms, 34 CLASSIFICATION, accounting, of depreciation on patents, 322 accounts (See “Numbered accounts”) plant assets, 191 alphabetic numeric system, 191 combined alphabetical and decimal numerical system, 191 numerical, 191 CLIMATIC CONDITIONS, FACTOR IN DETERMINING DEPRECIATION RATE, 143 “CLOSE” CORPORATIONS, 2 COINSURANCE CLAUSE, 574 COLLATERAL, LOANS ON, 370 COLLECTIONS COSTS, allocation of, 414 statistics, 584 valuation of trade debtors, 221 COMBINATIONS AND CONSOLIDATIONS, 507-520 capitalization, 516 closing the books of the merged concerns, 518 consolidations, distinction between, and merger, 510 formation of, 511 earning capacity, 515 equalization of conditions, 513 good-will, 515 merger, formation of, 511 opening the books, of, 519 payment of amalgamated interests, 517 principles of valuation of the constituent companies, 512 reasons for, 507 types of, 507 valuation of, principle, 514 COMMERCIAL CORPORATIONS, 2 COMMON STOCK (See “Stock”) COMPARATIVE STATEMENT OF PROFIT AND LOSS (See “Profit and loss summary”) COMPOSITE LIFE METHOD, calculating depreciation, 155 appraisement of, 177 COMPOUND INTEREST, formulas for, 271 CONDENSATION, BALANCE SHEET, 77 CONDITION PER CENT, 172 test of, 195 CONSIGNED GOODS SOLD, CURRENT LIABILITY, 349 CONSOLIDATED BALANCE SHEET, 261, 600-619 capital stock, 611 conditions under which used, 602 current accounts, reconciliation of, 607 deficit, 612 function, 600 holding company, 602 illustration of, 616-619 intercompany accounts, 606 notes discounted, 607 partial ownership, 601 profit and loss summary, 612-615 purpose, 600 setting up of, 603 surplus, 611 valuation of inventory, 607 minority interests, 610 valuation of liabilities, 611 CONSOLIDATED PROFIT AND LOSS SUMMARY, 612-615 CONSOLIDATIONS (See “Combinations and consolidations”) CONSTRUCTION COSTS, 94 CONTAINERS, VALUATION OF, 293 CONTINGENT DEPRECIATION (See “Depreciation”) CONTINGENT LIABILITIES (See “Liabilities”) CONTRACTS, length of cost period, 236 long-term, profits on, 401 redemption, covering preferred stock, 384 uncompleted, valuation of, 234 valuation of, 234 CONTROL, PERMANENT INVESTMENT FOR, 261 CONVERTIBLE PREFERRED STOCK, 6 COPYRIGHTS, 325 valuation of, 325 CORPORATIONS, 1-25 bonds (See “Bonds”) classification, 1 commercial or trading, 2 de facto, 2 de jure, 2 domestic, 2 financial, 2 foreign, 2 industrial or manufacturing, 2 private corporations, 2 public corporations, 1 public utility or quasi-public, 2 stock and non-stock private corporations, 2 combinations and consolidations, 507-520 definition, 1 dividends (See “Dividends”) holding companies, accounting for, 500 liquidation (See “Liquidation, corporations”) organization, working, 3 board of directors, 3 committees, 3 officers, 3 ownership, method of, 2 advantages, 3 “close,” 2 “open,” 2 “sole,” 3 profits (See “Profits”) records, dividend book, 20 instalment book, 20 minute book, 20 register of transfers, 20 stock certificate book, 20 stock ledger, 20, 21 Form, 22 stock register, 21 stock transfer book, 20 subscription book, 20 subscription ledger, 20 transfer book, Form, 21 stock (See “Stock”) COSTS, accrued, operating reserves for, 413 buildings, 298 bought by issue of stocks or bonds, 298 purchased outright for cash, 298 put up by the concern itself, 299 capitalization on basis of, 376 collection, allocation of, 414 valuation of trade debtors, 221 construction, capital expenditures, 94 factory (See “Costs, factory,” below) goods sold, manufacturing concern, 478 trading concern, 479 land, 303 original, factor in calculating depreciation, 150 statistics, 584 stock-in-trade, 230 cash discount, 230 distribution of, 231 objections to valuation at less than, 226 summary argument for valuing at, 228 valuation at, 225 temporary investments, 245 COSTS, FACTORY, 49-59 contracts and length of cost period, 236 cost-cutting changes, treatment of, 92 definitions of terms, 49 direct costs, 50 factory expense, overhead or burden, 50 full cost, 50 indirect cost, 50 prime cost, 50 total manufacturing cost, 50 depreciation and plant efficiency, 113 difference between factory and financial accounting, 49 expense, basis of distribution, 58 elements entering into, 58 inventory-taking, 237 methods, 238 perpetual, 239 rules, 238 labor, accrued wages, 57 direct and indirect, 53 distribution of charges, 57 materials, accounting for, 52 auxiliary, 51 nature of, 51 perpetual inventory system, 53 record of purchases and periodical inventory, 52 operation of machine accounts, 282 patents, effect of rate of depreciation, 324 pay-roll, 55 methods of payment, 56 safeguarding, 55 prime costs, direct and indirect labor, 53 materials, 52 special purposes of cost records, 50 predetermination of selling price, 51 stores department, function of, 52 summary of manufacturing cost, 59 supplies, manufacturing, 52 nature of, 51 operating, 52 time-keeping records, 54 cards, 54 valuation of manufacturing inventory, 233-236 contracts, 234 finished goods, 233 goods in process, 234 raw material, 234 valuation of scrap, 236 CREDIT, MERCANTILE, 216-224 application for, balance sheet as basis for, 79 bad debts, analysis of customers’ accounts as basis for estimate of, 217 basis for estimate of, 219 classification of accounts according to time overdue, 218 estimating, 216 length of credit period, 217 trade debtors as basis of estimate of, 219 classification of accounts according to length of time overdue, 218 deferred, 351 discounts and collection costs, 221 notes receivable, balance sheet titles for, 223 interest on, 223 loss on, 222 risk and length of credit period, 217 risk from losses, 216 valuation of receivable items on open account, 221 CREDITORS, bankruptcy proceedings, final meeting, 629 first meeting of, in bankruptcy proceedings, 622 relative standing of, receiver in equity, 630 status of, in liquidation, 504 voucher index of, 38 CRYSTALLIZATION, CAUSE OF DEPRECIATION, 133 CUMULATIVE PREFERRED STOCK, 5 CURRENT ASSETS, depreciation, 119 valuation of, 96 CURRENT LIABILITIES (See “Liabilities”) CUTS, VALUATION OF, 294

