CO GIFT OF F, K TU.J:t^-^ LABORATORY MANUAL THEORY AND PRACTICE OF ACCOUNTING ^ Fayette H. Elwell B. A, C. P. A. PROFESSOR OF ACCOUNTING THE UNIVERSITY OF WISCONSIN f >\ PREFACE From the problems and questions presented in this set are selected those which comprise the greater portion of the laboratory work for the course in Theory and Practice of Accounting given in the Course in Com- merce, University of Wisconsin. This set supplements the laboratory material contained in the texts and as- signed readings. The first division of this set consists of some original problems and of many others selected from the Certified Public Accountant examinations given in the different states and from the Intermediate and Final examinations given in England. The solution of these problems fur- nishes practice in the application of principles given in the lectures. The theory questions given in the second division of the set are used in recitations and discussions. As indi- cated, many of these questions have been selected from Certified Public Accountant examinations. F. H. Elwell. September 1, 1920. &• ^-34480 Digitized by the Internet Archive in 2008 with funding from IVIicrosoft Corporation http://www.archive.org/details/accounttheoryOOelwerich ]PART i PROBLEM 1 (Adapted from Wisconsin, 1915.) Classify and group the following accounts of a manufacturing company according to kind of asset, liability, proprietary interest, income and expense : 1. Accounts Payable 35. 2. Accounts Receivable 36. 3. Accrued Interest on Bonds Issued 4. Accrued Salaries and Wages Zl . 5. Advertising 38. 6. Bad Debts Written Off 39. 7. Bills Payable 40. 8. Bills Receivable 41. 9. Bond Discount on Bonds Purchased 42. 10. Bond Premium on Bonds Issued 43. 11. Capital Stock 44. 12. Cash 45. 13. Credit Department Expenses 46. 14. Depreciation of Buildings, Machin- 47. ery and Plant 48. 15. Depreciation of Workmen's Cot- 49. tages 50. 16. Directors' Fees 51. 17. Discount on Purchases 52. 18. Discount on Sales 53. 19. Federal Income Tax 20. First Mortgage Bonds 54. 21. Freight and Cartage Inward 22. Freight and Cartage Outvv^ard 55. 23. General Office Expenses 56. 24. Good Will 57. 25. Insurance 58. 26. Insurance Premiums Unexpired 59. 27. Interest on Bills Payable 60. 28. Interest on Bonds Issued 61. 29. Income from Investments 62. 30. Inventory, Raw Materials 63. 31. Inventory, Goods in Process 64. 32. Inventory, Manufactured Goods 65. 2)Z. Investments (Outside) 66. 34. Maintenance of Buildings, Machin- 67. ery and Plant 68. Maintenance of Workmen's Cottages Manufacturing Power, Heat and Light Miscellaneous Factory Expenses Miscellaneous Selling Expenses Non-Productive Labor Office Equipment Office Salaries Officers' Salaries and Expenses Organization Expenses Patent Rights Patterns and Drawings Plant Site Plant Buildings Plant Machinery and Equipment Productive Labor Purchasing Department Expense Raw Materials Purchased Rent of Workmen's Cottages Reserve for Depreciation of Buildings, Machinery and Plant Reserve for Depreciation of Work- men's Cottages Reserve for Doubtful Accounts Reserve for Sinking Fund Returns and Allowances, Purchases Returns and Allowances, Sales Sales of Manufactured Goods Sales of Waste Materials Sales Agents' Commissions Salesmen's Salaries Salesmen's Expenses Sinking Fund Investments Surplus Taxes on Plant and Equipment Taxes Accrued Workmen's Cottages PROBLEM 2 (Wisconsin, May, 1919.) Classify the accounts properly recording the following items according to the subdivision of assets, liabilities, proprietary interest, income and expenses, under which they should be grouped : 1. Expenses Advanced Salesmen 6. 2. Wages Due Workmen and Office Staff 7. 3. Organization Expenses 8. 4. Organization Expenses Written Off 9. 5. Reserve for Depreciation on Build- 10. ings Reserve for Income and Excess Profits Taxes Property Taxes Income and Excess Profits Taxes Sinking Fund for Bond Redemption Reserve for Sinking Fund 11. Cash Discount on Merchandise Pur- 18. chases 19. 12. Cash discounts on Merchandise Sales 20. 13. Interest on Invested Capital 14. Dividends Declared 21. 15. Dividends Payable 16. Notes Receivable Discounted 22. 17. Trade Acceptances (a) Given 23. (b) Received 24. (c) Discounted 25. Premium on Bonds Issued Discount on Bonds Purchased Amortization of Premium on Bonds Issued Amortization of Discount on Bonds Purchased Returned Sales Wages Paid Workmen and Office Staff Maintenance of Workmen's Cottages Income from Stocks and Bonds Owned PROBLEM 3 (Wisconsin, November, 1919) Classify and group the following accounts according to kind of asset, liability, proprietary interest, income and expense : Interest Collected in Advance Sinking Fund Notes Receivable Discounted Treasury Stock Work in Progress Dividends Unclaimed Capital Stock Subscription Suspense Accounts Receivable Discount on Bonds Issued Written Off Accrued Property Taxes Accrued Income and Excess Profits Taxes Interest Accrued on Notes Receivable Interest Accrued on Bonds Payable Reserve for Sinking Fund Reserve for Bad Debts Merchandise Purchases Sales' Returns Allowances Reserve for Building Extensions Bonds Payable Interest Earned on Liberty Bonds Interest Paid on Liberty Loan Installments Reserve for Depreciation, Buildings Dividends Declared Dividends Payable Investments in and Advances to Companies for Purposes of Control Advances to Company Officials Insurance Premiums Paid by Company on Life of its President (in which the Com- pany is Beneficiary) Installment Payments by Employes on Lib- erty Bonds Bought for Them by Com- pany Liberty Bonds Bought for Employes Employes' Liberty Bond Subscription PROBLEM 4 (Wisconsin, May, 1919) The following asset accounts appear upon the books of the Wisconsin State Normal Schools : Land Land Improvements Structures and Attached Fixtures Machinery and Equipment Educational Apparatus Furniture and Furnishings Live Stock and Poultry Library Books Text Books Museum Specimens Indicate the account or accounts to which each of the following items should properly be charged : (a) Canary for Kindergarten Dept. (b) Sidewalk (c) Office Desk (d) Log Chain (e) Tractor (f) Shrubbery Piano for Music Dept. Cream Separator (g) (h) (i) Ford Automobile (j) Cinders for Track (k) Test Tubes (1) Copy of Wis. Statutes (m) Adding Machine (n) Cash Register (o) School Manual PROBLEM 5 (Wisconsin, May, 1919) The State Fair division of the Department of Agriculture has three appro- priations as follows : 1. Operation — for the ordinary ever recurring expenses of the department. 2. Capital — for the acquisition of permanent property, such as lands, buildings, equipment, etc. 3. Maintenance — for the keeping of permanent property in a condition suitable for use and occupancy. In the following cases, indicate the appropriation to be charged with the expenditures mentioned : (a) A new team is purchased to replace a team struck by lightning. The value of the old and new team is the same. (b) Ticket booth for War Exhibit. (c) Oil for roads on fairground. (d) Bunting. (e) Free Exhibition, (f) Special Electric Arches for Illuminating Purposes. (g) Sewer Pipe. (h) Flowers and Shrubs, (i) Whitewash, (j) Exhibit Signs. PROBLEM 6 I, (a) State whether each of the following accounts is a liability ac- count, a valuation account, or a proprietary interest account: 1. Reserve for Depreciation. 2. Reserve for Extensions. 3. Reserve for Bad Debts. 4. Reserve for Contingencies. 5. Reserve for Inventory Adjustment. 6. Reserve for Sinking Fund. (b) Discuss the accuracy of the terminology employed in each of the above account names. (Wisconsin, 1917.) II. In the balance sheet of a company, as prepared by the secretary, you find the following items : Under "Capital Assets." (a) Factory real estate, buildings, plant and machinery. (b) Real estate held for investment. (c) Investments in and advances to another company for purposes of control. (d) Franchises having a fixed term. Under "Current Assets." (e) Company's treasury stock (carried at 50 cents on the dollar). (f) Raw material, finished product and inventory of office supplies and stationery. (g) Advances to officials of the company (unsecured). (h) Insurance premiums paid by the company on a policy on the life of the company's president, in which the company is bene- ficiary, (i) Due to customers, (j) Sinking fund investments, (k) Unexpired fire insurance premium. (1) Cash in bank and on hand. Discuss the correctness or otherwise of the above classification of items under capital and current assets, giving reasons for your opinions, and criticis- ing the items generally. (Missouri, 1915.) PROBLEM 7 (Wisconsin, May, 1919) (a) State the revenue account or section of the operating (or income) statement in which each of the following items would be placed in general accounting practice. (b) State the treatment given each of the items under the Revenue Act of 1918, i. e., if an income item state whether it is to be included in calculating gross income, and if an expense item, state whether it is allowable as a deduc- tion. Note: The examinee must first decide whether each item mentioned should be included in an operating (or income) statement. 1. Contributions to (a) Relief and charitable organizations. (b) Hospitals. (c) Political campaign fund. (d) Fund to promote certain legislation. (e) City convention fund. 2. Expenses of the president of the company attending the national and the state trade conventions. 3. Loss through enforced sale of Liberty Bonds. 4. Expenses incurred in advertising Liberty Bonds and War Savings Certificates. 5. Taxes and assessments as follows : State Income Tax ; Federal In- come and Excess Profits Tax ; Real Property Tax ; Street Paving Assessment ; Street Repaving Assessment. 6. Insurance premium on life of the company's president. 7. Loss suffered on salvaged property in excess of depreciation reserve created to date. 8. Profit on goods manufactured on order and held for future shipment. 9. Interest paid on (a) Bonds outstanding. (b) Bank Loans. (c) Liberty Bond Installments. (d) Scrip Dividends. 10. Profit on donation of treasury stock (par value. $10,000; market value, $5,000) sold within the year for $5,500. 11. Rent of factory building ($2,000 per year) paid to a corporation in which your client owns $10,000 of the $100,000 capital stock. 12. Rent for $75 per month for a warehouse. On July 1, 1918, the com- pany purchased the warehouse property for $6,000. A cash payment of $2,000 8 was made, and the company was to pay the balance at the rate of $75 per month. 13. Depreciation which the corporation figures on the following items at the stated rates: (a) Brick factory building, 6%%. (b) Brick office building, 5%. (c) Machinery Equipment, 12^%. (d) Automobile Trucks, 33>^%. 14. A premium of $2,000 received from the sale of $100,000 of the corpora- tion's bonds. 15. An item of $2,000 for the replacement of a portion of an old machine. 16. An item of $200 incurred in removing a discarded machine to make room for a new machine. 17. Expenses of officials paid in visiting the corporation's properties in Buenos Aires. 18. Gifts to members of the Board of Directors. 19. Salary of $10,000 to the vice-president of the corporation. 20. Interest on invested capital. PROBLEM 8 (Missouri, 1913) Following is a list of the accounts appearing on the Trial Balance of a Manufacturing Company, which deals in finished merchandise purchased, as well as in its own products. From this list, and without using figures, draw up plans of Financial Statements (Balance Sheet, Manufacturing Account, Profit and Loss Account, etc.), in the form which you think most suitable: Accounts Payable Salaries, Management Capital Stock Notes Receivable Cash Notes Payable (partly secured by deed of trust) Salaries, Office and Store Real Estate Fuel Insurance (Plant) Light Freight (on Merchandise Purchased) Machinery and Tools Freight (on Raw Material) Buildings Sales (own products) Inventory (own products) Inventory (raw materials) Inventory (partly manufactured goods) Inventory (merchandise purchased) Inventory (repair supplies) Undivided Profits (end of last year) Purchases (merchandise) Sales (merchandise purchased) Rent, Factory Rent, Store and Office Printing and Stationery Accounts Receivable Horse, Wagon and Harness Stable Expense Advertising Purchases (raw materials) Machinery Repairs Productive Labor (factory) Labor (warehouse) Office Furniture Reserve, Uncollectible Accounts Reserve for Depreciation Insurance (merchandise) Uncollectible Accounts Salesmen's Expenses and Salaries Management Salary, Office Discounts on Sales (own product) Interest Payable Depreciation — Buildings, Machinery, Wag- ons and Harness Sundry Factory Expenses Sundry Office Expenses Postage Subscriptions and Donations Discounts on Purchases (merchandise) Rents, Income Insurance Paid in Advance, Plant Insurance Paid in Advance, Merchandise Management Salary, Factory 9 PROBLEM 9 (Adapted from Michigan Examination, 1908) The following figures are taken from the books of the Fairview Manu- facturing Company of New York City, on the 31st of December, 1907: Inventory of Finished Goods (January 1) $ 3,684.57 Inventory of Raw Material (January 1) 11,392.70 Purchases of Raw Materials 62,519.85 Sales ......; 217.387.42 Wages 109,317.88 Rent 19,500.00 Discounts Received on Purchases 375.60 Discounts Allowed on Sales 186.36 Power, Light and Heat 8,710.64 Light and Heat for Office 168.00 Repairs 1,090.00 Packing 2,017.00 Factory Expense 3,270.00 General Expense 5,230.00 Factory Insurance 1,050.00 General Insurance 750.00 Machinery and Plant 12,350.00 Tools 2,600.00 Commissions Paid 7,642.00 Office Salaries 9,700.00 Salesmen's Salaries 8,930.00 Interest on Loans 440.00 Loans Payable 22,000.00 Discount Lost 120.00 Notes Receivable 130,000.00 Notes Rec. Disc 8,000.00 Notes Payable ; 19,500.00 Accounts Receivable 101,026.00 Accounts Payable 30,020.00 Office Furniture 1,100.00 Furniture and Fixtures 1,950.00 Cash on Hand 1,825.00 Cash in Banks 26,467.00 Returned Sales 276.00 Capital 200,000.00 Reserve for Depreciation 3,236.98 Reserve for Bad Debts 5,727.00 Freight and Cartage, Inward 727.00 Stable Expenses 2,750.00 Horses, Wagons and Harnesses 8,500.00 Postage and Express 1,250.00 Superintendence 3,500.00 Taxes 250.00 Goodwill 10,000.00 Stationery and Printing 1,080.00 Advertising 8,630.00 Surplus (1906) 63,753.00 You are requested (a) to prepare from them a trial balance, arranging the accounts according to the system used in laboratory; (b) to draft journal entries for closing the books ; (c) the proper revenue accounts in statement form ; (d) to certify your results by a balance sheet, the items of which are arranged in the order used in presenting such statements to bond houses for an issue of mortgage bonds. Notations : The following items are to be taken into consideration before preparing the statement asked for: 10 Raw Materials $ 16,250.00 Finished Goods 9,386.00 Tools 2,000.00 Office Furniture 1,000.00 Furniture and Fixtures 1,500.00 Stationery and Printing 300.00 Allow for depreciation : On machinery 5 per cent. On horses, wagons and harness 10 per cent. Reserve 1 per cent, of the sales for bad debts. The item of rent, $19,500, is to be apportioned as follows : Fifty-three per cent, for factory, 22 per cent, for salesrooms, and 25 per cent, for office. The item of superintendence, $3,500, is to be divided }i to factory and ^ to general expense. PROBLEM 10 (Ohio, 1916) At the close of its fiscal year, December 31, 1915, the Trial Balance ot The Nau-Pace Company was as follows : Real Estate $ 225,000.00 Fixed Machinery 150,000.00 Movable Equipment 18,000.00 Shaftings, Pulleys, Etc 10,500.00 Stable Equipment 3,500.00 Office Equipment 2,915.90 Drawings and Patterns 9,000.00 Patents 75,000.00 Capital Stock $ 500.000.00 First Mortgage Bonds 100,000.00 Profit and Loss Surplus 86,140.28 Dividends 300.00 Interest on Bonds 5,000.00 Other Interest Paid 1,323.10 Interest Received 2,469.50 Cash Discount on Purchases 13,389.52 Cash Discounts on Sales 2,861.50 Sales 1,540,816.75 Return Sales 8,258.25 Cash 27,750.65 Bills Receivable 50,750.00 Accounts Receivable 298,650.25 Raw Materials 622,190.90 Finished Goods. January 1, 1915 62,735.06 Goods in Process, January 1, 1915 24,747.27 Fuel 38.688.28 Insurance 4,000.00 Taxes 5,000.00 Bills Payable • 40,000.00 Accounts Payable 46,585.85 Reserve for Depreciation: Machinery and Equipment 50,000.00 Buildings 30,000.00 Patents 22,058.80 Bad Accounts 6,240.75 Salaries, Officers and Clerks (General) 56,150.00 General Office Supplies 2,950.75 Postage, Telegraph and Phone 1,560.00 Miscellaneous General Expenses 850.00 Advertising 35,000.00 11 Salaries and Expenses, Salesmen 72,350.31 Agents' Commissions 30,141.40 Credit Department Salaries 7,560.00 Miscellaneous Expenses, Selling 610.00 Stable Expenses 3,963.46 Direct Labor (Mfg.) 508,311.39 Indirect Labor (Mfg.) 44,981.01 Superintendence, Factory 6,000.00 Factory Supplies 8,547.18 Repairs, Machinery and Equipment 7,418.52 Repairs of Buildings 2,860.47 Power, Heat and Light 2,875.80 $2,438,001.45 $2,438,001.45 You are to take into consideration the following facts : L Real Estate, Machinery and other Factory equipment, and Patents are stated at cost. 2. Of the Real Estate $25,000 is for Land and $200,000 is for Buildings. 3. All Capital Stock authorized has been issued and is outstanding. 4. Allowances for depreciation are : Machinery and Factory Equipment $ 15,000.00 Buildings, 3% on cost Patents, l/17th of cost 5. $15,000 is to be set aside as a reserve for bad accounts. 6. Ten per cent, of the book values of Stable Equipment and Office Equipment, and % oi the book value of Drawings and Patterns are to be charged off. 7. Inventories at the close of the fiscal year were : Raw Materials $ 63,580.40 Finished Goods 58,864.56 Goods in Process 27,024.52 Fuel 4,823.43 Factory Supplies 1,525.00 Office Supplies 500.00 Prepaid Insurance 500.00 8. The accruals are : Taxes $ 7,000.00 Direct Labor 12,618.75 Indirect Labor 2,040.50 Interest on Bonds 1,000.00 Advertising 4,718.50 9. The depreciation on Stable Equipment (see item 6) is to be charged to Stable Expenses, and ^ of the latter is apportioned to Manufacturing Expenses and ^ to Selling Expenses. 10. The cost of Fuel used is to be charged to Power, Heat and Light. IL Maintenance of Real Estate is to be charged with cost of repairs to Buildings, depreciation on Buildings, 20% of Taxes for the year, and $1,000 .for insurance. The total cost of such maintenance is to be shown as an item of manufacturing expense on the statement of Cost of Sales. 12. The portion of Insurance remaining after charging Maintenance of Real Estate is to be allocated to manufacturing expenses. 13. Thirty per cent, of the Taxes for the year is to be apportioned to manufacturing expenses and 50% is to be charged against income. 14. Of the salaries of Officers and Clerks, General, $3,600 should be appor- tioned to selling expenses. 15. Amongst the Bills Receivable is a note for $5,000 pertaining to a 12 previous fiscal year, which is considered to be worthless. No provision was made for such loss. 16. Regardless of theory, cash discounts on purchases and sales are to be treated as pertaining to income. 17. On the 10th of December, 1915, a dividend of 10% on the Capital Stock was declared and made payable on January 10th, 1916, for which no entry was made prior to taking off the Trial Balance. Given the foregoing information, you are asked to prepare the following statements in approved form for the information of your clients : 1. Cost of Sales. 2. Profit and loss, showing (a) the gross profit and the per cent, of same on sales ; (b) selling expenses and per cent, of same on gross profits ; (c) general expenses and the percentage that such expenses bear to gross profits ; and (d) the net profits and the per cent, of same on sales. 