H F uc-NRL-H;, ^C 14 47^ EXERCISES IN ACCOUNTING (Intermediate) CHARLES F. RITTENHOUSE, B. C. S., C. P. A. AND PHILIP F.CLAPP, B.C.S.,C.P.A. Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/exercisesinaccouOOrittrich EXERCISES IN ACCOUNTING (Intermediate) CHARLES F. RITTENHOUSE, B. C. S., C. P. A. AND PHILIP F. CLAPP, B. C. S., C. P. A. . \ ASSOCIATION PRESS 347 Madison Avenue, New York 1918 Copyright, 1917 BY Frederick AI. PIarris ^ INDEX PAGE Model Exercises 1 PART I : Single Entry— Problems 1 to 8 36 PART II : Partnership— Problems 9 to 32 43 PART III: Corporations Section 1 — General — Problems 33 to 52 49 ' Section 2 — Changing a Partnership to a Corporation — Problems 53 to 57 55 Section 3 — Consolidations — Problems 58 to 62 58 Section 4 — Sinking Funds — Problems 63 to 65 61 Section 5 — Receiverships and Bankruptcy — Problems 66 to 70 62 PART IV : Financial Statements — Problems 71 to 82 66 PART V : Surplus and Reserve Accounts — Problems 83 to 98 78 PART VI : Consignments, Branches and Selling Agencies — Problems 99 to 115 84 PART VII : ^Manufacturing Accounts — Problems 116 to 127 95 PART VIII: Miscellaneous Section 1 — Practical Accounting — Problems 128 to 145 . 110 Section 2 — Theorv of Accounts — Problems 146 to 168 116 4 ' 2033 MODEL EXERCISE B. John G. Clarke Trial Balance — December 31, 1916 Cash $ 5,627.00 Accounts Receivable 229,296.00 Notes Receivable 22,600.00 Inventory December 31, 1915 (cost) 215,275.00 Accrued Interest on Notes Receivable 654.00 Real Estate (book value) 161,540.00 Store Fixtures (book value) 19,416.00 Office Furniture and Fixtures (book value) 2,760.00 Prepaid Interest on Discounted Notes 1,350.00 Catalogs and Advertising Matter on Hand 956.00 Prepaid Taxes 897.00 Prepaid Insurance 175.00 Accounts Payable $89,264.00 Notes Payable 50,000.00 Mortgage Payable 70,000.00 Accrued Interest on Notes Payable 560.00 Accrued Interest on Mortgage Payable 700.00 John G. Clarke, Capital Account 370,000.00 John G. Clarke, Drawings Account 15,677.00 GrOvSs Sales 802,071.00 Sales Returns and Allowances 17.200.00 Gross Purchases 599,025.00 Purchase Returns and Allowances 8,672.00 Freight and Hauling Inward 4,130.00 Advertising 19,607.00 Store Clerks' Salaries 20,460.00 Traveling Salesmen's Salaries 18,643.00 Traveling Expenses 13,721.00 Store Supplies Used 1,416.00 Freight and Hauling Outward 2,160.00 Office Clerks' Salaries 7,482.00 Office Expenses 1,786.00 Maintenance of Real Estate 14,682.00 Income from Rental of Upper Floors 11,627.00 Interest on Notes Receivable 1,287.00 Interest on Bank Balances 96.00 Cash Discounts on Purchases 4,893.00 Interest on Notes Payable 5,740.00 Interest on Mortgage Payable 4,200.00 Cash Discounts on Sales 2,695.00 $1,409,170.00 $1,409,170.00 Inventory December 31, 1916 (cost) $176,482.00 REQUIRED : a. Profit and Loss Statement b. Balance Sheet c. Closing Entries (posted to the ledger) d. Skeleton Ledger Accounts (properly closed) e. Trial Balance after Closing COMMENTS: Mr. Clarke conducts a wholesale jobbing business. He owns a six-story building, using the basement and first two floors for his business and renting the upper floors. "Maintenance of Real Estate" includes taxes, insurance, repairs to building, depreciation, heat and light, janitor and helpers, etc. Freight and hauling inward on merchandise purchases is considered a part of the cost of goods purchased, and the proper portion thereof is included in the cost of goods on hand, both at the beginning and at the end of the year. This trial balance was taken after all necessary adjusting entries had bejn made and posted. 1 /h^JUJ^ ^^ /j. 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COS Baa-PH> « » vi >H -H oii-H ■< (iflK-sfta gg « eo«o rncCVj © Knajgk© c a ti 9 3 m K4>rH-p p.ood-oo tiq caeqpu ooooo acofl p.-Hnpo)© 06C Ko OO -d ell3Bl O (» rH<«e4(8.H «« P<(l<0)>-OtOOHOmOi-lr-l>t' «.§» »§£'o.,&s'"I*^r-"-ss^^as s dpytacjooooo'O ©o .--.cSg A4^rH.HOOd©©©m=) iH 00000)000 o© MH©h>oHVihh _ p.o35o3!>>ooo'0 -p ■no)t>«j»H-H!:lo©oj3JS HOh^iOI-ial-rtfihCeoo o o -p+> m (0 o M o 005 oPhIm p,o,a oz i. c-iiyj«Oni-inwoo t3EH-<^ ^ OOO ►:» 1 I 13 Model Exercise C HALL AND MARVIH (TRADING AND PROiFIT AlfD LOSS STAIPEMENT FOR SIX MONTHS ENDING JUNE 50 > 1916 Nat Sales: Gross Sales Less - Returns and Allowances Deduct - Cost of Salesi Goods on Hand Deoember 31.1915 $24,260.76 Net Purchases: Gross Purohaseo $57,529.46 Less - Returns and Allowances 4.207.86 53.521.60 Less - Goods on Hand June 30, 1916 Gross Trading Profit Deduct - Operating Expenses: Freight, Express and Cartage Inward . Traveling Expenses Salaries and Wiages ^ Delivery Expenses Office Expenses Taxes Insurance Depreciation of Buildings Depreciation of Furniture and Fixtures Net Trading Profit— Add - Extraneous Income Items: Interest on Notes Receivable Cash Discounts on Purchases Total Income Deduct - Extraneous Expense Items: Interest on Notes Payable Interest on Mortgage Payable Cash Discounts on Sales Loss on Bad Debts and Accounts Receivable Net Profit for Period: H. B. Hall - two -thirds C. R. Marvin - one-third 86,108 3.421 77,582 25.710 1,924 2.107 9,369 1,290 1,436 102 175 376 291 160 486 313 875 372 413 8,277 4.138 89 70 82,687 19 35 40 51.871 95 30,815 24 34 40 72 81 21 50 00 00 00 17.071 98 84 72 13,743 647 26 M. 14.390 82 90 00 02 64 82 1,974 12,416 36 46 14 Model Exercise C HALT. AND MARVIN BALANCE SHEET, JUNE 50. 1916 ASSETS FIXED ASSETS: Land (ooet) Building (cost) $37,600.00 Less - Reserve for Depreciation 7,875.00 Furniture and Fixtures (cost) $6,820.00 Less - Reserve for Depreciation 2^041.00 CURRENT ASSETS; Cash on Hand Accounts Receivable $23,731.40 Less - Reserve for Loss on Bad Accounts and Notes Receival)le 583.24 Notes Receivable Accrued Interest on Notes Receivabld Merchandise on Hand DEFERRED CHARGES TO PROFIT AND L0S,St Unexpired Insurance Office Supplies on Hand TOTAL ASSETS 66,000 29.626 3,779 LIABILITIES AND NET WORTH FIXED LIABILITIES: Mortgage Payable CURRENT LIABILITIES^ Accounts Payable Notes Payable Accrued Interest on Notes Payable Accrued Taxes Due C, R. Marvin on Salary Account TOTAL LIABILITIES H. B. HALL'S NET WORTH: Capital Investment Add - Profits Accumulated to December 31, 1915 $3,629.40 Two -thirds Net Profit for Six Months Ending June 30, 1916 8,277.64 $11,907.04 5.496.40 Less - Drawings December 31, 1915 to June 30, 1916 C. R. MARVIN'S NET WORTH: Capital Investment Deduct - Drawings December 31, 1915 to June 30,1916 $4,705.00 Less - One -third Net Profit for Six Months Ending June 30. 1916 4.138.82 TOTAL LIABILITIES AND NET WORTH 7,682 23.148 730 24 26.710 260 150 9,840 5.000 75 102 250 60,000 6,408 30.000 566 00 00 53 16 00 60 40 00 89 62 00 00 50 00 00 64 00 18 88.404 00 67,295 410 69 89 146.110 58 36,000 00 15.268 12 50,268 12 66,408 64 29.453 82 146,110 58 15 Model Kxerolee C HAIL AND MARVIN ADJUSTINS ENTRIES, JUNE 30, 1916 Unexpired Insiirance No. 1 Insurance To bring onto the "books the unexpired insurance as of this date 30 Accrued Interest on Notes Reoeivahle Interest on Notes Receivahle To "bring onto the hooks the interest accrued to date on interest hearing notes receivahle: J. A. Shore's note of 10/l5/l5, $500, 8 mos. 15 days at 6^ $21.25 R. C. Cram's note of 4/3/16, $230, 2 mos. 27 days at 6^5 Taxes Taxes Accrued To hring onto the hooks the taxes accrued to date 30 No. 2 No. 3 .30- 3.35 $24.60 Interest on Notes Payahle No. 4 Interest Accrued on Notes Payahle To hring onto the hooks the interest accrued to date on interest hearing notes payahle: Note of 4/1/I6 favor First Nat»l. Bank, $5,000, 90 days at 6% 30 Office Supplies on Hand No* 5 Office Expenses To hring onto the hooks the cost of office supplies on hand as of this date 30 Depreciation of Building No. 6 Reserve for Depreciation of Building Estimated depreciation on the huilding for the six months ending 6/30 /I6. Figured on cost ($37,500) at the rate of 2% per annum 30 Depreciation of Furniture and Fixtures No. 7 Reserve for Depreciation of Furniture and Fixtures Estimated depreciation on furniture and fixtures for the six months ending 6/30/I6. Figured on cost ($5,820) at the rate of 10^ per €uinum ^30 Loss on Bad Accounts and Notes ReceivahleNb.8 Reserve for Loss on Bad Accounts and Notes Receivahle To set aside from the profits of the period -j^ of the net sales to- provide for future losses on had accounts and notes receivahle 260 102 24 00 50 60 260 102 24 00 50 60 75 00 75 00 150 89 150 89 375 00 375 00 291 00 291 00 413 44 413 '44 16 HALT. AND MARVIN CLOSING ENTRIES, JUNE 80. 1916 Trading Inventory Goods on hand 12/31/15 per inventor 30 Trading Purchases Net purchases for six months ending 6/30/16 30 Sales Trading Net sales for six months ending 6/30/16 30 Inventory Trading Goods on hand 6/30/16 per inventory 30 Trading Profit and Loss To transfer to Profit and Loss account the gross trading profit for the six months ending 6/30/l5 as repre- sented by the balance of the Trading account 30 Interest on Notes Receivable Cash Discounts on Purchases Profit and Loss To transfer to Profit and Loss account the balances of the accounts representing extraneous income for the six months ending 6/30/16 30 Profit and Loss Freight, Express and Cartage Inward Traveling Expenses Salaries and Wages Delivery Expenses Office Expenses Taxes Insurance Depreciation of Building Depreciation of Furniture and Fixtures To transfer to Profit and Loss account the balances of the accounts representing operating expenses for the six months - ending 6/30/16 30 Profit and Loss Interest on Notes Payable Interest on Mortgage Payable Cash Discounts on Sales Loss on Bad Accounts and Notes Receivable To transfer to Profit and Loss account the balances of the accounts representing extraneous expenses for the 'six months ending 6/30/16 - : 30 Profit and Loss H. B. Hall, Drawings C. R. Marvin, DravrLngs To transfer to the partners ' drawings accounts the net profit for the six months ending 6/30/16 iia the proportion of two-thirds to H. B. Hsill and one -third to C. R. Marvin $E4,£60 53,321 82,687 25 » 710 30,816 160 486 17,071 1,974 75 60 19 40 24 84 72 98 36 12,416 46 $24,260 53,321 82,687 25,710 30,816 647 1,924 2,107 9,369 1,290 1,436 102 175 375 291 313 ' 875 372 413 8,277 4,138 75 60 19 40 24 56 34 40 72 81 21 50 00 00 00 90 00 02 44 64 82 Model Exercise D DOWNS AHD BALANCE SHEET $155,000 24.500 2.730, $5,000 1.250 ASSETS FIXED ASSETS: Land (cost) Buildings (cost) Less: Reserve for Depreciation Sales Department Pxirniture and Fixtures (cost) Less: Reserve for Depreciation - Office Furniture and Fixtures (cost) Less: Reserve for Depreciation Total Fixed Assets GOODWILL SINKING FUND INVESTMENTS^ Secxirities and* Cash in Hands of Trustees OUTSIDE INVSSTI.IENTS : Sectirities Omied (cost) - market value $17,268.00 Vacant Land (cost, including taxes to June 30. 1916) Total Outside Investments CURRENT ASSETS: Cash (in banks and at office) Accounts Receivable Less: Reserve for Loss on Doubtful Accounts Reserve for Cash Discounts Due from Subscribers to Capital Stock - Common Notes Receivable Merchandise on Hand (cost) Less: Reserve for Adjustment of Inventory Value Office Supplies on Hand Total Cxirrent Assets PREPAID ITEMS: Unexpired Insurance Interest Prepaid on Notes Discounted Total Prepaid Items DEFERRED CHARGES TO PROFIT AND LOSS: Bond Discount and Expenses Unextinguished Organisation Expenses Unextinguished Total Deferred Charges to Profit and Lose .00 .00 $9,200.00 00 00 00 $63,284.36 72.000 130,500 6,470 3.750 18,760 18.724 $2,789 1,200 .60 .00 3.989. 60 $160,620. s 8.500. 60 00 Total Assets 7.829 69,294 18.000 6.600 152,020 267 1.960 136 19.500 14.3 00 00 00 00 00 89 212.720 100.000 46.728 37.484 243.912 2.086 33,800 00 00 60 30 676.732 g5 75 70 00 Bote: There are in the treasury 250 shares of common stock donated 'to the company by the incorporators for the purpose of raising additional working capital. 18 FISHER OOUFABT JUME 30. 1916 IT ABILITIES AND HBT WORTH FUNDED 33BBT: Five Per Cent First Mortgage Siniing Fund Bonds - Due Janiiary 1, 1926 - Authorized Issue $100,000.00: Issued $92,000.00 Less: Retired through Sinking Fund Six Per Cent Debenture Bonds, Due July 1, 1930 Total Funded Debt 18.000.00 74,000 30.000 00 00 00 104.000 CURRENT LIABILITIES: Notes Payable 24,000 00 Aooounts Payable 86.732 46 Dividends Payable: On Seven Per Cent Preferred Stook (3j^ semi- annual, due July 16, 1916) $3,600.00 On Common Stook (4^ semi-annual, due July 16, 1916) Aoorued Items : 7,000.00 10,600 00 Interest on Funded Debt: Five Per Cent First Mortgage Bonds |l, 850.00 Six Per Cent Debenture Bonds 90G«00 $2,750.00 Interest on Notes Payable 1,360.00 Taxes 1,686.00 Salaries and Wages Total Current Liabilities 1.432.66 7.227 65 128.460 11 CAPITAL STOCK - COMMON, SUBSCRIBED AND UNISSUED - 800 SHARES TOTAL LIABILITIES 30.000 00 262.460 11 CAPITAL STOCK: Seven Per Cent Preferred - Authorized Issua 1500 Shares, Par |lOO: Full Paid and Issued, 1000 Shares 100,000 00 Common - Authorized Issue 3000 Shares. Par $100: Full Paid and Issued 2000 Shares: In Hands of Stockholders, 1750 Shares ♦176,000.00 In Treasury, 250 Shares Total Capital Stook 26.000.00 200.000 00 300,000 00 WORKING CAPITAL DONATED - (Proceeds of sale of 250 shares of ooramon stock from the treasury) 21,630 00 APPROPRIATED SURPLUS: Reserve for Sinking Fund Requirements 55,396 60 UNDIVIDED PROFITS: Balance December 31, 1915 $30,389.67 Add: Net Profit, Six Months Ending June 30, 1916 per Profit and Loss Statement 26.023.97 $56,413.64 Less: Dividends Declared: On Preferred Stook (3i^ semi-annual) $3,500.00 On Common Stook (4^ semi-annual) 7.000.00 $10,500.00 Reserve for Sinking Fund Raquirementa 8.668.00 Total Undivided Profits TOTAL NET WORTH Total Liabilities and Net Worth 19.168.00 . 37.246 64 414,272 14 676,732 26 19 Model Szerclse D DOT?NS AITD FISHBR COMPAMY INCOME AND PROFIT AKD LOSS STATEMBJIIP FOR THE SIZ MONTHS ENDING JUNE 30. 1916 SET SALES: 6ro88 Sales Less: Retnims and Allowanoes Deduot: COST OP GOODS SOLD: Inventory December 31, 1915 Net Purchases: Gross Purchases |669, 827.40 Less: Returns and Allowances 18.260.39 Freight and Hauling Inward. Less: Inventory June 30, 1916 GROSS PROFIT ON SALES Deduct: SELLING EXPENSES: Salesmen's Salaries Traveling Expenses Shipping Expenses Taxes and Insurance on Stock Taxes and Insurance on Sales Department Furniture and Fixtxires Depreciation of Sales Department Furniture and Fixtures Proportion of Expense of Building Maintenance ( 76^) GENERAL ADMINISTRATIVE EXPENSES: Officers' Salaries Office Salaries Office Expenses and Supplies . Taxes and Insurance on Office Purnitxire and Fixtures Depreciation o± Office Furniture and Fixtures Proportion of Expense of Building Maintenance (25^) NET OPERATING INCOME Add: OTHER INCOME: Income on Securities Owned Interest on Notes Receivable Cash Discounts on Purchases Profit on Sale of Securities SOTAL INCOME Ded uct : OTHER CHARGES: Interest on Funded Debt Interest on Notes Payable Cash Discounts on Sales Premiums on Redeemed Bonds Bond Discount and Expenses Written Off Organization Expenses Written Off Loss on Bad Accounts NET INCOME - SURPLUS FOR PERIOD $184,962.38 551,567.01 5,829.50 |26, 432.80 20,869.40 5,942.60 1,286.50 150.64 765.00 11,446.87 ^37,853.00 12,272.46 1,781.30 110.75 465.00 3,816.63 746,829 12.364 742,358 160.520 66,893 56.298 924 1,832 8,269 3.466 2,750 1,589 4,387 1,650 910 2,340 4.277 60 30 734,465 30 89 60 581.838 152,627 29 01 81 14 3.23.191 95 00 50 40 77 29 , 435 14,492 43,927 06 67- 73 00 40 30 00 00 00 06 17.903 26,023 76 97 20 Model Exercise D DOIVNS AND PISHER COMPANY CLOSING ENTRIES. JUNE 50. 1916 Sales 12,364 30 To Sales Returns and Allowances 12,364 30 To oloae into the Sales account the sales returns and allowances for the six months ending June 30, 1916 Purchase Rettirns and Allowances 18,260 39 To Purchases le', 260 39 To close into the Purchases accotint the purchase rettims and allowances for the six months ending June 30, 1916 Purchases ' 5.829 50 To Freight and Hauling Inward 5,829 50 To close into the Purchases account the freight and hauling inward on pxirchases for the six months ending June 30, 1916 Purchases 184,962 38 To Inventory 184.962 38 Cost of goods on hand December 31, 1915 Inventory 160. 520 60 To Purchases 160.520 60 Cost of goods on hand June 30, 1916 Sales 734,465 30 To Cost of Goods Sold 734.465 30 Net Sales for the six months ending June 30. 1916: Gross sales 0746.829,60 Less: Returns and Allowances 12.364.30 ^34,465 30 Cost of Goods Sold 581 . 838 29 To Purchases 681,838 29 Cost of goods sold for the six months ending June 30, 1916: Inventory 12/31/15 $84,962.38 Net Purchases: Gross purchases $569,827.40 Less: Returns and allowances 18.260.39 551,567.01 Freight snd hauling inward 5.829.50 $742,358.89 Less; Inventory 6/30/16 160,520.60 $581,838.29 . Cost of Goods Sold 152,627 01 To Profit and Loss 152,627 01 Gross profit on sales for six months ending June 30, 1916: Het sales $734,465.30 Less: Cost of sales 581,838.29 $152,627.01 Income on Securities Owned 924 00 Interest on Notes Receivahle 1,832 60 Cash Discounts on Purchases 8.269 40 Profit on Sale of Securities 3,466 77 To Profit and Loss 14,492 67 To close Into Profit and Loss accoxmt the Items of extraneous income for the six months ending June 30, 1916 21 Model Exercise J) CI.OSING BHTRIBS, JUHE 30, 1916 - continued Profit and Lobs To Salesmen's Salaries Traveling Expenses Shipping Expenses Taxes and Insurance on Stook Taxes and Insurance on Sales Department Furniture and Fixtures Depreciation of Sales Department Furniture and Fixtures Building Maintenance Officers' Salaries Office Salaries Office Expenses and Supplies Taxes and Insurance on Office Furniture emd Fixtures Depreciation of Office Furniture and Fixtures To close into Profit and Loss accoxmt the accounts representing the operating expenses for the six months ending June 30, 1916 Profit and Loss To Interest on Funded Deht Interest on Notes Payable Cash Discounts on Sales Premixuns on Be deemed Bonds Bond Discount and Expenses Written Off Organization Expenses Written Off Loss on Bad Aoooxints To close into Profit and Loss account the items of extraneous expense for the six months ending June 30, 1916 Profit and Loss To Undivided Profits To transfer to Undivided Profits account the net ihoome for the six months ending June 30, 1916 123,191 17,903 96 76 26.023 97 26,432 20,869 5,942 1.286 160 765 15,262 37,853 12,272 1.781 110 466 2,750 1,689 4.387 1,650 910 2,340 4,277 26.023 80 40 60 50 64 00 50 00 46 30 75 00 00 40 30 00 00 00 06 97 22 MODEL EXERCISE E. MODEL MANUFACTURING COMPANY TRL\L BALANCE — DECEMBER 31, 1916 Land and Buildings Machinery Power Plant Equipment Shafting and Belting Furniture and Fixtures Goodwill Securities Owned Cash in Banks Imprest Cash Fund Accounts Receivable Notes Receivable Advances to Salesmen Accrued Interest on Notes Receivable Raw Materials (On hand December 31, 1915— $6,800; gross purchases $95,600.) INIanufacturing (Goods in process December 31, 1915) Finished Goods December 31, 1915 Factory Supplies on Hand Office Supplies on Hand Taxes Paid in Advance Insurance Paid in Advance Interest on Notes Payable Paid in Advance Legal Expenses Deferred Capital Stock — Preferred (750 shares, par value $100) Capital Stock — Common (1000 shares, par value $100) Surplus Real Estate Mortgage Assumed in Purchase , of property Accounts Payable Notes Payable Accrued Interest on Mortgage Payable Accrued Interest on Notes Payable Accrued Salaries and Wages Accrued ExJ)enses Reserve for Depreciation of Buildings Reserve for Depreciation of Factory Machinery and Equipment Reserve for Depreciation of Furniture and Fixtures Reserve for Loss on Bad Debts Sales of Finished Goods Sales Returns and Allowances Purchase . Returns and Allowances $110,800.00 30,670.00 19,500.00 2,500.00 4,500.00 25,000.00 15,000.00 9,280.50 300.00 47,250.00 3,000.00 800.00 50.00 102,400.00 10,360.00 46,700.00 200.00 150.00 400.00 360.00 75.00 2,600.00 4,260.40 $75,000.00 100,000.00 14,250.00 60,000.00 26,500.00 5,000.00 1,800.00 62.50 780.00 250.00 16,700.00 19,100.00 600.00 5,280.00 239,909.00 1.720.00 23 TRIAL BALANCE — DECEMBER 31, 1916 (Concluded) Freight and Hauling Inward $1,620.00 Direct Labor 54,620.00 Superintendence 5,940.30 Fuel Used 2,600.00 Salaries of Engineer and Firemen 3,680.20 Taxes and Insurance on Factory Buildings 1,562.50 Depreciation of Factory Buildings 2,289.40 Taxes and Insurance of Factory Machinery and Equipment 937.50 Depreciation of Factory Machinery and Equipment 2,500.00 Repairs to Factory Machinery and Equipment 800,00 Factory Office Salaries and Expenses 3,580.65 Advertising 5,000.00 Salaries of Salesmen 10,650.00 Traveling Expenses 6,780.30 Delivery Expenses 2,684.00 General Office Salaries and Expenses 10,294.60 Taxes and Insurance on Office Building 300.00 Depreciation of Office Building 864.00 Interest on Notes Receivable 280.85 Income on Securities Owned 180.00 Interest on Mortgage Payable 1,800.00 Interest on Notes Payable 289.00 Loss on Bad Debts 1,564.00 Legal Expenses Extinguished 900.00 557,412.35 557,412.35 Inventories December 31, 1916: Raw Materials $7,100.00 Goods in Process 12,900.00 Finished Goods 44,800.00 Note : During the year, dividends amounting to 7% on the preferred stock and 6 % on the common stock have been declared and paid. 24 o o o o o in H o o o o oo oo o w o to 8 o o tQ to H to 8 o to lO la to \a o to oo oo oo lOO >o oo o o lO o CQ ►^ >»H g H-l 0) ,o O mfM C9-P M m oj ►q-p P^ -c* E-t p 01 pJ S o ® S o -P o o o o g oooo o too o OCvl O O O OCO lO CD C~ N H H '§ >> O Qi tiOPH at a) m g bOCQ «> CS M o o & fl fl fl ?« O 0} ^4 o +» -p eo o 01 CO o <«| © © -rt h ^ H h © © CD © -P-PH^ rt d o5 -P M M CO O o O d o to to »4 © 3 © o ^ o -P o -»j ^^ lO o H H +» PH O eo to h O ©-P .o © © sa • • o © CO s^ o I ju oa © t-:| HP -b o o d lO CM to 4»i t<5 © u (6 H O I © o CO o U >cl +» © $::} CO ,Q« © © -P -H © O-H > h ©,Q -H h Q -H P © t)PM I © rt © ?J fl eq CO "rt o o I ■p © 0+3 o fl 1 +3 © h CO o © o © si a p* o e > o K © O -H CO CO c o 03 O o m o o o to CV2 o o o to H o o -* to to o o o to to to o o H o lO to oo to o ooo ooo o o ooo 00 O l> o o cvi to o> O 00 oT HN ooooo oo oo o ooooo oo oo lO H<7> CO OJ rH •i » » C^CVJ ^ oooo oooo OOiOO O vo C^ O •* to U) oo oo • • oo oo CO t- o«o T-iH H oo oo do t-O «3H CM CJ> -"i* to ^ oo oo do oo to to o o d to CM ^•" •># ^> > CO w (D ea o o K » H © o a o fl-PO O 53 • •H ©O +> g t- OS P<(0 •H -H • O pfO © D*tO Pi S2! 3 pq CO ^1 S boo >> S-rl © Id © fl CJfH J>-H -P 5 © o t>»S P n oQ OS U H St OS I h ^ © Eh O O ^ p^ i:) F-i m © p © ,o CD © o o « 00 © © © o HH E5 ,Q eS •• 05 CO eo fl 00 > a o H CO -H O O O +> © -P -P -P • • -ri ,0 M 03 CO Ih © © 00 © g^ P« © -C) Ih o © © « oJ Ti to fl Ji+s CS 9 00 H (3 s? m -P > OM a ^ ©■do P 0) a-»j« Model Exercise £ EXHIBIT B PROFIT AND LOSS STATEMENT OF THB MODEL MAIIUFAC TURING COMPAIfY FOR THE YEAR ENDINO DECEMBER 51. 1916 NET SALES OF MANUFACTURED GOODS: Gross Sales Less - Returns and Allowances Deduct - COST OF MANUFACTURED GOODS SOLD: On Hand Decemter 31, 1916 f46, 700,00 Cost of Goods Manufactured During the Year - See Exhibit C 171.170.65 Deduct - On Hand December 31, 1916 GROSS PROFIT ON SALES OF MANUFACTURED GOODS Deduct - Selling and General Expenses: 239,909 4,260 217,870 44,800 Selling Expenses: Advertising Salaries of Salesmen Traveling Expenses Delivery Expenses General Administrative Expenses: General Office Salaries and Expenses Taxes and Insurance on Office Building Depreciation of Office Building NET OPERATING PROFIT Add - Extraneous Income Items: Interest on Notes Receivable Income on Securities Owned TOTAL INCOME Deduct - Extraneous Expense Items: Interest on Mortgage Payable Interest on Notes Payable Loss on Bad Debts Legal Expenses Extinguished NET PROFIT $5, 10, 6. _2. 000.00 660.00 780.30 684.00 $10,294.60 300.00 864.00 25,114 11.458 280 JL8CI 1,800 289 1,564 900 00 40 55 00 30 60 85 QQ. 00 00 00 00 236,648 173.070 62.678 60 55 06 36.572 90 26,005 460 15 85. 26,466 4.653 00 00 21.913 00 26 Model Exercise B BZHIBIT C STATEMENT SHOWING COST OF GOODS MANITPACTURED BY THB MODEL MANUFACTURING COMPANY FOR THE YEAR SITDING DECEMBER 51. 1916 RAW MATERIALS USED: Tf^- . - ■ ■■= On Hand December 31, 1915 $6,800.00 Net Purohases: Gross Purchases $95,600.00 Less - Returns and Allowances 1.720.00 93.880.00 i'reight and Hauling Inward 1,620.00 102,300 7,100 00 00 95,200 54.620 00 00 Deduct - On Hand December 31, 1916 DIRECT LABOR MANUFACTURING EXPENSES: Superintendence 6,940 30 Fuel Used 2.600 00 Salaries of Engineer and Firemen 3,680 20 Taxes and Insurance on Factory Buildings 1.562 50 Depreciation of Factory Buildings 2.289 40 Taxes and Insurance on Machinery and Equipment 937 50 Depreciation of Machinery and Equipment 2,500 00 Repairs to Machinery and Equipment 800 00 Factory Office Salaries and Expenses TOTAL MANUFACTURING CHARGES 3,580 65 23,890 55 173,710 55 Add - cxoods in Process December 31, 1916 10.360 00 134,070 55 Deduct - Goods in Process December 31, 1916 NET COST OF GOODS MANUFACTURED 12,900 00 171,170 55 27 Model Exercise B MODBL MAmJFAC TURING COMPAHY CLOSING ENTRIES, DEOEMBBR 51, 1916 Purohase Returns and Allowances To Raw Materials Returns and allowances on purchases of raw materials for the year ending 12/31/16 Raw Materials To Freight and Hauling Inward Freight and hauling inward on purchases of raw materials for the year ending 12/31/16 Manuf ac tur ing To Raw Materials Cost of raw materials used in manufacturing for the year ending 12/31/16: On hand 12/31/15 $6,800.00 Net purchases 93.880.00 Freight and hauling inwar d 1.620.00 $102,300.00 Less - On hand 12/3l/l6 7,100.00 $95.200.00 Manuf ac tur ing To Direct Labor Cost of direcli labor for the year ending 12/31/16 Manuf ac tur ing To Superintendence Fuel Used Salaries of Engineer and Firemen Taxes and Insurance on Factory Buildings Depreciation of Factory Building Taxes and Insurance on Machinery and Equipment Depreciation of Machinery and Equipment Repairs to Machinery and Equipment Factory Office Salaries and Expenses Manufacturing expenses for the year ending 12/3l/l6 Finished Goods To Manufacturing Cost of goods manufactured for the year ending 12/31/16: Goods in process 12/31/15 Raw materials used Direct labor Manufacturing expenses Less - Goods in process 12/31/I6 1,720 1,620 95,200 $10,360.00 95.200.00 54,620.00 23.890.55 $184,070.55 12.900.00 $171,170.55 Sales of Finished Goods To Seiles Returns and Allowances Sales returns and allowances for the year ending 12/31/16 23 54,620 23»890 00 00 00 00 55 171,170 4,260 55 40 1,720 1,620 95,200 54,620 5,940 2,600 3.680 1,562 2,289 937 2,500 800 3,580 171.170 00 00 00 00 30 00 20 50 40 50 00 00 65 56 4.260 40 CLOSING ENTRIES. JUNE 50. 1916 - continued Sales of Finished Goods To Finished Goods Cost of finished goods sold for the year ending 12/31/16: On hand 12/31/16 |46, 700.00 Manufactured during the year 171 ,170.55 $217,870.55 less - On hand 12/31 /l6 44,800.00 $173,070.55 Sales of Finished Goods To Profit and Loss Gross profit on sales of finished goods for the year ending 12/31/16: Net sales $235,648.60 Less - Cost of sales 173.070.55 $62.578.06 Interest on Notes Heceivable Income on Securities Owned To Profit and Loss Extraneous income items for the year ending 12/31/16 Profit and Loss To Advertising Salaries of Salesmen Traveling Expenses Delivery Expenses General Office Salaries and Expenses Taxes and Insurance on Office Building Depreciation of Office Building Selling and general expenses for the year ending 12/31/16 Profit and Loss To Interest on Mortgage Payahle Interest on Notes Payable Loss on Bad Debts Legal Expenses Extinguished Extraneous expense items for the year ending 12/31/16 Profit and Loss To Surplus Net Profit for the year ending 12/31/16: Gross profit on sales of Manufactured goods Extraneous income Less - Selling and general ex- penses $36,572.90 Extraneous expenses 4,563.00 $62,578.05 460.85 $63,038.90 41,125.90 $21,915.00 173,070 62,578 280 180 36,672 4,563 21,913 66 173,070 55 05 85 00 90 00 00 62.678 460 6,000 10,660 6,780 2,684 10,294 300 864 1.800 289 1,564 900 21,913 06 85 00 00 30 00 60 00 00 00 00 00 00 00 29 Model Exercise P THE BOSTON COMPARATIVE BALANCE SHEET ASSETS DEC. 31, 1916 DEC. 31. 1915 INCREASE DECREASE REAL ESTATE AND EQUIPMENT: Land 124,000 00 124,000 00 Buildings 236,750 00 190,400 00 46.350 00 Trucks, Wagons and Horses 25,291 60 20,300 00 4,991 60 Furniture and Fixtures 30,169 50 34,287 95 4.118 45 (xarage and Stable Equipment Total Heal Estate and Equipment GOODWILL SINKING AND RESERVE FUNDS: 3.682 72 2.983 40 699 32 419,893 82 371.971 35 47.922 47 250,000 00 250,000 00 With Trustees for Hedemptioi of Twenty Year 65& Gold Bonds 44,968 73 36,941 30 8.027 43 Fund for Redemption of Ten Year ^Jo Debentxires 36,738 20 25,789 60 10,948 60 Insurance Fund Total Sinking and Reserve Funds INVESTISNTS: 15,640 56 12,987 32 2.653 24 97,347 49 75,718 22 21,629 27 Sec^lrities Owned 12,362 50 44,321 97 31,959 47 Vacant Land - Cost plus Accrued Taxes Total Investments CURRENT ASSETS: 62.550 50 61.780 00 770 50 74,913 00 106,101 97 31,188 97 Cash 15,813 46 12,463 19 3.350 27 Accounts Receivable 247,932 16 228,113 43 19,818 73 Notes Receivable 4,176 30 5,207 85 1,031 55 Accrued Interest on Notes "^Receivable 98 70 126 32 27 62 Merchandise on Hand 196,211 88 162p485 85 33,725 ,03 Office Supplies on Hand 617 29 132 65 484 64 ' Garage and Stable Supplies on Hand Total Cxirrent Assets PREPAID ASSETS: 802 37 484 21 318 16 465,652 16 409,014 50 56,637 66 Taxes 1,846 50 1,524 90 321 60 Insurance Total Prepaid Assets DEi'EHRED CHARGES TO OPERATIONS: 217 30 541 65 324 35 2,063 80 2,066 55 2 75 Bond Discotmt and Expenses 17,640 00 18,900 00 1.260 00 Organization Expenses Total Deferred Charges to Operations TOTAL ASSETS 14,000 00 17.500 00 3,500 00 31,640 00 36,400 00 4,760 00 1J341,510 27 1,251,272 59 90,237 68 30 DRY GOODS COMPANY DECEMBER 31, 1916 OAPITAX. LIABILITI33 AST) SUBPLUS iaC.51, 1916 ]3BC.gl, 1915 IN0R7.ASW IISCHSAS2 CAPITAI. STOCK: Preferred - Authorized, 2500 Shares par valoie $100 Common - Authorized. 