XG : AX ;:. P. A, MANUAL 1920 ^.-l-Nt:---:?-. NSiKfeM MICHIGAN C. P. A. MANUAL MICHIGAN C. P. A. MANUAL STATE BOARD OF ACCOUNTANCY 1920 COMPILED BY DURAND W. SPRINGER SECRETARY-TREA SURER ANN ARBOR, MICH. \ COPYRIGHT, 1920 BY MICHIGAN STATE: BOARD OF ACCOUNTANCY ANN ARBOR PRSS ANN ARBOR PREFACE This manual has been prepared by the Michigan State Board of Accountancy with the idea that it will show the business public and the profession in general the scope and character of the tests which have been met by persons holding the C. P. A. degree from Michi- gan. It will enable prospective candidates to judge for themselves whether they are prepared to pass examinations along somewhat similar lines. It will permit Accountancy Boards in other states to determine, in cases of prospective reciprocal arrangements, whether Michigan measures up to their standards. 4? 94 71 TABLE OF CONTENTS Members of Michigan State Board of Accountancy I Register of Michigan C. P. A. Certificates 3 Historical Statement . . . 5 First Michigan C. P. A. Law 1905 10 Second Michigan C. P. A. Law 1913 12 Third Michigan C. P. A. Law 1917 15 Rules of the Michigan Board 17 Application for C. P. A. Certificate 19 Suggested Bibliography 22 Examination Questions Theory of Accounts 25 and 163 Auditing 45 and 177 Commercial Law 67 and 191 Practical Accounting 97 and 209 Economics and Public Finance 235 Synopsis of C. P. A. Laws 237 Michigan Association of Certified Public Accountants Constitution 249 By-Laws 252 Members 257 War Activities 259 MEMBERS OF THE MICHIGAN STATE BOARD OF ACCOUNTANCY JOHN H. CLEGG, C. P. A., Detroit .... 1905-1907 HENRY M. ZIM HERMANN, Pontiac . . 1905-1907 GEORGE A. HORNER, C. P. A., Grand Rapids . . 1905-1911 RAY HART, Midland 1907-1909 NORVAL A. HAWKINS, C. P. A., Detroit . . . 1908-1913 WILLIAM W. WEDEMEYER, Ann Arbor . . . 1909-1912 DURAND W. SPRINGER, C. P. A., Ann Arbor . . 1913- ARCIIIBALD BROOMEIELD, Big Rapids and Detroit . 1913-1920 FREDERIC A. TII/TON, C. P. A., Detroit . . . 1913- WOODBRIDGE N. FERRIS, Big Rapids, ex-officio ' . 1913-1917 ALBERT E. SLEEPER, Bad Axe, ex-officio . . . CLARENCE G. HILL, Detroit . . . MICHIGAN C. P. A. M^N'U^L] \' f ' :' >. \' ; \-/* i /, 3 REGISTER OF CERTIFICATES GRANTED BY THE MICHIGAN STATE BOARD OF ACCOUNTANCY This list indicates the year when the certificates were granted, the per- sons to whom granted, their residence at the time when granted, and their residence January i, 1920. 1906 John H. Clegg Detroit Deceased George A. Homer Grand Rapids Detroit Fred Wixson Detroit Detroit James E. Hardman Grand Rapids Toledo, Ohio Charles D. Fleming Detroit Detroit Charles H. Winke Grand Rapids Milwaukee, Wis. Joseph Horner Grand Rapids Grand Rapids Will A. Voss Grand Rapids Grand Rapids Durand W. Springer Ann Arbor Ann Arbor. Arthur B. Hulsapple Grand Rapids Grand Rapids Arthur S. Guerin Detroit Detroit Norman E. Webster, Jr. Kalamazoo New York, N. Y. William D. Gridley Detroit Detroit John J. Jerome Detroit Lansing Harry Ruple Bronson Saginaw Robert J. Bennett Detroit Philadelphia, Pa. William H. Brook Detroit Cleveland, Ohio Howard C. Beck Detroit Baltimore, Md. 1907 Norval A. Hawkins Detroit Detroit Fred T. Gies Detroit Detroit William W. Washburne Detroit Philadelphia, Pa. 1908 George C. Brown Detroit Stnrgis Louis H. Turrell Detroit Detroit Melville W. Thompson Jackson New York, N. Y. 1909 Fred E. McCain Detroit Detroit Harold S. Gausby Detroit Toronto, Can. Henry F. Tully Detroit Detroit 1910 William D. Bonthron Detroit Detroit George H. Parks Grand Rapids Grand Rapids Frederic A. Tilton Detroit Detroit Fred A. Suter Detroit New York, N. Y. 1912 William Leslie Detroit Detroit David Smith Detroit Detroit Alex Van Oss Detroit New York, N. Y. 1913 Ralph C. Miller Detroit Detroit Louis C. Slay Detroit Detroit T. L. Whitford Porte Detroit Detroit Arphaxed Foy Detroit Detroit 4 /. ^ \/\ MICHIGAN C. P. A. MANUAL William Butler Detroit Detroit Richard A. Stevenson Detroit Detroit Thomas H. Evans Detroit Detroit William Tringham Detroit Detroit Glynn F. Blanchard Detroit Grand Rapids 1914 George M. Patterson Grand Rapids Deceased William C. Rowland Detroit Detroit George R. Gibbs Detroit Detroit E. Leroy Coe Detroit Grand Rapids Frank G. LaBonte Detroit Detroit C. Earle Neff Detroit Detroit Wiley T. Lyon Grand Rapids Grand Rapids 1915 Cyril N.' Bullock Detroit Detroit William T. Sunley, Jr. Detroit Detroit Charles W. Stewart Detroit Kansas City, Mo. Herbert H. Scott Detroit Detroit Walter H. Shultus Grand Rapids Grand Rapids Thomas M. Faddis Detroit Detroit Fred W. Morton Detroit Detroit 1916 *Frank C. Patterson Grand Rapids Saginaw *Eldon E. Dadson Detroit Detroit *Robert L. Turner Detroit Detroit J. Lee Boothe Detroit Detroit George C. Mortlock Detroit New York, N. Y. Percy A. Kerr Detroit Detroit Gordon E. Townsend Detroit Battle Creek George C. Goodrich Detroit Detroit Carlton G. Saunders Grand Rapids Chicago Christopher C. Whitlock Detroit Detroit 1917 *Lorenzo D. Burnell Detroit Detroit *George D. Bailey Detroit Detroit Francis M. Shaefer Lansing Lansing Hans William Fick Grand Rapids Grand Rapids Ansel F. Hosmer Detroit Detroit Charles A. Smith Detroit Detroit 1918 *Ernest B. Butler Detroit Akron, Ohio *Ralph T. Hollis Detroit Detroit *John A. McDonald Detroit Detroit *Edward M. Stradley Detroit Detroit *Arthur F. Thayer Detroit Detroit Henry Stefrens, Jr. Detroit Detroit James H. Botz Detroit New York, N. Y. James C. Dissette Detroit Monroe *Frank H. Jones Detroit Detroit MICHIGAN C. P. A. MANUAL 5 *Clarence A. Niquette Detroit Detroit *Mortimer A. Davis Detroit Chicago *Earl G. Teeter Detroit Detroit ^Frederick C. Blomfield Detroit Detroit Llewellyn H. Heinke Grand Rapids Grand Rapids Evan T. Ashman Detroit Detroit Richard H. Wolfe Detroit- Detroit 1919 *Frank E. Seidman Grand Rapids Grand Rapids James I. Bailey Detroit Detroit George N. Atkinson Detroit Detroit Martin Dowd Grand Rapids Grand Rapids Winfield S. Osborn Detroit Detroit Ralph J. Daly Detroit Detroit *James Barr Detroit Detroit *Leslie E. Palmer Detroit New York, N. Y. *Fred P. Higgins Detroit Detroit *William G. Ross Detroit Detroit *Marx F. Rosenthaler Detroit Detroit 1920 *Jonathan B. Cook Muskegon Muskegon *Certincates of Registration or Authority. HISTORICAL STATEMENT Accountancy is generally considered the youngest of the profes- sions and yet there are reftrences to it that show considerable age. The earliest known mention of a special examiner of accounts was in Great Britain in the year 1285 and occurs in Statute XIII, Ed- ward 1, Cap. 11. In 1299, an officer is spoken of as the Auditor of the Accounts of the Corporation of the City of London. In 1581, the College of Accountants was established in Venice, Italy, the same being an organization of public accountants. The profession of accountancy ranked with that of barrister in Scotland as early as 1650. The oldest known certificate of a pro- fessional examiner of accounts was made 'by Charles Snell, of Lori- don, in 1/20, and was in the nature of a formal report in bankruptcy proceedings. As early as 1730, Bristol, England, had a person who publicly practiced as an accountant and one firm in the same city has been in continuous practice as public accountants since 1790. The Edinburgh directory for 1773 listed seven accountants. October 23, 1854, the Society of Accountants in Edinboro was given a Royal Charter and became the first body of professional public accountants to receive official recognition. In 1862, the Reg- istered Companies Act was passed by the English Parliament. The Institute of Chartered Accountants of England and Wales received 6 MICHIGAN C. P. A. MANUAL a Royal Charter, May n, 1880, and now has a membership of over five thousand. In the same year, a charter was granted to the Association of Accountants in Montreal, and in 1902 to the Dominion Accountants Association. The first association of accountants in the United States was the Institute of Accounts organized in 1882 in New York. The Ameri- can Association of Public Accountants was incorporated in New York in 1887 and was the first organization in this country where membership was confined exclusively to professional public account- ants. In 1896, New York passed the first certified public accountant law in this country and thus formally recognized accountancy. In March of 1897, the Illinois Association of Public Accountants and the Pennsylvania Association of Public Accountants were organized. The New York Society of Certied Public Accountants completed its organization May 10, 1897. In 1902, the Federation of Societies of Public Accountants in the United States of America was organ- ized at Washington, on the initiative of the Illinois Association, and by 1905 it had enrolled twenty-six state societies with about five hundred members. The American Association of Public Account- ants started with eight members in 1887 and by 1896, when the first C. P. A. law was enacted, had increased its membership to seventy- five. In 1905, when the Federation of Societies of Public Account- ants consolidated with the American Association of Public Account- ants, the membership was increased to 587. By 1911, it had reached the one thousand -mark, and in 1916 the American Association had a membership of 1,238. At the 29th annual meeting of the American Association of Pub- lic Accountants, an organization of constituent societies and indi- vidual members, held in 1916, it was merged into the American In- stitute of Accountants, consisting entirely of individual member- ships, the Institute having been incorporated in May of that year. The Institute had a membership of 1252 September I of 1919. The Institute has endeavored to establish a uniform standard of ac- countancy examinations throughout all the states, and has offered its questions to the different State Boards of Accountancy. The Michigan Board used the questions in the examinations held in November, 1917, May, 1918, and November, 1918. Articles of Association of the "Incorporated Michigan Associa- tion of Public Accountants" were filed with the Secretary of State MICHIGAN C. P. A. MANUAL 7 at Lansing, May 3, 1901. Its chief aim was to unite the public ac- countants of Michigan in an effort to secure a certified public ac- countant law. When the legislature of 1903 met, former Congress- man Edwin Denby, then a member of the House of Representatives, introduced a bill authorizing the appointment of a State Board of Accountancy. The bill passed the House, but failed in the Senate. In the early part of the 1905 meeting of the legislature, Senator Noble Ashley. introduced the same bill. This time the Senate gave it a unanimous vote and the House passed it by a large majority. The bill was signed by Governor Warner and Michigan became the eighth state to legally recognize the .profession of public account- ancy. After the passage of the law, amendments were made to the Articles of Association of the Incorporated Michigan Association of Public Accountants and it became the Michigan Association of Certified Public Accountants. The Michigan Association joined the Federation of Societies of Public Accountants when it was organ- ized and transferred its membership to the American Association of Public Accountants when the amalgamation took place in 1905, retaining same until 1916, when society membership was abolished. Since 1896, all the states except two have passed laws recogniz- ing and regulating the certified public accountant. A study of the results of the examinations which have been given shows that on an average two out of every five who have taken the examination have passed. In most states, waiver clauses permitted the granting of certificates to those accountants who had been in practice for a definite period prior to the passage of the law and at the present time practically two out of every five certified public accountants obtained their certificates under the waiver clause. Shortly after the Michigan law was passed, the following communication was sent to the first State Board of Accountancy : "At a meeting of the Incorporated Michigan Association of Public Ac- countants, it was unanimously voted to request the Michigan State Board of Accountancy not to issue any certificates under the waiver clause. In some states the question has already arisen as to the relative value of certifi- cates issued after examination and those issued under the waiver clause, to the detriment of the latter. As this body was the organization which secured the passage of the law in Michigan, we are anxious that the certificate should represent the highest possible standard." The request was granted, and Michigan became the first state not to issue certificates under the waiver clause. 8 MICHIGAN C. P. A. MANUAL The Michigan State Board of Accountancy has held eighteen examinations, with the following results : DATE NO. WRITING ON EXAM. NO. GRANTED CERTIFICATES July, 1906 Clegg and Horner 2 July, 1906 18 13 December, 1906 3 3 November, 1907 4 3 June, 1908 7 3 July, 1909 3 3 June, 1910 5 4 June, 1912 6 3 June, 1913 7 4 December, 1913 8 5 June, 1914 5 4 December, 1914 ....... 5 3 June, 1915 9 4 December, 1915 10 3 December, 1916 9 7 November, 1917 4 4 May, 1918 6 3 November, 1918 10 3 June, 1919 9130 579 The Michigan law permits reciprocity with other states. Re- ciprocal arrangements have been entered into with the states of California, Maine, New York, Ohio, and Wisconsin, and Certifi- cates of Registration have been issued to ten accountants from these states. The rules adopted by the Michigan Board concerning recip- rocal relations provided : (a). Certificates may be registered when the holder has estab- lished a residence or a place for the regular transaction of business in the state. (b). Only certificates secured by examination will be regis- tered. (c). Certificates will only be registered as the result of cor- respondence between the Michigan Board and the Board of the state concerned and the approval of the Board granting the original certificate secured. An amendment to the law passed in 1917 permits the granting of Certificates of Authority to lawful holders of certificates issued by states with which reciprocal relations have not been established, or where the certificate was received under the waiver clause, or to the holder of a certificate as a Chartered Accountant granted MICHIGAN C. P. A. MANUAL 9 under the laws of a foreign country. Twelve Certificates of Author- ity have been issued by the Michigan Board to accountants from three states, Canada, England and Wales, and Scotland. The Journal of Accountancy was established in 1905, and is the official organ of the American Institute of Accountants as well as the recognized standard magazine of accountancy in this country. In 1881, the University of Pennsylvania established the Wharton School of Finance. Since 1898, practically all colleges and univer- sities have organized Departments of Commerce, Accounts, and Fi- nance, in which courses in accounting are offered. From the Journal of Accountancy for August, 1914, we quote: "Let those seeking an exact statement read the following : The practice of accountancy is not a business open to all, but a personal right, limited to a few persons of good moral character, with special qualifi- cations ascertained and certified after a long course of study, both general and professional, and a thorough examination by a state board appointed for the purpose. The right to practice accountancy is in the nature of a franchise from the state conferred only for merit. "The foregoing is probably as clear, concise and accurate a state- ment of the functions of certified public accountancy as has ever been written, and it is interesting to investigate its source. "There are many certified public accountants who are inclined to believe that accountancy and the law are very closely related branches of professional work. There are others equally sure that there is no similarity. But even these latter will doubtless admit the correctness of the foregoing definition. If so they will be not a little amazed to learn that it is simply a paraphrase of a decision by the Court of Appeals of New York on the question of unlawful practice of law by corporations, collection agencies, notaries, etc. "The court said : "A corporation can neither practice law nor hire lawyers to carry on the business of practicing law for it any more than it can practice medicine or dentistry by hiring doctors or dentists to act for it," and then followed it by the definition given above, merely using the word law where we have used accountancy. "Lawyers have been content to accept this definition of their pro- fession. Accountants will probably be unanimous in accepting it as a definition of accountancy. "To those public accountants who still cling to the idea that certi- fied accountancy may lack something of a professional status we commend a consideration of the fact that one definition fits both law and accountancy equally well." io MICHIGAN C. P. A. MANUAL FIRST MICHIGAN C. P. A. LAW Act 92, Laws of 1905, Approved May 4, 1905, Establishing Michigan State Board of Accountancy An act to establish a board of accountancy, to provide for the granting of certificates to those public accountants who qualify under the provisions of this act and to provide a penalty for violation thereof. The People of the State of Michigan enact : SECTION i. Any person, residing or having a place for the regular transaction of business in the State of Michigan, being over the age of twenty-one years, of good moral character, who shall have received from the Governor of the State of Michigan a certificate of his qualifications to practice as a public accountant, as hereinafter provided, shall be styled and known as a certified public accountant, and no other person shall assume such title or use the abbreviation C. P. A., or any other words, letters or figures to indicate that the person using the same is such certified public accountant. SEC. 2. Within thirty days after this act takes effect, the Governor shall appoint three persons to constitute and serve as a Board of Accountancy. Two members of this board first appointed shall be selected by the Governor from a list of the names of public accountants who have been practicing in the State of Michigan for a period of at least three years, one of whom shall be appointed for a term ending January first, nineteen hundred eight, and one for a term ending January first, nineteen hundred ten, and upon the expiration of each of said terms and of each succeeding term, a member shall be appointed for a term of three years : Provided, that the successors to the first two members who are public accountants shall be selected from the holders of certificates under this act. One member of this board shall be a practicing attorney, in good standing in the courts of the State of Michigan, appointed in the first instance for a term ending January first, nineteen hundred nine, and upon the expiration of said term, and of any succeeding term, a member shall be appointed for a term of three years, such successors to be practicing attorneys in good standing, as hereinbefore mentioned. Any vacancies that may occur from any cause shall be filled by the Governor for the unexpired term under the same conditions that gov- ern regular appointments. MICHIGAN C. P. A. MANUAL 1 1 EC. 3. The Board of Accountancy shall at its first meeting, formulate rules for its own guidance, not inconsistent with the provisions of this act, a copy of which shall be sent to all public accountants in the state. Satis- factory evidence of good moral character shall be required from each appli- cant for this certificate. Examinations of persons applying for certificates under this act shall be held at least twice each year at such times and places as applications may warrant. The time and place for holding the examina- tion shall be duly advertised at least three consecutive days in a daily news- paper published in Detroit, Grand Rapids, Saginaw, Marquette, and Hough- ton, at least thirty days prior to the* date for such examination, and notice of the same shall be mailed to all holders of certificates under this act as well as applicants. The examination shall cover the following subjects: theory of accounts, practical accounting, auditing, and commercial law as affecting accountancy. The fees for such examination shall be twenty- five dollars for each applicant, payable to the treasurer of the board at least ten days prior to the holding of the examination. The board may in its discretion, waive the examination of any applicant not later than the year nineteen hundred six, who in addition to the qualifications mentioned in sec- tion one, shall have been a practicing public accountant in this State for more than one year prior to the passage of this act. Each applicant for whom examination is waived, shall pay to the treasurer of the board the sum of twenty-five dollars when recommended to the Governor for a cer- tificate. The board shall maintain a register of the names and addresses of all persons receiving certificates under this act. The members of the board shall receive as compensation for their services ten dollars per day for the time actually spent and the necessary expenses incurred in the dis- charge of their duties as members of said board: Provided, however, That all compensation for services and expenses shall not exceed the amounts received as fees from applicants. All bills for expenses and salaries sha'l be allowed in open meeting of the board and shall be paid from the fees received under the provisions of this act. All money received in excess of payments shall be paid into the State Treasury at the end of each year, and so much thereof as shall be necessary to meet the current expenses 01 said board shall be subject to the order thereof, if, in any year, the receipts of said board shall not be equal to its expenses. The board shall make an annual report to the Governor, containing a full account of its proceed- ings, and render an annual financial account to the Board of State Auditors. SEC. 4. The Governor shall issue certificates to those persons who are recommended to him by the Board of Accountancy as having qualified under the provisions of this act. The Governor may revoke any certificate for sufficient cause, after written notice to the holder thereof, and a hearirg thereon, and shall issue such notice whenever requested to by the board. SEC. 5. The Board of Accountancy may, in its discretion, register the certificate of any certified public accountant who is the lawful holder of a C. P. A. certificate issued under the law of another state, and may issue 12 MICHIGAN C. P. A. MANUAL to such certified public accountant a certificate of registration, which ^cer- tificate shall entile the holder to practice as such certified public accountant, and to use the abbreviation C. P. A. in the State: Provided, however, That such other state extends similar privileges to certified public accountants of this state. The regular fee of twenty-five dollars shall be charged for such certificate. Certificates of registration may be cancelled in the same manner as section four provides for the revoking of certificates issued under this act. SEC. 6 If any person shall hold himself out to the public as having received a certificate as provided in this act, or shall assume to practice as a certified public accountant or use the abbreviation C. P. A., or any other letters, words or figures to indicate that the person using the same is such certified public accountant, without having received such certificate or after the same shall have been revoked, he shall be deemed guilty of a misde- meanor, the penalty for which shall be a fine of not less than one hundred dollars nor more than five hundred dollars for each offense or imprison- ment in the county jail for a period not exceeding six months. SEC. 7 Every person having been granted a certificate under the pro- visions of this act, shall give a five thousand dollar bond to the Secretary of State before entering upon his duties, for the faithful performance of the same. Approved May 4, -1905. SECOND MICHIGAN C. P. A. LAW Act 240, Lazvs of 1913, Approved May 7, 1913, Establishing Michigan State Board of Accountancy An act to establish a board of accountancy, to provide for the granting of certificates to those public accountants who qualify under the provisions of this act and to provide a penalty for violation thereof. The People of the State of Michigan enact: SEC. i. Any person, residing or having a place for the regular trans- action of business in the State of Michigan, being over the age of twenty- one years, of good moral character, who shall have received from the Gov- ernor of the State of Michigan a certificate of his qualifications to practice as a public accountant, as hereinafter provided, shall be styled and known as a certified public accountant, and no other person shall assume such title or use the abbreviation C. P. A., or any other words, letters or figures to indicate that the person using the same is such certified public accountant. MICHIGAN C. P. A. MANUAL 13 SEC. 2 Within thirty days after this act takes effect, the Governor shall appoint three persons to constitute and serve as a Board of Accountancy. Two members of this board first appointed shall be selected by the Governor from a list of the names of public accountants who have been practicing in the State of Michigan for a period of at least one year, one of whom shall be appointed for a term ending January one, nineteen hundred fourteen, and one for a term ending January one, nineteen hundred sixteen and upon the expiration of each of said terms and of each succeeding term, a member shall be appointed for a term of three years : Provided, That the successors to the first two members who are public accountants shall be selected from the holders of certificates under this act. One member of this board shall be a practicing attorney, in good standing in the courts of the State of Michigan, appointed in the first instance for a term ending January one, nineteen hundred fifteen, and upon the expiration of said term, and of any succeeding term, a member shall be appointed for a term of three years, such successors to be practicing attorneys in good standing as hereinbefore mentioned. Any vacancies that may occur from any cause shall be filled by the Governor for the unexpired term under the same conditions that govern regular appointments, and every member shall hold office until his successor is appointed. The Governor shall be an ex-ofikio member of this board. SEC. 3. The Board of Accountancy shall formulate rules for its guid- ance, not inconsistent with the provisions of this act. Satisfactory evidence of good moral character shall he required from each applicant for this certi- ficate. Meetings of said Board of Accountancy shall be held at least twice each year and the times and places for holding said meetings shall be adver- tised at least three consecutive days in a daily newspaper published in De- troit, Grand Rapids, Saginaw, Marquette and Houghton at least thirty days prior to the date for such meetings, and notice of the same shall be mailed to all applicants for certificates under this act. Applicants must have com- pleted at least a high school course of study, or have received an equivalent education, prior to the date of application and must have had at least two years' continuous practical experience in public accounting immediately pre- ceding the date of application, the efficiency of such experience to be judged by the board. Applicants, when so required, must appear in person before the board to answer any question, or produce any evidence to sustain such facts as may be necessary to determine the qualifications of the applicant as prescribed by this act and rules of the board. A filing fee of twenty-five dollars for each applicant payable to the treasurer of the board, shall accomr- pany all applications for certificates under this act and the members of the board shall receive as compensation for their services, ten dollars per day for the time actually spent and the necessary expenses incurred in the dis- charge of their duties as members of said board : Provided, however, That . all compensation for services and expenses shall not exceed the amount received as fees from applicants. All bills for expenses and services shall be allowed only in open meeting of the board and shall be paid from fees I 4 MICHIGAN C. P. A. MANUAL received under the provisions of this act. All money received in excess of payments shall be paid into the state treasury at the end of each year and so much thereof as shall be necessary to meet the current expenses of said board shall be subject to the order thereof, if, in any year, the receipts of said board shall not be equal to its expenses. The board shall make an annual report to the Governor, containing a full account of its proceedings, and render an annual financial account to the board of state auditors. The board shall maintain a register of the names and addresses of all persons applying for and receiving certificates under this act. The board shall rec- ommend to the Governor of the state for C. P. A. certificates only those ap- plicants who shall meet the full requirements as called for by the rules of the board and who have complied with the requirements of this act. The provisions of this act shall not be construed to invalidate any certificate heretofore granted under act number ninety-two of the Public Acts of nine- teen hundred five. SEC. 4. The Governor shall issue certificates to the persons who are recommended to him by the Board of Accountancy as having qualified under the provisions of this act. The Governor may revoke any certificate for sufficient cause, after written notice to the holder thereof, and a hearing thereon, and shall issue such notice whenever requested to by the board. SEC. 5. The Board of Accountancy may in its discretion register the certificate of any certified public accountant who is a lawful holder of a C. P. A. certificate issued under the law of another state, and may issue to such certified public accountant a certificate of registration, which certificate shall entitle the holder to practice as such certified public accountant and to use the abbreviation C. P. A. in the state : Provided, however, That such other state extends similar privileges to certified public accountants of this state. The regular fee of twenty-five dollars shall be charged for such certificate. Certificates of registration may be cancelled in the same manner as sections four and seven provide for the revoking or lapsing of certificates issued under this act. No certificate of registration shall be issued until all the provisions of section seven of this act shall be complied with. SEC. 6. If any person shall hold himself out to the public as naving re- ceived a certificate, as provided in this act. or shall assume' to practice as a certified public accountant, or use the abbreviation C. P. A., or any other letters, words or figures to indicate that the person using the .-same is such certified public accountant, without having received such certificate, or after the same shall have been revoked, or suspended because of any lapse of the surety bond as provided in section seven hereof, he shall be deemed guilty of a misdemeanor, the penalty for which shall be a fine of not more than five hundred dollars for each offense or imprisonment in the county jail for a period not exceeding six months. MICHIGAN C. P. A^ MANUAL 15 SEC.. 7. Every person prior to receiving a certificate under the pro- visions of this act, shall give a five thousand dollar surety bond to the Sec- retary of State before entering upon his duties for the faithful performance of the same and shall maintain such surety bond without lapses under penalty of automatic revocation of his certificate concurrent with any lapse of ?aid bond: Provided, however, That said certificate shall automatically become of full force and effect at any future date by the filing of such a bond after any period so elapsed. All audit reports signed as certified public accountant must bear the date of his C. P. A. certificate and the date of expiration of said surety bond and shall be signed only by actual holders of certificates under this act in person, and any corporation, association, company, firm or partnership signatures thereto will be considered as a violation of this act and subject to prosecution thereof and the signature of such C. P. A. so affixed to anv audit report shall be permitted only to such C. P. A. having performed the examination in person. Whenever any typewritten, stereo- typed, lithographed, engraved, printed or written matter is issued either in the form of letters, circulars, audit reports, or otherwise indicating C. P. A. service, it shall be considered a violation of this act unless the signature thereto shall be that of a holder of a certificate issued as herein provided. SEC. 8. All acts or parts of acts in anywise inconsistent herewith are hereby repealed. Approved May 7, 1913. THIRD MICHIGAN C. P. A. LAW Act 240, Laws of 1913, Approved May 7,1913, Establishing Michigan State Board of Accountancy Amended by Act 155, Laws of 1917, Approved May 2, 1917, Being Sections six- thousand eight hundred ninety-eight to six thousand nine hundred five of the Compiled Laws An act to establish a board of accountancy, to provide for the granting of certificates to those public accountants who qualify under the provisions of this act, and to provide a penalty for violation thereof. The People of the State of Michigan enact: SEC. i. Same as 1913 Law. SEC. 2. Same as 1913 Law. SEC. 3. Same as 1913 Law. SEC. 4. Same as 1913 Law. SEC. 5. The Board of Accountancy may in its discretion register the certificate of any certified public accountant who is a lawful holder of a C. P. A. certificate under the laws of another state, and may issue to such cer- 16 MICHIGAN C. P. A. MANUAL tified public accountant a certificate of registration, which certificate shall entitle the holder to practice as such certified accountant, and to use the abbreviation C. P. A. in the state: Provided, however, That such other state extends similar privileges to certified public accountants of this state. The regular fee of twenty-five dollars shall be charged for such certificate. Certificates of registration may be cancelled in the same manner is section four provides for revoking certificates issued under this act. SEC. 6. The Board of Accountancy may in its discretion grant author- ity to a person who is a lawful holder of a C. P. A. certificate issued under the law of another state, with which state reciprocal relations have not been established or when said certificate was secured under a waiver clause, to use the title certified public accountant or the abbreviation C. P. A. followed by the name of the state issuing such certificate. It may also, in its discre- tion, grant authority to a person who is a lawful holder of a certificate is- sued under the laws of a foreign country to use the title chartered account- ant or the abbreviation C. A. The regular fee of twenty-five dollars shall be charged for such grant which grant may be cancelled in the same manner as section four provides for revoking certificates issued under this act. SEC. 7. The use of other terms and titles than certified public ac- countant or chartered accountant and abbreviations than C. P. A. or C. A. as indicating specially granted authority is prohibited, but no person shall be denied the right to indicate membership in any society of professional pub- lic accountants which may be officially recognized by the Michigan State Board of Accountancy. All certificates issued, registered, or authorized under the terms of this act are given to individuals. Firms and corpora- tions may not use the terms certified public accountants or chartered ac- countants. If any person shall hold himself out to the public as having received a certificate, a certificate of registration, or a grant of authority as provided in this act, or shall assume to practice as a certified public account- ant or a chartered accountant or use the abbreviations C. P. A. or C. /-Y. or any other words, letters or figures to indicate that the person using the ^alne is a certified public accountant or a chartered accountant or an accountant with specially granted authority without having received such certificate, or registration, or grant of authority, or after the same shall have been re- voked, or if such person shall as a member of a firm or corporation permit the use in any manner of the terms certified public accountants or chartered accountants in connection therewith, he i^hsll be deemed guilty of a misde- meanor the penalty of which shall be a fine of not more than five hundred dollars for each offense or imprisonment in the county jail for a period of not exceeding six months. Approved May 2, 1917. MICHIGAN C. P. A. MANUAL RULES GOVERNING EXAMINATIONS FOR C. P. A. CERTIFICATES UNDER THE LAWS OF MICHIGAN 'Act 240, Laws of 1913, as Amended by Act 155, Laws of 1917, Creating the State Board of Accountancy Examinations will include questions on the following subjects as affecting Accountancy : (a) Theory of Accounts (c) Auditing (b) Practical Accounting (d) Commercial Law (c) Public Finance and Political Economy The examination in practical accounting will occupy two half- day periods and each of the other examinations will occupy one half -day period, each period being approximately four hours. All applications should be made on blanks furnished by the Board, and no application will be considered unless accompanied by the fee of $25.00 and filed with the Secretary of the Board at least ten (10) days prior to the date set for the examination. Applicants must be over the age of twenty-one (21) years and of good moral character. Applicants must have completed at least a high-school course of study, or have received an equivalent education, prior to the date of application. The act of filing an application for an examination shall- be deemed to be and shall constitute an agreement upon the part of the applicant that he will observe and conform to the require- ments expressed in these rules. Ample notice will be given to each applicant of the time and place selected for holding the examination, and each applicant must be present and prepared to engage in the work promptly at the hours appointed. Failure to do so, will be considered, at the dis- cretion of the Board, just cause for exclusion and forfeiture of the amount of the fee. All answers to questions submitted must be written on blanks provided by the Board. A candidate to pass an examination must receive a percentage of seventy-five (75%) nl each of the five subjects. 1 8 MICHIGAN C. P. A. MANUAL Questions and examination papers are the property of the Board and will not be available at any time for inspection. The answers to the questions on each subject must be completed within the time allotted. In the event of the applicant failing to pass the examination, he may be re-examined after one (i) year, in accordance with the Act and rules of the Board, upon the payment of an additional fee of $25.00: Provided, however, That if he shall have passed four of the five subjects, he shall be permitted to sit for an examination on the fifth subject at the next examination without payment of an addi- tional fee. In case of a second failure in said fifth subject, an ad- ditional fee of $25.00 will be charged if the applicant desires to take another examination. Applicants, when so required, must appear in person before the Board to answer any questions, or produce any evidence to sustain such facts as may be necessary to determine the qualifications of the applicant as prescribed by the Act and the rules of the Board. Any applicant before being entitled to receive a C. P. A. certifi- cate must have had at least two (2) years' continuous practical ex- perience in public accounting immediately preceding the date of ap- plication. The sufficiency of such experience will be judged by the Board. The Board will recommend to the Governor of the State for C. P. A. certificates only those applicants who have met in full the provisions of the Act and the rules of the Board. Examinations will be held twice each year and at such times and places as applications may warrant. The Board will not issue Certificates of Registration or Certifi- cates of Authority to holders of certificates received from other states or countries if the holders are now engaged in private ac- counting work, but in case the holders return to public accounting work an additional two years of experience will not be required be- fore granting such certificates. Certificates of Registration and Certificates of Authority will only, be granted when a person has established a residence or a place for the regular transaction of business in Michigan. These rules, or any of them, may be amended at any meeting of the Board. All communications should be addressed to the Secretary of the Michigan State Board of Accountancy. MICHIGAN C. P. A. MANUAL 19 APPLICATION FOR C. P. A. CERTIFICATE To the State Board of Accountancy, Michigan GENTLEMEN : [ ] . Request for Examination I hereby make application to be examined by your Board for a certificate entitling me to practice, be styled, and be known as a Certified Public Accountant under rules adopted by your Board in accordance with the provisions of section four of Act 240, Laws of 1913, as amended by Act 155, Laws of 1917. I am enclosing certified check for $25.00 payable to your order. [ ] Request for Registration I hereby make application to have a Certificate of Registration issued me, based on a C. P. A. certificate received from the State of . .as the result of an examination held at. . on , so that I may be entitled to practice, be styled, and be known as a Certified Public Accountant under the rules adopted by your Board in accordance with the provisions of section five of Act 240, Laws of 1913, as amended by Act 155, Laws of 1917. I am enclosing certified check for $25.00 payable to your order. [ ] Request for Authority I hereby make application to have a Certificate of Authority is- sued me, based on a certificate received under conditions named in No. 15 of this application, so that I may be entitled to practice, be styled, and be known as a Certified Public Accountant or a Char- tered Accountant under rules adopted by your Board in accordance with the provisions of section six of Act 240, Laws of 1913, as amended by Act 155, Laws of 1917. I am enclosing a certified check for $25.00 payable to your order. 1. Full name 2. Date and place of birth 3. A citizen of the United States? How long 20 MICHIGAN C. P. A. MANUAL 4. Preliminary Education, (a) Graduate of high school at Date graduated (b) If not a high school graduate, what equivalent education have you had? 5. Experience in the study of accounting during the last five (5) years : During During During During During 6. State occupations or business during the five (5) years prior to engaging in the practice of public accounting : During During During During During During 7. How long engaged in the practice of public accounting? State where and by whom employed or whether on your o\vn account during the past five (5) years: During During During During During 8. Residence this date 9. Residence during the past ten (10) years: During During During During During During During During During During 10. Present office or place of business n. Present business or occupation MICHIGAN C. P. A. MANUAL 2 i 12. Is it your present purpose to continue in the practice of pub- lic accounting ? 