3. Balance Sheet, showing the Surplus at the beginning of the fiscal year, and the amount at the close of the year. PROBLEM 11 (Massachusetts, 1917) The following is a Trial Balance before closing of the second year on June 30, 1917: DEBITS Treasury Stock (XTrustee) $ 35,000.00 Real Estate 200,000.00 Buildings 300,000.00 Machinery and Equipment 150,000.00 Materials (Inventory, June 30, 1916) 65,000.00 Finished Goods do 158,000.00 Accounts Receivable 320,000.00 Purchases of Materials 305,000.00 Labor 132,800.00 Operating Expenses, Repairs, etc 121,500.00 Sinking Fund Trustee 25,000.00 Discount on Donated Stock sold from the Treasury by Trustee 25,000.00 Cash 74,837.50 Discount on Bonds sold July 1, 1915 25,000.00 Bond Interest 12,500.00 General Expenses 17,500.00 Insurance Unexpired June 30, 1916 3,000.00 $1,970,137.50 CREDITS Capital Stock Issued $ 500,000.00 1st Mortgage 5% Bonds 250,000.00 Accounts Payable 40,000.00 Reserve for Sinking Fund (Bonds) 25,000.00 Premium on Capital Stock 50,000.00 Sales of Finished Goods (Net) 915,000.00 Surplus on Donated Stock 60,000.00 Reserve for Depreciation of Buildings 6,000.00 Reserve for Depreciation on Machinery and Equipment 11,362.50 Reserve for Bad Debts (Balance) 650.00 Reserve for Replacements 15,000.00 Bond Interest Accrued 3,125.00 Taxes Accrued 9.000.00 Unappropriated Surplus June 30, 1916 85,000.00 $1,970,137.50 13 You are required to adjust the accounts, and prepare (a) Certified Balance Sheet ; (b) Profit and Loss Account for the year ; (c) Surplus Account. The following information is given : Inventory June 30, 1917, Materials $ 52,000.00 Goods in Process at Cost 105,000.00 Finished Goods at Cost 137,000.00 1. Bonds mature in 10 years from July 1, 1915, the interest being pay- able in April and October of each year. Bonds were sold at 90. 2. Depreciation on Buildings is estimated to be 2 per cent, annually. 3. Depreciation on Machinery and Equipment is estimated at 7^^ per cent, yearly. 4. A Reserve for Bad and Doubtful Debts was set up on June 30, 1915, to the amount of $3,000, against which the bad debts written off during the fiscal year were charged. Create a Reserve for the coming year of 1 per cent, on Accounts Receivable. 5. According to the Company's By-Laws all replacements are to be made from Revenue. During the year a machine valued at $6,000 was re- moved and replaced by a similar machine costing $10,000, which sum was charged to "Operating Expense Repairs, etc." The discarded machine was afterwards sold for $1,500 and this sum was credited to Machinery Account. 6. The Trustee of the Sinking Fund Investments reports that he re- ceived $1,250 of income during the year. He is to be paid the amount in cash which is credited to the Sinking Fund Reserve. 7. The Insurance was paid on July 1, 1915, for a period of three years. 8. Taxes were charged as $3,000 monthly to "Operating Expenses" and "Taxes Accrued" credited therewith. The Taxes paid during the year were $27,000. The tax year ends March 31st. 9. The Treasury stock was donated and has been all sold. Dividend of 10 per cent, declared on June 30th, payable July 15, 1917. PROBLEM 12 (Adapted from English Final Examination, May, 1912) A, B and C carry on business in partnership as gas engine dealers and repairers, their business being divided into two parts: (1) Engine Depart- ment, (2) Repair Department. The following were the Ledger Balances on 31st of December, 1910: Engines — Purchases and Freight $ 40,000.00 " Fitters, Wages and Expenses 7,500.00 Stock, 12/31/09 10,000.00 Sales 60,000.00 Repairs— Purchases 25,000.00 Stock, 12/31/09 4,000.00 Wages and Expenses 10,000.00 Sales 50,000.00 Accounts Receivable 20,000.00 Accounts Payable 11,200.00 Salaries 2,500.00 Rent and Taxes 1,500.00 Fuel and Light 250.00 Insurance — Fire and Workmen's Compensation 700.00 Life Policy— Surrender Value. 12/31/09 1,500.00 Life Insurance Premium 175.00 Bank Interest and Commission (Dr.) 100.00 14 Office Expenses 600.00 Discount (Dr.) 1,250.00 Office Furniture 750.00 A, Drawing Account (Dr.) 500.00 B, " " (Dr.) 600.00 C, " " (Cr.) 1.000.00 C, Loan Account (at 5 per cent) 2,500.00 A, Capital Account 2,500.00 B, •' •' 2,500.00 C, " " 2,500.00 Cash in Hand 125.00 Cash at Bank 5,150.00 Stocks, 31st December, 1910: Engines 10,500.00 Repairs 4,750.00 Surrender value of life policy 31st of December, 1910, $1,625. Interest on capital at 5 per cent, per annum. The profits were divided : A 7/20, B 6/20, C 7/20. Make out a trading account for each of the two departments, and the firm's profit and loss account for 1910. and balance sheet as on 31st of Decem- ber, 1910. PROBLEM 13 (Adapted from English Final Examination, November, 1910) On December 31, 1909, the Trial Balance of the Jones Garage Company was as follows : 300 Shares Common Stock, $100 each $ 30,000.00 Good Will $ 12,750.00 Garage 7,500.00 Machinery and Tools 500.00 Fixtures and Fittings 100.00 Taxicabs 2,500.00 Sundry Debtors 12,500.00 Stock of Accessories, December 31, 1909 1,250.00 Cash at Bank 5,275.00 Sundry Creditors 765.00 Reserve for Bad Debts, December 31, 1908 400.00 Accessories, including Tires and Tubes (used) 10,000.00 Gasoline, Oil, etc. (used) 2,750.00 Cost of Repairing Cars (Wages and Materials) 3,750.00 Charges to Customers for Repairing Cars 4,000.00 Expenses of Taxicabs 1,000.(X) Wages 600.00 Sales of Accessories, including Tires and Tubes.... 13,250.00 Cars Purchased for Re-sale 55,000.00 Sales of Gasoline, Oil, etc 3,750.00 Sundry Receipts (Washing Cars, Charging Bat- teries, etc.) 425.00 Car Sales 60,000.00 Management Expense 2,250.00 Garage Rents 225.00 Repairs, Paint, etc 90.00 Bad Debts Written off 250.00 Freight on Cars Sold 400.00 Surplus 4,000.00 Charges to Customers for Taxicabs 1,650.00 $118,465.00 $118,465.00 Depreciation is to be written oflf on : Machinery and Tools at the rate of 20 per cent.. Fixtures and Fittings 10 per cent., Taxicabs 25 per cent. 15 Reserve 2 per cent, of total sales for bad debts. Prepare complete accounts in the form which, in your opinion, is calcu- lated to give the greatest amount of information to the Directors as to the working results of the business at a glance. PROBLEM 14 (Wisconsin, 1916) a. What is the amount of the net working capital in the following balance sheet? Balance Sheet January 1, 1915 Real Estate $ 10,000.00 Capital Stock $ 50,000.00 Patents 8,000.00 Bonds 20,000.00 Buildings 55,260.00 Notes Payable 10,000.00 Cash 9,320.00 Reserve for Bad Debts 5,350.00 Inventories 32,600.00 Accounts Payable 32,502.00 Interest Prepaid 1,600.00 Reserve for Depreciation, Accounts Receivable 40,200.00 Buildings 20,000.00 Surplus 19,128.00 $156,980.00 $156,980.00 b. What is the amount of the net working capital in the balance sheet of the same company as of January 1, 1916, which here follows? Balance Sheet January 1, 1916 Real Estate $ 17,000.00 Capital Stock $ 50,000.00 Patents 7,000.00 Bonds 30,000.00 Buildings 68,520.00 Notes Payable 20,000.00 Cash 3,260.00 Reserve for Bad Debts 6,240.00 Inventories 38,710.00 Accounts Payable 25,620.00 Interest Prepaid 820.00 Reserve for Depreciation, Accounts Receivable 42,200.00 Buildings 35,200.00 Surplus 10,450.00 $177,510.00 $177,510.00 Profits as per Profit and Loss account for the year amounted to $6,322.00 and a 30 per cent, dividend was declared and paid. c. Submit a statement accounting for the increase or decrease in the working capital. PROBLEM 15 I. Considering all the following items as cash in drawer, the cash count on January 5, 1917, agrees with the cash book balance. What comment would you make in your report relative to each item? (a) A check signed by John Jones, pavable to the cashier, dated June 1, 1916. (b) A slip with the following notation : "John Smith, janitor, January wages advanced $22.00." (Signed) John Smith. The janitor's salary is $80.00 per month. (c) A check payable to cash signed by the cashier, $10.00. (d) A receipted express bill of $5.87. (e) A slip of paper with the notation "Postage stamps — $25.00." 16 (f) A certificate of deposit made out in favor of the cashier for $400. (g) A bill against a customer for $19.80 on which there appears the nota- tion "will pay on the 31st." You find that the customer has been given credit for the- payment of this invoice on the ledger, (h) A slip of paper with the following notation — "I. O. U. $10. John Doe." (Wisconsin, 1917.) II. In auditing the cash of a certain company as at January 1, 1918, you find that the cash drawer balance, which is reported as $200.00, consists of the following items : (a) Currency and Coin $122.50 (b) Postage Stamps (received from customers in payment of small balances and cashed from drawer) 17.50 (c) A Slip Inscribed "I. O. U. $20.00, J. B. S." 20.00 (d) Check Payable to "Cash," signed by the cashier and dated August 2, 1917. . 28.00 (e) A Slip Inscribed "Butter and Eggs for Mr. Steele" (the General Manager) 3.00 (f) A Receipted Express Bill for charges on a motor received from The Elec- tric Co. You are informed that this motor should have been sent prepaid 9.00 Total $200.00 In preparing your balance sheet, what amount would you enter as cash on hand and what disposition would you make of items not included therein? (Ohio, 1918.) PROBLEM 16 (Wisconsin, 1918) (a) Define a trade acceptance and summarize its advantages to 1. The seller. 2. The buyer. (b) Under what account or accounts should be recorded 1. Trade acceptances received. 2. Trade acceptances given. 3. Trade acceptances discounted. (c) Would you advise a client to accept a trade acceptance for a renewal of one unpaid at maturity? (d) May a partial payment be made upon a trade acceptance? If so, what would be the entry to record it? (e) Does the rule prohibiting banks from loaning more than 10 per cent, of their capital and surplus to any one borrower apply to trade acceptances? PROBLEM 17 (Wisconsin, 1918) (a) Previous to examining the accounts of a corporation at the end of its first fiscal year you find that Notes Receivable stands in the financial statement prepared for the banker at $5,500. Upon investigation it is disclosed that $20,000 of notes from customers were received during the period, and that $10,000 of these notes were duly paid in full by the customers to the company at maturity, and $5,000 of the notes were discounted at the bank. Of the notes discounted, a note for $500 17 given by Brown & Company was not paid when due, and has been charged back to the Notes Receivable Account. Notes to the amount of $1,500 are not yet due at the bank. Partial payments have been made to the company to the extent of $500 on notes still due and these payments have been credited to an account called Partial Payments on Notes Receivable. This item is listed in the financial statement as a liability. A customer's note of $1,000 is found to have been given as collateral for the payment of a note of the company discounted at the bank. A 30 day note given by an officer of the company for $200 is treated as a cash item. The note is 60 days past due. You are asked to give the journal entry or entries for obtaining the proper account or accounts to record the above facts, and to give such comments as you would consider appropriate to include in your report relative to these items. PROBLEM 18 (Wisconsin, 1918) In examining the accounts of a corporation you find that the Accounts Receivable were stated as $216,100.00 in a financial statement already prepared by the company's bookkeeper and handed to a banker. Upon examining the accounts you find that this amount is made up of the following items : Trade Accounts Receivable $175,000.00 Advances on Merchandise Purchased 5,000.00 Cash Advanced to Officers 10,000.00 Unpaid Subscriptions to Capital Stock 8,500.00 Advances to Traveling Salesmen for Expenses 350.00 Consignees' Accounts (full selling price of goods shipped on consignment, credited to sales) 7.500.00 Claims against Railroad and Express Companies 1,750.00 Investments in Other Companies 8,000.00 Although the controlling account with Accounts Receivable stands debited with $175,000 in the general ledger, you learn that the sum of the individual debit balances in the sales ledger is $190,000, and that the sum of the individ- ual credit balances in the sales ledger amounts to $15,000.00. (a) You are asked to criticize the treatment of these items, stating such adjustments as it would be advisable to make in preparing the operating and financial statements, and to show exactly how the several items should appear in the financial statement. (b) Would you recommend that a corrected copy of the financial state- ment be given the banker? (c) Assume that upon further investigation you discovered that the company had not charged oflf any accounts as bad debits during the six years that it has been in business, and that no provision has been made for absorb- ing such losses through a Reserve for Bad Debts account. Outline procedure for verifying the accuracy of the accounts, and for classifying them according to the possibility of collection. Give .such a state- ment as you would include in your certificate to cover this condition of aflfairs. 18 PROBLEM 19 (Wisconsin, 1918) In checking the inventory sheets and ledger accounts dealing with ma- terials you found that the following errors had occurred : December 31, 1916. An item of $500 was added to inventory sheet after totals had been obtained and was not entered in the ledger account. December 31, 1916. An error of $1,000 in adding the inventory extensions resulting in an overstatement of the inventory by this amount. December 31. 1917. An error is made in valuing one lot of material, the result of which is an overstatement of the inventory value to the amount of $2,000. December 31, 1917. An error of $10,000 in footing the inventory exten- sions, resulting in an understatement of the ledger inventory value by this amount. December 31, 1917. An invoice of $4,000 for materials just received in- cluded in Accounts Payable but the amount was not included in the inventory. You are asked to draft the necessary journal entry or entries to correct these errors, and to show the net effect of the errors upon the profits of each of the two years. Assume that the profits shown on the ledger for 1916 were $20,000 and for 1917, $30,000. PROBLEM 20 (Massachusetts, 1917) A corporation was organized and began business January 1, 1915. On December 31, 1916, it closed its books and presented a statement to its bank, the statement embodying the accounts as given below\ The bank not being satisfied with the statement, instructs you to prepare and certify a new one. You find that Depreciation reserves on buildings and property have never been set up. In connection with the machinery, dies and patterns, you find that the business operates under valuable patents granted January 1. 1915. and that the machinery, dies and patterns are planned and expected to last during the life of the patents. The patents used by the cor- ])oration will not be subject to renewal. The product is sold on a 20 per cent, margin of gross profit. 5 per cent, allowed to all customers for cash discount and all customers' accounts are collectible. Salesmen sell goods on commission and are allowed to draw in advance as required. Preferred-stock dividends were paid semi-annually at the annual rate of 7 per cent. Preferred stock was retired on December 30, 1916, at 115, the January 1. 1917, dividend, not yet paid, to go to the stockholder. Common stock dividends have been paid at the rate of 5 per cent, each year on December 1. A' judgment was recorded against the corporation for $5,000.00 in Decem- ber, and the treasurer states that he does not wish it to appear in the state- ment for the year. There is a law suit pending against the corporation for $20,000, based according to the corporation's attorney on grounds hard to defend. 19 TRIAL BALANCE ,, , . Debit Credit Machinery $ 85,000.00 Land 8,000.00 Buildings— Brick 38,000.00 Wooden 28,000.00 Patents 400,000.00 Accounts Payable— Purchase Ledger $ 178,000.00 Notes Payable 200,000.00 Mortgage Payable 54,000.00 Finished Goods (Selling Value) 100,000.00 Prepaid Insurance 7,850.00 Cash 55,000.00 Dies and Patterns 34,000.00 Prepaid Interest 4,400.00 Customers' Ledger 189,500.00 Personal Accounts — Salesmen 4,500.00 Officers 4,000.00 Goods in Process (Cost) 40,000.00 Raw Materials (Cost) 170,000.00 Supplies 2,500.00 Preferred Stock Retired 37,950.00 Personal Accounts — Officers 2,200.00 Salesmen 3,000.00 Preferred Stock 250,000.00 Common Stock 400,000.00 Accrued Pay Roll 4,000.00 Surplus 117,500.00 $1,208,700.00 $1,208,700.00 a. Prepare revised balance sheet. b. State the profits for the past two years after paying preferred stock dividends. c. The expenses of selling and distributing the product leave a margin of net profit equivalent to ^ of the gross profit. What were the total gross sales in the two years? PROBLEM 21 (Illinois, 1907) A corporation's balance sheets for August, 1907, and September. 1907, were respectively as follows : Assets: August, 1907 Plant and Equipment $4,000,000.00 Furniture 6,000.00 Tools 3,000.00 Stable 3,81 1.28 Cash 15,250.36 Material, Supplies 30,750.28 Accounts Receivable 28,920.13 Unexpired Insurance 510.29 Total $4,088,242.34 Liabilities: Capital Stock $2,500,000.00 Bonds 1,350,000.00 Accounts Payable 31,336.28 Bills Payable 26,240.12 Accrued Taxes 3,500.00 Accrued Interest 5,625.00 Profit and Loss 171,540.94 Total $4,088,242.34 20 Assets: September, 190^ Plant and Equipment $4,012,310.21 Furniture 6,205.58 Tools 3,218.86 Stable 4,009.37 Cash 8,328.29 Material, Supplies 39,280.17 Accounts Receivable 32,321.83 Unexpired Insurance 832.12 Total $4,106,506.43 Liabilities : Capital Stock $2,500,000.00 Bonds 1,362,000.00 Accounts Payable • . . . 33,445.57 Bills Payable 18,240.12 Accrued Taxes 4,000.00 Accrued Interest 11,250.00 Profit and Loss 177,570.74 Total $4,106,506.43 Analyze the differences in the corresponding accounts for the period and show disposition of increased resources. PROBLEM 22 (New York, June, 1915) The following is a comparative balance sheet at December 31, 1910, and at December 31, 1911, presented to the board of directors of the Western Company at its meeting January 5, 1912. ASSETS December December 31,1910 31,1911 Land $ 20,000.00 $ 25,000.00 Buildings 45,000.00 45,000.00 Machinery and Tools 86.000.00 89,000.00 Horses, Wagons and Harnesses 10,500.00 10.500.00 Patents 6,000.00 6,000.00 Good Will 25,000.00 25,000.00 Cash 28,300.00 10,300.00 Accounts Receivable 29,600.00 26,550.00 Investments and Bonds 15,000.00 Inventory— Goods in Process 10,800.00 14,690.00 Inventory— Material and Supplies 6,750.00 10,300.00 Agency Investments 3,680.00 $267,950.00 $281,020.00 LIABILITIES Bonds and Mortgage Payable $ 20,000.00 Notes Payable $ 35,000.00 2,000.00 Accounts Payable ' 16,400.00 19,350.00 Reserves for Depreciation 2,500.00 6,750.00 Discount on Bonds 1,000.00 Capital Stock: Preferred 150,000.00 150,000.00 Common 50,000.00 50,000.00 Surplus 14,050.00 31,920.00 $267,950.00 $281,020.00 21 the land increase was due to appraisal based on rise of values of factory sites in the immediate vicinity. Together with the above balance sheet, there was submitted to the board a statement of income and profit and loss showing the profits of the year to have been $22,120. The directors state to the auditor that in view of the decrease of cash and accounts receivable, of the absence of dividends, and of the increase of capital liabilities, they are unable to ascertain what has become of the profits of the year. Prepare a statement to show clearly how the Western Company has applied such resources of the year 1910 as have been lost in 1911 and the resources and profits of the year 1911. PROBLEM 23 (Kentucky, 1917) On January 4th, 1917, the following comparative balance sheet was sub- mitted to the Board of Directors of the Lewis Jones Company : Assets December December 31, 1915 31, 1916 Cash $ 32,500.00 $ 12,100.00 Accounts Receivable 34,400.00 28,200.00 Bonds 1,300.00 27,300.00 Inventory, Goods, Process of Mfg 12,200.00 16,400.00 Inventory, Material and Supplies 15,100.00 20,500.00 Real Estate 20,000.00 20,000.00 Buildings 42,000.00 47,000.00 Machinery and Tools 87,000.00 90,000.00 Automobiles, Trucks 12,000.00 12,000.00 Insurance 400.00 600.00 Patents 5,000.00 5,000.00 Good Will 30,000.00 30,000.00 $291,900.00 $309,100.00 Liabilities Capital Stock Preferred $ 50,000.00 $ 50,000.00 Common 100,000.00 100,000.00 Accounts Payable 51,200.00 16,100.00 Bonds and Mortgage Payable 2,000.00 18,000.00 Discount on Bonds 500.00 1,500.00 Reserve for Depreciation 4,500.00 6,500.00 Surplus 83,700.00 117,000.00 $291,900.00 $309,100.00 Together with the above balance sheet there was also submitted to the Board of Directors a statement of Profit and Loss, showing the profits of the year to have been $35,300. The directors desire a statement showing what has become of the profits for the year and why they cannot declare a large dividend in view of the fact that they have apparently earned $35,300. Prepare a statement to show clearly how the Lewis Jones Company applied the profits for year ending December 31, 1916. 