6000 Shares par value |lOO Total Capital Stock VUSnSD DEBT: Twenty Year 6% Sinking Pond- Gold Bonds, Dae January 1, 1930: In Hands of Public Held hy Sinking Fund Trustees Ten Year 4i^ Debentures, Due July 1. 1921 Total Funded Debt CURRENT LIABILITIES: Accounts Payable Notes Payable Accrued Interest on Bonds Accrued Interest on Notes Payable Accrued Salaries and TTages Dividends on Preferred Stock Dividends on Common Stock Unclaimed Dividends and Interest Total Current Liabilities RESERVES: Per Depreciation of Buildings and Equipment For Loss on Bad Accounts For Sinking Fund for Redemp- tion of Twenty Year 6^ Gold Bonds For Redemption of Ten Year 4^ Debentures For Insurance Total Reserves CAPITAL SURPLUS - Proceeds of Sale of Treasury Stock UNDIVIDED PROFITS TOTAL CAPITAL, LIABILITIES AND SURPLUS 150,000 450,000 600,000 175.000 25.000 100.000 300,000 62,731 25,700 5,250 296 982 3,000 7,875 281 106,117 45.260 8,239 44.968 43,738 19,621 161,827 130,000 43,565 1,341,510 00 00 00 00 00 00 00 49 00 00 37 50 00 00 90 26 00 64 73 20 14 71 00 30 27 150.000 400,000 550,000 185,000 15,000 100.000 300.000 53,906 37,689 5.250 468 604 3,000 7,000 231 108,151 36,410 5,749 36,941 32,689 15,129 126,919 130.000 36.201 1.251,272 00 50,000 00 00 00 00 00 73 40 00 97 47 00 00 60 17 00 37 30 26 60 52 00 90 59 50,000 10,000 8.824 378 875 50 00 00 10.000 00 00 76 03 00 30 11.989 172 '8,850 2,490 8.027 11,048 4,491 34,908 7,363 90,237 00 27 43 95 64 19 40 68 2,033 40 60 91 31 Model Szareis* J THE B0ST05 CRT GOODS OOltPAlTr C(»IFASATITB INCOME ASD EZFBNSB STATEMENT - DECEMBER 31. 191< \ MONTH OF TWELVE MONTHS SAME PERIOD ^ DECEMBER, 1916 TEAR TO DATE LAST YEAR INCREASE DECREASE ^5; HET SALES: Silk Goods 3,862 93 65,750 62 70,289 40 4.638 78 6.46 Drees Goods 28,860 79 329,370 59 246,364 32 83,006 27 33.69 Suitings 14,203 40 197,832 40 140,117 12 67.715 28 41.19 Prints and Ginghams 17,761 86 230,914 36 155,419 63 75.494 82 48.57 Linen Goods 14,273 64 191,213 07 210,268 50 19.056 43 9.06 Flannels and Sheetings Total Het Sales COST OF GOODS SOLD: 17.632 18 226.378 24 262.796 18 26.417 94 10.45 96.584 70 1,241,459 27 1,075,255 06 166,204 22 15.46 Silk Goods 3,462 91 68,921 37 64,713 54 6.792 17 6.96 Dress Goods 22,978 64 268,172 98 181,231 87 76,941 11 42.46 Suitings 8,939 30 122,783 47 82,169 02 40,614 45 49.43 Prints and Ginghams 12,707 16 172,934 86 121,805 36 51,129 60 41.91 Linen Goods 10,346 87 135,832 20 158,268 93 22.436 73 14.18 Flannels and Sheetings Total Cost of Goods Sold GROSS TRADING PROFIT OPERATING EXPENSES: 13,049 32 172,344 49 180,118 60 7,774 11 4.32 71,483 20 920,989 37 788,307 32 132,682 05 16.83 26,101 60 320,469 90 286,947 73 33,522 17 11.68 Buying 625 86 7,491 02 7,016 44 474 58 6.76 ReceiYing cuid Warehousing 2,827 79 31,949 06 28,997 29 2,951 77 10.18 Selling 7,391 16 106,998 18 90,762 29 15,246 89 16.79 1 Shipping 2,696 26 32,274 46 26,370 12 6,904 34 22.39 Credit and Collection 847 74 8,379 46 8,296 13 83 32 1.01 General AdministratiTe Total Operating Expense NET TRADING PROFIT OTHER INCOME: 3.705 47 44,613 48 41,431 01 3.182 47 7.68 8 17.994 26 230,705 65 202,863 28 27.842 37 12.72 7,107 24 89,764 26 84,084 45 6,679 80 6.75 Interest on Notes and Accounts Receivable 210 63 1,762 50 986 72 775 78 78.62 Cash Discotmts oa Purchases 518 04 7,329 60 6,173 61 1.156 09 18.73 Income on Securities Owned Total Other Income GROSS INCOME OTHER CHARGES: 1,462 50 3,200 00 2,850 00 350 00 12.28 2,191 17 12,292 10 10,010 23 2,281 87 22.79 9,298 41 102,066 35 94,094 68 7.961 67 8.46 Interest on 65S Sinking Fund Gold Bonds 2,000 00 12,000 00 12,000 00 Interest on 4^ Debentures 375 00 4,600 00 4,500 00 Interest on Notes Payabl* 160 76 2,621 70 3,263 75 642 06 15.32 Loss on Bad Accounts 602 46 6,734 18 4,189 60 2,644 58 60.74 Proportion of Bond Dis- coxmt and Expenses 106 00 1,260 00 1,260 00 Proportion of Organlzati( n Expenses Total Other Charges HET PROFIT 291 67 3,500 00 3,500 00 3,534 87 30,615 88 28,713 36 1,902 53 6.63 5.763 64 71.440 47 66.381 33 6.059 14 9.27 32 Model Bzercise F THE BOSTOIT DRY GOODS COMPAMY COMPARATIVE ANALYSIS OF UHDIVIDED PROFITS ACCOimT. DECEMBER 31. 1916 CREDITS: Undivided Profits at Beginning of Year Net Profit per Income and Expense Statement Profit on Sale of Securities Total Credits CHARGES: Preferred Stock Dividends, 6% Common Stock Dividends, 7% Reserve for Sinking Fxuid for Redemption of 6% .Gold Bonds Reserve for Redemption of 4^ De'bentures Adjustment of Inventory Total Charges NET UNDIVIDED PROFITS DBC.31,*1916 36.201 71.440 4t\ 289 111,931 12,000 31,500 6.666 10.000 8.200 68,366 43,565 90 47 60 97 00 00 67 00 00 67 30 DEC. 31, 1915 40.537 65.381 105,918 12,000 28 000 6,666 8,600 14,550 69,716 36,201 24 33 57 00 00 67 00 00 67. 90 INCREASE 6,059 4,289 6,013 3.500 1.500 7,363 14 60 40 00 00 40 DECREASE 4,335 6,350 1,350 34 00 00 Model Ezeroise 7 IEEE BOSTON DRY GOODS COMPANY C(»CPARATIVE ANALYSIS OF GARAGE AND STABLE EXPENSES, DECEMBER 31. 1916 Salaries of Drivers and Stablemen Fodder and Stable Supplies Garage Supplies Taxes, Insurance, and Depreciation on Truoks. Wagons and Horses Repairs to Truoka and Wagons Depreciation on Squipnant Rent - Kaintenanoe of Oarage and Stable Building, TOTAL GARAGE AND STABLE EXPENSES Distribution: Reeeiving and W^ehoxLSing Expenses 35^ SMpping Ex- penses 65^ Total, as above MONTH OF DECEMBER. 1916 1,368 132 297 136 541 2.476 866 1.609 2.476 30 90 65 84 87 46 41 06 46 TWELVE MONTHS YEAR TO DATS 13,783 2.168 £.934 3» 692400 1.010 368 6.448 29,406 10.292 19.114 29»406 49 79 62 SAME FERlbD LAST YEAR 60 27 86 62 28 24 10,201 3,720 1,208 2.186 701 66 06 41 72 19 298 34 4.470 22,786 7.976 14,811 22.786 10 47 26 21 47 INCREASE 3.581 1,726 1.506 309 69 978 4,730 06 decrease; I' D] 1.661 27 36.11 41.70 IL42.86 68.84 44.11 23.44 21.89 20.76 33 Uodel Bzercise F THE BOSTON DRY GOODS COIIPAMY COrgARATIVE AHALY3IS OF COST OF MAIHTEMAITCE OF REAL ESTATE. DECEMBER gl. 1916 MONTH OF [)ECEiyiBER,1916 MAIN BUILDING; Taxes Insurance Depreciation Repairs to Building Janitors and Watchman Heat, Light and Power - Fuel Heat, Light and Power ■ Engineer and Fireman Miscellaneous Supplies Total Cost of Mainte- nance of Main Building Distribution: Buying Expenses 5% Selling Expenses 67^ Shipping Expenses 6% Credit and Col- lection Expenses 5% General Administra- tive Expenses 15^ Total, as above WAREHOUSE : Taxes InsTiranoe Depreciation Repairs to Building Heat and Light - Purchased Total Cost of Main- tenance of Ware- house Chargeable to Receiving and Warehousing Expenses GARAGE AND STABLE; Taxes Insurance Depreciation Repairs to Building Heat and Light - Purchased Total Cost of Main- tenance of Garage and Stable Chargeable to Garage and Stable Expenses iK)TAL COST OP MAINTENANCE OF REAL ESTATE 375 66 270 201 536 375 266 69 2.160 108 1,447 172 108 324 2,160 126 00 40 00 00 00 83 34 97 00 67 48 29 01 40 82 03 06 29 166 201 132 666 41 17 300 50 132 641 3.368 67 83 41 TWELVE MONTHS YEAR TO DATE 91 67 11 00 24 86 87 07 4,500 780 3,250 1,846 4,987 2,540 3,200 1,016 22,120 1,106 14,820 1,769 1,106 3.318 22.120 00 00 00 72 36 00 00 78 86 04 98 67 04 13 86 1,500 480 2,000 1.014 1,267 6,261 500 206 3,600 217 924 5,448 33,831 00 00 00 56 29 85 00 50 00 49 86 86 66 SAME PERIOD LAST YEAR 4,275 780 3,250 2,719 4,480 1,470 3,200 731 20,906 1,045 14,007 1.672 1.045 3,135 20,906 1,426 480 2,000 724 941 00 00 00 60 27 00 00 46 33 32 24 61 32 94 33 6,671 230 79 2,480 962 718 4,470 30,948 00 00 00 86 73 INCREASE 225 507 1,070 285 1.214 59 00 30 00 31 49 10 02 76 289 326 690 270 127 1.120 206 978 2,883 64 53 26 37 76 DECREASE 872 88 744 82 INC 6.26 32.10 11.32 72.79 39.01 6.81 5.26 39.97 34.67 12.39 L17.39 160 40 45.16 77.40 28.72 21.89 9.32 34 XHB BOSTOB ]£7 OOODS OOICPAST OOMPARATIVE AHAI.Y8IS 07 OPERATING EZPEHSES. SBCBCBBR 81, 1916 MONTH OF TWBL7E MONTHS SAUi; PERIOD =^ [BCRUBER, 1916 TSAR TO DATE LAST YEAR INCREASE IBCREASB DEC. BUYING: ""^ Salaries of Prurchaslng Agent and AeslstantB 458 33 5.600 00 5.100 00 400 00 7.84 Stationery and Supplies Z4 56 496 40 627 63 81 23 6.91 Taxes. Insiiranoe and Copre- . elation on Offiee Pumitnre 14 63 175 60 176 60 Bent - 6% of Uaintenanoe of Main Building 108 01 1,106 04 1,045 32 60 72 6.71 UisoellaneouB Expenses Total Buying Expense s HBOBIVIHG AlTD fAHEHOUSING: 10 33 212 98 167 89 45 09 26.74 626 86 7,491 02 7,016 44 474 58 6.76 Freight and Express Inward 501 93 7,683 12 8,162 47 479 36 5.87 Hauling Inward - 3656 of Garage and Stable Expenses 866 41 10,292 28 7,975 26 2,317 02 29.06 Salaries of RecoiTiag Clerks and Varehousemen 647 00 6,136 50 5,571 00 565 50 10.15 Stationery and Supplies 19 53 210 47 375 00 164 53 43.34 Taxes, Insuranci and Depre- ciation on Furniture and Fixtures 29 50 354 04 289 60 64 44 E2.25 Warehouse Power - Purchased 76 89 837 40 910 53 73 13 8.03 Rent - Maintenance of Warehouse 665 91 6,261 85 5,571 59 690 26 12.39 Miscellaneous Expenses Total BeceiTinA and Warehousing Expenses aSLLIHO: 20 62 173 40 141 84 31 56 22.32 2,827 79 31,949 06 28.997 29 2,951 77 10.18 Adyertising - Newspapers 204 25 12,981 40 9,362 79 3,618 61 38.63 Advertising - Trade Papers 629 50 9,301 62 7,793 16 1.508 47 19.36 Samples, Catalogs and Pamphlets ^,800 00 4,321 60 521 60 12.07 Salaries of SeuLes Manager and Assistants 800 00 9,600 00 8,100 00 1,500 00 18.52 Salaries of Salesmen 2,190 50 25,173 40 20,326 75 4,846 65 23.84 Salesmen's Expanses 1,053 19 16,495 72 13,284 51 3,211 21 24.17 Salaries of Store Clerks 856 73 11,242 59 10,963 84 278 75 2.64 Stationery and Supplies 59 28 702 50 664 14 38 36 5.78 Taxes and Insurance on Stock 73 83 886 00 793 40 92 60 11.67 Taxes, Insurance and Depre- ciation on Furniture and Fixtures 41 89 502 70 502 70 Rent - 67?5 of Maintenance of Main Building 1,447 40 14,820 98 14,007 24 813 74 5.81 Miscellaneous Expenses Total Selling Expenses SHIPPING: 34 58 491 27 632 17 140 90 22.29 7,391 15 105,998 18 90,752 29 15.245 89 16.79 Freight and Express Outward 318 72 5,319 o4 4.117 27 1.202 37 28.96 Hauling Outward - 65'^ of Garage and Stable Expenses 1,609 05 19,114 24 14.811 21 4.303 03 29.05 Salaries of Shipping Clerks and Packers 400 00 4,800 00 4.650 00 150 00 3.23 Packing Supplies 74 19 942 73 714 86 227 87 31.86 Stationery 93 37 138 15 44 78 32.41 Taxes, Insurance and Depre- ciation on Furniture and Fixtures 16 00 192 00 176 50 15 50 8.78 Rent - 855 of Maintenance of Main Building 172 82' 1,769 67 1.672 51 97 16 5.80 Miscellaneous Expenses Total Shipping Expenses CREDIT AND COLLECTION: 5 47 42 81 89 62 46 81 52.23 2,596 25 32,274 46 26.370 12 5.904 34 22.39 Salaries of Credit Manager and Assistants 416 67 5,000 00 4,500 00 500 00 11.11 Collection Expenses 34 19 417 62 675 93 268 31 38.22 Charges on Collections Made by Banks 20 87 491 00 514 40 23 40 4.55 Credit References 4 17 50 00 50 00 Legal Fees 176 30 542 25 737 89 195 64 26.51 Stationery and Supplies 34 26 296 73 321 51 24 78 7.71 Taxes, Insurance and Depre- ciation on Office Furniture 12 55 150 62 150 62 ■" Rent - 6% of Maintenance of Main Building 108 01 1,106 04 1,045 32 60 72 6.81 MlBoellaneous Expenses Total Credit and Collection Expenses GBHSRAl AUtlNI STRATI VB: 30 72 325 19 300 46 24 73 8.23 847 74 8,379 45 8,296 13 83 32 1.01 Salaries of Officers 1,676 00 20,100 00 20,100 00 Salaries of General Office Clerks 946 80 , 28 ' 11,976 80 9,821 45 2,155 35 21.95 Of fleers' Expenses 164 1,931 72 1,276 26 655 47 51.36 General Office Stationery and Supplies 182 31 2,360 49 2,693 76 333 27 12.38 Postage 192 19 2,215 00 1.906 48 308 62 16.18 Telephone and Telegrams 9 47 184 62 247 13 62 61 25.29 loe, Water and Towel Supply 10 00 160 00 173 40 13 40 7.73 Carfares 19 65 247 10 314 50 67 40 21.43 Taxes, Insurance and Depre- ciation on Office Furniture and Fixtures 75 00 900 00 900 00 Rent - 155? of Maintenance of Main Building 324 06 3,318 13 3.135 94 182 19 5.81 Miscellaneous Expenses Total General AdministratlTe Expenses TOTAL OPERATING EXPENSES 106 72 1,219 62 862 10 357 52 41.47 5,705 47 44,613 48 41,431 01 3.182 47 7.68 17,994 26 230,705 65 202^863 26 27.842 37 13.72 PART I PROBLEMS IN SINGLE ENTRY October 1, 1915 1. J. A. Anderson has this day purchased the stock and other assets of the hardware and plumbing business of C. J. Lee, 205 Main St., Taunton, Mass., paying therefor $10,262.50 in cash. The accounts receivable as of October 1, 1915, are to be collected by Mr. Lee and converted to his own use. The liabilities of the business are to be assumed by Mr. Anderson. The assets purchased by Anderson are as follows : Hardware and plumbing supplies $12,925.00 Horse and wagon 400.00 Store fixtures 550.00 $13,875.00 The liabilities are as follows : Due to Providence Mfg. Co $1,726.40 Due to J. B. Hunter & Co 776.90 Due to National Plumbing Supplies Co 926.20 Accrued taxes 183.00 $3,612.50 Mr. Anderson has deposited his check for $6,000.00 in the Taunton National Bank as an additional investment in the business. The books are to be kept by single entry, and consist of a Purchase Book, Sales Book, Cash Book, Journal and Ledger. Accounts are to be kept in the ledger with customers, creditors, the proprietor, expense and contracts. October 2 Bought for cash from the Symonds Manufacturing Co., merchandise $762.50 Bought from the Ames Plough Co., terms 2% — 10 days, net — 30 days, merchandise 2,500.00 October 3 Bought of the Chilson Stove Co., terms, net — 60 days, merchandise as per invoice 689.50 Paid cash to J. M. Rudd for counters, shelves, etc., for store 300.00 Paid cash for repairs to wagon . . .^ 15.00 October 5 Paid cash for the Ames Plough Company's invoice of October 2 less 2% cash discount. Cash sales of merchandise 360.00 October 8 Sold J. W. Foster, terms 2% — 10 days, net 60 days, merchandise -. 2,760.00 Sold A. B. Daniels, net 60 days, merchandise 822.90 Cash sales 240.67 October 10 Received cash from J. W. Foster for bill of Oct 8, less 2% cash discount. Cash sales 200.00 Entered into a contract with B. A. Smith to supply and instal the plumbing for a residence being erected by him. Contract price, $525.00. Bought of the National Plumbing Supplies Co. merchandise to be used on the above contract (Charge Contract No. 1) 127.50 Paid salaries and wages to date 165.60 Sold Calvin Brown, on account, merchandise as per bill 1,260.50 Contracted with J. W. Folsom to put a hot water heater into his house for $550.00. Bought for cash from the Chilson Stove Co. merchandise and supplies for the above con- tract. (Charge Contract No. 2) 310.00 Cash sales 560.57 36 October 12 Received from A. B. Daniels cash on account of bill of October 8 $500.00 October 13 Cash sales 192.00 October 15 Sold Williams & Everett, terms 2% — 10 days, net 30 days, merchandise 762.90 Paid cash for board of horse 15.00 Took merchandise from stock on account of Contract No. 1 276.00 October 16 Received from Calvin Brown, on account, a 30-day note ' 500.00 Contracted vi^ith Aaron Sleeper to do the plumbing in his new house for $400. Bought on account from National Plumbing Supplies Co., for Contract No. 3, merchandise • as per invoice 205.00 October 17 Sold C. E. Watson, net 60 days, merchandise as per bill 635.00 Paid cash for stationery 72.50 Paid salaries and wages to date : Store clerks , $135.00 Contract No. 1 50.00 Contract No. 2 35.00 220.00 October 19 Sold Calvin Brown, on account, merchandise 1,267.40 Cash sales 210.00 Paid tax bill of October 1 183.00 October 20 Mr. Anderson withdrew for personal use, cash 175.00 Contract No. 1 is finished. Charge B. A. Smith for the contract price $525; also credit Con- tract No. 1 for the same amount. October 22 Purchased from the Providence Mfg. Co. merchandise as per invoice, terms, net 30 days 2,607.00 Received from B. A. Smith, on account, cash 200.00 October 23 Contracted with the City of Taunton to furnish the plumbing and heating apparatus for schoolhouse No. 4. Contract price, $3,100.00. Purchased from the National Plumbing Supplies Co. materials for the above 1,700.00 Cash sales 310.50 October 24 Purchased from the Stanley Heating Co. for Contract No. 4 merchandise, terms, net — 30 days 500.00 Took materials from stock for Contract No. 4 160.00 Paid salaries and wages as follows : Store salaries '. $140.00 Contract No. 2 30.00 Contract No. 3 57.80 Contract No. 4 60.00 287.80 37 October 26 Contract No. 2 is finished. Charge Mr. Folsom for the contract price and credit Contract No. 2 for same amount. Paid Stanley Heating Co. for bill of October 24 $500.00 Paid Providence Mfg. Co., on account 1,500.00 Paid National Plumbing Supplies Co., on account 1,000.00 October 27 Sold Williams and Everett, on account, merchandise 560.90 Received from J. W. Folsom cash in full 350.00 Cash sales 169.40 October 28 Paid wages on account of Contract No. 3 25.00 Contract No. 3 is finished. Make the proper entries. Cash sales 120.42 October 29 • Sold B. A. Smith, 2% — 10 days, net 30 days, merchandise 260.00 October 31 Paid rent for October 275.00 Paid telephone and lighting bills 12.50 Cash sales 267.35 Paid wages and salaries : Store wages $147.00 Contract No. 4 42.00 189.00 Mr. Anderson withdrew for personal expenses 60.00 Inventories — October 31, 1914: Merchandise on hand (cost) 10,260.40 Unfinished contract (cost to date) 2,462.00 Horse and wagon 375.00 Store fixtures ." 800.00 REQUIRED : a. Write up the books of original entry, Purchase Book, Sales Book, Cash Book and Journal. Foot and rule the various books as of October 31. b. Post to the Ledger; balance the various ledger accounts and draw oflf a summary of ledger balances. c. Prove the correctness of the posting to the ledger. d. Write up a Statement of Assets and Liabilities showing the profit or loss for the month. e. Make and post a journal entry crediting or charging Anderson's personal account for the profit or loss, as the case may be; make and post journal entries, closing out the Expense account and the finished Contract account. (The diflFerence between the balances of the proprietor's capital account and his personal account should agree with the net worth as shown on. the Statement of Assets and Liabilities.) f. Because of the increasing volume of his business, Mr. Anderson decides to change his books from single entry to double entry. Make and post the proper journal entry. Provided the accounts have been properly kept it is not a difficult matter to change the books from a single entry to a double entry form. This may be done as follows: Make a journal entry in double entry form, listing all the assets as debits and all the liabilities as credits. (The assets and liabilities may be taken from the Statement of Assets and Liabilities.) To the liabilities add the proprietor's net worth, thus balancing the entry and making an equal 38 number of debits and credits. Place a check mark in the folio column against the names of each account that is already on the books and proceed to post the unchecked accounts, opening an account in the ledger with each asset and liability which does not already appear there. The books are now in double entry form. g. Draw off a trial balance from the ledger to prove that it is in balance. NOTE Use page 1 of a sheet of journal paper for the Purchase Book. Use pages 2 and 3 of the same sheet for the Cash Book. Use page 4 for the Sales Book. Use pages 1 and 2 of another sheet of journal paper for the Journal. Use page 3 of this sheet for the Summary of Ledger Balances and the Proof of Posting. Use page 4 of this sheet for the Statement of Assets and Liabilities. Place the final Trial Balance on a separate sheet of paper. 2. William Sprague began business January 1, 1915, with assets and liabilities consisting of ac- counts receivable, $8,000; accounts payable, $4,000; merchandise, $5,000; cash, $1,000. On June 30, 1915, his assets and liabilities comprised cash, $100; accounts payable, $7,000; notes payable, $1,000; furniture and fixtures, $800; merchandise, $12,000; accounts receivable, $8,000; office supplies, $100. Dur- ing the period Sprague had invested $2,000 additional and had withdrawn at different times $1,000, $600 and $1,400. His books are kept by single entry. Prepare a statement of assets and liabilities as of June 30, supplemented by a statement showing what the net profit or loss has been for the six months. Make entry or entries which will result in changing the books to double entry, assuming that the same ledger is to be continued. 3. Smith & Murray have been doing business as equal partners and have kept their books by single entry. They wish to admit Davis as a partner and have their books kept by double entry. Their books and inventory taken show the following assets and liabilities: Merchandise, $9,241; cash, $850; real estate, $3,000; accounts receivable, $6,941; store fixtures, $571. Smith's investment account cred- it, $6,400; Murray's investment account credit, $5,390; accounts payable, $4,175; bills payable, $975. Prepare statement of resources and liabilities and find each partner's present worth, after which make opening entry for the double entry set of books. Davis is admitted and invests cash, $3,000; merchandise, $2,000; bills receivable, $1,500. Make opening entry for Davis. 4. On January 1, 1910, Robert A. Grant began business as a retail dry goods merchant. His capital at the time consisted of merchandise, $12,300; cash, $1,150; furniture and fixtures, $600. He sold most of his goods for cash, although credit was extended in certain cases. The books were kept by single entry and consisted of a ledger, journal and cash book. At the end of three months Mr. Grant desired to ascertain whether he was making any money. The clerks were set to work taking inventory, and the bookkeeper was instructed to prepare a list of outstanding accounts receivable and payable. This produced the following results : Merchandise on hand $24,062.62 Accounts receivable 2,165.74 Accounts payable 15,203.21 Cash in bank 2,572.43 Cash in drawer .^. 224.17 Paid invoices showed purchases of office equipment during the period amounting to $275. Invoices have been received and entered on the books covering the purchase of goods amounting to $375.20, which goods have not yet arrived. Feeling the need of more working capital, Mr. Grant sold on February 10 certain bonds which he had been holding as investments, realizing thereon $1,250, which amount was placed in the business. Prepare (a) statement or statements showing the resources and liabilities and the net profit or loss for the period ; (b) entry to accomplish the opening of a double entry set of books. 5. W. A. Wallace and A. M. Adams are equal partners. Adams wishes to retire from the firm and an adjustment is required. Wallace's capital account shows a credit balance of $2,000 and Adams' a credit of $2,700. They agree to the following division of the assets : Adams takes cash, $4,400, and notes receivable, $3,700. Wallace takes the merchandise inventoried at $5,600, personal accounts re- 39 ceivable, $6,300, on which he is allowed a discount of 10% for bad debts, and he assumes the accounts payable, $1,100, and notes outstanding, $2,200. Arrange the above accounts in the form of a trial bal- ance, find the net gain or loss, and on the above basis of division of assets find which partner is in- debted to the other, and how much. 6. (From Illinois C. P. A. Examination.) A "single entry" set of books for 1912 are sent to you with an order to prepare a profit and loss statement for the year and a balance sheet at December 31. The starting capital was $34,500. The accounts receivable Jan. 1 $26,500.00 Dec. 31 $44,000.00 The accounts payable Jan. 1 7,500.00 Dec. 31 9,750.00 The merchandise Jan. 1 8,500.00 Dec. 31 9,500.00 The plant and machinery Jan. 1 10,000.00 Dec. 31 10,000.00 The furniture and fixtures Jan. 1 700.00 Dec. 31 700.00 A summary of cash book for the year shows as follows: Received : Accounts receivable $30,000.00 Capital paid in 2,500.00 Disbursed : Bank overdraft Jan. 1 3,700.00 Accounts payable 12,500.00 General expense 5,000.00 Wages 7,750.00 Personal account 1,500.00 Leaving a Bank Account of $2,000.00, and Currency on hand, $50.00. Provide 5% interest on capital, disregarding additions during the year and personal drafts, deduct- ing 10% for plant and machinery depreciation, 5% for furniture and fixtures, and 5% for bad debt reserve. 7. (From the Ohio C. P. A. Examination.) The books of the Butter, Egg & Cheese Company, with an authorized and outstanding capital stock issue of $25,000.00, are kept by single entry. It annually inventories all of its assets and liabilities and from such inventory prepares a financial statement. At December 31, 1913, this inventory is as follows: Office cash $1,584.00 Balance bank A 10,824.00 Accounts receivable 29,521.00 Ten shares stock in competing company 1,000.00 Plant and equipment 64,938.00 Merchandise inventory 21,737.00 Prepaid expenses 5,081.00 Overdraft bank B 5,003.00 Accounts payable ! 19,747.00 Mortgage payable 25,000.00 Notes payable 20,000.00 From a comparison of the financial statements at the beginning and end of year you find that the above item of plant and equipment is stated in an amount less by $11,460.00 than it was at the be- ginning of the year, plus additions during the year. The financial statement for the beginning of year showed a surplus of $35,703.00. From your analysis of the disbursements and unpaid accounts payable at beginning and end of year you find a total of purchases amounting to $661,910.00 and expenses for salaries, wages, supplies, repairs, etc., amounting to $120,115.00. 40 The purchases, however, included $450.00 paid out for John Smith, an employee, for which he had not reimbursed the company, and the total expenses of $120,115.00 included $250.00 in the hands of a buyer as a working fund. The inventory of merchandise at the beginning of the year was $18,125.00 and of prepaid expense was $2,653.00. There was canceled on the customers' ledger during the year $3,206.00 of uncollectible accounts. There was paid for interest and discount on notes payable $1,061.00 and for interest on mortgage $1,500.00. A 10 per cent, dividend was declared, but not paid. From the foregoing prepare : a. A balance sheet as at December 31, 1913. b. A profit and loss statement exhibiting net sales, cost of sales and gross and net profit for the year. 8. (From Illinois C. P. A. Examination.) A dispute arises between two partners carrying on a retail business under the name of Levy & Mayer, and you are called in to adjust the accounts between them, when you find the following con- ditions : a. The books have been kept on single entry and it is impracticable to go over the accounts in sufficient detail to complete the double entry, b. It is three years since the firm has had an accounting, when a Balance Sheet was prepared (copy of which is handed to you), and contains the following: Assets— December 31, 1908: Store fixtures , $15,000.00 Leasehold, (5 years to run) 5,000.00 Merchandise on hand 35,000.00 Customers' accounts 10,000.00 Cash on hand and in bank 12,500.00 Prepaid expenses 2,500.00 $80,000.00 Liabilities : Accounts payable $15,000.00 A. B. Levy— special loan 20,000.00 A. B. Levy— capital account , 30,000.00 W. K. Mayer— capital account 15,000.00 $80,000.00 c. You are informed that Mr.. Levy's loan bears interest at 6% per annum, and that the Capital Accounts are to be credited with interest at 5%. Also that Mr. Mayer, who had active charge of the business, is to receive 20% of the profits in lieu of other salary, the remaining 80% of the profits to be divided between the partners in proportion to the capital contributed. d. The inventory as taken as at December 31, 1911, was as follows: Merchandise : Good condition $50,000.00 Old styles and partly soiled 7,500.00 Obsolete and useless 1,500.00 $59,000.00 Customers' Accounts: Good $12,500.00 Doubtful 2,500.00 Bad 1,000.00 $16,000.00 Accounts Payable $17,500.00 41 You also found that on June 30, 1910, Mr. A. B. Levy's Special Loan had been repaid with inter- est, and that a 5% loan had been obtained from the bank for $10,000.00, and that the Cash in Bank and on Hand at December 31, 1911, was $15,000.00, while the Bank Interest Prepaid was $250.00, and In- surance Premiums Prepaid amounted to $5,000.00. The Partners' Drawings on account of Profits and Interest and Commissions were found to be as follows: A. B. Levy W. K. Mayer In 1909 ' $12,000.00 $16,000.00 In 1910 15,000.00 15,000.00 In 1911 18,000.00 20,000.00 $45,000.00 $51,000.00 After consultation with the Partners it was agreed to write 50% off the value of the "Old Style and Partly Soiled" goods and off the Doubtful Accounts Receivable, and to consider the Bad Accounts and Obsolete and Useless material to be of no value. You are required to draw up the following: 1. A statement showing how you arrive at the Profit and Loss for the three years, showing also the disposition thereof. 2. The Partners' Accounts. 3. A Balance Sheet at December 31, 1911, after making the necessary adjustment of the accounts. 42 PART II PARTNERSHIP PROBLEMS 9. (From New York C. P. A. Examination.) X and Y bought merchandise to the amount of $12,000. X contributed $7,500; Y, $4,500. They afterward sold Z a one-third interest for $6,000. How much of this amount should X and Y receive, respectively, in order to make X, Y and Z equal partners. 10. During the summer of 1909, D and S were equal partners in the oriental goods business in Lake Placid, N. Y. At the close of the season, after all collections had been made and all debts paid, there remained in the bank a balance of $64.85. Their books of account showed that during the summer D had withdrawn $219.80 and S, $132. At the close of the season they dissolved partnership, but no immediate settlement was made, and three months later, when they came to settle, D had spent the remaining balance of $64.85. At that time D entered a claim for personal goods to the amount of $26, which he had contributed to the firm, and S a similar claim for $15.75. S demands a settlement. What amount is owing to him? 11. Smith and Johnson are partners. Smith having invested $20,000 and Johnson $9,000, profits and losses shared equally. Upon liquidation losses are suffered so that the amount available for dis- tribution to the partners is only $10,000. How should the $10,000 be divided? 