13. Xame live concerns and give addresses on whose books you have worked professionally, either as principal accountant or as as- sistant, during the past two years : Xame Address Xame Address Xame Address , . . Xame Address Name Address 14. Give the names and addresses of three persons, neither of whom must be a relative or a business associate, to whom we may refer : Xame Address Xame '. Address Xame Address 15. Give any other general information which may aid the Board in passing on your application : . . Signature of Applicant, Date 19 .. STATE OF MICHIGAN, ^ I ss. County ot J The undersigned, being duly sworn, says that the foregoing statements are true. Signed (L. S.) Subscribed and sworn to before me this day of A. D. 19 Notary Public. My commission expires 22 MICHIGAN C. P. A. MANUAL SUGGESTED BIBLIOGRAPHY In 1912, the Committee on Education made a report to the American Association of Public Accountants, listing certain books which were considered by them worthy of recommendation to all students of accountancy. The Committee on Education of the American Institute of Accountants suggested several other books in a report prepared for the 1919 meeting. We are presenting the combined list with a few others added : A. B. C. of Wall Street S. A. Nelson Accountancy of Investment Charles E. Sprague Accounting Practice and Procedure A. Lowes Dickinson Accountancy Problems, Vols. i and 2 Leo Greenlinger Accounting Systems Edward Moxey Accounting Theory and Practice 2 Vols R. B. Kester Accounts of Executors and Testamentary Trustees J. Hardcastle Advanced Accounting L. R. Dicksee American Association of Public Accountants' Year Book American Institute of Accountants' Library Catalog Applied Theory of Accounts P. J. Esquerre Auditing Theory and Practise R. H. Montgomery Book Keeping and Accounting H. M. Rowe Business Finance W. H. Lough Commercial Geography C. C. Adams Corporate Organization and Management '. .T. Comyngton Corporation Accounting R. J. Bennett Corporation Finance ..W. H. Lough Corporation Finance Edward S. Meade Corporation Finance and Accounting H. C. Bentley Cost Accounting L. W. Hawkins Cost Accounting Nicholson -Rohrback C. P. A. Problems and Solutions Henry C. Cox Digest of National Banking Laws A. S. Pratt & Sons Economics of Business E. S. Meade Economics of Efficiency N. A. Briscoe Economics of Enterprise H. J. Davenport Elementary Accounting Problems John R. Wildman Elementary Economics C. M. Thompson Elements of Business Law E. W. Huffcut Estimating Cost-Keeping and Profit-Making Metal Worker, Plumber and Steam Fitter Evolution of Industrial Society Richard T. Ely MICHIGAN C. P. A. MANUAL 23 Factory Costs Frank E. Webner File of Publications on Terminology and Uniform Systems of Accounting by U. S. Census and Labor Bureau File of Rules and Forms of Interstate Commerce Commission Fraud in Accounts No. 30 of the Accountants' Library Getting the Most Out of Business E. St. Elmo Lewis Graphic Methods for Presenting Facts W. C. Brinton History of Accounting and Accountants Richard Brown History of Commerce C. Day History of Commerce and Industry C. A. Herrick How the World Makes Its Living Logan G. McPherson How to Find Factory Costs C. B. Thompson Increasing Human Efficiency in Business W. Dill Scott Introduction to Statistical Methods Horace Secrise Journal of Accountancy Lombard Street Walter Baghot Manual of Commercial Law . .E. W. Spencer Mercantile Credits and Collections Charles A. Meyer Modern Accounting Henry R. Hatfield Municipal Administration and Accounting. . .Fred'k A. Cleveland Office Management Lee Galloway Organized Banking E. E. Agger Outlines of Economics Richard T. Ely Partnership Accounts P. Child Personality Harry C. Spillman Philosophy of Accounts Charles E. Sprague Practical Work of a Bank. W. H. Kniffin Principles of Accounting . . Paton and Stevenson Principles of Bond Investment Lawrence Chamberlain Principles of Depreciation E. A. Saliers Principles of Wealth and Welfare Charles L. Raper Psychology and Industrial Efficiency ...Hugo Munsterberg Railroad Finance Cleveland and Powell Revised or Annotated Statutes of the State of Residence Scientific Management Frederick A. Parkhurst Selected Readings in Economics C. J. Bullock Shop Management Frederick W. Taylor Short Rules for Commercial Calculations Patrick Murphy The Selling Process N. A. Hawkins Theory and Practice of Estate Accounting. .Frederick H. Baugh Theory of Business Enterprise Thorstein Veblen Twelve Principles of Efficiency H. Emerson Unified Accounting Methods for Industrials. .Clinton E. Woods Work, Wages and Profits H. L. Gantt THEORY OF ACCOUNTS MICHIGAN C. P. A. MANUAL 27 MICHIGAN STATE BOARD OF ACCOUNTANCY EXAMINATION for the degree of CERTIFIED PUBLIC ACCOUNTANT July 27-28, 1906 THEORY OF ACCOUNTS Saturday, July 28, 1906, from 8:00 A. M. to 12:00 M. 75 credits necessary to pass out of a possible 100 credits. Each complete answer will receive 10 credits. Do not repeat questions on examination papers but write answers only, designating the questions by number. The intelligence indicated by answers will be considered in marking the applicants, as well as the technical accuracy of such answers. 1. Define bookkeeping. State various kinds with explanations. 2. What books are necessary for recording the transactions of an incorporated company? State the use of each book mentioned. 3. Define the following: (a) Fixed assets and fixed liabilities. (b) Current assets and current liabilities. 4. Define Merchandise account and state how in your opinion it should be kept. 5. What is the purpose of the following accounts and how are they created on the books: (a) Sinking funds? (c) Depreciation? (b) Reserve funds ? (d) Goodwill? 6. Name the various forms of Capital Stock, with full explanations. 7. How would you ascertain the profits of a firm whose books are kept by single entry? 28 . MICHIGAN C. P. A. MANUAL 8. What is a dividend? State when and how dividends become effective. State how declaration and payment of dividends are usually recorded in books of account. 9. State the use of a Private Lock Ledger and its relation to the General Ledger. 10. (a) What constitutes Manufacturing Cost? (b) What constitutes Selling Cost? (c) What relation do cumulative preferred stock dividends bear to the cost of operating? THEORY OF ACCOUNTS Friday, December 21, 1906, from -8:00 A. M. to 12:00 M. 1. The stock of a mercantile concern is partially destroyed by tire or flood. The books of account, however, are saved. How would you prepare a statement showing the loss ? Explain fully, 2. What different methods have come under your observation of ascertaining the cost of articles manufactured? Explain each method fully, stating which in your opinion is preferable, giving reasons. 3. A manufacturing company purchased a large stock of material during the year at low prices but at time of annual inventory values had abnormally increased. How in your opinion should inventory and loss and gain be shown on the books? 4. A concern inventories its property and makes statement of Assets and Liabilities on the first of the year. The business continues and up to Oct. 1st $10,000.00 additional capital is paid in. Plant account during the same period increased $5,- ooo.oo. From Trial Balance of Oct. ist, how would you deter- mine the amount of merchandise and supplies necessarily on hand to show neither gain or loss for the period between January ist and October ist? 5. In closing the books of a concern state your treatment and the relations they bear to Loss and Gain of the following: (a) Goods purchased on consignment. (b) Goods sold on consignment. MICHIGAN C. P. A. MANUAL 29 6. You are requested to open the necessary books for recording the organization and business operations of an incorporated company having three forms of capital stock. (a) State what books are necessary. (b) Name the various forms of Capital Stock and how created, stating the rights and privileges of each. 7. A corporation invests its capital in a number of subsidiary com- panies, each subsidiary company having a distinct organization, but its dividends being payable to the parent company. The parent company decides to carry insurance for all the sub- sidiary companies and each pays in to the parent company monthly a specific sum. Fire losses as incurred are payable by the parent company. How are such entries treated and what should the books show, also what entries are necessary at close of fiscal years? 8. How are the profits of the following concerns divided : (a) Stock Company? (b) Co-partnership? (c) Co-Operative Association? 9. What is the meaning of Watered Stock and how should it appear on the books ? 10. Define: (a) Quick Assets. (c) Fixed Charges. (b) Floating Debts. (d) Contingent Liabilities. THEORY OF ACCOUNTS Friday, November ist, 1907, from 8:00 A. M. to 12:00 M, 1. Wherein do the books of a co-partnership differ from those of a corporation in the same line of business? 2. ( )n taking charge of a set of books kept by single entry belong- ing to a Produce Company, engaged in buying and selling farm produce, wholesale and retail, how would you suggest that they be started ? 3. Prepare an Assignee's Account furnishing your own figures : (a) On taking charge. (b) Final account. 30 MICHIGAN C. P. A. MANUAL 4. On buying an interest in a business, what entries should be made in the books of the business : (a) When a direct sale is made of an interest, the money not to be used in the business ? (b) When the money paid for the interest in the business is to be used in the business ? 5. Goods are shipped from a factory to a branch store. How should the invoice be made out in order that the proper results of the business should be shown in the books kept at the factory? 6. State the points of difference between a statement of receipts and disbursements and a statement of revenues and expenses. 7. Discuss the different methods of dealing with, first, Repairs, and second, Replacements in connection with : (a) A concern that writes off annually sufficient depreciation to cover the life of the machinery. (b) A concern where no depreciation is written off and where it is claimed the machinery is kept as good as new. 8. Explain fully and state how accounts should be carried upon the books with : (a) Authorized capital stock. (d) Preferred stock. (b) Unsubscribed stock. (e) Common stock. (c) Treasury stock. 9. In closing the books of a concern should the profit and loss account be affected by any change of value other than purchase or sale of any fixed asset? Show how such changes of values can be entered upon the books without including the same in Profit and Loss account. 10. Trace the various operations in an office where you have full charge as an accountant from the time an order is given for the purchase of material until such material is paid for, to protect the company from any possible loss in the transaction. THEORY OF ACCOUNTS Friday, June 26, 1908, from 2:00 P. M. to 6:00 P. M. I. Do unsold bonds of a railroad company constitute a liability? If they do, under what account would they appear in the ledger? Does unsubscribed stock in a corporation constitute a liability? If it does, under what account would it appear in a ledger? MICHIGAN C. I'. A. MANUAL 31 2. State in what respects : (a) The rights, and ( 1) ) The duties of an Executor and an Administrator differ. (c) How an Executor is appointed. (d) In what order should an Executor pay the debts of an estate ? (e) What form of receipt should he require for any payments made by him ? 3. Xame five (5) classes of Bonds, describing briefly each class with regard to issue, purpose, redemption, -etc. 4. Should a manufacturing establishment invoice its sales to its branch houses at cost or at a profit? What would be the ad- vantages, for either the factory or the branches by either of these methods. Explain fully. 5. Give your opinion regarding the following, and reasons: (a) Should ordinary discount of 2 l / 2 % a month be considered as a trade or a time discount? (b) Is it proper to take credit in the Balance Sheet for dis- counts on Purchase Creditors' Accounts? (c) Whether in arriving at a proper amount as a Reserve for Bad Debts, the length of credit should be taken into account and why? 6. Name a fair allowance for depreciation per annum on the fol- lowing plant assets : Real Estate, including fences, sidewalks, tracks, etc. Buildmg and Building Fixtures fire-proof construction. Factory Equipment, including benches, cupboards, etc. Machinery, both iron and woodworking. Fixed Tools, both iron and woodworking. Loose tools, both iron and woodworking. Power Plant. Electric Wiring and Apparatus, including dynamos, motors, etc. Sprinkler System and Fire Equipment. Blower System. Office Furniture and Fixtures, including typewriters, adding machines, graphophones, multigraphs, etc. Horses and Mules. Wagons, Harness and Trappings. Patterns, iron and wood, and Drawings. State your opinion for or against the necessity of providing for depreciation in a manufacturing business. 3 2 MICHIGAN C. P. A. MANUAL 7. Define the following terms : Prime Cost, Indirect Charges (On-Cost), Shop Cost, Cost of Production, Commercial Ex- penses, Stores, Stock, Storeroom, Warehouse, Freight-in and Freight-out. 8. The trial balance and schedules of debtors and creditors in the books of a manufacturing concern disclose : (a) Debts owing to and by the same firms among the debtors and creditors. (b) Money owing by the concern to a debtor for calls unpaid and in arrears. (c) Money owing by the concern to the acceptor of a note re- ceivable, discounted by the concern's bank. (d) Money owing to the concern by the drawer of a note pay- able accepted by the concern. 9. What considerations guide you in deciding in each case whether these sums should respectively be set-off and excluded from the Balance Sheet or not, (assuming for the purpose of this question that the sums are all equal in amount) and what is your decision in each case? 10. Explain what is meant by Suspense, Reserve, Prepaid and Ac- crued accounts and give examples of each, showing proper clas- sification on the debit and credit sides of a Balance Sheet. 11. Differentiate between Consignments, Adventures and Joint Ac- counts. How r should Consignments Received, to be realized for and on behalf of another, be best treated ? How should the man- aging partner of a joint adventure treat the same in his books? Illustrate. THEORY OF ACCOUNTS July 23, 1909, from 8:00 A. M. to 12:00 M. I. Describe in detail your understanding of and the principles underlying the following systems of Wages, and their influence on the labor efficiency in a large manufacturing' plant : (a) Day Rates. (d) Premium Plan. (b) Piece Rates. (e) Bonus Plan. (c) Differential Piece Rates. (f) Efficiency Plan. MICHIGAN C. P. A. MANUAL 33 2. Complete the following Chart of a Bank's Officers and Employ- ees bv setting forth briefly the duties of the various clerks and the different books and records kept by each, showing their rela- tionship to each other, etc. : President, Vice-President, Cashier, Auditor, Receiving Teller, Paying Teller, Note' Teller, Mail Teller, Exchange Teller, Loan Clerk, Discount Clerk, Corre- spondence Clerk, Stock and Bond Clerk, and General Book- keepers. Give any further information with which you may be familiar concerning banking routine. 3. In most large banks the following books are kept: Private Ledger, General Ledger, Loans Ledger, Deposit Ledger, Invest- ments Ledger, Agency Ledger, Corporation Ledger, Bills Discounted Book, Short Bills Book, Securities Record, Country Drafts Record, and Standing Order Book. Show the forms of rulings for these books and describe briefly the various' accounts that enter into them. 4. (a) Describe how the officers or "insiders" of a corporation can "milk" the corporation to their own personal benefit. (b) What are the usual methods employed in such cases for the purpose of giving the stockholders and the public a wrong impression of a corporation's condition. (c) Refer to any such cases in the state courts or in your own . professional practice where such methods have been ex- posed, describing briefly. 5. What books and records are essential to the use of the double- entry system in : (a) Manufacturing business. (c) Insurance business. (b) Merchandising business. (d) Commission business. Give list and description. 6. If a Bond reads at 4%, but the amount which will be received is 1.05 of the nominal par, what is the actual percentage of cash income ? 7. (a) How would you adjust a fire loss where an inventory and full record of the business had not been kept? (b) Describe the practical application of the Co-Insurance Clause. (c) The Average Clause. (d) The Three-Fourths Value Clause. (e) The Three-Fourths Loss Clause. (f) The Use and Occupancy Form. 34 MICHIGAN C. P. A. MANUAL 8. (a) If the value of the property insured is $10,000.00 and the actual insurance at the time of the fire is 80%, what would be the settlement if the loss was 50% of the total value? (b) If the property value was $10,000.00 with an 80% co- insurance clause and the actual insurance in force at the time of the fire was $6,000.00, what would be the owner's deficiency ? (c) How much if the loss was only 40% of the total? 9. You are engaged to install a complete factory cost and account- ing system in a large manufacturing plant. Describe the various steps in the handling of such a proposition and show by charts, the accounts (properly grouped, etc.) of the departments, (Pro- ductive and Non-Productive) logically arranged, and give a list of the various forms, etc., that would be required to record the factory operations to intelligently handle them from an account- ing viewpoint as an integral part of the accounting system. 10. What system would you recommend to a factory for the proper checking of all labor employed : (a) To obtain a complete record of each employee from date of application for employment to date of discharge? (b) To prove that all labor paid for was actually accounted for? (c) That no mistakes had been made in figuring the time or in the. paying off? (d) That the payrolls had not been padded in any manner? Mention the forms, mechanical appliances, etc.. required for such a system and the independent internal checks necessary to prevent collusion between clerks and employees. THEORY OF ACCOUNTS Friday, June 24, 1910, from I 130 P. M. to 5 130 P. M. 1. Explain the difference between: (a) Receipts and Disbursements, (b) Revenues and Expenses. 2. Define Capital Receipts, Capital Expenditures. Fixed Assets, Floating Assets, Revenue Receipts, Revenue Expenditures, Gross Profits, Net Profits, Net Income. MICHIGAN C. P. A. MANUAL 35 3. (a) In the books of a contracting concern, what treatment should be accorded to amounts received from time to time on estimates? (b) In the valuation of assets, what basis is implied by the term >( a going concern?" 4. (a) What is Good Will and on what should it be based to arrive at its money value ? (b) Is it rightfully subject to a depreciation charge? (c) Is it permissible under Michigan laws for a company to capitalize Good Will? Explain fully. 5. An issue of Mortgage Bonds of the par value of $100,000.00 and running for five years has been sold at 90, the money to be used in the erection of new buildings. How should the trans- action be recorded and why? 6. A municipality borrowed $150,000.00 for 5 years at 4%, in- terest payable annually. To meet the debt when it became due a Sinking Fund was created by depositing at 5% compound interest an equal sum at the expiration of each of the five years. What was the annual amount deposited? 7. (a) In a general way, what is the difference between a Financial Statement and a Balance Sheet ? (b) In a general way what distinguishes Manufacturing Ex- penses from Commercial Expenses ? (c) Give a form of Bank Reconciliation and explain the purpose of same. 8. (a) A Manufacturer having turned his business into a joint stock company and as yet owning all the stock himself only a few shares standing nominally on the company's books as belonging to friends finds after a time that the business needs more capital. Thereupon he agrees to sell a portion of the stock to outside parties for cash, stipulating that the money so obtained shall all be put into the busi- ness that is to say, shall be at once expended in purchasing new machinery and in repairs and improvements, which is done accordingly. How is the transaction properly to be brought into the company's accounts? (b) How should premiums received on the issue of shares of Capital Stock be treated in the accounts of a corporation? 36 MICHIGAN C. P. A. MANUAL 9. (a) Name four advantages of Controlling Accounts. (b) What is the best way of handling on the books the con- tingent liability on Notes Receivable that have been dis- counted at the Bank? 10. (a) Name ten matters of special importance in devising any system of internal check in the handling of office records, (b) In case you were consulted by prospective partners re- garding the terms of a partnership agreement, what points would you recommend for incorporating in such agree- ment ? THEORY OF ACCOUNTS Friday, June 28, 1912, from 8:30 A. M. to 12 130 P. M. 1. (a) Name three objects of bookkeeping. (b) Into what two general and what three special classes are accounts divided in double entry bookkeeping? (c) Give two examples of Fixed Assets in one business which become Floating Assets in another business. (d) What are revenue receipts? (e) What are revenue expenditures? (f) Name and define five commonly used sub-divisions of rev- enue expenditure accounts. 2. (a) Should cash discounts earned be credited against the cost of goods purchased, or credited to profits? Explain why. (b) What is meant by ''turnover?" (c) How can the amount of the "turnover" be shown in the Trading Account? 3. (a) What is a Balance Sheet? (b) In what order should the various accounts be listed on the Balance Sheet? (c) Give examples of the proper entries when the following transactions occur in respect to Notes Receivable : 1. When a note is received. 2. When a note is discounted. 3. When a note is paid. MICHIGAN C. P. A. MANUAL 37 4. When a note is partly paid and a new note given for the balance. 5. When a note is collected by the bank. 6. When a note is protested. 4. (a) What is a reserve? (b) Give three examples showing purposes for which reserves are created. (c) What is a Sinking Fund? (d) What is its purpose? 5. (a) Prepare a chart of accounts of a manufacturing business making and selling three distinct classes of goods, (b) Using this chart, explain how profits are traced from group to group until they reach the Surplus Account. 6. (a) What are the elements of Interest? (b) What is the rate of discount corresponding to 2% interest? (c) In a 4% bond to net 2 l / 2 % what is the difference of rates? 7. (a) In devising a system of accounting for a manufacturing business, what are the main subjects for consideration? (b) In what order should they have attention? (c) Describe the principal books that should be used and their relation and connection. 8. Define and differentiate the following kinds of accounts : (a) Real and Nominal. (b) Personal and Impersonal. (c) Current and Summary. (d) Controlling and Specific. 9. Describe the various methods of distributing "Factory Expense'' or "On Cost" so as to properly apportion same to the cost of the articles manufactured and sold during a period, stating the advantages of each method in various kinds of businesses. 10. Lay up a complete administrative chart for a large manufactur- ing concern to show the different departments and departmental heads from the Board of Directors down, so as to place re- sponsibility, indicate control and to show to whom reports should be made. MICHIGAN C. P. A. MANUAL THEORY OF ACCOUNTS Friday, June 13, 1913, from 8:00 A. M. to 12:00 M. 1. Explain the ways in which the books and accounts kept by a firm conducting any line of business would differ from those of an individual conducting the same business. 2. (a) Explain the books and accounts needed by a corporation that are not needed by a firm. (b) What advantages are there in incorporating? What dis- advantages ? 3. (a) Name the various kinds of stock and explain what the different kinds represent. (b) How would the following affect the individual holders or subscribers : secret reserves, excessive dividends, bank- ruptcy, and voluntary dissolution of the corporation? 4. (a) Explain the various ways of determining the cost of manu- factured articles. (b) What is the method of operating controlling accounts, and of what benefit are they ? (c) In case of branch stores or branch factories, should goods delivered from the main store or factory be charged at cost, or should a profit be added in making the charge? 5. (a) Name the arguments for double entry bookkeeping as op- posed to single entry bookkeeping. (b) What facts can be determined from books kept by double entry which cannot be determined from books kept by single entry? 6. (a) Explain the method of keeping books so as to provide a perpetual inventory. Take any kind of business for an illustration. (b) Present a hypothetical trial balance. (c) What do you understand by overhead charges? 7. A public institution is operating on a budget basis. The secre- tary of the institution has charge of the accounts pertaining to the budget. A purchasing agent is employed who is responsible MICHIGAN C. P. A. MANUAL 39 to the secretary. All requisitions for goods come to him from the heads of the departments for which provision has been made in the budget. A stock room is operated in charge of a stock- keeper. Suggest the method of procedure so far as records are concerned from the time the budget for the year is made up until it is closed, showing what records should be kept by the secretary, what by the purchasing agent, and what by the stock- keeper. 8. (a) Explain the various kinds of discounts found in the busi- ness world and the methods by which they should be dis- tinguished in books of account. (b) Explain a method of allocating expenses in a department store. (c) Describe briefly the Imprest Cash system. 9. (a) What different methods should be employed in books of account for keeping track of notes endorsed for accommo- dation and notes endorsed in the regular order of business? (b) How would you indicate in books of account the contingent liability arising in each case? 10. (a) Name and explain the various kinds of bonds found in business, showing the method by which entries would be made for receipts from the same for bonds sold below or above par. (b) How should expenditures for repairs or replacements be treated in so far as they relate to the question of depre- ciation ? (c) Distinguish between receipts and disbursements and revenues and expenditures. THEORY OF ACCOUNTS Saturday, December 27, 1913, from 8:00 A. M. to 12:00 M. I. (a) Explain the inaccuracies from an accounting standpoint of the ordinary Interest and Discount account, (b) Explain by entries the proper accounting for each case in which interest and discount is involved in handling both Bills Receivable and Bills Payable. 4 MICHIGAN C. P. A. MANUAL 2. Explain all the possible accounting problems which occur in connection with such accounts as Good Will, Franchise or Pat- ents. 4. Explain the various methods by which the different kinds of overhead charges are adjusted in a manufacturing concern. 5. Explain the different ways in which the discount on bonds sold below par may be written off by the issuing concern. Which is the best? 6. Prepare a Balance Sheet which will be a model as to mechanical principles involved. 7. A city has just taken over an electric light plant. You are asked to prepare a statement as to the accounting errors against which the public commission which is to operate the plant should guard itself. Write your answer. 8. (a) Outline a method by which the disbursing officer in a large concern may be sure that bills which he pays are O. K. (b) How would you determine the loss in case of a fire if the books had been saved but were not kept so as to show a perpetual inventory? 9. Prepare a Trading Account which will show all the various factors. 10. Outline a Cost System for a definitely named institution. THEORY OF ACCOUNTS Saturday, June 27, 1914, from 1 130 P. M. to 5 130 P. M. 1. Explain duties of Executor or Administrator. Explain form of his reports and indicate points of care to be observed in keep- ing his accounts. Name the other reports used in closing an estate and object of each. 2. In calculating the indirect expense for a Grey Iron Casting Foundry, which is correct: the per pound basis, the rate per hour basis, or the percentage basis? Give reasons and explain fully. 3. What do you understand by the following terms and give illus- trations of each : Deferred Debits and Credits, Fixed Assets, Quick Assets, Fixed Liabilities, Current Liabilities, Fixed Charges, Contingent Liabilities, Real Accounts, Nominal Ac- counts, Watered Stock? MICHIGAN C. P. A. MANUAL 41 4. Set up a Deficiency Account, explaining the points involved ? 5. Explain fully the fundamental points to be observed in a com- plete system of municipal accounts, where some public service department is owned by the municipality? 6. Describe in detail the principles underlying the following sys- tems of wages, and their effect on the efficiency of labor in a large plant : day rate, piece rate, differential piece rate, premium plan, bonus plan, efficiency system. 7. List books and give purpose of each, used by a corporation but not used by a partnership. Name accounts and use of each that are 'peculiar to corporation accounting. Make a statement of facts for organizing a corporation with preferred and common stock and an issue of bonds; bonds to be sold at par, preferred stock at 125 with an equal amount of common stock given as a bonus. Explain the process of organization and make the open- ing entries. 8. (a) A has $5,000.00 invested in a business. He sells B a half interest for $3,000.00 and keeps the money. Make the entry, (b) A has $5,000.000 invested in a business. He sells B a half interest for $3,000.00 and places the money in the business. Make the entry. 9. What do you understand by the following terms : Capital Re- ceipts, Capital Expenditures, Revenue Receipts, Revenue Ex- penditures, Sinking Fund, Reserve Fund, Prepaid Accounts, Accrued Accounts, Suspense, Controlling Accounts. 10. List the various kinds of plant assets and indicate the various percents of allowances for depreciation, making such explana- tions as are necessary. THEORY OF ACCOUNTS Thursday, December 24, 1914, from 8:00 A. M. to 12:00 M. 1. Write a five hundred word outline of the regional bank legis- lation recently enacted and indicate ways in which it will affect business. 2. Define: Account Current, Account Stated, Amortization, Rev- enue, Working Capital, Betterment, Accrual, Hidden Reserve, Internal Check, Administration Expense. 42 MICHIGAN C. P. A. MANUAL 3. Four corporations which have been doing business with each other consolidate. In each set of books accounts are open with the other three. How will these be treated in the consoli- dated balance sheet? 4. Explain the bookkeeping principles involved for both consignor and consignee when goods are consigned by a manufacturing concern. 5. Set up a balance sheet in best form. 6. Write a five hundred word essay on cost accounting, explaining principles on which it is based, advantages of a system, and points of weakness to be considered. 7. Outline a system of books for a concern conducting a wholesale drug house, a retail pharmacy, arid a jobbing business in chem- icals and apparatus used by colleges. Some setting up and re- pairing of apparatus is done and so a shop is conducted. Four departments required and but one set of books. 8. Explain in detail the theory of depreciation in its various phases. 9. (a) What differences should be noticed in the books of a con- cern conducted by a partnership from those of a concern in the same line of business conducted by a single in- dividual ? (b) What information can you get from a set of books kept by double entry which you cannot get from a set kept by single entry ? 10. (a) Make entries in journal form, with proper explanations, for , all the various ways in which bonds issued by a corporation may be sold by it and afterwards paid. (b) Make entries in journal form, with proper explanations, for the transactions involved when notes are received, discount- ed, paid if protested after discount, paid by maker when due, paid by maker at 25% discount, paid by maker with interest. THEORY OF ACCOUNTS Saturday, June 19, 1915, from 8:00 A. M. to 12:00 M. 1. Explain the proper method of handling Merchandise account, and outline the various sub-divisions. 2. Explain the Voucher System in detail. MICHIGAN C. P. A. MANUAL 43 3. Set up a statement of facts involving a complete history of a sinking fund created for a particular purpose, and make the proper entries for the same. 4. (a) Explain the method of maintaining a perpetual inventory, (b) Explain Treasury Stock in all of its phases. 5. Define: Funded Indebtedness, Allonge, Deferred Charges, I'.iirden, Appreciation, Capital Expenditures, Secret Reserve, Income Bonds, Imprest Cash, Income Account. (>. A bought goods of B as follows: May 4, 3O days $800.00 May 30, 2 months 500.00 June 8 400.00 June 20 300.00 July ist A gave B a note for sixty days drawing interest at six per cent and dated at the average due date. Write the note. 7. (a) Explain differences between Trial Balance, Statement of Affairs and Balance Sheet. (b) Explain differences between Trading Account, Loss and Gain Account, Manufacturing Account. 8. You have been asked to prepare a system required for a club house where rooms and board are furnished at a fixed rate per week. Submit a report to the directors outlining just what should be done, and what books and accounts would be needed. 9. (a) Discuss from both standpoints the proposition that capital may be properly regarded in any set of books as a liability. (b) How would you arrange books so that only the proprietor, or his personal representative, would be able to determine the true financial status of the business? jo. About a year ago the Ford Motor Co. agreed to make a refund to each purchaser during the succeeding year if a stated number of machines were sold during the year. If you had been asked to determine a method by which the necessary records should be kept in order that the least inconvenience should be experi- enced at the close of the year when this refund was made, it being apparent that the requirement would be met, what orders Avould you have given ? Write a report embodying same. AUDITING MICHIGAN C. r. .1. MANUAL MICHIGAN STATE BOARD OF ACCOUNTANCY Examination for the Degree of CERTIFIED PUBLIC ACCOUNTANT July 27-28, 1906 47 AUDITING Saturday, July 28, 1906, from I :oo P. M. to 5 :oo P. M. 75 credits necessary to pass, out of a possible 100 credits. Each complete answer will receive 10 credits. Do not repeat questions on examination papers but write answers only, designating the questions by number. The intelligence indicated by answers will be considered in marking the applicants as well as the technical accuracy of such answers. 1. What is the general course for an accountant to follow when called upon to audit the books of any business? 2. How far should an auditor inquire into the work of his pre- decessor? 3. What are the most important things an auditor has to certify in a balance sheet showing loss and gain and the financial con- dition of a business? 4. What books or records of a partnership or corporation should be examined by an auditor? 5. Mention the methods of manipulating accounts which are most commonly resorted to for the purpose of concealing fraud and embezzlement. 6. How would you classify the accounts in preparing a statement of the following: (a) Gas and Electric Light Company? (b) Electric Railroad? (c) A Manufacturing Business? 7. What accounts would be affected by depreciation on leased properties ? 4 8 MICHIGAN C. P. A. MANUAL 8. Should depreciation be written off the accounts of a corporation whose property is of a wasting nature, such as a quarry or a mine ? Give reasons. 9. When books show large additions to buildings and machinery consisting of portions of payrolls and material used, without items of detail, what means should be taken to prove or disprove the accuracy of the charges? 10. State briefly the work done by you in connection with some audit in which you have been engaged. AUDITING Saturday, December 22, 1906, from I :oo P. M. to 5 :oo P. M. 1. What details should be covered in an audit required to show earnings, financial condition, and fraud or defalcation if any, the scope of the audit not being limited except as to period to be examined of the following: (a) Manufacturing company. (b) Jobbing house. (c) Water Transportation Co. 2. In auditing a bank how would you verify : (a) Items in transit? (b) Certificates of deposit? . (c) Collateral securities to loans? 3. A Treasurer of a municipality acts as tax collector for City, School, County and State Taxes during a period of three months in each year. At the expiration of three months a tax roll is made by the Treasurer of all delinquents and it is turned over to the County Treasurer for further collections. You are called to audit his accounts after delinquents have been turned over to the County Treasurer. State your method of verifying the accuracy of the books. 4. What classes of property, if any, in your opinion, are exempt from depreciation. Give reasons. 5. In auditing the books of a Building and Loan Association what would be your procedure to enable you to verify the correct- ness of the same? 6. How would you verify the cash balance stated in a balance sheet ante-dating by several months the time of your audit? MICHIGAN C. P. A. MANUAL 49 7. A manufacturing company ships its products in packages cost- ing 7^c each. They are charged to customer at ice each but subject to credit when returned in good order at same price as charged. At close of year, package account shows an apparent gain being the difference between cost of package and amount of contingent sales. What disposition should be made of the Ledger gain at close of year? 8. Should Bank pass books be considered as final proof in verify- ing balances shown in books you are auditing? State your opinion and give reasons. 9. How would you proceed to verify Accounts Receivable also to satisfy yourself that all Liabilities are included in the Balance Sheet? 10. You have completed an investigation of books which were im- properly kept. Make up report of from 100 to 200 words on the result of your investigation. AUDITING Saturday, November 2, 1907, from i :oo P. M. to 5 :oo P. M. 1. What is an auditor ? What qualifications must he possess? 2. If an auditor is limited in time that would not allow a thorough examination, how would he proceed to prove the general cor- rectness of the books? Explain fully. 3. What are some of the methods used by county and municipal treasurers to cover an embezzlement of money received in pay- ment of taxes? 4. What other records are necessary to examine, if any, than those kept by the secretary and treasurer of a Building and Loan Association to prove the financial condition, also the cor- rectness of the books of such association? 5. State the benefit of a periodical audit and whether the audit differs from a special covering the same period. Explain fully. 6. How far should an auditor examine into the records of a cor- poration which is desirous of using the auditor's certificate so as to enable it to float a loan or interest additional capital? 5 o MICHIGAN C. P. A. MANUAL 7. How would an auditor protect himself from duplicate vouchers or fraudulent bank books? 8. How would you prove the correctness of an audit made by an- other accountant at a previous date and how would you pro- tect yourself in a report of your audit? 9. Where a set of books shows a loss and the nature of the busi- ness, etc., warrants the belief that there was a profit, for the purpose of an audit what special accounts, etc., would you outline for examination and what method would you pursue? 10. State briefly the work done by you in connection with some audit in which you have been engaged. AUDITING Friday, June 26, 1908, 8 130 A. M. to 12 130 P. M. 1. What is an auditor's duty with regard to the following items appearing upon the Balance Sheet : Imprest Cash, Notes Re- ceivable, Customers' Accounts, Sundry Debtors, Mortgages Payable, Certificates of Deposit, Patents, Goodwill, Preliminary (or Organization) Expenses, Stocks and Bonds, Purchase Cred- itors' Accounts and Sundry Creditors? 2. What do you understand by the term "Secret or Hidden Re- serves?" Mention four (4) bona-fide uses of a Secret Reserve and state your opinion as to the propriety or otherwise of the creation of such " reserves," giving reasons. 3. The J. B. & B. Coal Mining Company has acquired a leasehold right to a certain area of coal, and also owns an area of free- hold coal. What would you require as auditor, to satisfy your- self that revenue was bearing its proper annual charge in re- spect to the coal mined ? 4. Chart the following accounts of a Street Railway Company under their proper classification and logical order, as to Assets, (Active, Fixed and Passive), Liabilities, (Funded, Floating, Re- serves and Capital), Expenses, (Transportation, including Oper- ation of Power Plant and Car Service), (General, including Administrative, Emergencies and Fixed Charges), (Mainten- ance, including Repairs and Depreciation), and Revenue, (a) from operation, and (b) from other sources: MICHIGAN C. P. A. MANUAL 51 Organization Expenses, Preliminary Engineering and Superin- tendence Right of Way, Track and Roadway, Notes Payable, Cash in Office, Profit and Loss, Power Plant Wages, Salaries of General Officers, Damages, Taxes, Electric Line, Investment Real Estate, Debentures, Vouchers Payable, Stocks and Bonds of Other Companies, Hired Power, Wages of Conductors and Motormen, Car Service Supplies, Insurance, First Mortgage Bonds, Ninth National Bank, Cleaning and Sanding Track, Printing and Stationery, Legal Expenses, Rent of Land and Buildings, Notes Receivable, Shop Tools and Machinery, Pas- senger Receipts, Rolling Equipment, Dividends, Material and Supplies, Freight Receipts, Interest on Deposits, Track Rentals, Common Stock, Sinking Funds, Goodwill, Mail Receipts, Sale of Power, Dividends on Securities, Salaries of Clerks, Removal of Snow and Ice, Advertising and Attractions, Storeroom Ex- penses, Steam Plant, Items in Suspense, Impairment and Sur- plus, Reserves, Accounts Receivable, Second Preferred Stock, Second Mortgage Bonds, Fuel and Water for Power, Buildings and Fixtures. 5. A $100.00 Bond is issued at $115.00 and is payable as to $35.00 on allotment, and as to the remaining $80.00 in four equal in- stallments at intervals of two months, the first installment being due two months after the allotment. If after a year a dividend of $6.00 is paid on each bond, what is the average rate of in- terest on the investment for the whole year? 6. The cashier of a firm has disappeared. The cash book is left written up and balanced off, the custom being to pay any cash balance into the Bank each day. What course would you take to ascertain whether there were any defalcations, if you were called upon to audit ? 7. You are asked by a client to treat inventories at the time of closing the books. Should they be figured at cost or market price or otherwise? Is the common, old fashioned method of adding the inventory of merchandise on hand, to the credit side of the merchandise account before closing the books, theoret- ically correct? Explain fully. 8. What evidence would you require as to the validity of expendi- ture in respect to wages paid in a large manufacturing plant, and as to the value of the inventories of stock on hand credited to Loss and Gain? It is assumed that the above manufacturing concern kept a complete Cost System, which was an integral part of the general books. 5 2 MICHIGAN C. P. A. MANUAL 9. John Adams, a capitalist, contemplates purchasing the stock of the American Grain Exporting Company, a corporation organ- ized with a capital of $200,000.00 divided into 1,000 shares Pre- ferred Stock and 1,000 shares Common Stock, par value $100.00 each, six per cent (6%) dividends payable upon the Preferred Stock before any dividends are declared upon the Common Stock. This stock has been offered to Mr. Adams at $60.00 per share for the Preferred and $40.00 per share for the Common, You are requested to audit the books of the Company and give your opinion as to the value of the stock. You find the following accounts to be correct, covering a period of one year: Cash $ 900.00 Accounts Receivable : Good $15,000.00 Doubtful 4,000.00 Bad 6,000.00 25,000.00 Plant and Machinery 75,000.00 Horses and Wagons 4,000.00 Merchandise, Invt 29,000.00 Good-Will 50,000.00 Furniture and Fixtures 2,000.00 Expenses 3,000.00 Wages 15,000.00 Purchases 325,000.00 Claims and Rebates 8,000.00 Ordinary Repairs 9,000.00 Sales $260,400.00 Mortgage on Plant 25,000.00 Accounts Payable 42,000.00 Surplus 18,500.00 Capital Stock 200,000.00 -.$545,900.00 $545,900.00 Inventory submitted $129,000.00. The Company started busi- ness six years ago and build the plant and machinery and pur- chased the property pertaining to fixed capital. Write the re- port, commenting upon the. advisability of the purchase and sub- mit Profit and Loss Statement and Balance Sheet, after closing the books. 