22 PROBLEM 24 (Pennsylvania, 1900) Which of the following corporations is the stronger financially? Show how and why. RUSTLESS IRON COMPANY Assets Cash $ 381,845.32 Real Estate, Buildings, etc 1,204,123.98 Bills Receivable 84,843.08 Accounts Receivable . 1,154,111.35 Good Will, Trade Marks, Patents 5,000,000.00 Bonds on Hand 5,026.67 Taxes and Insurance 5,730.87 Lost Creek Railroad Stock 8,245.36 Company Capital Stock, Title 650.00 Inventor}' — Materials, Supplies 1,664,113.28 Machinery, Tools, Patterns, Office and Shop Furniture and Fixtures 2,286,158.30 Total Assets $11,794,848.21 Liabilities Accounts Payable $ 545,039.55 Preferred Stock 5,000,000.00 Surplus 204,302.88 Contingency ; 49,432.34 Common Stock 5,000,000.00 Loss and Gain 996,073.44 Total Liabilities $11,794,848.21 ENDLESS CHAIN COMPANY Assets Cash $181,845.32 Bills Receivable 84,843.08 $ 266,688.40 Accounts Receivable 954,111.35 Bonds (Investment) 15,026.67 Atlantic City R. R. Stock 18,245.36 Other Company Stock 11,650.00 Machinery and Patterns 2,255,158.30 Real Estate and Buildings 1,104,123.98 Good Will and Patents 5,000,000.00 Taxes and Insurance 15,730.87 Inventory — Materials, Supplies 1,774,113.28 Total $11,414,848.21 Liabilities Capital Stock $10,000,000.00 Accounts Payable 1,090,079.10 Surplus 59,263.46 Profit and Loss 226,073.44 Contingency 39,432.21 Total $11,414,848.21 PROBLEM 25 (Wisconsin, May, 1919) On January 2nd, 1916, the X Manufacturing Company took over the busi- hess of ferown and Smith. The capitalization of the company was $400,000, divided as follows : 7% Cumulative Preferred Stock $200,000.00 Common Stock 200,000.00 On March 1st, 1919, the annual stockholders meeting was held and the following financial statement was presented : X MANUFACTURING COMPANY FINANCIAL STATEMENT, DECEMBER 31, 1918 Assets Real Estate $ 5,000.00 Buildings $125,000.00 Less Reserve for Depreciation 2,500.00 122,500.00 Equipment $380,000.00 Less Reserve for Depreciation 4,800.00 375,200.00 Inventories: Raw Material 30,000.00 Goods in Process 75,000.00 Finished Goods 65,000.00 Sundry Factory Supplies 5,000.00 Accounts Receivable 15,000.00 Notes Receivable 5,000.00 Cash 10,000.00 Prepaid Expense Items 5,000.00 Total Assets $712,700.00 Liabilities Notes Payable $180,000.00 Accounts Payable 50,000.00 Reserve for Taxes 3,000.00 Accrued Salaries and Wages 2,000.00 Total Liabilities 235,000.00 Proprietary Interest Preferred Stock $200,000.00 Common Stock 200,000.00 Surplus 77,000.00 Total Proprietary Interest 477,000.00 The stockholders authorize the issuance of $300,000 of 5 per cent, first mortgage bonds, the proceeds of which are to be used to pay the current debts and for necessary improvements in the buildings and equipment. The Company has given the above financial statement and the following summary operating statements to the A Bond Company, who may purchase the entire issue at 95. The A Bond Company, in turn, asks you to verify the statements and to report upon the advisability of the purchase. X MANUFACTURING COMPANY SUMMARY OPERATING STATEMENTS 1916 1917 1918 Sales $690,700.00 $720,900.00 $870,200.00 Cost of Production 560,000.00 690,800.00 706.700.00 Gross Profits $130,700.00 $30,100.00 $163,500.00 Selling Expenses 25,000.00 28,100.00 31,000.00 24 Net Operating Profit $105,700.00 $2,000.00 $132,500.00 Interest and other Financial Expenses. 25,000.00 22,000.00 27,500.00 Net Profit or Loss $80,700.00 $20,000.00 $105,000.00 Dividends Paid 28,000.00 14,000.00 28,000.00 Balance in Surplus $52,700.00 $18,700.00 $77,000.00 Outline the report requested by the A Bond Company, state the reasons for your conclusions according to data available, and also detail other points which should be investigated before a definite decision as to the purchase is made. PROBLEM 26 (North Carolina, 1919) What is the book value of a share of stock of a corporation, the balance sheet of which is as follows? (Arrange the balance sheet so as to show the book value of its net assets, and state the book value of a share of its stock.) Assets Cash on Hand $ 35,687.85 Accounts Receivable 25,972.42 Stocks Owned at Cost 72,000.00 Inventories at Cost 49,889.22 Deferred Charges to P. & L 527.19 Liberty Bonds 20,000.00 Value of Good Will (set up) 50,000.00 Notes Receivable 5,000.00 Treasury Stock 30,000.00 Cost of Plant 780,398.32 $1,069,475.00 Liabilities Capital Stock (3,000 shares) $ 300,000.00 Surplus 100,000.00 Undivided Profits 165,000.00 Bonds Outstanding 200,000.00 Reserve for Depreciation 75,000.00 Reserve for Additions and Improvements to Plant 50,000.00 Reserve for Shrinkage of Inventory Values 5,000.00 Reserve for Dividends 15,000.00 Reserve for Doubtful Accounts 2,000.00 Reserve for Extinguishment of Bonds 50,000.00 Reserve for Estimated Federal Income Taxes 15,000.00 Accounts Payable 31,000.00 Notes Payable 60,000.00 Accruals 1.475.00 $1,069,475.00 PROBLEM 27 (Wisconsin, November, 1919) The following balance sheet has been published by the X Company as showing the condition of the business after the sale of $10,000,000.00 of the first preferred stock and all of the second preferred stock noted therein. A prospective purchaser of some of the stock asks you to tell him book values 25 of each class of stock, amounts of net tangible and net quick assets for the appropriate class or classes of stock, and to advise him whether to purchase the first preferred at 95 or the common at 90: Assets ' Land, Buildings, Machinery $ 7,000.000.00 Good Will and Patents 8,000,000.00 Investments 500,000.00 Cash 10,715,000.00 Inventories 13,000,000.00 Accounts and Notes Receivable 10,000,000.00 Other Current Assets 450,000.00 Deferred Charges 335,000.00 $50,000,000.00 Liabilities Capital Stock: 7% Cumulative First Preferred $15,000,000.00 7% Cumulative Second Preferred 5,000,000.00 Common Stock, 75,000 Shares no Par Value 6,000,000.00 Notes and Accounts Payable 13,000,000.00 Dividends Payable 52,500.00 1919 Federal Taxes 1,000,000.00 Reserve for Depreciation 3,447,500.00 Surplus 6,500,000.00 $50,000,000.00 The par value of the preferred stock shares is $100.00. It is expected that a quarterly dividend of $2.00 per share will be paid upon the common stock. In your report mention such matters as it would seem advisable to know in addition to those contained in the statement given above. PROBLEM 28 (Missouri, 1914) The trial balance of the Interstate Manufacturing Company, on June 30, 1912, after closing entries have been made, is given below: Patents and Good Will $ 250,000.00 Office Furniture 8746.00 Inventory, June 30, 1912: Raw Material 83.247.00 Supplies 4,932.00 Finished Goods 42,761.00 Petty Cash 100.00 Land 270,000.00 Buildings 165,000.00 Machinery 235,000.00 Cash Subject to Check 69,433.00 Accounts Receivable 273,842.00 Common Capital Stock $ 500,000.00 Preferred Capital Stock 500,000.00 Bonds, 6% 50-year 1st Mortgage, Issued June 30 1912 200,000.00 Premium on Bonds 20,000.00 Preferred Stock Dividends Payable August, 1912 17,500.00 Common Stock Dividends Payable August, 1912 12,500.00 Reserve for Bad and Doubtful Accounts 8,294.00 Undivided Surplus 66,375.00 Accounts Payable 78,392.00 $1,403,061.00 $1,403,061.00 26 t)uring the year ending June 30, 1913, the company purchased 29,047 tons of raw material at $22 per ton, which was delivered before the books closed. Of the amount purchased, payment has been made for 26,647 tons. They have also made payments for the following accounts : Accounts payable, $78,392 ; salaries, $80,360 ; selling expense, $86,017 ; labor, $468,932 ; shop expense, $9,461 ; taxes, $7,842 ; repairs and maintenance, $30,955 ; office expense, $2,478, and supplies, %^7,62,7. Customers have paid $1,502,927 in cash, and have been given discounts amounting to $18,395. Returns and allowances amount to $8,474. Bad debts writteo off, $2,407. Rents received, $500, and sales, $1,515,572. Fifty thousand dollars was borrowed on call on June 30, 1913, the market value of the collateral security being $72,100.00. The inventory on June 30, 1913, is "made up of finished goods, $20,495; supplies, $8,129, and 2,163 tons of raw material, the market price of which is $24 per ton. The land is estimated to be worth $300,000. Semi-annual dividends of 3^ per cent, on the preferred stock and 2^ per cent on the common stock have been paid from the earnings of the half year ending December 31, 1912. Dividends at the same rate have been declared on the preferred and common stock for the last half of the fiscal year, payable in August, 1913. You are asked to set up a balance sheet dated June 30, 1913, and accom- pany it with a statement which Avill show correctly the operations of the company. The following annual rates of depreciation are to be assumed : Buildings, 3 per cent. : machinery, 7^ per cent. ; office furniture, 10 per cent. It is also assumed that there should be a reserve for bad and doubtful accounts equal to 3 per cent, of the balance of accounts receivable. Calculate these percentages to the nearest dollar. PROBLEM 29 (Iowa, 1917) On January 1, 1908, the condition of a small trading company was as follows : Assets Furniture and Fixtures $2,000.00 Cash 500.00 Notes Receivable 3,000.00 Accounts Receivable 5,000.00 Merchandise on Hand 4,000.00 $14,500.00 Capital Stock and Liabilities Capital Stock $5,000.00 Notes Payable 3,000.00 Accounts Payable 6,000.00 Surplus 500.00 $14,500.00 During the month of January, the bookkeeper made all entries in the cash book and in the sales book, but made no journal entries and did not post his ledger. In addition to the entries appearing in the cash book and on the sales book, the following transactions took place during January : Merchandise purchases on credit amounting to $6,000, notes payable amount- ing to $3,000 renewed, special allowance of $500 made to customers. The Credit Sales Journal had two columns ; one for the billed amounts 27 and the other for the cost oi the goods sold. The billed amount was $S,000 and the cost $5,000. The following statement gives a summary of the Cash Receipts and Dis- bursements for January : Cash Received Collected from Customers $4,000.00 Collected on Notes Receivable 2,000.00 Collected on Merchandise Sold and not Entered on Sales Book (Cost $500) 600.00 $ 6,600.00 Cash Payments Interest on Notes Payable $ 45.00 Salaries 500.00 Rent 200.00 Sundry Expenses 300.00 Accounts Payable 5,000.00 $ 6,045.00 Prepare Balance Sheet — January 31, 1908, and Statement of Profit and Loss, based on the book value of the merchandise. PROBLEM 30 (New York, January, 1916) John Smith is in business for himself. His net assets are $18,000, his net liabilities $10,000. At this time he makes the followng proposal in writing, to his manager, Frank Doe : "Give me $5,000 in cash, and I will make of you an equal partner, chang- ing the firm name to John Smith & Co. I will continue to draw a salary of $60 per week and you will get $50 per week." Mr. Doe accepted this offer, by writing across its face, in red ink : "This suits me. I accept." Mr. Doe a few days later delivered to Mr. Smith $1,200 in cash and $3,800 in checks. Show the entry or entries in the books of John Smith which will continue to be employed by the partnership. PROBLEM 31 (California, 1908) Two partners, named Wilson and Peters, find at the end of the first year's business the Balance Sheet shows that Wilson's interest is worth $18,000.00 and Peters' $9,000.00. The good will of the firm is worth $3,000.00. Each draws profits in pro- portion to his investment. They conclude to take in another partner, and he is to have a one-quarter interest in the new firm. What sum must the new partner contribute? How will the partnership accounts appear after the payment in of the additional capital? How will the profits be divided? Give skeleton form of accounts. 28 PROBLEM 32 (Illinois, May, 1914) A and B, equal partners in a manufacturing business, admit their factory superintendent, C, as an equal partner with them in the profits without his furnishing any capital, A and B reserving to the'mselves in case of dissolution any good will which may have accrued to the business. On December 31, 1912, a balance sheet was drafted and approved by all concerned as follows : Assets Real Estate and Plant $ 90,000.00 Merchandise Inventory 35,000.00 Accounts Receivable 25,000.00 Bills Receivable ."... 15,000.00 Cash and Bank Funds 18,000.00 $183,000.00 Liabilities Bills Payable $ 10,000.00 Accounts Payable 12,500.00 A's Account $ 4,500.00 B's Account 4,000.00 Cs Account 2,000.00 $ 10,500.00 Capital Accounts A $75,000.00 B 75,000.00 $150,000.00 $183,000.00 Later the business was sold as a "going" concern and the partnership dissolved. The purchaser assumes all outside liabilities and pays the sum of $225,000 cash, of which the real estate and plant is valued at $120,000. Draft the settlement accounts as between the partners. PROBLEM 33 1. A and B are partners with capitals of $20,000 and $11,000, respectively. It is agreed that a third party, C, shall buy a one-third interest in the partner- ship, equally from A and B upon the following conditions : The fixed assets are to be valued at $4,000 — less than the figure at which they appear in the balance sheet; good will is valued at $6,000. Give journal entries necessary to give effect to the above agreement. 2. A and B are partners with investments of $7,500 and $5,000, respect- ively. They agree to take in C as a partner upon the following conditions : Good will is valued as two years' purchase of the average of the last three years' net profits which were $2,000, $2,500 and $2,700, respectively. C is to pay in cash to the credit of the firm cash sufficient to make him one-quarter interest in the new firm. Give the journal entries. 3. A and B are in partnership with investments of $6,000 and $4,000, respectively. They agree to take in C as an equal partner in the business on the following terms : The good will is to be valued at two years of pur- chase of the average of the last three years' profits, which were $1,600, $2,000 and $1,800, respectively. C is to purchase his interest equally from A and B and is to pay $5,000 for it. Give the journal entries. 29 PROBLEM 34 1. A and B are in partnership, having investments of $12,000 and $8,000, respectively, and sharing profits and losses in the proportion of 75 per cent, and 25 per cent., respectively. Interest at 5 per cent, per annum is allowed on investments. Give the journal entry which adjusts interest between partners without use of Interest or Profit and Loss accounts. 2. X and Y entered into a partnership agreement whereby each was to receive interest at 5 per cent, on the excess over or pay interest on the deficit under the agreed investment as indicated below. Draft journal entry to adjust the interest between the partners without using the Interest or Profit and Loss accounts. Profit and loss is to be shared in proportion to agreed contributions, , X Y Agreed Investment $4,000.00 $2,000.00 Actual Investment 6,000.00 1,000.00 3. A and B are in partnership, A's investment being $15,000 and B's is $12,000. A agreed to invest $11,000 and B $18,000. Interest is to be allowed on excess over and charged on deficit under agreed contributions. Make a journal entry to adjust interest between partners without running it through the Interest and Profit and Loss accounts. Profits are to be shared according to agreed contributions. 4. A, B and C are in partnership sharing profits in the proportions of ^, ys and y^, respectively. Their respective investments are $20,000, $18,000 and $15,000. Interest at 6 per cent, is allow^ed on capital. Give the journal entry that will adjust interest without use of an interest or Profit and Ivoss account. PROBLEM 35 (Adapted from English Intermediate Examinations, November, 1908) I. There are three partners in a trading concern — X, Y and Z — with equal amounts of capital in the business, on which they draw interest at 5 per cent. The net profits of the business, before charging interest on capital, amoimt to 20 per cent, on such capital. The net profits, after charging interest on capital, are divided as follows: X, one-half; Y, one-third; Z, one-sixth. Tak- ing the interest and the net profits together, prepare accounts showing the respective proportion of the profit to be credited to each partner. II. A firm of three partners, G, H and J, who were interested in the profits or losses of their general business in the proportions of 40 per cent., 30 per cent, and 30 per cent., respectively, entered, at the instance of H, into two outside ventures on the understanding that if a profit resulted in either case, H's proportion thereof should exceed his usual proportion by 10 per cent., and if, on the other hand, a loss resulted from either transaction, H's proportion thereof should exceed his usual proportion by 15 per cent. Venture No. 1 yielded a profit of $5,000.00. Venture No. 2 resulted in a loss of $2,500.00. The ordinary business showed a profit of $10,000.00. Divide up the results in the manner agreed, and show their efifect in a personal account with each partner. 30 PROBLEM 36 (Adapted from English Final Examination, May, 1907) A and B are partners, sharing profits equally. They agree to dissolve partnership on December 31st, 1906. A to retire from the concern and to have, in addition to his capital and profits, one-half of the good will agreed as one year's purchase upon an average of the past three years' net profits, the two preceding years' net profits being $55,000 and $52,500, respectively. The following is the Trial Balance of their books on the above date : Stock, 1st January $ 41,500.00 Goods Purchased 245,000.00 Goods Sold $313,000.00 Discount on Sales 7,500.00 Salaries and Wages 9,000.00 Incidental Expenses .... 1,500.00 Stationery and Postage 500.00 Bank Discount 100.00 Fire Insurance 100.00 Bills Receivable 14,700.00 Bills Payable 8,500.00 Creditors 13.750.00 Debtors 41,250.00 Bank 8,925.00 Cash in Hand 75.00 Bad Debts 1,100.00 A's Capital, 1st January 32,500.00 B's Capital, 1st January 19,500.00 A's Drawings 9,000.00 B's Drawings 7,000.00 $387,250.00 $387,250.00 The Stock at 31st of December was $37,500. Allow $1,000 as discount oflP debtors and $500 discount off creditors, charg- ing interest at 5 per cent, upon capital and drawings, the latter being by equal installments at the end of each quarter, and prepare Profit and Loss account, partners' Capital accoimts, and balance sheet. PROBLEM 37 (Adapted from English Final Examination, December, 1900) Crank and Crane carried on business in partnership, and divided profits and losses in proportion to their capital, three-fifths and two-fifths. On January 1st, 1900, Crank's capital was $52,500 and Crane's $35,000. as shown by a balance sheet of that date. They agreed to admit Clark as a partner from the same date on the following terms : 1. The assets, liabilities and capital to be taken as shown in the balance sheet. 