D DEBENTURE STOCK, 4, 8 DEBTS, bad (See “Debts, bad,” below) settled by— conversion of an asset, 453 creation of another liability, 453 increase in net worth, 453 sinking fund, effect of, 448, 452 DEBTS, BAD, basis for estimate of, 216, 219 analysis of customers’ accounts, 217 classification of accounts according to length of time overdue, 218 sales as, 220 summary, 220 trade debtors as, 219 loss of notes receivable, 222 reserve for, 411 risk and length of credit period, 21 DECREPITUDE, 173 DE FACTO CORPORATIONS, 2 DEFERRED— charges, accounting for, 256 danger of overvaluation, 255 definitions, 253 kinds of, 253 to operation, valuation of, 96 valuation of, 254 credits, 351 income, 343 misuse of term, 417 maintenance, 109 DEFICIENCY, SHARES OF, liquidation of partnership by instalments, 652 DEFICIT, SHOWN ON CONSOLIDATED BALANCE SHEET, 612 DE JURE CORPORATIONS, 2 DELIVERY EQUIPMENT (See “Equipment”) DEPLETION, application of income tax law to, 312 assets subject to (See also “Wasting assets”) basis of charge, 312 contingent cause of depreciation, 134 distinction between depreciation and, 117 leaseholds, 314 reserves, 413 return of capital in form of dividends, 311 unusual risks, 313 wasting assets (See “Wasting assets”) DEPOSITS, CURRENT LIABILITIES, 348 DEPRECIATION, “accounting” and “fair,” 107 accrued, 109 a cost of operation, 137 actual or absolute, 104 a means of financing, 140 danger of viewpoint, 141 appraisement of methods, 173-186 annuity method, 181 appraisal method, 183 arbitrary methods, 179 composite life method, 177 compound interest methods, 179 effect on return on investment, 185 fifty per cent method, 183 fixed per cent of diminishing value method, 178 general considerations, 173, 174 insurance method, 184 maintenance method, 182 percentage of gross earnings method, 184 proportional methods, 175-178 replacement method, 183 service output method, 177 sinking fund method, 181 straight line method, 175 sum of expected life-periods method, 179 unit cost method, 182 variable percentage methods, 178-179 working hours method, 176 appreciation, as an offset to, 206 due to adaptation to use, 207 due to physical changes, 207 unearned increment, 209 aspects and definitions, 99-119 asset subject to, a deferred charge to operations, 93 attitude of law, 110 authoritative opinions, 101 buildings, 301 freehold for life, 301 rates, 301 buildings and machinery of a wasting asset, 313 calculating, 150-172 annuity, 161, 163-167 formulas, 164 appraisal method, 169, 170 arbitrary interest rate, 150 arbitrary with decreasing amounts, 157, 160 arbitrary with increasing amounts, 157, 160 changing percentages of cost less scrap method, 157, 159 composite life, 152, 155 compound interest methods, 150, 160 condition per cent, 171 estimated service life, 150 factors to be considered, 150 fifty per cent method, 169, 170 fixed percentage of diminishing value method, 157 chart, 158 gross earnings method, 169, 171 insurance method, 169, 170 maintenance method, 169 methods of, 150 original cost of asset, 150 proportional methods, 150 replacement method, 169 scrap or residual value, 150 service output, 152, 156 sinking fund, 161 straight line method, 152 symbols to be used, 151 unit cost method, 161, 167-169 variable percentage methods, 150 working hours, 152-155 causes, 120-135 accidents, 122 age, 120 analysis of, 120 chart showing, 121 contingent depreciation, 130-134 decrepitude, 122 depletion, 134 effective depreciation, 135 functional depreciation, 123 inadequacy as a factor, 123 inadequacy due to unforeseen development, 125 inadequacy imposed from without, 126 inadequacy through change of policy, 124 inadequacy through motives of economy, 125 obsolescence, 127-130 terminable rights, 134 wear and tear of use, 122 chart showing relation of efficiency to uniform depreciation, 115 comparison of actual and theoretical, 105 complete and incomplete, 108 complication of short fiscal periods, 138 contingent, accidents, 131 depletion, 134 disease, 133 electrolysis, 134 current assets, 119 decision of Supreme Court, 111 deferred maintenance, 109 distinction between, and depletion, 117 distinction between repairs and renewals, 113 distribution of charge, 174 effective, 135 estimate of charges due to obsolescence, 129 fire losses, 579 fluctuations in market value, 116, 117 franchises, 328 ruling of Public Service Commission, 329 furniture and fixtures, 291 good-will, 337 hand tools, 289 individual and composite, 108 inefficiency a factor of, 116 journal vouchers, 595 land, 304, 306 leaseholds, 314, 315 machinery, estimate of, 283 methods of applying, 286 merchandise, 119 methods (See “Depreciation, appraisement of methods” and “Depreciation, calculating,” above) patents, 319, 320 accounting classification, 322 booking, 322 effect on costs of manufacture, 324 obsolescence, 320 supersession, 320 time lapse, 319 physical and functional, 109 plant efficiency, 113 purpose of, fundamental, 136 rates, 136-149 accounting viewpoint, 141 attitude of regulatory bodies, 147 based only on normal factors at time of installation, 144 basis of normal, 144 buildings, 301 change in ownership and policy, 144 change in requirements of the market, 144 climatic conditions, 143 complication of short fiscal periods, 138 composite and group, 197 contingent factors, 142, 144 cost of operation, 137 danger of financing viewpoint, 141 effect of local conditions, 142 engineering problem, 142, 146 engineering viewpoint, 141 exterior or movable apparatus, 144 factors in determining, 143 financing viewpoint, 140, 141 fixed equipment including boilers and piping, 145 frequency of revision of, 194 fundamental purpose, 136 idle time a factor, 139 installed operating and generating machinery, 144 insufficient charge, 205 load or normal intensity of operation, 143 means of financing, 140 methods of handling repairs, 147 misuse and neglect brought about by the demands of the trade, 144 normal climatic conditions, 143 operating conditions, 143 periodic revision of, 194 repairs policy, 143 results achieved as the basis, 139 service life as the basis, 139 “stable or normal” factors, 142, 143 standardization of, 142 recognition of the depreciation factor, 112 Federal Income Tax Law, 112 Federal Trade Commission, 112 Interstate Commerce Commission, 112 Treasury decisions, 112 recording, 187-209 adjustment of value, on plant ledger, 193 asset record, 192 balance sheet, 187 cases when no determination of betterment values is made, 189 composite or group rates, 197 credit balance in the reserve, 189 debit balance in the reserve, 189 plant ledger, 191 Form, 193 frequency of revision of rates, 194 grouping and classification of plant assets, 191 mean age, direct method, 198 mean life, direct method, 197 mean life, dollar-year, or weighted ratio method, 198 methods commonly employed, 187 periodic adjusting entry, 187 periodic revision of rates, 194 renewals and replacements, 188 reserve account, 187 reserves, 199-204 subsidiary records, 190 table of expectancy, 196 test of condition per cent, 195 valuation account, 187 relation between, and sinking fund, 463 reserves, decreasing, 200 distinction from reserve for doubtful accounts, 411 financing of replacements, 203 fluctuating, 199 increasing, 200 index of financial condition, 199 insufficient charge, 205 methods of financing replacements, 203 not leased on cost of replacement, 202 relation to efficiency, 201 relation to expanding plant, 201 secret, 204 suspense account, 558 stockholders’ relation to policy pursued, 209 stock-in-trade, 119, 229 terminable rights, 134 theoretical, 104 unit efficiency, 114 unusual risks, 313 “wasting” assets, 118 effect on different kinds of business, 118 why factor arises, 103 DETERIORATION, 140 rate of, 145 stock-in-trade, 229 DEWEY DECIMAL SYSTEM, 564 advantages of the mnemonic over, 565 combined with mnemonic, 566 DIES, VALUATION OF, 294 DIRECT COST, DEFINITION OF, 50 DIRECTORS, control over profits, 429 liability of, in the matter of dividends, 433 DISBURSEMENTS, CASH, TEMPORARY, 213 DISCOUNTS, accounts receivable, 560-563 bond, amortization of, 269 entry on books, 365 nature of, 266 profit and loss summary, 474 relation to interest, 367 schedule showing amortization of, 270 cash, inclusion of, in cost of stock-in-trade, 230 on purchases, voucher system, 44 permanent investments, treatment of, 257 sales, on the balance sheet, 415 proper allocation of estimated, 413 stock, 13 charging to organization expense, not approved, 14 requirements of Interstate Commerce Commission, 13 treatment of, 378 valuation of trade debtors, 221 DISEASE, CONTINGENT DEPRECIATION, 133 DISSOLUTION, valuation for purposes of, 83 voluntary, 501 liquidation under, 503 DISTRIBUTION OF DEPRECIATION CHARGE, 174 DIVIDENDS, 428-446 accounting record, 442 book, 20 corporation profits, directors’ control over, 429 disposition of, 428 shareholders’ rights as to, 429 declaration of, 432 provisos as to, 430 definition, 428 ex-dividend, 442 in stock, 382 effect of, 382 liability of directors, 433 liquidating, 445, 506, 629 booking, 446 declaration of, in hands of referee, in bankruptcy, 630 method of payment, 434, 436 borrowing, 436 borrowing on property, 438 in bonds, 438 in property, 438 paid in form of salaries, 435 scrip, 438 not yet paid, current liability, 349 paid but not yet charged against surplus, 688 payment, to whom payable, 441 profit and loss summary, 474 proportional to holdings, 441 relation of capital losses to, 443 resolution declaring, 441 return of capital included in, 311 revocation of, 434 shareholders’ rights to, 431 stock, 439 estate accounting, 440 unwise use of cash for paying, 495 DOMESTIC CORPORATIONS, 2 DONATED— land, 308 stock, 11, 15 creation of a surplus, 409 DOUBTFUL ACCOUNTS, reserve for, as a suspense account, 558 DRAFTS, negotiated, contingent liability, 352 sight, treated as cash transactions when honored, 673 DRAWINGS, VALUATION OF, 294 DRAYAGE, COST OF STOCK-IN-TRADE, 230