10. The market value of the investments of a Trust Company has fallen considerably, while the Company has earned enough in- come to pay the usual dividend. How should you deal with this position of affairs in auditing the annual accounts? MICHIGAN C. P. A. MANUAL 53 AUDITING Friday, July 23, 1909, 2 P. M. to 6 130 P. M. 1. What is the average (equated date) of the following: (a) $114.00 due April 10; $140.00 due April 26; $320.00 due May 22 ; $976.00 due June 6 ? (b) June 3, $375.00 on 30 days' time; June 28, $420.00 on 60 days' time; July 16, $560.00 on 4 months' time; September 4, $228.00 on 90 days' time ? (c) Dr. May 16, $437.00; Cr. May 23, $400.00; Dr. May 31, $324.00; Cr. June 16, $300.00? 2. (a) If instructed to carry out a monthly audit by the auditing committee of a club, what steps would you take to ascertain whether any peculations were being carried on in connec- tion with the kitchen and the cafe? (b) What system would you recommend to prevent dishonesty on the part of the various employees, from the time orders are placed for buying the provisions and supplies, until the accounts of members are paid to the cashier and banked? 3. A man invests $2,000.00 in 3% Stock at 84, and $5,000.00 in 4% Stock at 96. After three years, he sells the former at 72 and the latter at 101. (a) What rate of interest has he received during the three years on his investment? (b) How is the value of his capital changed? Show by figures how you worked out the answers. 4. An American firm has an extensive trade with Spanish and English customers, to whom goods are invoiced in Spanish and English currency, and payments are accepted made by bills in those currencies. The firm's principal business is, however, in the United States. Explain in what manner you would arrange for the books to be kept and the titles of any special accounts that it might be necessary to keep. 5. Jones and Brown are partners, sharing profits equally. Their capital as it appears on the books of the partnership on June 2Oth, 1908, the date on which they dissolve partnership, is Jones, $2,000.00 and Brown, $500.00. The total amount owing by the firm is $5,000.00, which includes $1,000.00 due to Jones 54 MICHIGAN C. P. A. MANUAL on a loan, and $500.00 due to Brown on a loan. The whole of the assets of the firm realize $6,000.00. Prepare accounts closing up the partnership and show the position in which the partners stand with each other. 6. How would you deal in a Life Insurance Company's accounts with premiums received, bearing in mind the fact that premiums are always paid in advance ? Should you apportion them ? Ex- plain fully in your answer. 7. (a) How would you proceed with the audit of the accounts of a corporation whose capital was invested in the entire cap- ital stock and bonds of a number of other companies, to arrive at a correct result as to the profits of the corpora- tion? Answer fully, giving your reasons for your action, etc. (b) When would be the proper time for declaring dividends? 8. A certain issue of $100,000.00 4% Bonds is dated September i, 1908. and interest begins at that date, but interest is payable on February ist and August ist, and the principal (with four months' interest) is payable December ist, 1912. What is the value of these bonds on a 3.60 basis at that date of issue ? What is their value on the same basis if purchased on December ist. 1908? (Note that you are interpolating into a five-month period, not a six month, in the beginning.) 9. A wool dealer's business consists of the following transactions : (a) Buying and selling for his own account. (b) Receiving on consignment and selling for commission. (c) Consigning to other dealers for sale for his own account. All wool received, whether purchased or consigned, is charged to Merchandise account, and credited to the vendors or con- signors and all wool disposed of, whether consigned or sold, is credited to Merchandise account and charged to the purchasers or consignees. The prices in the pro forma invoices of con- signed goods invariably differ from prices shown in the account sales rendered to consignors or received from consignees. At the end of the year he prepares a statement treating all wool in his possession as inventory and credits Merchandise account therewith, all debit balances on account of goods sold or con- signed by him as Accounts Receivable, and all credit balances on account of goods purchased or consigned to him as liabilities. The accounts are clerically, correct. You are asked to audit his MICHIGAN C. r. .1. M.IXUAL 55 books and certify to the accuracy of his statement. How would you proceed to do this? Write a report thereon not exceeding two hundred words. 10. How would you proceed in making an audit of an estate, in- cluding principal personality and income personality, and real estate and real estate income, where the interests of the dis- tributees include legacies to lineals and collaterals, annuities, widow's dower, life estates and estates in remainder? Give full particulars, with an illustration, supplying your own figures. AUDITING Saturday, June 25, 1910, from 8:30 A. M. to 12:30 P. M. 1. (a) What are the prime objects of an audit? (b) In commencing the audit of the accounts of a corporation, what would be your first step and what instructions might be given to the bookkeeper, showing the work that should be done before the audit commences ? (c) What is the duty of an auditor, in relation to merchandise inventories appearing in a Balance Sheet? ( (1 ) Define that class of audits known as "investigations" and state the purpose for which an "investigation" is usually made. 2. (a) .Would you recommend that a client have his books audited monthly, yearly, or on special occasions only? Give full reasons for your recommendation and the relative merits of each plan. (b) Write such a letter as would accompany your report, in- cluding a certificate such as you would ordinarily furnish to attach to a Balance Sheet after you had made an audit of the books of a company and were in a position to certify to the correctness of the Balance Sheet and Loss and Gain Statement. 3. (a) If in auditing the accounts of a Power Company you found included in with other revenues, an amount covering 1 a charge to contractors for estimated loss on account of delay in completing new buildings or installing new machinery, would you consider it a proper entry and what would be your duty under the circumstances? 5 6 MICHIGAN C. P. A. MANUAL (b) In making an audit of a company you find that they have notes receivable bearing interest, some paid in advance and included in the face of the notes, others with interest accruing. Explain your handling of this interest in your report. (c) You also learn that a customer's note has been discounted at the bank. In your report will you treat of this note or of any interest in relation to same? 4. During your audit of the books of a concern you learn that it has an authorized issue of $100,000.00 of Bonds ; that $40,000.00 of these bonds have been sold at par, $10,000.00 have been sold at a premium of 10%, $30,000,00 are up as collateral to a loan on the company's note of $25,000.00, at the bank, and the bal- ance $20,000.00 have not been disposed of. Prepare a balance sheet (supplying the other accounts and figures in a simple manner) which will include the above transactions properly handled and explained. 5. (a) State briefly the method of procedure in auditing the ac- counts of "Executor and Trustee" on behalf of a "Life- tenant." 6. (a) A soap company has adopted the policy of giving away premiums in connection with its sales, by means of coupons which are to be redeemed in quantities provided as per a printed list. How should these premiums be treated in pre- paring a Balance Sheet, Loss and Gain Statement, etc. ? (b) A milk company sells to its customers strips of tickets which are good in payment of the milk delivered to them. These tickets are paid for in advance b'y the customers. What accounts would you expect to find on the books and how should the entries be handled showing the transactions of the sales of tickets and the deliveries of milk ?. 7. (a) In presenting a complete audit report to a manufacturing concern, what, in your opinion, should be the logical ar- rangement of the schedules, etc., submitted? (b) In auditing the books of a manufacturing concern, you learn that the Goods in Process have been inventoried at material and labor value only. State how to determine the amount of manufacturing expense that should have been added to properly complete the inventory. (c) Give briefly, instructions for properly taking a complete inventory of a manufacturing concern. MICHIGAN C. P. A. MANUAL 57 X. A commission consisting of three members, A, 1>, and C, are sent on a special mission and on their return an expense account is turned in by the chairman, A, as follows : Expenses 3 R. R. Tickets, @ $15.50 $46.50 i Cash Fare 15.75 Sleeping Car 9.00 Hotel, etc 37-5Q To B for incidentals 15.00 To C " 12.00 To A " ,.. 9.50 $14525 Refunds i R. R. ticket returned for redemption 15.00 Cash returned by B 5.30 "C 3-70 " to balance 30.25 $54.75 $200.00 Cash advanced $200.00 \Yus the account correct? If not, what amount of money should A have returned? Explain fully. 9. A manufacturing concern has been operating for a period of nine months, but owing to incomplete development of the plant, the production during that period was greatly below the ca- pacity and the cost of production consequently abnormal. The directors are anxious to obtain a statement not only showing the result of operations for the ten months, but one which would be fairly indicative of what the results would have been had conditions been normal. Assuming that the actual time lost on account of the frequent stoppages amounted in the aggregate to four months, would the auditor be justified in furnishing the latter statement as well as the former, and, if so, how would you proceed to show the desired results from the following items : Manufacturing Materials $150,000.00 Productive Wages 45,450.00 Miscellaneous Non-Prod. Labor 17,580.00 Salaries 10,500.00 Insurance -',500.00 Taxes Accrued 1,150.00 General Expenses 1,875.00 Interest Accrued 3,6oo*)o Sales 205,752.00 Finished Goods at Cost 15,840.00 58 MICHIGAN C. P. A. MANUAL 10. (a ) The cashier of a firm has disappeared. What steps should be taken to investigate his accounts with the view of ascer- taining if there has been a defalcation? (b) What are some of the most common methods of defaulting? (c) How are such peculations most systematically covered up in the accounts to avoid detection? AUDITING Saturday, June 29, 1912, from I 130 P. M. to 5:30 P. M. 1. You are elected the auditor of a corporation by the holders of both common and preferred stock and it is your duty to safeguard the interest of both classes of stockholders. The preferred stock bears /% and is non-cumulative. Mention what precautions you would adopt to safeguard the interests of the preferred stockholders, giving detailed reasons therefor. 2. Describe in detail the method that should be used to verify the securities representing the investments of a Company under audit, in the case of : (a) Real Estate. (b) Mortgages on Real Estate. (c) Certificates of Stock. (d) Railway Bonds. 3. (a) In making an audit, would you consider it necessary to check in detail the postings of subsidiary ledgers ? Explain fully. (b) What is the responsibility of the accountant who under- takes to examine a going business for the purpose of issuing a certificate showing the net "earnings of the business for the preceding five years to: 1. The owners? 2. Those investing money therein on the basis of the report? 4. In an audit stipulating for the examination of all vouchers of every description, what would be proper vouchers for the fol- lowing: Purchases, Returned Purchases, Sales, Returned Sales, Cash Receipts, Cash Payments, Journal entries? 5. (a) In presenting a Certified Balance Sheet, what items are matters of fact, and (b) What items are opinions, and (c) Taken as a whole, are you establishing a fact or an opinion? MICHIGAN, C. I'. .1. M.IXUAL 59 6. In making an audit of the accounts of Leslie & Porte, stock brokers, how would you verify: (a) The stocks and bonds owned or held as collateral for cus- tomers' accounts? (In your reply, state clearly each step in the process.) (1)) The stocks and registered bonds in process of transfer? (c) In preparing their Balance Sheet, how would you deter- mine the customers' accounts as to whether they should be classed as good, -doubtful, or bad? (d) Write a report of not less than a hundred words covering such an audit. 7- Describe your work in connection with some recent audit upon which you have been engaged. Relate the nature of the busi- ness, answering in sufficient detail to enable the examiners to form an opinion regarding your general auditing knowledge. 8. What means should an auditor employ to determine the correct- ness of reserves for depreciation, bad debts and discounts, in- ventories of raw materials, goods in process, finished product and factory pay rolls? To what extent is he responsible for the accuracy of these items as stated in his report? 9. (a) What would you require from a firm or corporation before entering upon an audit of the books? (b) Name the different kinds of audits, (c) Describe them. TO. (a) Define your understanding of the principle involved in de- termining what are and what are not expenditures from capital. (b) Give a brief outline of the duties and responsibilities of an auditor and what special qualifications and training he shdYild possess. AUDITING Friday, June 13, 1913, from 1 130 P. M. to 5:30 P. AT. i. (a) Explain the value of an outside audit for a business having a regularly employed auditor. (b) In making an investigation of a business for the purpose of a prospective investor, to what extent should the report deal in average earnings as distinguished from yearly serial earnings ? 60 MICHIGAN C. P. A. MANUAL 2. (a) Name the various methods of manipulation of funds which you have found in audits made. If you have not found any, indicate the various ways of manipulation for which you would look. (b) How would you verify the cash balance of a date prior to the time of audit, and in doing so what use would you make of the bank book? 3. (a) Explain the responsibility which the auditor has to his clients as regards inventories and depreciation. (b) How would you treat the problem of organization expenses in auditing the books of a concern at the end of the first year? 4. (a) Outline an audit which you have made during the past year in detail without naming the concern, but giving the char- acter of the business, the system of books kept, and the method pursued in making the audit. (b) Write a two hundred word report of an investigation which you have supposedly made, in the which you have found a poor system of bookkeeping, indicating the points at which it is bad, and suggesting how it may be corrected. 5. In auditing a manufacturing concern, what various points should be observed as to earnings ? 6. In auditing a business, you find that the market value of securi- ties owned by it has^depreciated during the year to an amount equal to the earnings of the business proper. In making your report, how would you treat that situation? 7. If you were appointed auditor of a club, such as the Fellowcraf t Club, in which receipts are from dues and cafe services, what method would you prescribe for keeping the accounts so that you might be able to make a check upon the "Goods" side of the institution ? 8. An ice company sells coupon books which are paid for in ad- vance. What accounts would be required for the purpose of correctly auditing the sales and deliveries in order to determine the exact earnings at any given time ? 9. What do you understand is the purpose of the Commission on Economy and Efficiency appointed by President Taft? 10. Give the arguments for and against figuring interest on a manu- facturing investment as a part of the cost of production. M/CHICAX C. P. J. MANUAL 61 AUDITING Saturday, December 27, 1913, from i 130 P. M. to 5:30 P. M. i . Suggest methods by which auditors' reports should safeguard prospective investors. 2. You have just been appointed a State Bank Examiner and are obliged to make your first examination alone. Explain in detail what you would do. 3. In making an audit, you find that a corporation has purchased one thousand dollars worth of its own stock for nine hundred dollars. The bookkeeper has made an entry debiting Treasury Stock for $900.00. If the entry is right, explain in detail the reason. If wrong, make the correcting entry and explain in detail why it was wrong and why yours is right. 4. In an equal partnership with three partners, one was unable to meet his share of the investment with cash and gave his note drawing interest for part. When he paid the interest, the book- keeper credited each of the other partners for one-half of the same. He objected and the matter is referred to you at the time of audit. He claims it should have been credited to In- terest and Discount account and thus have been divided between all three. Write your decision and reasons therefor. 5. Write a five hundred word outline of the Income Tax Law or the recent Currency Bill. 6. What methods have your audits revealed by which manufac- turing concerns attempted to inflate profits? If you have not met any, explain how it could be done. 7. You are employed to make an audit by a stockholder who be- lieves the management of the corporation is piling up a large secret reserve with the view of buying up the stock of the minority holders. You are given free access to the books. Explain in detail what investigations you would make to deter- mine the truth or falsity of this belief. 8. You find that a group of accounts receivable has been assigned to secure a loan. Does that affect the value of any other cred- itor's claim in case of failure before the loan is paid? Should any reference to the fact be made in your report? How would you set up that fact in the Balance Sheet ? 62 MICHIGAN C. P. A. MANUAL 9. Outline an audit made by you this year, omitting name of con- cern but indicating its character. Write a report for the same indicating any condition in the office organization which you noticed which 'gave opportunity for fraud, with suggested remedy. 10. A manufacturing concern has been operating for a period of nine months but owing to' incomplete development of the plant, the production during that period was greatly below the capacity and the cost of production consequently abnormal. The directors are anxious to obtain a statement not only showing the result of operations for the nine months, but one which would be fairly indicative of what the results would have been had con- ditions been normal. Assuming that the actual time lost on account of the frequent stoppages amounted in the aggregate to four months would the auditor be justified in furnishing the latter statement as well as the former, and if so, how would you proceed to show the desired results from the following items : Mfg. Materials $39,865.69 Taxes and Interest $ 1,398-59 Freight 5,489.22 General Expenses 6,537.14 Productive wages 8,827.84 Sales 42,363.33 Non-Prod, labor 4,441.73 Finished goods at cost .... 7,346.45 Salaries 6,877.29 AUDITING Friday, June 26, 1914, from 8:00 A. M. to 12 :oo M. 1. Write an outline of the tax laws in Michigan. Indicate the dif- ferences in the reports asked for by the state and the nation as they relate to taxes. 2. In making an audit you find that a large quantity of goods were purchased prior to the last statement and hence included in the last inventory at cost price. A change in the tariff has increased their value. The portion which has been sold since the change was sold at prices which represented an increase of $10,000.00. In the inventory just taken the goods still on hand are inven- toried at present cost value which is $10,000.00 more than the original amount. What would you do about it, if anything? MICH 1C,. l\ C. P. ./. MANUAL 63 3. ( hitline an audit made this year giving all the details as to pro- cedure, indicating the character of the business but not giving the name of the concern. 4. The proprietor of a mercantile store asked you to prepare a set of blanks to be used by them for checking all of their delivery wagons, including the returned goods which the drivers col- lected. He' wants to be able to tracs every package. Outline such a set. 5. Name the different kinds of persons who would have an interest in audit reports prepared for a corporation, indicate what the interest is, and show the responsibility of the auditor to each class. 6. A concern has an authorized issue of bonds to the amount of $100,000.00. $40,000.00 are sold at par, $10,000.00 are sold at ten per cent premium, $30,000.00 are put up as collateral to a $25,000.00 loan at the bank, $20,000.00 are on hand. Prepare a balance sheet showing the above transactions, supplying the other needed accounts. 7. A and B are partners sharing losses and gains equally ; A in- vested $3,000, P> invested $4,000. They are -ready to wind up the business. The firm owes $5,000, of which $1,000 is due A and $500 is due B. They have $7,000 in cash. Prepare the accounts showing the closing. 8. Write a formal report for an audit supposed to have been made for a house in which you found a bad cost system. Indicate the errors and how they should be corrected. 9. A man invests $2,000 in 3% stock at 75, and $4,750 in 4% stock at 95. He keeps them both five years and sells the first at 70 and the second at 98. What rate of interest has he receive:! on his investment and how has his capital account changed? Pre- sent the work for same. 10. Name conditions under which expenditures from capital may be permitted. 1 low would you verify securities, inventories, re- serves for bad debts? 64 MICHIGAN C. P. A. MANUAL AUDITING Thursday, December 24, 1914, from i :oo P. M. to 5 :oo P. M. 1. A concern has established a sinking fund for the retirement of a mortgage. An investment has been made in bonds the present market value of which is below cost. Would you inventory them at market value or at book value? Why? 2. A Mutual Insurance Company began business by the Directors signing a Guaranty Agreement of $100,000. They did not put up any securities but only lent their names to the agreement. The agreement specified that they should be paid 6 per cent interest for the use of their names, in accordance with the amounts subscribed. Would you pass a voucher for this interest without . comment ? Give reasons for answer. 3. You begin an audit of books January I4th for the period ending December 3ist previous. Explain in detail how you would verify the cash balance of that date. 4. Explain some fraudulent methods you have discovered in an audit and indicate changes in bookkeeping you would advise to prevent repetition. If you have never found any, name those for which you usually look and the lines of approach you take. 5. Outline an audit made this year, indicating the character of the business, but not its name. Name books and special forms used, explain use and in written report indicate any changes needed to secure a saving in time spent in bookkeeping. 6. Explain in full your method of arriving at a correct allowance for bad debts. 7. How would you determine whether expenditures in a manufac- turing concern were in the nature of maintenance and repairs or constituted an actual betterment? By illustrations indicate how they would be treated in the Balance Sheet and in the Loss and Gain Statement under each division. 8. How can you determine whether all liabilities have been entered in the books ? 9. A corporation has a controlling account in the general ledger for accounts receivable. The balance of the controlling account is $80,000. The debit balances of the individual accounts total MICHIGAN C. P. A. MANUAL 65 $100,000 and the credit balances total $20,000. Is a statement correct which uses the controlling account balance as an asset? If not, what would you do? Give reasons. 10. In a large country store containing several departments, produce is purchased by the grocery department and paid for with orders on the other departments. How would they be treated in deter- mining the profit and loss of the several departments ? AUDITING Saturday, June 19, 1915, from i :oo P. M. to 5:00 P. M. 1. In auditing the accounts of an executor what points should be especially examined? 2. You are to prepare a consolidated balance sheet for a holding company and two subsidiary companies in which the entire stock of one company has been acquired below par, and the entire stock of the other company at a premium. How would you handle such premium and discount in your balance sheet? Use figures for the purpose of illustration. 3. (a) How would you prove the accuracy of a Bills Payable account and any contingent liability on Bills Receivable discounted ? (bj How would you determine whether all of the debts of a concern are accounted for ? 4. Outline an audit made by you this year, indicating the character of business, system of books used and method of procedure in making the audit. 5. What points in an audit are of special interest as regards a cor- poration with preferred and common stock? Does it make any difference whether the preferred stock is cumulative or non- cumulative? 6. If employed by the officers of a corporation to make an audit would you make any difference in your plans and in your report if you knew whether 'the audit was to be presented to a pro- spective customer of the stock, to a prospective purchaser of bonds, to the bank as a basis for the purpose of securing a loan, or to the stockholders at their regular annual meeting. If so, state the differences. 66 MICHIGAN C. P. A, MANUAL 7. The State Commission is about to determine whether the Tele- phone Company is entitled to an increased rate for service ren- dered. You have been employed to make an examination of the books of the company on behalf of the Commission. What information would you endeavor to secure and present to them? 8. A manufacturing company issued $200 ,000 worth of bonds. One- half of them were sold at 90 and the proceeds placed in the build- ing fund. One-half were transferred to a construction company at par, the construction company to sell them at whatever price they could get, but presumably they would yield 90. They issued $300,000 worth of preferred stock, and $500,000 worth of common stock. The preferred stock sold at 85, and one share of the common stock was given with every share of preferred stock. The balance of the stock was sold at 50. Make the entries. 9. Is depreciation an element in the cost of manufacturing? Give arguments for and against if there are any on both sides of the question. Use fictitious entries for all propositions stated. 10. You have been employed by a large advertiser to determine the validity of the circulation claims of a magazine, and have been given access to the books kept by the owners of the magazine. Explain your method of attack. COMMERCIAL LAW MICHIGAN C. P. A. MANUAL 69 MICHIGAN STATE BOARD OF ACCOUNTANCY EXAMINATION for the degree of CERTIFIED PUBLIC ACCOUNTANT Detroit, July 27-28, 1906 COMMERCIAL LAW Friday, July 27, 1906, from 8:00 A. M. to 12 :oo M. 75 credits necessary to pass, out of a possible 100 credits. Each complete answer will receive 10 credits. Do not repeat questions on examination papers but write answers only, designating the questions by number. The intelligence indicated by answers will be considered in marking the applicants, as well as the technical accuracy of such answers. 1. What is a contract? (a) Can a contract ever foe implied? (b) Can a valid verbal contract be made where the consideration, if any, is merely one promise for another? 2. What is the effect of an endorsement, "without recourse," on a promissory note? (a) Is the endorser of a promissory note relieved from liability where the holder has failed to notify him of the time it became due and the default of payment by the maker ? 3. What is a corporation? (a) How does it differ from a partner- ship? (b) How does it differ from a stock company? 4. What is the meaning of the word "Stock" in reference to a cor- poration? (a) What does it represent? (b) How is it trans- ferred? (c) What rights have stockholders in and to the cor- porate property ? 5. What is a receiver? (a) W T hat is his first duty on taking posses- sion of property or trust funds committed to his care? 7 o MICHIGAN C. P. A. MANUAL 6. What is a trustee in bankruptcy? (a) How appointed and what are his duties ? 7. How much must a debtor owe to enable his creditors to force him into bankruptcy? (a) Is it necessary that he should have committed an act of bankruptcy? (b) State briefly what is meant by acts of bankruptcy, (c) What is meant by a compo- sition with creditors, and the effect thereof? 8. What are some of the principal features of the Statute of Frauds ? 9. What is your understanding of the statute of limitations? TO. A general agent of a corporation, for the accommodation of a personal friend endorsed his friend's note, as general agent of the corporation, before it was endorsed by the payee. Is the corporation liable for the payment of the note? (a) Give reason. COMMERCIAL LAW Saturday, December 22, 1906, from 8:00 A. M. to 12:00 M. 1. Give the requisites of a valid contract. 2. What is the difference between: A. An executory and an executed contract? B. An express and an implied contract? C. A void and a voidable contract? 3. Define a corporation. A. How are corporations created? B. By w r hat are their powers determined? C. How do they act and how may they be dissolved ? D. May the directors convey the property of the corpora- tion to themselves? 4. Has Michigan a negotiable instruments law ? A. What is the purpose of such a law ? 5. Give the essential requisites of a negotiable instrument. A. What words make a note negotiable ? 6. Under what circumstances would a purchaser of a negotiable instrument acquire greater rights under it than the vendor had? 7. Who is an accommodation party? MICHIGAN C. P. .1. MANUAL yi 8. Who may become bankrupt? A. What is the difference between I'olitntarv'and inrolun- tur\ bankrupts? 15. May a corporation become a voluntary bankrupt? C. May a partnership become a voluntary bankrupt? <;. What courts have jurisdiction over bankruptcy cases? 10. To what extent can the acts of one partner bind the other partner? A. How may partnerships be dissolved? COMMERCIAL LAW Saturday, November 2, 1907, from 8:00 A. M. to 12:00 M. 1. What are the requirements of a negotiable instrument? 2. A. When is a negotiable instrument payable on demand? I). When payable to order? C. When payable to bearer? 3. A. 1 low are negotiable instruments negotiated? B. What is notice of dishonor? 4. What are assignments for benefit of creditors? A. When are they void? B. What is the effect of assignment? C. What should an inventory of assignment contain? D. Are there any preferred creditors in a general assign- ment ? E. What is the difference between an assignment for bene- fit of creditors and a composition of creditors? 5. What are the essentials of a valid contract? A. Give example of an express contract. B. Give example of an implied contract. C. W T hat is the difference between a void and a voidable contract and illustrate? 6. A. Has Michigan a negotiable instruments law? I). W r hat are the advantages of a uniform negotiable instru- ments law in the various states? 7 2 MICHIGAN C. P. A. MANUAL 7. What are the limitations of actions : A. On an account stated? B. On a promissory note? C. On a judgment in Justice Court? D. On a judgment in Circuit Court? 8. A. In how many ways may a person become a bankrupt? B. A corporation ? C. Who has charge of the property of a bankrupt, and what are their duties? 9. What is a corporation? A. How are certificates of stock of a corporation trans- ferred? B. What action, if any, is necessary to transfer real estate of a corporation? 10. A. Give your understanding of what is known as the Statute of Frauds. B. How may merchandise in bulk be sold and transferred? COMMERCIAL LAW Saturday, June 27, 1908, from 8:30 A. M. to 12:30 P. M. 1. Define a contract. (b) Classify contracts as to grade. (c) What is a condition precedent in the law of contracts? (d) What is a condition subsequent? (e) What is the advantage of a formal contract? 2. Give a brief account of the law merchant, with reference as to what it is and a brief history. 3. State the distinction between business paper and accommodation paper. (b) When does commercial paper obtain legal inception? 4. What is a contract of indorsement? ,'fo) Name and give examples of the different kinds of in- dorsement. 5. What is the liability of each party to a certified check? Give reasons for your answer. (b) What is the effect of an alteration of a negotiable in- strument ? MICHIGAN C. P. A. MANUAL 73 6. How is a corporation created in Michigan ? (b) What must the articles of association set forth? (c) Who must sign and acknowledge the articles? (d) What portion of capital stock must be paid in cash on the day of executing and filing the articles? (e) How much of the authorized capital stock must be paid in cash? 7. How may a corporation be dissolved? (b) What will effect the forfeiture of a corporation char- ter? 8. Define agency. (b) Name the classes of agents. (c) Does a note made payable at the Home Savings Bank make the bank the agent of the owner ? (d) Name the requisites of agency. 9. Define a partnership. (b) What is the difference between an ordinary partner nership and a limited partnership? (c) Tell what you know about a limited partnership. (d) In what ways may a partnership be formed? (e) In ordinary partnerships to what extent may one part- ner bind the firm : (1) As to making sales? (2) As to incurring debts? 10. What is the object of a bankrupt law? (b) What courts have jurisdiction in bankruptcy cases and why? (c) In what way may a corporation become bankrupt? COMMERCIAL LAW Saturday, July 24, 1909, from 8:00 A. M. to 12 M. i. (a) What are the advantages of bankruptcy laws? (b) What are the exceptions to the rule that on the bankruptcy of a firm, and of an individual member of that firm, the joint and separate creditors cannot prove in competition with one another? 74 .MICHIGAN C. P. A. MANUAL 2. (a) Has the master of a ship the power to bind the owner when he signs a Bill of Lading and the goods are not yet on board? Give reason for your answer. (b) What is the difference between "registry" and "enroll- ment" in the law of shipping? 3. (a) Name and define the three (3) most important forms of guaranty, (b) Is a guaranty negotiable? State reason for answer. 4. (a) In what proportion to the actual paid up capital of a Mich- igan corporation may preferred stock be issued ? (b) What must be expressed on the face of preferred stock certificates as regards their redemption, etc. ? (c) When cumulative dividends are permitted, what is the maximum rate per cent, per annum ? (d) Does the preferred stock vote the same as the common stock ? (e) Under what conditions would preferred stock have equal rights with the common stock in the control of a corpora- tion? 5. In what three (3) ways may an employee seek redress for an employer's improper breach of contract for a fixed salary pay- able at regular intervals? 6. (a) Distinguish the difference between an open and stated account. (b) To what extent is an account stated conclusive? (c) Does the mere rendering of an account make it an account stated? (d) On what grounds may an account stated be opened? 7. (a) What is a contract? (b) How is a contract made? (c) What are some kinds of contracts that must be under seal? (d) Which contracts if made on Sunday are void, and which are not void? (e) Give examples of contracts which are illegal at common law. (f) Draw up a contract in legal form between a Company and a Branch House Manager, covering the period of em- ployment, salary, the various duties, and other terms, etc., in accordance with the following information : Salary $5,000.00 per annum, payable semi-monthly, the Company agreeing to allow the Manager a one per cent, commission MICHIGAN C. P. A. MANUAL 75 as additional compensation at the end of the year on all net business handled through the Branch in excess of $500,- ooo.oo. Further, if the expense of joint business at the Branch shall be less than 10% of the gross sales, then the Manager is to receive one-third of such saving in the ex- pense of operating. This agreement may be terminated at any time upon written notice being properly served. This is not to be an agency arrangement. An arbitration clause in case of a dispute in settlement, and any other provisions that you may deem necessary to fully protect both the Com- pany's and Manager's interests should be included. 8. (a) What is a Patent? (b) What is a Copyright? (c) What is a Trade Mark? (d) How are they each obtained ? (e) What is necessary in their assignment? (f) Were "trade-marks" known to the common law? (g) How do they differ from Patents and Copyrights in this respect? (h) How may a Patent-right be lost? (i) What is a "disclaimer" and a "caveat"? 9. (a) What is meant ;by the "doctrine of contribution"? (b) Explain the doctrine of exoneration? 10. (a) How is a partnership formed? (b) Who is a nominal, a secret, a dormant, or an ostensible partner? (c) Can the firm of A & B sue the firm of A & C, there having been business dealings between the two firms? (d) How may a partnership be terminated? COMMERCIAL LAW Friday, June 24, 1910, from 8:30 A. M. to 12:30 P. M. i. (a) A company hires a number of men, each one separately, by the week, at a certain amount of wages per day. It is the rule to make up the pay-roll and pay every Saturday. Now it happens frequently that one or more of the men quit work before the end of the week or in the middle of the day and demand their pay then and there. To avoid 7 6 MICHIGAN C. P. A. MANUAL greater trouble the company has acceded to these requests greatly to the disturbance of the routine of the business. Is the company obliged to pay these men whenever it suits them to leave, or may payment be put off till pay day? Explain fully. (b) An employee is hired for a term of three months at a sal- ary payable monthly. No new contract is made at the end of that time, but the employee continues in the service as before. This has gone on for nearly a month. The em- ployer says he is no longer in need of the services of the employee. What are the latter's rights ? (c) In the cash drawer of a corporation you find a week's wages of one of the employees with the notation on the envelope "Garnisheed." (1) To whom does this money belong? (2) Explain what this notation "garnisheed" means. (3) What action does the corporation take in the mat- ter of this garnishee? (4) To whom does the "garnishee fee" belong? 2. (a) What is meant by the phrase "Commercial Paper?" (b) What is meant by the phrase "Negotiable Paper?" (c) What is meant by "Accommodation Paper?" (d) What is the legal rate of interest in Michigan? (e) Paper falling due on Saturday is payable when? (f ) Is paper money Commercial Paper? (g) What advantages do negotiable instruments have over money for commercial uses? 3. (a) If a man stops payment of a check at the bank, and the bank overlooks the fact and pays said check, who loses it? (b) What is an "account stated ?" (c) Is a writing up of a depositor's bank pass book an account stated?. (d) On June 15, about 2 P. M., I deposited with a bank and received credit therefor a check on a bank in Massachusetts. On the following day (i6th) my bank sent the check to its correspondent who in turn forwarded it to Massachusetts, where it was not presented until the ipth and was then protested, the drawer having failed and assigned on the i8th. Have I not a case against my bank for lack of due diligence in holding check back one day? Explain. MICHIGAN C. P. A. MANUAL 77 4. (a) A is indebted to B for three bills, and tenders a check for a certain amount in payment of all the bills. There is a difference in their respective accounts. B accepts this check and claims the difference from A, whereupon A claims that the check was made payable to B in full settlement of all the bills and calls attention to the fact that his check read that way. Does this relieve A of the difference? (b) If a bank accepts as collateral on a loan, indorsed com- mercial paper maturing before the loan, there being no agreement as to the collection of the collateral notes, what are the bank's rights, and what is its duty as to presentation of the collateral and its protest, if not paid? 5. (a) A customer buys a bill of goods from A. When the bill becomes due, he pays by check, the same being made out to A's order. A happens to be out of town at the time and his bookkeeper steals the check, forges A's endorsement and also endorses it, and goes to a friend and has it cashed. This 'man gives it in payment of merchandise to another house, who in turn deposits it in the bank. Who is liable for the amount paid? (b) Can a note secured by collaterals, payable on a specified day, be paid sooner without the consent of the payee? 6. (a) Differentiate between "good" and 'Valuable'' consideration. Need the consideration for a contract be both good and valuable ? (b) What is the purpose of the bankruptcy law? (c) Has each state a bankruptcy law? (d) Flow many kinds of bankruptcy are there? (e) May a corporation be a voluntary bankrupt? (f) Does a discharge operate to release the bankrupt from all of his debts? 7. (a) In what ways may a partnership be dissolved? (b) Has a president, vice-president and secretary-treasurer, three officers holding two-thirds of the stock of a corpora- tion doing a business of $70,000 per annum, the right to vote themselves $2,400 per year each as salary, when .the secretary-treasurer only calls at the factory every two weeks, to sign checks, and the president and vice-president only meet twice a year, and the company pays no dividends to the stockholders? Explain. 7 8 MICHIGAN C. P. A. MANUAL 8. (a) A sells some railway stock to B, who fails to have the certificate, which has been signed in blank on the back, re- placed by a new one. A dividend is declared to stockhold- ers of record, and the check is sent to A. Who is legally- entitled to the dividend? Explain. 9. (a) A carries a stock of merchandise of the cash value of $10,000.00, and insures it under the 80 per cent co-insur- ance clause. A rider attached to the policy states : "In case of loss the Company pays that proportion which the amount of this policy bears to 80 per cent of the cash value of property destroyed." (b) If the loss is total, what does the Company pay? (c) If it is a partial loss only, what does the Company pay according to the contract? Explain fully. 10. (a) What is your opinion as to whether a claim can be made on the transportation company for the loss of goods evi- dently stolen from the case while in their possession? Here are the facts : "A" shipped a clock company in New York City a case of clocks by a freight line. They received it in apparently good order and receipted for it accordingly. On checking off the contents several clocks were missing. The box had evidently been opened, the clocks abstracted, and closed up again. The railroad having taken receipt as "in good order," disclaim any responsibility. Has "A" any redress? (b) "A" contracts with "B" for the building of a house. "B" promises to complete it in one year. If completed in one year and a day can "A" claim breach of contract? Explain. COMMERCIAL LAW Saturday, June 29th, 1912, from 8:30 A. M. to 12:30 P. M. Answer ten ( 10) complete questions but no more. Answers in excess of the number required will not be considered. 1. (a) Define commercial law. (b) Define statutes. (c) What are the general divisions of law? 2. (a) What is meant by the Statute of Frauds? (b) Does the Statute serve any useful purpose at the pres- ent time ? MICHIGAN C. P. A. MANUAL 79 3. (a) Give an example of a business transaction which consti- tutes a contract ? (b) What are the elements of a contract? 4. (a) Can contracts be made by letter and telegraph? (b) Does a revocation by wire or letter have to be received to be effective? (c) Does an acceptance by wire or letter have to be received by the offerer to constitute a valid acceptance ? 5. (a) What makes a contract illegal? (b) Give an example of an illegal contract. (c) What is meant by a conflict of law? 6. (a) Define warranty. (b) Define bankruptcy. (c) Enumerate acts of bankruptcy. (d) Define agency, (e) Explain termination of agency by operation of law. 7. (a) In Michigan what is the legal rate of interest? (b) What is the highest interest rate that may be agreed upon in Michigan? 8. (a) Define partnership. (b) Define survivorship. (c) What is a corporation? (d) What is the franchise of a corporation? (e) Classify corporations. 