2. $12,500 to be added to the assets for good will. 3. The amount of good will to be added to Crank's and Crane's capital in the proportion in which they divide profits. 4. Clark to pay in cash to the credit of the partnership such a sum as would give him a one-fifth share in the business. State what amount of capital Clark has to bring in ; set up the Capital accounts of each partner in the new partnership, and state in what propor- tions the profits will be divided in the future ; Crank and Crane, as between themselves, sharing in the same proportions as before. ai PROBLEM 38 (Adapted from English Final Examinations, May, 1907) A and B are equal partners, and their balance sheet at a certain date is as follows: Machinery and Plant $ 6,250.00 Creditors $10,000.00 Horses and Wagons 1,250.00 A's Capital 15,000.00 Furniture and Fixtures 750.00 B's Capital 15,000.00 Stock 18,250.00 Debtors 11,500.00 Bank 1,500.00 C'/sh 500.00 $40,000.00 $40,000.00 They decide to admit C and D, the former to provide $15,000 as his capital, and the latter, in consideration of his having a personal business connection, only to bring in $10,000, but his Capital account to be credited with the same amount as C's. C and D only accept A and B's balance sheet subject to the following alterations, which are agreed to : Machinery and Plant to be taken at $ 5,500.00 Horses and Wagons 1,000.00 Stock 16,500.00 Debtors to be subject to a 5 per cent discount. Creditors to be subject to a 3 per cent discount. Adjust the accounts and prepare commencing balance sheet of the new firm. PROBLEM 39 (IlHnois, May, 1914) A and B enter into a partnership and will share .profits in the proportions indicated by their investments. A furnishes $25,000, and B furnishes $15,000, which is invested in lands and buildings, $10,000 ; merchandise, $30,000. How- ever, before they have actually commenced business, C realizing that A and B have a promising venture, offers to buy one-third interest in the business for $20,000. A agrees to sell, provided B will consent to pay him a bonus of $4,000 out of his (B's) share. This B agrees to do, and consents to the sale. How should the $20,000 be divided between A and B, so that the interest of all three partners will be equal? PROBLEM 40 (Washington, 1917) Black and White were partners upon the following terms : 1. They were to receive 5 per cent, interest upon their respective partner- ship capital. 2. They were to receive as partnership salaries as follows : Black, $250.00 per month ; White, $100.00 per month, and were to draw no further sums pending the ascertainment of profits. 3. Depreciation at 10 per cent, per annum to be written off Plant and Machinery as standing on the books at the close of the year. 32 4. Provision at 5 per cent (for doubtful accounts) to be reserved for all accounts, receivable, not including, however, bills receivable. 5. The net profit or loss to be shared as follows: Black, two-thirds; White, one-third. On November 30, 1915, the following was the trial balance of the firm's books, which were kept by double entry : Dr. Cr. Partner's Salary Account $ 3,850.00 Purchases 127,310.00 Investments (at cost) 6,150.00 Wages 19,205.00 John Jones & Co 17,130.00 Jas. Smith & Son 35,695.00 Wm. Owen 18,120.00 Legal Expenses 70.00 Cash 110.00 Bank 6,025.00 Real Estate 103,205.00 Machinery and Plant 27,200.00 Bills Receivable 2,510.00 Manager's and Clerks' Salaries 4,725.00 Office Expense 540.00 Discount 1,070.00 Inventory, January 1, 1915 19,210.00 Rent (11 months) 3,300.00 Albert Black (Capital Account on Jan. 1, 1915) $ 21,000.00 Benjamin White (Capital Account on Jan. 1, 1915) . . 7,500.00 Dividends Received on Investments 150.00 Bills Payable 19,075.00 Sales 242,805.00 Roberts Brothers 41,215.00 Robinson & Co 28,840.00 J. Green & Son 34,840.00 $395,425.00 $395,425.00 Amend the foregoing balances so far as may be necessary by posting the following transactions for the month of December. 1915 : Dec. 2. Purchased from Roberts Bros, (on credit) $39,205.00 " 8. Paid Taxes 705.00 " 9. Paid Robinson & Co. (after deducting discount of $60.00) 1,200.00 " 10. Paid Bill Payable to H. Brown & Co 500.00 " 11. Received from J. Smith & Co. (less discount of $210.00) 4,740.00 " 12. Sold Wm. Owen (on credit) 5,000.00 " 15. Purchased from J. Green & Son (on credit) 17,105.00 " 16. Bought Gas Engine from Al-Ki Gas Engine Co. (on credit) 1,750.00 " 17. Paid Wages 2,210.00 " 21. Paid Taxes 105.00 " 24. Paid Premium on fire Insurance Policy for Year Ending December 24. 1916 525.00 " 30. Received for Sale of Investments 6,000.00 " 31. Paid Office Salaries 1,800.00 Paid Office Expenses 100.00 Paid Wages 2,200.00 Sold James Smith & Co. (on credit) 5,245.00 All of the above payments were made by check and all amounts received were paid into the bank upon receipt. The stock on hand on December 31, 1915. was agreed by the partners as worth $17,000.00. The outstanding rent due to Benjamin & Lewis for December. $3(X).00. and the partners drawings for the same month must be provided for. After making all adjustments provided for in the clauses of the partnership agreement, balance the books as at December 31, 1915. and prepare trial balance. Make up a profit and 33 loss account divided into the proper trading and general sections. Close this by dividing the net profits between the partners in the proper proportions and prepare a balance sheet. PROBLEM 41 (English Intermediate Examination, May, 1911) Brown and Smith are partners. The partnership deed provides inter alia: 1. That the accounts be balanced on 31st of December in each year. 2. That the profits be divided as follows: Brown, one-half; Smith, one- third, and carried to a Reserve Account one-sixth. 3. That in event of the death of a partner, his executors be entitled to be paid out: a. The capital to his credit at date of death. b. His proportion of reserve at date of last Balance Sheet. c. His proportion of profits to date of death based on the average profits of the last three completed j^ears. d. By way of good will his proportion of the total profits for the three preceding years. On the 31st of December, 1909, the Ledger Balances were: Brown's Capital $ 9,000.00 Smith's Capital 6,000.00 Reserve ,3,000.00 Creditors 3,000.00 Bills Receivable $ 2,000.00 Investments 5,000.00 Cash 14,000.00 $21,000.00 $21,000.00 The profits for the three years were: 1907 $4,200.00 1908 3,900.00 1909 4,500.00 Smith dies 1st May. 1910. Show the account as between the firm and Smith's executors on May 1st, 1910. PROBLEM 42 (Adapted from English Intermediate Examination, May, 1908) Aird and Batty have each carried on a prosperous business, which they decide to combine and convert into a Corporation, transferring the assets at book values, and adding for good will a sum equal to four years' purchase of the combined net profits of the two concerns based on the average of the preceding years. The sum so ascertained for good will is to be divided as follows: Aird, two-thirds, and Batty, one-third. The three years' profits were: Aird $48,315 and Batty $39,950. The assets taken over by the Company, viz. Land. Buildings, Plant. Machinerv, Patterns. Stock, and Debtors, amount to: Aird $157,280 and Batty $59,040. The purchase money is payable as follows : Fully-paid preferred stock and cash, in equal proportions, to represent the above assets. 34 Fully-paid common stock to represent the value of good will. Show the amounts receivable by each of the vendors in preferred stock, in common stock, and in cash. PROBLEM 43 (Wisconsin, 1916) A, B and C are in partnership. A invested $11,000; B invested $5,000; and C invested $1,200. Their agreement provides that profits or losses shall be divided as follows : A, 4/9; B, 3/9; C, 2/9. The partnership has become insolvent and has therefore decided to dis- solve. The cash value of assets is $10,000. The deficit is, therefore, $7,200. How should the assets be divided and how much money will each partner receive? PROBLEM 44 (Illinois, May, 1910) A, B and C engage in business, A contributing $10,000 capital; B. $5,000, and C undertakes to take the active management at a salary of $3,000 a year, to be paid to him monthly. After providing 5 per cent, interest on capital they are to divide the net results in the proportions of 5, 3 and 2. At the end of 18 months they ascertain the position to be unfavorable and decide to wind up. The assets are agreed to be worth $12,500, of which A takes $10,000 and B $2,500. There are no liabilities except for the capital and simple interest thereon, and one month's salary due C. State the position of the three partners to each other. PROBLEM 45 (Illinois, November, 1908) A, B and C were partners and contributed the following capital : A $8,000, B $6,000 and C $4,000. Profits and losses were to be Ijorne equally, At the end of the first year each partner had drawn $1,000. The assets were then disposed of for $3,000, the purchaser discharging all liabilities of the firm. How should this sum of $3,000 be apportioned among the partners and would any of them have to advance any further sum? If so, state which partner and how much and make up the necessary accounts to show the results. PROBLEM 46 (Wisconsin, November, 1919) A. B and C were partners in a business on the following basis: Capital Contributed Share of Profits Salaries A $45,000.00 50% $6,000.00 B 22,500.00 40% 4,000.00 C 7,500.00 10% 2,400.00 At the end of the second year's business A died. The partners' drawing 35 accounts before crediting their vear's salaries appeared with the following debit balances: A, $2,572.00; B,' $1,218.00; C, $1,710.00. The net assets of the business, after finally closing the books, were found to be $74,780.00. B and C liquidate the aflfairs of the partnership. Three distributions of the proceeds of liquidation were made as follows : $25,000.00, $35,000.00, $11,780.00. You are asked to prepare a tabulation showing the share of each of the distributions to each of the partners. PROBLEM 47 (New York, January, 1915) On June 30, 1913, X and Y, partners, operating a manufacturing plant, incorporated under the laws of the state of New York as the X and Y Manu- facturing Company with an authorized capital of $500,000. The corporation purchased all of the assets and assumed all of the liabilities of the partnership as set forth in a balance sheet dated June 30, 1913, giving as consideration its entire issue of capital stock, which stock was all taken by X and Y. BALANCE SHEET, JUNE 30, 1913 Assets Plant and Machinery $175,000.00 Material on Hand, per Inventory 102,625.00 Accounts Receivable » 113,750.00 Notes Receivable 7,500.00 Cash 32,125.00 Total $431,000.00 Liabilities X, Capital $240,000.00 Y, Capital 160,000.00 Accounts Payable 26,250.00 Notes Payable 3,500.00 Wages Due and Unpaid 1,250.00 Total $431,000.00 The change in organization was not reflected on the books at the time of incorporation, but at the close of the first fiscal year (June 30, 1914) of the corporation's existence the condition of the books was shown by the following trial balance: TRIAL BALANCE, JUNE 30, 1914 X, Capital $ 240,000.00 Y, Capital 160,000.00 Plant and Machinery $ 187,500.00 Material, per Inventory June 30, 1913 102,625.00 Sales 657,025.00 Purchases 240,000.00 Labor 172,500.00 Office Salaries 35,000.00 Traveling Expenses 12,000.00 Interest 3,000.00 Stationery and Printing 875.00 Rent and Taxes 21,000.00 Discount and Allowances 11,250.00 Fuel 23,000.00 Insurance 875.00 Freight, inward 8,750.00 36 Commission 31,875.00 Advertising 2,500.00 Notes Receivable 30,575.00 Notes Payable 5,500.00 Accounts Receivable 180,575.00 Accounts Payable 39,250.00 Cash 37,875.00 $1,101,775.00 $1,101,775.00 Depreciation on plant and machinery, 5 per cent. ; unexpired insurance, $375; bad debts, $1,625; inventory of material on hand June 30, 1914, $98,025. Make such entries as would convert the partnership books into those of the corporation, and prepare a statement of income and profit and loss for the year July 1, 1913, to June 30, 1914, and a balance sheet as of June 30. 1914. PROBLEM 48 (Ohio, November, 1913) The Unique Manufacturing Company, a corporation, was organized July 1, 1913, with an authorized capital stock of $215,000, par value of shares, $100 each, for the purpose of manufacturing novelties. The five incorporators eubscribed and paid for five shares each, organization expenses were incurred to the amount of $5,000 and paid for in stock, and the balance of the stock was disposed of on the following conditions : Ten per cent, upon subscription, and three equal calls for the balance at 30, 60 and 90 days. On July 31st The Unique Manufacturing Company secured an option for thirty days on the plant of A and B. for $10,000. agreeing to take over the assets exclusive of cash, and assume the liabilities of the partnership, as at July 31st, for the sum of $200,000, payable $90,000 immediately after taking over the business, and the balance in 90 days. At the expiration of the option, the corporation took over the plant as agreed. The following is a transcript of A and B's ledger balances as at July 31, 1913: Land $30,000.00 Buildings 35,000.00 Machinery 20,000.00 Furniture and Fixtures 5,000.00 Raw Material 10,000.00 Tools ; 2,500.00 Finished Goods 10,000.00 Work in Process 5,000.00 Supplies 7,500.00 Accounts Receivable 25,000.00 Cash 8,200.00 Mortgage on Buildings 10,000.00 Reserve for Depreciation — Machinery 2,500.00 Reserve for Bad Debts 1,000.00 Accounts Payable 15,000.00 "A" 77,820.00 "B" 51,880.00 During the interval A and B, with the consent of the corporation, had sold finished goods for $5,000, which was 25 per cent, above cost. The subscriptions to the stock of the corporation were met on call with the exception that on the second call a subscriber for twenty-five shares noti- fied the corporation that he was unable to complete his agreement, and he 37 was released without further liability. The forfeited stock was sold for cash, at par. From the foregoing, draft : a. Journal entries necessary to close the books of the partnership. b. To open the books of the corporation and to show all transactions on The Unique Company's books. c. Balance Sheet of The Unique Manufacturing Company, September 1, 1913. PROBLEM 49 (Washington, 1908) A and B were partners trading under the name of A, B & Co. June 30, 1908, the following balances appear on their ledger : A, Capital Account $70,000.00 B, Capital Account 50,000.00 Real Estate 22,000.00 Buildings 20,000.00 Machinery and Tools 44,000.00 Furniture and Fixtures 2,000.00 Accounts Receivable 50,000.00 Cash 7,000.00 Materials and Merchandise 53,000.00 Accounts Payable 35,000.00 Bills Payable 48,000.00 Bills Receivable 5,000.00 On June 30, 1908, the business is incorporated as the X Company, on the following plan : 1. Capital Stock, $150,000.00. 2. X Co. takes over entire assets and liabilities of A, B & Co. at the book figures as above, except (a) real estate of the book value of $5,000, which is retained by A, B & Co. ; (b) the accounts receivable, which are taken over at $48,000, and (c) the capital accounts of the partners. v 3. X Co. pay A, B & Co. $30,000 for the good will of the business. 4. Payments to A, B & Co. are made as follows, viz., $50,000 in first mortgage bonds, and the balance in capital stock of the X Company. 5. After paying off A, B & Co. the remainder of the capital stock is sold for cash to sundry persons. The real estate which is retained by A, B & Co. is bought from A, B & Co, by A for $7,000 and is charged to A's capital account. After the conclusion of the foregoing described transactions A and B dissolve partnership. You are required: a. To prepare closing entries for the books of A, B & Co. b. A statement setting forth the partners' accounts down to their final closing, beginning with the balances shown by the books on June 30, 1908. c. Opening entries for the X Company. PROBLEM 50 (Iowa, 1918) A corporation, incorporated under the laws of the State of South Dakota with an authorized capitalization of $1,000,000.00, offers stock for subscrip- 38 tion under the following terms and conditions : The sale of shares of preferred stock, par value $100.00, at a discount o^ 25 per cent., payable in five installments. To each purchaser of preferred stock shall be donated one share of common stock, par value $100.00. At the end of the year it was found that money had been received from installments paid on subscriptions to preferred stock as follows: First Installments $120,750.00 Second Installments 96,600.00 Third Installments 96.600.00 Fourth Installments 96,600.00 Fifth Installments 96,600.00 The organizer of the corporation had purchased a vacant building and real estate suitable for the factory site, paying therefor $27,500.00. The prop- erty purchased was appraised bv disinterested appraisers and valued con- servatively at $45,000.00. The owner (organizer) then turned the said property over to the corpora- tion at the appraised value, viz., $45,000.00, and received therefor preferred stock at same price as subscribers, which was at 25 per cent, discount, and also received one share of common stock (donated) for each share of pre- ferred stock. The expenses of organization and sale of stock at the end of the year was found to be as follows : Commissions on Sale of Stock $10,000.00 Office Expenses, Clerk Hire, Heat and Light, Stationery and other Expenses 3,000.00 Appraisal 250.00 Betterments and Remodeling Building for Occupancy 2,000.00 Draw up statement showing the condition of organization, using receipts and disbursements as above and showing the condition of stock subscriptions and stock issue. PROBLEM 51 (Wisconsin, 1917) Assume that the Wisconsin Motor Company was incorporated in New York on January 2, 1917, to acquire the business of the Wisconsin Automo- bile Corporation. The authorized capital stock of the Wisconsin Motor Com- pany is $2,000,000 7 per cent, cumulative preferred and 600.000 shares of com- mon stock of no specified par value. The balance sheets of the Wisconsin Automobile Corporation on January 1, 1917, and January 1, 1916, were as follows: Assets 1917 1916 • Cash on Hand and on Deposit $ 564,747.00 $1,173,135.00 Notes and Accounts Receivable 2,873.383.00 1,049,005.00 Investments 530,702.00 401.127.00 Merchandise Inventories 5,860,948.00 3,327,301.00 Real Estate, Buildings, Machinery 3,184,278.00 2,215,831.00 Good Will 1.00 1.00 Prepaid Expenses 37,480.00 27,863.00 $13,051,539.00 $8,194,263.00 39 Liabilities 1917 1916 Notes Payable $3,000,000.00 $ 250,000.00 Accounts Payable 1,040,799.00 437,283.00 Dealers' Contract Deposits 105,662.00 90,326.00 Accrued Accounts 243,821.00 73,969.00 $4,390,282.00 $851,578.00 Proprietary Interest 1917 1916 Preferred Stock $1,400,000.00 $1,100,000.00 Common Stock 5,000,000.00 5,000,000.00 Contingent Reserve 136,783.00 145,764.00 Surplus 2,124,474.00 1,096,921.00 $8,661,257.00 $7,342,685.00 The preferred stock of the old corporation was exchanged for the full amount of the preferred stock in the new company. Of the new company's common stock 200,000 shares were exchanged for the common stock of the old corporation, 200,000 shares were unissued at the present and the remaining 200,000 shares were offered for pubHc subscription at $35 per share. The transactions in this portion of the stock are as follows : 50,000 Shares Sold at $32.00 Per Share 100,000 Shares Sold at $36.00 Per Share 50,000 Shares Sold at $34.00 Per Share The new company expects to maintain a dividend policy on common stock at $3 per share per annum. You are asked to prepare : (a) The opening balance sheet of the Wisconsin Motor Company, as of January 2, 1917, assuming that the common shares were sold for cash on that day. (b) What is the book value of a share of common stock in the new company ? (c) How would you account for the sale of stock at $32-$36 per share? (d) Prepare a comparative statement of assets, liabilities and proprie- tary interest of the Wisconsin Motor Corporation by showing increases or decreases for each of the items listed. (e) What is the probable cause of forming the new company? Of in- corporating under the law which allows capital stock of no par value to be issued? PROBLEM 52 (Wisconsin, November, 1919) On January 1, 1919, the close of its third year's business, the following ac- counts were, open upon the General Ledger of the Winner Manufacturing Company : Preferred Capital Stock $376,000.00 Common Capital Stock 600.000.00 Cash on Deposit $50,000.00 Imprest Cash Fund 500.00 Real Estate 250,000.00 Buildings 300,000.00 Notes Receivable 8,000.00 Factory Equipment 450,000.00 Accounts Payable 53,000.00 40 Notes Payable • • 25,000.00 Reserve for Depreciation, Buildings 6,000.00 Reserve for Depreciation, Factory Equipment.. 