12. A, B and C are partners, their capital accounts showing A, $60,000; B, $20,000, and C, $45,000. Upon dissolution the assets of the concern are sold for $54,700. a. How should the deficit be divided? b. B is insolvent and the claim against him is worthless. How should the amount available for distribution be divided? c. Show the partners' accounts as they would appear. after the books had been closed finally. 13. (From New York C. P. A. Examination.) Three partners contribute capital as follows : X, $90,000; Y, $45,000; Z, $15,000. They share profits in the proportion of X, 50% ; Y, 30%, and Z, 20%. X's salary is $5,000, Y's salary is $3,000, Z's salary is $2,000. At the end of their fiscal period Z dies. The books are closed and the net assets ascertained to be $152,500. X and Y liquidate the firm's affairs and distribute the surplus assets quarterly as fol- lows : First quarter $42,410.20 Second quarter 74,622.30 Third quarter 31,967.50 $149,000.00 Prepare a statement of the partners* accounts, showing how the distribution of assets should be made, together with the apportionment of the loss. 14. (From Examination for Admittance to the American Institute of Accountants, June, 1917.) A, B and C were in partnership, A's capital being $90,000, B's $50,000, and C's $50,000. Their agreement is to share profits in the following ratio: A, 60% ; B, 15% ; C, 25%. During the year C withdrew $10,000. Net losses on the business during the year were $15,000, and it is decided to close out the business. It is uncertain how much the assets will ultimately yield, although none of them is known to be bad. The partners therefore mutually agree that as the assets are liquidated, distribution of cash on hand shall be made monthly in such a manner to avoid, so far as feasible, the possibility of paying to one partner cash which he might later have to repay to another. Collections are made as follows: May, $15,000; June, $13,000; July, $52,000. After this no more can be collected. Show the partners' accounts, indicating how the cash is distributed in each instalment, the essential feature in the distribution being to observe the agreement given above. 43 15. (From New York C. P. A. Examination.) A, B and C agree to start in business with a capital of $200,000, of which A is to furnish $100,000 and B and C $50,000 each. A is to have Yi interest in the business and B and C each ^. Interest at 5% is to be credited on excess, or charged on deficiency of capital. A contributes $100,000, B $45,000 and C $40,000. How would the capital accounts stand on the books after adjusting the interest at the end of the year? 16. (From New York C. P. A. Examination.) For the purpose of making a joint speculation A contributes $3,000, B $2,000, and C $1,000, and they agree to share the profits or losses in proportion to the amounts contributed. October 15, 1900, A deposited the $6,000 with his broker, giving instructions to buy 300 shares New York Central and 300 shares Chicago, Burlington & Quincy. The order was executed October 16, 1900, N. Y. C. at 130^ and C. B. & Q. at 127. April 10, 1901, under instructions from A, N. Y. C. was sold at 151>4 and C. B. & Q. at 191 5^, a check being received from the broker to close the account. How much does A owe B and C for their interests in the deal, calculating interest at 6% (365 days to the year), commission at ^%, and revenue tax of $2 for each 100 shares? 17. (From C. P. A. Examination, New York.) A, B and C were partners carrying on business with a capital December 31, 1900, of $60,000, of which A's share was $30,000, B's $20,000, and C's $10,000; each partner was entitled to 5% interest on his capital; profits or losses to be shared as follows: A, 7/12; B,l/4, and C, 1/6. The partners agree, July 1, 1901, to dissolve. After all partnership assets had been realized and all debts paid, except $500 legal expenses, there remained a balance in bank of $48,750. Final settlement takes place December 31, 1901. Cash in bank bears interest at 2% from October 1, 1901. Show a statement for settlement and partners' capital accounts as of December 31, 1901. 18. Wilson and Lawson are partners, sharing profits and losses equally. The partnership is dis- solved December 31, 1907, at which time Wilson's capital investment was $10,000 and Lawson's $2,500. The total liabilities of the firm are $25,000, which includes $5,000 due Wilson on loan account and $2,500 due Lawson on loan account. The assets of the firm are disposed of for $30,000 on May 1, 1908. Pre- pare accounts closing the partnership and showing the position in which the partners stand to each other. No allowance for interest is required. 19. (From Massachusetts C. P. A. Examination.) A, B and C engage in business, A contributing $10,000 and B $5,000, while C, in lieu of any capital contribution, agrees to undertake the active management at a salary of $3,000 per year, to be paid monthly. After allowing 5% interest on capital, they are to divide the net result in the proportions of 5, 3 and 2, respectively. At the end of eighteen months they ascertain the position to be unfavorable and decide to wind up. The assets realize $12,500; there are no liabilities except for capital and interest thereon and one month's salary due C. Make up the partners' accounts, showing the amount to be received by each. 20. (From Massachusetts C. P. A. Examination.) A and B form a partnership, A investing $30,000 and B $50,000. They agree to share expenses, profits and losses equally. They further agree to and do leave their original investments intact. At the end of the first year the profits from the operations of the business amount to $30,000, against which A has drawn in twelve equal monthly instalments on the last day of each month an aggregate amount of $9,000; B has drawn against his profits on the last day of each quarter the sum of $2,500. Prepare journal entries adjusting interest at 5% per annum between the partners in respect to both their investment and drawing accounts, and render statements showing the amount each partner has in the business at the end of the year. 44 21. (From Illinois C. P. A. Examination.) A and B enter into a partnership and will share profits in the proportion indicated by their invest- ments. A furnishes $25,000 and B $15,000, which is invested in lands and buildings, $10,000, and mer- chandise, $30,000. However, before they have actually commenced business C, realizing that A and B have a promising venture, offers to buy a 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? 22. (From Massachusetts C. P. A. Examination.) A and B, partners, finding themselves in want of further capital in their business, and both being possessed of real property, A deposited deeds with the bankers of the firm as security for a loan of $2,000.00 to the firm. B arranged on some of his own property a mortgage for $1,500.00 with a private friend and paid the proceeds into the firm's bank account. The bankers were eventually obliged to realize the security held by them which produced, after payment of all expenses, the sum of $2,850.00. Prepare entries recording these transactions in the firm's books. 23. (From California C. P. A. Examination.) Two partners, Wilson and Peters, find at the end of the first year's business that the balance sheet shows Wilson's interest to be worth $18,000 and Peters', $9,000. The good will of the firm is worth $3,000. Each partner draws profits in proportion to his investment. They conclude to take in another partner and to give him 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 new capital? How will the profits be divided? 24. (From Washington C. P. A. Examination.) H. Pratt, F. Jones and J. Todd entered into partnership on July 1, 1914. Pratt brought in as cap- ital $15,000.00; Jones, $10,000.00, and Todd, $5,000.00. They were to share profits in the proportions of three-sixths, two-sixths and one-sixth, but as Jones and Todd were the working partners they were to be credited at the close of each current year, by way of salary, with the respective sums of $1,250.00 and $750.00. Pratt was to be allowed to draw each year as against profits $2,500.00, Jones $1,650.00 and Todd $1,250.00, but interest at 6% was to be charged on such drawings. The partnership agree- ment also provided that Jones and Todd should have the right to bring in extra capital not exceeding $8,000.00 each, and that upon such capital they were to be credited with 6% interest. On closing the books on June 30, 1915, it was found that the partners had drawn: Pratt Jones Todd Sept. 1 $500.00 Aug. 1 $400.00 Aug. 1 $300.00 Nov. 1 750.00 Sept. 1 350.00 Sept. 1 250.00 Dec. 1 1,000.00 Oct. 1 500.00 Nov. 1 400.00 Dec. 1 425.00 Dec. 1 100.00 On October 1, Jones brought into the business as additional capital the sum of $1,250.00 and Todd $2,000.00. On closing the books at June 30, 1915, and before the salary or interest to partners had been dealt with, the balance to the credit of Profit and Loss stood at the sum of $11,000.00. Make the closing entries and prepare Capital and Drawing Accounts showing the exact position of the partners of July 1, 1915. 25. December 31, 1915, the following trial balance was taken after closing from the books of Dudley and Sealy: Assets Liabilities Cash $460,000 Accounts Payable $800,000 Accounts Receivable 550,000 Notes Payable 490,000 Notes Receivable 75,000 Dudley, Capital 525,000 Merchandise 830,000 Seal)', Capital 450,000 Real Estate 350,000 $2,265,000 $2,265,000 45 Profits and losses are shared equally. On the date mentioned above an agreement is made to admit Williard into the partnership, he to in- vest in the business sufficient cash to give him a one-third interest. Inspection of the accounting records shows that of the accounts and notes receivable now carried on the books, $30,000 of accounts receiv- able and $45,000 of notes receivable are worthless. A physical inventory shows the cost of goods on hand to be $890,000. The good will is valued at $150,000. Make the entries necessary to properly adjust the books and to show the admitting of Williard. Show a trial balance taken from the books after these entries have been made and posted. 26. (From New York Examination.) A, B, C and D enter into partnership with a capital of $100,000.00. A invests $40,000.00, B $30,000.00, C $20,000.00, and D $10,000.00. They are to share profits or losses in the following proportions : A 35 % , B 28%, C 22%, and D 15%. , They are also to receive stipulated salaries chargeable to the business. At the end of six months there is a loss of $8,000, and meantime the partners have drawn against prospective profits as follows: A, $400; B, $600; C, $600, and D, $400. They dissolve partnership and agree to distribute proceeds of firm assets monthly as realized. C and D enter other business and A and B remain to wind up the firm's affairs, it being stipulated that from all moneys collected and paid over to C and D a commission of 5% is to be deducted and divided equally between A and B for their services in the winding up. The realization and liquidation lasts four months and the transactions are as follows : ' Expenses and losses Assets Liabilities on realization exclu- realized liquidated sive of commissions First month $30,190.00 $7,900.00 $400.00 Second month 50,300.00 6,100.00 750.00 Third month 20,010.00 3,800.00 340.00 Fourth month 9,500.00 2,200.00 110.00 $110,000.00 $20,000.00 $1,600.00 Prepare partners' accounts showing the amount payable monthly to each one. 27. (From the Final Examination of the Society of Accountants and Auditors in London, Eng- land, December, 1907.) Diogenes Brown and Eusebius Robinson, having separate businesses, agree to a joint venture in a cargo of goods to a newly-established Colony, under the following arrangement : Each supplies $5,000 of his own goods, besides which they jointly purchase $10,000 (net) from other parties. This latter sum is paid by E. R., who receives all the goods into his own warehouse, packs them, puts them on board ship, and pays all the necessary outgoings. For this he makes a charge of $50, and is entitled to interest at 5 per cent, per annum for Cash-out-of-pocket, until the real- ization. The out-of-pocket expenses are: Freight and Charges, $175; Insurance, $125, and Packing Cases, $35. The goods are sold upon arrival for $25,000, and at the end of three months from the start of the transaction a remittance, less charges for Landing, Warehousing, Sale Charges and Commis- si6ns, etc., $412.25, is received by E. R. Journalize these transactions, and raise proper Joint Adven- ture Accounts in the books of both parties, showing the profit made, which is to be equally divided. 46 28. (From the State of Washington Examination.) A and B, who had hitherto been in business separately, decided to enter into partnership on July 1, 1905. The Balance Sheets of A and B were on that date as follows: Liabilities Accounts Payable Capital Account . $1,000 5,000 Liabilities Accounts Payable Capital Account . , $1,500 3,000 $6,000 $6,000 $4,500 $4,500 Assets Furniture $750 Accounts Receivable (face value) .... 2,500 Merchandise 2,550 Cash 200 B $6,000 Assets Furniture $600 1,500 Accounts Receivable (face value) Merchandise 2,000 Cash 400 $4,500 It was agreed that A and B should make over their respective accounts receivable at $200 and $150 less than the face values shown in the Balance Sheets, these amounts to be charged against their Cap- ital Accounts and carried on the partnership books as a reserve for bad and doubtful accounts. Of B's furniture only $250 was to be taken over by the partnership. With the above exceptions the assets and liabilities of the parties were to be taken over by the partnership at the Balance Sheet figures, ex- cept that B was to invest in the partnership, in cash, a sum which, after making the adjustments above referred to, would make his capital account the same as that of A, Draw the Balance Sheet of the A and B partnership on July 1, 1905, giving effect to the fore- going provisions. 29. A and B of Colorado engaged as equal partners in a stock-raising enterprise with a capital of $10,000, each contributing one-half. A received a salary of $200 per month. At the end of three years they decided to terminate the business, and B, who handled all the money of the copartnership and kept the books, reported the following receipts and payments : Receipts A's investment $5,000 B's investment 5,000 Sales of Cattle 80,359 Loans 15,000 Payments Purchases of Cattle $57,000 Loans repaid 14,000 A's salary *. 4,200 Interest 1,000 Expenses 9,000 A's withdrawals 2,200 B's withdrawals 1,800 A round-up and branding of the herd showed the following inventory : 30 heifers at $20 ; 38 steers at $30; 75 cows at $20; 10 bulls at $60; 75 yearlings at $12; 100 calves at $8. There remained with the bankers a balance of $16,150 and other assets were as follows: Horses, $800; tools, etc., $100; sup- plies, $150; branding irons, $40; salt, $100; loan at the bank, $1,000; unpaid wages, $260. You are re- quired to prepare such statements as are necessary to show (a) the financial condition of the copart- nership at its termination ; (b) the results of the three years operations ; (c) the interest of each partner. 30. (From Illinois C. P. A. Examination in Practical Accounting.) 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 them- selves in case of dissolution any good will which may have accrued to the business. 47 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 Notes Receivable 15,000.00 Cash 18,000.00 $183,000.00 Liabilities : Notes Payable $10,000.00 Accounts Payable 12,500.00 A's Account $4,500.00 B's Account •. 4,000.00 C's 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. Make the entries necessary to close the books of the partnership, and show the con- dition of the partners' accounts after closing. ^ 31. S and T began business August 1, 1899, S investing $8,000 and T $5,000, gains and losses to be shared equally and no interest allowed on investment or charged on withdrawals. The firm dissolves May 1st, 1900. The books had been kept in a haphazard fashion, but the part- ners agreed to the following statement, which was submitted for settlement : Net debit of S, $2,100 ; net credit of T, $3,500; cash on hand, $3,400; 10 shares of bank stock (market value, $1,100) ; expense debit, $5,100; profit and loss debit, $3,000; credit, $500. The bank holds the firm's note for $2,000, on which there is accrued interest, $60. Prepare a statement showing the settlement of the partnership affairs of the firm. 32. (From Washington C. P. A. Examination.) A and B carried on business in partnership and divided profits and losses in proportion to their capital, three-fifths and two-fifths, respectively. On January 1, 1915, A's capital was $52,500.00 and B's $35,000.00, as shown by a balance sheet of that date. They agreed to admit C as a partner from the same date on the following terms : 1. Assets and liabilities and capital to be taken as shown in the balance sheet; 2. $12,500.00 to be added to the assets for good will ; 3. The amount of good will to be added to A's and B's capital in the proportion in which they divide profits ; 4. C to pay to the partnership such a sum as will give him a one-fifth share in the business. a. State what amount of capital C has to bring in. b. Set out the capital accounts of each partner in the new partnership, and c. State in what proportions the profits will be divided in the future, A and B, as between themselves, sharing in the same proportions as before. 48 PART III CORPORATION ACCOUNTS Section 1 — General Problems « 33. R. H. Barnes, C. W. Weston and J. H. Moore organize the R. H. Barnes Company with a cap- ital stock of $25,000, divided into shares of $100 each. On June 1 all of the stock had been subscribed for, and the subscribers made payments for their stock in cash, June 15. Make opening entries in the books of the corporation. 34. The Wakefield Company was incorporated January 1, 1913, with an authorized capital stock of $100,000, consisting of $50,000 6% Preferred Stock and $50,000 Common Stock, divided into shares of $100 each. All of the Preferred Stock and 50^ of the Common Stock had been subscribed for. The subscriptions were paid February 1. Show in journal form the entries to be made for the above. 35. At the time of incorporating the Jones Manufacturing Company, May 1, 1912, to take over the business established by William Jones, it was the agreement between Jones and the other incorpo- rators that of the $100,000 in capital stock which he received in exchange for his business, he would donate to t|ie corporation 20% to be sold to provide cash to make necessary expansion. On July 10 $10,000 of the stock so donated was sold to investors at 60. Make proper entries. 36. The directors of the Consolidated Railway Company vote on issue of $850,000 first mortgage 5% bonds on March, 1912, due in 1940. The entire issue is subscribed for by E. H. Sloane & Co., Investment Bankers, at 98. Make proper entry to show the issue of the bonds. 37. The Toledo Paper Company, finding that it can use to advantage additional capital, issues $100,000 first mortgage 20-year Gold Bonds bearing 5% interest. It sells these bonds at 96. Give the entry on the books of the corporation. J. M. Davidson buys $10,000 of the bonds at 96. What entry will Davidson make for the pur- chase ? 38. (From Examination for Admittance to the American Institute of Accountants.) A corporation having issued its capital stock at par buys 1,000 shares at 95. It later sells 500 of these shares at 98, and 300 at 85, and 200 at 101. Give the journal entries covering these transac- tions. How should the items appear on the balance sheet immediately after purchasing the stock, and im- mediately after each of the sales? 39. (From Massachusetts C. P. A. Examination.) A company is formed with a nominal capital of $500,000 in 50,000 shares of $10.00 each. Of these, 40,000 are issued and subscribed for. $1.00 per share is payable on application, and $2.00 per share on allotment. A call of $3.00 per share is made four months after the date of allotment, and a further call of $3.00 three months after the date of the first call. The deposit, with the amount per share due on allotment, is paid in full, but in respect to the first call $110,000 only is received, and on the second call $95,000 only. The amounts received are paid into the company's banking account. Prepare journal entries to record the above transactions. 40. (From Examination for Admittance to the American Institute of Accountants.) A company organized with $1,000,000 capital stock which it placed at par, and $1,000,000 5 per cent, bonds which it sold at 90, this being a 6 per cent, basis. It paid to contractors, etc., for construction $1,800,000, and this amount of investment ran, on the average, for one year before the property was ready 49 for operation. When operation began the company had therefore paid one year's interest on the issue of bonds. No dividends were paid on the stock. In addition to the sum named above the company also paid $10,000 for legal expenses in connection with incorporation and $5,000 for franchise and other fees. How should the accounts appear when the property was ready for operation ? 41. A Massachusetts corporation was organized with a capital of $100,000 — 10,000 shares of $10 each. At the meeting of the incorporators it was resolved to purchase certain patent rights from and for the whole of the capital, less 100 shares held by the incorporators and paid for at par. Afterward the former owner of the patent rights agreed to sell to the company 5,900 shares for the sum of $29,500, or $5 per share, which was accepted, and B was appointed trustee to hold the stock in his name as trus- tee, and was authorized by the directors to sell the stock at $8 per share, which he succeeded in doing. Give proper entries for the above transactions and how would the profits on this transaction afifect the dividends of the stockholders ? 42. (From New York C. P. A. Examination.) A corporation organized under the laws of the state of New York has an authorized capital of $200,000, consisting of 1,000 shares common and 1,000 shares preferred stock, par value $100 each. Patents were acquired of a patentee for $50,000 common and $50,000 preferred stock. The patentee donated one-half of each issue of his stock to the company for its use in securing working capital. Show entries necessary to record these transactions. 43. A corporation is organized with a capital stock of $100,000 to acquire a business formerly con- ducted by A. The business shows Sundry Assets $150,000 and Sundry Liabilities $80,000. Three shares of stock are sold at par to X, Y and Z, who afterward become directors of the new corporation. All of the remaining stock is issued to A, who immediately donates $10,000 of stock to the treasury to procure additional capital. Two months. later $5,000 of the donated stock is sold at 48 and six months later the remainder was sold at 62. 44. (From Illinois C. P. A. Examination.) A company is formed at January 1st, 1907, with a capital of $1,750,000.00, consisting of 17,500 shares of the par value of $100.00 each. Of these, 16,250 shares are sold to subscribers at par for cash. The following is a summary of the transactions of the company during the first twelve months of carrying on business : The preliminary and formation expenses are $12,500.00, which are paid in cash. They purchase freehold and leasehold current going iron works and collieries from A. B and Com- pany for $1,250,000.00. They take over from them the necessary plant and machinery at $375,000.00, and a stock of iron, coal, etc., at $229,250.00. The vendors take in part payment of their purchase money $50,000.00 on First Mortgage Bonds, and $125,000.00 in shares of the company, fully paid. There is $1,665,000.00 paid to them in cash. The company expends during the year $54,200.00 in additions to the plant and machinery by pur- chases from sundry creditors to the extent of $41,300.00, and by payments through Cash Account of $12,900.00. They purchase materials from sundry creditors to the extent of $461,500.00, and they purchase for cash to the extent of $67,310.00. They pay for wages, rents, royalties, tools, wagon hire, repairs, etc., $842,700.00. Their sales from iron and coal to sundry debtors amount to $1,526,585.00. They receive in cash from sundry debtors $1,040,700.00. They draw on sundry debtors bills to the extent of $419,740.00. They transfer of the above amount to sundry creditors $54,510.00, and the bank credits their account with $331,400.00, the proceeds of those discounted. They pay in cash to sundry creditors $231,415.00. They accept for creditors, bills of exchange to the extent of $142,110.00; of this amount they meet $86,005.00 through their banking account, the balance being still current at the end of the year. They borrow on First Mortgage Bonds $375,000.00, which is paid into their banking account as received. 50 They pay to their bankers for interest and commissions $8,040.00 ; for salaries, office expenses, and management, $15,670.00; law charges, $410.00, and for Directors' and Auditors' fees, $3,010.00. They write off five per cent, from the original amount of the plant and machinery for deprecia- tion, but nothing from the additions. They also write off the following amounts : $25,000.00 from the freehold and leasehold property to cover minerals taken from the freehold and to provide for the expiration of the leases ; $3,005.00 for bad debts, and one-fifth from the preliminary expenses. The discount allowed to sundry debtors amounted to $5,530.00. There is due at the close of the year $2,250.00 for interest on Bonds, and the value of the stock of materials then on hand is $154,285.00. All receipts are paid into the bank, and all payments are made by check. Make journal entries covering the above transactions for the year and prepare a Trading and Profit and Loss Account and a Balance Sheet. 45. The Domestic Manufacturing Company, organized with a capital stock of $5,000,000, one-half preferred stock and one-half common stock, sells five shares of common stock at par for cash. It issues to John Jones $1,500,000 preferred stock and $1,000,000 common stock, in consideration of the assign- ment by him of certain patents, rights and contracts. Later Jones agrees to surrender for valuable con- sideration to the treasurer of the Domestic Mfg. Co., $1,000,000 common stock and $500,000 preferred stock. Still later Jones agrees with the Domestic Company to surrender $1,000,000 preferred stock and take in lieu therefor $1,000,000 in common stock. Jones makes a further agreement with the Domestic Company to dehver to it all the stock in the Blank Company, appraised at $350,000, and to pay the Domestic Company $150,000, for which he is to receive $500,000 in preferred stock of the Domestic Company. Illustrate by journal entries the necessary accounts to be opened in the books of the Domestic Company to show each step taken in the foregoing agreement. 46. (From Illinois C. P. A. Examination.) A corporation's profits for the year ended December 31, 1908, amount to $451,000.00. The by-laws require a reserve equal to ten per cent, of any dividend paid to the common stockholders, and any sur- plus remaining after such dividend has been paid is to be applied to the reserve until it amounts to $250,000.00. The reserve at December 31, 1907, was $156,020.00. The capital is $2,000,000.00— one- half cumulative preference five per cent.,, and one-half common, all fully paid. On December 31, 1908, the preferred dividend is two and one-half years in arrear. On December 31, 1907, profit and loss account was in debit $202,000.00. Set out your treatment of the profit for 1908, and comment con- cisely on the position. 47. (From New York C. P. A Examination.) The Prosperous Company is organized under the laws of the State of New York to conduct a manu- facturing business. The authorized capital is $500,000, divided into $250,000 common and $250,000 pre- ferred stock, par value of shares $100. Five incorporators subscribe each for one share of common stock at face value. John Peters, one of the incorporators, purchases from three manufacturing com- panies their complete plants for $499,500 and transfers said plants to the Prosperous Company for the remaining $499,500 of common and preferred stock and $100,000 of first mortgage 5% bonds out of a total issue of bonds amounting to $150,000, leaving $50,000 of bonds in the treasury. The incorpo- rators then pay in cash for their respective subscriptions. The individual assets acquired are as follows: Land and buildings, $75,000; plant and machinery, $200,000; tools, equipment and fixtures, $50,000; inventories, $100,000; accounts receivable, good, $28,- 000, doubtful, $5,000; cash, $12,000. Prepare (a) opening entries for the books of the Prosperous Company, (b) initial balance sheet showing the company's financial condition. 