E EARNINGS, VALUE OF STOCK DEPENDENT UPON, 374 EFFICIENCY, chart showing progress of uniform depreciation and of diminishing efficiency, 115 employees’, statistics, 584 plant, depreciation, 113 relation of depreciation reserve to, 201 unit, 114 ELECTROLYSIS, CAUSE OF DEPRECIATION, 133 ELECTROTYPES, VALUATION OF, 294 ENGINEERING, rate of depreciation a problem of, 142, 146 EQUIPMENT, average, normal use, 139 basis of normal rate, 144 delivery, carriers, valuation of, 293 containers, valuation, 293 definition, 292 valuation, 292 disposal of assets, 295 distinction between personalty and real property, 279 furniture and fixtures, definition of, 291 depreciation, 291 valuation of, 291 general considerations, 279 idle time, 139 machine accounts, operation of, 282 machinery, abnormal operation, 285 basis of valuation, 287 estimate of depreciation, 283 expenditure for rearrangement, 290 history of, 284 home-made, valuation of, 289 map of location, 286 methods of application of depreciation, 286 scrap, 287 standards of operation, 285 valuation of, 283 machinery and tools, 281 accounting records, 281 molds, valuation of, 294 patterns, valuation of, 294 service, 139 tools, accounting for, 288 hand, depreciation on, 289 home-made, valuation of, 289 issue on requisition, 289 valuation of, 279-296 ESTATE ACCOUNTING, STOCK DIVIDENDS, 440 ESTIMATES, PRINCIPLES OF VALUATION, 97 EXPECTANCY, mean age, direct method, 198 mean life, direct method, 197 dollar-year, or weighted ratio method, 198 table of, 196 EXPENDITURES, capital (See “Capital expenditures”) revenue (See “Revenue expenditures”) EXPENSES, accrued, 343 booking of, 350 current liabilities, 350 capital, 87 factory, basis of distribution, 58 definition of, 50 elements entering into, 58 organization, 88

F FACTORY COSTS (See “Costs, factory”) FEDERAL RESERVE BOARD, statement required of contingent liability, 352 FINANCIAL ACCOUNTING, DIFFERENCE BETWEEN FACTORY AND, 49 FINANCING, depreciation a means of, 140 danger of viewpoint, 141 FINISHED GOODS, VALUATION OF, 233 FIRE LOSSES, ADJUSTMENT OF, 570-580 adjusting entries, 578 depreciation, 579 bases of settlement, 573 coinsurance clause, 574 examples of, how applied, 575, 576 determination of value, 572 insurance contract, 570 cancellation of, 571 inventory of stock-in-trade, 580 method of record-keeping to facilitate ready adjustments, 577 options of the insurance company as to settlement, 576 pro rata or contributing clause, 574 rates, 574 requirement in case of loss, 571 settlement of points in dispute, 573 valuations for, 83 FISCAL PERIODS, complication of short, in the case of depreciation, 138 FIXED ASSETS, VALUATION OF, 96 FIXED LIABILITIES (See “Liabilities”) FIXTURES (See “Equipment”) FLUCTUATIONS, RESERVE FOR INVESTMENT, 243 FOREIGN BRANCH (See “Branch house accounting”) FOREIGN CORPORATIONS, 2 FOREIGN COUNTRIES, CASH HELD IN, 214 FOREIGN EXCHANGE, 542 handling fluctuations in, 545 FOREIGN PURCHASING AGENCY, 555 FOREIGN SALES AGENCY, 552 periodic conversion of results, 553 FORFEITED STOCK, 12, 19 FORMS (See list in table of contents, page xxiii) FOUNDERS’ SHARES, 4, 7 FRANCHISES, 326-330 definition, 326 depreciation on, 328 ruling of Public Service Commission, 329 indeterminate, 328 kinds, 326 limited, 327 perpetual, 327 valuation, 328 FREIGHT, cost of stock-in-trade, 230 distributed over stock-in-trade, 231 FUNCTIONAL DEPRECIATION, 123 FURNITURE (See “Equipment”) FUTURE DELIVERIES, LIABILITY, 349

G GOODS, consigned, sold, current liability, 349 finished, valuation of, 233 in process, valuation of, 234 profits on, awaiting delivery, 402 made for stock but not sold, 399 made to order, 400 work in progress, 399 returned, statistics, 584 sold, cost of, manufacturing concern, 478 trading concern, 479 GOOD-WILL, 331-338 combination and consolidation, 515 creation of, by advertising, 334 definition of, 331 “going value,” 338 local and personal character of, 333 merger, 332 nature of, 331 valuation of, 333 based on capitalization of profits, 335 based on excess profits, 335 based on normal profits, 334 depreciation, 337 false, to cover capital deficiency, 336 periodic revaluation, 337 GRAPHS, advantages of, 586 principles of construction, 587 use of, in presentation of statistics, 585 GROSS EARNINGS, method of calculating depreciation, 169, 171 GUARANTEED STOCK, 4, 7 GUARANTEES, as contingent liability, 353 quality and performance, 348