75,000.00 Accounts Receivable 75,000.00 Patents 1.00 Patterns 25,000.00 Auto Trucks 10,000.00 Bonds Issued 200,000.00 Premium on Bonds Issued 2,000.00 Inventory, Raw Material 180,000.00 Inventory, Finished Goods 40,000.00 Inventory, Goods in Process 70,000.00 Reserve for Depreciation, Auto Trucks 4,000.00 Surplus, January 1, 1918 50,000.00 1918 Operating Profit and Loss 67,501.00 $1,458,501.00 $1,458,501.00 The preferred capital stock was $400,000.00, 7 per cent, cumulative, and the provisions of its issue require that 3 per cent, of the authorized amount be set aside annually as a sinking fund for its redemption at $125.00. The common capital stock of the company is without par value; 20,000 shares have been authorized ; 12,000 shares issued. The Real Estate account is found to consist of the following items : Factory Real Estate $ 20,000.00 Fertile Farms Investment 120,000.00 City Real Estate Investment 110,000.00 The bonds of the company are twenty-year, 7 per cent, gold bonds, sold on September 30, 1918, for 101. Interest is payable October 1 and April 1. The bond recital provides for the creation of a pro-rata sinking fund to be reserved - out of the profits of each year and for the setting aside of cash equivalent to such reservation. The income taxes for the year are estimated at $5,000.00, You learn that the directors met on January 10, 1919, and declared a divi- dend of 7 per cent, upon the preferred stock, authorized the purchase of shares of preferred stock in accordance with the terms of issue and declared a divi- dend of two dollars ($2.00) per share of common stock. The dividends were paid on January 15, 1919, and the preferred stock was purchased on that date. In view of the above conditions, you are asked to prepare a financial state- ment of the Winner Manufacturing Company as of January 1, 1919, after the books for the year have been closed finally. PROBLEM 53 (Illinois, December, 1918) You are called upon to examine the accounts of a corporation for the pur- pose of certifying its balance sheet. An item is carried on the liability side described "Sundry Reserves — $375,000.00." You find that this amount is made up as follows : Reserves for Contingencies $ 50,000.00 Plant Depreciation Reserve 80,000.00 Reserve for Bad Debts 10,000.00 Reserve for Collection Expenses 15,000.00 Premium on Sale of Capital Stock 12,000.00 Reserve for Personal Injury Suit which has just been decided against the Company 8,000.00 Reserve for Patent Litigation Pending 20,000.00 Reserve for Income and War Excess Profits Taxes 40,000.00 41 special Reserve against a Possible Drop in Market Values of Merchandise on Hand 30,000.00 Sinking Fund for Retirement of Bonds 48,000.00 Provision against Dismantlement of Aurora Works 34,000.00 Pension Fund 28,000.00 $375,000.00 The president is unwilling to change the company's balance sheet without consulting the Board of Directors and states that if you take exception to this item you should write him with your views so that he may bring the matter formally before them. Write such a letter, stating clearly the reasons for any exceptions you may take. PROBLEM 54 (Iowa, 1918) The Jones Company, Incorporated, acquired the business from S. R. Jones, who took bonds amounting to $50,000.00 in part payment. These mature in twenty years, and can be cancelled by payment after fifteen years, and bear interest at the rate of 5 per cent, per annum. A sinking fund is to be estab- lished for their redemption by payment to the Bankers Trust Co., Trustees, of $2,500.00 a year, the interest on this fund to accumulate to help in retiring the bonds before twenty years. November 30, 1918, was the end of the first fiscal year and the trial bal- ance of that date is as follows : Real Estate $ 30,000.00 Buildings 30,000.00 Machinery 43,150.00 Accounts Receivable 4,260.00 Cash : 12,759.60 Merchandise 46,540.00 Labor • 20,000.00 Office Expense 1,950.00 Miscellaneous Investments 440.00 Bond Sinking Fund 2,500.00 Interest Paid on Bonds 3,000.00 Capital Stock $ 50,000.00 Bonds Payable 50,000.00 Net Sales 68,090.00 Notes Payable 5,000.00 Accounts Payable 21,450.00 Miscellaneous Income 60.00 $194,600.00 $194,600.00 Inventory of merchandise is $28,500.00. Under date of May 30, 1918, the company paid the Bankers Trust Co. $2,500.00. Under date of November 30, 1918, the Bankers Trust Co. reported that they had received the $2,500.00; that on June 15, 1918, they purchased two $1,000.00 bonds at par and accrued interest. Rate of interest 5 per cent., payable in November and May each year, that they collected $50.00 interest on November 1, 1918, and that they have allowed 4 per cent, interest per annum, computed semi-annually, on the lowest amount of cash in the fund during the period. They show the cash in the fund which you are asked to compute from the above to verify the correctness of their balance. (1) Make the necessary journal entries to close the books for the fiscal year. 42 (2) Construct income and expense accounts for the year. (3) Construct balance sheet as of November 30, 1918. (4) Prepare statement of sinking fund in hands of Bankers Trust Co, PROBLEM 55 1. From the data given below state clearly and explain at least three different methods of arriving at the amount to charge annually for the depre- ciation of any one or all of the following items : Items Value Estimated Life Scrap Value Buildings $50,000.00 SO years $1,000.00 Machinery 20,000.00 20 years 2,000.00 Tools 5,000.00 5 years 100.00 Patterns 10,000.00 3 years 100.00 (Wisconsin, 1915) 2. The A Manufacturing Company has four general types of depreciable assets : Rate Cost Scrap Value Buildings 2% $51,000.00 $1,000.00 Machinery A 10% 11,000.00 1,000.00 Machinery B 20% 12,000.00 2,000.00 Office Equipment 10% 4,100.00 100.00 The directors desire to keep but one Reserve for Depreciation Account and ;'equest you to determine the composite rate which may be used in deter- mining the annual depreciation charge. Determine the composite rate as requested, tabulate the necessary facts used in determining it, and comment upon the practicability of such a plan. (Wisconsin, 1919.) 3. A coal company owns 4,000 acres of coal land with a four-foot seam of workable coal. The land cost $200.00 per acre and the company has spent $100,000.00 in development, equipment, etc. How much depreciation should be charged against each ton of coal mined? A lumber company owns a 3,000-acre tract of timber cruised at 6,000 feet to the acre. The mill and timber cost $105,000.00. The salvage value of the mill is estimated at $3,500.00 and the land valued at $15,000.00. How much depreciation should each one thousand feet of lumber carry? A coal company leases land in which they are to pay a minimum royalty of $25,000.00 a year. Their royalty contract is based on a production of ten cents per ton. Any year that the royalty does not amount to $25,000.00 they have a right to make up this shortage before they pay more than the mini- mum royalty in any two succeeding years. Explain how you would handle this on the books of the coal company so that the royalty account would show properly. The actual royalty for the first year is $20,000.00, for the second year $22,000.00 and for the third year $30,000.00. Prepare the journal entry to explain your answer. An oil company owns property with a new well producing 100 barrels per day. This property cost $50,000.00. What in your opinion would be a just percentage of the cost of the leasehold for depreciation for the first year and so on until the end of six years? (West Virginia, 1917.) 43 PROBLEM 56 1. A manufacturing concern has annually for the past six years made provision, at the rate of 10 per cent, per annum, for depreciation of its plant and machinery, crediting the amount of such depreciation to a suitable re- serve account. During the year an engine which cost originally $5,000.00 was replaced by an improved engine costing $6,800.00. The cost of the new engine was charged to Machinery Account at time of purchase. $300.00 was realized from the salvage of the old engine, this amount being credited to "Scrap Sales" when received, and later closed to Profit and Loss. Draft the adjustment entries which you consider necessary and explain the principle upon which these entries are based. (Ohio, 1918.) 2. An engine installed in a factory January 1, 1914, at a cost of $1,000.00 is replaced by one of larger capacity December 31, 1917, costing (second hand) $2,800.00. The discarded machine was sold for $900.00. The cost of making the change was $200.00. It has been the practice of the company to charge ofif 10 per cent, depreciation annually (on the diminishing basis) car- rying the credit to a Depreciation Reserve Account. Make the necessary journal entries. (Illinois, 1918.) 3. A machine costing $12,000.00 was estimated to have a life of twelve years, with a residual value of $1,500.00. At the close of each year a charge of $875.00 was made to depreciation and a like amount credited to "Reserve for Depreciation." Just prior to olosing the books at the end of the twelfth year the machine was discarded and sold for $2,000.00 (cash) and a similar machine was bought, costing $16,000.00. Show the journal entries you would make to close the books at the end of the twelve years in order to close these transactions and to make necessary adjustments. (Indiana, 1918.) 4. In the Machinery Account of a company under audit you find the fol- lowing: Balance at Beginning of Year $ 30,000.00 Purchase of Two Machines, Type A, including Freight 6,000.00 Cost of Removing a Discarded Machine, Type B, to Make Room for New Machine 125.00 Cost of InstaUing Two New Machines 200.00 Alterations to 4 Type C Machines, Made Necessary by Change of Product 500.00 Cost of Moving Two Machines from Building A to Building B to Permit of More Economical Operation, Including Re- installation 205.00 Sale of Old Machine, Type A (Less Freight and Cost of Removal) 150.00 Sale of Old Type B Machine 1,100.00 The balance of the Reserve for Depreciation (Machinery) Account shows an increase for the year of the year's depreciation charge computed at the rate of 6 per cent, on the balance of the Machinery Account at the beginning of the year. You are asked to make the adjustment entries necessary to correct the account. (Adapted from Indiana, 1918.) 5. The Machinery Account on the books of the X Company was deb- ited with $10,000.00 on January 1, 1917. Depreciation had not been consid- ered upon the books up to this date. On June 1, 1917, new machinery was purchased for $3,000.00 and on September 1 old machinery was scrapped, the cost price of which was $3,000.00. The machinery is estimated to last five years. Depreciation is figured on the fixed proportion method, no scrap value. In may, 1918, the additional equipment, amounting to $2,000.00, is pur- 44 chased. At the end of 1918 the management decides to use the sum-of-year digits method for calculating depreciation. Give all entries required by the above citation of facts. PROBLEM 57 (Wisconsin, 1915) In your examination of the Automobile Delivery Truck Account of a com- pany you find the following entries: Debits Jan. 1, 1914, Trucks 1, 2, 3, 4, at $1,200.00 $ 4,800.00 July 1, 1914, Truck 5 1,500.00 Aug. 1, 1914, Truck 6 * 1,500.00 Credits Aug. 1, 1914, Truck 2 $ 900.00 Sept. 1, 1914, Truck 4 750.00 Balance, Sept. 1, 1914 6,150.00 The Reserve for Depreciation for Automobile Delivery Truck Account stood credited on January 1, 1914, with $1,800.00. Upon analyzing the transactions represented by these items, you find the following facts: a. Truck 5 purchased July 1, replaced Truck 1. The portion of the re- serve for depreciation accumulated on January 1 for Truck 1 amounted to $900.00. Truck 5 was purchased on open account. b. Truck 2 was traded in for $850.00 on the purchase of Truck 6, costing $1,500.00. The difference was paid in cash. The reserve which had been ac- cumulated for depreciation on Truck 2 on January 1 amounted to $300.00. c. Truck 4 was totall}- destroyed in an accident September 1. The re- serve for depreciation on this truck amounted on January 1 to $300.00 and it was insured for $750.00. Assume the rate of depreciation to be 25 per cent, per year. Give journal entries which would properly record the above facts and show the balances of all accounts affected, as of September 1, 1914. PROBLEM 58 (Illinois, May, 1910) A factory consists of two blocks of buildings, "A" and "B." On the first of January, 1907, "A" contains engine and boiler which cost $4,000.00, and machinery costing $13,000.00; "B" contains machinery costing $7,000.00. The following are purchases of machinery : October 1st. 1907. "A," $1,000; July 1st, 1908. "A," $750; "B," $1,500; April 1st. 1909. "A," $600; "B," $900; October 1st, 1909, "B." $250. On January 1st. 1908, machinery (costing January 1st, 1907, $1,000) is sold from "A" for $625, and on July 1st, 1908, machinery (costing $1,300 January 1st, 1907) is sold from "B" for $1,000. The accounts are made up to December 31 each year. On December 31, 1909, the whole premises and contents are destroyed by fire, and the fire in- surance company agrees to pay upon the following basis : Engine and boiler, cost price less depreciation 8 per cent, per annum upon that sum ; machinery in "A," cost, less depreciation at 10 per cent, per annum upon diminishing value: machinery in "B," cost, less depreciation at lYz per cent, per annum upon diminishing value. Prepare ledger accounts showing how much is recoverable upon this basis. 45 PROBLEM 59 (Wisconsin, 1918) In an audit of the Acme Motor Car Company you find the Reserve for De- preciation Account and the Surplus Account composed of the items as here enumerated. The Reserve for Depreciation Account was opened on December 31, 1915, the close of the first business year, by debiting the depreciation accounts of the various assets w^ith $265,000.00. The Reserve for Depreciation Account was also credited with $25,000.00 on December 31, 1916, and with $20,000.00 on December 31, 1917. During 1916 and 1917 the following items have been charged against this Reserve for Depreciation Account: Assets Scrapped $125,000.00 Bad Debts 25,000.00 Repairs 10,000.00 Fire Loss on Building and Equipment 7,500.00 Organization Expenses 65,000.00 Salesmen's Extra Commission 12,000.00 The Surplus Account for 1915 and 1916 has been closed, the balance having been paid out in dividends. The Surplus Account on December 31, 1917, is found to consist of the fol- lowing credit items : Reserve for Car Guarantees $ 50,000.00 Premium on Stock Sold 50,000.00 Reserve for Obsolescence 50,000.00 Bonus from Commercial Club 50,000.00 Reserve for Income and Excess Profits Taxes, 1917 80,000.00 Operating Profits 750,000.00 You are requested to make such adjustments in the Reserve for Deprecia- tion Account and Surplus Account as are appropriate, and to show how the several items and accounts should appear in the financial statement. PROBLEM 60 In the examination of the books of the A Company it is found that the Equipment Account, the Reserve for Depreciation Account and the Operat- ing Expense Accounts have been improperly kept. Charges which should have been made against the Reserve for Depreciation Account have been made in some cases to the Operating Expense Account and in other cases to the Asset Account. Scrapped assets have been allowed to remain in the Asset Accounts at original cost. The following data are given with the request that the proper adjustment entries be made so that the Equipment Account, the Reserve for Deprecia- tion Account, and the net effect upon the operating profit for each year will be clearly shown. Type A equipment purchased in 1917 to the amount of $100.00 was charged to the Asset Account when it should have been charged to the Reserve for Depreciation Account. Likewise in 1918 $500.00 had been so charged. In 1916 replacements to Type B equipment amounting to $600.00 had been charged to the Equipment Account when it should have been debited to the Reserve for Depreciation Account. In 1917 similar items aggregated $750.00, and in 1918 $350.00. Type C equipment was traded in January, 1917, for Type D equipment. 46 Type D equipment is valued at $10,000.00. The portion of the Reserve for Depreciation Account applicable to Type C was found to be $8,500.00. However, a loss of only $5,000 was suffered when the machinery was traded. Type E equipment contains charges to the amount of $5,000.00 which should have been charged against the Reserve for Depreciation Account. The amounts of the several years are as follows: 1916, $1,500.00; 1917, $2,000.00; 1918, $1,500.00. An analysis of the Factory Repair Account shows that during 1916 items amounting to $2,000.00 had been charged to this account which should have been charged against the Reserve for Depreciation Account. In 1917 similar items totalled $2,500.00, and in 1918 $1,750.00. The rates of depreciation are as follows : Type A, 10 per cent. ; Type B, 20 per cent., and Type D, 25 per cent. PROBLEM 61 (Wisconsin, May, 1919) The A Company had an appraisal made early in January, and after com- pleting the annual audit for the A Company the Directors authorize you to record upon the books the proper values as given in the appraisal. Among the terms used in the appraisal company's report are the following: 1. Sound Value 2. Depreciated Value 3. Replacement Value 4. Insurable Value 5. Book Value Define each of these terms and state definitely just what values it would be proper to record upon the books. What adjustment account or accounts would be used in the work and what disposition should be made of any balances remaining in such account or accounts ? PROBLEM 62 (Massachusetts, October, 1914) The following is a trial balance of Blank Manufacturing Company at De- cember 31, 1913, before closing: Land $ 2,000.00 Buildings 25,250.00 Machinery and Equipment 31,120.00 Materials Used in Manufacture 35,930.00 Wages 13,560.00 Salaries 3,500.00 Repairs 740.00 Insurance and Taxes 850.00 Office Expenses 1,560.00 Depreciation 1,200.00 Accounts Receivable 24,130.00 Accounts Payable $ 17,820.00 Bank Loans 5,000.00 Inventory, December 31, 1913 8,210.00 Accrued Interest 150.00 Interest 150.00 Sales 74,610.00 Trade Discounts on Sales 1,730.00 Capital 50,000.00 Surplus 2,350.00 $149,930.00 $149,930.00 47 An appraisal was made of the plant as of December 31, 1913, which showed the following values : Replacement Depreciation Value Value Land $ 1,800.00 Buildings 30,000.00 $27,000.00 Machinery and Equipment 42,000.00 33,600.00 The Board of Directors approve the appraisal values, and pass a resolution to change the books to agree therewith. 1. Prepare journal entries to adjust the books to agree with values shown by the appraisal. 