9. (a) Is a consolidated corporation liable for the debts of its component corporations ? (b) Define and give an example of watered stock. (c) May a stockholder force the corporation to pay a dividend? 10. (a) What is a negotiable instrument? (b) What are Registered bonds? (c) What are coupon bonds ? (d) Distinguish the difference between foreign bills of ex- change and inland bills of exchange. (e) What are the two essential features of a bill of lading? 11. (a) What is the purpose of a trade-mark? (b) What length of time is required to obtain a valid trade- mark ? (c) Who may register trade-marks? (d) When may they be registered? 12. (a) Define a will. (b) What are the common statutory requirements of a will? 8o MICHIGAN C. P. A. MANUAL 13. (a) Classify Federal Courts. (b) Does the United States Circuit Court of Appeals have any original jurisdiction? (c) By what authority are state courts established? 14. In a certain stock corporation only 50% of the subscribed capi- tal has been called. Mr. Van Oss has paid all the installments called and has loaned to the company an additional sum, for which he has taken its promissory note, and has transferred the note to Mr. Lyon, who demands payment. May the company call further installments on Mr. Van Oss' stock, and offset the amount so called against the promissory note held by Mr. Lyon ? Explain in detail your answer. 15. (a) Explain the distinction between surcharging an account and falsifying an account. (b) What is the purpose of the Corporation Tax Law of 1909? (c) What is required of corporations'by its various provisions? COMMERCIAL LAW Thursday, June 12, 1913, from 8:00 A. M. to 12:00 M. 1. Give the essential differences between a private corporation and a co-partnership. 2. Wherein does an ordinary co-partnership differ from a partner- ship association limited? 3. Can a married woman become the business partner of her hus- band or of any other person under the laws of Michigan, so as to render her liable for partnership debts? 4. If a promissory note is given by a husband and wife in pay- ment of property purchased by them for their joint use, can the wife be made individually liable on the note? 5. If you were auditing the books of a private corporation and you found that the treasurer's bond was signed by a marriel woman as one of the sureties and that she had qualified under oath on the bond as owning the requisite amount of property in her own name, what reference or recommendation, if any, would you make in your report in reference to this bond? 6. What are the essential differences between a municipal corpora- tion and a public utility corporation? MICHIGAN C. P. A. MANUAL 81 7. In transferring a stock of merchandise in Michigan by bill of sale or otherwise, name some of the provisions of the so-called "Bulk Sales Law" which must be complied with. 8. Is it necessary to protest a promissory note made in Michigan and payable in Michigan in order to hold the endorsers liable? 9. If a promissory note in Michigan specifies that it shall draw interest but does not specify the rate, what rate of interest should be computed on the note? 10. Compute the interest due on each of the following notes at maturity, assuming that no interest has been paid on either: 1. $1000.00 Detroit, Michigan, June 12, 1913. Two years after date I promise to pay to the order of Richard Roe One Thousand Dollars with interest at the rate of six per cent, per annum. JOHN DOE. 2. $1.000.00 Detroit, Michigan, June 12, 1913. Two years after date I promise to pay to the order of Richard Roe One Thousand Dollars with interest at the rate of six per cent per annum, payable annually. JOHN DOE. u. If a promissory note is given on July 4th in payment of goods purchased and delivered on the same day, would the fact that the transaction occurred on a legal holiday affect the legality of the note? 12. If a promissory note is signed on the ist day of the week in payment of goods purchased and delivered on Sunday, will the fact that the transaction occurred on the Sabbath affect the legality of the note? 13. If a contract is usurious on its face will the debtor be relieved from the obligation to pay the principal and interest? State what he will be obliged to pay, if anything. 14. If a forged promissory note gets into the hands of a bona fide purchaser for value and without notice, can he enforce pay- ment against the party whose name is forged? 15. What are the two principal reasons why deeds, mortgages and other instruments affecting the title to real estate should be recorded with the Register of Deeds? 1 6. If you were auditing the books of a mercantile company and you found that they were extending credit to their customers and taking security in the form of a bill of sale on personal property, what recommendation, if any, would you make in your report as to the validity and wisdom of this form of security, and what would you recommend as a substitute and why? 82 MICHIGAN C. P. A. MANUAL 17. John Doe gives Richard Roe the following in payment for goods sold and delivered, viz : $500.00 Detroit, Michigan, June 12. 1913. Sixty days after date I promise to pay to Richard Roe Five Hundred Dollars with Interest at 6% per annum. Value re- ceived. JO'HN DOE. Before maturity Roe sells the above instrument for value to John Smith. As evidence of the transfer Roe signs his name across the back of the paper 'Richard Roe." It is not paid at maturity. Can Smith recover against Richard Roe on his en- dorsement? If not, why not? 18. John Doe and Richard Roe have a mutual open account and at the end of their dealings they have a settlement and in such settlement it is found that Doe owes Roe $100.00 which he pays, taking a receipt in full. A week later later Roe finds that by mutual mistake an item of $50.00 in his favor was overlooked in the settlement. Can Roe after giving a receipt in full re- cover of Doe the $50.00 w 7 hich was overlooked by mutual mis- take? Give reasons. 19. Jones owes Smith $500.00 on open account for goods sold and delivered. He also owes Smith $1,000.00 for money borrowed, this latter debt being represented by a promissory note. The note lacks one day of being outlawed. Jones pays Smith $200.00 in cash on his debt and asks that it be applied on the open account. Can Smith ignore this request and apply the $200.00 on the note so as to save it from the statute of limita- tions? 20. Jones sells and delivers to Smith an automobile under a Written contract reserving title in Jones until the car is fully paid for. The sale is made in good faith but the contract is not filed nor recorded. Doe purchases the car of Smith for value in good faith and without notice of the title contract. Does Doe get any title as against Smith? If not, give reasons. 21. Can A make a binding agreement to purchase of B goods for $45.00 without one of the following: (a) Written agreement or memorandum signed, or (b) Part payment, or (c) Delivery in whole or in part. Would the rule be any different if the contract price was $50.00 or upwards? MICHIGAN C. P. A. MANUAL 83. 22. (jive an illustration of a debt or claim that is not dischargeable in bankruptcy. 23. If a chattel mortgage is given by a debtor while he is insolvent as a security for a past indebtedness and 100 days after giving the mortgage he is adjudicated bankrupt, is the mortgage good as to the debtor's exemption of $250.00? Is the mortgage good against the remaining creditors? 24. What legal effect does the death of a co-partner have on the life of the co-partnership? 25. In auditing the books of a corporation you obtained conclusive evidence that an officer of the company had criminally em- bezzled $2000.00 of the funds of that company. When con- fronted with the evidence of his guilt the defaulter promised to you and your client that he would repay the $2000.00 forth- with if you promised him immunity from criminal prosecution. Assuming that the defaulter is uncollectible, would you recom- mend that your client promise him immunity in order to recover the $2000.00 ? Give reasons. COMMERCIAL LAW Saturday, December 27, 1913, from 8 130 A. M. to 12 130 P. M. Under Act 165 of 1911, Bills of Lading issued by Common Car- riers must be uniform. Under this law : (a) When is a Bill of Lading negotiable? (b) When is a Bill of Lading non-negotiable or what is known as a straight Bill of Lading? (c) This law requires every Bill of Lading to contain seven essential facts. Name as many of them as you can. Under Act 303 of 1909, provision is made for uniform ware- house receipts. Under this law : (a) What are some of the facts which must.be embodied in every warehouse receipt? (b) Give an illustration of a non-negotiable warehouse receipt. (c) Give an illustration of a negotiable warehouse receipt. (d) When a negotiable warehouse receipt is transferred, what effect does it have upon the title of the property represented by the warehouse receipt? 84 MICHIGAN C. P. A. MANUAL 3. Under Act 100 of 1913, the law of sales of goods is made uni- form. Under this law : (a) What contracts for the sale of goods are valid without any writing and without any part payment and without delivery ? (b) What contracts must be evidenced either by writing or by part payment or by delivery in order to render them valid ? 4. Jones is assessed Five Hundred Dollars on personal property owned by him which taxes are unpaid. He also obtained credit at a bank by falsely representing the amount of property he owned and he now owes the bank One Thousand Dollars, which was loaned to him, relying on such representation. He also appropriated to his own use, money which he held as guardian of a minor. Subsequently he filed his petition in bankruptcy and in due course of time obtained his discharge. Will his dis- charge operate as a bar or discharge of any of the above debts or obligations? In other words, can the above obligations be enforced against him after he obtains his discharge, if he sub- sequently acquires property? 5. Under Act 223 of 1905, the sale or transfer of stocks of goods, merchandise and fixtures in bulk is regulated. Under this law : (a) State some of the things that must be done to make a sale of a stock of merchandise in bulk legal in a case where the vendor has debts and the creditors object. (b) What is the effect of a sale of a stock of goods without complying with this law? 6. Under the Income Tax Law recently enacted by Congress : (a) What tax must an unmarried man pay the Federal Gov- ernment on a net income of Forty-five Hundred Dollars per year? (b) What tax must a married man pay on a net income of Five Thousand Dollars per year? (c) Does the Income Tax Law apply to corporations as well as to individuals? (d) Is a partnership as such, required to pay an income tax under this law? 7. A married woman in Michigan signs articles of co-partnership ; the other two co-partners each contribute a like amount but they have no property except what they have contributed to the business ; the married woman has other property in her own name outside of the business ; the co-partnership becomes in- solvent. On the above facts: MICHIGAN C. P. A. MANUAL 85 (a) After the assets of the firm have been exhausted in paying partnership debts, can the creditors hold the married wo- man liable for the residue of debts of the firm? (b) Can a married woman legally become the business co- partner of her husband or of any other person in Michigan? (c) What recommendation, if any, would you make in your report if you were auditing the books of a co-partnership, where one of the members of the firm was a married woman ? 8. If you were auditing the books of any mercantile institution and you found that they were extending credit to customers on notes signed by the purchaser and endorsed by married women, what recommendation, if any, would you make in your report, in regard to the validity of such endorsements? 9. (a) What is the legal rate of interest in Michigan, meaning what rate of interest would be computed upon an instru- ment which called for interest but did not specify the rate? (b) What is the contract rate of interest in Michigan, meaning what is the maximum rate that can be provided for in a contract without being usurious ? 10. Jones gives Doe his note for One Thousand Dollars, payable in one year, with interest at the rate of nine per cent per annum. How much can Doe collect at maturity? 11. Jones gives Doe his note for One Thousand Dollars, payable in two years with interest at the rate of six per cent per annum. He also gives Doe his note for One Thousand Dollars, payable in two years with interest at the rate of six per cent per annum, payable annually. Assuming no interest is paid on either of the notes until maturity : (a) How much interest will be due on the first note at maturity? (b) How much interest will be due on the second note at maturity ? 12. Under Act 101 of 1907, it was made unlawful for any person or persons to carry on business in this state under an assumed or fictitious name without first filing with the County Clerk a certificate, setting forth certain facts. Under this law : (a) What are some of the facts that must be set forth in this certificate ? (b) What is the purpose of this law? (c) What would be the effect in case a person or firm carried on business under an assumed or fictitious name without complying with the law ? .86 MICHIGAN C. P. A. MANUAL (d) If you were auditing the books of an individual or co- partnership which had not complied with this law, what recommendation, 'if any, would you make in your report ? 13. Under Act 164 of 1913, all co-partnerships doing business in Michigan, must file a certificate with the County Clerk, setting forth certain information. Under this law : (a) What are some of the facts that must be set forth in the certificate? (b) What is the purpose of this law? (c) What would be the effect of a co-partnership doing busi- ness in Michigan without complying with the law ? 14. Under Act 265 of 1905, the law relating to negotiable instru- ments is made uniform in Michigan. (a) What is a negotiable instrument? (b) What is the meaning and effect of the words "Without Recourse" in connection with an endorsement upon a prom- issory note ? .15. Under the Negotiable Instrument Law: (a) If there is a conflict between the written and printed pro- visions in a note, which one controls? (b) Where there is a discrepancy between the words and fig- ures in a note, which one controls? (c) Where a note provides that it is payable out of a certain and particular fund, is it negotiable? 16. If you were auditing the books of a mercantile institution and you found that they were taking notes which provided that payment was to be made out of a particular fund, what recom- mendation, if any, would you make in your report? 17. Under the Negotiable Instrument Law: (a) If a note is made and delivered on Sunday, is it valid? Give reasons, (ib) If it is made and delivered on a legal holiday, is it valid? Give reasons. (c) Are the words, "Value Received," legally necessary in a promissory note? 1 8. Under the Negotiable Instrument Law, does ante-dating or post-dating invalidate an instrument : (a) Where it is done for an innocent purpose? Give reasons. (b) Where it is done for a fraudulent purpose? Give reasons. MICHIGAN C. P. A. MANUAL 87 n;. I'ndcr the Xegotiable Instrument Law: (a) Under what circumstances may an agent legally sign his principal's name to a note and make it binding? (b) Is it necessary that the agent have written authority? 20. In auditing the books of a client, you obtained convincing evidence that an employee of the company had criminally ap- propriated to his own use some of the funds of the company and when he was apprised that the evidence of his guilt was in the possession of you and his employer, he promised that he would repay the shortage with interest if you and his em- ployer would promise him immunity from criminal prosecu- tion. Assuming that the defaulter is uncollectable, would you advise your client to promise him immunity in order to recover the money ? Give your reasons. COMMERCIAL LAW Saturday, June 27, 1914, from 8:00 A. M. to 12:00 M. 1. (a) What is the difference between an express contract and an implied contract? (b) What persons are not capable of contracting? 2. (a) To what extent may a married woman make valid contracts in Michigan ? (b) Is" the validity of a contract governed by the law of the state where the contract is made, or the law of the state where it is to be enforced? 3. What are the rules for the appropriation of payments made by a person who owes several debts to the same creditor ? 4. (a ) What is the purpose of the Bulk Sales Law, being Act 223 of 1905 regulating the transfer of stocks of goods, mer- chandise and fixtures in bulk? (b) What remedy has the creditor where the debtor transfers his stock in bulk without complying with the law? (c) Can the purchaser of a stock claim immunity on the ground that he bought the goods in good faith for value and did not know of the existence of the Bulk Sales Law ? 5. Where personal property of the value of $100.00 or upwards is sold, what are the three elements specified in the Statute of Frauds, the doing of any of which will make the sale valid? 88 MICHIGAN C. P. A. MANUAL 6. (a) What is meant by negotiability? (b) What is the difference between foreign and inland bills of exchange? (c) Do inland bills of exchange have to be protested in Mich- igan? 7. Are the words "Value Received" essential to the validity of a note or bill? 8. (a) Define an endorsement in blank. (b) Define an endorsement in full. (c) Define an endorsement without recourse. (d) Define a restrictive endorsement. 9. What is usury and what is its effect upon contracts in Michigan ? 10. (a) Is the individual property of a co-partner 'liable for co- partnership debts? (b) Can a husband and wife become partners in Michigan? (c) Can a co-partnership hold real estate in its firm name? 11. (a) Name some of the provisions which should be contained in all articles of co-partnership, (b) What is meant by the good will of a partnership? 12. (a) What is the legal status of a contract made on Sunday? (b) What is the legal status of a contract made on a legal holiday ? 13. What debts are not dischargeable in bankruptcy? 14. (a) In what way must a legal tender be made ? (b) What effect does it have upon the debt if not accepted? 15. (a) What real estate can a householder claim as exempt from execution in Michigan? (b) What personal property can he claim as exempt from exe- cution in Michigan? 16. (a) Under the Michigan Mortgage Tax Law (Act 91 of 1911) what tax would the mortgagee have to pay on a mortgage of $350.00? (b) Would the tax vary in the case of a mortgage maturing in six months and another of like amount maturing in five years? 17. (a) Where land is sold on land contract, to whom is the land assessed and who pays the taxes on the land ? (b) Who pays the taxes on the interest of the vendor in the contract? (c) Would the interest of "the vendor in such a land contract be subject to taxation under the Mortgage Tax Law or under the "advalorem svstem?" MICHIGAN C. P. A. MANUAL & 9 1 8. Explain the difference between an executor and an adminis- trator. 19. (a) What is the legal rate of interest in Michigan, meaning the rate of interest which would be computed upon an in- strument which called for interest but did not specify the rate? (b) What is the contract rate of interest in Michigan, meaning what is the maximum rate that can be provided for in a contract without being usurious ? 20. If you were auditing the books of a mercantile institution and you found that they were taking notes which provided that payment was to be made out of a particular fund, what recom- mendation, if any, would you make in your report? COMMERCIAL LAW Wednesday, December 23, 1914, from 1 130 P. M. to 5 130 P. M. 1. What are the duties of a city comptroller or city controller? 2. (a) Under the new Revenue Tax Law which became effective December I, 1914, name the different instruments upon which a revenue stamp must be affixed. (b) What is the effect of a failure to place a revenue stamp on a document which is subject to the tax? (c) Where a bank had a capital of $100,000.00, a surplus of $50,000.00 and undivided profits of $25,000.00,, what tax would it be required to pay under this law ? (d) What tax, if any, would be imposed under this law on a renewal note of $140.00? (e) A real estate mortgage is given to secure the payment of a note of $1000.00. What stamp tax, if any, is required on the note and mortgage? (f) What tax, if any, is imposed by this law on a deed of lands wherein the consideration is $90.00? (g) Who is primarily liable for the payment of the stamp tax, the man who issues the paper or the man to whom the paper or document is delivered? (h) When does this Revenue Tax Law expire by limitation? 3. (a) What are the essential differences between a stock plan insurance company and a mutual insurance company? 9 o MICHIGAN C. P. A. MANUAL (b) What are some of the arguments in favor of insuring in a stock plan or old line company ? (c) What are some of the arguments in favor of insuring in a mutual insurance company? (d) What are some of the objections or arguments against in- suring in a mutual insurance company? (e) What is the legal effect if the assured without the knowl- edge or consent of the insurer, places a mortgage upon the insured property? (f ) What is the legal effect if the insured, without the consent of the insurer, sells the property covered by the policy? (g) Under the Michigan standard form of fire insurance policy, what is the effect if insurance is written on a building- located on land not owned by the assured, where there is no endorsement on the policy indicating the want of owner- ship of the land? 4. (a) On January I, 1913, Doe gives Rowe his note for $1000.00 payable in one year with interest at the rate of 6% per annum. Neither principal nor interest are paid until January i, 1915. What amount is then due? (b) A note is given on January i, 1910, payable in throe years with interest at the rate of 6% per annum, payable annu- ally. Neither principal nor interest are paid until January i, 1915. Can you compute interest on the installment of interest maturing January i, 1914, until the note is paid? (c) What is the Michigan rule for partial payments? 5. (a) What is usury? (b) What is the legal rate of interest in Michigan? (c) What is the contract rate of interest in Michigan? (d) What is the effect in Michigan if the borrower contracts for a greater rate of interest than that allowed by law ? (e) If Doe loans Smith money on a real estate mortgage re- serving interest at the rate of 7% per annum and requires Smith to pay the mortgage tax, is this contract usurious ? 6. (a) A note contains a clause providing that upon default in pay- ment of any installment or interest the whole amount shall become due. Does this clause destroy the negotiability of the note under the Negotiable Instrument Law ? (b) Is a note payable one year after the death of John Jones, negotiable ? (c) Is a note payable one year after John Jones sells his farm, negotiable ? MICHIGAN C. P. A. MANUAL 91 (d) Are the words "value received" necessary in a promissory note? (e) Can a note legally be drawn up and delivered on December 1 8th and ante-dated December nth? (f ) Where the sum to be paid in a note is expressed in words and also in figures and there is a discrepancy between the two, which governs ? (g) Where the instrument provides for the payment of interest without specifying the date from which interest is to run, from what date do you compute interest? (h) Where there is a conflict between the written and the print- ed provisions of an instrument, which governs? 7. (a) Can Doe sign Rowe's name to a note in such wise as to render Rowe liable, providing the latter was not present? (b) Where John Jones signs a note "John Jones as Adminis- trator" is Jones personally liable on the note if he had au- thority to sign the note as administrator? Is he personally liable if he had no authority to sign as administrator? (c) Doe forges Rowe's name to a note; is Rowe liable on the note if it passed into the hands of a bona fide holder for value and without notice ? (d) Under what circumstances may a person become a holder in due course or bona fide holder of demand paper ? (e) Would a person be a bona fide holder of demand paper which he purchased three months after its issuance? (f) Where a party placed his name on the back of a note be- fore delivery to the payee, is he a joint maker or endorser? (g) Is presentment for payment, demand and notice of non- payment still necessary in Michigan in order to hold en- dorsers liable? (h) What method can a bank or other financial institution adopt so as to avoid the necessity of presentment for pay- ment, demand and notice of non-payment? ^8. (a) Where a note falls due on a legal holiday, Sunday or an election day, when must it be presented for payment ? (b) Where a note falls due on Saturday, when must it be pre- sented for payment ? (c) Are days of grace still allowed under the laws of Michigan? (d) Under what circumstances will an agreement between the maker and holder of a note to extend the time of payment not release the indorser? (e) Can the drawer of a check stop payment on it by notifica- tion to the bank after it has passed out of his hands? 9 2 MICHIGAN C. P. A. MANUAL (f) Wherein does a certified check differ from an ordinary one? (g) A gives his check payable to B on X bank. B sells the check to C and C takes it to the bank and has it certified. The bank fails before C cashes the check. Is A or B liable to C under those circumstances? 9. (a) To what extent can a married woman make valid contracts in Michigan? (b) Can a married woman endorse a note and make herself personally liable? (c) Is a married woman liable as surety on a bond? 10. (a) What are the two principal reasons why deeds, mortgages and other instruments affecting the title to real estate should be recorded with the register of deeds? (b) What is the principal reason why a chattel mortgage should be filed with the city, village or township clerk? 11. (a) What do you understand by the Statute of Frauds as ap- plied to the sale of personal property? (b) If A sells B a typewriter for $90.00 without any writing or part payment or delivery, but the agreement being other- wise complete, is the contract mutually binding ? 12. What debts are not dischargeable in bankruptcy? 13. (a) A and B associated themselves together in business under the name of the Detroit Mercantile Company, but failed to file the necessary certificate with the county clerk. What effect does this omission have upon the validity of con- tracts entered into by them? (b) Is it necessary at the present time for all co-partnerships to file certificates with the county clerk of the county where- in they are transacting business ? (c) What is the purpose of this law and what information must be contained in the certificate ? 14. (a) What is the legal status of a contract made on Sunday? (b) What is the legal status of a contract made on a legal holiday ? 15. (a) What are some of the reasons which prompted the passage of accountancy laws in the various states ? (b) In what way does the accountancy law tend to protect the public who have occasion to employ public accountants ? (c) In what way would the status of a certified public account- ant giving expert testimony upon the witness stand in a matter in which he was professionally engaged, differ from that of an accountant who was not certified ? MICHIGAN C. P. A. MANUAL 93 COMMERCIAL LAW Friday, June 18. 1915, from 8:00 A. M. to 12 M. 1. (a) What legal advantages has a certified public accountant over one who is not certified ? (b) What legal advantages, if any, would be possessed by a certified public accountant testifying as an expert, over one not so certified ? 2. (a) Give the legal reason why a married woman cannot be- come the business partner of her husband or of any other person under the laws of Michigan so as to render her liable for partnership debts . (b) Give the legal reason why a married woman cannot be held liable on a promissory note signed by her and her husband or signed by her and any other person, where the considera- tion for the note did not all pass to her. 3. (a) Would an unmarried woman be liable as surety on 'a bond, or as endorser on a promissory note in all cases where, under the same circumstances, a man would be liable? (b) Would a married woman be liable as surety on a bond, or endorser on a promissory note? 4. (a) Give some of the essential requirements of the so-called "Bulk Sales Law," relative to a sale or transfer of a stock of merchandise. (b) What was the purpose of this law? (c) What are the consequences to the purchaser of a stock of goods in case this law is not complied with? 5. (a) Under the Uniform Negotiable Instrument Law is it neces- sary to give an endorser notice of dishonor or non-payment of a note in order to hold him liable? (b) What would be the effect upon the endorser's liability in case such notice was not given? (c) If a note matured on Thursday, June I7th, and the endorser lived in another city, when should the notice of dishonor be mailed ? (d) If the note by its terms was payable Saturday, June iQth, and the endorser lived in another city, when should the notice of dishonor be mailed ? 94 MICHIGAN C. P. A. MANUAL (e) If the notice of dishonor was enclosed in a sealed envelope properly stamped and addressed, and at the proper time placed in a United States mail box but was lost by the mail carrier who collected the mail, would this constitute legal notice so as to hold the endorser liable? 6. (a) If a promissory note in Michigan specified that it shall draw interest but does not specify the rate, what rate of interest should be computed on the note ? (b) What is the maximum rate of interest which can be pro- vided for by contract in Michigan ? (c) In case a note or other instrument provides for usurious interest, what are the rights of the maker and payee and what amount, if anything, can the holder recover on the contract ? 7. (a) Is a note or contract signed on Sunday valid? Give reasons. (b) If a note is dated Sunday, June I3th, 1915, but was actu- ally signed and delivered and the entire agreement made on Monday, June I4th, is the note valid? (c) Is a note or other contract signed, dated and delivered on a legal holiday valid ? 8. (a) Can a person who purchases for value before maturity and without notice, a promissory note, enforce payment against a party whose name appears upon the note as maker but whose signature is a forgery? (b) Does the law require the holder of commercial paper to know at his peril that the signatures of the makers and endorsers are genuine? (c) Give your reasons why your answer to sub-division (b) should bs and is the law. 9. (a) If you were auditing the books of a company and you found that they were extending credit to their customers and taking security in the form of a bill of sale of personal property, what recommendation, if any, would you make in your report as to the validity and wisdom of this form of security, and what would you recommend as a substi- tute and why ? (b) Under the same circumstances, if you found they were taking as security a deed of real estate, what recommenda- tion, if any, would you make in your report as to the validity and wisdom of this form of security and what would you recommend as a substitute and why? MICHIGAN C. P. A. MANUAL 95 10. (a) Is the following instrument a negotiable promissory note? $1,000.00 Detroit, Mich., June 14, 1915. Ninety days after date I promise to pay to John Smith One Thousand Dollars with interest at seven per cent per an- num. Value received. RICHARD ROE. (b) If John Smith sells the above instrument in due course can the holder compel payment against Smith as endorser in case it is not paid by the principal? Give reasons. 11. (a) If a creditor accepts payment from a debtor giving a re- ceipt in full and later discovers that he overlooked an item which the debtor was owing him, can he still legally insist upon payment of the omitted item? (b) Under what circumstances can a receipt in full be con- tradicted? 12. (a) What do you understand by the Statute of Frauds as ap- plied to the sale of personal property in Michigan? (b) Under the Statute of Frauds in Michigan if Jones agreed to sell Smith a horse for $90.00, the agreement being oral and there being no part payment and no delivery, is the contract valid ? (c) Under the same conditions what would be the status of this contract if the purchase price was $110.00? 13. (a) What is the purpose of the Federal Bankruptcy Law? (b) Name some of the debts which are not dischargeable in bankruptcy ? 14. (a) What are the main differences between a corporation and a co-partnership? (b) What legal effect does the death of a co-partner have on the life of a co-partnership? 15. (a) Jones and Smith associate themselves together in business under the name of the Michigan Real Estate Company, but fail to file the necessary certificate with the county clerk ; what effect does this omission have upon the validity of contracts entered into by them? (b) Is it necessary at the present time for all co-partnerships to file certificates with the county clerk of the county where- in they are transacting business ? (c) What is the purpose of this law? 96 MICHIGAN C. P. A. MANUAL 16. (a) Under the Michigan Mortgage Tax Law what tax would the mortgagee be required to pay on a mortgage of $460.00? (b) Is this tax required to be paid annually, or, is it only re- quired to be paid once and at the time of the recording of the mortgage, regardless of how many years the mort- gage runs? 17. (a) What do you understand by the so-called "Blue Sky Law?" (b) What is the purpose of such laws? 18. (a) Name some of the instruments upon which a revenue stamp must be affixed under the Revenue Tax Law which became effective December i, 1914. (b) What tax, if any, would be imposed under this law on a renewal note of $250.00? (c) A chattel mortgage is given to secure the payment of a note of $1,500.00; what stamp tax, if any, is required on the note and mortgage ? 19. (a) Does the Revenue Tax Law which became effective Decem- ber i, 1914, supersede the Income Tax Law which was en- acted by Congress during the year 1913? (b) Under the Income Tax Law what must a corporation pay the Federal Government on a net income of $10,000.00 per year? (c) What tax must a married man pay on a net income of $5,000.00 per year? (d) What tax must an unmarried man pay on a net income of $5,000.00 per year? 20. (a) If you were auditing the books of a mercantile institution and you found that they were taking notes which provided that payment was to be made out of a particular fund, what recommendation, if any, would you make in your report? (b) If you were auditing the books of a company and you found an employee had embezzled funds of the company and he promised his employers to make restitution if he was not criminally prosecuted, would you recommend the acceptance of this promise? PRACTICAL ACCOUNTING MICHIGAN C. P. A. MANUAL 99 MICHIGAN STATE BOARD OF ACCOUNTANCY EXAMINATION for the degree of CERTIFIED PUBLIC ACCOUNTANT July 27-28, 1906 PRACTICAL ACCOUNTING Friday, July 27, 1906, from 1:30 P. M. to 6:00 P. M. 75 credits necessary to pass, out of a possible 100 credits. Each complete answer will receive 16 2-3 credits. Do not repeat questions on examination papers but write answers only, designating the questions by number. The intelligence indicated by answers will be considered in marking the applicants, as well as the technical accuracy of such answers. I. 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 purchasers 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 preferred stock donate to the Treasury $50,000.00 of their common stock. The common stock is sold at 5oc on the dollar. Provide journal entries covering the above. 100 MICHIGAN C. P. A. MANUAL 2. A Gas Company shows the following Trial Balance at the end of its first year of business : Manufacturing labor . . .$ 5,400.00 Boiler fuel 3,200.00 Generator fuel 5,400.00 Oil 126,000.00 Purifiers 3,200.00 Repairs, works 2,600.00 Water 1,500.00 Expense, works 3,900.00 Insurance 300.00 Taxes 4,800.00 Distribution labor and material 12,000.00 Office expense 13,500.00 Stable expense 4,000.00 Repairs, mains 1,800.00 Repairs, meters 600.00 Repairs, services 700.00 Street lighting 300.00 Advertising 300.00 Maintenance arc lamps. . 1,500.00 Licenses 1,000.00 Discounts 34,000.00 General expenses 5,000.00 Sundry debtors, Gas . . . 40,000.00 Sundry debtors, Mdse.. 10,000.00 Cash 29,000.00 Bond interest 25,000.00 Plant 1,055,600.00 $ 1,390,600.00 Capital stock Bonds Accounts payable Gas accounts . , 500,000.00 500,000.00 48,000.00 342,600.00 $ 1,390,600.00 The inventory of manufacturing material is $20,000.00 The inventory of distribution material is 4,000.00 No other inventories of any description are carried. The amount of gas manufactured during the year was 300,000,- ooo cubic feet. Amount sold, 270,000.000 cubic feet. Unac- counted for, 30,000,000 cubic feet. Give: ist. The Manufacturing Cost of Gas sold. 2nd. The Distribution Cost of Gas sold. 3rd. Prepare Statement of Operations of the Company and Balance Sheet of Assets and Liabilities. MICHIGAN C. P. A. 101 Following is a list of the accounts appearing' on j the j mar -bal- ance of a manufacturing company which deals in finished mer- chandise purchased as well as in its own products. From this list, and without using figures, draw up plans of financial statements (balance sheet, manufacturing account, profit and loss account, etc.), in the form which you think most suitable. Accounts Payable Salaries, Management Capital Stock Bills Receivable Cash Bills Payable Salaries, Office and Store Real Estate Fuel Insurance (Plant) Light Freight (on Mdse. Purchased) Machinery and Tools Freight (on Raw Materials) Buildings Sales (Own Product) Inventory, Own Products Inventory, Raw Materials Inventory, Partly Manufactured Goods Inventory, Mdse. Purchased Inventory, Repair Supplies Sales (Merchandise Purchased) Undivided Profits ( end of last year) Purchases, (Merchandise) Rent, Factory Printing and Stationery Accounts Receivable Advertising Purchases (Raw Materials) Machinery Repairs Productive Labor (Factory) Labor (Warehouse) Office Furniture Reserve for Bad and Doubtful Ac- counts Reserve for Depreciation Insurance (Merchandise) Bad and Doubtful Accounts Travellers' Expenses and Salaries Management Salary, Factory Management Salary, Office Discounts Allowed Interest Payable Depreciation Sundry Factory Expenses Sundry Office Expenses Postage Subscriptions and Donations Discounts Received Rents (Receivable) Insurance unexpired, Plant Insurance unexpired, Merchandise Rent, Store and Office 4. A corporation organizes under the laws of Michigan to conduct a manufacturing business. Authorized capital $400,000.00, half each common and preferred stock, shares $100.00. Five incorporators subscribe for ten shares each of common stock at face value. John Smith purchases from three manufacturing companies, their complete plants for $395,000.00 and transfers said plants to the incorporated company for the remaining $395,000.00 of common and preferred stock and $150,000.00 of first mortgage 5% bonds out of a total issue of bonds of $200,- ooo.oo, leaving $50,000.00 of bonds in the treasury. Make opening journal entries and trial balance showing the company's condition after the transaction. I0 2 MICHIGAN C. P. A. MANUAL 5. A manufacturer is desirous of securing a partner and furnishes a statement covering five years' operations as follows : ASSETS Buildings $ 20,000.00 Machinery and Fixtures 75,000.00 Inventory, Merchandise and Supplies 50,000.00 Cash 5,000.00 Accounts Receivable 40,000.00 LIABILITIES Accounts and Bills Payable $ 30,000.00 Sales average per year 500,000.00 Wages paid per year 170,000.00 Expense, Selling and General, per year 35,000.00 Material purchased 260,000.00 Buildings are on leased ground, lease expires in ten years, an- nual land rental, $1,000.00. Buildings revert to owner at ex- piration of lease. New machinery when installed ten years ago cost $50,000.00. Additions since cost $25,000.00. No depreciation has been charged off. All repairs and replacements charged to expense. What in your opinion would be a fair price to be contributed for a half interest? Explain fully. 6. A and B, each carrying on a similar business, agree to form a partnership, the new firm to take over the assets and assume the liabilities of each. The following trial balances representing the book accounts were presented : A Capital $ 40,000.00 Machinery and Fixtures $ 30,000.00 Cash 2,000.00 Bills Receivable 5,000.00 Accounts Receivable 30,000.00 Inventory Merchandise 25,000.00 Wages 7,000.00 Wages due 250.00 Expense 10,000.00 Bills Payable 10,000.00 Merchandise Account 40,000.00 Accounts Payable 20,000.00 Repairs i ,250.00 $110,250.00 $110,250.00 MICH 1C. IX C. I'. ./. MANUAL 103 B- Capital $ 50,000.00 Machinery and Fixtures $ 30,000.00 Cash '. 4,000.00 Bills Receivable 8,000.00 Accounts Receivable 40,000.00 Wages 9,000.00 Wages due 500.00 General Expense 15,000.00 Bills Payable 15,000.00 Merchandise Account 50,000.00 Inventory 32,000.00 Repair Account 2,500.00 Accounts Payable 25,000.00 $140,500.00 $140,500.00 Kuch partner is to draw half the profits. Formulate opening entries for the new firm. At the end of the year a profit is made of $30,000.00. Create a Trial Balance and Inventory, using your own figures to produce that result ; divide the profit between the partners and make Statement of Assets and Liabilities. PRACTICAL ACCOUNTING Friday, December 21, 1906, from 1 130 P. M. to 6:00 P. M. Answer questions 2 and 3 and two of the others, but no more. Answers in excess of the number required will not be considered. i. The products of a manufacturing' company are sold by a selling agent who bears all the expenses of selling. He receives a commission of 50^ of the amount of the sale to customer. He is to be paid weekly his commissions on all settlements of ship- ments. A patentee is also to be paid a royalty on sales. A "stores" ac- count is kept, also a factory product account which is. credited monthly, with finished product, the same being charged to "stores" account at factory cost. What accounts should appear in a monthly balance sheet to show the condition of the business? 104 MICHIGAN C. P. A. MANUAL 2. Following is a list of the accounts appearing on the trial bal- ance of a manufacturing company which deals in finished mer- chandise purchased, as well as in its own products. From this list and without using figures, draw up plans of financial state- ments (balance sheet, manufacturing account, selling account, profit and loss account, etc.), in the form which you think most suitable. Treasury Stock Bonds Sales of Old Machinery Accounts Payable Buildings Sales (own product) Bills Payable Surplus Fuel Light Inventory, Repair Supplies Accounts Receivable Salaries, Management Cash Freight (on Raw Materials) Bad and Doubtful Accounts Machinery Repairs Rent, Factory Inventory, Partly Manufactured Goods Freight (on Mdse. Purchased) Capital Stock Real Estate Machinery and Tools Sinking Fund Rents Received Interest Payable Sundry Office Expenses Inventory, own product Bills Receivable Insurance (Plant) Undivided Profits (end of last year) Printing and Stationery Subscriptions and Donations Management Salary, Office Office Furniture Depreciation Advertising Inventory, Raw Materials Salaries, Office Sales, (Merchandise Purchased) Management Salary, Factory Discounts Received Reserve for Depreciation Salaries, Store Rent, Store Inventory, Merchandise Purchased Purchases (Merchandise) Rent, Office Labor (Warehouse) Reserve for Bad and Doubtful Accounts Purchases (Raw Materials) Productive Labor (Factory) Insurance (Merchandise) Travellers' Expenses and Salaries Discounts allowed Sundry Office Expenses Postage Insurance unexpired, Plant Insurance unexpired, Merchandise 3. The following is a Trial Balance taken from the books of a Health and Accident Insurance Company for year ending June 30th : DEBITS Cash $ 4,000.00 Securities Mortgages 100,000.00 Bills Receivable 2,500.00 MICHIGAN C. P. A. MANUAL Stocks and Bonds 50,000.00 Bank, current account 4,000.00 Bank, certificates of deposit 5,000.00 Dividends 10,000.00 Profit and Loss Account 20,000.00 General Expense 1,000.00 Home treatment, Indemnity 35,000.00 Interest earned 4,000.00 Due from Sundry Agents 8,000.00 Re-Insurance Account 900.00 Accounts Receivable 60,000.00 Furniture and Fixtures 1,000.00 Hospital Bldg. and Equipment 50,000.00 Hospital expense 10,000.00 Advertising, Printing, Etc 2,000.00 Agents Salaries and Expenses 1,500.00 Agents Commissions 12,000.00 Salaries, Officers and Employees 6,000.00 Insurance Commissioner's fees and taxes 3,000.00 Postage and expense 100.00 Cancellations 20,000.00 105 $410,000.00 CREDITS Capital Stock $200,000.00 Surplus 40,000.00 Interest on Stocks, Bonds and Mortgages 3,000.00 Due Sundry Agents 2,000.00 Commissions, Re-Insurance 500.00 Accounts Payable 2,000.00 Premium Account (one year) 160,000.00 Contract Earnings on Medical Supplies 2,500.00 $410,000.00 This Company is subject to a general insurance law requiring 50% of Premiums to be set aside as a reserve for re-insurance. In addition to items included in Trial Balance there is a list of claims in course of adjustment amounting to $5,000.00, also claims -which were paid in July on notices received prior to July ist of $3,000.00. There were worthless items carried as cash to the amount of $1,000.00. There were also liabilities in- curred but not entered on the books prior to July ist as follows: Sundry Expense amount items $ 200.00 Salaries earned 1,000.00 106 MICHIGAN C. P. A. MANUAL Yearly premiums are payable in five installments. Agents are paid by commissions, a stated % when business is secured and a final commission of 20% when premiums fully paid. Only paid commissions are considered in trial balance. Accounts receivable in trial balance represents unpaid premiums. Make statements as of June 3Oth of loss and gain and assets and liabilities. 