H HOLDING COMPANY, 508 (See also “Combinations and consolidations”) accounting for, 509 advances to subsidiaries, 262 rules for valuation, 263 consolidated balance sheet, 600-619 consolidated profit and loss summary, 612-615 permanent investments of, 261 HOUSING WORKMEN, AND SOCIAL BETTERMENT WORK, 599 HYPOTHECATION ACCOUNTS RECEIVABLE, accounting for, 560

I IDLE TIME, FACTOR IN DEPRECIATION, 139 IMPAIRMENT OF CAPITAL ACCOUNT, 634 IMPREST SYSTEM, PETTY CASH OPERATED UNDER, 211 INADEQUACY, 173 factor in depreciation, 123-127 INCOME, accrued, accounting for, 251 correct method of handling, 250 illustration of different methods of recording, 251 inadequacy of cash method of handling accruals, 249 nature of, 248-253 showing on balance sheet, 250 valuation of items, 250 deferred, 343 misuse of term, 417 INCOME AND EXPENDITURES (See “Profit and loss summary”) INCOME STATEMENT (See “Profit and loss summary”) INCOME TAX LAW OF 1916, APPLICATION OF, TO WASTING ASSETS, 312 INCREMENT, UNEARNED, 209 IDENTIFICATION (See “Classification”) INDEX, journal vouchers, 594 Forms, 594, 595 voucher, of creditors, 38 INDIRECT COST, DEFINITION OF, 50 INDUSTRIAL CORPORATIONS, 2 INSOLVENCY, CAUSES OF, current assets transferred into fixed assets, 494 inability to secure cash for refunding operations, 496 tying up cash in stocks of material, 494 unwise use of cash for dividends, 495 INSTALMENT ACCOUNTS, VALUATION OF, 22 INSTALMENTS, book, 20 liquidation of a partnership by, 650 illustration of, 653, 654 INSURANCE, buildings and equipment, leasehold, 688 cost of stock-in-trade, 230 fire (See “Fire losses, adjustment of”) INSURANCE METHOD, calculating depreciation, 169, 170 appraisal of, 184 INTERDEPARTMENTAL PROFITS, 404 INTEREST, accrued, recording of, 268 annuity method of calculating depreciation, 165 arbitrary rate of, methods of calculating depreciation, 150 as a cost of manufacture, 468 arguments against, 470-472 bonds, example of true interest cost, 368 fixing the rate, 267 relation of, to premium or discount, 367 compound, formulas for, 271 methods of calculating depreciation, 160, 179 notes receivable, 223 on money invested in stock-in-trade, 231 payments on bonds, entry on books, 366 problem of charging, on books, 471 rates, market, bond values and, 265 INTERSTATE COMMERCE COMMISSION, method of handling depreciation reserve at the time of replacement, 189 requirements as to discounts and premiums, 13 INVENTORY, adjustment of, profit and loss summary, 490 contracts and length of cost period, 236 finished goods, 690 goods in process, bringing on the books, 690 of liabilities, 342 periodical, 52 perpetual, 52, 238 necessity for physical count, 240 pricing of, 232 weighted average, 232 statistics, 584 stock-in-trade, fire loss, 580 taking, 237 methods, 238 rules, 238 valuation of, consolidated balance sheet, 607 minority interests, 610 valuation of manufacturing, 233-236 contracts, 234 finished goods, 233 goods in process, 234 raw material, 234 scrap, 236 INVESTMENTS, effect on return on, under various methods of calculating depreciation, 185 land, valuation of, 307 permanent, 258-278 accrued interest on bonds, 268 advances to subsidiaries, 262 advances to subsidiaries, rules for valuation, 263 amortization of bond discount and premium, 269 amortization of bond discount and premium, schedule showing, 270 annuities, formulas for, 272-276 as an aid to operation, 259 bond values and market interest rates, 265 controlling investment, 261 holding company and subsidiary enterprises, 261 in partial holdings, 264 interest, compound, formulas for, 271 land, valuation of, 278 nature of, 258 nature of bond discount or premium, 266 producing no income, 265 record of bond investments, 267 sinking funds, methods of employing, 276, 277 sinking funds, valuation of, 276 valuation account, 267 valuation of, 259 temporary, 241-248 cost of, 245 nature of, 241 reserve for fluctuations, 243 “stock rights,” 244 summary of valuation formula, 248 treasury stock, valuation of, 247 unissued stock, valuation of, 246 valuation of, 242 valuation of bonds, 245 INVOICES, voucher system, 26-48 distribution, 34

J JOURNAL, methods of authorizing entries, 596 purchase, expansion, 27 JOURNAL VOUCHERS (See “Voucher system”)

L LABOR, charges, accrued wages, 57 distribution of, 57 direct and indirect, 53 LAND, 302-310 accounting, 302 plots, 302 appreciation, 304 issue of bonds, 305 sale of old, and erection of new plant on less valuable land, 305 as stock-in-trade, 310 depreciation, 304 of values, 306 donated, 308 reserve of surplus covering, 713 mortgages on, 308 real property, 297 valuation of, 303 valuation of investments in, 278, 307 inflation of values, 307 LASTS, VALUATION OF, 294 LAW, STOCK ISSUES, 377 LAWSUITS, PENDING, CONTINGENT LIABILITY, 354 LEASEHOLDS, 314, 315 appreciation in value, 315 depreciation and amortization, 315 distribution of depreciation on buildings, 688 insurance, distribution of, 688 length of leases, 314 long-term, contingent liability, 354 sale of, 314 LEDGER, classification of accounts, 568 methods of recording depreciation in, 187 plant, 191 Form, 193 purchase, used with voucher system, 46 stock, 20, 21 Forms, 21 stores, 53 subsidiary records, 190 suspense, use of, 559 trial balance, 62 LIABILITIES, 339-371 balance sheet, 339-371 arrangements on, 340 cancellation of liabilities against assets, 341 items within groups, 341 contingent, 81, 344, 351-355 accumulated dividends on preferred stock, 355 drafts negotiated, 352 guarantees as, 353 kinds of, 352 long-term leases, 354 notes discounted, sold, or otherwise transferred, 352 pending lawsuits, 354 purchases for future delivery, 354 signature to surety bond, 355 statement of, 351 stock not fully paid, 354 current, 345-351 accounts payable, 345, 347 accrued expenses, 350 accrued expenses, booking of, 350 consigned goods sold, 349 deferred credits, 351 deposits, 348 dividends not yet paid, 349 future deliveries, 349 guarantees, 348 loans from bank, 347 notes payable, 345 notes payable, classification of, 346, 347 fixed, 356-371 accounting for bond issue, 363-369 bonds, kinds of, 358 bonds, priority of liens, 361 corporation bonds, 357 difference between bond and real estate mortgages, 358 loans on collateral, 370 nature of, 356 purpose of, 356 real estate mortgages, 369 short-term securities, 370 grouping on the balance sheet, 70-74 inventory of, 342 accrued expenses, 343 contingent, 344 deferred expenses, 344 deferred income, 343 premium on bonds, 343 overvaluation for purpose of creating secret reserve, 418 valuation of, 97 consolidated balance sheet, 611 LIQUIDATING DIVIDENDS, 445 LIQUIDATION AND REALIZATION ACCOUNT, 639-650 Forms, 642 LIQUIDATION, CORPORATIONS, 493-506 accounting for, 505 bankruptcy, 502 causes of insolvency, 494 current assets transferred into fixed assets, 494 inability to secure cash for refunding operations, 496 tying up cash in stocks of materials, 494 unwise use of cash for paying dividends, 495 complete, 493 dividends, 506 partial, 493 reasons for, 493 receivership, 501, 503 status of creditors in, 503 valuation for purpose of, 83 voluntary dissolution, 501, 503 LIQUIDATION, PARTNERSHIP, by instalment, 650 deduction from capital, 651 illustration of, 653, 654 LOAD, normal factor in determining depreciation rate, 143 LOANS, bank,347 borrowing to pay dividends, 436-438 on collateral, 370 LOCATION, MAP OF MACHINE, 286 LOSSES, anticipation of, undesirable, 227 asset, charged against current profits, 396 charged to capital, 397 effect on future profits, 393 legal decisions as to, 394 treated as deferred expense charge, 396 capital, relation of, to dividends, 443 credit, risk from, 216 fire (See “Fire losses, adjustment of”) notes receivable, 222