2. Prepare balance sheet and Profit and Loss Account after giving effect to the appraisal adjustment. PROBLEM 63 (Wisconsin, 1916) The Wisconsin Hardware Company is to l)e organized as follows : A and B are equal partners in a retail hardware business, the financial condition of which is shown by the following balance sheet : Assets Cash on Hand and in Bank $ 2,000.00 Accounts Receivable 4,000.00 Merchandise 6,000.00 Fixtures 400.00 Shop Tools 300.00 Delivery Equipment 300.00 Total Assets $13,000.00 Liabilities and Capital Accounts Payable $ 1,000.00 A— Investment 6,000.00 B— Investment 6,000.00 $13,000.00 The above net worth is to be combined with $6,000.00 cash to be brought in by C, and the Wisconsin Hardware Company is to be formed and is to issue $18,000.00 of full paid stock. $6,000.00 each to A, B and C in payment for their respective contributions. Immediately upon the formation of the new firm the company i? to pur- chase the business of a competing hardware store in the same city, and to continue its operation as a second store imder the name "Badger Hardware Store." The "Badger" store inventory is as follows : Stock of Merchandise $ 6,500.00 Fixtures 200.00 Delivery Equipment 350.00 Total to be Taken Over $ 7,050.00 The stockholders expressly instruct the accountant to design an account- ing system so that each store may keep its own set of books, pay its own bills, have its own cash account and bank account and prepare its own detailed operating and financial statements at the end of each month. The accounts of the Wisconsin Hardware Company must be so arranged as to reflect the ownership and operating profits or losses of the Badger store. 48 Triplicate sales books are to be used at each store. These will supply the individual accounts receivable accounts, and the system designed should recognize the use of the sales book slips for other purposes. Keeping in mind the above facts : a. Design a classification of accounts for the Wisconsin Hardware Com- pany's main store. b. Sketch the rulings of such books of original entry as you deem ad- visable. c. Give the necessary journal entries to record the conversion of the part- nership into a corporation upon the new books. d. Give the necessary journal entries to record the purchase of the "Badger Hardware Store." e. Give the entries necessary to open the books at the "Badger Hard- ware Store." f. Outline a method of approximately determining monthly profits where physical inventory of stock is taken but once a year, and draft form of oper- ating statement suitable for main store. PROBLEM 64 (Wisconsin, 1916) As accountant to a coal mine you are instructed to prepare estimates of the cash balances at the close of each of the succeeding six months. The fol- lowing details, averages of the past years, are available : Cost of Mining $0.5107 per ton Current Selling Price 75 per ton Assume that the mine starts operation January 1 after having been shut down, that there was $50,000.00 cash in bank at that date, that mining will be at the rate of 80,000 tons per month, that all labor and supplies are paid for in cash, and that the company has contracts for delivery of 60,000 tons per month, payable the following month. a. Prepare an estimate of monthly cash balances, January 31 to June 30. b. What are the profits for the six months? PROBLEM 65 (Massachusetts, October, 1914) A client submits to you the following statement, covering a period of ten years, of a long-established nut and bolt business which he contemplates purchasing : Sales— Averaging Per Year $300,000.00 Wages— Averaging Per Year 100,000.00 Expenses — Averaging Per Year 15,000.00 Materials Used — Averaging Per Year 115,000.00 Real Estate— Appraised Value 50,000.00 Machinerv— Two Years Old (Original Cost) 20,000.00 Machinerv— Four Years Old ( Original Cost) 10,000.00 Machinery— Ten Years Old (Original Cost) • 20,000.00 Materials on Hand 40,000.00 From the above figures write a brief report to submit to your client, set- ting forth the value of the business, including good will. 49 Jar I. 2. 3. «' 4. « 24. " 25. ... 26. " 28. .1 29. Fet ). 5. " 10. " 11. " 26. PROBLEM 66 (Illinois, May, 1913) The accounting firm of C, P & A employ you as a senior accountant and for your initial job requires you to draft a Bills Receivable Account and a Bills Payable Account from memoranda taken from the diary of a client, who is an expert broker, as follows : 1912 Took G. D.'s Note, 90 Days' Settlement of Account $ 600.00 Accepted M. O.'s 30-day Draft, Documents Attached for goods Shipped Me from Paris 1,945.00 Received from Bank of Havana 60-day Draft, for Proceeds of Ac- counts Collected by Them 425.00 Received from B. A. Note at 30 Days on Settlement of Account 650.00 Drevvr on C. M. 15 Days from Date for Account of Goods Shipped to London 350.00 Accepted L. H.'s Draft, 60 Days Sight 750.00 Received C. M.'s Draft, Accepted January 26th 350.00 Discounted G. D.'s Note at Bank, Received 591.25 Paid M. O. Draft Discounted Bank of Havana Draft, Received 411.65 C. M. Draft Returned B. A. Note Paid. Draft the said accounts. PROBLEM 67 (Illinois, 1907) In 1895 the Chicago Manufacturing Company purchase real estate costing $12,000.00, erect a building for $30,000.00, and purchase machinery costing $25,000.00. No further purchases are made, and on January 1, 1905, a balance sheet of the company discloses the following condition : Assets Real Estate $ 12,000.00 Buildings 30,000.00 ■ Machinery 25,000.00 Merchandise Inventory 60,000.00 Accounts Receivable 75,000.00 Cash 10,000.00 $212,000.00 Liabilities Capital Stock $150,000.00 Surplus 23,500.00 Reserve for Depreciation: On Buildings 7,500.00 On Machinery 15,000.00 Accounts Payable 16,000.00 $212,000.00 On May 16, 1905, their factory is burned down, a total loss ensuing. Their books of account as on that date show the following ledger balances : Debit Balances Real Estate $ 12,000.00 Buildings 30,000.00 Machinery 25,000.00 Merchandise Inventory, January 1, 1905 60,000.00 Purchases 150,000.00 Labor and Other Factory Cost 60,000.00 General Expenses 45,000.00 Accounts Receivable 73,000.00 Cash 32,000.00 $487,000.00 50 Credit Balances Capital Stock $150,000.00 Surplus 23,500.00 Reserve for Depreciation: On Buildings 7,500.00 On Machinery 15,000.00 Sales (Net) 280,000.00 Accounts Payable 11,000.00 $487,000.00 For the years 1902 and 1904 their books showed a gross profit on manu- facturing averaging 25 per cent, of the net sales. The company, however, only succeeds in obtaining $55,000.00 from the fire insurance companies for merchandise lost. In respect to the buildings and machinery the companies acknowledge that the cost of replacing same would be 10 per cent, higher in 1905 than in 1895, and after taking this fact into consideration and determining what they con- sider fair depreciation they settle these two items as follows : Building $28,- 000.00, machinery $17,500.00. x The company erects a new building costing $40,000.00 and purchases machinery costing $35,000.00, and finding that the value of its real estate is now $24,000.00 it makes book entry to so record it. Prepare cash book and journal entries to properly record all of the above transactions, losses or gains due to fire, actual trading profit from January 1, 1905, to date of fire, and balance sheet after making all above entries. For purposes of this question assume no accounts receivable collected or accounts payable paid. PROBLEM 68 (Florida, 1915) The store and stock of the Diamond Jewelry Company was destroyed by fire on November 1. The safe was opened and books Avere recovered intact. The trial balance taken off was as follows: Cash in Bank $ 1,000.00 Accounts Receivable 10,000.00 Accounts Payable $ 30,000.00 Merchandise Purchases 90,000.00 Furniture and Fixtures 7,500.00 Sales 110,000.00 General Expense 18,000.00 Insurance 1,500.00 Salaries 5,500.00 Real Estate— Store Lot 50,000.00 Store Building 35,000.00 Capital Stock 50,000.00 Surplus 28,500.00 $218,500.00 $218,500.00 The average gross profit as shown by the books and accepted by the insur- ance companies was 40 per cent, of sales. The insurance adjuster agreed to pay 75 per cent, of the book value of furniture and fixtures. 90 per cent, of the book value of the store building, and the entire loss on merchandise stock. Draft journal entries to include the account against the insurance com- panies, and construct final profit and loss account and balance sheet. 51 PROBLEM 69 (Wisconsin, November, 1919) On October 31, 1919, the store of the Good Merchandise Company was destroyed by fire. It was a total loss. The books and records were found to be complete and the trial balance built up as of October 31 was as follows : Accounts Receivable $ 7,000.00 Accounts Payable $ 5.000.00 Cash 2,000.00 Mdse. Inventory, January 1, 1919 15,000.00 Mdse. Purchases 85,000.00 Real Estate 3,000.00 Dividends Paid 4,000.00 Buildings and Fixtures 18,000.00 Furniture and Furnishings 5,000.00 Reserve for Depreciation, Bldgs. and Fix 3,000.00 Reserve for Depreciation, Furn. and Furn 300.00 Unexpired Insurance 2,500.00 Mdse. Sales , 99,000.00 Miscellaneous Income 1,500.00 Clerks' Salaries 5,000.00 Light, Heat and Power 1,000.00 Advertising 2,000.00 Office Salaries 2,500.00 Officers' Salaries 5,000.00 Postage 700.00 Treasury Stock 10,000.00 Taxes 2,500.00 Telephone and Telegrams 150.00 Sundry General Expense 500.00 Capital Stock 50,000.00 Surplus 12,050.00 $170,850.00 $170,850.00 An average gross profit of 33^ per cent, was agreed upon by all parties concerned. Stock, buildings, fixtures and furnishings were insured under the 80 per cent, clause, the building, etc., for $15,000.00 and the stock for $32,000.00. Set- tlement is made on the basis of these facts. You are asked to give : a. The profit or loss due to fire. b. The operating statement for the period ending October 31. PROBLEM 70 The A Company operates four camps and has its property insured under the average clause and also under the 80 per cent, co-insurance clause. The amount of insurance carried is $13,125.00, and a fire loss of $415.69 has oc- curred in Camp No. 1. The sound property valuations are as follows : Camp No. 1 $ 3,022.99 Camp No. 2 10,708.61 Camp No. 3 9,9.53.90 Camp No. 4 14.879.05 Total $38,564.55 The insurance policies carried in the several companies are as follows: 52 Company A $ 1,625.00 B 2.500.00 C 5,000.00 D 2,500.00 E 1,500.00 $13,125.00 You are asked to determine the portion of the loss which the assured con- tributes and to apportion the claim among the five companies, PROBLEM 71 (New York, June, 1914) John Adams lost his stock of merchandise May 1, 1914, through a flood in the Mississippi River. Adams applied to the local Mutual Flood Insurance Society for reimburse- ments, claiming a loss of $5,886.35 on merchandise stock. From the following data ascertain his merchandise inventory : Net profits May 1, 1914, $4,452.91; drawings, $1,598.00; legal expenses, $17.50; interest debit, $313.00; advertising, $14.00; commissions debit, $961.01 ; insurance, $196.23; sales, $81,688.04; inventory December, 1911, $1,568.62; purchases, $55,415.82; labor, productive, $19,499.58; telephone, $416.06; sundry factory expenses, $3,201.92; repairs, $16.00; surplus May 1, 1914, $2,854.91. PROBLEM 72 (Adapted from English Final Examination, May, 1912) The Alpha Manufacturing Company had an authorized capital of $100,- 000.00, divided into 600 "A" shares and 400 "B" shares of $100.00 each, of which 500 "A" and 250 "B" shares were issued and fully paid up. The com- pany's articles provided that the profits should be divided as follows, so far as the directors might decide : 1. In payment of a cumulative dividend of 10 per cent, on the "A" and 20 per cent, on the "B" shares. 2. In payment of a non-cumulative dividend of 15 per cent, on the "B" shares. 3. In payment of a non-cumulative dividend of 7^ per cent, on the "A" shares. 4. In payment of a further dividend pro rata, but so that the dividend on each "B" share should be twice that on each "A" share. The profits for the year 1910 amounted to $45,000.00, and there was an un- distributed balance from 1909 of $17,500.00. The directors decided to pay the dividends under 1, 2 and 3 above, and a further dividend under 4 of ^Yz per cent, on the "A" and 15 per cent, on the "B" shares ; and to place one-half of the balance to Reserve for Contingencies and carry the other half forward to next year. PROBLEM 73 (Wisconsin, 1918) The stockholders of the Farmers' Co-operative Store share the store's earnings in proportion to purchases made during the year, and "dividends" may be withdrawn in trade or in cash. The fiscal year corresponds to the 53 calendar year, but the dividend year runs from March 15 to March l4. a. The following facts are given you with the request that you ascertain the status of the Surplus Account on December 31, 1917, and indicate the dis- position of any ''dividends" which may have been paid out in excess of avail- able surplus: The balance of the Reserve for "Dividends" Account on December 31, 1916, was $2,540.15. This represented the "dividends" which might be with- drawn in cash during the period January 1, 1917, to March 15, 1917. The "dividends" withdrawn in cash during the year 1917 amount to $1,015.37, and those withdrawn in trade during 1917 amount to $24,786.29. In order to reduce trade "dividends" to a cash basis, 20 per cent, is deducted from the selling price of goods so withdrawn and charged back against the sales. The balance of surplus available for dividends on December 31, 1916, was $20,710.43. An examination of the accounts show that "dividends" to the amount of $2,496.63 (cash basis) may be withdrawn between January 1, 1918, and March 14, 1918. During the period January 1, 1917, to March 14, 1917, "dividends" were withdrawn to the amount of $1,720.15, cash basis. b. The sales to members for the year 1917 are $162,280.00 and the net profits are $20,285.00. In your judgment what "dividend" should be declared in trade and in cash for the year 1918? c. Briefly criticise the plan followed by this company in distributing the earnings to the stockholders. PROBLEM 74 (Wisconsin, 1916) Corporation A issues 50 bonds, par value $50,000.00, bearing 5 per cent, interest, payable annually. The bonds are numbered serially, and are to be retired in consecutive groups of ten each year. They are all sold at date of issue for an average price of $950.00. a. Submit, in the form of ledger accounts, all entries required to handle this bond issue, in what you consider the most equitable manner, from date of issue to retirement. b. Corporation B buys bonds Nos. 21 to 40, inclusive, on date of issue, at $950.00 each, and sells Nos. 21 to 30 at the end of two years for $1,000.00 each. The other ten bonds are retired when due. Submit, in the form of ledger accounts, all necessary entries in corpora- tion B's books for handling the matter in what you consider the most equitable manner. PROBLEM 75 (Wisconsin, 1917) On December 15, 1914, the stockholders of the A Corporation authorized an issue of $100,000.00 ten-year 5 per cent. First Mortgage Bonds. These bonds were sold on January 1, 1915, at 95. On January 1, 1916, another duly authorized issue of $100,000.00 twenty-year 6 per cent, bonds was sold at 102. In accordance with the terms of the bond recitals the sinking fund install- ments were to be invested in outside securities, and on January 1. 1916, a portion of the pro rata installment of the first bond issue was used in pur- chasing 100 5>4 per cent, bonds of the X Corporation, at 98. On January 1, 54 1917, the pro rata mstallments were invested as follows: Issue No. 1, 100 6y2 per cent bonds of the T government at 102. Issue No. 2, 50 7 per cent, bonds of the W government at par. Draft the proper entries to record the above transactions, and show the ledger accounts and balances as of January 2, 1917. Interest calculations need not be given. PROBLEM 76 (New York, January, 1914) An investment bond house purchased 10 New Jersey Traction Company first mortgage 5 per cent, bonds at 83^^ ; 10 New Orleans Gas Light and Power Company first mortgage 5 per cent, bonds at 1.04 (accrued interest not to be considered). Prepare the necessary entries to record properly these transactions on the books of the bond house and to facilitate an audit. PROBLEM 77 (New York, June, 1915) The Smith & Jones Manufacturing Company issued $200,000.00 of first mortgage 50-year 5 per cent, sinking fund bonds, which were marketed at 98^ and 1 per cent, commission, and expended the entire proceeds in the erec- tion of their plant. The discount and commission were charged to Unamor- tized Debt, Discount and Expense Account, to be subsequently charged to Profit and Loss, proportionately, during the life of the bonds. Five years later the company was enabled, owing to a disturbance in the financial mar- ket, to purchase $50,000.00 of said bonds for sinking fund account at 95. Pre- pare the necessary journal entries to record correctly the above transactions on the books of the company. PROBLEM 78 (Wisconsin, 1914 and 1915) I. a. A corporation has sold $100,000.00 5 per cent. 20-year first mortgage bonds at a premium of $4,000.00. It also has sold $50,000.00 6 per cent. 10- year second mortgage bonds at 92. Using these facts to illustrate your state- ments, state and explain the several methods of accounting for premium and discount on bonds. b. Assuming that your employer has purchased, as an investment, both the first and second mortgage bonds described in (a), set up proper journal entries covering the purchase thereof. II. A corporation decided to issue and sell bonds to the amount of $100,- 000.00 par value. The denomination of such bonds, $1,000.00 each; term of bonds, fifteen (15) years; interest rate 5 per cent., payable semi-annually. On January 1, 1914, these bonds were sold for $105,411.33, or on a 4^^ per cent, return basis. July 1, 1914, interest was paid amounting to $2.500.(X). a. What entrv should the corporation have made when the bonds were sold? b. What entry should the corporation have made when it paid the $2,500.00 interest referred to above? c. What entry should the purchaser of these bonds have made when he received the first interest payment? d. Sketch the form of a bond ledger which will provide the purchaser of these bonds with a perpetual detail record of this bond transaction. 55 PROBLEM 79 (Florida, 1915) A company purchased a piece of real estate for $100,000.00. The terms of payment agreed upon were $10,000.00 each year thereafter, without interest, until the whole $100,000.00 was paid. At the end of the fourth year, twelve months before the fifth payment was due, the company found itself possessed of considerable available cash, and decided to relieve itself of the liability specified by depositing one amount sufficient to pay the annual installment's as they matured. The bank agreed to pay 5 per cent, per annum on all money deposited for that purpose. What is the single amount which the company must deposit at 5 per cent. to pay the yearly installments as they mature? PROBLEM 80 (Kansas and Missouri, 1915) The present value of an annuity of $1.00 for four periods at 2 per cent, is $3.80772870. What is the value on January 1, 1914, of a 5 per cent, per annum bond issue of $100,000.00, bought on a 4 per cent, per annum basis (semi-annual coupons), due January 1, 1916? Prepare amortization table as follows : Date Total Interest » Income Amortization Book Value Par 2J^% 2% $100,000.00 Jan. 1, 1914 July 1, 1914 Jan. 1, 1915 July 1, 1915 Jan. 1, 1916 Insert values under the various heads to the nearest cent. PROBLEM 81 (Michigan, December, 1915) A contractor proposes to build a bridge to Belle Isle and accept the city's 4 per cent 20-year bonds to the amount of $2,000,000.00 in payinent. He ad- vocates as a means of retiring the bonds the establishment of a toll system on foot passengers and automobiles at the respective rates of 1 and 5 cents each. Assuming the ratio of foot passengers to automobiles to be ten to one, how many of each would be necessary to pay the interest annually and create a fund which, placed at the same rate of interest^ would be sufficient to retire the bonds at maturity? Note: $1.00 compounded at 4 per cent, for 20 years==2.191 12314. PROBLEM 82 The X Company is to be formed with a total capitalization of $3,300,000.00 for the purpose of acquiring the properties of three companies — A, B and C. You have been called upon to work out various bases of consolidation from the facts which they submit to you. The average net assets and the average annual net profits of each company for the past five years are as follows : ABC Average Net Assets $500,000.00 $1,000,000.00 $180,000.00 Average Net Profits 53,000.00 93,000.00 32,400.00 56 Upon inquiry you find that the average net profit was obtained from the following average operating statements of the three companies: ABC Sales $600,000.00 $750,000.00 $200,000.00 Cost of Materials Used $300,000.00 $330,000.00 $ 80,000.00 Productive Labor : 110,000.00 180,000.00 34,900.00 Heat, Light and Power 5,000.00 6,000.00 3,000.00 Depreciation of Equipment 10,000.00 8,000.00 5,000.00 Repairs to Equipment 7,500.00 5,000.00 5,000.00 Property Taxes 2,000.00 2,500.00 1,000.00 Sundry Factory Expenses 5,500.00 5,000.00 2,000.00 Total Factory Cost $440,000.00 $536,500.00 $130,900.00 Gross Manufacturing Profit $160,000.00 $213,500.00 $69,100.00 Selling Expenses 60,000.00 90,000.00 15,000.00 • ^ Trading Profit $100,000.00 $123,000.00 $ 54,100.00 Office Salaries 20,000.00 25,000.00 6,500.00 Office Supplies 2,000.00 3,000.00 500.00 Sundry Office Expense 8,000.00 10,000.00 4,800.00 Net Operating Profit $ 60,000.00 $ 60,000.00 $ 32,400.00 Interest Paid $ 5,000.00 $ 1,000.00 $ 1,000.00 Discount on Sales 12,000.00 6,000.00 2,000.00 Interest Received 500.00 750.00 1,000.00 Discount on Purchases 8,500.00 8,250.00 2,000.00 Anticipated Profits on Contracts 5,000.00 Profit on Sale of Stocks 1,000.00 26,000.00 Net Profits ."