4. Promoters agree in consideration of receiving the entire Stock of Corporation to furnish a complete plant with a specified pro- duction and also to furnish $50,000.00 as working capital. The Corporation is organized under the laws of an Eastern State with : Preferred Stock $i,ooo,ooq.oo Common Stock 2,000,000.00 The promoters fulfill their contract furnishing the plant and $50,000.00 working capital. The plant is located in a state which limits incorporation under its own laws to $10,000.00. It is deemed advisable to organize the operating company under the local laws, the original company assuming the position of parent company. The local organization is completed, sub- scriptions being as follows : Parent Company 93 shares Individuals 7 shares The entire plant and working capital is turned over to the local company for operation. It is known that the promoters sold the $1,000,000.00 of preferred shares at par and gave an equal number of common shares as a bonus. The promoters did not furnish figures of cost of construction but an appraisal fixes the value of land, building and machinery at $1,000,000.00. The net earnings (after depreciation) are to be disposed of as follows : 10% to the Local Company 90% to the Parent Company State opening entries for the parent company and for the operating company, also entries on both sets of books showing the disposition of profits. 5. A Municipal Comptroller had upon his books at the beginning of his fiscal year the following Bonds outstanding of $500,- ooo.oo as follows : Improvement Bonds $100,000.00 Building " 300,000.00 Refunding " 100,000.00 MICHIGAN C. P. A. MANUAL . 107 Cash in the hands of the Treasurer $100,000.00. Credit Balances to the following funds: a $ 25,000.00 b 10,000.00 c 15,000.00 d 30,000.00 e 20,000.00 The earnings of the municipality for the ensuing year and the amounts necessary to be raised by taxation were estimated as follows : Earnings from various departments $200,000.00 Liquor Licenses 500,000.00 Taxes 300,000.00 The earnings from various departments and liquor licenses are placed in Fund a. Taxes are divided among the funds as fol- lows: b. 30%, c. 20%, d. 15%, e. 35%. At the close of the fiscal year the following collections had been received : Earnings from various departments $175,000.00 Liquor Licenses 490,000.00 Taxes 250,000.00 Make the necessary entries in full and present a balance sheet at the beginning and close of the fiscal year. 6. Under the laws of Michigan a Building and Loan Association has been incorporated with an authorized capital of $1,000,- ooo.oo. Stock divided into two classes, installment and full paid stock par value of each $100.00 per share. Installment Stock to be paid for at the rate of sixty cents per share per month, of which ten cents per share may be devoted to operating expenses, etc. No part of the profits can be used for expenses of the association. Estimated time of the maturity of the installment stock based on the earning power of the loaning feature of the association is no months. The nine directors decide to ad- vance $1,000.00 each to meet the expenses and develop the busi- ness and the ten per cent of the expense deductions is to be set apart each year for the repayment of this nine thousand dollars. The Secretary reports the sale of 1,000 shares of installment stock on which the first month's payment of sixty cents has been made. He also reports the sale of 500 shares of full paid stock for which he received the money. Give the proper books for conducting the business of this asso- ciation and for keeping its accounts and make the opening entries. I0 8 MICHIGAN C. P. A. MANUAL PRACTICAL ACCOUNTING Friday, November i, 1907, from 1 130 P. M. to 6:00 P. M. Answer questions I and 3 and two of the others, but no more. Answers in excess of the numbers required will not be considered. It is desired to effect a consolidation of two manufacturing- corporations in the same line of business, having the same amount of capital stock, and doing practically the same gross business per year. The intention of the merger is to form a new corporation with the combined capital of the two corporations, including the sur- plus of each corporation, but on account of the much larger profit of one of the corporations, owing to better machinery, etc., the stockholders of that corporation are to receive 25% more of the stock of the new corporation than the other merged corporation. The new corporation to take over all the assets and assume all of the liabilities of the two corporations, as stated on their books. Make out a balance sheet of the assets and liabilities of each of the two corporations proposed to be merged, supplying your own figures covering all the usual items found in a manufacturing business. Close the books of each of the old corporations and open the books of the new corporation, covering the legal re- quirements of such merger, in accordance with the laws of Mich- igan, both as to the minutes of the old and new corporations and necessary payment to the State. A corporation agrees to purchase from a firm of four partners their business. Their assets and liabilities were as follows : buildings, $100,000.00; machinery, $38,335.00; stock, $105,- 940.00; accounts receivible, $278,680.00; bills receivable, $37,- 005.00; cash, $17,030.00; horses and wagons, $1,230.00; un- expired insurance, $175.00; accounts payable, $84,065.00. Capital of each of the four partners : A, $125,500.00; B, $103,500.00; C, $133,000.00; D, $132,330.00. It was further agreed that the partners were to be paid for good will, based on a year and a quarter purchase of the last three years' profit which were respectively $34,150.00, $35,- 250.00 and $45,450.00. Prepare a balance sheet bringing in the good will and distribut- ing it equally among the four. MICHIGAN C. P. A. MANUAL 109 3. A is a manufacturer of furniture, and his balance sheet at a certain date shows as follows : Cash in the bank, $500.00; real estate, $20,000.00; machinery, after 10% depreciation, $40,000.00; accounts receivable, $7,- 542.50; stock on hand finished, $10,000.00; stock in process of construction, $1,000.00; raw material, $957.50; bills payable. $20,000.00; accounts payable, $30,000.00. He agrees with B to sell him one-half interest in the business for the sum of twenty thousand dollars to be contributed to the new firm, the new firm to take the assets of A with the exception of the real estate and assume all of the liabilities, and that the good will of the business of A should be rated at $20,060.00 in the new firm's books. It was discovered shortly after the commencement of business of the new firm, that the inventory of finished stock was incorrect and that the value should have been entered at $8,000.00 and that of the accounts receivable $6,500.00 were collectable, one of the debtors owing $500.00 having failed leaving no assets, previous to the forma- tion of the co-partnership, which fact was known to A but his bookkeeper, who had been instructed to charge off the account, failed to do so. The trial balance at the end of the year's business showed as follows : A. Capital Account $ 25,000.00 B. Capital Account 25,000.00 Merchandise 75,000.00 Accounts payable 40,000.00 Accounts receivable 10,000.00 Machinery 40,000.00 Factory wages 35,000.00 Non-productive labor 5,000.00 General factory expense 20,000.00 Rent 1,500.00 A. Personal Account 2,500.00 B. Personal Account 2,500.00 General expense .* 2,000.00 Good-will 20,000.00 Cash 26,000.00 Profit and Loss 500.00 $165,000.00 $165,000.00 1IO MICHIGAN C. P. A. MANUAL Inventories at close of year : Stock on hand finished $ 25,000.00 Stock on hand in process of construction 2,500.00 Raw material 2,500.00 $ 30,000.00 No correction was made of the discrepancies and no amount has been charged off for depreciation of machinery, which should be 10%. Make proper entries to correct books, with reasons for such entries in full, also formulate balance sheet showing the stand- ing of the firm. You are an auditor engaged by a corporation to audit their ac- counts. At the beginning of the period you are to cover, the following statement is drawn .from the books : Capital $IOO,OOO.CXD Surplus 1,000.00 Accounts receivable $ 10,000.00 Buildings after deducting $5,000... for depreciation 35,000.00 Machinery after deducting $5,000 for depreciation 55,000.00 Cash 500.00 Stock on hand . 500.00 $101,000.00 $101,000.00 During the period which you are auditing, you find buildings and machinery charged with $10,000.00 which was to cancel the entries of depreciation. Capital stock increased $10,000.00 and a stock dividend paid of $10,000.00. These entries were authorized according to the minute book, but not entered correctly in the general books. Make report of the above transaction and formulate the necessary entries for the bookkeeper. MICHIGAN C. P. A. MANUAL m 5. The administrator of a will received $50,000.00 in cash to be distributed among the heirs and legatees under the terms of the will, as follows : Alice, a daughter of the deceased, after payment of the legacies, including a legacy of $1,000.00 to herself, was to receive one- fifth of the residue of the estate. Ann, a daughter of the deceased, after payment of the legacies, was to receive one-fifth of the residue of the estate. Mary, a daughter of the deceased, was to receive the same as Ann. George, a son, after payment of the legacies, including a legacy of $500.00 for himself, was to receive one-fifth of the residue of the estate. Three children of a ' deceased son, Joseph, were to receive legacies of $500.00 each. John, a son, was to receive one-fifth interest in the residue of the estate subject to payment of the legacies as mentioned, and also subject to legacies of $3,000.00 each to his wife and three children. The administrator carried out the terms of the will. Open the books of the administrator, showing receipts of the funds, their proper distribution, payment and closing entries. 6. A corporation is organized under the laws of the State of Mich- igan, with a capital of $1,000,000.00 in 100,000 shares at $10.00 each, 50,000 shares of which are common stock and 50,000 shares preferred stock. 20,000 shares of the preferred stock have been sold at par, on which an assessment of $5.00 per share has been paid. Subsequently it was determined by the stockholders to donate one share of the common stock of the company to the purchaser of each share of the preferred stock, the original subscribers to the 20,000 shares on which an installment of $5.00 per share was paid, to receive the benefit of such offer upon the payment of the balance of their subscription. The effect of this offer was that all the preferred stock was sold and the balance of the installment due was also paid. Give entries for all the above, placing the transactions at inter- vals of one month. 112 MICHIGAN C. P. A. MANUAL PRACTICAL ACCOUNTING Saturday, June 27, 1908, 1 130 P. M. to 6 130 P. M. i. The following figures are taken from the books of the Fairview 'Manufacturing Company of Mew York City, on the 3ist day of December, 1907: Inventory of Finished Goods (Jan. i) $ 3,684.57 Inventory of Raw Materials (Jan. i) 11,392.70 Purchases of Raw Materials 62,519.85 Sales 217,387.42 Wages 109,317.88 Rent 19,500.00 Discounts received on purchases 375-6o Discounts allowed on Sales 186.36 Power, Light and Heat 8,710.64 Light and Heat for Office 168.00 Repairs 1,090.00 Packing 2,017.00 Factory Expense 3,270.00 General Expense 5,230.00 Factory Insurance 1,050.00 General Insurance 750.00 Machinery and Plant 12,350.00 Tools 2,600.00 Commissions 7.642.00 Office, Salaries 9,700.00 Salesmen, Salaries 8,930.00 Interest on Loans 440.00 Loans Payable 22,000.00 Discount Lost 120.00 Notes Receivable 130,000.00 Notes Receivable Discounted 8,000.00 Notes Payable 19,500.00 Accounts Receivable 101,026.00 Accounts Payable 30,020.00 Office Furniture 1,100.00 Furniture and Fixtures 1,950.00 Cash on hand 1,825.00 Cash in Banks 26,467.00 Returned Sales 276.00 Capital 200,000.00 Reserve for Depreciation 3,236.98 - MICHIGAN C. P. A. MANUAL 113 Reserve for Bad Debts 5,727-oo Freight and Cartage Inward 727.00 Stable Expenses 2,750.00 Horses, Wagons and Harnesses 8,500.00 Postage and Expressage 1,250.00 Superintendence 3,500.00 Taxes 250.00 Good-will . . 10,000.00 Stationery and Printing 1,080.00 Advertising 8,630.00 Surplus ( 1906) 63,753.00 You are requested : (a) To prepare from them a Trial Balance, arranged in sys- tematic order as to Balance Sheet Accounts, Assets and Liabilities, Loss and Gain accounts, Expenses and Reve- nues, the Expenses divided between Commercial and Man- ufacturing, so as to facilitate the preparation of financial or business statements. (b) To draft journal entries for closing the books. (c) To prepare Manufacturing, Trading, and Profit and Loss accounts. (d) To verify your results shown in (c) by a Balance Sheet. The following items are to be taken into consideration before preparing the statements asked for: Inventories : Raw material $16,250.00 Finished Goods 9,386.00 Tools 2,000.00 Office Furniture 1,000.00 Furniture and Fixtures 1,500.00 Stationery and Printing 300.00 Allow for depreciation : On Machinery and Plant, 5% On Horses, Wagons and Harnesses, 10% Reserve for Bad Debts, 3% on Accounts Receivable only. The item of Rent $19,500 is to be apportioned as follows : 53% for Factory. 22% for Salesrooms. 25% for Office. The item of superintendence, $3,500, is to be divided 3-5 to factory, and 2-5 to general expense. [I 4 MICHIGAN C. P. A. MANUAL 2. The Western Grain Company has this day been incorporated, under the laws of this state, by the following incorporators, C. H. Benton, J. W. Walters, F. Rowland and A. B. Miller, all of this city, with an authorized capital of $25,000.00, divided into 250 shares of $100.00 each. The purpose of this corporation is to buy and sell all kinds of grain and the subscriptions to the stock of the company are as follows : C. H. Benton, 60 shares; J. W. Walters, 60 shares; F. Rowland, 100 shares; and A. B. Miller, 30 shares. Pursuant to an arrangement between the firms of Benton & Walters and F. Rowland, and the Western Grain Company, the former two individual concerns agree to sell to the latter all their assets consisting of stock of merchandise, real estate, accounts and notes receivable, good will, etc., etc., in consideration of the assumption by the Western Grain Co., of all the liabilities of the two individual concerns as well as for the payment in capital stock of the Company for the balance which the assets may exceed the liabilities. The balance sheet of each individual con- cern, which is taken as exhibiting the exact value of each plant is as follows : BENTON & WALTER'S BALANCE-SHEET Cash .$ 2,300.00 Notes Receivable $2,300.00 Accounts Receivable 8,600.00 10,900.00 Furniture and Fixtures .... 200.00 Unexpired Insurance 68.75 Merchandise (Inv.) 931.25 Notes Payable $4,160.33 Accts. Payable. . . . 839.67 $ 5,000.00 Notes Rec. Dis 1,300.00 C. H. Benton 4,000.00 J. W. Walters 4,100.00 $14,400.00 F. ROWLAND'S BALANCE-SHEET $14,400.00 Real Estate $ 5,159.00 Furniture and Fixtures .... 495-00 Merchandise (Inv.) 1,196.00 Notes Rec $ 800.00 Accts. Rec 1,350.00 2,150.00 Cash 3,200.00 Notes Payable $1,250.00 Accts. Payable ... 1.750.00 $ 3,000.00 F. Rowland 9,200.00 $12,200.00 $12,200.00 MICHIGAN C. P. A. MANUAL 1 15 The Good Will of Benton and Walters is valued at $1,500.00, while that of F. Rowland is valued at $2,000.00. To enable the corporation to carry out this agreement the original subscriptions of Benton, Walters and Rowland are therefore amended as follows: C. H. Benton subscribing 20 shares, Walters 20 shares, and Rowland 27 shares. A. B. Miller pays in cash for his subscrip- tion and Benton, Walters and Rowland each donate 5 shares of . the capital stock of the company to provide a Reserve for Con- tingencies. Draft the necessary journal entries for the opening of the cor- poration books and all the other facts mentioned above and create the ledger accounts. 3. A. Wells, a manufacturer of novelties, is joined by I. M. Anxious in partnership upon the following terms : A. Wells is to receive a monthly salary of $100 for the first year, which shall be a first charge upon the profit, after pro- viding for the usual business expenses, and before reckoning 3% upon the partner's capital. In the event of such profit during the first year,, or any subsequent year, not exceeding 6% of the total capital (after payment of the salary), this salary shall be reduced to $75.00 per month the following year, and remain so until the yearly profit advances to more than 6%, when such salary shall return to $100, commencing the year succeeding the one showing the required increase of profit. Should the profit in any one year amount to more than 10% upon capital, A. Wells shall be entitled (in addition to the salary he has received for that year) to a bonus of 33 1-3% upon any sum in excess up to $1,500.00, and 25% upon any further excess and this bonus shall be a charge against profit, before allotting the interest at 3% upon capital. Any profit then re- maining shall be divided equally. From the following partic- ulars, construct separate capital accounts for partners for five years. Starting capital: A. Wells, $6,000.00, I. M. Anxious, $5,000.00. Profit before deducting salary, interest or bonus : i st Year $1,750.00 2nd " 1,800.00 3rd " 4.250.00 4th " 5,000.00 5th " Sooo.oo Xo drawings on account. Distribution of profits when ascer- tained. ii6 MICHIGAN C. P. A. MANUAL 4. James Buck died March 31, 1908, leaving an estate, and in his last will made a public accountant his executor. The will pro- vided the following: Legacies of $3,500.00 each to the testator's two brothers. A legacy of $5,000.00 to the testator's sister. A legacy of $2,500.00 to the testator's nephew. The residuary estate should go to the testator's wife, two sons and three daughters in the following proportions : 2-5 to the wife, 1-5 to the eldest son, and i-io each to the second son and daughters respectively. The estate consisted of: Cash on hand $ 246.19 Cash at Safety Trust Co 3.556.5O 18 Imp. Jap. Gov. 4^% Gold Bonds at 1,000 18,000.00 30 shares Chicago & Northestern R. R. Stock at 155 4,650.00 25 shares Penn. R. R. Stock at 122 3,050.00 2 demand notes at $500 each 1,000.00 Stock in Business 9,375-QO The testator owed to F. Harbor $1,500.00. The appraiser appointed by the court inventoried the estate as follows : 18 Imp. Jap. Gov. 4^% Gold Bonds at $1,020.00. 30 shares Chicago & Northwestern at 152 1-9. 25 shares Penn. R. R. Stock at 120. 2 demand notes as per inventory. Stock of goods, $8,000.00. The executor collected from the Trust Company the deposit of $3>556.50 and also $28.96 in interest. He sold the stocks at the appraised figures and the bonds at 1025. .He paid to F. Harber the amount due him, to B. Robert, undertaker, $786 for funeral expenses. He also paid for sundry expenses $286, ap- proved by the court. He deducted his commissions and distrib- iited the funds according to the last will. From the above statement prepare: (i) Schedules for presentation to the court in final accounting. (a) Statement of commissions to which the executor was entitled. MICHIGAN C. P. A. MANUAL 117 5. Harvey Brothers became financially embarrassed and a trustee was appointed January i, 1907, to take charge of their affairs for the benefit of the creditors. On that date, (January i, 1907), the financial condition as shown by their balance sheet was as follows: BALANCE SHEET OF THE FIRM OF HARVEY BROS. AS ON JAN. i, 1907 Assets Liabilities Cash on hand and in Bank.$ 1,006.50 Bills Payable $6,000.00 Bills Rec. . $18,000.00 Accts. Payable 9,000.00 $15,000.00 Accts. Rec 4,500.00 22,500.00 Notes Rec. Disct 10,000.00 Machinery and Tools 6,000.00 Loan Payable 1,000.00 Mdse. Inventory 4,350.25 Taxes Due '. 315.00 Real Estate 20,000.00 Mtge. on Real Estate 15,000.00 Mtge. on Mach. and Tools 5,000.00 Capital 7,541-75 $53,856.75 $53,856.75 In order to advantageously realize on all assets, the trustee pur- chases merchandise to the amount of $10,000.00 and during the year collected $21,350.00 cash for sales. The book debts realized $3,950.00. Of the bills receivable entered in the Balance Sheet as $18,000.00, there was on hand only $8,000.00, the balance of $10,000.00 having been discounted with the bank and which are represented on the liability side by the item Notes Receivable Discounted. The $8,000.00 notes on hand realized the full sum, while of the $10,000.00 discounted with the Bank only 70% could be realized, the balance was lost. The Bills Payable, Accounts Payable, Taxes and Interest on Mortgages (5/^%) were paid in course of settlement. Current expenses were as follows: salaries $1,000.00, office expenses $800.00, legal fees $1,200.00, withdrawals for private use by the owners $2,000.00, trustee's commission $2,000.00. On January i, 1908, the trustee surrendered charge of the estate and paid over the cash balance on hand. There remained on that date merchandise on hand $5,600.00. Prepare a realization and liquidation account, a trustee's cash account, and a balance sheet of the estate at termination of trust. n8 MICHIGAN C. P. A. MANUAL PRACTICAL ACCOUNTING Saturday, July 24, 1909, from i :oo P. M. to 6 :oo P. M. Answer questions i and 2 and two of the others, but no more. Answers in excess of the number required will not be considered. The A. Company was organized July i, 1905, under the laws of the State of Michigan, with an authorized capital stock of $100,000.00, divided into 1,000 shares of $100.00 each. Their operations have not been very successful. Their stock has never paid any dividends, and their capital, at present, is im- paired. The stockholders at a meeting decided to reorganize the company and for that purpose a committee was appointed to have the properties appraised and to take such measures as they would deem advisable. The condition of affairs as dis- closed by the books is as follows : Real Estate and Buildings $ 35,000.00 Plant and Machinery 28,000.00 Equipment and Fixtures 14,000.00 Tools 3,000.00 $ 80,000.00 Inventories : - Finished Goods $ 27,500.00 Raw Material 1 1,500.00 Supplies 5,300.00 44,300.00 Organization Expenses $ 8,000.00 Less amount written off . 3,000.00 5,000.00 Capital Stock $100,000.00 Treasury Stock 5,000.00 Bonded Indebtedness 25,000.00 Treasury Bonds 5,000.00 Accounts Receivable 87,700.00 Notes Receivable I7,8oo.ou Notes Payable 26,200.00 Accounts Payable 82,000.00 Loans Payable 26,000.00 Cash 3,200.00 The B. Company is a corporation also organized under the laws of this state and in existence for the last 5 years. The capital stock of this Company is $150,000.00, divided into 1,500 shares MICHIGAN C. P. A. MANUAL 119 of $100.00 par value. The company has paid an annual dividend of 9% since organization, and their yearly net profits were as follows : i st year ; $34,500.00 2nd year 33,000.00 3rd year 35,000.00 4th year 35,500.00 5th year 30,500.00 Having learned of the financial embarrassment of the A. Com- pany, and desiring to get possession of their buildings and real estate which are adjacent to the B. Company's property, they propose to the committee of the A. Company that the two cor- porations be amalgamated. A consolidation agreement was drawn up, containing among others the following provisions: (1) The charter of the B. Company is to be amended and the name changed to that of the Consolidated Manufacturing Company, the latter to absorb the stock of the A. and B. Companies, respectively. (2) The current assets of the A. Company are to be taken over at their book value, except that a reserve of 5% be deduct- ed on notes and accounts receivable. (3) The fixed assets are to be taken on the following basis: (a) Real Estate and Buildings at 15% increase of book value. (b) Plant and Machinery at 85% of book value. (c) Equipment and Fixtures at 80% of book value. (d) Tools at 60% of book value. (e) Organization expenses are not to be considered at all. (4) The Consolidated Manufacturing Company is to assume the liabilities of the A. Company to the public, and to issue to the latter capital stock for the excess of the assets over the liabilities. If there be any fractional sum of $100.00, the A. Company is to receive a full $100.00 share for such fractional part. (5) The assets of the B. Company are to be taken over at their book value and, in addition, the company is also to be given stock for the good will, the latter to be based on the last 3 years' net profits and is to be 60% of that total. (6) The Consolidated Manufacturing Company is to provide for a bond issue of $100,000.00 with which it is to take up the outstanding bonds of the A. Company, and to sell the 120 MICHIGAN C. P. A. MANUAL balance in order to raise cash funds. The stockholders of each respective company to have the privilege of taking the bonds at 96. (7) The Consolidated Manufacturing Company is to assume all the liabilities to the public of the B. Company. Assuming that the last Balance Sheet of the B. Company, which is as follows, presents the true condition of this concern : BALANCE SHEET OF THE 3 i.oo Feb. i First Nat. Bk. Div. 2,000.00 Groceries 2C OO Feb. 2. United Mer. Co. Gas Bill 380 Div. 300.00 Widow's Allow- Mar i Southern Lbr Co. ance Jan 150 oo Int 30000 Coal .... 8300 May 10 First Nat. Bk. Div. 2,000.00 Funeral Rxp -3CQ OO June 15 Savings Acct. Int. 83.30 Physician 200 OO June July Aug. 15 Sale of Residence. 10 First Nat. Bk. Div. 2 United Mer. Co. Div . 6,500.00 2,000.00 300 oo Funeral Notice . . . Commi|ssions Administrator's Bond 3-20 150.00 oc no Aug. Sept. 10 First Nat. Bk. Div. i Southern Lbr. Co. 2,000.00 Feb. 28 Widow's Allow- ance I5OOO Int 30000 Mar 31 Widow's Allow- Nov. 10 First Nat. Bk. Div. 2,000.00 ance I5OOO Jec. Dec. 15 Savings Acct. Int. 15 Sale lots 83.30 1,80000 Apr. 30 Widow's Allow- ance 15000 May 31 Widow's Allow- ance I5OOO * June 15 Commissions on Sale of Property Legal Expenses June 30 Widow's Allow.... July 31 Widow's Allow.... Aug. 31 Widow's Allow Sept. 30 Widow's Allow... Oct. 31 Widow's Allow... Nov. 30 Widow's Allow Dec. 15 Commission Sale of Lots I9S.OO 180.00 150.00 150.00 150.00 150.00 150.00 150.00 90 oo Dec. 31 Widow's Allow- ance . . . 150 oo Balance 16,642.60 $19,748.60 $19,748.60 Prepare first and final account, computing administrator's fees at statutory rate in Michigan, and arrange a division among three heirs in equal amounts. 1 54 MICHIGAN C. P. A. MANUAL PRACTICAL ACCOUNTING Wednesday, December 23, 1914, from 8:00 A. M. to i :oo P. M. Problems i, 2, 3, and one of last two required. Ten credits allowed for neatness and general appearance. i. (25 Credits) The General Manufacturing Company's books show the follow- ing Assets and Liabilities, January I, 1914: Real Estate and Buildings - $ 1,190,000.00 Machinery, Tools and Equipment 1,430,000.00 Office Furniture and Fixtures 8,160.00 Reserve for Depreciation 157,000.00 Inventory 733,090.00 Bank Balance 68,000.00 Imprest Cash 1,330.00 Non-Negotiable Notes Receivable 35,000.00 Bills Receivable 717.00 Accounts Receivable 289,256.00 Prepaid Expenses 9,279.00 Investments 9,500.00 Patents 1,276,000.00 Preferred Stock 1,000,000.00 Common Stock 2,600,000.00 First Mortgage Bonds, 5% 120,000.00 Second Mortgage Bonds, 6% 398,000.00 Debenture Bonds, 5% 153,000.00 Bills Payable, Banks 545,000.00 Bills Payable, Trade 57,000.90 Accounts Payable 108.000.00 Accrued Pay Roll 30,000.00 Accrued Bond Interest 9,000.00 Bills Receivable, Discounted 23,623.00 The following aggregate entries are found to have affected the respective accounts during the current year : Purchase of Material and Supplies $ 306,000.00 Pay Rolls 312,000.00 Factory Expenses 18,000.00 Freight and Express (Inbound) 1,000.00 MICHIGAN C. P. A. MANUAL 155 Administrative Expenses 27,000.00 Selling Expense 8,000.00 Interest on Bills Payable 22,000.00 Miscellaneous Interest Expense 500.00 Interest Received 1,000.00 Sales 882,000.00 Returns and Allowances 4,000.00 Bad Debts and Special Allowances 32,000.00 Freight on Goods Sold 2,000.00 Machinery, Tools and Equipment (Additions) . . 37,53O.oo Office Furniture and Fixtures (Additions) .... 800.00 Machinery, Tools and Equipment Sold 19,000.00 Patents (Additions) 10,000.00 The following net changes occur in the respective accounts dur- ing the year : Debit Credit Reserve for Depreciation $ 825.00 Bank Balances $ 25,000.00 Non-Negotiable Notes L.jeivable 5,000.00 Imprest Cash 200.00 Bills Receivable 2,000.00 Accounts Receivable 35,000.00 Prepaid Expenses 1,000.00 Bills Payable, Banks 67,700.00 Bills Payable, Trade 57,000.00 Accounts Payable 67,000.00 Accrued Bond Interest 6,000.00 Accrued Pay Roll 8,000.00 Bills Receivable Discounted 5,000.00 Inventory 50,000.00 You find that the entire interest on First and Second Mortgage Bonds, amounting to $29,880.00, has been added to Machinery and Tools, and interest on Debenture Bonds, amounting to $7,- 650.00, has been charged to Administrative Expenses. Prepare a Balance Sheet, Manufacturing, Trading and Profit and Loss Account for presentation at the close of the year, making reasonable adjustments for Depreciation considerations and application of interest. 156 MICHIGAN C. P. A. MANUAL 2. (25 Credits) The following is a Trial Balance of the Advance Grocery Com- pany at close of business, December 31, 1913 : Debit Credit Cash on Hand $ 387.50 Cash in Bank 7,893.50 Notes Receivable 12,700.00 Accounts Receivable 80,000.00 Sundry Accounts 1,500.00 Merchandise Account . . . ." $172,500.00 Suspense Account 7,570.00 Real Estate 150,000.00 Buildings 75,000.00 Good Will 40,000.00 Rent 2,750.00 Taxes 2,700.00 Insurance 1,800.00 . Pay Roll . . . 15,720.00 General Expense 20,680.00 Accounts Payable 50,750.00 Land Contract 20,700.00 Capital Stock 148,250.00 Surplus 21,001.00 3- $415,951.00 $415,951.00 The books of original entry include a Purchase Record in which entry is made for each purchase invoice, and from which post- ings are made to the Accounts Payable Ledger, a Cash Received Record, Check Register, and Journal. From the above information prepare a plan of audit to be used by a junior accountant in conducting an audit of the books. The business was incorporated January i, 1913, and the audit is to cover the operations from the inception of the business. (20 Credits) The District Machine Company operates a factory cost system controlled by a double entry factory ledger the opening bal- ances in which appear January I, 1914, in part as follows: Undistributed Burden $ 15,000.00 Raw Material 100,000.00 Work in Process 250,000.00 Finished Product 98,000.00 Accrued Pay Roll 7,000.00 MICHIGAN C. P. A. MANUAL 157 The following represent the total of the operations for given period : Raw Material Purchased $225,000.00 Pay Rolls 155,000.00 Productive Labor Distribution 150,000.00 Department Overhead 315,000.00 Raw Material Consumed 250,000.00 Product at Cost 825,000.00 Department Overhead Distributed 325,000.00 Sales at Cost 905,000.00 Raise the necessary controlling accounts to show the ledger record of the above operations together with trial balance at the end of the period. 4. (20 Credits) What amount, including interest, must be set aside annually to provide a sinking fund sufficient to retire an issue of bonds amounting to $100,000.00 originally sold at 90, interest payable semi-annually at 6% and maturing in ten equal annual install- ments after the fifth year? Show method. 5. (20 Credits) ACME MANUFACTURING COMPANY TRIAL BALANCE, DECEMBER 31, 1914 Cash on Hand and in Bank $ 5,000.00 Notes Receivable 7,500.00 Accounts Receivable 30,500.00 Inventory Jan. i, 1914 115,000.00 Materials Purchased 285,000.00 Productive Labor, Dept. A 100,000.00 Productive Labor, Dept. B 50,000.00 Manufacturing Exp., Dept. A.... 67,000.00 Manufacturing Exp., Dept. B.... 46,000.00 General Mfg. Expense 12,000.00 Selling and Distributing Expense 17,000.00 Administrative Expense 28,500.00 Cash Discount Allowed 4,500.00 Cash Discount Taken $ 7,500.00 Gross Sales, Dept. A 412,000.00 Gross Sales, Dept. B 328,000.00 Returns and Allowances, Dept. A 6,800.00 Returns and Allowances, Dept. B 3,200.00 Real Estate 200,000.00 Buildings, Dept. A 100,000.00 158 MICHIGAN C. P. A. MANUAL Buildings, Dept. B 50,000.00 Mach'y and Equipment, Dept. A . . 47,500.00 Mach'y and Equipment, Dept. B. . 32,500.00 Office Furniture and Fixtures.... 5,000.00 Prepaid Insurance 420.00 Prepaid Taxes 780.00 Accounts Payable 18,750.00 Notes Payable 40,000.00 Accrued Pay Rolls 8,000.00 Mortgage Payable 75,000.00 Reserve for Bad Accounts. . 4,950.00 Capital Stock Authorized and Issued 300,000.00 Surplus 20,000.00 $ 1,214,200.00 $ 1,214,200.00 Inventories : Dec. 31, 1913 Dec. 31, 1914 Raw Stock $35,000.00 $20,000.00 Work in Progress, Dept. A 60,000.00 70,000.00 Work in Progress, Dept. B 20,000.00 10,000.00 Raw stock was issued to departments during the year in the following percentages : To Dept. A, 2-3. To Dept. B, 1-3. No credit was given to the raw stock account. It was found that prior to January i, 1914, depreciation was credited direct to the capital assets as follows : Buildings, Dept. A $20,000.00 Buildings, Dept. B 10,000.00 Machinery and Equipment, Dept. A . '. 15,000.00 Machinery and Equipment, Dept. B 12,000.00 Office Furniture and Fixtures 2,000.00 No depreciation has been included in the current year's opera- tions, but sufficient reserve has been created for bad accounts. There has been no change in the capital asset accounts during the current year. Make any adjustments you deem necessary, covering deprecia- tion prior to January i, 1914, and provide for current year's depreciation. Prepare Departmental, Trading, and Profit and Loss Statements for the year 1914, and submit Balance Sheet as at December 31, 1914. MICHIGAN C. P. A. MANUAL 159 PRACTICAL ACCOUNTING Friday, June 18, 1915, from i :oo P. M. to 6:00 P. M. 10 Credits allowed for neatness and general appearance. I. (20 Credits) The co-partnership of George L. Brown & Company composed of George L. Brown, L. J. Henry and Fred S. Martin, is unable to meet its current obligations and arranges a composition with creditors whereby the latter agree to accept 80% of their claims without interest. A .trustee, Henry S. Smith, is appointed Jan- uary i, 1915, by mutual consent, to take charge of the business during liquidation. On that date the ledger of the partners showed the following balances: Cash, $105.00; Accounts Re- ceivable, $10,000.00; Accounts Payable, $12,000.00; Notes Re- ceivable, $5,000.00; Notes Payable, $5,000.00; Bonds (owned), $5,000.00; Inventory, $13,000.00; Premium on bonds, $150.00; Real Estate, $3,000.00; George L. Brown, $5,000.00; L. J. Hen- ry, $6,605.00; Fred S. Martin, $7,650.00. The trustee continued trading for six months, his transactions summarized being as follows: purchases, $8,000.00; salaries, $2,000.00; general expenses, $1,000.00; all paid in cash. Sales, $24,000.00; cost of sales, $16,000.00; cash received on realiza- tion, $19,250.00; cash disbursed in liquidation, $14,100.00; cash received in trading (sales), $12,000.00; cash disbursed in trad- ing as above, $11,000.00. The notes receivable realized face value, accounts receivable were assigned to a banker at 10% discount. The bonds were sold at 105 flat. The notes payable were paid as agreed and the accounts payable were liquidated with the exception of one claim of $2,000.00 unsettled pending an old adjustment for dam- aged goods. Inventory at end of six months, $5,000.00; ex- penses of trusteeship, $2,100.00. Prepare a Realization and Liquidation statement to show the results of the trustee's handling of the business, a Deficiency Account, Cash Account, and Balance Sheet at termination. 2. (20 Credits) A receiver is appointed to take charge of the Farm Implements Company, on June I, 1915, and employs a C. P. A. to deter- i6o MICHIGAN C. P. A. MANUAL mine from the books the exact condition of the business. He finds the books to show the following : Cash on Hand $ 623.10 Cash on Deposit at Reserve Nat'l Bank 34,000.00 Notes Receivable 95,000.00 Notes Receivable Discounted 650,000.00 Notes Receivable Assigned to Bank 100,000.00 Accounts Receivable 40,058.40 Accounts Receivable Assigned to Bank 50,000.00 Reserved for Losses on Notes and Accounts $ 37,923.12 Doubtful Notes and Accounts 8,417.51 Material and Supplies 239,516.75 Branches, Net Advances " 156,397.00 Land, Buildings and Equipment 705,742.34 Reserve for Depr. Buildings and Equipment . 98,351.68 Patterns, Tools, Etc 13,000.00 Deferred Charges 12,121.37 Bills Payable Reserve Nat'l Bank 397,667.73 Bills Payable Merchandise 45,033.45 Bills Payable Equipment Notes 40,000.00 Accounts Payable 67,152.98 Accrued Pay Roll 5,000.00 Accrued Taxes 5,000.00 Accrued Interest Bank 3,000.00 Accrued Interest Sundry 2,340.20 Accrued Interest Equipment Notes 1,000.00 Land Contract 1,750.00 Commission Contingent to become payable to agents when customers' notes are paid 1,506.43 Dealers' Deposits 5,000.00 Capital Preferred Stock 500,000.00 Capital Common Stock . 600,000.00 Surplus 394,150.88 Subscription Account (Common Stock) 100,000.00 $ 2,204,876.47 $ 2,204,876.47 The accountant finds that the company has secured its line of credit at the Reserve National Bank, on filing- one of the usual . forms of statement for securing credit at National Banks. The Real Estate has been appraised at $100,000.00 as to land, and $100,000.00 as to buildings as a going concern, but in case of liquidation the land and buildings would bring only $150,000.00. The Machinery and Equipment have been appraised at $400,- ooo.oo as a going concern, and $50,000.00 on liquidation. The Material and Supplies are worth $239,516.75 as a going concern MICHIGAN C. P. A. MANUAL 161 and $125,000.00 on liquidation, except that on a further invest- ment of $20,000.00 to complete the manufacture of goods in process they would bring $200,000.00. Examination of the notes and accounts receivable discloses that the notes will show a shrinkage of $50,000.00 on collection and the accounts which include credit balances aggregating $1,250.62 are considered to be worth 60% of their face value. Patterns, Tools and Dies are worth $10,000.00 as a going concern, and $1,000.00 on liquidation. Doubtful notes and accounts are con- sidered worth 50%. Net advances to branches involve the con- sideration of sale of finished product, collection of local ac- counts, payment of accrued salaries, rent, etc., to net $150,000.00 as a going concern, and $100,000.00 on liquidation. Deferred Charges may be considered worth $1,000.00 on liquidation. Land Contract represents a balance due on principal of $3,000.- oo. It is estimated that the receivership fees, including special allowance, will amount to 3% of the unpledged assets if sold in their present condition, or 5% if the plant is operated by the receiver. Prepare a Statement of Affairs to submit to the creditors as a result of a complete audit, showing the position and relation of the secured and unsecured creditors and stockholders, the book, going and liquidating values in comparison, together with a Deficiency Account. Due regard must be shown for compre- hensive but brief exposition, proper certification and formal subscription as C. P. A. in Michigan. (20 Credits) The Standard Overall Company employing piece-work oper- ators and estimating material consumpeion on the basis of spe- cifications, has allowed its cost system to fall behind and em- ploys you to pull the work together. You find that starting the year opening entries appears on your Ledger as follows : Finished Garments $ 110,000.00 Work in Process 5,000.00 Raw Material 20,000.00 Undistributed Departmental Burden 2,500.00 Undistributed General Factory Burden 1,000.00 Subsequent Transactions per Books : Material Purchased 500,000.00 Material Delivered to Cutting Room 475,000.00 Productive Labor, (Accrued), comprising 850,000 productive hours 250,000.00 162 MICHIGAN C. P. A. MANUAL Departmental Burden (Accrued) 100,000.00 General Factory Burden (Accrued), including 25,000 hours non-productive time 25,000.00 Selling Expenses 150,000.00 Administrative Expenses 80,000.00 Garments completed, delivered to finished stock 840,000.00 Garments sold valued at manufacturing cost. . . . 900,000.00 vSales (Net) 1,200,000.00 Taking of Inventory necessitated the following adjustments: Raw Material ( Short) 3,000.00 Work in Process (Over) 500.00 Finished Garments (Short) 1,500.00 Departmental Burden Rate (Flat) 12 cents per hour General Factory Burden Rate (Flat) 3 cents per hour Raise the necessary ledger accounts and show Manufacturing, Trading, and Profit and Loss Statements together with Trial Balance at close. 4. (15 Credits) X, Y, and Z enter into the real estate business equal partners. X and Y, being experienced but without money or property to invest, arrange with Z to loan the firm $27,000.00 at 6% which is invested in acreage. It is agreed that the loan is to be repaid out of the profits of the business on condition that two-thirds of the annual profits are to be set aside in cash for that purpose and no profits are to be withdrawn until the note with interest is fully paid. Assuming that the profits during the first year were just sufficient to warrant a distribution of profits leaving the investment undisturbed, and that there were no partial pay- ments Prepare journal entries giving effect to the above considera- tions, and trial balances showing the condition of the books at close as relating to the affected accounts : (a) Before payment of the note and interest (b) After payment of note, interest and dividends. 5. (15 Credits) Chart an organization and draft the following skeleton forms for an automobile manufacturing company. (1) Purchase Order Blank. (5) Production Order. (2) Requisition on Storeroom. (6) Betterment Order. (3) Inventory Tag. (7) Check Register. (4) Stores-Record Card (8) Journal Voucher THEORY OF ACCOUNTS MICHIGAN C. P. A. MANUAL 165 THEORY OF ACCOUNTS Friday, December 17, 1915, from 8:00 A. M. to 12:00 M. 1. (a). Does double entry bookkeeping require twice the work of single entry? If so, explain how. If not, explain why it is so called, and show why it does not. (b) Prepare a statement that could be secured from a set of books kept by single entry for an ordinary retail hardware store, tell where each item would be obtained, and make such entries as would be needed to change the books to double entry. 2. Indicate the difference in closing books kept for a business con- ducted by an individual, by a firm, or by a corporation. 3. Formulate a special-column cash book for some line of busi- ness, naming the kind. Make sufficient entries to illustrate ev- ery possible use of the columns. Close the same, marking all red ink work with (R). 4. Make entries in journal form for each of the following trans- actions : (a) You buy a bill of goods, list price $100.00, with trade dis- count of 20-10-5 ; (b) You buy a bill of goods, list price $100.00, subject to 2% discount if paid in 10 days, which you do; (c) February 14, you buy a note, face value $ioo.oc, given January 14 for 3 months, discounted at 6% ; (d) You buy goods from a concern under an agreement that if you purchase $12,000.00 worth during the year you will be allowed an additional discount of i% on all purchases for the year. Your purchases total $15,000.00 for the year and you deduct your i% for the year from the last bill when you pay it ; (e) You need money and you have your go-day note for $500.00 discounted at the bank at 6% ; 166 MICHIGAN C. P. A. MANUAL (f) You are making your annual statement and in arriving at your inventory value you discount the merchandise on hand 5% to cover shelf wear and tear; (g) You own a note given you by a customer, face value $i,- ooo.oo, drawing 5% interest, given December i for 4 months. You discount it at the bank today at 6%. 