51 48. The X Company is incorporated under the Business Corporation Law of Massachusetts, Jan- uary 1, 1916, with an authorized capital of $100,000. One share of stock is given to each of the three incorporators. A, B and C, in order that they may qualify as directors ; five shares are given to a lawyer, D, as compensation for legal services performed in organizing the corporation ; an investment banker un- dertakes the sale of the remainder of the stock to investors less fifty shares of stock, which he is to receive as compensation for his services. The subscription books remain open until March 1. Pay- ments for the stock are to be made in four equal instalments on the first day of March, June, September and December. On March 1 the banker reports that all the stock is subscribed for and the first instalment is called and paid. Fifty shares of stock are issued to the banker for his services. Stock certificates are issued to all subscribers. June 1 the second instalment is called and paid. September 1 the third instalment is called and paid by all subscribers except F, who subscribed for 10 shares. December 1 the fourth and last instalment is called and paid, F again defaulting on the payment of his instalment. January 10, 1917, the treasurer of the X Company offers F's shares for sale at public auction. The shares are sold to G for $700. The expenses of the sale amount to $25. A stock certificate for the ten shares is issued to G. After deducting expenses and interest on unpaid instalments at 6% the surplus of the sale is remitted to F upon the surrender of his certificates. a. Make necessary entries covering the above. b. In case $400 is the highest bid at auction for the shares what action would the directors take ? c. Instead of offering F's shares for sale at auction the directors elected to bring action at law against him for the amount due from him, together with interest thereon. The action is entered on February 1, 1917, for $535, covering interest and charges. Judgment is obtained on March 1. At the end of thirty days as the judgment remains unpaid, the directors declare all amounts previously paid by him forfeited to the corporations, an entry of transfer of the stock to the corporation is made, and the original certificate is declared void. Make necessary entries. 49. George N. Brown is an inventor and holds patent rights, processes and inventions which are used by different companies in the manufacture of gas' and electric engines and electrical appliances. He decides to organize a corporation for the purpose of selling gas and electric engines, pumps, irrigation machinery and a full line of electrical appliances. A central jobbing house is to be established in Boston and selling agencies will gradually be opened in all the principal ^cities. The corporation is organized under the laws of the State of Maine, March 1, 1915, the incorpo- rators being George N. Brown and three of his business associates. The corporation name is The George N. Brown Company. The authorized capitalization is $100,000, divided into 500 shares of 7% non-cumulative Preferred Stock, par value $100 per share, and 500 shares of Common Stock, par value $100 per share. In order that the four incorporators may qualify as directors, each is given two shares of Common Stock. Brown assigns to the corporation all of his patent rights and trade marks in ex- change for 100 shares of Preferred and 492 shares of Common Stock. He at once donates to the corpo- ration all of his Preferred Stock and 242 shares of his Common Stock to be sold to procure working capital. He also assigns to each of the other three incorporators for a private consideration one-fourth of the remainder of his holding of Common Stock. King & Co., stock brokers, are engaged to sell the Preferred and Common Stock held in the treasury, their commission to be paid in treasury stock. They sell to John White 50 shares of the Pre- ferred Stock, taking in payment two notes, one for $3,000 and the other for $2,000, each for 3 months and bearing interest at 5%. The $2,000 note is immediately discounted at the bank at 6%.* For making this sale King & Co. are given 25 shares of Preferred and 75 shares of Common Stock. Brown is elected general manager of the company at a salary of $2,000 per year and traveling expenses. The payments made during the month of March are as follows: Office Furniture, $200; Of- 52 fice Rent, $50; Brown's salary for the month; organization expenses amounting to $250; this included lawyer's fee, stenographer's services, publicity, state corporation fee, corporation seal, accountant fee, corporation books of account, etc. Make journal entries covering the above transactions, post and take a trial balance. 50. A corporation is organized to conduct a manufacturing business with a declared capital of $2,000,000, divided into 20,000 shares of the par value of $100, of which 15,000 shares or $1,500,000 shall be preferred stock and 5,000 shares of $500,000 common stock. The corporation purposes to issue $500,000 in consolidated mortgage bonds to be used toward the purchase of sundry properties. The amount of capital with which the corporation begins business is $50,000, being the proceeds of subscription for 500 shares preferred stock. To carry out the purposes of said corporation, the real estate, water power, machinery, good will, etc., of certain existing corporations has been purchased at an appraised valuation of $2,000,000, viz.. Diamond Mfg. Co., $200,000 ; Eureka Mfg. Co., $300,000 ; Champion Mfg. Co., $500,000 ; American Mfg. Co., $600,000; Aetna Mfg. Co., $400,000, and in payment full paid stock and bonds have been issued at par on a basis of 60% in preferred stock, 20% in common stock, and 20% in bonds. Materials and supplies are to be paid for in cash when their value is determined. Formulate the entry necessary to open the books of the new corporation. 51. (From Illinois C. P. A. Examination.) As on January 1, 1890, a corporation is formed for the purpose of acquiring and conducting a ceme- tery, and starts business on that date with a capital stock of $100,000.00 paid for in cash. The company first purchases forty acres of land within easy access of a large city, paying for same at the rate of $1,000 per acre. It proceeds to expend considerable sums of money in the purchase and planting of trees and shrubs, laying out drives and pathways, sodding, building of glass houses, etc. The policy of the company is to withhold the selling of burial lots until after January 1, 1900, so as to allow the trees and shrubs to become more fully grown and in the expectation that with the growth of the city their property will become more valuable. In the year 1900 the company commences selling burial lots, and all lots are sold under a special provision whereby the company agrees to apply fifty per cent of all cash received on sales in the purchase of four per cent bonds until a total of $150,000.00 of such bonds shall have been so purchased. The agreement further provides that after all the lots have been sold the company will wind up its affairs and the above bonds, amounting to $150,000.00 shall be given to the city, which shall use the income of such bonds for keeping up the cemetery. It is the custom of the company not to purchase bonds until after the close of each fiscal year, and after the total sales of that year have been determined. March, 1905, the directors of the company find that while they believe the books to be in balance, no proper entries have been recorded showing total cost of their investment, and that no entries have been made with respect to the fund of $150,000.00 from which said bonds are to be purchased. While cash dividends have been declared and paid, the directors are in ignorance of what their profits actually have been, and how much of the dividends so received have been out of their profits and how much in the nature of liquidating dividends, representing a return of their original investment. They, there- fore, employ a certified public accountant to determine all these matters, and to make the necessary entries on their books, and render report to them. After determining the clerical accuracy of the books the accountant draws off the two trial balances given below, and from them prepares the necessary entries and obtains the information required by the directors. 53 TRIAL BALANCE Debits: Jan. 1, 1900 Jan. 1, 1905 Real estate $40,000.00 $40,000.00 Improvements 45,000.00 45,000.00 Bonds 125,000.00 Administration expense 20,000.00 46,000.00 Upkeep of cemetery 45,000.00 Dividends paid 130,000.00 Cash 7,000.00 40,800.00 $112,000.00 $471,800.00 Credits : Interest account representing interest at 4% on unexpended cash during development period $12,000.00 $12,000.00 Bond interest account 9,800.00 Sale of lots 350,000.00 Capital stock 100,000.00 100,000.00 $112,000.00 $471,800.00 An inventory of their unsold lots as on January 1, 1905, shows that they have ten acres left unsold of equally desirable character with that already sold. Draw up entries, prepare profit and loss account for period and- balance sheet as on January 1, 1905, in same manner as if you had been the accountant engaged. In any interest calculation use 4 per cent. Simple interest. 52. (From Michigan C. P. A. Examination.) A corporation is organized under the laws of the State of Michigan, with Capital Stock $250,000.00, of which $100,000.00 is preferred and $150,000.00 is common stock, shares $100.00 each. The pur- chasers of preferred stock at par are to receive an equal amount of common stock free, all the preferred stock is subscribed and paid for, leaving $50,000.00 of common stock unsubscribed. It is found that the remaining common stock cannot be sold for sufficient cash for requirements and the holders of pre- ferred stock donate to the Treasury $50,000.00 of their common stock. The common stock is sold at 50c on the dollar. Provide journal entries covering the above. Section 2 — Changing a Partnership to a Corporation 53. Adams, Brown & Co., a partnership conducting a manufacturing business, conclude to incor- porate. A Balance Sheet taken on December 31, 1916, shows the following assets and liabilities: Balance Sheet, December 31, 1915 Cash $5,000.00 Accounts payable $40,000.00 Accounts receivable 30,000.00 Adams capital 50,000.00 Plant and Sundry Assets. 155,000.00 Brown capital 50,000.00 Clarkson capital 25,000.00 Davidson capital 25,000.00 $190,000.00 $190,000.00 Profits and losses are shared in proportion to capital investments. On January 1 they incorporate the Tremont Manufacturing Company with a capital stock of $200,- 000, consisting of 1000 shares each of common and preferred stock with a par value of $100. All assets are taken over by the new corporation except cash and the liabilities are assumed ; in exchange for the property of the old firm, 900 shares each of preferred and common stock are issued 54 to the partners in the proportion shown by their capital accounts, which stock including the cash on hand is distributed equitably among the partners. The remaining stock is subscribed for at par by out- side parties, their subscriptions being paid in full on January 15th. On February 1, the four incorporators donate to the corporation $20,000 of common stock in pro- portion to their holdings to be sold to produce further working capital. April 1, 100 shares of the donated stock is reported sold at an average price of 75. a. Entries to close partnership books. b. Entries to open corporation books and to record succeeding transactions. c. Balance sheet of the Tremont Manufacturing Company as of April 1, 1916. 54. James Potter and Henry Pickett have been partners in the wholesale drug business for a number of years. They decide to incorporate, and a corporation to be known as the National Drug Company is organized under the laws of Maine, with a capital stock of $80,000, $60,000 of which is 6% Preferred Stock, and the remainder Common Stock. The Balance Sheet of the partnership on July 1, the date of incorporation is as follows: Assets : Liabilities : Cash $2,000.00 Notes payable $2,000.00 Real estate 40,000.00 Accounts payable 8,000.00 Accounts receivable 20,000.00 James Potter, capital 30,000.00 Notes receivable 5,000.00 Henry Pickett, capital 30,000.00 Furniture and equipment. . 3,000.00 $70,000.00 $70,000.00 All of the preferred stock is issued in equal parts to Potter and Pickett in exchange for the net assets of the old business. The common stock is all subscribed for at par by outsiders, and their sub- scription is paid August 15th. Show in journal form the entries necessary to bring on the corporation books the assets acquired and the liabilities assumed together with the issue of both classes of stock. The Company closed its books December 31, at which time the Profit and Loss Statement showed a net profit of $5,496.83. The regular quarterly dividend was declared on the preferred stock and a dividend of 2% on the common stock, payable January 15. Show entries for closing the Profit and Loss account, for the declaration of the dividends and their payment. 55. (From Washington C. P. A. Examination.) A and B were partners, trading under the name of A, B & Co. June 30, 1908, the following bal- ance appears 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 55 On June 30, 1908, the business is incorporated as the X Company, on the following plan : 1. Capital stock, $150,000.00. 2. X Company takes over the 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. 3. X Company 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 X Company. 5. After paying off A, B & Co. the remainder of the capital stock is sold for cash to sundry per- sons. 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. 56. (From Boston High School Examination for Commercial Teachers.) Shaw & Co., a partnership conducting a manufacturing business, conclude to incorporate. The firm has the following assets and liabilities : Cash -$5,000.00 Accounts payable $20,000.00 ■ Accounts receivable 30,000.00 Shaw, capital 45,000.00 Plant and sundry assets. . 165,000.00 Mace, capital 45,000.00 Laird, capital 45,000.00 Page, capital 45,000.00 $200,000.00 $200,000.00 They incorporate the Shaw Manufacturing Co. with an authorized capital of $200,000 divided into 1000 shares of 7% preferred stock and 1000 shares of common stock, both classes of stock at $100 par value. Each partner is to receive $25,000 of the preferred stock and $20,000 of the common stock for his share in the business. The remainder of the stock is to be held for sale. Make Journal entries for the following : The partnership books are to be closed. The corporation books are to be opened. Each of the four shareholders donates to the corporation $5000 of the common stock to be sold at such price as will produce immediate cash capital. Sold the donated stock at 95, for half cash and half note. Sold for cash 50 shares common stock at 105. The net profits for the year were $17,000. A dividend was declared on the preferred stock, and a dividend of 6% was declared on the shares of common stock outstanding. At the end of the second year all stock had been sold. The net profits were $11,000. To declare the preferred dividend and a dividend of 6% on the common stock, it became necessary to apply profits earned during the preceding year. A bond issue of $50,000 was authorized. At the end of three months $10,000 of the bonds were sold at 101 and accrued interest amounting to $125. 56 Three months later $10,000 of bonds were sold at 98 and accrued interest, $250. " At the end of the year bond interest was paid, $1,000. $2,498.75 was set aside as the first instalment of the sinking fund. 57. (From Washington C. P. A. Examination.) J. Smith's Balance Sheet showed the following Assets and Liabilities : Land and building $750,000.00 Merchandise 500,000.00 Work in progress 213,000.00 Sundry debtors 275,000.00 Patent rights 40,000.00 Cash at bank 25,000.00 Sundry creditors 250,000.00 Sundry bills payable 30,000.00 A corporation (J. Smith, Sons & Co.) was formed to purchase the business for the sum of $1,750,- 000.00, payable $500,000.00 in common stock, $500,000.00 in preferred stock, $500,000.00 in 4>^ % debentures, and the balance in cash, the company agreeing to take over the assets of J. Smith (with the exception of the bank balance) and to assume the liabilities to creditors. The capital stock of the company was $2,000,000.00, divided into 250,000 common and 150,000 pre- ferred shares of $5.00 each. 50,000 shares of common stock and the balance of the preferred stock were offered for sale to the public, payable 25% on application, 25% on allotment and 50% one month after allotment. These shares were all sold and were allotted by the company on March 1, 1910. By June 30, 1910, all moneys due thereon had been received by the company except the amounts due on allotment and call accounts in respect of 200 common and 100 preferred shares, and the directors had paid the cash indebtedness to the vendor and the organization expenses of $25,000.00 and had de- clared the shares forfeited upon which allotment and calls were in arrears. Give the entries which should appear to record these transactions in the company's journal, cash book and ledger. Give also the company's balance sheet after the opening of the books. Section 3 — Consolidations 58. (From Pennsylvania C. P. A. Examination.) A is an operating company and B is a holding company. The following statements are taken from the books of the respective companies, viz. : A COMPANY Assets : Cash on hand $35,000.00 Book accounts receivable 25,000.00 Stock inventory 21,000.00 $81,000.00 Prepaid accounts 7,000.00 Sinking fund trustee , . 15,000.00 Premiums on sinking fund bonds 700.00 B Company advances 45,000.00 Investments, B Company stock 25,000.00 Other investments 5,000.00 Plant, franchises, etc 1,400,000.00 $1,578,700.00 57 Liabilities: Book accounts payable $12,000.00 Wages ^ 8,000.00 Bills payable 50,000.00 Accrued accounts 12,000.00 $82,000.00 Reserve accounts 65,000.00 Bonds 750,000.00 Capital stock 500,000.00 Surplus 181,700.00 $1,578,700.00 B COMPANY Assets : Cash on hand $14,000.00 Accounts receivable 6,000.00 $20,000.00 Investments : A Company's stock $500,000.00 Other investments 500,000.00 1,000,000.00 Plants, franchises, etc 1,250,000.00 Deficit 22,000.00 $2,292,000.00 Liabilities : Book accounts payable $7,000.00 Bills payable 130,000.00 Accrued accounts 10,000.00 $147,000.00 Due A Company 45,000.00 Bonds issued 1,100,000.00 Capital stock issued 1,000,000.00 $2,292,000.00 Prepare a statement combining the assets and liabilities of the two companies. 59. The Smith Brewing Co. with $1,000,000 capital stock, the Young Brewing Co. with $500,000 capital stock, and the Star Brewing Co. with $400,000 capital stock, agreed to consolidate as the Universal Brewing Corporation, the new company to buy all the properties of the old companies at a valuation to be fixed by appraisal, payment therefor to be made in full-paid stock of the new company, the old companies to pay oflF their own indebtedness. The appraised values of the old companies are as follows : Smith Young Star Real estate and buildings $680,000 $327,000 $126,000 Plant 390,000 160,000 71^000 Cash 15,000 3,000 1,000 Bills receivable 10,000 6,000 Horses, wagons and harness 4,000 3,000 1,500 Office furniture 1,000 1,000 500 Total $1,100,000 $500,000 $200,000 Total appraised value $1 ,800,000 58 On this valuation the Universal Brewing Corporation issued $2,000,000 of stock, shares $100 each, which was divided pro rata among the old companies on the basis of their appraised value, no frac- tional shares of stock to be issued, odd amounts to be paid old companies in cash. Give journal entries to set up property accounts and credit old companies with their pro rata on the books of the new company. At the time of the consolidation the ledger accounts of the Star Brewing Company were as follows : Real estate and buildings $250,000 Plant 247,000 Cash 1,000 Horses, wagons and harness 1,800 Office furniture 1,200 $501,000 Capital stock $400,000 Bills payable 50,000 Accounts payable 51,000 $501,000 Make the proper journal entries to liquidate in stock of the new company the liabilities other than capital stock, to apportion the remaining stock and cash, and to close the books of the Star Brewing Company. 60. (From Massachusetts C. P. A. Examination.) A. B. Co. was an old established corporation with a capital stock liability of $600,000. C. D. Co. was a corporation, organized June 1, 1907, at which time it issued, for cash, $1,000 of $600,000 capital stock authorized. The $1,000 capital stock issued by C. D. Co. was acquired by A. B. Co., June 1, 1907. The par value of the shares of both corporations was $100. December 31, 1907, C. D. Co. bought of A. B. Co., all of the latter's property, except the ten shares stock of C. D. Co., and assumed all of the debts of A. B. Co. ; issuing to the latter, in settlement therefor, the remainder of C. D. Co's. author- ized capital stock; entered, in its books, the property acquired and debts assumed, at the respective amounts shown in the books of A. B. Co.; and continued as a going concern. At the same date, A. B. Co. liquidated its affairs, distributing to its shareholders the capital stock which it received from C. D. Co. Balance Sheet of A. B. Co., December 31, 1907 Cash advanced to C. D. Co., C. D. Co., current account.. $31,600 December 31, 1907 $21,800 Notes payable • 125,000 Notes receivable 42,000 Accounts payable 43,400 Accounts receivable' 145,200 Capital Stock Acct 600,000 Merchandise 540,000 Profit and Loss Acct 100,000 Real estate and machinery... 150,000 Stock of C. D. Co. 1,000 $900,000 $900,000 The trial balance of C. D. Co. contained a credit: "Cash advanced by A. B. Co., December 31, 1907, $21,800"; and a debit: "A. B. Co., Current Account $31,600." Write the journal entries, stating sufficient explanation for each, to close the books of A. B. Co., and to spread the above transactions of December 31, 1907, on the books of C. D. Co. 59 61. (From Massachusetts C. P. A. Examination.) Prepare a consolidated balance sheet of "A Company," a manufacturing corporation which also controls through stock ownership "B Company." The following are trial balances of the books, December 31, 1915. A COMPANY Dr. Cr. Real estate $200,000.00 Machinery and equipment 100,000.00 Accounts receivable 50,000.00 Cash 10,000.00 Inventories, Dec. 31, 1915 75,000.00 Shares "B Company"— 300 shares, par $10Q 35,000.00 "B Company" current account 5,000.00 Capital $400,000.00 Accounts payable 30,000.00 Bills payable 20,000.00 Surplus 19,000.00 Profit and loss for 1915 6,000.00 $475,000.00 $475,000.00 B COMPANY Dr. Cr. Accounts receivable $45,000.00 Stock on hand, Dec. 31, 1915 25,000.00 Cash 5,000.00 Treasury stock, $100 share cost 11,000.00 Furniture and fixtures 3,500.00 Surplus $20,000.00 "A Company" current account 4,500.00 Accounts payable 10,000.00 "A Company" drafts accepted 5,000.00 Capital stock (500 shares, par $100) 50,000.00 $89,500.00 $89,500.00 The stock on hand of the "B Company" was manufactured by "A Company" and billed to "B Com- pany" at 10% in excess of cost at which value it is taken in the inventory. The difference in the inter- company current accounts consists of a note issued by "B Company" in settlement of a claim for damages but not entered on the books and was paid by "A Company." The "B Company" directors declared a dividend of 13^% on December 15, 1915, payable January 15, 1916, which has not been entered on the books. 60 62. (From Massachusetts C. P. A. Examination.) Smith Company and Jones Company being pressed by their bankers and obHged to pay off their loans, agree to consolidate. Their liabilities, capital and earnings are as follows : Smith Co. Jones Co. Common stock $200,000.00 $100,000.00 Five per cent bonds 100,000.00 Nil Six per cent loans 25,000.00 50,000.00 Surplus 30,000.00 Nil $355,000.00 $150,000.00 Together $505,000.00 Earnings available for interest and dividends $22,500.00 $10,000.00 Together $32,500.00 Smith Company issue $100,000 additional common stock and $100,000 additional bonds and buy up Jones Company which will be liquidated. The total expenses of liquidation and issue of new stock and bonds amount to $10,000, and the cash balance will be increased by $15,000. No increased profits are anticipated from the consolidation but it is considered that the earnings of $32,500 can be maintained. Owing to the condition of Jones Company it is decided that its stockholders should receive $1,000 less income per annum. a. How much of the $100,000 of additional capital stock of Smith Company should be issued to the stockholders of Jones Company, and how much is available for stock dividend to Smith Company stockholders ? b. Show the entries to record all the transactions on the books of Smith Company. Section A — Sinking Funds 63. (From Massachusetts C. P. A. Examination.) X. Y. Z. Corporation has an authorized issue of $5,000,000 first mortgage 5% bonds, in $1,000 de- nominations ; $2,502,000 of these are in the hands of the public, and the balance in escrow in the hands of trustees, to be taken down only to take up the bonds of underlying companies, or for new construc- tion up to 80% of the expenditures ; but the net earnings above operating expenses and taxes for the previous year must equal at least 1^ times the interest on all outstanding bonds including those to be taken down. The net earnings for a certain year were $273,990.44. There were also in the hands of the public the following bonds of subsidiary companies : $106,000 5s, and $295,500 A-y^s. The expendi- tures for construction amounted to $300,000. State how many bonds can be taken down for construction, showing how you arrive at the result. 64. (From Massachusetts C. P. A. Examination.) Prepare a balance sheet at June 30, 1916, from the following data: The X. Y. Z. Company was incorporated January 1, 1914, with 5,000 shares of stock having no par value; $200,000.00 was paid into the company for which 3,000 shares of stock were issued, 2,000 shares and $50,000 were given for water-power rights and land valued at $150,000, and $100,000 was expended in constructing and equippingan electric power plant which started operating July 1, 1914. Organi- zation expenses were $2,000. Salaries and office expenses up to July 1, 1914, were $10,000. After operating a few months it was decided to build an additional power plant to finance which $200,000 par value 1st mortgage 5% 20-year bonds (interest semi-amnually) were issued in denomin- ations of $500 and $1,000 and sold at 98 on January 1, 1915. The construction expenditures for the new plant were $175,000 and it was completed and put into operation July 1, 1915. 61 The mortgage deed of trust provides that a sinking fund of $5,000 be set aside on December 31st of each year out of profits for the first ten years and $15,000 per year thereafter with which to retire bonds at 101 each year. The two power plants have been depreciated at the rate of 5% per annum on the cost, starting from the date when operations commenced. The gross earnings from July 1, 1914, to June 30, 1916, were $85,000, of which $45,000 was collected, and the operating costs paid, exclu- sive of depreciation, were $40,000. 65. (From Massachusetts C. P. A. Examination.) A corporation authorized a total issue of $500,000 of 5% bonds in denominations of $1,000 and $500 with interest payable January 1st each year and sold the whole issue to underwriters January 1, 1914, at 90. The company issued the bonds for the underwriters at 95 and received the cash in pay- ment February 1, 1914. The trust deed provides that "there shall be established a fund to be called the Bond Sinking Fund, to the account of which there shall on the 31st day of December of each year be carried a sum equal to seven per cent of the total par value of the bonds issued, and that, out of the moneys so carried to the account of the said fund, the company shall pay the interest on the bonds as the same becomes due, and the balance of said moneys shall be expended each year in purchasing the bonds of the company in the open market." In January, 1915, the company purchased $10,000 of its bonds at 97 and retired and cancelled them. In January, 1916, the market price of the bonds is 98. a. How many bonds may be purchased from the Bond Sinking Fund in January, 1916? b. Make journal entries for all the transactions from the date of the sale of the bonds to and including the purchase for the Sinking Fund in January, 1916. c. Show trial balance after posting above entries. Section 5 — Receiverships and Bankruptcy 66. The John Smith Company finds itself in financial difficulties and the proper legal proceedings having been folloAved, a trustee is appointed to take charge of the affairs of the concern. The follow- ing trial balance was taken from the books on October 1, 1916: JOHN SMITH COMPANY f Trial Balance — October 1, 1916 Cash on hand $30.00 Accounts payable $8,000.00 Cash in bank 250.00 Notes payable 2,000.00 Merchandise 1,300.00 Loan payable 1,300.00 Accounts receivable 5,850.00 Notes receivable Disct 1,500.00 Machinery 3,000.00 Mortgage payable 7,000.00 Real estate 12,000.00 Wages accrued 150.00 Securities owned 1.500.00 ~ Taxes accrued 60.00 Deficit 1,080.00 Capital stock 5,000.00 $25,010.00 $25,010.00 Of the items listed above, it is estimated that the merchandise on hand will sell for $950; of the accounts receivable $4,000 are thought to be good, $1,200 bad, and $650 doubtful of collection, and it is estimated that about $4,100 will be collected; the machinery will bring $1,000 at forced sale; the real estate is appraised at $9,000 and is mortgaged for $7,000 ; the secivrities owned have a market value of $1,000 and are pledged as collateral for a loan made to the company amounting to $1,300. 62 In order to realize on the merchandise on hand to the best advantage the trustee made purchases amounting to $3,500, of which $1,500 was for cash, and the entire stock of merchandise was disposed of for $4,350. The trustee collected $4,400 on accounts receivable. The machinery was sold for $1,000. The real estate was sold for $9,500. of v^hich $7,060 went to the mortgagee for principal and interest. The securities were sold for $1,035. The payments made by trustee on account of expenses were as follows: wages, $760; taxes, $60; office expenses, $350; trustee's commissions, $250. Interest on cash on deposit was allowed, $15.00. After the liquidating expenses and preferred claims had been paid, the cash remaining in the business was distributed among the unsecured creditors in the proper proportion. ' The outstanding stock certificates are then canceled and the affairs of the company permanently closed. Prepare Realization and Liquidation account and Trustee's cash account. 