M MACHINERY (See “Equipment”) MAINTENANCE, accrued, 123 cost of, standardized, 122 deferred, 109, 123 definition of, 89 distinction between repairs and renewals, 113 method of calculating depreciation, 169 policies as to, effect on rates of depreciation, 145 MAINTENANCE METHOD, calculating depreciation, appraisement of, 182 MANUFACTURING ACCOUNT, HANDLING OF, 690 MANUFACTURING CORPORATIONS, 2 MANUFACTURING INVENTORY (See “Inventory”) MANUFACTURING, PURCHASING FOR, 26 MAP, MACHINE LOCATION, 286 MARGIN (See “Surplus”) MARKET VALUE, capital stock, 373 depreciation and fluctuations in, 116, 117 valuation of stock-in-trade at, 225, 228 MATERIALS, factory costs, 51 raw, valuation of, 234 stores department, 52 MEAN AGE, plant expectancy, direct method, 198 MEAN LIFE OF DEPRECIATION, direct method, 197 dollar-year or weighted ratio method, 198 MERCANTILE CREDITS (See “Credit, mercantile”) MERCHANDISE (See “Stock-in-trade”) MERGERS, capitalization, 516 closing the books, 518 closing the books of the old companies, 518 distinction between consolidation and, 510 formation of, 511 opening the books, 519 MINUTE BOOK, 20, 24 MNEMONIC SYSTEM, 564 advantage, 565 combined with Dewey decimal system 566 example of application to a machine, 566 MODELS, VALUATION OF, 294 MOLDS, VALUATION OF, 294 MONOPOLY PATENTS, 317 MORTGAGES, difference between, and bond, 358 on land, 308 real estate, fixed liabilities, 369

N NON-CUMULATIVE PREFERRED STOCK, 5 NON-PARTICIPATING PREFERRED STOCK, 6 NON-STOCK CORPORATIONS (See “Corporations”) NO PAR VALUE STOCK, 9, 20 NOTES, discounted, consolidated balance sheet, 607 sold or otherwise transferred, contingent liability, 352 long-term, 349 payable, 345 classification of, 346, 347 handling of, under voucher system, 43 statistics, 584 receivable, balance sheet titles for, 223 interest on, 223 losses on, 222 valuation of, 215, 223 short-term securities, 370 NUMBERED ACCOUNTS, 563-570 advantages, 564 allotment of numbers, 563 classification, 564 general ledger accounts, 568 main points, 570 manufacturing plant, 566 operating expense accounts, 567 operating revenue accounts, 566 primary accounts, 567 combination of mnemonic and Dewey decimal systems, 566 Dewey decimal system, 564 advantage of mnemonic over, 565 mnemonic system, 564 advantages over Dewey decimal system, 565 example of application to a machine, 565 symbols, 564

O OBSOLESCENCE, 173 cause of depreciation, 127 treatment of, 128 estimate of depreciation charge due to 129 patents, 320 under Federal Income Tax of 1916, 130 “OPEN” CORPORATIONS, 2 OPERATION, abnormal machine, 285 asset subject to depreciation a deferred charge to, 93 depreciation a cost of, 157 load on normal intensity of determining depreciation rate, 143 normal conditions of, determining depreciation rate, 143 permanent investments as an aid to, 259 standards of machine, 285 statistics, 584 ORDINARY STOCK, 4 ORGANIZATION, accounting department, manufacturing business, 26 corporate, board of directors, 3 committees, 3 officers, 3 expenses, 14, 18 treatment of, 330 ORIGINAL COST, factor in calculating depreciation, 150 OVERHEAD, DEFINITION OF, 50 OWNERSHIP (See also “Stock”) OWNERSHIP, CORPORATE, advantages, 3 “close,” 2 “open,” 2 partial, consolidated balance sheet, 601 “sole,” 3