5. A man has saved $10,000.00 which is invested at 6%. He is working for a concern at a salary of $100.00 a month. He de- cides to go into business for himself. He invests his capital, forfeiting his interest. He devotes his time to the business, for- feiting his salary. At the end of the year his statement shows a profit of $2,000.00. Can the business be said to have made $2,000.00 or did it in reality only make $200.00 ? Discuss fully the accounting and economic principles involved. Suppose that instead of money loaned his capital had been in the form of a store rented for $100.00 a month and he cancelled 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 ? 6. What is a controlling account? Name those more commonly used. Illustrate and explain one in detail. 7. Give purpose of the following accounts, indicating whether debit or credit side of account should be larger, and tell how the account would be closed : reserve fund, sinking fund, depre- ciation, doubtful debts, bond redemption, dividend, royalties, organization expense, mortgage, goods in process. S. B owes you $1,500.00 on account, $750.00 of which will be due in 30 days. You ask permission to draw on him at 30 days sight, to which he agrees. You do so. He accepts draft. You discount it at 6%. He allows draft to go to protest. You pay $1.25 fees. Later he pays you in full, including fees. Make every entry involved in your books, including proper explana- tions. 9. Describe the use of all books where records are kept concerning "capital stock." 10. Construct a balance sheet for a national bank, showing every possible item which should appear in one. MICHIGAN C. P. A. MANUAL 167 THEORY OF ACCOUNTS Saturday, December 23, 1916, from 8:00 A. M. to 12:00 M.* 1. (a) What are the advantages of numbering accounts? De- scribe methods by which it may be done. (b) Explain differences between trial balance and balance sheet. 2. (a) Explain ways in which depreciation is figured. How is it treated in books? (b) Explain methods of treating accruals, indicating advan- tages and weaknesses of each? 3. (a) What are nominal accounts? How are they used? How closed ? (b) Distinguish between capital and revenue receipts and ex- penditures. 4. A company with an authorized capital of $500,000.00, $100.00 par value, issues 4,000 shares in payment of various properties. In order to secure working capital, the share holders return to the company three-eighths of their holdings to be sold at 50 and on the same day 500 shares are sold and paid for. How would you treat the matter? Draft entries and show ledger ac- counts and balances ? 5. A corporation sells first mortgage bonds at a premium and sec- ond mortgage bonds at a discount. Make a statement of facts, indicating amounts, percents and time? Make proper entries and explain the various methods of handling premium and dis- count on bonds. 6. (a) Describe in detail the handling of Imprest Cash. (b) Explain differences between funded debts and floating debts. 7. (a) Define and distinguish between a statement of income and expense and a statement of receipts and disbursements. (b) Explain what is meant by Contingent Liability and how it is handled in books. !68 MICHIGAN C. P. A. MANUAL 8. (a) What is the difference between reserve funds and reserves? (b) What is meant by deferred charges? 9. Explain the purpose of a clearing house, method of operation, and accounting procedure. 10. Prepare pro forma balance sheet and profit and loss account of some line or business, indicating the business in question. THEORY OF ACCOUNTS Friday, November 16, 1917, from 2:00 P. M. to 5 130 P. M. Candidates are required to answer six out of the following nine questions. 1. You are called upon to state what is the annual sinking fund necessary to redeem a principal sum of $1,000,000 due 30 years hence it being assumed that the annual sums set aside are in- vested at compound interest at 5%. State what computation you would make to arrive at the result desired. You need not work out the computation. 2. Discuss the relative merits of bound books and loose-leaf or card records for various accounting purposes. 3. Describe the form in which it is customary to submit accounts of trustees and executors to a probate court in any jurisdiction with which you are familiar. Enumerate the various schedules containing the details of such accounts and describe exactly what information each affords. 4. What are specification costs? What are their special advan- tages and disadvantages ? 5. Outline the instructions you would give to afford the head of- fice of a company adequate control over expenditures at its various plants for additions and replacement repairs and to en- sure uniform and correct accounting treatment thereof. 6. State the general principles to be adopted in valuing the inven- tory of a concern engaged in selling various articles, some of which it manufactures and others of which it buys complete. MICHIGAN C. P. A. MANUAL 169 7. The "X. Y. Z." Corporation, the accounts of which you are aud- iting, is an American company, and has as its principal asset an industrial plant purchased many years ago located in Mex- ico. It also has capital locked up in current inventories, accounts receivable, etc., incidental to the operation of such Mexican plant. For many years the Mexican accounts were reflected on the head-office books on the basis of $2 Mex. to $i U. S. A. Do you consider this proper at a time when Mexican exchange stands at, say, $i Mex.. equal to i8c U. S. A.? Assuming you feel that the situation requires adjustment, how would you pro- ceed to correct the American balance sheet? 8. Define Deficiency Account, Amortization, Consolidated Bal- ance Sheet, Depreciation, Contingent Liability and Controlling Account. 9. The prospective purchaser of a business employs you to exam- ine the accounts. What important facts should you give your client in such a case? ' THEORY OF ACCOUNTS Friday, May 17, 1918, from 2:00 P. M. to 6:00 P. M. The candidate is required to answer questions I and 2 and four other questions. i. Smith, Hill and Davis form a partnership under an agreement that Smith is to have a salary of $200.00, Hill $150.00, and Davis $100.00 a month respectively. The profits are to be di- vided in proportion to the amount of business secured by each partner. The partners are to be individually responsible for any direct losses arising from their own business. They are in business nine months, at the end of which time their books show as follows : Smith's sales $5,310.00 Hill's sales 3,100.00 Davis' sales 3,200.00 Net profits 2,468.50 170 MICHIGAN C. P. A. MANUAL They then decide to rescind the salary agreement, treating any salary drawn as an advance, but otherwise to divide the profits according to the original arrangement. You find errors during the nine months' period, namely : Office furniture, charged' to operation $65.00 Funds lent by Davis, credited to his salary account 400.00 and open items not entered on the books as follows : Smith's salary (ninth month) $ 200.00 Hill's salary (ninth month) 150.00 Advertising 27.50 Clerk hire 130.00 Telephone 6.00 Rent 50.00 Stationery 15.00 Accounts receivable, Smith's business, uncol- lectable 210.00 and that the sales represent a gross profit of 100% over cost of merchandise. State journal entries necessary to readjust the accounts; and prepare a corrected profit and loss account and a statement of the distribution of the profits. 2. The A Company buys on January I, 95 per cent of the stock of the B Company. The balance sheet of the latter company on that date is as follows : ASSETS LIABILITIES Property account $ 500,000 Capital $1,000.000 Current assets 850,000 Surplus 100,000 Current liabilities 250,000 $1,350,000 $1,350,000 The A Company pays par for 90 per cent of the stock and 120 for 5 per cent of it. During the next six months a doubtful claim of the B Company, which prior to January I had been written off, turns out to be good and $5,000 cash is realized on it. At the end of the first six months B Company has made $100,- ooo net profit from operations, and a dividend of $200,000 is paid. MICHIGAN C. P. A. MANUAL 171 In making up a consolidated balance sheet of A Company and its subsidiary at January I (date of purchase), state, giving briefly your reasons, how you would treat : (a) A Company's interest in the B Company and at July I (b) The doubtful claim recovered (c) The dividend paid (d) The interest of outside B stockholders in B Company. 3. In auditing the books of a corporation you find that, in order to provide a sum to redeem a mortgage of $100,000 falling due at the end of 10 years, a reserve of $8,000 per annum has been set aside annually for three years, but that, contrary to inten- tion, the company has failed to accumulate interest thereon. Assuming interest at 4 per cent (convertible annually) what should have been the total accumulations to date, and what amount should now be set aside annually for the next seven years in order to complete the sinking fund? (i.O4) 7 =i.3i593. 4. Describe the following and state some of the respective ad- vantages and disadvantages of each : (a) Voucher system (b) Loose-leaf system (c) Cash journal. j. Name two methods of distributing the overhead or indirect expense of a factory so as equitably to transfer such expense to the cost of the different articles manufactured. What ad- vantage has either method over the other? 6. Should a manufacturing concern invoice its goods sent to a branch house (i) at selling price, or (2) at the prevailing wholesale price of the same or similar goods obtainable in open market, or (3) at cost? State the reasons fully. 7, (a) What books of record are necessary in addition to the books of account, for a corporation existing under the laws of your state? (b) Of what value would such records be for the purposes of an audit? 6. What general principles should be observed in differentiating between capital and revenue expenditures? 9. Give illustrations of "diminishing' or 'wasting" assets. How should they be treated ? 172 MICHIGAN C. P. A. MANUAL THEORY OF ACCOUNTS Tuesday, November 19, 1918, from 2:00 P. M. to 6:00 P. M, Answer any eight of questions I to n and any four of questions 12 to 18 and no more. 1. Mention and explain two common views concerning the treat- ment of donated capital stock. 2. What is the status of a company in the hands of the Alien Property Custodian with regard to the capital stock tax as re- quired by the revenue act of September 8, 1916? 3. A manufacturing concern having several branch offices for the sale of its product is in the habit of billing the branches at a wholesale price and expects each branch to show a profit. A balance sheet is prepared in which the current accounts with the branches (after closing out their profits and losses into head office) are carried as accounts receivable. These branches carry a considerable stock of merchandise and have their own ac- counts receivable and possibly some outstanding accounts pay- able. How would the above balance sheet have to be modified in order to show correctly the financial condition of the busi- ness? 4. (a) What items do you consider should be charged or credited direct to surplus? (b) Would you regularly make small adjustments of subse- quently discovered errors through this account? (c) Is the balance to credit of surplus ever in any circumstan- ces a liability, and if so, to whom? 5. Give some idea of what taxes you would charge against income and what against surplus. Of the former, which, if any, would you take up into manufacturing costs? What provision, if any, would you make for income and excess profits taxes in closing accounts before the passing of a pending act levying these taxes, either in general circumstances or when profits are partly divisible under some special contract or arrangement ? MICHIGAN C. P. A. MANUAL 173 6. Give some principles to determine a proper disposition of the cost of enlarging a plant, including a partial re-building of the old portion. In case you have insufficient data to enable you to apply these principles satisfactorily, offer some solution of the difficulty. 7. What are the distinguishing characteristics of the "corporation" as compared with other forms of business organization? What privileges does it carry and what, if any, are its disadvantages? 8. There is a confusion in the minds of many people between state- ments of "revenue and expense" on the one hand and of "re- ceipts and payments" on the other hand. Discuss the distinctive features of such statements showing wherein they differ. 9. Can you suggest any circumstances in which good-will would appear in the books of a partnership? 10. A company makes machines of a highly technical nature which it rents out, but refuses to sell, to its customers. These ma- chines, if kept in good order, are calculated to last almost in- definitely, but say for at least 20 years. They are, on the other hand, liable to be superseded at any time by new devices or methods. How would you treat the original capital value on the books of the company? (Assume that two years' rental would, in each case, liquidate the first cost.) 11. What are the present requirements of the federal reserve banks in regard to the verification of the accounts of companies whose paper is submitted by member banks for rediscount? 12. Enumerate the essential heads of information which ought to be brought out in statements prepared for the information of bankers for credit purposes. W 7 ould you or would you not am- plify such information in a statement prepared for the infor- mation of (a) Officers and directors; (b) Shareholders of a company? 13. On December 31 the office of a company with which you have previously been connected as auditor is burned and all its rec- ords completely destroyed. Its plant is, however, saved, and its I 7 4 MICHIGAN C. P. A. MANUAL business can be continued without any break. You are called upon to assist in the preparation of a balance sheet and open up new books without delay. How would you proceed? You have in your possession a balance sheet prepared by yourself at the close of the preceding year. You will incidentally also be required to prepare the company's returns for income tax purposes. 14. Define corpus and income and state clearly what they mean in dealing with the accounts of a decedent's estate. Outline the books you would keep in order properly to record transactions affecting such an estate, it being assumed that the will calls for the division of the estate into a number of trusts, some of which carry life rents to certain beneficiaries with a different applica- tion ultimately of the principal. 15. State the rules which govern the Treasury Department either under law or under its official rulings with relation to the de- duction of any four out of the following seven classes of de- ductions from gross income in preparation of returns of net revenue : (1) Bad debts and reserves for them; (2) Depreciation of horses; (3) Depletion of coal in a coal mining company; (4) Depletion of oil in an oil producing company; (5) Donations and charity; (6) Salaries of officers of a corporation ; (7) Excess profits tax in its relation to income tax and vice versa. 1 6. Give a pro forma monthly operating and profit and loss state- ment for any one of the following industries, introducing a statistical statement showing unit costs or any other useful cost data which may be practical : (a) A brewery; (b) A flour mill ; (c) A coal mine; (d) An oil development company with producing wells; (e) A foundry; (f) A rolling mill producing steel rails. MICHIGAN C. P. A. MANUAL 175 ACTUARIAL QUESTIONS ( OPTION AI,) 17. A corporation wants to retire a debt of $105,000 bearing 5% interest payable monthly. The tenth payment, including inter- est, is to be $15,000. The other nine periodical payments are all to include interest and to be of the same amount. Required the amount of each of such nine payments (1.05= 1.551328). 18. A $10,000 five per cent semi-annual coupon bond is bought on a 4 per cent basis due i]/2 years hence. What did it cost? THEORY OF ACCOUNTS Tuesday, June 10, 1919, from i :oo P. M. to 4 :oo P. M. 1. (a) Name and explain several deferred charges to expense. (b) Name several accrued liabilities. (c) Present a National Bank Statement in proper form in- tened to indicate a stock value of 160. 2. (a) Explain how overhead cost is apportioned. (b) What do you mean by accrued manufacturing expense? 3. Prepare a graphic chart showing three business facts which you wish to present to the manager of the business. 4. Outline in order the various steps you would take in handling labor tickets. 5. (a) Illustrate accounts that are considered as deductions from income. (b) Illustrate mixed accounts. (c) Illustrate how to handle goods sent out for sale or return. 6. (a) Name and explain the various methods by which cost ac- counts may be handled bringing out clearly among other items the difference between the specific order plan and the process plan. (b) Name the ways in which depreciation is figured and ex- plain the advantages of each. 1 7 6 MICHIGAN C. P. A. MANUAL 7. Explain the accounting required by an administrator or an ex- ecutor. 8. How should the books of branch houses be kept in order that although entirely independent they may be included in the books of the main concern? 9. Name and explain the main features of the voucher system. 10. Prepare an organiaztion chart for some particular business. ' AUDITING MICHIGAN C. P. A. MANUAL 179 AUDITING Saturday, December 18, 1915, from i :oo P. M. to 5 :oo P. M. 1. The machinery used by a concern was purchased on the install- ment plan, monthly payments, title to pass on last payment. At close of year several payments are not due and therefore un- paid. The concern also pays a royalty on the output of the machines bought in this way. How would you deal in your audit with machinery, installments paid, and royalty? 2. A corporation has sufficient cash on hand to pay a 6% dividend. Before doing so the directors ask you to look over their records and advise them. It is not to be a detailed audit. What points would you be careful to examine before reporting? Name con- ditions under which a dividend would not be advisable. 3. A concern needed an addition to its plant. Not having enough ready capital, they borrowed money and when the interest was paid it was charged to the "plant'' account on the theory that it was not an expense in the ordinary conduct of the business and therefore not be charged to the regular interest and discount account but might with propriety be charged as a part of the addition. Is the theory sound ? 4. Outline an audit made by you this year, indicating character of business, books used, and order of procedure. 5. A manufacturing concern during a slack period used its own labor and material for the purpose of construction and charged the "plant" account with the value of the work done at the price it would have cost if outsiders had been employed. What would you say about it in your report ? 6. (a) How would you treat money received on stock subscrip- tions from persons who afterward forfeited their stock by non-payment of other installments? i8o MICHIGAN C. P. A. MANUAL (b) A company buys $5,000.00 of its own stock for $4,000.00. The entry that is made debits Treasury Stock $5,000.00, credits cash $4,000.00, and credits Loss and Gain $1,000.00. State why you approve or disagree. 7- Write a two-hundred-word paper explaining whether "Capital Stock" account should be credited for the authorized amount, the subscribed amount, or the paid-in amount, giving illustra- tions of all possible entries. 8. In a business consisting of five separate departments there is kept a general ledger containing capital account, the speculative accounts such as merchandise, expenses, etc., and accounts with each separate department, sales ledgers containing the accounts of customers, and a purchase ledger containing the accounts of foreign and domestic creditors. In the general ledger each department account is charged with all purchases made for the department and credited with cash received and allowances on account of sales of said department. The sales ledgers contain the different customers' accounts, showing charges for sales and credits for cash, allowances, etc., on account of sales. The purchase ledger contains the accounts of the different creditors showing credits for merchandise and charges for cash. In making an audit of the books, how would you determine that the profit or loss for each department had been properly stated for a given period? 9. A and B formed a partnership in a manufacturing business, each contributing $25,000. The business was conducted in a building owned by B, for which B was to be paid $10,000 rent per year. During three given years the profits averaged $10,- ooo, and A drew out $1,000, $5,000 and $10,000 in the respective years, and B drew out $3,000, $4,000 and $5,000. The rent account was adjusted in the books by crediting B in each year with $5,000, and charging this amount in the first year to A, the second year to expense, and the third year to B. In an audit of the books how would you state the accounts at the close? TO. Outline a method of determining the efficiency of labor in a factory. MICHIGAN C. P. A. MANUAL 181 AUDITING Saturday, December 23, 1916, from I :oo P. M. to 5 :oo P. M. 1. Explain in detail the methods of auditing a pay roll, indicating the special points which you would investigate for the purpose of determining whether fraud had been practiced? 2. In making an audit of a corporation, you find an account on the ledger with Podunk Railroad Bonds. This account is charged under date of March I, 1913, with $105,000.00, same being the cost of $100,000.00 first * mortagage bonds bearing interest at 5% payable January I and July I of each year. No part of the premium has been charged off but Interest account has been credited for the semi-annual payments of interest. Those bonds were purchased on a 4% semi-annual basis. You are making the audit as of December 31, 1916. With this in- formation in hand, you are to prepare a schedule showing the book value of the bonds at each interest payment period, the interest received, the income and amortization for each period on the basis on which the bonds were bought, also the necessary journal entries to adjust the accounts on December 31, 1916. 3. Explain in detail an audit which you have made this past year? 4. Write a one-thousand-word statement containing instructions which you would give to a young fellow just entering your ac- counting office on the subject of working papers. 5. You are asked to certify to the balance sheet of a company, a copy of which has already been issued to the companies' bank- ers and note brokers and it is desired that you accept the classi- fication of assets and liabilities which has been made. The fol- lowing points are noticed by you in examination of the same : ( i ) Under the general title "real estate, plant and equipment" there is an item of $15,000.00 for land purchased five years ago upon which it was intended to erect a branch factory. 1 82 MICHIGAN C. P. A. MANUAL (2) The Accounts Receivable are stated at a lump sum and an analysis shows that amount to include customer's ac- counts, amounts due by officers and employees, unpaid cap- ital stock, subscriptions, advanced payments on merchan- dise purchased and unpaid bonds owned by the company but two months overdue. (3) The reserve for loss on customer's accounts is shown as a separate item on the liability side of the balance sheet. (4) The Accounts Payable account includes a balance due to a subsidiary company. Would you accept the client's classification at all points? If not, what changes would you make? 6. (a) How is it possible in the ordinary audit to determine that all liabilities are .properly entered in the balance sheet ? (b) How is it possible in case of a fire where a perpetual in- ventory is not kept for the auditor to prepare a claim for insurance ? 7. Explain the methods you would use to prove the correctness of the items in a balance sheet relating to cash, bills receivable, accounts receivable and reserve for bad debts. 8. You are asked to prepare a report upon a manufacturing con- cern for a prospective customer. Name the points which you would desire to investigate and the tests which you would place upon the business in such a report. 9. In auditing the accounts of a corporation, you find the follow- ing entries in one month without explanation : Profit and Loss to Accrued Sinking Fund $ 8,333.33 Accrued Sinking Fund to Reserve for Sinking Fund 100,000.00 Union Trust Co., Trustee, to Accounts Payable... ioo,ooo.co Accounts Payable to Cash 100,000.00 Sinking Fund, No. I, to Union Trust Co., Trustee. 100,000.00 Reserve for Sinking Fund to Profit and Loss 100,000.00 Prepare a statement showing what you consider the situation was which brought about such entries and what recommenda- tions you would make ? MICHIGAN C. P. A. MANUAL 183 10. (a) How would you disclose on a balance sheet of a contractor a building which was 60% complete but no part of which had been accepted? (b) With the present trend toward prohibition, what accounting proposition would you make in the books of a corporation owning a brewery in order to maintain its financial integ- rity before authorizing the declaration of a dividend? (c) What contingent liabilities would you look for in the books of a public utility? (d) How would you verify treasury stock? (e) How would you treat the various accounts in a consolidat- ed balance sheet if the capital stock of the subsidiary com- panies was less than that of the holding company? AUDITING Thursday, November 15, 1917, from 9:00 A. M. to 12:30 P. M. 1. You are required to make a detailed cash audit for three years ending October 31, 1917. You find a disbursement for "Rent October 1914, $1,000.00" on November 6, 1914. You are told the receipt is missing and a duplicate, cannot be obtained. You are shown as a voucher a check dated November 6, 1914, payable to the landlord or order for $1,000.00, endorsed with a rubber stamp and marked by the clients' bankers "paid." State with your reasons whether you would accept this as suffi- cient evidence that the payment was made as recorded and, if not, what course you would adopt. 2. How would you proceed in a cash audit of a club or fraternal order to ascertain whether the treasurer had charged himself with all dues paid by members to him? 184 MICHIGAN C. P. A. MANUAL 3. You receive the following letter : We have never had our books audited but are contemplating an audit now. Two of our friends have recommended you to us. Both have businesses similar to ours but their advices as to the time required are very different. Do you carry out different kinds of audits? If so, what are the different kinds and under what cir- cumstances do you recommend one kind and when another? Write a reply. 4. What different classes of obligations and liabilities should be disclosed in an audit for credit purposes ? How would you ver- ify those recorded on the books and how would you try to dis- cover any not so recorded? 5. You are employed to instal a system for a large business which your clients have acquired. Your recommendations are adopt- ed at the beginning of a fiscal year. At the close of the year you are elected by the stockholders to audit the accounts for the year. State what procedure you would follow in examining the charges to property accounts, and the objects of the various steps in that procedure. 6. What are the essentials of an audit certificate in an audit for credit puropses? 7. How far are the duties of an accountant auditing the books of a company affected by the character and extent of the company's system of internal check? 8. In auditing the accounts of a trustee under a will, what special matters require to be dealt with which do not arise in the audit of a business concern? 9. Prepare a bank reconciliation showing at least three different classes of items constituting the difference between the figures being reconciled and state how far you would investigate such items in a cash audit. TO. A company has insured the life of its president for its own benefit, and is carrying the amount of premiums paid in its bal- ance sheet? What position would you as an auditor take in regard to these premiums? MICHIGAN C. P. A. MANUAL 185 AUDITING Thursday, May 16, 1918, from 9:00 A. M. to i :oo P. M. 1. What would you consider satisfactory evidence of the correct- ness and propriety of expenditures, of the following classes : Wages paid Expenses of president Land purchased Pensions paid to ex-employes Salary of president Directors' remuneration? Commission paid to bankers for sale of bonds 2. Give either the classification of notes and accounts receivable suggested in the Federal Reserve Bulletin for April, 1917, for use in audited statements for credit purposes, or an alternative classification. 3. How is the position of an auditor affected if the system of the concern under audit is defective : (a) As to internal check (b) As to cost methods? 4. In the machinery account of a company under audit, you find the following among other items : Dr. Purchase of two machines, Type A, including freight. . $8,000 Gost of removing a disused machine, Type B, to make room for new machine 160 Cost of installation of two new machines 280 Alterations to four Type C machines, necessitated by change in product 640 Cost of moving two machines from Building A to Build- ing B to permit of more economical operation, in- cluding reinstallation 270 Cr. Sale of old machine, Type A (less cost of removal and freight) $1,264 Sale of old machine, Type B . . 1,470 186 MICHIGAN C. P. A. MANUAL The balance on machinery depreciation account shows an in- crease for the year of the amount provided out of income which is computed at the rate of 4% on the balance of machin- ery account at the commencement of the year. The method of keeping the machinery and machinery depreciation accounts has b.een in force from the commencement of operations. Draft your comments as auditor of these accounts, assuming that no items other than those above mentioned call for any comments. 5. Prepare a program for an annual audit of the accounts of a trust estate. (It is not necessary to deal with special transac- tions, such as occur in connection with the original creation of a trust.) 6. Draft a form of audit certificate to accompany a balance sheet which is to be published in the annual report of a corporation. 7. State two methods which have been used to conceal thefts of cash and also procedure in an audit which would disclose such irregularities if they should exist. 8. What is the extent of an auditor's responsibility in respect to the classification of assets and liabilities in a balance sheet which he certifies? 9. Outline the work which should be done in connection with notes and bills payable in an audit for credit purposes of a merchan- dising company. 10. How would you proceed if the accounts of a corporation which you were auditing were in your judgment incorrect and you were unable to induce the officers to make the changes you deemed imperatively called for : (a) If you had been elected as auditor by stockholders (b) If you had been appointed by the directors (c) If you had been instructed by the president on the request of the company's bankers or note-brokers? MICHIGAN C. P. A. MANUAL 187 AUDITING Monday, November 18, 1918, from 9:00 A. M. to i :oo P. M. Answer ten of the following twelve questions and no more. 1. How would you proceed to audit the books and accounts of the treasurer of a local Red Cross chapter? What evidence would you require as to the propriety of disbursements, and how would you ascertain that all receipts were duly recorded? 2. Draw up an outline of a report on your audit of the accounts of a corporation that has recently erected a large apartment house. Assume your instructions covered the period of erec- tion and at least one year of operation. 3. A corporation has issued $1,000,000 of 6 per cent 2O-year bonds at 90 and for 8 years has written off 5 per cent of the discount each year. Last year an opportunity occurred to buy in $200,- ooo at 85, which was done and the bonds cancelled. The direc- tors propose to take up into their year's revenue $30,000, the discount saved upon extinction of this liability. Do you ap- prove? If not, what course would you advise, or, if they in- sist, how would you act? 4. "Inventory of merchandise should be carried at cost or market, whichever is lower." Do you assent to this proposition? Can you suggest circumstances in which you would approve a de- parture therefrom? Would you be influenced by events cr con- ditions subsequent to the date of closing the accounts? Give reasons. 5. Assume you are to audit periodically the accounts of the trus- tees of a decedent's estate, holding a large number of invest- ments, and frequently adding thereto. Outline a plan for your own guidance to detect the failure to collect or record the in- come from such investments. What would be your attitude regarding accrued interest or dividends in closing the accounts periodicaly ? 1 88 MICHIGAN C. P. A. MANUAL 6. Give some general principles which will guide you in determin- ing whether too much or too little provision has been made for depreciation of buildings, machinery, tools, good-will, patents, franchises. Would a flat rate cover all these assets satisfac- torily ? 7. On pointing out the insufficiency of the provision for deprecia- tion on machinery, which the directors admit, you are met with the argument, supported by evidence, that the real estate values have appreciated to an even greater extent than the entire depre- ciation of other assets. As this latter is not taken up on the books you are asked to allow the one to offset the other. Give reasons for your agreement or disagreement. 8. A financial institution has a large amount of capital invested in mortgages which are constantly changing. Suggest a plan for confirming by averages and without a complete detailed examin- ation of every account, the amount of income on this investment taken into profit and loss account for a year under examination. 9. State how you would satisfy yourself that all outstanding lia- bilities of a business are properly taken up in the balance sheet. Point out what you would like to find by way of system that would .simplify this task. How would you indicate on the bal- ance sheet as of December 31 : (a) Preferred dividend (cumulative) due the previous No- vember i not declared (b) Ordinary dividend for the year, declared the following January 22 (c) Ordinary dividend declared December 30, payable Feb- ruary i ? 10. Your verification of the securities of a corporation has to be made at a date about two months subsequent to the date of the balance sheet you are asked to certify. Can you suggest steps which will enable you to do this without risk of overlooking serious overstatement? 11. In auditing the books of a club with a restaurant, bar and cigar- stand you are not satisfied that supplies are properly accounted for, although an inventory is supposed to be taken every month. How would you set about verifying your suspicions regarding the more expensive commodities (wine, liquors and cigars) ? MICHIGAN C. P. A. MANUAL 189 12. Indicate what would guide you in examining and criticizing accounts receivable carried on the branch office books of a bus- iness. What would you require before : (a) Accepting the debts as good or (b) Writing off those you were told were bad? AUDITING Tuesday, June 10, 1919, from 8:00 A. M. to n :oo A. M. 1. (a) How will you check cash receipts and verify cash balances? (b) How will you verify inventories? 2. (a) Illustrate different kinds of secret reserves. (b) Are secret reserves legal? (c) How should they be treated ? (d) What is watered stock? (e) How should it be treated in audit reports? 3. Prepare a detailed statement of procedure of an audit which you have made within one year. 4. (a) A corporation has been organized with both preferred and common stock, the preferred carrying cumulative divi- dends. How will you indicate arrears in dividends on the preferred stock? (b) How will you show in the balance .sheet bonds which have been put up as collateral and the indebtedness for which they are collateral ? 5. If the state should pass a law placing all persons, partnerships, and corporations dealing in real estate under the supervision of the banking commissioner and you were appointed as head of a division having charge of them, what points would you instruct your inspectors to specially observe in making their audits ? 190 MICHIGAN C. P. A. MANUAL 6. A is a holding company controlling B, which is a company own- ing natural resources, C, which is a company using said nat- ural resources as a basic material in manufacturing, and D, which is a company selling the output of the factory. You are auditing the books of A. What steps should be taken to verify inter-company transactions? If the books of B, C, and D are not available, and balance sheets and profit and loss statements are, under what conditions can you safely use them? 7. (a) Explain how sinking funds are created, carried, and dis- posed of? (b) Make the entries illustrating the sale of bonds at a discount and at a premium. (c) Appreciation of real estate has occurred to such an extent as to present a largely increased surplus, what will you say to this in your report. 8. Name five common methods of defalcation and explain the steps which you would suggest to detect each of them. 9. The total expense of a department for a month is $4,000, the total production pay-roll of the department for a month is $2,000. The men worked 26 days an average of Sj/ 2 hours per day. The department has sixteen machines each of which has an operator, one assistant helper is employed for each 4 ma- chines and one foreman is employed; what is the hourly pro- cess rate? 10. (a) A manufacturing concern issued bonds and transferred them to the contractor who erected the plant at 90 but charged the same to the building account at 100. Explain in full whether or not this is right. (b) In consolidating two banks at what value should the bond investments be set up? COMMERCIAL LAW MICHIGAN C. P. A. MANUAL 193 COMMERCIAL LAW Saturday, December 18, 1915, from 8:00 A. M. to 12:00 M. J. (a) Give a definition of kiting transactions as applied to com- mercial paper. (b) Give a concrete example of kiting checks. (c) Give a concrete example of kiting drafts. (d) If a bank knew that one of its customers habitually kited checks and drafts placing them to the credit of his account at the bank, would it be a holder in due course with refer- ence to such depositor's paper? 2. (a) How many subscribers are necessary to form a corpora- tion under Act 232 as amended of the Public Acts of Mich- igan for 1903 relative to the formation of manufacturing and mercantile companies? (b) What are the minimum and maximum amounts for which a company can be incorporated under this Act ? (c) What is the difference between authorized capital stock, subscribed capital stock, and paid up capital stock? (d) What information must be contained in the corporation's annual report to the Secretary of State? (e) What is the purpose of this annual report and what conse- quences may be visited upon the company for not riling it ? 3. (a) Assuming that a Michigan firm has signed articles of co- partnership, what other initial step is necessary before it can commence business? (b) If such firm enters into contracts without taking the step indicated by your answer to the foregoing question, can such contracts be enforced in Court at the instance of the co-partnership ? (c) Can they be enforced in Court against the offending part- nership ? (d) What initial step is necessary before a person can do bus- iness in Michigan under a fictitious or assumed name? (e) What consequences will be visited upon a person who does business in Michigan under a fictitious or assumed nam? without complying with the law indicated in your answer to the foregoing question ? 194 MICHIGAN C. P. A. MANUAL 4. (a) Give an exposition of the rights, duties and liabilities of a warehouseman. (b) Give an exposition of the rights, duties and liabilities of the holder of a warehouse receipt. (c) What is meant by the lien of a warehouseman? (d) What is the purpose of uniform warehouse receipt laws? 5. (a) When was the present Bankruptcy Law enacted? (b) Is the Bankruptcy Law of state of federal origin? (c) What is the purpose of bankruptcy laws? (d) Distinguish between Trustee in Bankruptcy and Referee in Bankruptcy and give the general duties of each. (e) What are some of the debts not dischargeable in bank- ruptcy ? 6. (a) Jones, a Detroit merchant, is about to sell his stock of mer- chandise to Smith. Enumerate the legal steps Smith should insist upon before parting with his money. (b) Does the Bulk Sales Law apply to a sale of a stock of merchandise having a value not exceeding $250.00, provid- ing the retailing of such stock is the business in which the vendor is principally engaged? (c) Does the Bulk Sales Law apply to a transfer by foreclos- ure of a chattel mortgage? (d) Do general creditors as well as merchandise creditors have to be served with notice under the Bulk Sales Law ? . (e) If you were auditing the books of a mercantile institution preparatory to a purchase of the stock and business by your client, would you suggest to your employer the ob- servance of the Bulk Sales Law? 7. (a) Name two instances in which building and loan associa- tions possess preferential immunity under the laws of Michigan. (b) Give the reasons advanced by such associations for the special privileges they enjoy under the law. 8. (a) Is a promissory note dated and delivered on Sunday valid? (b) Is a promissory note dated and delivered on a legal holiday valid? (c) Is it necessary to protest foreign bills of exchange under the Negotiable Instrument Law? MICHIGAN C. P. A. MANUAL 195 (d) Jones gives Smith his note and the latter sells the note to a bank in due course. Enumerate the legal steps which should be taken by the bank at maturity of the note. (e) Are days of grace allowable under the Negotiable Instru- ment Law of Michigan? 9. (a) What rate of interest should be computed on a contract which calls for interest but does not specify the rate? (b) Jones loans Smith $1,000.00 taking Smith's promissory note payable in one year with interest at the rate of eight per cent per annum. What amount can Smith be com- pelled to pay at maturity ? (c) What is usury? (d) If a bank or any other person or institution loans money on real estate mortgage reserving interest at seven per cent per annum and requires the mortgagor to pay the mortgage tax, what is the legal status of this transaction? (e) If a forged promissory note gets into the hands of a bona fide purchaser for value and without notice, can he enforce payment against the party whose name is forged? 10. (a) Can a husband and wife become business partners in Mich- igan so as to render the wife personally liable for the part- nership debts? (b) A husband and wife purchased property for their joint use giving their joint note. Is the wife liable on such note? (c) A married woman having property in her own name signs a bond as surety. Is she liable on such bond? (d) Can the holder in due course of a check enforce payment against the maker where the latter stops payment before the check is honored by the bank upon which it is drawn? COMMERCIAL LAW Friday, December 22, 1916, from 8:00 A. M. to 12:00 M. I. (a) What is a municipal corporation? (b) What is a public utility corporation? (c) Classify the following corporations: cities, townships, school districts, street railway companies, railroad com- panies, automobile manufacturing companies, banks, tele- phone companies. I 9 6 MICHIGAN C. P. A. MANUAL 2. (a) What is meant by the commission form of government? (b) Name the advantages and disadvantages of this system of government. (c) What is meant by the general manager plan in connection with municipal government? (d) About how many cities in the United States are now oper- ating under the commission form of government? 