...$ 53,000.00 $ 93,000.00 $ 32,400.00 PROBLEM 83 (Illinois, May, 1914) Assume a scheme was on foot fpr the consolidation of six competitive man- ufacturing companies engaged in the same line of business, and that you were invited to formulate a scheme for the valuation of the good will and assets of the respective companies that would be fair and equitable to all parties. Outline generally the plan you would recommend, dealing specifically and separately with (a) good will ; (b) plant and equipment ; (c) inventories of raw material, work in process and finished stock, respectively; and (d) ac- counts and bills receivable. PROBLEM 84 (Wisconsin, 1915) In a report upon a proposed amalgamation of two companies, state how you would treat the following points in arriving at the earning power of each concern. Give reasons for your treatment: (a) Anticipated profits on contracts in process. (b) Interest paid on borrowed capital. (c) Insurance of any description. (d) Wages paid general workmen. (e) Salaries paid officers and directors. (f) Depreciation of plant and equipment. 67 (g) Bad debt reserves. (h) Repairs, renewals and replacement of plant and equipment. (i) Taxes. (j) Audit and legal fees. PROBLEM 85 (Wisconsin, 1918) The directors of the Charles Manufacturing Company decide to change their plan of capitalization by retiring their common stock and issuing pre- ferred stock and new common stock in place of it. On December 31, 1917, their books showed $1,000,000.00 common stock and $300,000.00 surplus. The new plan offered each common stockholder 1.3 shares of preferred stock and 1 share of new common stock for each share of old common stock, fractional shares amounting to $6,400 to be redeemable in cash. Amendments to the articles of incorporation were duly made providing an authorized amount of $1,500,000.00 of preferred stock and $2,000,000.00 of common stock. On April 1 all exchanges had been completed, with the following exceptions : Unissued common stock, 1,000 shares; unissued preferred stock, 1,300 shares; frac- tional shares, $300.00. The par value of each kind of stock is $1(J0.00 per share. Draft the necessary journal entry or entries to record the above changes. PROBLEM 86 (Illinois, May, 1913) In making up a consolidated balance sheet of a holding or parent company and two subsidiary companies, where in case of one of the subsidiary com- panies its entire capital stock has been acquired at less than par, and in the case of the other at a substantial premium, how would you deal with such discount and premium, respectively, in the consolidated balance sheet? In the event that all the stock of the subsidiary companies was not owned by the parent company, how should such proportions of said stock belonging to the minority stockholders, together with the proportion of surplus apper- taining thereto, be stated in the balance sheet? PROBLEM 87 (Illinois, May, 1913) A parent company holding notes receivable from a subsidiary company to the extent of $100,000.00 indorses and discounts said notes with its bankers, thus creating a contingent liability thereunder. In preparing a consolidated balance sheet of the two companies, state how and where the liability would appear. PROBLEM 88 (New York, June, 1915) Two concerns failed, owing each other money, the amounts of which were included in their respective Accounts Payable accounts. A summary balance sheet of X, which is accepted as correct, is as follows: 58 balance Sheet o( Firm X Due from Y $ 10,000.00 Due to Y $ 40,000.00 All other Assets 180,000.00 All other Liabilities 200,000.00 Deficit 50,000.00 $240,000.00 $240,000.00 A summary balance sheet of Y, which is accepted as correct, is as follows : Balance Sheet of Firm Y Due from X $ 40,000.00 Due to X $ 10,000.00 All other Assets 160,000.00 All other Liabilities 270,000.00 Deficit 80,000.00 $280,000.00 $280,000.00 The court holds that it is unfair to other creditors to allow such firms to strike a balance between their respective accounts and then to settle with the outside creditors on a percentage basis. Accordingly, it is necessary to obtain the "ratio of solvency," i. e., the percentage (how many cents on the dollar) each concern will be able to pay on the basis of the respective balance sheets. Determine this "ratio of solvency" for each firm. PROBLEM 89 (Wisconsin, 1914) The balance sheet of the Richard Rowe Manufacturing Company on April 1, 1913, was as follows : Cash $ 5,000.00 Notes Payable $ 30,000.00 Notes Receivable 20,000.00 Accounts Payable 10,000.00 Accounts Receivable 50,000.00 Mortgage on Real Estate 10,000.00 Inv. Raw Materials 40,000.00 Capital Stock 300,000.00 Inv. Jobs in Progress 25,000.00 Surplus 5,000.00 Buildings, Plant & Machinery. 120,000.00 Real Estate Holdings 75,000.00 Good Will 20,000.00 $355,000.00 $355,000.00 April 1, 1914, the creditors forced the company into bankruptcy and you have been employed by the receiver to prepare : (a) A comparative statement of the book values of the assets and liabili- ties as on April 1, of both years, showing the changes in value which led to bankruptcy. This statement to be accompanied with your comments as to changes in values. (b) A statement of affairs and deficiency account. (c) A statement as to the approximate dividends the creditors may ex- pect in settlement of their claims. You obtain the following facts from the books and other sources of infor- mation as to the condition of Richard Rowe Manufacturing Company on April 1, 1914. The capital stock has been reduced to $200,000.00. During the past year new machinery amounting to $20,000.00 was pur- chased on the installment basis, $5,000.00 having been paid on installments to date. The accounts receivable total $60,000.00, of which $20,000.00 is in good accounts, $20,000.00 is in doubtful accounts expected to realize $10,000.00, and the remainder is considered worthless. 59 A loan of $15,000.00 was obtained from friends by giving a mortgage on certain real estate, the book value of which is $25,000.00. Other notes payable to the amount of $25,C)00.00 are outstanding, $10,- 000.00 of which is fully secured by a mortgage on certain real estate, the book value of which is $15,000.00. The Notes Receivable Account stands on the books at $5,000.00, but notes receivable and not yet due to the amount of $10,000.00 have been discounted. An examination of these discounted notes shows that one of $1,000.00 will be dishonored. The $5,000.00 of notes receivable on the books will realize $1,000.00. Orders whose selling prices total $50,000.00 are on the way through the factory. The cost records show that $20,000.00 has already been spent upon such orders and it is estimated that $35,000.00 will have to be spent to com- plete them ($5,000.00 of materials on hand are included in the $35,000.00 estimate). There is $500.00 cash on hand and on deposit. The trade accounts payable amount to $90,000.00. The inventory of raw materials is $15,000.00. Accrued wages of the past month total $500.00. Taxes amounting to $2,000.00 are unpaid. The value of the buildings, plant and old machinery (book value $120,- 000.00) is appraised at $30,000.00. The market value of the unmortgaged real estate is $5,000.00. The real estate mortgaged to secure the $15,000.00 loan will only meet that claim and the remaining mortgaged real estate will bring its book value in the open market. Prepare the statements for the receiver in proper form. PROBLEM 90 (Wisconsin, 1919) (a) State the use for which each of the following kinds of charts are best adapted in plotting business statistics : Line or curve chart Bar chart Circle chart Area chart (b) On the cross section paper given herewith, plot the following sta- tistics : 1. Productive and Non-Productive Labor: Productive Labor Non-Productive Labor 1918 1919 1918 1919 January $ 4,500.00 $ 8,000.00 $ 1,750.00 $4,000.00 February 5,000.00 10,000.00 1,800.00 5,500.00 March 4,000.00 10,500.00 1,800.00 5,500.00 2. Sales: Total Sales Sales Quota Brown Jones Brown Jones January $10,000.00 $7,500.00 $12,000.00 .$7,000.00 February 12,750.00 9,000.00 13,000.00 7,500.00 March 15,000.00 8,000.00 13,500.00 9,000.00 (c) State any additional information necessary for proper interpretation of the charts which you have just prepared. 60 PART II 1. (a) What is meant by a "classification of accounts"? (b) What different plans or bases are there for classifying accounts? (c) Illustrate. (d) Show by chart or outline the various divisions and subdivisions of all asset, liability, income and expenditure accounts. (e) W'hat are the advantages obtained through numbering accounts? (f) Name and briefly describe two methods of numbering or lettering accounts. (Wisconsin, 1914.) 2. (a) Define and distinguish between operating and non-operating in- come and expenses. (b) State the several classes of non-operating income and expense and give illustrations of each. (c) Distinguish between operating expenses and maintenance ex- penses. 3. Give a typical operating statement for a small mercantile concern, using your own accounts and amounts. 4. Give the items which are to be found in the operating statement of a manufacturing concern. 5. Mention some of the points to be considered in the interpretation of the revenue account. 6. Discuss three methods of dealing with discounts on purchases and dis- counts on sales. 7. What form of the revenue account is used in the columns of newspa- pers and financial publications? 8. Give a revenue account for each divisional activity of a business with which you are acquainted. 9. Define and distinguish between a balance sheet, a financial statement, and a statement of assets and liabilities. 10. Name and describe the various forms of balance sheets and financial statements. 11. State the advantages and disadvantages of the working sheet. 12. What is meant by the double account form of balance sheet? Should not the double account form of balance sheet be applied to all commercial enterprises? 13. Name two general methods of arranging the items in balance sheets. Explain when each of them should be followed. 14. What are the advantages of comparative balance sheets? 15. Build up a typical financial statement briefly explaining each of the items mentioned therein. 16. Define depreciation. 17. Is depreciation an operating charge or a division of the net profits? 18. Explain how depreciation is distinct fi-om fluctuation, appreciation and maintenance. 19. What are the factors to be considered in determining the rate of de- preciation? 61 20. How should depreciation be recorded upon the books of account? 21. Explain how a Reserve for Depreciation Account and a Depreciation Fund may be set upon the books for the writing off and replacement of a given asset. Use your own figures to illustrate your answer. 22. Assume that a Reserve for Depreciation Account has been accumu- lated upon the books amounting to $1,000.00, and that a Depreciation Fund has been accumulated of a like amount, both for the purpose of writing off and replacing an asset of $1,000.00. When this asset of $1,000.00 is discarded, the scrap value is found to be $100.00 and an asset costing $1,500.00 is purchased. Give entries for these facts upon the books of account, and show exactly how the Reserve for Depreciation Account, the Depreciation Fund and the Asset Account stand when the transactions are completed. 23. The replacement value of machinery and equipment is given as $225,- 000.00 in an appraisal recently made for a company ; the sound value as $190,- 000.00. The book value of the machinery and equipment is $240,000.00, and the Reserve for Depreciation, Machinery and Equipment Account is credited with $49,000.00. (a) Give the necessary journal entry or entries which Avill record the proper facts upon the ledger. (b) State the practice which the company evidently has followed in recording the purchases of new equipment. (c) Outline a system for having data available in compact form rela- tive to the original cost, repair, replacement and depreciation of equipment, and state the relationship of such system to the gen- eral financial accounts. (Wisconsin, 1918.) 24 A mill sells a lot of its old machinery for $7,300.00 and credits the amount to "Repairs" Account. State (a) your opinion thereof, and (b) the reasons supporting your answer. (Massachusetts, 1911.) 25. (a) State the basis for determining the depreciation charge under each of the following methods : 1. Fixed Proportion. 2. Fixed Percentage. 3. Sum of Year Digits. 4. Composite Life. 5. Annuity. 6. Sinking Fund. (b) State whether a constant, an increasing, or a decreasing depre- ciation charge is obtained from the use of each of the six meth- ods given under (a). (Wisconsin, 1917.) 26. A water company finds it necessary to renew a line of service mains which cost $50,000.00 seven years ago. Double capacity is now advisable, for which the outlay will be $80,000.00. Depreciation at 10 per cent, per annum has been regularly charged on the first installation. Draft the necessarv journal entries to meet the essential facts. (Illinois. May, 1912.) 27. Define Good Will. 28. When should Good Will be considered? 29. Discuss the points to be considered in placing a valuation upon Good Will. 30. Explain the meaning of the word "Purchase" as applied to Good Will. 31. Should Good Will be kept upon the ledger as a fixed account or should it be written down each year? C>2 32. At the time of taking inventories and closing its accounts preparatory to ascertaining its financial condition, a corporation has obligations under contracts to pay for raw materials to arrive on which no payments have been made. At the time of closing the accounts the prices of the contracts are in excess of the market prices for deliveries corresponding with the contracts. State: (a) how this condition should be reported in the accounts and state- ment of financial condition, and (b) your reasons. (Massachusetts, 1911.) 33. The manager of a branch store received instructions from his head office to forward the inventory of December 31, 1917, at cost and selling prices. He asks you to prepare the statement, since past reports have been based on sales ofily. These prices include a profit of 20 per cent. The data with which he supplies you are as follows : Inventory, January 4. 1918. $98,000.00. Merchandise received December 31. 1917. to January 4, 1918, $1,000.00. Sales for this period, $1,200.00. 34. In examining the business to determine and show separately the profits for two years ending December 31, 1916, it is found that an item amounting to $500.00 has been omitted from the inventory of December 30, 1914, that an error has been made in the footing of the inventory of December 31, 1915, by which that inventory was overstated to the amount of $250.00, and that in pricing the inventory of December 31. 1916. an error was m^de by which that inventory was understated to the amount of $1,000.00. State fullv the effect of these errors on the profits of each of the two years. (Louisiana, 1917.) 35. It is generally conceded that merchandise inventories should be cal- culated on "cost" prices, but in practice there are found many differences in the method of determining the cost price. State whether or not the following items should be regarded in arriving at this cost, giving your reason in each case: Cash Discounts. Trade Discounts. Freight Inward. Freight Outward. Rebates and premiums, such as are found in connection with the tobacco business. Draying and handling (inward V Packing and draying (outwardV (Florida. 1915.) 36. (a) Upon what theory is the maxim based that inventories should be valued at cost or market value, whichever is lower at the date of the balance sheet ; and under what circumstances, if any. is it permissible to value raw materials at market prices for bal- ance sheet purposes, where said market prices are in excess of cost owing to a gradual or sudden rise in prices after the ma- terials were purchased? (b) Assuming an automobile manufacturing company made a con- tract for rubber tires at $35.00 each with the understanding that it was to receive a rebate of $5.00 a tire if the purchases exceeded 40,000 tires, and that at the end of the season when the accounts were made up. say on July 31. it was found that 45,000 tires had been purchased and a claim for the rebates were thereupon made and a check in settlement was received on August 31 following. On July 31 there were 15.000 tires on hand. At what price should they be valued for mventor}' i63 purposes, and how should the rebate be dealt with in the ac- counts for the year ending- July 31? (Illinois, 1914.) 2>7. Define a partnership. With what phases of the partnership organiza- tion and accounts is the accountant most concerned? 38. State the accounting clauses which should be in partnership agree- ments. 39. Why is it necessary for partners to have Investment (or Capital) and Drawing (or Personal) accounts? Show the relationship which exists between them. 40. State and explain at least three methods of dividing the profits or losses of a partnership. 41. Explain why interest on investment is frequently allowed in part- nerships. 42. .Show the eflfect of not allowing for interest on investments in part- nerships. 43. If capital investments are equal but profits and losses are divided un- equally, and if interest on investment is not allowed, which partner loses? Illustrate your answer with figures. 44. If profits are divided equally, but capital investments are unequal, and if interest on investment is not allowed, which partner loses? Illustrate your answer with figures. 45. If capital investments are equal, and profits and losses are divided equally, what is the eflfect of allowing for interest on investment? Illustrate your answer with figures. 46. Explain how interest on investment may be credited directly to the partners' accounts rather than be thrown into an interest account, closed into profit and loss, and then transferred to the partners' accounts. 47. Explain at least three methods of admitting a new partner. Illustrate your answer with figures. 48. When a partnership is dissolved, how are assets distributed? 49. Explain how profits or losses resulting from a partnership dissolution should be borne by several partners. 