67. (From Massachusetts C. P. A. Examination.) The accounts of a partnership include : ' '» Cash $1,400.00 Merchandise 15,000.00 Accounts receivable 20,000.00 Notes receivable 4,000.00 Machinery 7,000.00 Real estate 5,000.00 Investments 2.500.00 Mortgage payable on real estate 3,000.00 Notes payable 16,000.00 Accounts payable 35,000.00 Taxes due 500.00 Wages due 1,000.00 Rent due 700.00 Notes receh^able discounted 3,000.00 Partners accounts 12,000.00 All the investments are pledged as collateral on $1,500 Notes Payable. Of the Accounts Receiv- able, $1,000 are considered bad, $2,500 doubtful and worth 50% of book value, and the balance good. Real Estate is undervalued 10%. Merchandise is subject to a discount of 25%. Machinery is over- valued 25%. $2,000 Notes Receivable Discounted has been paid by makers. Expense of liquidation estimated to amount to $1,500. The partners have personal estates valued at $4,000. Prepare such statements as seem desirable under the circumstances, and state probable amount for distribution among creditors. 68. (From Illinois C. P. A. Examination.) On December 1, 1907, the following particulars are furnished of the position of John Mapleton. insolvent: Factory equipment cost, $15,000.00; estimated to realize $10,000.00. Stock of finished goods, $10,000.00; estimated worth, $7,500.00. Material and supplies, $2,500.00; estimated worth, $1.- 000.00. Furniture and fixtures, $900.00; estimated worth, $200.00. Investments valued at $25,275.00, of which $15,000.00 is held by bankers as security for loan of $12,000.00. Accounts receivable, $6,- 250.00, of which $2,500.00 are good, $1,250.00 bad, and $2,500.00 estimated to realize $1,500.00. Cash, $575.00, of which $25.00 represents petty expense items not charged up, and $50.00 and I. O. U. of a former employe which is worthless. Accounts Payable, $28,500.00. Bills Payable, $25,000.00. of which $12,000.00 is due bankers. Wag£S due, $500.00. Rent due and past due, $1,000.00. Capital on January 1, 1907, as shown by books, $15,000.00. Loss by sale of investment. May 1, 1907, $5,000.00. Loss in trading account January 11, 1907, to December 1, 1907, $3,500.00. Drawings charged personal account of John Mapleton, $1,000.00. Make up a Statement of Affairs and a Deficiency account. 63 69. (From Missouri C. P. A. Examination.) The following is a trial balance of the books of the X. Y. Z. Mfg. Company, which has been declared bankrupt : Trial Balance at June 30, 1914 Dr. Cr. Real estate and buildings $125,000 Capital stock $300,000 Machinery and equipment. 160,000 Customers' accounts receivable 170,000 Notes payable 250,000 Accounts payable 312,000 Insurance premiums unexpired '. 3,000 Mortgage on buildings 65,000 Notes receivable 26,000 Interest accrued on mortgage 2,500 Cash on hand and in bank 6,500 Inventory of raw material 85,000 Inventory of finished goods 121,000 Investments 12,000 Deficit 221,000 $929,500 $929,500 The real estate and buildings are appraised at $101,000.00 and the machinery and equipment at $135,000.00. An examination of the customers' accounts shows the following condition: Good, $95,- 000.00. Doubtful (expect to collect 33 1/3%), $51,000.00. Bad, $24,000.00. The holders of the notes payable of $12,000.00 hold notes receivable in security of face value of $15,000.00, but worth only $10,- 000.00. A creditor of $55,000.00 on open account has in his possession the stock certificates for the in- vestments assigned in blank and finished goods pledged to the value of $16,000.00. The insurance premiums unexpired have a cash value of $2,200.00. An examination of the notes receivable shows $9,- 000.00 good for collection and $17,000.00 doubtful on which 50% will be collected. The investments have a marketable value of $16,500.00. Prepare statement of affairs for submission to creditors showing the amount on the dollar the credi- tors may expect to receive ; also prepare deficiency statement. 70. (From Examination for Admittance to the American Institute of Accountants.) BALANCE SHEET OF AB Real estate $140,000.00 Capital $229,652.00 Equipments 75,150.00 Mortgages on real estate 75,000.00 Patents 54,700.00 Accounts payable 124,615.24 Investments 33,500.00 Notes payable 80,000.00 Cash 4,348.64 Reserve for depreciation 821.00 Notes receivable 2,479.75 Accounts receivable 31,108.15 Inventories 81,423.70 Good will 40,000.00 Trading losses 47,378.00 $510,088.24 $510,088.24 Ab, whose balance sheet appears above, having been unfortunate in business, goes into liquida- tion. Prepare statement of aflfairs and deficiency account. The real estate is valued at $90,000, the equipment at $30,000. The patents are considered worth- less, with the exception of one thought to have a market value of $5,000. Bonds, with a par value of $27,500, were pledged to secure a collateral loan of $25,000. These have, however, shrunk in value so ^64 as to be worth at present prices only $22,000. Included in investments are $5,000 other bonds which are clearly worthless ; the other investments have a doubtful value of 50 per cent. The notes receivable are thought to be good. Of the accounts receivable $10,000 are known to be good, $5,000 are known to be bad, and the remainder are expected to pay 8o per cent. The inventories are estimated as worth not more than half of their book value. Good will is purely fictitious. Interest accrued on the mort- gage is $800, on notes payable, $523. Wages accrued are $1,200. Assuming the foregoing estimates of value are correct and the expenses of liquidation amount to $3,000, what percentage of their claims will the general creditors receive? 65 PART IV FINANCIAL STATEMENTS 71. Walter G. Hill, Trial Balance, December 31, 1916. Land (cost) $20,750.00 Wharves and structures (book value) 12,625.00 Office building (book value) 9,726.00 Horses, wagons and equipment (book value) 4,221.40 Office equipment (book value) 2,169.75 Cash 6,785.90 Accounts receivable .- 149,678.40 Notes receivable 2,560.00 Office supplies in hand 240.00 Inventory December 31, 1915 (cost) 90,284.50 Accounts payable Notes payable Sales Sales returns and allowances 12,738.60 Purchases 608,205.75 Purchase returns and allowances Wages of yardmen and helpers 9,689.42 Stable expenses 6,139.60 Selling expenses 27,196.41 General administrative expenses 46,132.90 Interest on notes receivable Loss on Bad accounts and notes receivable ' 1,624.00 Cash discounts on purchases Cash discounts on sales 960.47 Interest on notes payable 400.00 Walter G. Hill — capital account Walter G. Hill — drawings account 2,977.06 $52,869.36 40,000.00 734,432.46 14,768.91 462.91 1.729.42 170.842.10 $1,015,105.16 $1,015,105.16 Inventory December 31, 1916, $72,237.60. Mr. Hill conducts a lumber business in Boston. The real estate consists of waterfront property and includes wharfage, office building, stable and sheds for the storage of lumber. The charges for freight and towing are added to the invoice cost of the lumber when it is received and is charged directly to the purchases account. The yardmen and helpers unload and pile the lumber and load the teams when orders are* filled. Stable expenses include stable supplies used, repairs to wagons, fodder, veterinary's charges, depre- ciation and wages of drivers. ^ REQUIRED: a. Profit and Loss Statement. b. Balance Sheet (fixed assets first). c. Closing entries. d. Mr. Hill's business is a growing one and he desires to expand it considerably. With this idea in mind he applies at his bank for a loan of $60,000.00 for the purchase of a lot of land adjoining his present property and the erection of new structures. He submits the statements which 3'ou have just prepared as a basis for the loan. Would you, as credit manager of the bank, approve this loan? Give reasons for your answer. 72. Johnson and Marvin, Adjusted Trial Balance, June 30, 1915. Office furniture (book value) $1,625.00 Store furniture and fixtures (book value) 3,970.00 Machinery (book value) 2,260.00 Cash : 37,902.40 Imprest cash fund 250.00 Accounts receivable 167,842.60 Amounts due from consignees . . , 28,249.00 Notes receivable 66,209.40 Interest accrued on notes receivable 1,780.50 Merchandise on hand, Dec. 31, 1914 (cost) 160,263.75 Goods in hands of consignees (cost) 20,189.50 Insurance prepaid 2,940.83 Stationery on hand 540.00 Accounts payable $160,290.40 Notes payable 95,530.50 Interest accrued on notes payable 1,650.80 Taxes accrued 780.00 Sales 690,607.00 Sales returns and allowances 7,890.60 Purchases 532,738.00 Purchase returns and allowances 8,921.20 Freight inward 2,769.80 Sales of consigned goods (gross profit) 26,170.80 Advertising 25.962.50 Salaries of salesmen 47,580.00 Traveling expenses 48,260.25 Delivery expense 5,445.70 Miscellaneous store expense ., 6,699.22 Office salaries 23,752.80 Office supplies used 19.260.50 Taxes and insurance 5.326.70 Altering and trimming department expenses 5,740.90 Commissions 24.236.50 Interest earnings 5,290.00 Interest charges 10,250.15 Cash discounts on purchases 4,659.00 Cash discounts on sales 1 ,769.80 J. T. Johnson— capital 194.460.00 J. T. Johnson — drawings 19,763.00 C. R. Marvin— capital 98.346.00 C. R. Marvin— drawings 5,237.00 $1,286,706.40 $1,286,706.40 Merchandise on hand June 30, 1915 (cost), $210,730.00. 67 COMMENTS: Messrs. Johnson and Marvin conduct a wholesale millinery business. They rent the second and third floors of a large building in the wholesale district of Boston. Profits are shared in the propor- tion of two-thirds to Mr. Johnson and one-third to Mr. Marvin. In this line of business there are two busy seasons, from January 15 to April 15, and from August 1 to October 1. The chances of goods suddenly becoming more or less unsaleable because of changing styles and the possibility of purchasing goods which will not appeal to the buying public are large. While profits are large they must necessarily be so, for the busy seasons must pay for the dull. If a business of this kind is well conducted, when the semi-annual statements are made out the stock should be pretty well reduced and the business of the past season cleaned up in so far as possible. This is essential in order that the business may be in proper shape to start upon the activities of the ap- proaching season. The concern owns several sewing machines and other small machines which are used in remodel- ing and trimming hats, either to suit the requirements of purchasers or because certain styles have become unsaleable. This work is carried on in a separate room. The expenses of this department, which include wages of operators, supplies used, etc., are charged to an account called "altering and trimming department expenses." Inasmuch as these expenses effect the cost of the goods sold, they should be included in that part of the Profit and Loss Statement which is used to arrive at the gross profit on sales. Presumably a certain proportion of these expenses is included in the cost of goods on hand. The concern makes a practice of sending out certain goods on consignment to be sold for a com- mission by the consignees. When a shipment of this kind is made and entry is made, an entry is made debiting "Goods in Hands of Consignees" and crediting "Purchases" for the cost of the goods shipped. When the goods are reported sold an entry is made crediting "Sales of Consigned Goods" for the selling price, charging "Commission" for the commission charged by the consignee and "Amounts Due from Consignees" for the difference between the commission charged and the selling price. Another entry is then made debiting "Sales of Consigned Goods" and crediting "Goods in Hands of Consignees" for the cost of the goods sold. Cash received from consignees is credited to the "Amounts Due from Consignees" account through the Cash Book. The balance of the "Sales of Consigned Goods" account thus shows the gross profit on sales of consigned goods. When making up the Profit and Loss State- ment this figure should appear just below and as an addition to the gross profit and sales made by the home office in order to arrive at the total gross profit on sales. REQUIRED : a. Profit and Loss Statement. b. Balance Sheet (current assets first). c. Write up the closing entries up to and including the point at which the gross trading profit is closed into the Profit and Loss account (omit explanations, but skip a line between each entry). d. On July 15, 1915, the concern applied to the First National Bank for a loan of $50,000.00. Would you, as credit man for the bank, approve this loan, basing your decision on the statements just made up? Give reasons for your answer. e. The inventory of June 30, 1915, is stated at $210,730. Of this amount $1,680 was included as the proper proportional part of the altering and trimming department expenses for the period. Of the remaining $209,050 how much represents the invoice cost of the proper portion of freight inward? f. The firm operates a "Voucher Register" as a part of its accounting system. Rule up and sup- ply heading for what you think would be a suitable voucher register for this business. 68 72>. G. W. Brown & Co., Trial Balance, June 30, 1914. G. W. Brown, capital L. L. Logan, capital Merchandise Expense Merchandise discount Furniture and fixtures • Real estate Discount Interest Bills receivable Accounts receivable Bills payable Accounts payable Shipment No. 1 Shipment No. 2 Shipment No. 3 (cost) Cash $10,452.74 10,340.24 $3,342.80 549.62 133.77 217.21 207.90 7,125.00 32.11 81.77 2.04 25.24 1,317.72 2,559.94 2,742.27 4,686.37 302.50 336.87 518.60 484.50 1,955.00 11,320.21 $29,367.21 $29,367.21 There is no merchandise on hand, as a fire on the 25th destroyed most of the goods ; the portion of the goods damaged by the fire was sold in bulk to Fletcher Bros, at a nominal price. The building at 246 Main St. was also burned; the lot on which the building stood is estimate^ to be worth $6,000. . .; Furniture and Fixtures were a total loss. No returns have been received from Shipment No. 3 ; it is valued at cost, as shown in the trial balance. An analysis of the Merchandise account shows the following: Inventory June 1, $3,372.55; Pur- chases for June, $14,152.39; Freight and Cartage In, ^hJl.Til; Sales to time of fire, $10,059.46; Sale of goods damaged by fire to Fletcher Bros, for $1,500; insurance received on stock lost by fire, $3,000; cost of goods destroyed by fire, $'',920.38; cost of goods shipped to commission merchants, $2,745.50. Make adjusting entry necessary to close the Merchandise account and open accounts with the fol- lowing: Inventory, purchases, sales, freight and cartage in, fire loss. An analysis of the Real Estate account shows a debit representing cost of $12,125 and a credit of $5,000, being insurance received on the building. The Capital Account of G. W. Brown shows New Worth of $10,240.24, brought down from May, plus a credit for salary of $125 and for traveling expenses paid from his personal funds of $87.50; the account of L. L. Logan shows investment of $10,240.24, plus a credit for salary of $100. a. Make adjusting entries necessary. b. Adjusted Trial Balance. c. Statement showing Fire Loss. d. Profit and Loss Statement showing first the profit on sales to time of fire, followed by the final net loss. e. Balance Sheet. f. Closing Entries. . - 69 74. Taylor, Wood & Co., Trial Balance, September 30, 1914. F. H. Taylor, capital C. F. Woods, capital L. F. Johnson, capital F, C. Ta} lor, drawing C. F. Wood, drawing L. F. Johnson, drawing Notes receivable Interest Accounts receivable Inventory, September 1 Shipping supplies Office supplies Insurance Horses and wagons Furniture and fixtures Real estate Notes payable Accounts payable " Traveling expenses Rent * . . Discount Freight inward Purchases Wamsutta Mills stock Office salaries Shipping Department salaries Delivery expenses , Sales Discounts on purchases Discounts on sales Collection and exchange Returned purchases 297.84 Returned sales 172.20 Reserve for bad debts 121.60 Office expenses 15.00 Cash ,. 5,365.70 -"^Jl ''x ■ $16,578.04 'V 24,831.48 ^^ ^ 2,602.03 $100.00 \ 50.00 A \ 35.00 1,000.00 ' 35.04 10,740.46 23,525.05 196.50 f 192.75 267.50 742.50 2,475.00 12,150.00 5.000.00 7,181.84 225.00 300.00 3.60 47.59 7,597.27 1,150.00 655.00 65.00 111.75 10,593.69 61.27 112.43 7.45 $67,302.79 $67,302.79 The above accounts are representative of a wholesale dry goods business conducted by three part- ners under the firm name of Taylor, Wood & Co. The trial balance covers a period of one month. The merchandise on hand September 30 amounts to $22,372.76 ; furniture and fixtures are valued at $2,450; horses and wagons, $735; insurance unexpired, $260; shipping supplies on hand, $93.25; office supplies on hand, $106.50; real estate, $122.50; Wamsutta Mills stock, $1,150. The note of the firm for $5,000 is a demand note issued September 26 and bearing interest at 6% ; the note of $1,000 held by the firm was received on September 9. The Real Estate owned by the firm is a building at 74 Chestnut St., which cost $12,000, and which is occupied by a tenant. At the time of closing the books on August 31 the value of the property was increased to $12,250; on that date rent accrued for August of $100 was charged to the Real Estate account; September 2, $200 rent was received from the tenant for August and September, which was credited to Real Estate, leaving the present balance of $12,150. 70 The building occupied by the firm for business purposes is rented at $300 per month. The ten shares of Wamsutta Mills stock were bought on August 13 for $105 per share ; the book value was increased August 31, at the time of closing the books, to $1,150. No dividend has been re- ceived on the stock. One per cent, of the gross sales is to be set aside as a reserve for bad debts. By the terms of the partnership agreement 6% interest is to be allowed each partner on his cap- ital account. Taylor is allowed a monthly salary of $150; Wood, $200; Johnson, $225. The salary of each partner for September has been credited to the respective drawing accounts. An analysis of the Interest account shows interest accrued on notes receivable as of August 31, $12.75 ; interest accrued on notes payable, $166.67 ; interest paid during September, $208.33 ; interest received, $19.37. The following are required : a. Adjusting Entries. b. Trading and Profit and Loss Statement for September (show percentage). c. Balance Sheet (account form), d. Closing Entries, 75. E. C. Richardson, Trial Balance taken from General Ledger December 31, 1914, before ad- justing entries have been made and posted. Land (cost) $3,000.00 Buildings (cost) 15,400.00 Horses and wagons (cost) ....". 2,950.00 Cash 3,469.70 Accounts receivable 4,697.50 Notes receivable 1,150.00 I Merchandise on hand June 30, 1914 (cost) 3,674.95 Accounts payable $4,627.70 Notes payable 1.000.00 E. C. Richardson, capital 20,600.00 E. C, Richardson, drawings 600.00 Sales ' 434.50 20,221.85 Purchases 11,261.75 234.15 Freight inward 326.30 Selling expenses 1 ,716.40 Delivery expenses 682.36 General administrative expenses 976.84 Insurance prepaid 124.50 Interest charges 96.87 Interest earnings 129.67 Reserve for depreciation of buildings 3,080.00 Reserve for depreciation of horses and wagons. 590.00 Reserve for loss of bad debts 78.30 $50,561.67 $50,561.67 Merchandise on hand December 31, 1914 (cost) . . .' $2,892.60 Make the proper provision for depreciation of buildings. Estimated life of buildings, twenty years. Charge General Administrative Expense. Make the proper provision for depreciation of horses and wagons. Estimated life, ten years. The charge is to be divided equally between Fright Inward and Delivery Expenses. Mr. Richardson desires to set up a further reserve for losses on account of bad debts amounting to one per cent, of the net sales for the period. 71 Interest accrued to date on interest bearing notes payable, $24.50. Portion of cost of insurance policies applicable to the current period, $62.25. Charge General Administrative Expense. There are office supplies on hand which cost $34.00. When acquired these supplies were charged to General Administrative Expense. REQUIRED : a. Adjusting Entries. b. Profit and Loss Statement. c. Balance Sheet — current assets first. d. The estimated life of the building is twenty years. On approximately what date was it ac- quired ? e. Compute: 1. The turnover for the period. 2. Rate per cent, of gross profit on sales. 3. Rate per cent, of gross profit on cost of sales. 4. Rate per cent, of net profit on the average capital for the period. COMMENTS: Mr. Richardson conducts a small retail business. Apparently he neither allows cash discounts on sales nor takes advantage of cash discounts offered by creditors ; or, if such items do occur, they have been treated as direct deductions from Sales and Purchases, respectively. For convenience in making up the Profit and Loss Statement the debit and credit footings of the Purchases and Sales accounts are shown instead of the balances of these accounts. The Purchases account has been charged with gross purchases and credited with purchase returns and allowances. The Sales account has been credited with gross sales and debited with sales returns and allowances. This information should be considered when drawing up the Profit and Loss Statement. In the adjusting entries, when making debits or credits to expense accounts care should be taken to use the expense accounts already on the books so far as is possible. In this case, general expense accounts only are kept in the general ledger ; consequently only these accounts should be used. New expense or income accounts should be opened only when adjusting extraneous items, and then only when the necessary accounts are not already on the books. Of course, when detailed expense accounts are kept in the general ledger they should be used in making the adjusting entries. The horses and wagons are used for both hauling inward and hauling outward. Consequently ex- penses for repairs, teamsters' salaries, boarding, depreciation, etc., should be divided between Hauling Inward and Delivery Expense. 76. (From Massachusetts C. P. A The trial balance of the A. B. Co. on Cash $50,100 Accounts receivable, gross 400,000 Notes receivable 30,000 Merchandise inventory, 1/1/11, gross. 240,000 Merchandise purchases, to 1/1/12 1,250,000 Prepaid interest 1/1/11 12,500 Interest paid to 1/1/12 36,000 Expenses paid to 1/1/12 156,000 Reserve for Disc, accts. payable, 1/1/11 4,000 Bad debts, charged off to 1/1/12 2,500 Returned sales customers 100,000 Salaries 20,000 Taxes 5,000 Plant 250,000 Discounts allowed customers 51,900 . Examination.) January 1, 1912, appears as follows: Reserve for Disc, accts. receivable, 1/1/11 Reserve for Disc. Mdse. inventory, 1/1/11 Accounts payable Notes payable Sales Purchase discounts collected on settle- ments with creditors Reserve for bad debts, 1/1/11 Mdse. returned to creditors to 1/1/12. . Collected on accts. charged to P. & L. in 1910 Credit insurance, rec'd on 1910 losses, . Profit and loss 1/1/11 Capital stock $2,608,000 $12,000 12,000 90,000 600,000 1,500,000 59,500 3,000 50,000 500 1,000 55,000 225,000 $2,608,000 72 The following information is stated : Accounts Payable, January 1, 1911, Gross, $80,000. Accounts Receivable, January 1, 1911, Gross, $300,000. Notes Payable, January 1, 1911, $500,000. Interest paid at 5% to July 1, 1911. On July 1, 1911, $500,000 is renewed at 6% for 1 year and $100,000 additional is borrowed at same rate for 1 year. Inventory, January 1, 1912, $320,000, Gross. Goods bought on terms of 5% 30 days. Goods sold on terms of 4% 30 days. Reserve for Bad Debts, January 1, 1912, to be 1% on Gross Accounts Receivable. Submit : a. Working Account showing Operating Profit. b. Profit and Loss Statement. c. Balance Sheet. 77. (From Illinois C. P. A. Examination.) Alexander, Brown and Clark entered into a partnership arrangement on January 1, 1914, their busi- ness being the operating of a dry goods store in Galesburg, Illinois. At December 31, 1914, the Trial Balance of the partnership, before making any adjustments, was as follows: Dr. Cr. Alexander — capital account $50,000.00 Brown — capital account .- 30,000.00 Clark— capital account 20,000.00 Inventories of merchandise, January 1, 1914 $125,000.00 Accounts receivable — customers 75,000.00 Accounts receivable — employees 3,000.00 Cash in bank 5,000.00 Cash on hand 1,000.00 Notes payable 60,000.00 Accounts payable '. . 15,000.00 Sales 500,000.00 Purchases, including freight 323,000.00 Salaries and store expenses 125,000.00 Bad debts written off 2,500.00 Interest paid on notes payable 6,000.00 Salary to Mr. Alexander' ' 2,500.00 Salary to Mr. Brown 4,000.00 Salary to Mr. Clark 3,000.00 $675,000.00 $675,000.00 Prepare an Income, Profit and Loss Account for the year 1914 and a Balance Sheet as at December 31, 1914; also prepare an account for each partner, showing transactions for year, after giving effect to the following adjustments: Interest at 6% per annum charged or credited to partners. Accept the amounts in Capital Ac- counts as being Capital at January 1, 1914. Mr. Alexander owns the store and will be credited in monthly instalments on first of each month (being in advance) with $10,000.00 for rent. Interest at 6% per annum to be allowed on these credits. Of the interest paid on Notes Payable, $2,000 applies to period subsequent to December 31, 1914. Reserve for Unpaid Taxes, $1,000.00 and for Unpaid Wages, $1,500.00. A Reserve of $1,500.00 is necessary for Bad and Doubtful Accounts. The Inventory at December 31, 1914, is valued at $150,000.00. Of the profits, if any, after giving effect to these adjustments, credit 10% to "Bonuses to Depart- ment Managers and Salesmen." The profits or losses are divisible in the following proportions : Mr. Alexander, 40%. Mr. Brown. 33 1/3%. Mr. Clark, 26 2/3%. 73 78. (From Illinois C. P. A. Examination.) Prepare a Trading and Profit and Loss Account and Balance Sheet from the following Trial Balance and data for the year ended December 31, 1909: The stock of stores and materials at the end of the year December 31, 1909, was $8,500.00. The rent at the rate of $2,500.00 was paid up to September 30th. Bad debts amounting to $850.00 have to be written off. A provision of $1,250.00 has to be made to meet possible bad debts. Depreciation at the rate of five per cent, per annum on the plant at January 1, 1909, has to be written off. The wages are paid up to December 27th; the wages from that date to December 31st amount to $175.00. Interest at five per cent, per annum has to be passed on the amount of the partners' capital accounts at January 1, 1909. (No interest on partners' current accounts.) Profits to be divided equally between the partners. The necessary entries for division of profits and interest, etc., to be passed through the partners' cur- rent accounts. It is assumed that no further entries are required to be made to complete the accounts. Johnson & White, Trial Balance, December 31, 1909. Investments $2,410.00 Accounts payable $19,125.00 Stores and materials, January 1, 1909 2,120.00 Johnson's capital 29,600.00 White's capital 15,300.00 Purchases 24,225.00 Johnson's current account 2,310.(X) White's current account 3,910.00 Accounts receivable 13,265.00 Wages 27,825.00 Rent 1,875.00 Dividends on investments 115.00 Plant, January 1, 1909. 44,100.00 Bills payable .' ' 4,975.00 Bank 975.00 Office expenses and salaries 2,1(X).00 Instalments received on account of work in progress 14,355.00 Taxes .' 40.00 Bills receivable 3,670.00 Cash in office 50.00 Law and accountancy charges 255.00 Repairs 330.00 Work in progress, December 31, 1909 25,905.00 Bank charges 90.00 Sales 70,035.00 $154,480.00 $154,480.00 74 79. (From New York C. P. A. Examination.) The following is the trial balance of Bailey & Co. as taken from their ledger December 30, 1905. Cash $3,112.00 Bills receivable 14,900.00 Accounts receivable 22,750.00 Bills payable $2,006.00 Accounts payable 9.121.00 Loans at 6 per cent 5,000.00 Warehouse receipts 8,351.00 Merchandise inventory 28,900.00 Store property 20,000.00 Mortgage on store property at 5 per cent . 10,000.00 Unimproved real estate 6,000.00 Store fixtures 5,000.00 Depreciation on store fixtures (1904) 5(X).00 Horses and wagons 2,500.00 Capital stock, 750 shares at $100 \... 75,000.00 Profit and loss, surplus 2,573.00 Purchases 132,251.00 Sales 152,439.00 Discounts . 103.00 Rents, hall over store 250.00 Taxes 156.00 Interest 800.00 Heat and light 375.00 Salesmen and wages of employees 4,912.00 Officers' salaries 4,000.00 Miscellaneous expenses and losses 2,985.00 $256,992.00 $256,992.00 Merchandise inventory Dec. 30, 1905 $30,254.00 Prepare a trading and profit and loss account for the fiscal year 1905 and a balance sheet as at the close thereof. Reserve 1 per cent, of the open accounts receivable to cover bad debts, a further 10 per cent, from office furniture and 20 per cent, from horses and wagons to cover depreciation. 80. (From Massachusetts C. P. A. Examination.) Y & Z Company, Trial Balance, July 1, 1910. Cash $4,005.07 ^ Accounts receivable 250,317.02 Real estate 16,520.00 Mdse. inventory January 1, 1910 210,319.07 Discounts allowed customers 35,318.72 Bad debts charged off 4,414.84 Mdse. purchased Jan. 1, 1910, to July 1, 1910 738,898.43 Expenses 47,397.80 Notes receivable 1,436.11 Machinery 3,780.00 Sales $916,389.04 A ccounts payable, merchandise 175,1 19.28 Notes payable, loans 42,500.00 Discounts received on mdse. settlements 29,320.16 Capital 125,000.00 Surplus 24,078.58 $1,312,407.06 $1,312,407.06 75 You are asked by a creditor to examine the books of the Y & Z Company and present a Balance Sheet as of July 1, 1910, together with a Trading and Profit and Loss Account, showing the results of the business for the preceding six months. On January 1, 1910, the merchandise inventory was $210,- 319.07, and on July 1, 1910, it was $110,318.67, You find these amounts in accordance with the stock sheets turned over to the bookkeeper by the stock clerk. On January 1, 1910, the Accounts Receivable were $216,895.98, and on July 1, 1910, they were $250,317.02, and on Jan. 1, 1910, the Merchandise Ac- counts Payable were $22,524.05, and on July 1, 1910, they were $175,119.28; you find that the totals of .the Customers' and Creditors' Accounts on the Sales and Purchase Ledgers on these dates are in agreement with the Controlling accounts. Prepare Balance Sheet as of July 1, 1910, and Trading and Profit and Loss Account, which in your opinion will correctly represent the condition of this company, and which gives the Creditor a true statement of its earning capacity for this period. 