P PARASITES, CAUSE OF DEPRECIATION, 133 PARTIAL PAYMENTS, HANDLING OF, UNDER VOUCHER SYSTEM, 42 PARTICIPATING PREFERRED STOCK, 6 PARTNERSHIP, liquidation of, by instalments, 650 deduction from capital, 651 illustration of, 653, 654 shares of deficiency, 652 valuation of, in a combination and consolidation, 514 PAR VALUE, capital stock, 373 sale of stock at less than, 11 stock of no, 9, 20 PATENTS, 316-324 and costs of manufacture, 324 depreciation, accounting classification of, 322 booking, 322 developed within the plant, 318 elements of depreciation, 319 obsolescence, 320 supersession, 320 time lapse, 319 infringement costs, 321 monopoly grant, 317 purchased and not used, 319 purchase of, 317 royalties, 323 sale price of, 324 service life of, 320 writing off the value, 321 PATTERNS, VALUATION OF, 294, 317 PAYMENTS, part, handling of, under voucher system, 42 PAY-ROLL, 55 checks drawn to order of treasurer of company, 671 distribution of labor charges, 57 methods of payment, 56 safeguarding, 55 PERCENTAGE, variable, methods of calculating depreciation, 150 PERPETUAL INVENTORY, 239 necessity for physical count, 240 PERSONALTY, DISTINCTION BETWEEN, AND REAL PROPERTY, 279 PETTY CASH, 211 imprest system, 211 PLANT, assets, grouping and classification of, 191 efficiency, depreciation and, 113 ledger, 191 Form, 193 POSTING, SUMMARY TOTALS, VOUCHER SYSTEM, 36 PREFERRED STOCK (See “Stock”) PREMIUM, bond, 343 amortization of, 269 entry on books, 365 nature of, 266 relation to interest, 367 schedule showing amortization of, 270 permanent investments, treatment of, 257 stock, 14 creation of surplus, 408 requirements of Interstate Commerce Commission, 13 treatment of, 378 PREPAID ITEMS, accounting for debit and other items, 256 danger of overvaluation, 255 definitions and kinds, 253 valuation of, 254 PRICE, cost, valuation of stock-in-trade at, 225 market, valuation of stock-in-trade at, 225 PRIME COST, definition of, 50 direct and indirect labor, 53 raw materials, 52 PRIVATE BOOKS, closing, 591 content, 589 operation, 590 illustration of, 590 purpose, 589 PRIVATE CORPORATIONS, 2 non-stock, 2 stock, 2 PROBLEMS, branch accounts, complex, 529 foreign branch, 548 simple, 527 consolidated balance sheet, 616 different methods of recording accrued items, 252-253 liquidation by instalments, 653 realization and liquidation statement, 645 statement of affairs and deficiency account, 635 PRODUCTION, STATISTICS, 584 PROFIT AND LOSS SUMMARY, 466-492 adjustment of inventories, 490 closing the records of a corporation, for the fiscal year, 474 consolidated balance sheet, 612-615 content and manner of showing, 489 correction of closing errors, 476 cost of goods sold, manufacturing concern, 478 trading concern, 479 discount on bonds, 474 dividend declaration, 474 form, account form, 483 comparative statement of, 488 examples of two forms of presentation, 485 manufacturers and merchants, 487 non-technical or report form, 484 standardization of, 477 interest as a cost of manufacture, 468 arguments against, 470-472 problem of charging on books, 471 interrelation of, and balance sheet, 466 periodical adjustments, 467 profit, method of showing, 482 profits between departments, 473 schedules for special need, 492 selling expense and administrative schedules, 491 sinking fund, 475 statement, 410 supporting schedules, 489 terms, desirability of uniformity in, 481 differentiation of, 480 synonymous, 478 unrealized profits, 472 working capital, 475 PROFITS, 387-406 (See also “Profit and loss summary,” above) anticipation of, undesirable, 227 asset losses, charged against current profits, 396 charged to capital, 397 effect of, on future profits, 393 legal decisions as to, 394 treated as deferred expense charge, 396 capital, 405 margin account, 409 capitalization of, valuation of good-will based on, 335 corporation, directors’ control over, 429 disposition of, 428 shareholders’ rights as to, 429 definition, accounting, 390 economics, 387 legal, 389 determining, difficulty of, 387 double entry, 391 goods awaiting delivery, 402 goods made for stock but not sold, 399 goods made to order, 400 long-term contracts, 401 methods of, 391 single entry, 391 summary of principles governing, 405 work in progress, 399 disposition of, 410 due to appreciation of assets, 404 excess, valuation of good-will based on, 335 intercompany, reserve for, 610 interdepartment, 404 method of showing on profit and loss summary, 482 normal, valuation of good-will based on, 334 problem a question of valuation, 392 relation of sinking fund to, 454 reserves of, secret, 418 statistics, 584 unrealized, 472 PROPERTY, payment of dividends in, 438 real, definition of, 297 distinction between personalty and, 279 stock issued for, 14 valuation of stock issued for, 380 PROPORTIONAL METHODS (See “Depreciation”) PROPRIETORSHIP, RESERVES FOR, 417 PRO RATA CLAUSE, 574 PUBLIC CORPORATIONS, 1 quasi-public, 2 PUBLIC UTILITY CORPORATIONS, 2 valuation for rate regulation, 82 PURCHASES, branch house, 533 foreign purchasing agency, 555 future delivery, contingent liability, 354 journal, expansion of, 27 manufacturing business, 26 returns and allowances, under voucher system, 40 valuation for, 83 voucher system (See “Voucher system”) cash discount, 44

Q QUASI-PUBLIC CORPORATIONS, 2

R RAILROAD STATISTICS, 582 RATE REGULATION, VALUATION FOR, 82 RATES, FIRE INSURANCE, 574 RATES OF DEPRECIATION (See “Depreciation”) RAW MATERIAL, VALUATION OF, 234 REAL ESTATE (See “Buildings” and “Land”) REALIZATION AND LIQUIDATION ACCOUNT, 639-650 Forms, 642 cash account, 643 evolution of, 640 handling of valuation reserves, 644 illustration of, 645 receiver’s cash account, 648 supporting schedules, 643 theory underlying, 640 uses to which statement may be put, 644 REAL PROPERTY (See also “Buildings” and “Land”) definition of, 297 distinction between personalty and, 279 RECEIPTS AND DISBURSEMENTS (See “Profit and loss summary”) RECEIPTS, CAPITAL, 87 RECEIVERS, 620-654 accounts, 628 initial statements presented to the court in bankruptcy proceedings, 627 appointment, 620 deficiency account, 633 Form, 635, 638 in bankruptcy, 620, 621 in equity, 621 accounts of, 623-625 relative standing of creditors, 630 reports of, 623-628 procedure, 622 realization and liquidation account, cash account, 648 example of balance sheet, 645 illustration of statement, 646 realization and liquidation statement, 644 Forms, 646 reports, 628 “charge and discharge” form, 626 initial statements presented to court in bankruptcy proceedings, 627 reports to the court, 625 comparative balance sheet, 627 items covered, 626 statement of affairs, 631 Forms, 634-638 basis of valuation, 632 RECEIVERSHIP, method of liquidating, 501, 503 RECORDS, accounting, dividends, 442 machinery and tools, 281 asset, 192 bond investments, 267 distinctive, of corporation, 20 dividend book, 20 instalment book, 20 minute book, 20, 24 private (See “Private books”) register of transfers, 20 special purposes of cost, 50 predetermination of selling price, 51 stock book, Forms, 22, 23 stock certificate book, 20 stock ledger, 20, 21 Form, 21 stock register, 21 stock transfer book, 20 Forms, 22 subscription book, 20 subscription ledger, 20 time-keeping, 54 REDEEMABLE PREFERRED STOCK, 6 REDEMPTION, capital stock, 381 preferred stock, 19, 384 REFEREE, in bankruptcy, liquidating dividends, 630 REFUNDING, INABILITY TO SECURE CASH FOR, 496 REGISTER, accounts payable, 34 plant, form of, 191 stock, 21 transfer, 20 voucher, form of, 34, 35 posting of summary totals, 36 proof of distribution, 37 purchase discount column, 44 status of when purchase ledger is used, 46 RENEWALS, definition of, 89, 90 distinction between, and repairs, 113 methods of handling, 147 of parts, treatment of, 91 recording depreciation on the books, 188 first method, 188 second method, 189 REPAIRS, cost of, included in depreciation charge, 148 estimates, 149 definition of, 89, 90 distinction between, and renewals, 113 methods of handling, 147 on second-hand plant, 94 policy, determining depreciation rate, 143, 145 preliminary estimates, 147 reserve for, 148 theory of averages, 147 REPLACEMENTS, definition of, 89 distinction between repairs and renewals, 113 financing of, 203 borrowed funds, 203 increase of capital stock, 203 profits of the past reserved in the business, 203 method of calculating depreciation, 169 appraisement of, 183 Interstate Commerce Commission’s instructions, 189 methods, 188 recording depreciation on the books, 188 REPORTS, (See also “Statements”) branch, customers’ accounts collected, 541 examples of, 540 periodic cash summary, 540 receivers (See “Receivers”) trustees (See “Trustee”) REQUISITIONS, STORES, 53 RESERVES, 410-424 bad debts, 411 classification of, 423 proprietorship reserves, 424 valuation reserves, 424 collection costs not under contract, 414 contingent, 416 continuity of policy, 421 covered, 422 “reserve fund,” 422 deferred income, misuse of term, 417 depletion, 413 depreciation, accounts, 187 decreasing, 200 financing of replacements, 203 increasing, 200 index of financial condition, 199 insufficient charge, 205 methods of financing replacements, 203 not based on cost of replacement, 202 on balance sheet, 199 relation to efficiency, 201 relation to expanding plant, 201 secret, 204 suspense account, 558 different meanings of, 411 distinction between, and accrued items, 415 doubtful accounts as a suspense account, 558 earmarking of, 420 for investment fluctuations, 243 intercompany profits, 610 market fluctuations in merchandise, 228 operating, for accrued costs, 413 estimated sales discounts, 413 proper allocation of taxes, 413 proprietorship, 417 repairs, 148 sales discounts on the balance sheet, 415 secret, 418 argument against, 419 argument for, 419 overvaluation of liabilities, 418 undervaluation of assets, 418 sinking fund, treatment of, 463 under- and over-estimate of, 412 valuation, handling of, realization and liquidation account, 644 RETURNS, purchase, under voucher system, 40 REVALUATION, periodic, of good-will, 337 REVENUE EXPENDITURES, defined, 87 distinction between, and capital, 95 RIGHTS, stock, received while stocks are held for temporary investment, 244 terminable or limited, depreciation, 134 RESIDUAL VALUE, factor in calculating depreciation, 150 RISKS, UNUSUAL, IN CONNECTION WITH ESTIMATE FOR DEPRECIATION AND DEPLETION, 313 ROYALTIES, PATENTS, 323