3. (a) What fundamental principle underlies Workmen's Com- pensation Laws? (b) Does the operation of this law affect the profits of the em- ployer, or the cost of the product, or both? (c) What is an occupational disease? 4. (a) What is interstate commerce ? (b) What is intrastate commerce? (c) Which of these is within the jurisdiction of the states and which within the jurisdiction of the federal government? (d) What is the purpose of the Federal Trade Commission? (e) Does the Federal Trade Commission have jurisdiction over any of the following: state or national banks; railroads; intrastate commerce ? 5. (a) What are the arguments or reasons favoring the formation of a partnership to conduct a business? (b) What are the reasons favoring the formation of a corpor- ation ? (c) How may the form of organization affect the following: taxation; credit of company; liability of members; disso- lution of company? (d) What is a special partnership? 6. (a) What are the reasons favoring the formation of a corpora- tion to conduct a business ? (b) What is the minimum number of stockholders required to form a corporation in Michigan? (c) What is the status of the company if all of the stock is purchased by one stockholder? (d) Can a legal dissolution be effected by a sale of all of the corporate assets and the filing of a notice with the Secre- tary of State, or must other steps be taken? (e) Is it necessary that the secretary of a corporation be a stockholder and director? MICHIGAN C. P. A. MANUAL 197 7. (a) What is an express contract? Give an illustration. (b) What is an implied contract? Give an illustration. (c) What is a void contract? Give an illustration. (d) What is a voidable contract? Give an illustration. (e) What is a unilateral contract? Give an illustration. 8. (a) What is a wagering contract? (b) Are wagering contracts enforceable? (c) What is novation in the law of contracts? (d) What is duress? 9. (a) What are the rules for the appropriation of payments made by a person w r ho owes several debts to the same creditor? (b) How should a payment on an interest bearing debt be ap- plied? 10. (a) When do taxes become a lien on real estate in Michigan, in the absence of special charter provisions? (b) Land is conveyed by warranty deed after the assessment roll is completed but before the taxes become a lien. Who must pay the taxes, the grantor or grantee? (c) Jones owns a stock of merchandise which is assessed to him at $10,000.00 for 1916. In September, 1916, he sells the stock to Smith, warranting it free from liens, etc. Who must pay the 1916 taxes? 11. (a) What is the Statute of Frauds as applied to real estate? (b) What is the Statute of Frauds as applied to personal prop- erty? ' (c) Can a real estate agent recover commission if the contract with his principal is not in writing? 12. (a) What is meant by a joint deed? (b) When one of two joint tenants dies, is his interest in the joint deed property a part of his estate? (c) What are the advantages and what the disadvantages of holding real estate by joint deed? 13. (a) The Michigan law (Act 164 of 1913) requires all copart- nerships to file with th^ county clerk of the county where their business is located, a certificate, and provides a pen- alty for doing business without compliance with this law. What information must be contained in this certificate? I 9 8 MICHIGAN C. P. A. MANUAL (b) What is the status of contracts made by firms where no certificate has been filed? 14. (a) What contracts can married women enter into in Michi- gan? (b) Is a married woman's endorsement on a note or her signa- ture as surety on a bond, legal and binding if she has prop- erty in her own name? 15. (a) What is the legal rate of interest in Michigan, and what is the contract rate? (b) A promissory note is silent upon the subject of interest. Does this note draw interest, and if so, at what rate, and from what date? COMMERCIAL LAW Thursday, November 15, 1917, from 1 130 P. M. to 5:00 P. M. The Negotiable Instrument and Bankruptcy Acts will govern the correctness of the answers of questions I to 6 inclusive. NEGOTIABLE INSTRUMENTS Answer two of the following four questions 1. What is the purpose of a protest? What instruments must be and what may be protested? What instruments need no pro- test? 2. Is the following note negotiable or not? Give reasons. New York, October I, 1917. One month after date I promise to pay to John Smith Five Hundred Dollars for value received, negotiable and payable without defalcation or discount. (Signed) HENRY JONES. 3. What is the legal effect of endorsing an instrument in blank? 4. A past due note, endorsed by the payee, but not marked paid, is found by an administrator among the deceased maker's ef- fects. What is the rule of law as to the presumption of its payment ? MICHIGAN C. P. A. MANUAL 199 BANKRUPTCY Answer one of the two following questions 5. Who may take advantage of the Bankruptcy Act voluntarily, and who may be forced into involuntary bankruptcy? 6. Mention the principal acts which constitute acts of bankruptcy. Answers to the following questions are governed by the common law CONTRACTS Answer two of the three following questions 7. What does a seller impliedly warrant in the sale of a chattel? 8. When may a creditor enforce a contract with a minor? 9. Explain what is meant by : a. An executory contract f. An express contract b. An executed contract g. A covenant c. A void contract (Give example) d. An implied contract (Give example) e. A voidable contract (Give example) CORPORATIONS Answer two of the three following questions 10. What is meant by cumulative voting? Describe and state when it is frequently practised. 11. The president and secretary of a mercantile corporation seal, execute and deliver in the company's name a mortgage on the company's real estate, without the authority of the directors. The company receives adequate value therefor. Can the holder foreclose in the case of default? Give reasons. 12. Describe briefly the more important powers and duties of the directors of a mercantile or manufacturing corporation, and state some acts ( i ) which would render the directors personally liable (2) be ultra vires on the part of the corporation. Ex- plain what ultra vires means. PARTNERSHIP . Answer both of the following questions 13. A, B, and C respectively contribute ten, eight and six thousand dollars to the capital of a partnership. How should the result- ing losses and gains be distributed in the absence of any agree- ment as to their distribution? 200 MICHIGAN C. P. A. MANUAL 14. A and B are partners. A dies. The assets are found to be worth only 75%of the liabilities in liquidation. A's estate is solvent, while B is insolvent. What are the rights of the firm's creditors against A's assets not invested in the partnership, and what are the rights of B's personal creditors as to the partnership assets ? State the rule governing such cases. INCOME: TAX Answer one of the two following questions 15. Under what circumstances and to what extent may losses in- curred in speculation be declared from gross income of an in- dividual and a corporation respectively in ascertaining net in- come subject to the Federal Income Tax? 16. When must returns of net income be made under the Federal Income Tax Law and when 'is the tax thereon payable? Who are required to make such returns ? COMMERCIAL LAW Thursday, May 16, 1918, from 2 :oo P. M. to 5 130 P. M. Give your reasons for all answers. The Negotiable Instrument Act will govern the correctness of the answers I to 6 inclusive. NEGOTIABLE; INSTRUMENTS Answer three of the following six questions but no more A promissory note is by its terms payable in stated instalments with a provision that upon default in payment of any instalment or interest the whole shall become due. To what extent is the note affected thereby? A executes and delivers to B an undated negotiable note, pay- able 60 days after date. B inserts a wrong date (not the date of delivery) and the note passes in due course to C. What is the effect of the insertion as to the maturity of note as to C? Does it avoid the instrument in his hands? Must the authority of an agent to execute and deliver notes or checks for and on behalf of a principal be in writing? MICHIGAN C. P. A. MANUAL 2 oi 4. The following note passes in due course to an endorsee. The agent has exceeded his authority in executing and delivering the note. Is the principal liable or not? New York, February 20, 1918. Thirty days after date I promise to pay to the order of A B One Thousand Dollars. Signed, JNO. HENDERSON, By Wm. Henderson, Atty.-in-Fact. 5. What is the legal effect of a forged signature to a negotiable instrument ? 6. What correction may a payee or endorsee whose name has been improperly spelled in a negotiable instrument make? Answers to questions 7 to 17 are governed by the common law. CONTRACTS Answer three of the next following five questions and no more 7. When is time of the essence of a contract (a) at law, (b) in equity ? 8. What is the rule for the appropriation of payments made by a person who owes several interest bearing debts to the same creditor? 9. What is a tender to perform a contract and what is its effect? 10. In what ways may a contract be discharged by operation of law? n. When was a sale complete so as to pass title at common law, and how did the statute of frauds and perjuries change this? CORPORATIONS Answer two of the following five questions but no more 12. What is the distinction between the capital and the capital stock of a corporation and how is the value of the stock measured and determined? 13. Under what conditions may a corporation become the owner of its own capital stock? 14. What are the characteristics of preferred stock, and what are the rights of the holders thereof as to dividends and guaran- teed dividends and preference in distribution of capital on liquidation ? 202 MICHIGAN C. P. A. MANUAL 15. Is the agreement between the shareholder and the corporation that all shares shall be deemed fully paid up effectual as against creditors ? Explain. 16. What is the preference on the part of stockholders to subscribe to new shares upon increase of capital? PARTNERSHIP Answer to this question is required 17. What are the rules which must be observed in adjusting the accounts of partners in liquidation : (1) As to payment of losses (2) As to application of assets? INCOME: TAX Answers to this question are governed by federal tax laws and are required. 18. What are the provisions of the income tax and war tax laws as to the deduction from profits of the amounts paid for in- come tax and war or excess profits tax during the fiscal or calendar year ? COMMERCIAL LAW Monday, November 18, 1918, from 2:00 P. M. to 5:30 P. M. Give your reasons for all answers. NEGOTIABLE INSTRUMENTS Answer three only of the following five questions 1. A note non-negotiable in form is executed and delivered by A to B and endorsed by B to C. A refuses to pay it when due, claiming want of consideration. C brings suit against A, aver- ring that he was a holder in due course. Can A successfully defend the action if want of consideration is established? Give reasons. 2. Suppose that the above note had been negotiable, would A's defense of want of consideration be a bar to C's recovery or not ? Give reasons and state the rule applicable to the principle involved in this and the foregoing question. 3. Define a negotiable bill of exchange. MICHIGAN C. P. A. MANUAL 203 4. State three cases in which the alteration of an executed and delivered note becomes material. 5. A negotiable note executed and delivered by A to B passes in due course to and is endorsed in blank by B, C, D and E ; F is the last holder and strikes out C's endorsement. What is the liability of C, D and E on their endorsement? CONTRACTS Answer three only of the following five questions 1. What is the right of stoppage in transitu of goods, wares and merchandise by the seller? 2. Define consideration in the law of contracts, and distinguish be- tween a good and a valuable consideration. 3. When can an offer to perform a contract be withdrawn? 4. What are "goods, wares and merchandise" within the meaning of the statute of frauds? 5. (a) Define mistake and give its effect on .contracts, (b) Define misrepresentation and state its effect. CORPORATIONS Answer two only of the following four questions 1. Name some powers impliedly conferred on every corporation. 2. Name some powers which will not be implied. 3. Has a stockholder a right to examine the books of a corpora- tion? If so, for what purpose? 4. What right has a stockholder to a share of the profits of a. cor- porate business?. PARTNERSHIP Answer one only of the following questions 1. Can one partner transfer his interest to a stranger without con- sent of his co-partners ? 2. Describe general, special, ostensible, secret and silent partners. FEDERAL TAXES Answer both of the following questions 1. Are domestic partnerships obliged to make income tax returns? 2. Is the income of interest on Liberty bond issues taxable under the law in force July i, 1918? If so, to what extent? 204 MICHIGAN C. P. A. MANUAL COMMERCIAL LAW Monday, June 9, 1919, from 8:00 A. M. to 12:00 M. 1. (a) What is a common carrier? (b) What is the difference between intra-state and inter-state commerce ? (c) Which is controlled by the federal and which by the state governments ? (d) To what extent and upon what theory did the federal government enlarge its jurisdiction over commerce during the Great War? (e) What is the difference between a straight and an order bill of lading? 2. (a) Name the principal classes of public service corporations. (b) What is the minimum number of stockholders who may incorporate in Michigan? (c) If all of the stock of a corporation is transferred to one person, what effect does that have on (i). its corporate life and (2) on its power to further transact business? (d) Name two ways in which a Michigan corporation can be legally dissolved? (e) Must every director be a stockholder? (f ) Are the executive officers such as president, vice-president, secretary and treasurer elected by the stockholders or by the directors? (g) Must all of these executive officers be stockholders, and if not, which must and which need 'not be stockholders? 3. (a) Was the power of one corporation to hold stock in another corporation enlarged by Act 254 of 1917 in Michigan and if so, to what extent? (b) What do you understand by a subsidiary corporation? (c) What is meant by preferred stock being preferred both as to assets and dividends? (c) When may preferred stock participate in the election of directors ? (d) A Michigan corporation has $500,000 common stock paid in and $100,000 preferred stock paid in ; how much addi- tional preferred stock can its stockholders authorize ? (e) What is meant by the stockholders cumulative voting law and what is its purpose? MICHIGAN C. P.. A. MANUAL 205 ({) What are the maximum and minimum amounts for which a company may be incorporated in Michigan? (g) Under the decision in Dodge v. Ford Motor Co., 204 Mich. 459 : ( i ) Is. there any limit to the amount of capital assets which a corporation may have? (2) What distinction is made between capital stock and capital assets? (3) What rule is laid down relative to the duty of directors to de- clare dividends? (h) What percentage of the authorized capital stock must be subscribed and what percentage paid in before a company can incorporate in Michigan? 4. (a) What is usury? (b) What is the contract rate, and what the legal rate of inter- est in Michigan? (c) If A gives B his note drawing 6% interest and C purchases the note so as to net him 10%, is this usury? 5. (a) What persons are incapable in law of making contracts? (b) Are contracts made on Sunday valid in Michigan? (c) Are contracts made on legal holidays or election days valid? (d) What contracts must be in writing? 6. (a) If property in Michigan is deeded to husband and wife without defining the interest of each, ( I ) Is the interest of either subject to execution for his debts? and (2) When one dies is it necessary to probate his estate in order to show good title to such real estate in the surviving spouse ? (b) Can two persons deposit money in the bank in such wise that on the death of one, the fund will pass to the survivor without probate proceedings? If so, suggest a proper form for such deposit? (c) If man and wife sell real estate taking back a purchase money mortgage to them jointly, and one of them dies, does the interest of the deceased in the mortgage pass to the survivor without probate proceedings? (d) Give your idea of what title notes or contracts must and what need not be filed with the clerk in order to-be good as to third parties and creditors under the recent case of Young v. Phillips? (e) Give your idea of the difference between a pure contract of conditional sale and a title note where the purpose is securitv ? 2o6 MICHIGAN C. P. A. MANUAL 7. (a) Is the Bankruptcy Act a state law or a federal law? (b) In what year was it adopted? (c) What are the respective functions of a Receiver, a Refer- ee and a Trustee in Bankruptcy? (d) Is the interest of the vendor in a land contract covering Michigan land taxable under the mortgage tax law? (e) If so, can this tax be paid without having the contract re- corded ? (f) What is meant by a merchantable title to real estate? 8. (a) Jones, a resident of Michigan, owns bonds issued by Mich- igan municipalities prior to September I, 1909; are they subject to state, county and city, etc., taxes? (b) He owns Michigan municipal bonds issued since that date ; are they taxable? (c) He owns bonds issued by municipalities, of other states; are such bonds taxable and if so, what is the amount of the tax ; where must he pay it ; and will one payment be suffi- cient for the life of the bonds or must it be paid annually ? (d) What theory underlies taxes for local improvements? 9. (a) When was the new Federal Revenue Law signed by the President ? (b) Under this law, what is the normal income tax rate (i) for individuals for taxable year 1918; (2) for individuals for taxable year 1919; (3) for corporations for taxable year 1918; (4) for corporations for taxable year 1919? (c) Under this law will the surtax rates for taxable year 1918 vary from surtax rates for taxable year 1919? (d) Under this law, are individuals and partnerships subject to the excess profits and war profits taxes? Give reasons which prompted Congress to its conclusion on this ques- tion ? (e) Under this law what are the excess profits tax rate (i) for taxable year 1918; (2) for taxable year 1919? (f) Will corporations be required to pay War Profits taxes for taxable year 1919 if law remains unchanged? (g) Compare the capital stock provisions of the new law with that of the prior law as to ( i ) amount under each law per $1,000; (2) exemption under each law. (h) Are the inheritance tax rates greater or less under the nev\ law than under the prior law ? MICHIGAN C. P. A. MANUAL 207 10. (a) What is invested capital under the new Revenue Act? (b) Can the value of property conveyed to a corporation by a stockholder as a gift be treated as paid in surplus so as to become invested capital? Give reasons. (c) A stockholder conveys to a corporation for a cash consid- eration of $5,000, property worth $10,000 at the time of conveyance. Can the excess of $5,000 be treated as paid in surplus so as to become invested capital? Give reasons. (d) Will invested capital be increased by a reappraisal of cap- ital assets? (e) Will such reappraisal operate to increase taxable income before such assets are sold? (f) What do you understand by personal service corporations? (g) If not less than 30% of the net income of a corporation is derived from a separate trade or business or from a dis- tinctly separate branch of the trade or business in which the employment of capital is not a material income produc- ing factor, briefly what is the difference in the method of computing the excess profits tax ? (h) In your judgment are stock dividends taxable income un- der the decision in Towne v. Eisner, and would you recom- mend to your clients that they return such dividends as income and pay the tax thereon? (i) A sells B for $50,000 certain property which A purchased in 1914 for $30,000 and B agrees to pay A, in addition to the purchase price, the income taxes which A may be re- quired to pay on the profit of $20,000. Does the payment of such taxes to A amount to income to A which he will be required to report as taxable income? (j) Are contributions made by a corporation to religious, char- itable, scientific or educational corporations deductible from gross income for purpose of ascertaining net taxable in- come ? PRACTICAL ACCOUNTING MICHIGAN C. P. A. MANUAL 211 PRACTICAL ACCOUNTING Friday, December 17, 1915, from i 130 P. M. to 6:30 P. M. Problems i, 2. 3 and two of last four required. Ten credits allowed for neatness and general appearance. (25 Credits) The Michigan Machine Works finds on December 31, 1915, that their heavy orders make it undesirable to suspend opera- tion for inventory taking, but instruct you to close the books and prepare a statement on the basis of previous years' experi- ence. The Trial Balance is as follows : MICHIGAN MACHINE WORKS Imprest Cash $ 100.00 Pay Roll Fund 500.00 First & Old Detroit Nat'l Bank.. 14,000.00 Notes Receivable 42,000.00 Accounts Receivable 222,000.00 General Stores 550,000.00 Productive Labor Factory 375,000.00 Productive Labor Foundry 70,000.00 Manufacturing Exp. Factory. . . . 200,000.00 Manufacturing Exp. Foundry. . . 35,000.00 Commercial Expenses 125,000.00 Real Estate 15,000.00 Buildings Factory 175,000.00 Buildings Foundry 50,000.00 Patterns 12,000.00 Dies 8,000.00 Office Furniture and Fixtures. . . . 2,500.00 Automobiles and Trucks 6,000.00 Factory Equipment 300,000.00 Foundry Equipment 50,000.00 Treasury Stock 120,000.00 Treasury Bonds 150,000.00 Taxes 4,000.00 Bond Issue Expense 12,000.00 Insurance 3,000.00 Bills Payable $ 160,000.00 Notes Receivable Discounted 28,000.00 Accounts Payable 190,000.00 212 MICHIGAN C. P. A. MANUAL Salaries and Accrued Pay Roll . . . 30,000.00 Capital Stock 500,000.00 Surplus 6,700.00 Preferred Stock 250,000.00 Bonds 240,000.00 Accrued Expenses 5,000.00 Accrued Dividends (Preferred).. 8,400.00 Reserve for Bad Debts 26,000.00 Res. for Depreciation Factory.. 44,000.00 Res. for Depreciation Foundry. . 15,000.00 Sales Factory 880,000.00 Sales Foundry 150,000.00 Sales Scrap 4,000.00 Cash Discount 1,500.00 Miscellaneous Earnings 2,500.00 $2,541,100.00 $2,541,100.00 You find it necessary to make adjustments on account of these considerations : Depreciation on Factory Buildings, 4% ; Foun- dry Buildings, 5% ; Factory Equipment, 6 2-3% ; Foundry Equipment, 10% ; Automobiles and Trucks, 25% ; Office Furni- ture, 10% ; Patterns, 15%; Dies, 25%. Apportionment of In- surance Account : Factory $1,500.00 Foundry 500.00 Unexpired 1,000.00 Apportionment of Taxes Account : Commercial Expense $1,000.00 Factory 1,000.00 Foundry 300.00 Unearned 1,700.00 The Bonds mature twelve years later, having been issued three years before. Analysis of the results for the preceding three years shows that the following percentages obtained : Factory Foundry Labor in product 33 l /3% 30% Material in product .,. . . 25 30 Manufacturing Expense in product.. 20 15 Gross Profit 2i 2 / 3 25 100% 100% Prepare Balance Sheet, Manufacturing, Trading and Profit and Loss Statement and Surplus Account. MICHIGAN C. P. A. MANUAL 213 2. (20 Credits) The private books of a merchant present the following condi- tion December 31, 1915. Assume (i) that all deductible taxes have been retained at the source, (2) that he is married, (3) that his wife's income from her separate estate is in excess of $3,000.00. Prepare Income Tax report on form herewith. Real Estate $200,000.00 Life Annuity 60,000.00 Town Residence 35,000.00 City of Detroit 4% Bonds 25,000.00 U. S. Lumber Co. ist Mortgage Bonds 50,000.00 Cash in Band 3,250.00 Profit and Loss Account Loss on realty sold $ 3,000.00 Loss on stock transactions 5,000.00 Life Insurance premiums "... 3,000.00 Income Taxes and tax deductions... 1,250.00 Depreciation Real Estate 5,000.00 Depreciation Residence 1,750.00 Interest on R. E. Mortgage 3,000.00 Taxes on Real Estate 2,700.00 Taxes special improvement 500.00 Personal Taxes 1,000.00 Repairs to rent property 1,000.00 Repairs to residence 500.00 Wife's allowance 2,400.00 Household Expenses 3,600.00 $33,700.00 Profit on sale of realty bought January 6, 1915 $50,000.00 Rent Income 12,000.00 Salary 5,000.00 Life Annuity 3,000.00 Gain on stock transactions 5,000.00 Partnership Profits 13,000.00 Interest City of Detroit 4% 1,000.00 Interest U. S. Lumber Co. 5% 2,500.00 $91,500.00 57,800.00 Mortgage .'. 50,000.00 Reserve for Depreciation 20,250.00 Net Worth 245,200.00 $373,250.00 $373,250.00 214 MICHIGAN C. P. A. MANUAL 3. (15 Credits) The Natomas Consolidated Gold Fields Company of California leased on January i, 1909, -from George D. Stratton his placer claims in the Yuba Valley for gold dredging. The term of the lease is 40 years. The consideration stated was to be a royalty of 50 cents per ounce of Gold Returns, provided however that in no year would the payment be less than $10,000.00, subject to the right of lessee to recover any excess paid over royalty when and if the production exceeded 20,000 ounces in any one of the six years ending December 31, 1914. From the following production report prepare the proper en- tries, showing all accounts affected and transcript of the lessors account as it would appear on the books of the lessee December 31, 1915. Include the consideration of federal income tax de- ducted at the source. Year Ounces 1909 15,226 1910 18,394 1911 19,626 1912 25,620 1913 26,240 I9M 27,520 4. (15 Credits) ' 9 ' 5 ' *** A contractor proposes to build a bridge to Belle Isle and accept the City's 4% 2O-year Bonds to the amount of $2,000,000.00 in payment. He advocates as a means of retiring the bonds the establishment of a toll system on foot passengers and automo- biles at the respective rates of one cent and five 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 inter- est annually and create a fund which placed at the same rate of interest would be sufficient to retire the bonds at maturity ? Note: $1.00 compounded at 4% for 20 years=$2.i9H23i4. 5. (15 Credits) The Pioneer Trust Company engages you to revise its system of accounting with a view to adjusting its Balance Sheet daily, to include accruing Earnings and Expenses. With the follow- ing "Statement of Condition" as a guide indicate what proced- ure you would adopt to change the books from a purely cash to the accrual basis. Let it be understood that the loans and other securities as well as deposits bear various rates of interest. Would you attempt to accrue all classes of earnings and ex- penses? MICHIGAN C. P. A. MANUAL 215 RESOURCES LIABILITIES Collateral Loans $ 609,209.87 Capital .$ 500,000.00 Loans on Real Estate... 1,313,827.36 Surplus 500,000.00 Bonds 1,247,895.76 Undivided Profits 364,770.5 1 Bonds & Mortgages with Trust Deposits 3,216,205.52 State Treasurer 208,100.00 Accrued Taxes 39,640.08 Advances to Trusts .... 39,866.52 Cash and Due from Re- serve Agents 1,201,716.60 Vaults, Furniture and Fixtures Nothing $4,620,616.1 1 $4,620,616.1 1 6. (15 Credits) How would you proceed to change the Accounting system of a city of 30,000 population from the Receipt-Disbursement to the Balance Sheet-Revenue and Expense system of accounting? 7. (15 Credits) Prepare a chart of accounts for an automobile company build- ing auto-trucks exclusively. Company buys all parts for as- sembling but maintains a machine shop for completing same, a paint shop and a finishing department. Arrange for monthly closing of the books by means of perpetual inventories and show how reports of material, labor and. burden should be handled. PRACTICAL ACCOUNTING Friday, December 22, 1916, from I :oo P. M. to 6:00 P. M. Problems i, 2, 3 and one of last two . required. Ten credits allowed for neatness and general appearance. T. (25 Credits) The Meteor Motor Company's fiscal year closed June 30, 1916. You are requested to prepare a Financial Statement and Manu- facturing Trading and Profit and Loss Account from the fol- lowing data taken from the books as of December 31, 1916: TRIAL BALANCE Cash $ 1,836,000.00 Accounts Receivable, Cars 1,580,000.00 Parts and Repairs 98,000.00 2i6 MICHIGAN C. P. A. MANUAL Sundry 40,000.00 'Advances 21,000.00 Commercial Expenses 685,000.00 Plant Investment 5,440,000.00 Car Material Inventory 6/30/16 2,466,000.00 Car Material Purchased from 6/30/16 12,483,000.00 Operating Supplies Inventory 6/30/16 181,000.00 Operat. Sup. Purchased from 6/30/16 1,367,000.00 Productive Labor from 6/30/16 2,373,000.00 Non-Productive Labor from 6/30/16 2,167,000.00 Manufacturing Expenses 857,000.00 Accounts Payable $1,115,000.00 Dealers Deposits 310,000.00 Accrued Pay Roll 135,000.00 Sundry Reserves 50,000.00 Capital Stock 6,000,000.00 Surplus 3,295,000.00 Revenues Touring Cars 17,518,000.00 Roadsters '. 2,390,000.00 Chassis 17,000.00 Parts and Repairs 378,000.00 Scrap 61,000.00 Miscellaneous 90,000.00 Purchase Discounts 200,000.00 Interest 35,000.00 $31,594,000.00 $31,594,000.00 It appears that depreciation of plant to June 30, 1916 had been written off the face of the account to the amount of $344, ooo.oo and that no depreciation for the current year had been considered, but same amounts to say, $235,000.00 for the 6 months. The productive labor element in Car Material Inven- tory of June 30, 1916 amounted to $182,000.00 with correspond- ing overhead of $273,000.00. Special Tools, Dies and Patterns were erroneously included in Manufacturing Expenses to the amount of $450,000.00. Also included in the latter account were taxes and insurance paid $95,000.00 with only $45,000.00 accrued or expired. The sales of cars for the 6 months were as follows, with the relative costs as determined by the Cost Department : No. Material Labor Mfg. Burden Total Sold Cost Cost Cost Cost Touring 26,860 $350.00 $75.oo $110.00 $535-OO Roadsters 3,717 35o.oo 75.00 110.00 535-OQ Chassis 37 275.00 60.00 88.00 423.00 MICHIGAN C. P. A. MANUAL 217 Parts and Repairs are estimated to be sold at 100% gross profit and the ratio of cost elements correspond with finished cars. Miscellaneous Sales represent sales of car material at cost. Scrap in this case represents a credit to Profit and Loss. 2, (25 Credits) Smith and, Jones own all of the outstanding capital stock of the Chemical Company except one share necessary to complete the corporation, the latter share having been assigned to them. They also own $25,100.00 par, or 251 shares, of the capital stock of the Colompr, a subsidiary company, and an option on behalf of the former Company to purchase the entire capital stock of the Cadelec Company, M foreign corporation, all as of January I, 1916. Statements of the assets and liabilities of the three companies are furnished as follows : Assets . Chemical Co. Colomor Co. Cadelec Co. Plant $418,740.00 $46,020.00 $28,82900 Patents and Good Will . . i.oo Inventories 300,000.00 Accounts Receivable... 159,249.00 Sundry Debtors . . .' 40,934.00 Notes Receivable 3,000.00 Cash . . . : 76,482.00 Prepaid Expenses 1,175.00 18,803.00 21,727.00 50,000.00 40,889.00 20,190.00 204.00 11,702.00 440.00 $999,581.00 $106,944.00 $131,860.00 Liabilities Capital Stock $450,000.00 $ 61,600.00 $ io,coo.oo Current 107,329.00 Surplus 442,252.00 11,703.00 33,641.00 18,377.00 103,483.00 $999o8i.oo $106,944.00 $131,860.00 It develops that the Cadelec figures are incomplete pending report on the appraisal and inventory which latter when sup- plied increases the value of Real Estate $29,050.00, Plant $31,- 148.00, and Inventories $16,963.00. A new company is formed to take over all of the assets and lia- bilities of the parent company, issue $1,000,000 preferred stock which is sold at par and 40,000 shares of common stock of no par or nominal value. Smith and Jones received $740,825.00 in cash and 36,390 shares common stock for their entire holdings. The Cadelec option is exercised. The stockholders of the Cadelec Company receive 218 MICHIGAN C. P. A. MANUAL $115,000.00 in cash and 2,875 shares in common stock. The organizers purchase 5 shares of common stock for cash at $100.00 each and agree to retain in the treasury funds sufficient to purchase all the remaining outstanding shares of Colomor at par, together with 2 shares of common stock of the new com- pany for each share so outstanding. Prepare a statement of the new company after giving effect to the above transactions and show also a consolidated balance sheet, 3. (20 Credits) Taking the several items of assets and liabilities in problem 2, state briefly the necessary steps in arriving at the valuation of the capital stock of the Chemical Company to warrant the in- vestment by the underwriters and to justify payment therefor, of $740,825.00 in cash and 36,390 shares of common stock. 4. (20 Credits) (a) A Michigan firm pays its taxes promptly to escape penalty. On closing December 31, the tax account stands as fol- lows : City Taxes $2,400.00 State and County Taxes , 1,200.00 Income Tax 600.00 What action would you pursue in respect to these balances in closing the books ? (b) A firm whose fiscal year closes November 30 has insured the life of one of the officers for $10,000 on a participating endowment policy running ten years ; the annual premium is $1,041.80 payable July i. The successive cash surrender values are as follows : End of End of ist year $ 735-8o 6th year $ 5>433-OO 2nd year 1,603.30 7th year 6,494.70 3rd year 2,504.10 8th year 7,599.40 4th year 3,439-8o 9th year 8,750.20 5th year 4,412.10 loth year 10,000.00 The books are closed monthly. Show by periods and amounts what treatment you would give the premiums and dividends in the books. 5. (20 Credits) (a) A Manufacturing Corporation with an outstanding issue of $500,000.00 and a surplus of $300,000.00, with stock active on an Exchange, asks you to state the amount and method of computing its Federal capital stock taxes paya- MICHIGAN C. P. A. MANUAL 219 ble in 1917. The stock you find has averaged 120 in the market quotations. Show method, rate, periods, and amount. (b) If the stock were not active on exchange, what course would you pursue? PRACTICAL ACCOUNTING Friday, November 16, 1917, from 9:00 A. M. to i :oo P. M. Candidates are required to answer four questions out of five. i. The following is the balance sheet of the A. B. Company, Jan- uary i, 1915 : Cash $ 52,864 Accounts Payable $ 35,482 Accounts Receivable 197,425 Dividends Payable preferred Inventories: stock Feb. i, 1915 7,500 Raw Material ^ 84,268 Dividends Payable common Finished Goods 3 T ,597 stock Feb. i, 1915 10,000 Office Furniture and Fix- Mortgage Bonds 20 year at tures 7,500 6% dated January i, 1915.. 100,000 Land 180,060 Premium on Bonds 5,000 Buildings 150,000 Capital Stock preferred 250,000 Machinery 250,000 Capital Stock common 500,000 Reserve for Bad Debts 4,718 Surplus 40,954 $953,654 $953,654 The transactions for the year ending January i, 1916, have been as follows : Cash received from customers $793,501 Rent received 600 There has been purchased 1,232,000 Ibs raw material at 20 cents per Ib. Sales have been 823,334 Discount and allowances on sales 23,519 Bad debts written off 2,143 Disbursements have been made for Accounts payable 243,356 Factory expense 7,489 Factory labor 35 1,426 Factory repairs 23,843 220 MICHIGAN C. P. A. MANUAL. Office expense 1.927 Selling expense 52,914 Salaries 58,471 Taxes 7,853 Inventories January i, 1916 Raw material 412,595 Ibs. having a market value of 22 cents per Ib. and finished goods $30,842. The land is estimated to be worth $200,000. Semi-annual dividends of 3% on preferred and 2% on com- mon, declared in June and December, payable August i and February i. Reserves for depreciation of buildings 3% ; ma- chinery $% ; office fixtures 10%. Bad and doubtful debts re- serve should be 2% of accounts receivable. Prepare an operating statement and balance sheet as on Jan- uary i, 1916. 2. From the following accounts appearing on the trial balance pre- pare without using figures, statements which you consider best calculated to set forth the operations of the year and the finan- cial position at December 31, 1916, assuming that you are pre- paring these statements on behalf of a bank which desires paper available for rediscount with the Federal Reserve Bank. Accounts payable Insurance unexpired finished goods Accounts receivable Interest accrued on investments Advertising Interest accrued on mortgage payable Buildings Interest paid Capital stock Interest received Capital stock unsubscribed Investments Cash on deposit Labor factory pay roll Commissions paid salesmen Land Depreciation buildings 1916 Machinery Depreciation machinery 1916 Material inventory December 31, 1915 Discount allowed on sales Material purchased Discount received on purchases Mortgage on plant Doubtful accounts receivable Notes payable Factory expense Notes receivable Finished goods inventory December Office expenses 31, 1915 Office furniture and fixtures Freight and cartage inward Office pay roll Freight and cartage outward Organization expenses (to be distrib- Fuel uted over three years from January Good-will I, 1916) Insurance buildings and machinery Pay roll factory accrued Insurance finished goods Pay roll office accrued Insurance unexpired buildings and Petty cash machinery Prepaid taxes real estate MICHIGAN C. P. A. MANUAL 221 Profit and loss 1915 surplus Salaries salesmen Repairs buildings Sales Repairs machinery Salesmen accounts advances on Reserve for bad and doubtful ac- salaries counts Subscriptions and donations Reserve for depreciation buildings Taxes income U. S. Reserve for depreciation machinery Taxes real estate Returns and allowances on sales Work in process inventory December Salaries general officers 31, 1915 The inventories December 31, 1916, not on the books were: Finished goods Material work in process 3. Company A purchased on January I, 1917, the entire capital stock of Company B at $175 per share, and the entire -stock of Company C at $80 per share. You are handed the balance sheet as understated at June 30, 1917, and are requested to prepare a consolidated balance sheet of the A Company and its subsidiary companies at that date. BALANCE SHEET COMPANY A Property and good-will $ 850,000 Capital Stock $2,250,000 Stock of subsidiary com- Current liabilities 150,000 panics 1,500.000 Surplus, January I 525,000 Current assets 700,000 Undivided profit for one- half year 125,000 $3,050,000 $3,050,000 BALANCE SHEET COMPANY B Property and good-will $650,000 Capital Stock $400,000 Current assets 60,000 Current liabilities 10,000 Surplus, January 1 200,000 Undivided profit for one- half year 100,000 $710,000 $710,000 BALANCE SHEET-COMPANY C Property (as appraised Capital Stock $1,000,000 January i, 1917) $1,130,000 Current liabilities 240,000 Current assets 180,000 Surplus, January I -. . . 30,000 Undivided profit for one- half year 40,000 $1,310,000 $1,310,000 There are no intercompany accounts or inventories. Frame any entries necessary to record the action of the direc- tors as it appears in the minutes of the meeting of August 15, 1917, of which the folowing is a synopsis, and the action of the 222 MICHIGAN C. P. A. MANUAL officers taken pursuant to authority conferred on them by such minutes : The treasurer reported that the profits for the year as audited amounted to $59,287. Voted that a dividend of $40,000 be paid on October I to the stockholders of record September 15 and that $10,000 of the profits be appropriated as a reserve for relief of employes disabled while in the service of the United States and invested in Liberty Bonds. The treasurer reported that he had an offer of $1,000 in settle- ment of a debt of $3,000 of the A. B. C. Company, which had been written off as irrecoverable in 1914. He was authorized to accept the same in full settlement. The president reported that he had secured tenders for new building planned in the amount of $185,000. He was author- ized to execute a contract accordingly. The president reported that a firm of bankers had offered to purchase $200,000 of the company's twenty-year 5% bonds to be dated October i, 1917, at 93 and accrued interest. He was authorized to accept the offer and deliver bonds on that date. 5. A owns an annuity of $50 per annum, the first payment on which falls due one year hence, and which continues for a peri- od of twenty years certain. State (a) The present value of the benefit (b) The amount which he will have accumulated at the end of the period if he invests each moiety as it becomes due. Assume interest at 4% payable annually. In this connection the value of (1.04) is stated to be equal to 2.191123. PRACTICAL ACCOUNTING Friday, May 17, 1918, from 9:00 A. M. to I :oo P. M. The candidate is required to answer questions I and 2 and four other questions. i. BALANCE SHEET December 31, 1916 ASSETS Cash $3,000.00 Accounts Receivable 15,700.00 $ 18,700.00 MICHIGAN C. P. A. MANUAL 223 Inventories : Finished goods 145,500.00 Goods in process ..... 8,350.00 Materials 55,000.00 217,850.00 $236,550.00 Land 40,000.00 Buildings $94,000.00 Less reserve for depreciation " 14,000.00 80,000.00 Machinery and fixtures 81,000.00 Less reserve for depreciation 21,000.00 60,000.00 180,000.00 Deferred charges : Insurance and taxes 1,100.00 Total assets 417,650.00 Deficit 52,850.00 $470,500.00 LIABILITIES Notes Payable -. $275,000.00 Accounts Payable 15,500.00 $290,500.00 Capital Stock: Preferred 100,000.00 Common 80,000.00 180,000.00 $470,500.00 The foregoing was the balance sheet of a corporation, Decem- ber 31, 1916, incorporated January i, 1910, and during the en- suing year there occurred the following transactions : Sales, net . . $550,000.00 Purchases, net raw material 347,000.00 Raw material inventory increased 64,000.00 Labor 60,000.00 Total manufacturing expense 35,900.00 Process inventory increased 20,000.00 Finished goods inventory increased 36,000.00 Total selling expense 35,000.00 Total administrative expense 26,000.00 Notes payable have been renewed as they became due, except that $100,000.00, held by the largest owners in the company, has been. donated to the company, July I, 1917; $5,000.00 of 3^2% Liberty bonds have been bought; $2,000.00 has been do- nated to the Red Cross. 224 MICHIGAN C. P. A. MANUAL NOTES : Depreciation on buildings, estimated life 47 years, beginning January I, 1910. Depreciation on machinery, estimated life 27 years, beginning January I, 1910. Accounts receivable were $45,000.00, and accounts payable $15,- ooo.oo at the close of the year. There was accrued interest payable $2,500.00, December 31, 1917. Prepare an operating and profit and loss statement for the year and a balance sheet as on December 31, 1917; and calculate taxes to be paid to the United States government. The pre-war profits were respectively $14,000.00, $8,250.00 and $5,500.00, for the years 1911, 1912 and 1913; and the invested capital for the corresponding years $160,000.00, $160,000.00. and $140,000.00. 2. During the year ended December 31, 1917, the A. B. C. Cotton Mills produced 3,893,000 pounds of finished product. There were turned into the mill during the year 4,250,000 pounds of cotton, costing $750,000.00, and 175,000 pounds of yarn, cost- ing $60,000.00. The stock in process at the beginning of the year amounted to 150,000 pounds valued at $20,000.00, and at the end of the year to 200,000 pounds, valued at $60,000.00. Waste produced during the year was 420,000 pounds and real- ized $26,000.00. The factory expenses were : Superintendence, $5,000.00; labor, $160,000,00; fuel, $20,000.00; oil, $1,500.00; mill supplies, $12,500.00; burlap, $4,500.00, and starch and siz- ing, $7,500.00. For its finished product sold the company real- ized $1,250,000.00. On the first of the year the value of the finished product on hand amounted to $26,000.00, and at the end of the year to $78,000.00. The selling expenses of the company amounted to $80,000.00, its general expenses to $22,- 500.00, and its extraordinary expenses not applicable to the cost of production to $50,000.00. Prepare a comprehensive income account covering the year's operations and give statistics as to the sales and cost of produc- tion per pound by items with the invisible gain or loss during the year on cotton passing through the mill. 3. With what accounts of a bankrupt company would you open the books of the receiver? State vour reasons for so doine o 4. Mention three classes of transactions which a debit item may represent in a personal account. MICHIGAN C. P. A. MANUAL 225 5. You are asked by a client to discuss with him the question of reserves for depreciation and depletion of his various capital assets. State your position on this subject and enumerate the considerations you would advance in support thereof. Would you or would you not be guided by the rules laid down by the internal revenue authorities in deciding upon the rates to be used ? 