81. (From New York C. P. A. Examination.) A, the senior partner of a firm, dies May 9, at the close of which day the trial balance of the co- partnership ledger shows the following items : Cash $3,794.00 Fixed assets 21,036.00 Trade debtors 92,766.00 Trade creditors $93,206.00 Inventory, January 1 12,005.00 Purchases 14,160.00 Sales 19,658.00 Expenses 5,213.00 Capital, A 20,000.00 Capital, B 10,000.00 Capital, C 5,000.00 Personal, A 2,310.00 Personal, B 750.00 Personal, C * 450.00 $150,174.00 $150,174.00 The inventory of merchandise stock May 9 is computed at $15,200, the unexpired insurance at 149, and accrued expenses at $207. The division of profits between partners is as follows : A, 57 per cent. ; B, 28 per cent. ; C, 15 per cent. No interest is credited on capital, but interest is credited on A, per- sonal $115, and charged to B, personal $6.25, and to C, personal $3.75. The partnership agreement provides in case of A's death for the sale of A's interest to B and C on the execution of a bond by them in favor of A's estate, payable in five yearly instalments, and stipulates that the assets are to be taken at book value, excepting one-half per cent, reserve for bad debts, in com- pliance with which provision a reserve of $500 is made. A new firm of B, C and D is formed, in which D invests $5,000 cash for a one-fourth interest in the business. B withdraws all in excess of $10,000 and C pays a sum sufficient to bring his capital up up to $5,000. The future profits are to be shared in the following stated proportions, viz. : B one-half, C one-fourth, and D one-fourth. The new firm executes a purchase mortgage with bond as provided in favor of A's estate for $20,000, and pays over the balance of his interest in cash. Prepare the necessary accounts to give expression to the foregoing liquidation of the firm of A, B and C, and a balance sheet of the firm of B, C and D, as at the beginning of their enterprise. 76 82. (From Massachusetts C. P. A. Examination.) 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 : Dec. 31, Dec. 31, Assets 1910 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 harness 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 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. 77 PART V SURPLUS AND RESERVE ACCOUNTS 83. (From Ohio C. P. A. Examination.) a. State the theory of depreciation. b. Explain several methods of computing depreciation. c. How would you show a reserve for depreciation on the balance sheet? 84. (From Wisconsin C. P. A. Examination.) From the data given below, explain clearly and show figures illustrating three different methods of arriving at the amount to charge annually for the depreciation of the following items : Cost Estimated Life Scrap Value Buildings $50,(X)0 50 years $1,(X)0 Machinery 20,000 20 years 2,000 Tools 5,000 5 years 100 Patterns 10,000 3 years 100 85. The North Manufacturing Co. has an account with Reserve for Depreciation of Office Equip- ment, which is credited at the time of closing the books with the estimated depreciation of the office equipment. This account now shows a credit balance of $632.80. June 21, the company purchased a new safe costing $600 and was allowed $125 for the old one taken in exchange. The old safe cost $400. Make necessary entries. 86. (From Examination for Admittance to the American Institute of Accountants.) A machine costing $81. (X) is estimated to have a life of four years, with a residual value of $16.00. Prepare a statement showing the annual charge for depreciation according to each of the following methods : a. Straight line. b. Constant percentage of diminishing value. c. Annuity method. (For convenience in arithmetical calculation assume the rate of interest to be 10 per cent.) Discuss the significance of each of the methods. 87. (From Massachusetts C. P. A. Examination.) A corporation has been accustomed to charge the purchase of machinery to the Machinery Account at cost, and each year to charge the Manufacturing account and to credit a Reserve for Depreciation account with an amount which will offset the cost of the machinery by the time it is estimated that it will be advisable to scrap the machines. During the period that you have been employed to audit the account, you find that the corporation has sold two machines for $5(X) each, and this amount has been credited to the Machinery account. One of them cost $1,(XX), and the amount reserved for depreciation on this machine is $600. The other cost $1,500, and the amount reserved for depreciation is $850. Make the adjusting entries to correct the books. 88. An account with Reserve for Depreciation of Delivery Equipment showed on December 31, 1916, a balance of $940.80. The Delivery Equipment account of the same date showed a balance of $13,968.40. In August, 1916, a horse died which cost $3(X), no entry being made at the time. Three years' depreciation had already been provided for at the time of the horse's death at the rate of 10% per annum, leased on cost. 78 In October, 1916, a horse which cost $275 was sold for $175, the difference between cost and selling price having been charged to the Reserve account. This horse was bought at the same time the other,one was and the same depreciation has been provided for. Make necessary adjustments. 89. (From Examination for Admittance to the American Institute of Accountants.) A machine costing $10,000 was estimated to have a life of ten years, with a -residual value of $1,000. At the close of each year a charge of $900 was made and a similar amount credited to "Reserve for Depreciation." Just prior to closing the books at the end of the tenth year the machine was discarded and sold, bringing $2,000, and a similar machine was bought costing $15,000. * Give the journal entries that you would make to close the books at the end of the tenth year in order to cover these transactions and to make necessary adjustments. Interest is not to be calculated. 90. The Norfolk Machine Company has followed the policy of crediting depreciation on fixed assets directly to the ledger accounts kept with such assets, arbitrary amounts being written off to cover depreciation at the close of each fiscal period. At the time of closing the books on June 30, 1917, on the advice of an accountant, it is decided to abandon such an unscientific policy and the ac- countant is authorized to outline a series of entries by which proper reserve accounts may be opened covering the entire period during which the assets have been in use. To enable the accountant to do so, the following data is obtained regarding the accounts: Buildings : Cost ' $90,000.00 Depreciation written off to 12/31/16 16,700.00 Estimated life from 12/31/16 20 years Machinery and Equipment: Cost 50.000.00 Cost of replacements 5,000.00 Depreciation written off to 12/31/16 14,375.00 Estimated life from 12/31/16 8 years Power Plant: Cost 8,000.00 Cost of replacements 1,500.00 Depreciation written off to 12/31/16 4,000.00 Estimated life from 12/31/16 4 years Office Equipment : v. Cost $6,500.00 Cost of replacements 700.00 Depreciation written off to 12/31/16 1,635.00 Estimated life from 12/31/16 8 years Horses, Wagons and Harness : Cost 14,500.00 Cost of replacements 1,200.00 Depreciation written off to 12/31/16 7,340.00 Estimated life from 12/31/16 6 years Prepare journal entries with complete explanations by which the new policy may be put into effect, provision being made at the same time for the depreciation applicable to the current six months' period. 79 91. The Bay State Press has an account with Fixtures showing a total cost of $46,880 which were bought as follows : 1905 $5,115 1909 $1,005 1906 3,002 1910 4,505 1907 2,150 1911 6,115 1908 17,810 1912 7,178 No depreciation has ever been provided, a condition which it is now desired to correct. The esti- mated life is 10 years from the date of purchase. Make entry for setting up a reserve account covering depreciation for the entire period during which the fixtures have been used, including depreciation for the current year ending December 31, 1912. 92. The Digesto Food Company manufactures a brand of breakfast food according to a secret process. Their engineers design a special machine for its manufacture, ten machines of this design being made by the Breckworth Machine Company. The cost of each machine is $3,600 ; the estimated life is ten years ; the scrap value $100. As an accountant, you are asked to work out a method for reckoning depreciation on the machines, the depreciation to be included in the cost to produce the food. Your attention is called to the fact that the business has been quite profitable due largely to the extensive advertising done by the com- pany. Their success, however, has attracted capital in large quantities to this field and new com- panies are constantly being organized for the manufacture of a variety of competing foods, with the result that the ability of the company to maintain their present sales and profits is rather uncertain. Prepare your report covering the following points: a. Method of reckoning depreciation. b. Method of bringing it on the books. c. Treatment of repairs. d. Design a ledger card for a perpetual inventory of machinery units owned by the company, showing all facts about the purchase ; the depreciation written off from time to time is also to be recorded on the cards. 93. December 31, 1912, at the time of closing the books, the Henry Hudson Company set aside 1^% of Accounts Receivable as a reserve for bad debts. The Accounts Receivable on that date showed a balance of $62,747.93. June 30, 1913, the accounts of R. W. Rollins & Co. for $137.20 and of J. C. Cutter for $42.25 are written off, as repeated attempts have been made to collect them. September 1, 1913, a final dividend of 20% from trustees in bankruptcy for Thomas Knight on a claim of $638.20 was received. Previous to this, dividends of 30% and 20% had been received. July 2, 1914, J. C. Cutter paid us in full the amount written off on June 30, 1913. Make necessary entries. 94. French & Dysart, Inc., are engaged in the manufacture of lathes, at the time of closing the books June 30, 1915, the following facts are discovered by the accountant: March 1, the Essex Machine Company ordered the delivery of two lathes, which had been manu- factured for them and had been holding for shipping instructions since September, 1914. The lathes had been charged to the Essex Machine Company on September 21, 1914, but by an oversight were included in the inventory taken December 31. One machine was billed at $962.50 and the other at $750. The inventory taken December 31 was also found to contain the following clerical errors : Finished stock, $3,100 too much. Raw materials, $1,000 too little. L. P. Fuller, a customer of the company, failed and his affairs were settled in the bankruptcy court. A final dividend was received March 1, 1914, leaving an unpaid balance of $610 which was charged off to Profit and Loss. Fuller began business anew and desiring to make settlement in full with all creditors as he is able to do so, sends the company his check for $300 on account on June 30, 1915. What entry should the bookkeeper make? 80 If the $610 had been charged to a Reserve for Doubtful Account, what entry would you advise at the time of recovering the $300? 95. An accountant is engaged by a certain concern to draw up financial statements and to close the books as of December 31, 1916. He finds that no provision for accrued or prepaid items was made when the books were closed December 31, 1915, and he also locates certain errors as indicated in the following: Accrued wages and salaries — Dec. 31, 1915 — $1,640. Dec. 31, 1916— $2,000. Insurance paid in advance — Dec. 31, 1915 — $360. Dec. 31, 1916— $180. ' ' Accrued interest on mortgage — Dec. 31, 1915 — $1,200. » Dec. 31, 1916— $1,200. Goods received prior to Dec. 31, 1915, and included in the inventory of that date but not entered on the books until Jan., 1916— $8,000. Error in taking inventory Dec. 31, 1915 — $1,500 too little. Depreciation on real estate — estimated — for 1915, $6,500 — for 1916, $7,000. Make the necessary adjusting entries. 96. A firm closed its books on December 31, 1913 ; on January 15, an accountant is called in to make an audit of the accounts for the year and check up the financial statements : The accountant discovers that the following accrued and prepaid items were ignored by the book- keeper at the time of closing the books, both on December 31, 1913, and on June 30, 1913, the date of the preceeding closing: June 30, '13 Dec. 31, '13 Error in inventory (too much) $1,850.00 Interest prepaid on notes payable 375.00 $150.00 Wages accrued 1,957.00 3,984.00 Insurance premiums prepaid 290.00 680.00 Interest accrued on bonds 500.00 500.00 Taxes accrued 600.00 Taxes prepaid 500.00 97. (From Illinois C. P. A. Examination.) In taking up the audit of the accounts of a company for the year ending December 31, 1912, you find that the adjustments made at the previous audit for the year 1911 have not been t^ken on the books, and that, therefore, the books are not in agreement with the audited accounts as of that date. Assuming the following were the adjustments referred to, what, if any, disposition would you make of the items at this audit, illustrating your answer with draft journal entries, viz. : To record : 1. Invoices for Merchandise in Transit at December 31, 1911, not on books $5,000.00 2. Invoices for Merchandise received but not entered 10,000.00 3. Reserve for Bad Debts (said debts were written ofiF in 1912) 2,000.00 4. Factory Expense Bills for 1911 not entered until January, 1912 750.00 5. Pay-Roll accrued at December 31, 1911 6,000.00 6. Insurance Premiums paid in advance at December 31, 1911 500.00 7. Taxes for year ending December 31, 1911, not entered until May, 1912 1,000.00 8. Reserve against excess valuation of Inventory, December 31, 1911 10,000.00 9. Depreciation not taken up on books prior to January, 1911, $5,000; year ending De- cember 31, 1911, $1,000 6,000.00 10. To write oflF an unlocated difference in the Accounts Receivable Controlling Ac- count at December, 1911, which, however, was located and canceled in 1912 1,500.00 81 98. (From Massachusetts C. P. A. Examination.) The books of the X Manufacturing Company were audited to December 31, 1913, and in making up the Balance Sheet and Profit and Loss Account at that date the auditors recommended the following ad- justments : a. Transferred to Profit and Loss $4,231.07 which had been charged to real estate and buildings in error. b. Provided for depreciation of • buildings, etc., $7,200.00. c. Adjusted salaries amounting to $1,400.00 due for 1913 services but not entered on the books until January, 1914. d. Reduced the amount of Inventory because of errors, $12,000. The same auditors were again called in to audit the books to June 30, 1914, and found that the above adjustments had not been entered on the books. They also found that during the half year $1,000.00 had been charged to real estate, buildings, etc., instead of to expense; that no provision had been made for depreciation for the period amounting to $3,600.00 and that the inventory had been footed $10,000.00 too much. Also that the unexpired insurance amounting to $750.00 more than was entered on the books. The following are condensed trial balances of the X Manufacturing Company books as the auditor found them as of December 31, 1913, and June 30, 1914: December 31, 1913 June 30, 1914 Real estate, buildings, etc $102,840.26 $115,226.80 Capital stock $200,000.00 $200,000.00 Debentures 100,000.00 100,000.00 Cash 14,672.14 22,143.21 Accounts payable 9,431.17 11,698.21 Accounts receivable 22,436.10 28,250.40 Loans 10,000.00 5,000.00 Stocks and bonds 17,502.50 19,150.00 Inventory 246,153.42 288,360.14 Unexpired insurance 1,471.23 742.26 Surplus , 85,644.48 85,644.48 Profit and Loss, 1914 • 71,530.12 $405,075.65 $405,075.65 $473,872.81 $473,872.81 From the foregoing facts prepare : 1. A correct Balance Sheet, June 30, 1914. 2. State the adjusted amount of profits for the half year to June 30, 1914. 3. Prepare statement reconciling the Balance Sheet figures with the original Trial Balance of June 30, 1914. 82 PART VI CONSIGNMENTS, BRANCHES AND SELLING AGENCIES 99. (From Missouri C. P. A. Examination.) What is the proper method of treating Consignments on the books of : 1. Consignor 2. Consignee 3. On their respective balance sheets. 100. A ships to B on consignment, under date of April 4, merchandise to the value of $1,500, pay- ing $15 cartage and $6 insurance. B receives the consignment April 20, paying freight $70 and cartage $12. He subsequently disposes of the merchandise by sales as follows : April 30, $400 ; May 30, $800 ; June 30, $600, on which latter he pays storage charges $30. He charges commissions on sales 5%, credits net interest at 6% and transmits account sales with remittance of net proceeds to A. who receives them July 10. Prepare shipment accovmt as appearing on A's ledger and consignment account as appearing on B's ledger. 101. (From Illinois C. P. A. Examination.) Two merchants, C. F. Munton and W. A. Spencer, agree to share equally in a joint adventure in trade to the West Indies. On March 1st, 1907, they charter a small vessel and purchase and ship materials which cost them $197.(X), for which Munton gives his check. This cargo they consign to John Smith, their agent at Havana, which he disposes of, and in return ships on board the same vessel 4,(XX) cases of Commodity A, and 100 cases of Commodity B ; and he draws on Munton at sight for $125.00, this being the amount of the agent's charges and disbursements over and above the net proceeds of the cargo consigned to him. Munton accepts and pays the bill. On April 1st the vessel arrives, whereupon Munton pays sundry charges of $337.50. Spencer pays the freight, amounting to $493.00. On April 4th Munton sells 1,000 cases of Commodity A to Henry Chamberlain for $239.58, and collects $150.(X) and on April 10th Spencer collects the rest. About this time, Mr. Spencer happens to have occasion for 1,400 cases of Commodity A. which he takes on April 14th. and with Munton's consent values at $291.66. He also takes 10 cases of Commodity B, valued at $47.50. Munton sells the other 1,600 cases of Commodity A on April 20th to John \\'alters for $383.33, and a month after accepts $382.50 in full payment. Mr. Munton next sells on April 25th the other 90 cases of Commodity B in barter for 30 cases of Commodity C. which he and Spencer divide equally between them. The goods being thus disposed of, Munton presents his bill of charges, which comes to $22.66, and desires to have accounts stated between Mr. Spencer and him. You are required to give the Ledger Accounts of the joint adventure recording the foregoing trans- actions as follows : Joint Adventure Account, C. F. Munton, W. A. Spencer, Henry Chamberlain, John Walters. 102. (From Illinois C. P. A. Examination.) A. B. & Co. agree with C. D. & Co. that the latter shall ship on consignment to Honolulu on joint account 20 cases of Commodity "X," the invoice price of which is $2,100, less 2j/2 per cent. A. B. & Co. pay the packing charges, $25 ; also freight, insurance and other charges, $90, and they draw on their correspondents in Honolulu in advance for $1,600 at 90 days, which is discounted at a cost of $20. and the proceeds handed to C. D. & Co. as part payment. These transactions may be dated March 1st, 1909. On the 30th of November, 1909, A. B. & Co. receive the account sales and net proceeds, $418, and they then pay C. D. & Co. the balance due to them. 83 Prepare a Joint Consignment Account charging interest on the amount lying out at 5 per cent, per annum for eight months, closing it by dividing the loss. Also an account to be rendered by A. B. & Co. to C. D. & Co. closed by payment of the balance and prove that the losses borne by each are equal. 103. (From Massachusetts C. P. A. Examination.) A commission house, composed of three partners, is selling agent for sundry consignors whose ac- counts are unguaranteed. The rate of commission is 3% of the net sales. The fiscal terms end June 30, and December 31. The partners' capital accounts are to be credited with interest at 6%, p. an., and with the net earnings which are to be apportioned as follows : J. Doe, 60% ; R. Roe, 30% ; J. Smith, 10%. No interest is to be computed on J. Doe's drawing account; that account is to be credited with 1% of the net sales. Following is the trial balance, Decem- ber 31, 1910: Cash $16,800 Sundry creditors $100 Advances to sundry consignors, Sundry consignors' sales accounts 235,600 account of sales 105,700 J. Doe Capital acct. Accounts receivable, for account of June 30, 1910) 100,000 sundry consignors 235,600 R. Roe capital acct. J. Doe drawing acct 5,800 (June 30, 1910) 9,000 Salaries 3,400 J. Smith capital acct. Rents 700 (June 30, 1910) 4,000 Traveling 600 Commissions 18,000 Teaming 200 Interest received from consignors, Miscellaneous expenses 800 on advances account of sales (to Dec. 31, 1910) 2,900 $369,600 $369,600 The net sales, during the six months, were $600,000. Write, in proper form, a statement for the six months ended December 31, 1910, showing the detail of gross earnings; expenses; total interest cred- ited to the partners ; net earnings ; and the distribution of the latter. Show a balance sheet, December 31, 1910. 104. (From Ohio C. P. A. Examination.) The following is a pre-closing trial balance as at December 31, 1913, prepared from the ledger of Messrs. Joseph & Johnson, commission merchants : Debit Credit A. B. Joseph — Capital account $50,000.00 C. D. Johnson — Capital account 50,000.00 Cash $293,719.52 281,388.10 Customers 215,720.60 195,625.30 Buckeye Worsted Mills— Consignment sales 215,720.60 215,720.60 Freight and cartage 18,652.70 10,362.60 Commissions 21,572.06 Discount allowed ". 1,905.78 Buckeye Worsted Mills— Current account 50,000.00 62,982.41 General expenses 10,000.00 Buckeye Worsted Mills— Advances 202,735.40 120,803.53 Totals $1,008,454.60 $1,008,454.60 The bookkeeper is seriously ill, and the firm of C. P. & A. (by whom you are employed as a senior accountant) have been requested to prepare from this data — without an audit of the books — a balance sheet, and to determine what the profits or losses for the year have been. Mr. Johnson, one of the partners, who brought this trial balance to the office, has furnished the following additional facts : The firm started business January 1, 1913, with a cash capital of $100,000, of which each partner contributed one-half. 84 The firm does business under a contract with the Buckeye Worsted Mills, whereby it handles, on consignment, the product of the Buckeye Mills exclusively. The contract provides for an advance to the mill of 70% of the billed value upon shipment of the goods from the mill. All sales are made at an advance of 25% over the mill billing price, and settlements for sales are made with the mill monthly, less a 10% commission, less freight and cartage on the goods sold, and less the advances made on the goods sold. The shipments made during the year amounted — at the mill billing price to $289,622. Your principal also furnishes you with the following explanations concerning the operation of two of the accounts shown on the trial balance. Buckeye Worsted Mills — Consignment Sales. This account is credited with sales and debited with the monthly settlements. Fretght and Cartage. The debits in this account measure the freight and cartage paid on ship- ments made to the firm, and the credits measure the deductions for freight and cartage made in the settlements with the mill. You are asked to submit : a. Ledger accounts exhibiting in summary form the entries for the year's transactions, each entry in the several ledger accounts cross-indexed by number so as to identify the same with the contra debit or credit in another ledger account. b. A balance sheet as at December 31. c. A statement of the profits or losses. d. The value of the consigned goods unsold at mill billing price. 105. George Bentley & Co. place you in charge of a branch store with goods valued at $2,150 and cash $75. You are to receive a salary of $40 per month and 10% of the gross profits. During the year you pay store expenses of $210. The goods shipped from main store during the year amounted to $21,000 and your sales cover $24,000. At the end of the year your books showed accounts receivable $400 and merchandise on hand, $2,000. Make a statement showing the net profit of the branch. It is decided to close the branch at the end of the year. Show balance of cash due Bentley, assuming that he takes over the Accounts Re- ceivable and Merchandise. 106. (From Illinois C. P. A. Examination.) A branch office business was started the first of the year, the head office advancing $5,000.00 cash. During the first year merchandise was shipped to Branch, invoiced at $75,000.00. An auditor checking up the business at the close of the year finds the following: Merchandise sales were $60,000.00, with selling price of goods 20% advance on invoice. Proper vouchers were on file duly receipted for following payments : Rebates and allowances on damaged goods $1,500.00 Salaries and other expenses 4,500.00 Freights 2,500.00 The books also showed : Remittances to head office $35,000.00 Uncollected accounts 15,000.00 and balance of the sales having been realized in cash, less rebates and allowances as noted. The cash on hand and inventory of unsold goods, together with the foregoing records, properly account for everything. Prepare statement, such as an auditor would make in reporting to the head office, balancing the business of the branch house. 85 107. (From Massachusetts C. P. A. Examination.) The condition of the Atlantic Co. at the close of business, December 31, 1913, is reported by them as follows: Assets Real estate $150,000.00 Machinery 200,000.00 Cash 24.500.40 Accounts receivable 320,800.50 Merchandise 375,480.70 $1,070,781.60 Liabilities Capital stock $500,000.00 Mortgage on real estate 100,000.00 Accounts payable 67,000.00 Notes payable 100,000.00 Surplus 200,000.00 Profit and loss 103,781.60 $1,070,781.60 The Company has a branch to which it sells its goods at 20% over inventory prices and carries this account together with other Branch Assets as a receivable. The statement of the branch on same date was : Assets Fixtures $6,205.79 Cash 1,107.55 Accounts receivable #. 12,478.14 Merchandise at price billed to branch 5,241 .95 $25,033.43 Liabilities Atlantic Company $25,033.43 a. What was the inventoried value of the Branch Merchandise? b. Prepare a corrected statement of the Atlantic Company. 108. (From Massachusetts C. P. A. Examination.) A branch office business was started at the first of the year, the head office advancing $5,000 cash. During the first year merchandise was shipped to branch invoiced at $75,000. An auditor checking up the business at the close of the year finds the following: Merchandise sales were $60,(XX) with selling price of goods 20% advance on invoice cost. Proper vouchers were on file duly receipted for following payments : Rebates and allowances on damaged goods $1,500 Salaries and other expenses 4,500 Freights 2,500 The books also showed : Remittances to head office $35,(XX) Uncollected accounts 15,000 The balance of sales having been realized in cash less rebates and allowances as noted. "The cash on hand and inventory of unsold goods together with the foregoing records properly account for everything. Prepare statement such as an auditor would make in reporting to the head office, balancing the business of the branch house. 86 109. (From Massachusetts C. P. A. Examination.) A manufacturing concern having a branch in another town presents the following trial balances on January 1, 1912: Plant Material and supplies (inventory Jan. 1, 1911) Purchases Labor General expense Insurance — (1 yr. to Jan. 1, 1912). Accounts receivable (worth 95%) , . Cash Dividends paid Branch Main Office $125,5(X)" Capital stock 68,300 245,800 163,400 24.900 3.400 84,600 4,870 20,000 93,980 Notes payable Accounts payable Net sales Profit and loss (Jan. 1, 1911) $250,000 . 30.000 42,630 480,300 31,820 $834,750 Branch Plant Material and supplies (inventory Jan. 1, 1911) Purchases Labor Insurance — (1 yr. to Apr. 1, 1912). General expense Accounts receivable (worth 1(X)%) Cash $35,200 16,500 62,450 40,610 1,260 7,820 24,600 3,160 Net sales . Main office $834,750 $97,620 93,980 $191,600 $191,600 Inventories of material and supplies on January 1, 1912, were: Main office, $45,300; branch, $28,400. " No inventories of finished goods, as same were sold on contract for daily shipments, and are all billed up on closing. In closing on January 1, 1911, the branch charged off all insurance. General Expense includes salaries, office expense, taxes, etc. Selling Expense has been deducted from the sales. Construct one working account, profit and loss account and closing balance sheet for the entire concern, omitting estimate for depreciation. 110. (From Michigan C. P. A. Examination.) Compile from the following particulars, supplied by the branches, an account with each branch in the books at the head office of the Wholesale Co., whose year ends December 31, 1909, bringing down the balances as they should appear on January 1, 1910. 