S SALARIES, DIVIDENDS PAID IN FORM OF, 435 SALES, basis of estimate of bad debts, 220 discounts, on the balance sheet, 415 proper allocation of estimated, 413 instalment basis, valuation of accounts, 222 statistics, 584 to branch house, 534 valuation for purpose of, 83 SALVAGE ACCOUNT, 188 SCHEDULES, for special needs, profit and loss summary, 492 selling expense and administration, 491 supporting, profit and loss summary, 489 realization and liquidation account, 643 use of, as a means of condensing balance sheet, 79 SCRAP, machinery, 287 valuation of, 236 SCRAP VALUE, factor in calculating depreciation, 150 SCRIP, PAYMENT OF DIVIDENDS IN, 438 Seasoning, appreciation due to, 207 SECRET DEPRECIATION RESERVE, 204 SECRETS, TRADE, 325 SELLING EXPENSE, schedules, profit and loss summary, 491 SELLING PRICE (See “Market value”) SERVICE, life, estimated, factor in calculating depreciation, 150 SERVICE OUTPUT METHOD, calculating depreciation, 156 appraisement of, 177 SHARES (See “Stock”) SINKING FUND, 447-465 accounting for, 456 appear only among assets, 456 balance sheet, 457 booking the trustees’ report, 460 entries, 459 accumulation based on agreement, 451 bond redemption, 458 compound interest method of calculating depreciation, appraisal schedule, 162 Chart, 162 formula, 161 debts, effect of settlement of, 452 schedule of debit and credit, 452 definitions, 447 final disposition of, 462 mathematical principles on which based, 449 method of calculating depreciation, appraisement of, 181 origin and use, 448 policy of investment, 276 outside securities, 276, 277 own bonds, 276, 277 profit and loss summary, 475 relation between depreciation and, 463 relation to profits, 454 treatment of income and expense, 461 treatment of reserve account, 463 valuation of, 276 SOLIDIFICATION, APPRECIATION DUE TO, 207 STAMPS, REMITTED AS CASH, 212 STANDARDIZATION, DEPRECIATION RATES, 142 STANDARDS, MACHINE OPERATION, 285 STATE, report to, balance sheet as, 79 STATEMENT, assets and liabilities, 70 balance sheet, 63, 64 contingent liabilities, 351 financial, 70 of affairs, bankruptcy proceedings, 631 Forms, 634-638 profit and loss (See “Profit and loss summary”) realization and liquidation (See “Realization and liquidation account”) resources and liabilities, 70 surplus, 425 STATISTICS, 581-589 application of, 584 graphs, advantages, 586 principles of construction, 587 use of, in presentation, 585 manufacturing, 583 mercantile, 583 railroad, 582 classification, 582 operating details, 582 results of operation, 582 value of, 581 STOCK, 372-386 accounting for, 13 bonus stock, 16 discount, 13 forfeited stock, 19 no par value, 20 premium, 14 property exchanged for, 14 redemption of preferred stock, 19 treasury stock donated, 15 treasury stock purchased, 18 assessment, creation of a margin, 409 bonus, 13, 16 capital and treasury stock on the balance sheet, 383 capitalization, cost, 376 earning capacity, 375 increase in book, 375 capital, showing of, on consolidated balance sheet, 611 certificate book, 20 certificate of, 9, 10 common, 4 no par value, 9 debenture, 4, 8 discount on, 13 dividend book, 20 dividends in, 382, 439 effect of, 382 estate accounting, 440 donated, 11 creation of surplus, 408 exchanged for property, 14 ex-dividend, 442 forfeited, 12, 19 founders’, 4, 7 fully paid and non-assessable, 11 guaranteed, 4, 7 instalment book, 20 issued as a bonus, 383 issue of, bonds versus, 362 kinds of, 372 law and issues of, 377 ledger, 20 Form, 21 no par value, 9, 20 not fully paid, contingent liability, 354 ordinary, 4 preferred, 4, 5 accumulated dividends on, contingent liability, 355 convertible, 6 covered by redemption contract, 384 cumulative, 5 non-cumulative, 5 non-participating, 6 participating, 6 redeemable, 6 redemption of, 19 premium, 14 creation of surplus, 408 property purchases, 14 records, stock book, 22, 23 redemption and reduction of capital stock, 381 at book value, 381 surplus adjustment, 381 register, 20, 21 rights, received while stocks are held for purposes of temporary investments, 244 sale of, at less than par, 11 sinking fund, 448 subscription book, 20 subscription ledger, 20 transfer book, 20 Form, 22 treasury, 10, 247 balance sheet, 383 bonus, 16 donated, 11, 15 purchased, 18 valuation of, 380 unissued, distinction between treasury stock and, 11 valuation of, 246 used to pay organization expense, 14 valuation, balance sheet, 374 book value, 373 dependent upon earning capacity, 374 market, 373 of property, 11 par, 373 problems of, 372 real, 373 treasury stock, 380 treatment of discount or premium, 374 when issued for property, 380 watered, 10 STOCK CORPORATIONS (See “Corporations”) STOCKHOLDERS, balance sheet as formal report to, 79 depreciation policy and, 209 rights as to profits, 429 rights to dividends, 431 status of, in liquidation, 504 STOCK-IN-TRADE, 225-240 anticipation of profits or losses undesirable, 227 balance sheet, 227 brokerage firms, valuation of stocks and bonds held, 245 definition and scope of term, 225 depreciation, 119, 229 deterioration, 229 distribution of costs over, 231 fluctuations in market price, 228 reserve for, 228 full costs of, 230 cash discount, 230 drayage, 230 duty, 230 freight, 230 insurance, 230 interest on money invested, 231 seasoning, 230 warehouse charges, 230 inventory-taking, 237 methods, 238 perpetual, 239 rules, 238 land as, 310 method of treatment, 228 objections to valuation at less than cost, 226 pricing of the inventory, 232 weighted average, 232 valuation of, consolidated balance sheet, 607 valuation of, cost or market price, 225 summary arguments, 228 valuation of manufacturing inventory, 233, 234 finished goods, 233 goods in process, 234 raw materials, 234 scrap, 236 STORES DEPARTMENT, accounting for materials, 52 ledger, 53 requisitions, 53 STRAIGHT LINE METHOD, calculating depreciation, 152 appraisement of, 175 formula, 152 graphic chart, 153 SUBSCRIPTION, book, 20 ledger, 20 rights, received while stocks are held for temporary investment, 244 SUBSIDIARIES, advances to, by holding company, 262 rules for valuation, 263 permanent investments in, by holding company, 261 SUBSIDIARY RECORDS, RECORDING DEPRECIATION ON THE BOOKS, 190 SUPERSESSION, PATENTS, 320 SUPPLIES, FACTORY COSTS, 51 SURETY BOND, signature to, contingent liability, 355 SURPLUS, 407-410 account, legitimate use of, 424 adjustment of, through redemption or reduction of capital stock, 381 definition, 407 disposition of profits, 410 margin, 407 capital profits and bonuses, 409 capital stock premiums, 408 creation of, 408 stock assessments, 409 stock donation, 408 showing on consolidated balance sheet, 611 statement of, 425 SUSPENSE ACCOUNTS, 556-563 accounts receivable hypothecated, 560 definition, 556 general purposes, 556 reserve for depreciation, 558 reserve for doubtful accounts, 558 use of suspense ledger, 559 SYMBOL SYSTEM APPLIED TO ACCOUNTS (See “Numbered accounts”) SYMBOLS, USED IN CALCULATING DEPRECIATION, 151