50. The following is a trial balance of the general ledger of a partnership in which the profits are shared equally at the end of the first year of its existence : Building and Equipment $6,000.00 Merchandise and Materials 7,000.00 Accounts Receivable 4,000.00 Profit and Loss Account 5,700.00 John Smith, Drawing Account 2,500.00 George Jones, Drawing Account 1,300.00 Arthur Morris, Drawing Account 2,000.00 John Smith, Capital Account $10,000.00 George Jones, Capital Account 8,500.00 Arthur Morris, Capital Account 6,500.00 Accounts Payable 3.500.00 The firm decided to sell the business out and to dissolve the partnership and procured a purchaser who offered the sum of $50,000.00 for the business, including good will, etc. The offer was ultimately accepted on the under- standing that the purchaser would assume all existing liabilities, which he agreed to do, and the sale was forthwith consummated. State how the proceeds of the sale should be apportioned among the part- 64 ners, showing the amount each would receive. (Illinois, May, 1914.) 51. A corporation manufacturing- explosives is compelled to pay exorbi- tant rates for a very limited amount of insurance, and in consequence was obliged to install an automatic sprinkler system at a cost of $75,000.00. This additional fire protection enabled them to secure a full line of insurance, though in mutual companies, and at a much lower rate than was obtainable prior to such installation. At the end of the fiscal year the company received dividends from these mutual insurance companies aggregating $2,000.00. To what account should the cost of the sprinkler system be charged and to what account should this dividend be credited? State your reasons fully. (Louisi- ana, 1917.) 52. A clothing store carries fire insurance to the amount of $30,000.00 on a stock of $50,000.00. The policies contain the 80 per cent, co-insurance clause. State (a) the amount collectible if a partial loss of $15,000.00 were suffered, and (b) the amount collectible if a total loss occurred. (c) If you believe that a merchant should carry one hundred per cent, insurance protection upon his property, draft the entry or entries to record the annual insurance charge. Assume that it is only necessary for him to carry 80 per cent, in outside companies to take advantage of the co-insurance clause. (Wisconsin, 1918.) 53. A fire in a manufacturing concern resulted in a loss on machinery $5,000.00, merchandise (raw material) $10,000.00, manufactured goods $25,- 000.00. which amount of $40,000.00 was agreed on and paid by the insurance companies. Give the entries necessary to record properly the above transac- tions on the books of the concern. (New York, 1914.) 54. The Insurance Account as kept upon the books of the Good Merchan- dise Company is charged with the premiums paid on the following kinds of insurance: Fire Insurance on Buildings. Merchandise and Fixtures; Sprinkler Leakage ; Employer's Guarantee Bond ; Safe Burglary : Robbery and Hold Up ; Automobile Fire. Theft and Liability ; General Liability ; Ele- vator Liability ; Steam Boiler ; Tornado ; Plate Glass ; Use and Occupancy ; Insurance on Officers' Lives. You are asked to indicate the proper treatment to be given each of the a1)Ove items; i. e.. indicate the name of the account or accounts to which they should be charged, give the adjusting entries, state the section of the revenue account or income statement in w^hich each would appear, etc. (Wisconsin, November, 1919.) 55. The partnership "Black & White" has insured the lives of its partners for equal amounts. The policies are payable to the firm. Premiums have been paid for five years, (a) Show the annual entries for each of the five years. At the end of the fifth year "White" dies, (b) What would be the proper entries to make upon receipt of the amount of the policy? (Wisconsin, 1915.) 56. Should a corporation borrow money? What percentage of the capital employed by a corporation is usually borrowed money? 57. Explain why a corporation should borrow money, illustrating it, using your own figures. 58. What are the three general sources from which a corporation may borrow money? Explain the types of the security given according to the sources of the funds obtained. 59. Define a mortgage bond ; a debenture bond : an income bond ; a col- lateral trust bond. 60. The stockholders of a corporation authorize an issue of $1,000,000.00 65 of bonds; $500,000.00 of these bonds, duly registered and certified by the trus- tee, v/ere returned to the corporation and disposed of as follows : The corporation sold $200,000.00 for cash, pledged $200,000.00 as collateral security for the payment of its notes, and retained $100,000.00. How should this issue of bonds appear on the balance sheet of the cor- poration? (New York, January, 1914.) 61. What is a sinking fund? 62. Assuming that a corporation has issued $100,000.00 of ten-year first mortgage bonds, and that the trust deed provides that there shall be set aside annually an amount sufficient to redeem the bonds at maturity, give the necessary journal entries attending the issuance of the bonds, the' annual en- tries, and the final entries when the bonds are redeemed. 63. (a) Compare the serial plan of bond redemption with the sinking fund method. Which is preferable and why? (b) A municipality has built a public building from the proceeds of a bond issue. Should the municipality write off depreciation on the building and at the same time also create a sinking fund? (c) State the various ways of calculating contributions to a sinking fund. (d) How may sinking funds be invested? (e) How may a sinking fund appear upon a balance sheet? (f) Discuss the disposition of a sinking fund reserve account which is no longer necessary. (g) Are sinking fund reserve appropriations a satisfactory protection to the bondholder? (Wisconsin, 1916.) 64. (a) The present tendency of industrial corporations seems to be to issue preferred stock rather than bonds. As evidence of your familiarity with this tendency, you are asked to detail the more important of typical prefer- ential and protective features of preferred stocks now being marketed. Enu- merate some of the reasons why the public would buy such preferred stock rather than bonds. (b) Compare the sinking fund provisions of typical preferred stock issues with the sinking fund provisions of typical bond issues as to entries to be made : 1. When the sinking fund is set up. 2. When the purpose of creating the sinking fund has been at- tained. 3. When any balances remain in the sinking fund or allied ac- counts. (Wisconsin, November, 1919.) 65. What is the distinction between appropriated and free surplus? 66. Is discount on bonds a capital or a revenue charge? Is premium on bonds a credit to capital or to revenue? 67. What does the Interstate Commerce Commission require in connec- tion with the recording and the financial presentation of premiums and dis- counts on bonds, and the premiums and discounts on stocks? State the theo- retic reason for the difference, if any, in the handling of these two classes of facts. (New York, January, 1914.) 68. In auditing the books of a corporation, you discover that a portion of its capital stock has been sold at a premium and the premium utilized for the payment of dividends. (a) What criticism of this, if any, would you make in your report? 66 (b) Had this company acquired treasury stock at par and sold it at a premium, utilizing the premium for the payment of divi- dends, would your criticism be the same? Why? (Ohio, 1918.) 69. Define amortization. State three methods of accounting for the pre- mium or discount on stocks and bonds. Which is preferable, and why? 70. A firm purchased ten $1,000.00 bonds at 97>4, due January 1, 1915, bearing 5 per cent, interest, payable semi-annually. What procedure would you adopt to care for the discount at maturity? (New York, January, 1914.) 71. A corporation decided to issue and sell bonds to the amount of $100,- 000.00 par value. The denomination of such bonds, $1,000.00 each; terms of bonds, fifteen (15) years; interest rate 5 per cent, payable semi-annually. On January 1, 1914, these bonds were sold for $105,411.33, or on a 4>4 per cent, return basis. July 1, 1914, interest was paid amounting to $2,500.00. (a) What entry should the corporation have made when the bonds were sold? (b) What entry should the corporation have made when it paid the $2,500.00 interest referred to above? (c) What entry should the purchaser of these bonds have made when he received the first interest payment? (d) Sketch the form of a bond ledger which will provide the pur- chaser of these bonds with a perpetual detail record of this bond transaction. (Wisconsin, 1915.) 72. Define capitalization. i 7Z. What bases are used in det^ermining the capitalization of a corpora- tion? 74. Discuss in detail the earning power basis for capitalizing corpora- tions. 75. Is there a distinction between watered stock and stock covered by the earning power but not by physical assets? 76. Discuss the subject of consolidation of corporations. 77 . A financing corporation which had paid $450,000.00 for six patents of equal value sold one of these patents during the first year of its existence and received as the consideration for the sale 1,500 shares of preferred stock (par value $100.00) in a subsidiary company organized for the purpose of working the patent. During the second year of its life the financing corporation sold the 1,500 shares of preferred stock for $100,000.00. State how you would treat the accounts in respect to these two transactions in the financing cor- poration at the end of the first and second years, respectively. (North Da- kota, 1918.) 78. In the general ledger of a corporation is a controlling account for the Accounts Receivable; the individual accounts relating thereto being kept in an Accounts Receivable ledger. The balance of the controlling account is $550,000.00. The total of the balances at the debit of the individual accounts is $590,000.00; the total of the balances at the credit of the individual accounts is $40,000.00. The corporation issues to banks a balance sheet showing its ac- counts receivable as $550,000.00. State (a) whether you approve of same; (b) if you differ, what you would enter in the balance sheet; and (c) your reasons. (Massachusetts, 1911.) 79. The amount of outstanding accounts receivable by a selling house for account of a consignor, whose account is unguaranteed, is $762,000.00; the 67 selling house had advanced thereon to the consignor $80,000.00. The con- signor shows in his balance sheet : "Outstanding accounts receivable, $682,- 000.00," as embracing the above. State (a) your opinion of the propriety thereof, and, if you would treat items differently, (b) how and (c) why. (Massachusetts, 1911.) 80. Should a manufacturing concern charge its goods sent to branch houses : (1) At selling price, or (2) At the prevailing wholesale price of the same or similar goods in the open market, or (3) At cost? State advantages and disadvantages of each method. (Colorado, 1914.) 81. (a) Explain the treatment you would give the following in the books of account : (b) State the counterbalancing or oflfsetting accounts. (c) Explain how they would appear in the balance sheet : (1) Note receivable discounted. (2) Actions pending against your client. (3) Cumulative preferred dividends payable. (4) Liability as guarantor for third parties. (5) Liability as accommodation signer on note. (6) Contingent liabilities under contracts. (7) Unpaid balances on contracts not yet fulfilled. (8) Collateral in possession of your banker to secure payment of a note. (Wisconsin, 1915.) 82. You are engaged to verify the financial statement of a corporation after the books and accounts have been closed. Your investigation discloses the fact that the following items have not been provided for on the books and accounts at the closing date : 1. Unexpired insurance premiums. 2. Prepaid interest on notes payable. 3. Depreciation on buildings. 4. Excess of appraisal over book value of machinery. 5. Sinking fund reserve for payment of bonds called for by the trust deed. 6. Taxes for current year not payable until following year. 7. Capital stock issued in payment of patent rights acquired. 8. Cash surrender value of life insurance. 9. Accounts payable for merchandise in transit. 10. Cash discount on customers' accounts receivable. Prepare the journal entries necessary to adjust the accounts in conformity with the above facts, using arbitrary figures and explaining the reasons for your journal entries. (Missouri, 1916.) . 83. State your opinion on the use of diagrams, charts or graphs, giving at least three methods of showing diagrammatically the earnings and ex- penses of a mercantile or manufacturing concern. State how you would prepare curves showing the monthly results accom- 68 pHshed, and what particular sets of figures you would use as conveying the most important information, using the following example: Gross Sales $320,000.00 per annum Cost of Goods Sold 260,000.00 ■ Expenses of Handling 30,000.00 " Expenses, Overhead 10,000.00 " (Florida, 1915.) 84. A manufacturer finds that during three months his goods have cost per cent, on the sale price : Raw Material 30 Wages 20 Rent, etc 05 Fuel 10 General Expenses 15 80 What should he add to his selling price to obtain the same profit if the following advances take place? Coal 50 per cent, advance Material 5 per cent, advance Wages lYi per cent, advance (Illinois, 1909.) 85. A coal mine is operated under a twenty-year lease at a royalty of 10 cents per ton, but for which a minimum payment of $5,000.00 per annum must be made. After the third year an arrangement was effected between the lessor company and the lessee company whereby the minimum royalties were to apply, if in excess of the tonnage mined, against future operations. In the first year 25,000 tons were mined; in the second, 26,500; in the third, 24,600; in the fourth, 31,000; and in the fifth. 30,500 tons. Journalize these transac- tions and state how the respective royalties paid would affect the Profit and Loss Account and balance sheet. (Washington, 1917.) 86. John Barton leases a coal mine from' Thomas Sutton upon the fol- lowing terms : At a royalty of 25 cents a ton as rental, with an annual mini- mum of $500.00 — the privilege being given to recover "dead" or "unearned" minimum rent within a period of 20 years. Draft the journal entries relative to the following output for five years : 1st year 1,000 tons 2nd year 2,500 tons 3rd year 4,500 tons 4th year 1,800 tons (strike) 5th year 3,800 tons (Illinois, 1912.) 87. The Good Music Company sells pianos on the installment basis. On January 2, 1914, Jones purchased a piano from' the company for $375, to be paid for as follows : $25.00 down and the balance in quarterly installments of $50.00 each, bill of sale to be given on date of final payment. The piano cost the company $125.00. The four installments for 1914 were duly received, the last one having been paid on December 31st. (a) Set up the proper ledger accounts covering this sale and the pay- ments thereon. (b) Give the journal entry (at the close of the year) by which the year will be credited with its proper proportion of the profit of the transaction. (c) Sketch the ruling of a book or books which might be used to facili- tate the handling of installment sales and collections. (Wis- consin, 1915.) 69 88. The authorized capital stock of a corporation is $500,000.00, divided into 5,000 shares, par value $100.00. Of this amount $400,000.00 has been sub- scribed and paid for in full. The corporation purchases ten shares of a dissat- isfied stockholder for $75.00 a share, and five other stockholders each donate five shares to the company. Five shares of the purchased stock and all of the donated stock are sold for $50.00 a share. (a) Draft proper entries and show the ledger accounts and balances. (b) How would the balances of the accounts in (a) appear in a bal- ance sheet? (c) Give the entries and show the ledger accounts and balances if the capital stock were of no specified par value, but 5,000 shares had been issued at $80.00 and the other conditions re- main as stated in the first paragraph. (d) How would the balances of the accounts in (c) appear in a bal- ance sheet? (Wisconsin, 1917.) 89. A corporation's profits for the year ended December 31, 1912, amount to $451,000.00. The by-laws require a reserve equal to 10 per cent, of any dividend paid to the common stockholders, and any surplus remaining after such dividend is paid is also to be applied to the reserve until such reserve ac- count amounts to $250,000.00. The reserve on December 31, 1911, was $156,- 020.00. The capital is $2,000,000.00 — one-half cumulative preference 5 per cent, and one half common, all fully paid. On December 31, 1912, the preferred dividend is two and one-half years in arrears. On December 31, 1911, Profit and Loss Account was in debit $202,- 000.00. Set out your treatment of the profit for 1912 with a few concise com- ments. (Colorado, 1914.) 90. The books of a corporation (with a capital stock of $800,000.00) at the beginning of the last fiscal year showed a surplus of $28,450.00. During your examination, immediately subsequent to the close of the fiscal year, you learn the following facts : That the net profit on goods delivered to customers during the year amounted to $115,350.00. That prior to, and at the close of the year, the company owned bona fide contracts for the delivery of goods during the next few months. That the company had purchased a sufficient quantity of merchandise in order to fill these contracts. That the company, after making due allowances for all production cost, expenses incidental to the delivery of the contract goods, cost of selling, etc., had arrived at a net profit amounting to $51,120, which was carried to Profit and Loss Account. This macie a total net balance of $166,470.00. That there was declared and paid a dividend of 20 per cent (or $160,000.00) and that $6,470.00 was carried to Surplus Account. Would you consider it necessary to call particular attention to this matter in your report to the stockholders? State your reasons. (Wisconsin, 1914.) 91. A corporation has two classes of stock fully issued: $5,000,000.00 7 per cent, cumulative preferred as to dividend and assets; 10 per cent, divi- dends are in arrears. $12,000,000.00 common, on which no dividend has been paid. The corporation proposes to retire by purchase $2,000,000.00 common. What would be the effect, if any, on the interests of the preferred stock- holders? Give reasons supporting your answer. (Massachusetts, 1911.) 70 92. The Jones Manufacturing Company, needing a larger building for its increasing business, finds a property desirable in every respect excepting that the building is much larger than is necessary. They lease the property at an annual rental of $18,000.00, after considering that they can probably sub- lease part of the building. Owing to the desirability of the property and other favorable conditions they execute a sub-lease for one-half of the building at an annual rental of $18,000.00. How would you treat these facts in compiling the annual income statement of the Jones Manufacturing Company. (Wis- consin, 1915.) 93. A manufacturing company ofFers premiums costing 75 cents each to its customers on the return of 100 of its wrappers. The company invested $5,000.00 in premiums and sold $500,000.00 units of the commodity during the year. You find that 300,000 of the wrappers have been redeemed, while it is estimated that 20 per cent, will not be presented for redemption. At the end of the year how would you treat this matter in the preparation of the revenue account and balance sheet? (Wisconsin, 1915.) 71 SEP 80 l>tlbJ 7W pfcco to 20m-ll. YE 05688 f UNIVERSITY OF CALIFORNIA LIBRARY ^ 'a;,.-