87 The branches receive all their goods from the head office and pay in all of their cash every day. They keep their own sales ledgers and do their own collecting. All payments for wages and expenses at the branches are drawn by check from the head office on the Imprest system. A B Merchandise received from head oflPice $10,360.00 $10,730.00 Cash received from customers '. . . 11,450.00 10,340.00 Allowance to customers 15.00 35.00 Returns from customers 75.00 200.00 One year's sales to Dec. 31, 1909 10,870.00 12,605.00 Cash sales , 8,400.00 5,700.00 Bad debts 280.00 530.00 Inventory of Mdse. at Jan. 1, 1909 2,300.00 2,500.00 Debtors at January 1, 1909 8,270.00 5,730.00 Debtors at December 31, 1909 7,320.00 8,760.00 Inventory at December 31, 1909 3,750.00 4,320.00 Rent and taxes paid 600.00 730.00 Wages and other expenses 2,020.00 2,310.00 111. (From Wisconsin C. P. A. Examination.) John B. Green has a chain of five retail grocery stores. Goods are sold to consumers for cash; and to small dealers on credit. Additional working capital is required. Three of Green's friends agree to furnish funds providing the business is incorporated. Such books as exist have been kept by single entry. The business is duly incorporated for an authorized capital of $100,000, par value of shares $100 each. It is agreed that Green shall turn over his business to the company as at July 1, 1914, on appraised values of physical properties ; and values of all book accounts (assets and liabili- ties) as they shall be disclosed ; and Green's net worth is to apply on his stock subscription of $25,000. In addition. Green is to be allowed 25% of the net worth for "Good will." Other capital stock sub- scriptions are, respectively. A, $30,000; B, $25,000; C, $20,000; and each is to pay immediately in cash a proportionate amount on subscriptions which, altogether, shall aggregate 50% more than the value of capital stock issued to Green. 9 The Appraisal Company reports as follows : Real Estate: Store No. 1 $4,000.00 Store No. 2 , 5,000.00 Reproductive Sound Buildings : Values Values Store No. 1 $3,000.00 $2,000.00 Store No. 2 7,500.00 5,000.00 Furniture and Fixtures: Stores 10,000.00 7,500.00 General Office 1,000.00 500.00 Stock Room 1,000.00 500.00 Automobiles (2) 5,000.00 3,500.00 Inventories (Merchandise) : In Store Room 14,000.00 In Storage (Butter and Eggs) 5,000.00 In Stores 11,000.00 No. 1 $2,300.00 No. 2 1,950.00 No. 3 3,135.00 No. 4 2,365.00 No. 5 1,250.00 88 The book accounts disclosed are as follows : Cash at Bank $1,500.00 Cash— General Office Petty Cash) 100.00 Cash— Stores 500.00 No. 1 $140.00 No. 2 75.00 No. 3 160.00 No. 4 60.00 No. 5 65.00 Accounts Receivable — Dealers $2,600.00 Trade Creditors' Accounts 22,280.00 Accrued Wages and Salaries 795.00 Accrued Taxes 100.00 Unexpired Insurance 50.00 Mortgage on Real Estate and Buildings — dated July 1, 1913; principal payable in 5 years; interest at 6% per annum, payable semi-annually 7,500.00 Notes Payable (Bank) : Due 3 months from May 1, 1914 (6%) 10,000.00 Due 3 months from June 1, 1914 (6%) 5,000.00 Interest falling due on mortgage loan has not been paid. Interest on the $10,000 note is payable at maturity. The $5,000 note was discounted. The following additional facts are shown on the books and records of the John B. Green Company at the close of the first month's business : Merchandise Purchases (of which $750 was returned) $35,000.00 Stores' Sales as per Cash Register Totals : Store No. 1 $6,000.00 Store No. 2 3,500.00 Store No. 3 8,000.00 Store No. 4 5,000.00 Store No. 5 2,500.00 Sales to Dealers 5,000.00 Issues from General Stock (at cost) : Store No. 1 $5,585.00 Store No. 2 2,850.00 Store No. 3 6,470.00 Store No. 4 4,210.00 Store No. 5 2,475.00 Cost of Goods Shipped to Dealers 4,545.00 Heat, Light, Expenses of Stores: Clerks' Cleaning, Wages Rents Ice, etc. Store No. 1 $200.00 $65.00 $25.00 $290.00 Store No. 2 135.00 25.00 20.00 180.00 Store No. 3 235.00 75.00 35.00 345.00 Store No. 4 200.00 150.00 35.00 385.00 Store No. 5 135.00 100.00 35.00 270.00 89 Management and Office Salaries $385.00 Store Room and Delivery Wages . 265.00 Rent of Office and Store Room 35.00 Stationery and Office Supplies 40.00 Postage 10.00 Advertising 75.00 In-Freight 50.00 Heat, Light and Janitor (Office) ' 15.00 Appraisal and Audit Fees 350.00 Law and Organization Expenses 250.00 Auto Up-Keep 90.00 Telephone 40.00 Debts of John B. Green not disclosed at date of turnover : On Creditors' Accounts $675.00 On Storage Charges (of which $5 is for current month) 20.00 695.00 The stores' merchandise inventories at the end of the month amount to: Store No. 1 • $2,650.00 Store No. 2 1,875.00 Store No. 3 2,920.00 Store No. 4 2,115.00 Store No. 5 940.00 The stores' cash funds are reduced to : Store No. 1 $100.00 Store No. 2 50.00 Store No. 3 100.00 Store No. 4 50.00 Store No. 5 50.00 Differences are found in the stores' cash funds at the close of the first month's business : Store No. 1 short $3.00 Store No. 2 • over LOO Store No. 5 over 17.00 The general merchandise stock shows: Spoiled goods, $60; shortage in inventory at the end of the month, $35. The stores receive credit for spoiled goods : Store No. 1 $15.00 Store No. 2 10.00 Store No. 3 20.00 Store No. 4 15.00 Store No. 5 30.00 The upper floor of store No. 1 building is tenanted, and rentals at $25 monthly, payable in ad- vance, are found to be three months in arrears — of which $50 is paid during July. Insurance expires September 30, 1914. All salaries and wages are payable one-half each on the 1st and 15th of the month. Dealers have paid on their accounts $4,200. Trade creditors have been paid (of which $340 is discounted) $40,000. Depreciation charges (annual rates) : On Buildings, 5%. On Furniture and Fixtures, 10%. On Automobiles, 25%. 90 Part of store No. 2 building is used for the general office and store room. You are asked to submit : • a. Opening entries on the books of the corporation (journal form with brief explanations), taking over the business of John B. Green and including payments on account of capital stock subscriptions. b. General cash account for the month. c. Profit and loss account for the month ; showing also, in a clear and simple manner, the stores' operations with percentages of gross profit on cost. It is not necessary to prorate any of the general business expenses to the stores. d. Comparative balance sheet as at July 1 and July 31, 1914. e. A brief statement giving the grounds of your conclusions in explanation of the loss on goods sold in store No. 5 (Wisconsin, 1915.) 112. (From Wisconsin C. P. A. Examination.) Supplementing the problem given on the financial aflPairs of the John B. Green Company, you are asked to submit an outline of a simple but eflfective accounting system for such corporations: a. Submit list of books and records. b. Submit captions of general ledger accounts, set up in trial balance form, and arranged under proper classification. c. Submit ruled forms, showing columnar headings, for all books required, together with brief instructions relative to the use and purpose of each form. Also indicate, by graph or otherwise, rela- tionship of the various books and records. d. Give suggestions for the control of merchandise stocks in the stores, to have a reasonable assur- ance that cash has been received for all goods sold. 113. (From New York C. P. A. Examination.) A contracts with a textile establishment to sell the mill's annual output on the following condi- tions : The mill is to bill the output to A at cost. A is to finance the mill to the extent of 75% of cost on receipt of goods. The balance is to be remitted by A as the various shipments are sold, less 5% and advances. At the end of the year an analysis of A's affairs reveals the following, as shown by his books, the goods being sold at 10% profit above factory cost (mill shipments, $7,327,918.18) : Debits Credits Mill advances $5,545,938.00 $5,000,000.00 Mill sales .' 6,400,000.00 7,840,710.00 Freight and cartage , 90,000.00 80,000.00 Customers 7,840.710.00 7,632,200.00 Cash 7,610,200.00 5,635,938.00 Discounts 22,000.00 Commission 320,000.00 Mill account 1,000,000.00 $27,508,848.00 $27,508,848.00 Prepare A's Financial Statement. 114. A large manufacturing concern in Chicago has Sales Branches in various large cities which have exclusive right to the business within their territories. Each branch purchases from the head office and makes up a separate profit and loss statement. The New York branch contracted with the A B Co., a large concern, to supply their requirements all over the country, bills to be paid at New York, and the New York Branch would extend proper credit to the various branches through the main office, it being a rule of the company that "branches cannot deal direct with one another. On January 1, 1904, the New York Branch sold a carload to the A B Co., Philadelphia, consisting of 500 boxes @ $4.00 per box, with a carload allowance of 10c per box. The cost of the goods was figured @ 25% below the selling price and the freight amounted to $24.65. On Jan. 9 the New York Branch received payment less 2% cash discount for the purchase. 91 What entries would be made on the Main Office books, the New York Branch books, and the Philadelphia Branch books? 115. (From Illinois C. P. A. Examination.) The Universal Cash Register Company, with an authorized capital of $10,000,000.00, of which $5,- 000,000.00 has been issued at 80 cents on the dollar, is engaged in the manufacture of cash registers and supplies pertaining thereto. The sale of these cash registers, etc., is accomplished by means of a large number of branch houses and agencies, and all goods shipped by the factory to these branch houses, etc., are put on consignment account at list prices. In addition to the sale of new cash regis- ters they also sell a large quantity of second-hand registers, which they have obtained by taking second- hand registers in part payment of new registers. These second-hand registers are also put on con- signment account, but not at list prices, but at actual cost to the company, the reason for this pro- cedure being that they have no fixed selling price for second-hand machines, their branch house manag- ers and agents being authorized to sell them at as high a figure as they can get, but on no account to allow themselves to become overstocked with them. It often happens that on receiving the second- hand register at a branch it is found advisable to ship same to the factory, so that certain repairs may be effected to put it in saleable condition. When these repairs are completed the second-hand register may be shipped to some entirely different point from which it originally came. Branch house managers are paid a fixed salary, but attached to each branch house are a number of salesmen who receive no salary, but are paid on a purely commission basis, and on the same terms as those given to agents. For the purpose of this question it will be assumed that no register is ever sold without a commission being paid to a salesman or agent, and on the sale of every new register the rate of commission is thirty (30) per cent. But when a second-hand machine is accepted in part payment of a new register the salesman or agent only receives twenty (20) per cent, of the net amount that will be received in cash and notes from the customer. On sales of second-hand machines a commission of twenty per cent, is paid. The terms to customers are 25% cash and the balance in ten equal month- ly instalments, a separate note being given for each instalment. Upon failure of a purchaser to pay any part of the purchase price the register is pulled (that is, taken out and returned to the agency or branch house selling same), and the agent or salesman then only receives a prorate amount of his com- mission, the actual cash collected being the basis of his commission. The money that has been paid in on account of a register which is pulled is clear profit, barring any legal expense in connection with same, and the customer's open account or notes receivable account is closed out by a transfer to an account termed "Retained Payments." The branch houses and agents keep no accounts, all accounts and collections being attended to at the head office. Among others the following accounts are kept on the general books : New Register Consigned Stock Account (always debit balance). New Register Consignment Account (always credit balance, and offsetting balance of Consigned Stock Account). Second-hand Consigned Stock Account. Second-hand Consignment Account. New Register Sales Account. Second-hand Register Sales Account. '' New Register Commission Account. Second-hand Register Commission Account. Notes Receivable Ledger Account. Customers' Ledger Account. Second-hand Register Cost Account. Agent and Salesman's Commission Ledger Account. Retained Payments. As a check iipon the New Register Commission Account a rule is laid down that in all sales of new registers, whether a second-hand register be accepted in part payment or not, the New Register Commission Account must be charged with 30% of the list price of register sold. 92 Draw up journal entries for the following transactions : a. Herbert Davison, a salesman in the Chicago branch, sells a new cash register to the Madison Restaurant Company, having a list price of $240.00. The restaurant company one month after de- livery of the register pays cash of $60.00 and gives ten instalment notes of $18.00 each, the first one due one month after date, the second two months after date, and so on. After meeting the first five notes the Madison Restaurant Company becomes bankrupt, and the Universal Cash Register Company pulls the register. Show all of the entries necessitated by the above transactions, including commis- sions to salesman. b. Thomas Smith, an agent for the company, sells a cash register to Herbert Findlay for $350.00 and takes in part payment a second-hand register at $50.00. After delivery of the new register to Her- bert Findlay and the receipt at the factory of the second-hand register a settlement of the account is eflfected by a cash payment of $75.00 and the acceptance by the company of ten instalment notes of $22.50 each made by Herbert Findlay. The latter pays the first two notes, but fails to make any more payments on the other notes. The register is therefore pulled. Show all of the entries necessitated by the above transactions, including commission to Thomas Smith, the agent. c. The second-hand register returned to the factory and referred to in the last question has repairs put upon it costing $25.00, and it is then shipped to the New York Branch and consigned to them at the actual cost to the Universal Cash Register Company up to that time. A salesman, Edgar Robinson, sells the register to Abner Johnson for $100.00, and the latter settles for same by paying cash down. Show all of the entries necessitated by the above transaction, including commission to Edgar Robinson, and also state what profit the company made on this register and how you arrive at same. 93 PART VII MANUFACTURING ACCOUNTS 116. (From Massachusetts C. P. A. Examination, October, 1914.) Jones Manufacturing Company, Trial Balance, December 31, 1913 (before closing). Dr. Cr. Accounts payable . . . r $22,560.71 Accounts receivable $42,739.66 Capital stock 150,000.00 Cash in banks 3,706.82 Commissions ". 7,750.71 Depreciation 12,067.30 Discount on sales 4,986.22 Discount on purchases 6,792.40 Finished product (inventory at December 31, 1912) 110,630.84 Freight inward 4,709.81 Freight outward 3,542.39 Factory expense 52,796.57 Insurance 5,372.90 Interest 3,850.00 Labor 179,473.82 Machinery and equipment 120,672.96 Material purchased 158,691.26 Material inventory (at December 31, 1912) 10,786.90 Notes payable 60,000.00 Office and selling expenses 14,790.82 Petty cash 150.00 Prepaid taxes 672.80 Prepaid interest 375.00 Power 7,500.00 Reserve for depreciation 20,978.23 Repairs 5,281.76 Rent 15,000.00 Salaries 32,250.00 Sales 570,478.31 Supplies 6,872.90 Surplus 42,146.08 Taxes 2,937.50 Traveling expenses 4,836.24 Unexpired insurance 6,821.16 Work in process (inventory December 31, 1912) 53,689.39 $872,955.73 $872,955.73 Inventories at December 31, 1913, are: Material $9,877.44 Work in process 56,091.29 , Finished product 71,170.10 From the above Trial Balance and facts prepare : a. Balance Sheet December 31, 1913. b. Statement showing cost of manufacture. c. Profit and Loss account. d. Closing Entries. 94 117. Anderson Manufacturing Company, Trial Balance, April 30, 1916. Land and buildings (cost) $68,000.00 Machinery and equipment (cost) 36,800.00 Office furniture and fixtures (cost) 12,300.00 Sales room equipment (cost) 9,840.00 Factory tools and supplies (on hand Dec. 31, 1915) 834.00 Cash 2,960.00 Accounts receivable 43,680.39 Subscriptions to capital stock — common 8,000.00 Securities owned (cost) 12,500.00 Good will 10,000.00 Patent rights 8,400.00 Raw materials (on hand Dec. 31, 1915, $15,432.60; purchases, $46,380.40) . . 61,813.00 Manufacturing (in process Dec. 31, 1915) ■ 20,268.80 Finished goods (on hand Dec. 31, 1915) 36,261.15 Bond discount and expenses 9,000.00 First mortgage bonds 70,000.00 Accounts payable 17,576.16 Capital stock — preferred (authorized issue, 1,000 shares, par $100 each) 70,000.00 Capital stock — common (authorized issue, 2,000 shares, par $100 each) 85,000.00 Surplus (undivided profits, Dec. 31, 1915) 13,869.20 Capital stock — common, subscribed •. . . . 16,000.00 Sales of finished goods 85,239.41 Salesmen's salaries and expenses 8,269.40 Delivery expenses 3,732.89 Office clerks' salaries ; 5,321.76 General office supplies used 1,869.30 Taxes 486.00 Insurance 1,240.00 Direct labor 14,178.32 Indirect labor 5,650.00 Factory heat, light and power 2,730.46 Reserve for depreciation of buildings 15,000.00 Reserve for depreciation of machinery and equipment 7,682.40 Reserve for depreciation of office equipment 2,800.00 Reserve for depreciation of sales room equipment 968.30 $384,135.47 $384,135.47 Adjustments : Cost of buildings, $45,000; estimated life, thirty years. Estimated life of machinery and equipment, eight years. Estimated life of office furniture and fixtures, ten years. Estimated life of salesroom equipment, ten years. Factory tools and supplies on hand April 30, 1916, $500.00. The first mortgage bonds were issued January 1, 1916, arid mature January 1, 1926. The bond dis- count and expenses are to be written off over that time. The bonds bear interest at the rate of 6% per annum, payable January 1 and July 1. Insurance prepaid, $620.00, Raw materials on hand, April 30, 1916 $10,400.00 Goods in process, April 30, 1916 36,126.50 Finished goods on hand, April 30, 1916 28,740.80 95 REQUIRED: a. Adjusting Entries. b. Manufacturing Statement. c. Profit and Loss Statement. d. Balance Sheet. e. Closing Entries. 118. The following items are taken from the trial balance of the Conant Manufacturing Company, as of June 30, 1916, after all adjustments are made : Sales Finished goods inventory, June 1 Finished goods purchased Freight outward Rent of sales room Manager's salary . '. Advertising Salesmen's commissions Office expense Shipping cartons and labels Indirect labor Superintendence Goods in process, June 1 Raw materials purchased Raw materials inventory, June 1 Sales returns '. Purchase returns (raw material) Direct labor Factory rent Light, heat and power Insurance on machinery Repairs and renewals Factory supplies Sales discounts Loss on bad debts Purchase discounts Interest on notes payable Rent income (2nd floor of factory sub-let) .... Depreciation of plant Taxes on plant ... Freight and cartage in Salesmen's salaries . . $6,656.85 300.00 195.00 34.97 60.00 135.00 16.75 33.10 108.15 22.80 72.33 100.00 1,200.31 1,880.27 5,672.18 119.80 27.65 548.68 100.00 86.00 6.10 32.15 117.50 39.01 22.32 25.93 15.00 41.67 96.50 36.00 29.17 200.00 Following is the required work : a. Statement showing cost of goods manufactured. b. Profit and loss statement. . c. Closing entries only so far as they apply to the manufacturing accounts. Take into account the following inventories as of June 30 : Raw materials $3,984.83 Goods in process 1,468.15 Finished goods 330.86 Factory supplies 25.00 96 The period covered is one month. 119. (From Boston Examination for High School Commercial Teachers.) From the trial balance of the Wonder Machine Shoe Company prepare a balance sheet and state- ment with sections showing manufacturing costs, trading results and profit and loss. Reserve for the depreciation of machinery, 10%; of tools, 10%; of lasts and patterns, 20%. Re- serve for loss from bad debts an amount that, when added to the reserve for that purpose already in force, will make the sum 1% of the book accounts. Inventories, December 31, 1913. . Raw materials $5,397.24 Factory supplies 820.20 Fuel 1,592.17 Goods in process 18,493.12 Finished goods 8,898.61 Interest accrued on notes held 37.00 Interest accrued on notes outstanding 55.00 Work done with a pencil, and ruling made free-hand will be accepted. Trial balance, December 31, 1913. Real estate $81,035.00 Machinery and equipment 57,750.00 Tools 5,259.00 Last and patterns 35,260.00 Office equipment 3,396.00 Raw materials, inventory January 1 14,378.40 Goods in process 23,631.50 Finished goods 15,686.31 Accounts receivable 62,316.50 Bills receivable 4,388.45 Cash 22,902.63 Good will : 30,000.00 Reserve for depreciation of lasts and patterns $15,411.75 Reserve for bad debts i. . " 361.22 Accounts payable 18,580.70 Bills payable 6,500.00 Capital stock 200,000.00 Surplus 7,329.46 Mortgages payable ." . . 20,000.00 Sales 419,752.35 Discount on purchases 7,290.40 Factory supplies T 8,817.62 Raw material purchased 145,481.69 Labor 110,371.84 Freight inward 1,845.25 Indirect labor 5,193.00 Manufacturing expenses 14,280.30 Selling expenses 25,792.65 General expenses 16,123.75 Interest 1 10.60 Allowances to customers 552.25 Discount on sales S,818.75 Collection and exchange 340.81 Returned sales 1,493.58 $695,225.88 $695,225.88 97 120. (From New York City Examination for Teachers of Bookkeeping.) A trial balance of the Brown Manufacturing Company on January 1, 1912, after closing the books was as follows : Trial Balance, Brown Manufacturing Co., Jan. 1, 1912. Capital stock authorized $250,000.00 Unsubscribed stock $20,000.00 Surplus 3,000.00 Plant and machinery . 178,000.00 Furniture and fixtures 4,500.00 Raw material, inventory, January 1 48,000.00 Finished goods, inventory, January 1 5,000.00 Fuel, light and oil, inventory, January 1 1,125.00 Office supplies, factory, inventory, January 1 300.00 Office supplies, selling office, January 1 275.00 Notes receivable 20,000.00 Accounts receivable 39,000.00 Cash 5,500.00 Notes payable 12,000.00 Accounts payable 29,500.00 Reserve for bad debts and notes - 1,000.00 Reserve for plant and machinery 26,000.00 $321,500.00 $321,500.00 98 During the six months following, the volume of business transacted was : Purchases of raw material for cash $2,000.00 Purchases of raw material on account 325,000.00 Notes issued to creditors on account '. . . 42,000.00 Sales of finished product for each 15,000.00 Sales of finished product on account 375,000.00 Notes received from customers on account 70,000.00 Goods returned from customers 2,650.00 Discount on sales 1,600.00 Raw material returned 5,875.00 Discount on purchases 1,900.00 Cash received from customers on account ' 294,000.00 (In addition to the above receipts, one customer who owed $1,400 paid 50% on the dollar, balance lost.) Notes receivable discounted at bank,' face 21,000.00 Discount on above notes 450.00 Notes receivable and interest paid at maturity : Face of notes 52,000.00 Interest 600.00 Notes payable and interest paid at maturity : Face 45,000.00 Interest 850.00 Cash paid to creditors 198,400.00 Other transactions were, cash payments as follows : Freight and cartage in 666.00 Freight and cartage out 400.00 Insurance on plant and machinery 1,200.00 Maintenance and repairs 6,200.00 Factory salaries 7,400.00 Direct labor 80,500.00 Indirect labor '. 5,000.00 Fuel, light and oil 2,275.00 General expense, factory 900.00 Selling expense 13,000.00 Advertising 2,000.00 Legal services 350.00 A regular quarterly dividend of 2% on the outstanding stock was declared and paid. Construct a trial balance of totals as of June 30, 1912. Prepare condensed current and adjusting entries, a manufacturing, trading and profit and loss statement and balance sheet from your trial balance in question, giving due consideration to the fol- lowing facts : Inventories, June 30, 1912. Finished goods '. $10,500.00 Raw material 25,000.00 Insurance unexpired 800.00 Direct labor unpaid 600.00 Fuel and oil 150.00 Furniture and fixtures, book value less 10% Interest accrued on notes receivable 47.00 Interest accrued on notes payable 38.00 Provide for 5% depreciation on plant and machinery, and 2% for reserve for bad debts and notes. 99 121. (From Virginia C. P. A. Examination.) Charles Cabell, William West and Henry Hart form a partnership for the purpose of engaging in the manufacture of plug and smoking tobacco. Cabell invests $75,000, West, $50,000, and Hart, $25,000. Profits or losses are to be shared as follows : Cabell, one-half ; West, one-third ; Hart, one- sixth. Interest is not to be allowed on capital nor charged on drawings, but each partner's drawings in any one year are not to exceed one-tenth of his capital in the business. At the end of their first fiscal year their ledger shows the following balances : Charles Cabell, capital account $75,000.00 William West, capital account 50,000.00 Henry Hart, capital account 25,000.00 Charles Cabell, withdrawal account $5,842.17 William West, withdrawal ac^rount 4,179.16 Henry Hart, withdrawal account 2,033.88 Land and buildings 25,000.00 Machinery 11,026.92 Furniture and fixtures .^.. 1,866.13 Cash " 8,730.45 Accounts receivable 131,244.49 Bills receivable 4,999.97 Accounts payable 6,138.16 Bills payable 118,060.62 Sales — plug tobacco 249,472.43 Sales — smoking tobacco 61,882.25 Sales— stems • 841 .95 Leaf tobacco 200,044.57 Licorice and flavoring 21,918.66 Boxes ♦. : 8,572.10 Labor 25,182.47 Stamps 48,476.24 Power, light and heat 3,571.60 Factory expense .' 7,380.55 Hauling 1,451.30 Salaries 12,443.71 Office expense 4,228.87 Insurance 1,682.90 Interest and discount 9,164.47 Postage 1,211.97 Attorneys' fees 769.25 Salesmen's salaries, commissions, etc 38,795.15 Advertising 5,149.09 Lost accounts 1 ,429.34 $586,395.41 $586,395.41 Ten per cent, is to be charged oflF from Machinery Account, to cover depreciation, and a Reserve equal to two per cent, of the Accounts and Bills Receivable is to be created, to cover possible undevel- oped losses. The unexpired insurance premiums amount to $331.11. Inventories are as follows : Finished goods $38,189.42 Goods in process 1 1,209.36 Leaf tobacco 49,128.98 Licorice and flavoring 1,511.68 Boxes 1,073.04 Stems 43.31 Prepare statement showing cost of goods manufactured. Profit and Loss Statement and Balance Sheet, making necessary adjusting entries. 100 122. (From Massachusetts C. P. A. Examination.) The following is a trial balance June 30, 1914, before closing of the ledger of a textile mill. Land $10,000.00 Buildings 75,000.00 Machinery 119,138.73 Tenements 1,670.66 Finished goods, inventory, Jan. 1, 1916 66,984.43 Stock in process, inventory, Jan. 1, 1916 57,042.38 Yarn 259,882.12 Cash 12,769.19 Petty cash 106.39 Accounts receivable 46,085.68 Mortgage receivable 875.00 Labor 25,979.27 Supplies 2,974.31 Repairs 956.63 Oils 50.84 Coal 1,443.20 Starch 1,390.00 Water 122.65 Finishing 15,381.54 Brokerage • 660,50 Commission 4,580.67 Discounts allowed 1,246.84 Insurance 679.92 Taxes 1,502.81 General expense 389.39 Freight and express 974.34 Telephone and telegraph 68.72 Traveling expense 274.85 Interest paid 409.80 Discount on notes payable 1,408.00 Profit and loss 20,694.00 Dividends 3,375.00 Capital stock — preferred 6% cumulative 100,000.00 Capital stock — common 263,800.00 Accounts payable 40,864.56 Notes payable 187,500.00 Cloth sales 137,818.07 Waste sales 922.94 Tenement rents received 339.50 Discount taken 2,073.59 $734,118.66 $734,118.66 101 Inventories and Items, June 30, 1916 : Finished goods $104,190.24 Stock in process 71,242.39 Yarn 135,661.63 1,000.00' 900.00 1,150.00 389.41 211.11 2,051.05 600.00 402.26 100.00 100.00 817.29 460.86 Coal Starch Supplies Interest accrued on notes payable. Interest prepaid on notes payable Wages accrued Unexpired insurance Prepaid taxes Prepaid water rates Bad debts Estimated discounts to be taken on accounts payable .... Estimated discounts to be allowed on accounts receivable Depreciation rates per annum are 5% on machinery, 3% on tenements, 2% on mill buildings. 123. (From New York C. P. A. Examination.) The directors of a manufacturing company submit the following trial balance to an accountant, requesting that he inform them as to what percentage of dividend they may safely declare out of the year's net income : Trial Balance, December 31, 1916 Real estate Plant and machinery Patents and good will Inventory, Jan. 1, 1916 Purchases Labor Coal Salaries, general Salaries, management Insurance Repairs Claims and allowances Prepaid freight (inch in invoice price) . Interest and discount Cash Investments Miscellaneous expenses Accounts receivable Deficit, Jan. 1, 1916.. $94,000 80,000 160,000 58,000 165,000 176,000 12,000 22,000 10,000 1,750 2,000 12,500 3,000 1,500 16,000 31,000 8,600 84,000 2,000 $939,350 Capital stock , Sales Accounts payable Notes payable Dividends on stocks owned. Rentals $422,000 438,350 20,000 52,000 3,000 4,000 $939,350 Inventory December 31, 1916, $53,000. Four employees. A, B, C, and D, receive as additional sal- aries the following percentages of the earnings measured by the net income: A, 25%; B, I2y^% ; C, 6}4%, and D, 6%%. Furnish the required information, together with a financial statement and an in- come account. Depreciation for the period of six months ending December 31, 1915, was not put upon the books. No additions have been made to the fixed assets within a year. Estimated discounts on the Accounts Receivable and Payable were not put upon the books Janu- ary 1, 1916. These were, respectively, $400.00 and $750.00. The last two semi-annual dividends on Preferred Stock are unpaid. Prepare proper statement for a report to the directors as of December 31, 1916. 