T TAXATION, VALUATION FOR, 83 TAXES, PROPER ALLOCATION OF, 413 TIME, idle, factor in depreciation, 139 units of, 139 TIME CARDS, ANALYSIS OF, 57 TIME-KEEPING, records, cards, 54 TOOLS (See “Equipment”) TRADE DEBTORS, accounts receivable, 216 discounts and collection costs, 221 TRADE-MARKS, 326 valuation of, 326 TRADE SECRETS, 325 TRADING CORPORATIONS, 2 TRANSFER BOOK, STOCK, 20 Forms, 22 TRANSFERS, REGISTER OF, 20 TREASURY STOCK (See “Stock”) TRIAL BALANCE, conversion of, foreign branch, example of, 548, 549 relation between balance sheet and, 62, 77 tested as to equality of debits and credits, 695 TRUSTEE, 620-654 accounts, 628 bankruptcy, 502 deficiency account, 633 Form, 635, 638 disposing of bankrupts’ property, 629 liquidating dividends, 629 declaration of, in hands of referee, 630 realization and liquidation account, 639-650 Forms, 642 cash, 643 evolution of, 640 handling of valuation reserves, 644 illustration of, 646 supporting schedules, 643 theory underlying, 640 uses to which statement may be put, 644 records, 629 relative standing of creditors, 630 reports, 628 sinking fund, booking report, 460 statement of affairs, 631 basis of valuation, 632 Forms, 634-638 TURNOVER, STATISTICS, 584

U UNEARNED INCREMENT, 209 UNISSUED STOCK, VALUATION OF, 246 UNIT, cost method, calculating depreciation, 161, 167-169, 182 efficiency, 114 product, 139 time, 139 UTILITY, PUBLIC CORPORATIONS, 2

V VALUATION ACCOUNTS, SHOWING ON THE BALANCE SHEET, 77 VALUATION, PRINCIPLES OF, 81-93 accounts receivable, 215 accrued items, 250 advances to subsidiaries, 263 asset subject to depreciation, a deferred charge to operations, 93 authorization for booking capital expenditures, 94 balance sheet concerned with, and content, rather than form, 97 balance sheet, content of, 81 contingent assets, 81 contingent liabilities, 81 buildings, 300 capital stock, 372-386 carriers and containers, 293 cash, 210-214 combinations and consolidations, 512 cost-cutting changes, 92 cost value usual basis, 86 definition, capital and revenue expenditure, 87 maintenance, 89 renewals, 89 replacement, 89 delivery equipment, 292 depreciation, 99, 101 depreciation and fluctuations in market value, 116, 117 estimates, 97 fire loss adjustments, 83 franchises, 328 furniture and equipment, 291 going concern, 83 good-will, 333-338 home-made machinery and tools, 289 inventory, 232, 233 kinds of value, 84 land, 303 investments, 307 liability items, 97 liquidation, 83 machinery, 287 main groups of asset items, 95 current assets, 96 deferred charges to operation, 96 fixed assets, 96 mercantile credits, 215-224 necessary to read the balance sheet, 6 notes receivable, 215 organization expenses, 88 over- and undervaluation, 97 patents, 317 patterns, molds, etc., 294 permanent investments, 259 present value of property, 86 profits, 392 purchase, 83 rate regulation, 82 repairs on second-hand plant, 94 sale, 83 sinking funds, 276 source of data as to value, 85 stock-in-trade, 225-240 taxation, 83 temporary investments; accrued and deferred items, 241-257 treatment of renewal of parts, 91 VALUE, cost, 85, 86 kinds of, 84 market, 85 depreciation and fluctuations in, 116, 117 no par, stock of, 20 “normal” or “average,” 109 par and no par, of stock, 9 present, 86 source of data as to, 85 VARIABLE PERCENTAGE METHODS (See “Depreciation”) VOLUNTARY DISSOLUTION, 501 liquidation under, 503 VOUCHER SYSTEM, 26-48 “Accounts Payable Register,” 34 advantages, summary of, 47 canceled checks, 32 cash discount on purchases, 44 adjustment of difference between discount columns in voucher register and cash book, at the close of fiscal period, 45 customary method, 46 supplementary voucher, 45 checks, given a new series of numbers to facilitate reconciliation with bank account, 37 control of vouchers payable, 39 definition, 28 description of, 28 development of, 27 disadvantages, summary of, 48 distribution of charges, 31 distribution of vouchers, 34 effect on cash book and bank account, 37 expansion of the purchase journal, 27 form of voucher register, 34 index of creditors, 38 introduction of, 39 journal vouchers, 592-596 Forms, 592, 593 content, 595 index, 594 Forms, 594, 595 method of use, 593 methods of authorizing journal entries, 596 need for, 592 modifications, 46 house vouchers, 47 purchase ledger sometimes used, 46 notes payable, handling of, 43 operation, 31 summary of, 47 organization of an accounting department of a manufacturing business, 26 partial payments, 42 payment of vouchers, 37 purchase returns and allowances, 40 purchasing for the manufacturing business, 26 register, posting of summary totals, 36 proof of distribution, 37 purchase discount column, 44 status of, when purchase ledger is used, 46 voucher check, 32 distribution of charges, 32 folded, 32 Forms, 33 single, 32 Forms, 34 voucher forms, 29, 30 voucher register, 34 Forms, 35

W WAGES, ACCRUED, 57 WAREHOUSE CHARGES, COST OF STOCK-IN-TRADE, 230 WASTING ASSETS (See also “Depletion”) application of income tax to, 312 basis of depletion charge, 312 characteristics, 311 definition, 311 depreciation on buildings and machinery of, 313 dividends may include return of capital, 311 effect on different kinds of business, 118 leaseholds, 314, 315 unusual risks, 313 water rights, 313 WATERED STOCK, 10 WATER POLLUTION, CAUSE OF DEPRECIATION, 133 WATER RIGHTS, acquired along with a wasting asset, 313 WORKING CAPITAL, PROFIT AND LOSS SUMMARY, 475 WORKING HOURS METHOD, calculating depreciation, 153 Chart, 155 appraisement of, 176 WORKMEN’S DWELLINGS, 599