102 124. (From Michigan C. P. A. Examination, July, 1909.) A company of bicycle manufacturers makes up its accounts December 31, 1907, for the year. The following are the debits to the profit and loss account : Raw material on hand January 1, 1907 $12,500.00 Finished machines on hand January 1, 1907, 1,600 wheels at $30 48,000.00 Purchases of material 62,500.00 Labor, productive 82,500.00 Manufacturing expenses : Coal, repairs, paint, varnish, superintendents' . salaries, unproductive labor and sundry other expenses 23,000.00 Agents' commissions 90,000.00 Branch expense : Rents, salaries and miscellaneous .-. 40,000.00 Selling expense : Travelers' expenses and salaries, discounts, rebates and miscellaneous 30,000.00 Bad debts 8,000.00 Depreciation on machinery and plant 5,500.00 The sales for the year 1907 were 6,000 wheels, yielding $540,000; the raw material on December 31, 1907, taken at cost, were $4,000, and the finished wheels in stock ready for sale numbered 800. Prepare an account from the above showing: a. Number of wheels manufactured. b. The cost per wheel. c. The gross manufacturing profit. d. The final net result, including in the profit and loss account the stock of finished wheels on hand December 31, 1907, at their cost as shown by the accounts. 125. (From Massachusetts C. P. A. Examination.) The main office of a manufacturing concern keeps the general books of the company and sells the finished product, which is billed to it by the factory at cost. The cost books of the factory show the following facts on January 1, 1914: Cash Fund (imprest), $500.00; Raw Materials and Supplies, $15,910.32; Work in Process, made up of Material and Direct Labor, $55,816.25; Factory Expenses, $10,592.16; and Management Expenses, $6,200.83 ; Finished Product, $40,219.57. A portion of the payroll distributed but not yet paid, $3,553.42. During the year 1914 the transactions were as follows: Purchases of raw materials, $91,113.20; Wages Paid, $143,273.49 ; Factory Expenses, Charged, $53,383.83 ; Management Expenses, Charged, $40,315.33; Sale of Power to another company occupying adjacent buildings, $100.00 per month. The raw materials and supplies used amounted to $90,265.72 ; the management charges distributed to $40,315.33, and Factory Expenses distributed, $63,519.10. There are also on hand unpaid local bills which have not been entered on the books amounting to $135.27, all of which were for factory expense. The finished product made during the year, figured at cost, amounted to $338,652.32, the amount of finished product transferred to the main office was $340,192.45. At the close of the year December 31, 1914, there was unpaid and undistributed the factory payroll for four days amounting to $2,942.10, and also 550 hours of overtime, payable at the rate of time and one- quarter, the regular day rate being 35c per hour. Write up all the ledger accounts on the factory books and show the final trial balance of December 31, 1914. 103 126. (From Ohio C. P. A. Examination.) At the close of its fiscal year, December 31, 1915, the Trial Balance of 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 purchase 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, Jan. 1, 1915 62,735.06 Goods in process, Jan. 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, offices and clerks (general) 56,150.00 General office supplies 2,950.75 Postage, telegraph and telephone 1,560.00 Miscellaneous general expenses 850.00 Advertising 35,000.00 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 8,547.18 104 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 : 1. 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. 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 l/6th of 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 one-third of the latter is apportioned to Manufacturing Expenses and two-thirds to Selling Expenses. 10. The cost of Fuel used is to be charged to Power, Heat and Light. 11. 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 apportioned to selling ex- penses. 15. Amongst the Bills Receivable is a note for $5,000, pertaining to a previous fiscal year, which is considered to be worthless. No provision was made for such loss. 105 PART VIII ;, MISCELLANEOUS PROBLEMS Section I — Practical Accounting 127. (From Illinois C. P. A. Examination.) In taking off a trial balance a bookkeeper finds that his debit footing exceeds the credit by $131.56, which amount he carries to a Suspense Account. Later he discovers that a purchase amounting to $417.50 had been debited to a creditor as $192.94; that $312.50 for depreciation of machinery had not been posted to Depreciation account ; that $500 withdrawn by the proprietor had been charged to Wages account; that a discount allowed to a customer of $76.13 had been posted to the wrong side of Mer- chandise Discount account ; and that the total of sales returned was footed $5 short. Give entries show- ing how you would remedy these errors, and starting with the original difference, prepare a supple- mentary schedule showing whether the books are now in balance. 128. (From Massachusetts C. P. A. Examination.) Brown has a customers' ledger, a purchase ledger and a general ledger, the latter containing con- trolling accounts with the other two. When his bookkeeper submitted to him trial balances of the three he observed that White owed him $100, subject to a cash discount of 2^%, and an allowance for outward freight of $1.68, neither of which items has been entered in the books; and that he owed White $100, subject to a discount of 4%, which had not been entered. He directed the bookkeeper to adjust the accounts by a remittance of stamps. Draft entry or entries that will close the two personal ac- counts and maintain the reconcilement of the ledgers. Separate accounts are kept for Customers' Dis- count and Purchase Discount. 129. (From Massachusetts C. P. A. Examination.) You are instructed to make an examination of a business for the purpose of preparing a statement of assets and liabilities as of December 31, 1913. The inventory was taken on January 10, 1914, and amounted at that time to $7,689.25. The sales billed between December 31 and January 10 amounted to $945, but you discover that $300 worth of these goods had been shipped, and therefore should have been billed before December 31. The goods received between December 31 and January 10 cost $678.25. The average gross profit of this concern is 25% above cost. Calculate the inventory as of December 31. 130. (From Massachusetts C. P. A. Examination.) The Auditing Committee of the Washington Savings Bank (Mass.) called upon a certified public accountant to prepare a statement as at the close of business on May 28, 1912, of the estimated net earnings of the six months ending May 31, 1912, applicable to a dividend on June 1, 1912. The deposits amounted to $10,400,000, and the Guaranty Fund to $442,000. The Interest account showed a credit balance of $248,000, made up as follows: Received from real estate loans $124,000.00 , Received from personal loans 12,000.00 Received from investments 108,000.00 Arrears, uncollected, credited to interest and simultaneously charged to profit and loss 4,000.00 The expenses were $13,600, and the State Tax (net), $11,440. The balance of the Profit and Loss account on November 30, 1911, was $96,000, of which $2,400 was undivided earnings of the six months ended that date. Subsequent charges to this account were : Premiums on securities purchased $880.00 Loss from book value of securities sold . 664.00 Loss from book value of foreclosed property sold 1,000.00 The arrears of interest mentioned above 4,000.00 106 A dividend of $240 received in liquidation of bank stock previously written off had been credited to Profit and Loss. The follow^ing are his estimates for the remaining days of the period: Net increase in deposits ' $48,000.00 Interest receipts 5,600.00 Expense 2,400.00 Assuming the correctness of the accountant's estimates, prepare such a statement, setting apart as a guaranty fund the minimum amount sanctioned by law. 131. (From New York C. P. A. Examination.) A is a superintendent in the employ of X & Y, a firm of manufacturers, and has an interest in the profits. On September 8, 1914, X & Y indorse A's $3,500 note, due in six "months with interest at 6%. X & Y charge the fee of 1% ($36.05) to A's account on the firm's books. A sells this note to a private note broker. On March 10, 1915, X & Y pay $3,607.50, inclusive of protest fees, to the holder of the note, which A had permitted to be dishonored. What entries are necessary on the books of X & Y to record the transaction? 132. (From Michigan C. P. A. Examination.) A contractor proposes to build a bridge to Belle Isle and accept the city's 4% 20-year bonds to the amount of $2,000,000 in payment. He advocates 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 compounded at 4% for 20 years=2.19112314. 133. (From Kansas and Missouri C. P. A. Examination.) When auditing the books of a company which are not in balance the following errors are discovered : 1. A check drawn for $110 is entered in the cash book as a collection of $100 and posted to the debit of the creditor's account as $110. 2. A customer's credit memo of $25 is included as a sale and posted to the credit of the cus- tomer's account as $20. 3. The debit side of the cash book is underfooted $100, and a check drawn for $100 in payment of a creditor's account is not entered in the cash book. 4. Discounts received of $250 are posted as discounts allowed. 5. Capital stock to the par value of $5,000 was issued and charged to the president. $2,500 of this stock was sold by him at par and the proceeds credited to the Capital Stock account. The balance of the issue, $2,500, was later canceled, the Capital Stock account charged and the president's account credited with that amount. To correct the foregoing errors prepare journal entries for accounts in the general ledger and subsidiary ledgers which are controled by accounts in the general ledger. 134. (From Michigan C. P. A. Examination.) A man has saved $10,000, which is invested at 6%. He is working for a concern at a salary of $100 a month. He decides to go into business for himself. He invests his capital, forfeiting his interest. He devotes his time to the business, forfeiting his salary. At the end of the year his statement shows a profit of $2,000. Can the business be said to have made $2,000, or did it in reality only make $200? Dis- cuss fully the accounting and economic principles involved. Suppose instead of money loaned his capital had been in the form of a store rented for $100 a month and he canceled the lease and used it himself, borrowing what money was needed for working capital from the bank and paying interest for same. Would that alter the question of profit? 107 135. (From New York C. P. A. Examination.) Wm. Wirt was engaged at the salary of $50 per month to take charge of a branch store for Bob White. The assets and liabilities at the branch store Jan. 1, the day that Wm. Wirt took charge, were as follows : Cash, $300; notes payable, $300; accounts payable, $600; notes receivable, $200; merchandise on hand, $3,500; accounts receivable, $160. At the end of the year Wirt is oflfered one-half interest in the branch store for one-half net capital of same, as shown by the books, which record the following: Insurance paid, $150; expenses paid, $400; sales, $6,000; inventory, $3,000; rent accrued, but not paid, $500; merchandise purchased, $3,500; salary paid to Wirt, $500; notes receivable, $325; accounts receivable, $500. There are also outstanding notes payable, $290; interest of $30 has been paid, and White has withdrawn during the year, $400. Consider the value of unexpired insurance at $50. Make up a cash account, profit and loss account and balance sheet. Show White's net capital to be paid by Wirt to entitle him to a one-half interest. 136. (From New York C. P. A. Examination.) A firm manufacturing but one grade of cloaks, insured against burglary, claims to have been robbed on the night of September 10. The proof of the loss filed by the assured contained two items for 600 cloaks, $12,000; silk, 1,000 yards, $1,500. An inventory of the stock on hand, consisting of cloaks, cloth and silk, had been taken January 1, amounting to $118,500, the particulars of which have been lost or destroyed. An analysis of the firm's books produced the following information : Purchase of cloth, 37,500 yards at $1.00. Purchases of silk, 10,000 yards at $2.00. 6,000 cloaks were manufactured, consuming cloth, 40,000 yards at $1.00; silk, 10,000 yards at $2.00. 9,000 cloaks were sold between Jan. 1 and Sept. 10. Cost of sales, per cloak, for material $10.00 Cost of sales, per cloak, for labor and sundries 7.00 $17.00 Inventory, September 11—2,500 cloaks at $17.00; 12,500 yards cloth at $1.00; 5,000 yards silk at $2.00. Prepare a report proving or disproving the claim. ' ^ 137. (From New York C. P. A. Examination.) The office of a firm of traders doing business in San Francisco was destroyed by an earthquake. The books of account, which had been fully posted, were badly damaged. The following ledger ac- counts were found to be legible : Purchases, net, $69,000; Discounts Lost, $640; Discounts Gained, $3,450; Sales, $54,000; Bills Re- ceivable, $33,000. Inquiry at the bank disclosed a balance on deposit, $129,000. Bills receivable amount- ing to $45,000 had been discounted at the bank. An audit of the checks paid by bank showed that $99,000 had been paid creditors (including $60,000 notes payable). A balance sheet prepared at the last closing of the books was produced, containing the following items : Cash, $60,000 ; accounts receivable, $126,000 ; loans receivable, $24,000 ; real estate, $90,000 ; notes receivable, $78,000; capital, $318,000; notes payable, $60,000. Prepare a trial balance supplying the missing accounts. 108 138. (From Boston High School Examination for Commercial Teachers.) A British company submitted a comparative balance sheet to its American stockholders, the amounts having been changed to United States monetary terms. FRAWLEY FLANNEL COMPANY, Ltd. General Balance Sheet, January 1, 1915 Liabilities 1913 1914 1915 Common share capital $540,000.00 $540,000.00 $1 ,080,000.00 Preference share capital 300,000.00 Debentures 405,000.00 405,000.00 720,000.00 Bills payable 135,000.00 Sundry creditors 18,476.00 22,054.00 55,746.00 Debenture reserve 135,000.00 157,500.00 180,000.00 Depreciation reserve 90,000.00 157,500.00 157,500.00 Profit and loss 721,895.00 788,638.00 259,753.00 $1,910,371.00 $2,070,692.00 $2,887,999.00 Assets 1913 1914 1915 Freehold premises $412,938.00 $426,198.00 $419,953.00 Machinery and fittings account 555,007.00 580,021.00 653,757.00 Late construction 580,766.00 Stock 354,213.00 571,251.00 602,957.00 Deposit account and receivables 588,213.00 493,222.00 630,566.00 $1,910,371.00 $2,070,692.00 $2,887,999.00 a. After scrutinizing the balance sheet, give a brief history of the business for the years 1914 and 1915, and account for the property changes. b. No cash dividend was paid in 1915, but a common share dividend was made for the amount of the increase. What were the profits of the year? 139. (From Illinois C.' P. A. Examination.) The balance sheets of the Greenleaf Manufacturing Company, at December 31, 1913, and December 31, 1914, may be summarized as follows: Dec. 31, 1913 Dec. 31, 1914 Good will $200,000.00 $230,000.00 Land and buildings 450,000.00 750,000.00 Machinery 200,000.00 400,000.00 Tools 40,000.00 80,000.00 Unexpired insurance 3,000.00 4,000.00 Inventories 400,000.00 375,000.00 Accounts receivable 175,000.00 250,000.00 Cash 25,000.00 20,000.00 Investment in stocks and bonds 95,000.00 $1,588,000.00 $2,109,000.00 Capital stock $800,000.00 $1,100,000.00 Bonds 350,000.00 500.000.00 Bank and other loans 70,000.00 80,000.00 Accounts payable '. 145.000.00 125.000.00 Accrued interest 7,000.00 1 1.000.00 Accrued taxes 4.000.00 6.000.00 Surplus 212.000.00 287,000.00 $1,588,000.00 $2,109,000.00 109 During the year a dividend of 4% was declared and paid on the stock outstanding at the begin- ning of the year. $7,000.00 was provided for the depreciation of the buildings, $16,000.00 for machinery, and $4,000.00 for tools. The bonds were sold for par, and the stock was sold at 90 and the difference was charged to goodwill account. ' In the light of the above facts interpret the changes that have taken place in the financial position of the company between the two dates and, so far as possible, indicate how they were effected. 140. (From Maine C. P. A. Examination.) The Stafford Moving Picture Machine Company, leasing moving picture machines for theatres, has 1,000 machines in operation. On January 1, 1915, the company decides to increase the number of its machines 80%, and places an order with the manufacturers of the machines, who agree to com- plete and deliver the new machines in equal quarterly instalments. The company arranges to bor- row $60,000.00 by the sale of five-year 6% notes, it being agreed that a sum equal to 20% of the total issue shall be set aside annually out of the profits of the company for the redemption of such notes. The average annual cost for maintenance was found to be $120 per machine, and $24,880 was estimated for other expenses. What annual charge per machine would the company have to make in order to meet its obligations and pay a dividend of 10% on $200,000 of its capital stock? 141. (From Maine C. P. A. Examination.) Holman & Co. sold to Fagan & Lovejoy a bill of goods for $1,000 — terms 2% 10 days, net 30 days. Fagan & Lovejoy did not take advantage of the cash discount, but, when the invoice was due, offered in settlement cash $333.34 and two notes for $333.33 each, one at 60 days and one at 90 days, payable at their bank, the Fidelity Trust Co. Holman & Co. accepted this settlement, and carried the notes for 30 days. They then discounted them at their bank, the Portland National, at 5%. Fagan & Lovejoy paid the 60 days' note when it matured. Three days before the 90 days' note was due, Holman & Co. received from Fagan & Lovejoy, a 30 days' note for $200 payable at Fagan & Lovejoy's bank, the Fidelity Trust Co., together with a check for the balance of the 90 day note, plus the discount on the new note at 6%, with a request that Holman & Co. take care of the 90 days' note, which they agreed to do. Holman & Co. discounted the new note at 5% at their bank, the Portland National, when they took up the 90 day note. The $200 note is paid by Fagan & Lovejoy at maturity. Journalize the above transactions for Holman & Co. 142. (From Massachusetts C. P. A. Examination.) In March, 1912, John Doe bought a dismantled plant, pa3^ing therefor $20,000, equipped it with machinery, and engaged in manufacturing. He decided to incorporate his business. On January 1, 1913, he called in an accountant, who found a single entry ledger, with the following accounts, written up to the close of business on December 31, 1912: Dr. Real estate $20,000.00 Machinery 35,210.00 Returns 83.00 Allowances 184.16 Sales discounts, (2% on billings) 587.20 Freight 814.00 Merchandise 21,288.10 Labor ! 4,614.75 Interest 852.50 Insurance, (1 year to April 1, 1913) 750.00 Accounts receivable (customers), gross. 20,515.80 Building improvements 2,315.74 Expense 261 .18 110 Cr. Mortgage $18,000.00 Notes payable 25,000.00 Accounts payable 18,752.40 Sales 29,360.00 The accountant found additional liabilities for unpaid pay roll, $462.18, and current bills, $287.19. Reconcilement of the bank account revealed $1,163.40 cash on hand on January 1, 1913. Inventory at this date consisted of raw material, net, $7,684.23 ; stock in process, $2,418.32 ; finished goods, $4,- 684.11. Interest on mortgage is at 6%, paid to September 1, 1912. Notes payable are on demand, with interest at 5%, paid to October 1, 1912. a. . Write the proper entries for recording on the books of the corporation the acquirement of this business, limiting the issue of capital stock to multiples of $1,000. b. State how much cash was received from customers prior to January 1, 1913. 143. (From the Massachusetts C. P. A. Examination.) The net profit of a business May 1, 1914, $8,905.82; Inventory, December, 1911, $3,137.24; Pur- chases, $110,831.64; Sales, $163,376.08; Factory Labor, $38,999.16; Factory Expenses, $6,403.94; Re- pairs, $32.00; Telephone, $832.12; Insurance, $392.46; Advertising, $28.00; Commissions Paid, $1,- 922.02; Interest Paid, $626.00; Legal Expenses, $35.00; drawn out by proprietor, $3,196.00. From the foregoing information ascertain Merchandise Inventory on May 1, 1914. 144. (From the New York C. P. A. Examination.) A fire in a manufacturing concern resulted in a loss on machinery, $5,000; merchandise, $10,000; office equipment, $3,000 ; which amount of $18,000 was agreed on and paid by the insurance companies. Give the entries necessary to record properly the above transactions on the books of the concern. • Section 2 — Theory of Accounts 145. (Illinois C. P. A. Examination.) Assuming an automobile manufacturing company made a contract for rubber tires at $35 each with the understanding that it was to receive a rebate of $5 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 was 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 inventory purposes and how should the rebate be dealt with in the accounts for the year ending July 31 ? 146. (Colorado C. P. A. Examination.) Define or explain : a. Appreciation, e. Deficiency account, b. Depreciation, f. Secret or hidden reserve. c. Internal check, g. By-product, d. Deferred assets, h. Imprest cash. 147. (Michigan C. P. A. Examination.) a. A has $5,000 invested in a business. He sells B a half interest for $3,000 and keeps the money. Make the entry, b. A has $5,000 invested in a business. He sells B a half interest for $3,000 and places the money in the business. Make the entry. Ill 148. (Ohio C. P. A. Examination.) a. Explain and illustrate the difference between capital expenditures and revenue expenditurei b. What is the effect of charging revenue expenditures to capital accounts. 149. (Massachusetts C. P. A. Examination.) A company packs a coupon in each box of goods sold. The company agrees to redeem 100 cou- pons with premiums costing $1 apiece. 25% of the coupons are never presented for redemption. Prepare sample journal entries for the bookkeeper to follow which will give the last of each month the expense for the month of the coupons given out, the amount of premiums on hand, and the gross and net liability for outstanding coupons, and state briefly how these entries will produce the result wanted. 150. (Pennsylvania C. P. A. Examination.) A large manufacturing concern purchases most of its machinery on the instalment plan, in monthly payments, a bill of sale not being given until the machinery is paid for in full. There is also a royalty paid on the output of some of the machines bought on the instalment plan. At the close of the year there are several machines not yet paid in full. How would you treat the machinery, the in- stalments paid and the royalty in your statements? 151. (New York C. P. A. Examination.) A fire in a manufacturing concern resulted in a loss on machinery, $5,000; raw material, $10,000; finishing goods, $25,000 ; which amount of $40,000 was agreed on and paid by the companies. Give the entries necessary to record properly the above transactions on the books of the concern. 152. (New York C. P. A. Examination.) At date of closing two contracts are in hand and uncompleted; one for $1,200, estimated to cost $900 is three-quarters finished and is already charged to customer at $1,200; the other for $2,000, esti- mated to cost $1,500 is half-finished, and no entry has been made therefor. Suggest entries necessary to adjust these accounts so that anticipation of profits will not occur. 153. 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 con- tracts 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 statement of financial condition, and (b) your reasons. 154. (From Examination for Admittance to the American Institute of Accountants.) Explain the relationship between a sinking fund and an allowance for depreciation. It is claimed that in municipal enterprises the requirement that rates must be high enough to provide both for a sinking fund to pay off the bonds and also for a "Reserve for Depreciation" with which to replace the plant results in a double charge to consumers. Criticize or explain this theory. 155. Do you approve of a business concern keeping more than one ledger? If so, why, and how- would the different ledgers be characterized ? What advantages do you see in loose leaf ledgers and in what kinds of business would they be most useful? Under what circumstances would you advise the use of card ledgers? 156. (Wisconsin C. P. A. Examination.) The partnership. Black and White, has insured the life of Black for $50,000, the policy being payable to the firm. The annual premium is $989.60. The cash surrender value of the policy at the end of the third year is $2,150.62; fourth year, $3,012.20; fifth year, $3,867.25. At the end of the fifth year Black dies and the policy is paid to the firm in full. Show by journal entries how the transactions pertaining to the above would be recorded. 112 157. (Wisconsin C. P. A. Examination.) The Good Music Company sells pianos on the mstalment basis. On January 2, 1914, Jones pur- chased a piano from the company for $375 to be paid for as follows : $25 down and the balance in quarterly instalments of $50 each, bill of sale to be given on date of final payment. The piano cost the company $125. The four instalments for 1914 were duly received, the last one having been paid on December 31. a. Set up proper ledger accounts covering this sale and the payments 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 credit on this transaction. c. Sketch the ruling of a book or books which might be used to facilitate the handling of in- stalment sales and collections. 158. (Michigan C. P. A. Examination.) A manufacturing company purchased a large stock of material during the year at low prices but at time of annual inventory values had materially increased. How in your opinion should inventory and loss and gain be stated on the books? 159. (New York C. P. A. Examination.) Prepare a ruling for a sales book to provide (1) total monthly postings to three goods accounts, (2) the separation of cash sales, from charge sales, (3) supplementary distribution of sales among four salesmen's columns, (4) prepare pro forma journal entry for the monthly closing and posting of such a book. 160. (Maryland C. P. A. Examination.) In C2Ke of total loss of merchandise by fire, the books being saved, how would you prepare a claim to submit to the insurance company covering the loss? 161. (Illinois C. P. A. Examination.) A manufacturer finds that during three months his goods have cost 80% on the selling price : Raw material 30% Wages 20 Rent 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% Material 05 Wages 02>4 162. (Massachusetts C. P. A. Examination.) A manufacturer renders the following statement for credit purposes : Assets Liabilities Residence $30,000 Mortgage, residence $12,000 Plant 140,000 Mortgage, plant 60,000 Inventory 90,400 Notes payable 25,000 Accts. receivable 3,500 Accts. payable 19,650 Cash 625 Surplus 147,875 $264,525 $264,525 From this statement, what inferences would you draw as to the condition of his business? 113 163. (Massachusetts C. P. A. Examination,) A missionary society is the recipient of small voluntary contributions. Many of these come through the mail in the shape of bills, coin, and postage stamps. What steps would you suggest to safeguard such funds from peculation by the clerks handling them and the accompanying letters? 164. (Massachusetts C. P. A. Examination.) In the trial balance of a corporation, December 31, 1910 — the end of a fiscal term — there is a debit of $50,000 against John Doe, for a payment to him on account of material purchased from him. The material is to be delivered after said date. How should this be classified in the balance sheet, December 31, 1910? 165. (From Examination to Admittance to the American Institute of Accountants.) a. How would you deal in the balance sheet of a corporation with shares recovered from a vendor to whom they had been issued as fully paid and who had returned them in settlement of a claim for fraudulent misrepresentation in respect of the property sold by him to the corporation? b. How would you deal with these shares for the purposes of a dividend? 166. (From Examination for Admittance to the American Institute of Accountants.) When a corporation undertakes its own construction work on what basis is it permissible for it to make charges to property account in respect thereof? On what basis would you personally recom- mend that the charges should be made? Give your reasons. 167. (From Examination for Admittance to the American Institute of Accountants.) A corporation was formed which acquired several plants, issuing therefore $17,000,000 bonds and $24,000,000 stock. It was well known at the time that this capitalization exceeded the true value of the assets (including goodwill) acquired, to an extent of $11,000,000. In the first year, after paying expenses and interest on bonds, the business yielded considerable net income. May such net income be used to pay dividends, or must it be first applied towards making up the $11,000,000? 114 w.f.lf.Eti;/.i^lOf„f CENTS LD 21-100»t-8,'34 n UNIVERSITY OF CALIFORNIA LIBRARY