6. Explain what is understood by a "book inventory" and indicate in what circumstances and for what purposes you would con- sider such a record to be of use in a manufacturing business : (a) For current information (b) For use in the preparation of interim statements of accounts (c) For use in the preparation of final yearly or half-yearly ac- counts. Assuming your client decided to rely entirely upon such book records, what steps should be taken to guard their accuracy? 7. What particular features is it necessary to bring out in the preparation of the annual accounts of a municipal or county government ? 8. You are called upon to advise a client who has large dealings, both buying and selling, with foreign countries, involving ques- tions of foreign moneys and exchange. What general princi- ples would guide you in advising him ? 9. How should a re-appraisal of capital assets be treated on the books of a going concern : (a) When it involves an appreciation (b) When it involves a depreciation? Is such appreciation or depreciation a consideration which should be reflected in a return of net income to the. federal au- thorities for income and excess profits tax purposes? PRACTICAL ACCOUNTING Tuesday, November 19, 1918, from 9:00 A. M. to I :oo P. M. i. The following items appear on the balance sheet of the Ameri- can Pin Company, June 30, 1912: Land, buildings, equipment, etc., $335,000; capital stock of the Bronx Pin Ticket Company, par $50,000; cost, $57,400; patents, $15,000; working and trad- ing assets, $37.500; cash, $10,000; accounts receivable, $32,000; 22 6 MICHIGAN C. P. A. MANUAL due from Bronx Pin Ticket Company, $375.82; deferred assets, $1,500-; first mortgage 6% gold bonds payable, due 1922, $100,- ooo ; taxes accrued, $3,250; salaries and wages accrued, $4,- 327.82; accounts payable, $123,749.83; notes payable and inter- est, $80,125; interest accrued on first mortgage bonds payable, $2,500; reserve for depreciation of building and equipment, $35,000; preferred capital stock outstanding, $75,000; common capital stock outstanding, $50,000; profit and loss surplus, $14,- 823.17. The American Pin Company having acquired all the capital stock of the Bronx Pin Ticket Company, the balance sheet of which appears below, it is proposed to merge the two com- panies as of July i, 1912. THE: BRONX PIN TICKET COMPANY Assets Land, buildings, and equipment, etc., $260,000; capital stock of the Blauser Pin Tray Company carried at par, $35,000; patents, $22,625; working and trading assets, $10,000; cash, $10,365.27; accounts receivable, $37,943.86; sinking fund, $3,- 236.92; deferred charges to expense, $1,200. Liabilities and capital First mortgage 5% gold bonds payable, due 1925, $50,- ooo ; taxes accrued, $2,750; salaries and wages accrued, $3,147,- 83; due to creditors, $144,720.30; due to American Pin Com- pany, $375.82; notes payable and interest, $31,372.53; interest accrued on first mortgage bonds payable, $1,250; reserve for depreciation of plant and equipment, $27,500; common capital stock outstanding, $50,000; profit and loss surplus, $69,254.57. Prepare : (a) The entries on the books of the American Pin Company (b) The entries on the books of the Bronx Pin Ticket Company (c) Balance Sheet of the American Pin Company after the merger. 2. The following problem is based upon the estimate cost system. No factory ledger will be used, all accounts being kept on the general ledger. The business is the making of men's clothes, and two principal materials will be used, fine woolens and plain woolens, on which stock records will be kept. Stock records will also be kept for finished goods, (a) The following styles of clothing will be made, and they are estimated to cost: Style Style Style 801 802 803 Materials used $12.50 $ 8.00 $ 4.00 Supplies (linings, buttons, etc.) 3.00 2.50 2.00 MICHIGAN C. P. A. MANUAL 227 Labor 9.00 6.00 4.50 Factory expenses, 60% 5.40 3.60 2.70 $29.90 $20.10 $13.20 Note that the estimated costs are subdivided into four sec- tions and that the accounts must be kept to record the cor- ersponding subdivisions of operating costs. (b) The company starts with the following: Dr. Cr. Machinery and equipment $10,000.00 Cash 40,000.00 Capital Stock $50,000.00 (c) The purchases for the first month according to voucher record are : Materials, fine woolens, 2,000 yds., at $3.00 $ 6,000.00 Materials, plain woolens, 3,000 yds., at $1.50 4,500.00 Rent of factory 500.00 Lining, buttons and thread, etc 3,400.00 Salesmen's commissions paid 700.00 Office expenses 120.00 Repairs to machines and equipment 350.00 Electric power 440.00 Oil waste and other factory supplies 225.00 $16,235.00 (d) The payrolls are summarized as follows: Foreman and timekeepers $ 250.00 Tailors, cutters, etc. (direct labor) 4,600.00 Office and salesmen's salaries 750.00 Inspectors and other indirect factory wages 435-OO $6,035-00 (e) Depreciation on equipment is calculated at i% per month. (f ) The cutting room foreman reports having taken from stock and cut the following materials for use on garments in progress : 1,400 yds. fine woolens 2,200 yds. plain woolens (g) The tailoring foreman reports the following garments fin- ished and placed in stock : Style No. 801 200 pieces " 802 300 " 1 803 200 " (h) The sales record is as follows: Invoice No. I Style No. 801 100 pieces $4,000.00 ' 803 100 2,000.00 '2 " " 801 50 " 2,050.00 228 MICHIGAN C. P. A. MANUAL 3 ' 802 100 3,000.00 4 ' 802 100 2,800.00 "803 25 " 450.00 $14,300.00 Hint : Make entry for cost of sales. Received cash from customers, $9,000.00. (k) Paid out cash for wages, $6,035.00, and vouchers, $7,650. (1) Inventories at end of month. (In addition to stocks of raw materials and finished goods as shown by stock records.) . Supplies, $1,000.00. Unfinished goods : Style No. 801, 50 pieces. All material cut. All 'supplies provided. Labor half completed. Style No. 802, 100 pieces. All material cut. Half of supplies provided. Half of labor finished. (m) Prepare balance sheet and profit and loss account for the month. Add or deduct from cost of sales, when preparing profit and loss account, the unabsorbed labor, expenses, etc. (n) Show how balances of raw material and finished goods are made up. 3. A dealer in foreign exchange finds from his books that he has had the following transactions in London exchange during a particular month, viz. : Exchange bought in local market : Jan. i 3O-day bill, payable in London 300 at 4.75 Jan. 15 Bill due at sight in London 2,300 at 4.76 Exchange sold in local market : Jan. 5 Bill due in London at sight 1,000 at 4.77 Jan. 20 Cable transfer 2,000 at 4.78 Foreign correspondents' draft honored and paid: Jan. 20 Bill at 30 days after sight accepted Dec. 21 500 at 4.78 State how the balance on the account stands at the close of the month, and how much profit or loss has been derived from the transactions. (At January 31 the rate for cable transfers is 4.80.) Is the profit or loss so stated final? 4. A distinction is made between funded debt and unfunded debt. Please define and compare, discussing the advantages and dis- advantages, if any, attaching to each. MICHIGAN C. P. A. MANUAL 229 PRACTICAL ACCOUNTING Monday, June 9, 1919, from i :oo P. M. to 5 :oo P. M. The candidate is required to answer questions I and 2 and one of the last three, i. (40 Credits) The Cudmore Manufacturing Company owns and operates two plants with main factory at Detroit and the other at Jackson. These plants are operated as distinct units and a complete set of accounts is maintained at each office. The accounts are closed annually on December 31. From the two trial balances as of December 31, 1918, which are given below, prepare two exhibits, viz. : Balance Sheets as of December 31, 1918 and Manufacturing, Trading and Profit and Loss Statements for the year ended December 31, 1918, to show the separate and combined results. The invoices shown in the interplant accounts represent ma- terial sold by the Detroit plant to the Jackson plant at cost, plus 5% profit. The inventories at the end of the year are as follows : Detroit Jackson Material $47,500.00 $35,700.00 Supplies 830.00 270.00 Prepaid Expenses : Insurance 300.00 230.00 Taxes 680.00 340.00 Tn your answer, combine such figures of the trial balance as may be properly grouped in control. Detroit Plant Jackson Plant Dr. Cr. Dr. Cr. Petty Cash $ 150.00 $ 150.00 Cash in Bank 49,000.00 20,000.00 Accounts Receivable 38,000.00 24,000.00 Material Inventory Jan. i, '18 48,000.00 35,000.00 Supplies Inventory Jan. i, '18 500.00 300.00 Plant Buildings 52,000 co 41,000.00 Plant Equipment 1 1,000.00 8,coo.oo Plant Betterment 3,000.00 4,000.00 Real Estate 7,000.00 5,000.00 Furniture and Fixtures 2,000.00 1,000.00 Machinery 35,000.00 26,500.00 Tools 8,000.00 . 0,500.00 Patterns 9,000.00 7,500.00 230 MICHIGAN C. P. A. MANUAL Accounts Payable $ 10,000.00 $ 25,000.00 Notes Payable 8,000.00 6,000.00 Accrued Wages i.ooo.oo 800.00 Miscellaneous Revenue 1,500.00 300.00 Reserve for Bad Debts 450.00 100.00 Reserves for Depreciation: Plant 18,900.00 13,000.00 Equipment 3,500.00 2,000.00 Furniture and Fixtures. 1,000.00 300.00 Machinery 10,000.00 8,500.00 Tools 5,400.00 5,000.00 Materials Purchases 129,300.00 00,000.00 Direct Labor 44,000.00 28,000.00 Misc. Factory Expenses .... 15,000.00 10,000.00 Misc. Factory Labor 4,500.00 2,000.00 Power, Light and Heat 3,900.00 3,000.00 Power, Light & Heat Labor. 1,200.00 1,000.00 Boiler and Engine Repairs.. 500.00 300.00 Factory Supplies Purchased 2,400.00 1,800.00 Compensation for Injuries.. 650.00 400.00 Medical Expense 300.00 100.00 Cartage in 1,200.00 1,000.00 Freight and Express in 1,500.00 1,000.00 Sales 239,600.00 181,550.00 Executive Salaries 3,600.00 3,600.00 Office Salaries 4,700.00 2,000.00 Stationery and Printing 1,500.00 750.00 Insurance 1,000.00 700.00 Taxes 1,200.00 1,000.00 General Expense 500.00 500.00 Telephone and Telegraph . . . 400.00 300.00 Interest 300.00 200.00 Discount 1,200.00 700.00 Traveling Exp., Executives . . 200.00 200.00 Postage 900.00 250.00 Advertising 2,300.00 500.00 Salesmen's Salaries and Exp. 4,200.00 3,200.00 Packing and Shipping 6,200.00 4,300.00 Freight and Express Out... 800.00 600.00 Cartage Out 1,800.00 200.00 Capital Stock 100,000.00 Jackson Plant 110,000.00 Jackson Suspense Account... 4,200.00 Surplus & Undivided Profits 212,750.00 Detroit Plant 7,100.00 Capital Account 104,100.00 $6i2,ioo.co $612,100.00 $346,650.00 $346,650.00 "JACKSON PLANT ACCOUNT" ON DETROIT BOOKS 1918 Dr. Cr. Jan. i Balance $100,000.00 Dec. 29 Cash for additional capital 10,000.00 Dec. 31 Balance $i 10,000.00 $110,000.00 $110,000.00 MICHIGAN C. P. A. MANUAL 231 1918 Mar. 21 Cash Apr. 15 Invoice May 3 Invoice May 12 Invoice , May 17 Cash June 10 Invoice , June 15 Invoice July i Cash Oct. i Cash Oct. i Invoice Oct. 12 Invoice Oct. 15 Invoice Oct. 31 To Suspense Account Nov. i Invoice Dec. i Invoice , Dec. 10 Invoice Dec. 1 1 Invoice Dec. ii Cash Dec. 29 Invoice Dec. 31 Invoice Dec. 31 Cash "JACKSON CURRENT ACCOUNT" ON DETROIT BOOKS Dr. 300.00 500.00 1,000.00 1,200.00 600.00 6OO.OO 25O.OO IjOOO.OO 6OO.OO 4OO.OO 2,000.00 1,000.00 2,46o.OO 3,000.00 1,740.00 Cr. 2,500.00 2,500.00 2,500.00 3,800.00 4,200.00 1,150.00 $ 16,650.00 $ 16,650.00 "DETROIT PLANT ACCOUNT" ON JACKSON BOOKS 1918 Dr. Cr. Mar. 18 Cash $ 2,500.00 Apr. 15 Invoice $ 30O.OO May 3 Invoice 500.00 May 12 Invoice I,ooo.oo May 15 Cash 2,500.00 June 10 Invoice 1,200.00 June 15 Invoice 600.00 June 30 Cash 2,500.00 Sept. 30 Cash 3,800.00 Oct. i Invoice 600.00 Dec. 31 Balance Forward 7,100.00 $ 11,300.00 $ 11,300.00 "CAPITAL ACCOUNT" ON JACKSON BOOKS 1918 Dr. Cr. Jan. i Balance $100,000.00 Oct. 12 Invoice 250.00 Oct. 15 Invoice 1,000.00 Nov. i Invoice 600.00 Dec. i Invoice 400.00 Dec. 10 Invoice 2,000.00 Dec. 1 1 Invoice 1,000.00 Dec. ii Cash $ 1,150.00 Dec. 31 Balance Forward 104,100.00 } -L. ; $105,250.00 $105,250.00 232 MICHIGAN C. P. A. MANUAL 2. (30 Credits) 'The following Trial Balance of the Crystal Lak^ Development Company as of April 30, 1919 is furnished from which with added information you are requested to prepare a Financial Statement and Profit and Loss Account. Cash on hand and in Banks $ 1,000.00 Liberty Bonds 5,000.00 Contracts Receivable 48,000.00 Land 100 Acres 175,000.00 Improvements 25,000.00 Int. on Mortgage and Notes Payable 6,900.00 Exp. Organization and Development.. 13,100.00 Expenses Operating 13,500.00 Equipment Trench Digger 2,500.00 Commissions Payable $ 5,000.00 Sale of Buildings 3,000.00 Sale of Lots 60,000.00 Notes Payable 10,000.00 Mortgages Payable 105,000.00 Capital Stock 100,000.00 Income Rent 2,000.00 Income Interest 4,000.00 Income Miscellaneous 1,000.00 The company was organized May I, 1918, to purchase acreage, subdivide same and sell through agents in lots on land con- tracts. One farm of 50 acres was purchased for $100,000.00, another of equal size for $75,000.00. The former was improved and subdivided into 400 lots on which selling prices were fixed and lots sold during April as follows, no sales having been made previously. Subdivided Selling Price Lots Sold 100 Lots $ 600.00 26 100 Lots 800.00 15 100 Lots 1,000.00 18 100 Lots 1,000.00 12 Down payments on land contracts had been $12,000.00 of which $4,000.00 was retained by the selling agents to apply on their commissions. Treatment of development costs and carrying charges option- al with candidate. 3. (30 Credits) (a) Assuming that the Balance Sheets given below are dated January i, 1917, and December 31, 1917 respectively, pre- pare a statement showing the computation of 'the invested capital for the calendar year ended December 31, 1917 as defined in the Federal Revenue Act of 1917 (Income and Excess Profits Tax Law) and the regulations relative to this act, for the purpose of determining the excess profits tax. MICHIGAN C. P. A. MANUAL 233 (b) Assuming that the Balance Sheets are dated January i, 1918 and December 31, 1918 respectively, prepare a state- ment showing the computation of the invested capital for the calendar year ended December 31, 1918 as defined in the Federal Revenue Act of 1918 (Income, Excess Profits and War Profits Tax Law) and the regulations relative to this act, for the purpose of determining the excess profits taxes. (c) Prepare a statement showing the calculation of the Income Excess Profits and War Profits Taxes for the Calendar year ended December 31, 1918, ascsuming that the corpora- tion was organized and incorporated in 1915. BALANCE SHEETS ASSETS January i December 31 Cash $ 22,842.69 $ 24,262.91 Accounts Receivable Trade 112,943.81 146,276.94 Inventories of Raw Material, Work in Progress, Finished Goods and Supplies 268,021.93 296,263.82 Liberty Bonds 50,000.00 Stocks and Bonds 60,000.00 60,000.00 Plant Machinery and Equipment 350,000.00 350,000.00 Prepaid Expenses 400.00 500.00 Good-Will (paid for in stock) 100,000.00 100,000.00 $914,208.43 $ 1,027,303.67 LIABILITIES AND CAPITAL Vouchers Payable $ 32,942.61 $ 62,821.96 Reserve for Taxes and Contingencies 30,000.00 30,000.00 Capital Stock, Issued January i, 1916: Preferred 100,000.00 100,000.00 Common 200,000.00 200,000.00 Surplus and Undivided Profits 551,265.82 634,481.71 $914,208.43 $ 1,027,303.67 ANALYSIS OP SURPLUS AND UNDIVIDED PROFITS FOR THE YEAR Balance, January i $551,265.82 Dividends paid as follows : Preferred, paid monthly on last day of each month . $6,000.00 Common : January 31 2,000.00 February 28 2,000.00 March 31 2,000.00 June 30 6,000.00 September 30 6,000.00 December 20 (Christmas dividend) 3,000.00 December 31 6,000.00 33,000.00 $518,265.82 Net Profits for the year 128,477.87 $646,743.69 Income (and Excess Profits) tax paid during year 12,261.98 Balance, December 31 $634,481.71 234 MICHIGAN C. P. A. MANUAL ANALYSIS OF STOCKS AND BONDS (AU, ENTERED AT PAR, WHICH IS AIvSO THE PURCHASE PRICE) 200 shares of the Capital Stock of the Fan Manufacturing Co., Flint, Mich $20,000.00 Bonds of the City of Anderson, Minnesota, 5% 10,000.00 Bonds of the Allegan and Huron Railroad, 6% 30,000.00 $60,000.00 LIBERTY BONDS For Question I : Second Loan $50,000.00 For Question 2 : Third Loan $25,000.00 Fourth Loan 25,000.00 In answering Question No. 3 it may be assumed that no unal- lowable deductions have been entered in the Profit and Loss account on the books. Non-taxable income should be figured from the data above. The Third Liberty Loan paid one coupon in 1918 in the amount of $14.90 per M. No dividends were received from the Fan Manufacturing Co. during 1918. 4. (30 Credits) The Buzzer Automobile Company manufactures an assembled car. Following is a synopsis of its factory activities for a given period. Build up from the figures shown all of the relative ac- counts as they would appear on the Factory Ledger with sum- mary of Stores Ledger at closing. Purchases including opening inventory : Parts Purchased $ 65,000.00 Parts Manufactured (material) 225,000.00 Productive Labor 281,250.00 Factory Expense 451,200.00 Cost of Finished Cars : Parts Purchased 55,000.00 Parts Manufactured (material) 75,000.00 Productive Labor 188,500.00 Factory Overhead Expense 226,200.00 Material on hand (In Process) $200,000.00. 5. (30 Credits) A contractor proposes to build a bridge to Belle Isle and accept the city's 4% 2O-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 automo- biles at the respective rates of I 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 an- nualy and create a fund which placed at the same rate of inter- est would be sufficient to retire the bonds at maturity? NOTE: $i compounded at 4% for 20 years = $2. 191 123 14. ECONOMICS AND PUBLIC FINANCE 236 MICHIGAN C. P. A. MANUAL ECONOMICS AND PUBLIC FINANCE Saturday, November 17, 1917, from 9:00 A. M. to 12:00 M. 1. Explain the different methods by which governments secure the revenue needed for carrying on business local, state, and national. 2. Indicate the points that should be studied in preparing any profit sharing scheme. 3. Name the different kinds of organizations handling trust funds, with the restrictions that are or should be placed upon them, indicating the services which they render to the community. 4. Define credit, wealth, money, legal tender, circulation (bank use). 5. What economic arguments may be raised for or against the transaction of business by corporations ? ECONOMICS AND PUBLIC FINANCE Tuesday, June 10, 1919, from TI :oo A. M. to 12:00 M. 1. Explain the present tax laws of the United States Government and indicate which of the taxes can be shifted. 2. What effect does the invention of machinery have on the rate of interest? ECONOMICS AND PUBLIC FINANCE Tuesday, June 10, 1919, from 4:00 P. M. to 5 :oo P. M. 1. Present the arguments for a national budget. 2. In view of the present tax laws is it of advantage or not to the individual stock-holder if corporations are under or over capi- talized ? SYNOPSIS OF C. P. A. LAWS MICHIGAN C. P. A. MANUAL 239 SYNOPSIS OF C. P. A. LAWS A careful study of the various state laws shows that the average certified public accountant in the several states where laws have been passed is a citizen of the United States, twenty-one years of age, who has had the equivalent of a high-school education, has practiced as a public accountant for at least two years, has satisfied a state board as to his character and ability, and has received from the proper authorities a certificate permitting him to practice as a certified public accountant. The following synopsis presents at a glance the conditions sur- rounding the certified public accountant in the several states where laws have been enacted, the states being arranged in the order in which the laws were secured. If the requirement is fixed by statute, that fact is shown by (S). If -it is a rule of the administrative board, it is shown by (R). Comparisons are made along four dis- tinct lines: (i) preliminary education; (2) professional training; (3) licensing test ; (4) reciprocity. Most of the laws provide for a State Board of Accountancy of three or five members, appointed by the Governor or the governing board of the State University. Most of the laws provide that one member shall be a practicing attorney in good standing in any of the courts of the state. Iowa and South Dakota require holders of certificates to furnish bonds. All states require citizenship or dec- laration of intention except Florida, Maine, Michigan, North Da- kota and South Carolina. The South Dakota law provides for a board consisting of the public examiner, the executive accountant and the insurance examiner. The Oklahoma law provides for a board of the state examiner and inspector, the attorney general and one accountant. Massachusetts and New Hampshire place the work in the hands of the bank commissioners. Verment specifies that its members shall be the state auditor of accounts, the bank commission- er, and a third person. In North Dakota, the membership is com- posed of an educator, an attorney and an accountant. Idaho vests the power in the department of law enforcement. The Indiana law makes the board to consist of the state examiner and two deputy examiners of the state board of inspection and supervision of public officers. In most of the states it is provided that a majority of the State Board of Accountancy shall be practicing public accountants and after the first selection shall be chosen from the holders of C. P. A. certificates. 2 4 o MICHIGAN C. P. A. MANUAL It will be noticed that only two states are lacking C. P. A. laws: Mississippi, and New Mexico. NEW YORK, 1896. (i) (R) Regents academic diploma re- quired or the qualifying certificate; (2) (R) five years' satisfactory- experience in accounting at least two of which must be in the em- ploy of a certified public accountant; (3) (R) examination on four subjects, covering 15 hours; (4) (S) permitted at the discretion of the Regents of the University if applicant has had three years' ex- perience as public accountant in another state having an equal stand- ard. PENNSYLVANIA, 1899. (i) (R) Recognized high school ed- ucation required or its equivalent; (2) (R) statement from prac- ticing C. P. A. that applicant has had two years' accounting work and study in his office, or three years' experience as an independent public accountant; (3) (S) examination on two subjects, (R) cov- ering 32 hours ; preliminary examination follows two years' regis- tration, final examination follows third year; (4) (S) permitted to accountants- with five years' experience. MARYLAND, 1900. (i) (S) High school education or its equivalent; (2) (S) graduate from school of accountancy with two year course, or one year in employ of C. P. A. or two years' inde- pendent practice as public accountant; (3) (S) examination on five subjects, (R) covering 15 hours; (4) (S) certificate of registra- tion permitted and for chartered accountant as well. CALIFORNIA, 1901. (i) (R) Graduate accredited high school or equivalent; (2) (R) three years' accounting experience, two of which were in office of C. P. A.; (3) (S) examination on four sub- jects, (R) covering 18 hours, (S) annual renewal of certificate re- quired; (4) (S) permitted and for chartered accountant as well. WASHINGTON, 1903. (i) (R) High school education or its equivalent; (2) (S) none; (3) (S) examination on four subjects, (R) covering 18 hours, (S) annual renewal of certificate required; (4) (S) no provision. ILLINOIS, 1903. (i) (S) Four-year high school course or its equivalent; (2) (S) none; (3) (S) examination on four subjects, (R) covering 15 hours; (4) (S) permitted to accountants with five years' experience in another state prior to May 15, 1903, provided they had passed an examination equivalent to that given in Illinois. NEW JERSEY, 1904. (i) (R) High school or equivalent ed- ucation required; (2) (R) two years' service in the office of a prac- ticing public accountant or on his own account; (3) (R) examina- tion on four subjects, covering 24 hours; (4) (S) permitted. MICHIGAN C. P. A. MANUAL 241 MICHIGAN, 1905. (i) (S) A high school course or its equiv- alent required; (2) (S) two years' continuous practical experience in public accounting; (3) (R) examination on five subjects, cover- ing 20 hours; (4) (S) certificate of registration permitted (R) to those persons who received their certificates in other states as result of examination, and (S) certificate of authority permitted for those from other states or foreign countries. FLORIDA, 1905. (i) (S) Four-year high school course or its equivalent; (2) (R) one year in the office of a practicing public accountant or one year's approved practical experience; (3) (S) examination on four subjects, (R) covering 20 hours; (4) (S) cer- tificate of registration permitted. RHODE ISLAND, 1906. (i) (S) None; (2) (R) one years practical experience; (3) (S) examination on four subjects and such others as the Board may determine, (R) covering 12 hours; (4) (S) certificate of registration permitted and for chartered ac- countant as well. UTAH, 1907. (i) (R) High school education; (2) (R) one year's practical experience; (3) (S) examination on four subjects, (R) covering 8 to 16 hours, (S) annual renewal of certificate re- quired; (4) no provision. COLORADO, 1907. (i) (S) Graduation from a high school or an equivalent education; (2) (S) three years' experience in the practice of accounting, (R) last year must be in Colorado; (3) (S) examination on three subjects and such other subjects as the Board may deem advisable, (R) two subjects added, examination averages 15 hours; (4) (S) permitted and for chartered accountant as well. CONNECTICUT, 1907. (i) (S) Four-year high school course or its equivalent; (2) (S) two years' practical experience in book- keeping with such training in public accounting as the Board may require, (R) two years in office of practicing accountant, one year of which may be on his own account; (3) (S) examination on four subjects and such other related subjects as the Board shall deem necessary, (R) covering 21 hours; (4) (S) permitted to persons with five years' experience as a public accountant, one year of which was in Connecticut. OHIO, 1908. (i) (S) Graduation from a high school or an equivalent education ; (2) (S) three years 1 experience in account- m g; (3) (S) examination on four subjects, (R) covering two days; (4) (S) permitted and for chartered accountant as well. 242 MICHIGAN C. P. A. MANUAL LOUISIANA, 1908. (i) (R) Completion of a high school course of study or its equivalent; (2) (R) one year's satisfactory. practical experience or one year in the office of a practicing public accountant; (3) (S) examination on four subjects and such other branches of knowledge as the Board may deem necessary, (R) cov- ering 14 hours; (4) (S) certificate of registration permitted. GEORGIA, 1908. (i) (S) None; (2) (S) none; (3) (S) ex- amination on five subjects, (R) covering two days; (4) no pro- vision. MONTANA, 1909. (i) (S) Graduation from an accredited high school or equivalent education; (2) (S) three years' practical experience in accounting; (3) (S) written examination on four subjects and such other subjects as may be designated, and an oral examination, (R) covering 17 hours; (4) (S) permitted and for chartered accountant as well. NEBRASKA, 1909. (i) (R) Graduation from four-year high school or the equivalent; (2) (R) three years in the office of a practicing public accountant or in practice as a public accountant; (3) (S) examination on subjects and questions furnished by the National Association of Certified Public Accountants, which organ- ization is not now in existence ; (4) no provision. MINNESOTA, 1909. (i) (R) High school course or its equiv- alent; (2) (S) three years' experience in accounting, (R) the last year of which must be in the state; (3) (S) examination on three subjects and such others as the Board may deem advisable, (R) cov- ering two days ; (4) (S) permitted. MASSACHUSETTS, 1909. (i) (R) Equal to a high school education or pass an examination; (2) (R) two years' practical ex- perience; (3) (R) examination on four subjects, covering 21 hours (S) annual renewal of certificate required; (4) no provision. MISSOURI, 1909. (i) (S) Graduation from a four-year high school or the equivalent, or pass an examination; (2) (S) three years' experience in public accounting, (R) two of which must be in the office of a Certified Public Accountant; (3) (S) examination on four subjects, (R) covering 155/2 hours; (4) (S) certificate of registration permitted. VIRGINIA, 1910. (i) (S) Equivalent of a high school of rec- ognized standing or pass an examination; (2) (S) one year's prac- tice as public accountant or two years' assistant in the office of a public accountant or three years' employment as bookkeeper; (3) (S) examination on four subjects, (R) covering two days; (4) (S) permitted and for chartered accountant as well. MICHIGAN C. P. A. MANUAL 243 WEST VIRGINIA, 1911. (i) (R) High school graduation or its equivalent; (2) (R) one year's practical experience; (3) (S) examination on six subjects; (4) no provision. \YY( )MING, 1911. (i) (S) Graduation from a high school or its equivalent; (2) (S) three years' experience in the practice of accounting; (3) (S) examination on three subjects and such other subjects as the Board may deem advisable, (R) covering about two days; (4) (S) permitted and for chartered accountant as well. VERMONT, 1912. (i) (S) Graduation from a high school or its equivalent; (2) (S) none; (3) (S) examination on four sub- jects; (4) (S) permitted to persons with certificate from other states who have practiced five years. OREGON, 1913. (i) (S) Discretion of the Board; (2) (S) discretion of the Board; (3) (S) examination on four subjects, an- nual renewal of certificate required; (4) (S) permitted. NORTH CAROLINA, 1913. ( i) (S) Graduation from a high school or equivalent education; (2) (S) three years' experience in practical accounting; (3) (S) examination on four subjects and oth- er subjects in the discretion of the Board; (4) (S) permitted and for chartered accountant as well. NORTH DAKOTA, 1913. (i) (S) Prescribed by the State University; (2) (S) prescribed by the State University; (3) (S) examination on five subjects and such others as University of North Dakota may designate, oral examination may be required; (4) no provision. NEVADA, 1913. (i) (S) None; (2) (S) none; (3) (S) ex- amination on four subjects, annual renewal of certificate required; (4) (S) permitted and for chartered accountant as well. TENNESSEE, 1913. (i) (S) Equivalent of graduation from first-grade high school of the state; (2) (S) one year's practice as a public accountant or continuous employment as assistant for two years in the office of a public accountant, or as chief bookkeeper for three years; (3) (S) examination on four subjects; (4) (S) per- mitted and for chartered accountant as well. DELAWARE, 1913. (i) (S) Discretion of the Board; (2) (5) three years' experience as assistant in the office of a public accountant or on own account; (3) (S) examination on four sub- jects as the Board may deem advisable general preliminary exam- ination required three years prior to regular; (4) (S) permitted and for chartered accountant as well. 244 MICHIGAN C. P. A. MANUAL MAINE, 1913. (i) (S) None; (2) (R) two years' practical accounting experience; (3) (S) examination on three subjects and such others' as it deems necessary ; (4) permitted and for chartered accountant as well. WISCONSIN, 1913. (i) (R) High school graduate or equiva- lent eduaction; (2) (R) two years' experience as public accountant; (3) (S) examination on four subjects and other subjects deemed necessary by the Board; (4) (S) permitted and for chartered ac- countant as well. SOUTH CAROLINA, 1915. (i) (S) None; (2) (S) discre- tion of Board, (R) practiced public accounting in state for three years or been employed for three years in public accounting or as chief or head bookkeeper in business employing three accountants ; (3) (S) examination on six subjects, annual renewel of certificate required; (4) no provision. INDIANA, 1915. (i) (S) Graduate of a high school or having received an equivalent education; (2) (S) three years' experience in the practice of accounting; (3) (S) examination on four sub- jects; (4) (S) permitted and for chartered accountant as well. ARKANSAS, 1915. (i) (S) Graduate of four-year high school, or have an equivalent education or pass an examination; (2) (S) three years' practical accounting experience; (3) (S) examination on four subjects; (4) (S) certificate of registration permitted. KANSAS, 1915. (i) (R) Graduate from four-year high school or equivalent; (2) (R) three years' experience, with one in office of public accountant; (3) (S) discretion of Board, but qualifications are to conform so far as practicable to the standard approved by the American Association of Public Accountants; (4) (S) permitted and for chartered accountant as well. TEXAS, 1915. (i) (R) ^Equivalent of high school education; (2) (S) one year's study and practice in accountancy; (3) (S) ex- amination on four subjects, annual renewal fee required; (4) (S) permitted and for chartered accountant as well. IOWA, 1915. (i) (S) Graduate of four-year high school or have an equivalent education or pass a preliminary examination ; (2) (S) three years' practical accounting experience ; (3) (S) ex- amination on four subjects; (4) (S) certificate of registration per- mitted. MICHIGAN C. P. A. MANUAL 245 KENTUCKY, 1916. (i) (S) Graduate of high school with four-year course or possessed of an equivalent education; (2) (S) three years' experience in accounting, one of which has been in office of practicing accountant or individual practice as public ac- countant ; (3) (S) written examination in four subjects; (4) (S) permitted and for chartered accountant as well. SOUTH DAKOTA, 1917. (i) (S) Graduate of high school with four-year course, or possess an equivalent education or pass an examination; (2) (S) three years' practical accounting experience; (3) (S) examination on four subjects; (4) (S) certificate of regis- tration permitted and for chartered accountant as well. IDAHO, 1917. (i) (S) High school education or its equiva- lent; (2) (S) three years of practical experience in accounting, last one in Idaho; (3) (S) examination on four subjects, annual renew- al of certificate required; (4) (S) permitted. OKLAHOMA, 1917. (i) (S) High school graduate or having an equivalent education; (2) (S) no provision; (3) (S) examina- tion on six subjects; (4) (S) permitted to holder of C. P. A. cer- tificate for three years. XKW HAMPSHIRE, 1917. (i) (S) Education equivalent to public high school; (2) (S) four years' accounting experience or instruction; (3) (S) examination in four subjects; (4) (S) per- mitted to holder of C. P. A. certificate for three years. ALABAMA, 1919. (i) (R) Must have completed a high school course or its equivalent; (2) (R) one year's experience in the of- fice of a practicing public accountant or three years' practical expe- rience ; (3) (S) examination in four subjects; (4) (S) certificate of registration permitted. ARIZONA, 1919. (i) (S) Graduate of high school with four year course or an equivalent education; (2) (S) three years' ac- counting experience; (3) (S) examination in four subjects; (4) (S) certificate of registration permitted. MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MICHIGAN C. P. A. MANUAL 249 MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS Constitution ARTICLE Xame I Objects of the Association ...... ]I Membership, Classes, Qualifications, and Elections . . Ill Certificate of Membership . . . . . IV Directors, Officers, and Committees .... V Election of Directors and Officers ..... VI Seal . VII Amendments ........ VIII CONSTITUTION ARTICLE I NAME: SECTION i. The name of this Association shall be ''The Mich- igan Association of Certified Public Accountants." ARTICLE II OBJECTS SECTION i. The objects of this Association are : (a) To unite in one society all accountants practicing in the State of Michigan who are holders of Michigan Certified Public Accountant certificates or of Certified Public Accountant certifi- cates of any other State in the United States, of equal standing with that given by the State of Michigan, and all other accountants who hold degrees given in foreign countries, the standard of which shall be equal to that given by the State of Michigan. (b) To urge and assist in the enforcement of the state law providing for the granting of Certified Public Accountant certifi- cates in the State of Michigan. (c) To encourage the proper training of persons who desire to become Certified Public Accountants. ( (1 ) To promote the study of law appertaining to accounts. (e) To secure the proper recognition of the practice of account- ancy as a profession. (f) To maintain among the members of the profession a high standard of professional ethics. . 250 MICHIGAN C. P. ,*. MANUAL ARTICLE III MEMBERS, CLASSES, QUALIFICATIONS, AND ELECTIONS SECTION i. The membership of this Association shall consist of two classes, Fellows and Honorary. SECTION 2. Fellows shall be those elected to membership from the following : (a) Accountants, residents of the State of Michigan, who have obtained and hold a Certified Public Accountant certificate duly issued to them by the State of Michigan. (b) Accountants, residents of the State of Michigan, holding a Certified Public Accountant certificate from any other state in the United States, which has been recognized by the State Board of Accountancy of equal standing with the Certified Public Accountant certificate of the State of Michigan. (c) Accountants, residents of the State of Michigan, holding degrees given in foreign countries, which have been recognized by the State Board of Accountancy, the standard of which shall be equal to the Certified Public Accountant certificate given by the State of Michigan. SECTION 3. The Association, by unanimous vote of the mem- bers present at any regular meeting, on nomination made at a pre- vious meeting may confer honorary membership on those Attorneys who may be appointed by the Governor of Michigan to serve on the Board of Accountancy, or on any other persons who by their stand- ing in this state or by their active interest in the promotion of the objects of the profession may be considered as entitled to receive such honor. SECTION 4. (a) Application for membership must be made on blanks furnished by the Association and must be endorsed by two Fellows. (b) Application must be accompanied by the admission fee as hereinafter provided which will be returned in case the applicant fails to properly qualify under the Constitution and By-Laws. (c) The Secretary shall mail to each member the names of applicants, their addresses and the names of the endorsers. (d) If any member shall make a written objection to the elec- tion of any applicant the secretary shall immediately notify the membership committee and they shall investigate and report their findings at the next meeting. MICHIGAN C. P. A. MANUAL 251 (e) Election to membership shall be by ballot and shall not take place unless thirty days have elapsed since the notices of appli- cation were mailed. A two-thirds affirmative vote of members present shall be necessary to elect. ARTICLE IV CERTIFICATE OF MEMBERSHIP SECTION i. Upon admission to membership as a Fellow of this Association, every member shall be entitled to a certificate of mem- bership therein and the members so receiving such certificates shall agree in writing prior to receipt of such certificates, to the surrender of same to the Association in the event of their withdrawal there- from or their membership otherwise ceasing. ARTICLE V DIRECTORS, OFFICERS, AND COMMITTEES iN i. The Board of Directors shall be composed of five members who shall be members of the Association, and who shall be holders of Certified Public Accountant certificates granted by the State of Michigan. SECTION 2. The officers shall be as follows : A President, a Vice-President, a Secretary and a Treasurer, all of whom shall be Fellows and who shall be members of the Board of Directors, and an Auditor who shall also be a Fellow and who shall not be a member of the Board of Directors. SECTION 3. There shall be five standing committees : Committee of Membership; Committee on Education and Pub- licity ; Committee on Entertainment ; Committee on Legislation, and Committee on Ethics. These Committees, with the exception of the Committees on Ethics and Membership, shall be appointed by the Board of Directors at its first meeting after the annual election. The Board of Directors shall constitute the Committees on Member- ship and Ethics except as may be provided in the By-Laws. SECTION 4. Each committee with the exception of the Commit- tees on Membership and Ethics will consist of three Fellows of this Association. A majority of each committee will constitute a quo- rum. 2.52 MICHIGAN C. P. A. MANUAL ARTICLE VI ELECTION OF DIRECTORS AND OFFICERS SECTION i. The Directors and the Auditor shall be elected at the annual meeting. They shall hold office for a term of one year and until their successors are chosen. In case of a vacancy in the Board same shall be filled by election at the next regular meeting. All elections shall be conducted as hereinafter provided in the By- Laws of this Association. SECTION 2. The President, Vice-President, Secretary and Treasurer shall be elected by the Board of Directors from their own number and shall hold office until the next annual meeting and until their successors are elected. ARTICLE VII SEAL SECTION i. The Corporate Seal of the Association shall be circular in form, having within the rim the inscription, "The Mich- igan Association of Certified Public Accountants," and displayed in the center the words, ''Incorporated 1901 Amended 1905." ARTICLE VIII AMENDMENTS SECTION i. Amendments to the Constitution and By-Laws shall be made only at a regular meeting and by a majority vote of all members of the Association. A copy of the proposition to alter, amend, or add shall be embodied in the call for the next regular meeting at which such amendment is to be acted upon. By-Laws Duties of Directors, Officers, and Committees Meetings, Quorum, etc. .... Order of Business ........ Elections IV Initiation Fees and Dues ....... V Expulsion from Membership ...... VI Rules of Order Roberts . VII MICHIGAN C. P. A. MAX U.I I. 253 BY-LAWS ARTICLE I DUTIES OF DIRECTORS, OFFICERS, AND COMMITTEES SECTION i. It shall be the duty of the Board of Directors to conduct the affairs of the Association. They shall have charge of all property of the society, and shall authorize all expenditures. The Board shall keep a record "of its proceedings and make an annual written report to the Association. Meetings of the Board shall be held at the call of the President or Secretary and three shall con- stitute a quorum. SECTION 2. The Board of Directors shall elect from their num- ber a President, a Vice-President, a Secretary and a Treasurer, who shall hold ofnce until the next annual meeting and until their successors are elected. SECTION 3. It shall be the duty of the President to preside at all meetings and to enforce all laws and regulations relating to the administration of the Association. He shall call special meetings on the written request of five Fellows of the Association. SECTION 4. In the absence of the President, the Vice-President shall perform such duties as devolve upon the President. SECTION 5. In the event of the absence of the President and Vice- 1 'resident from any meeting of the Association, or Board of Directors, one of the members present shall preside. SECTION 6. The Secretary shall keep complete records of all meetings of the Association and of the Board of Directors, and shall have custody of the corporate seal. He shall give at least twenty- four hours notice by mail of all meetings of the Board of Directors, and five days notice by mail of all meetings of the Association. When applications for membership are received, he shall mail to each member the names of applicants, their addresses, and the names of the endorsers. He shall conduct such other correspondence as may be necessary, keep a complete record of members and addresses, a register of certificates, and attend to all other duties usually per- taining to the office. SECTION /. The Treasurer shall receive all moneys payable to the Association and disburse the same only on vouchers approved by the President, after the bills have been allowed by the Board of Directors. He shall render reports to the Association at each regular meeting. 254 MICHIGAN C. P. A. MANUAL SECTION 8. The Auditor shall make an audit of the books of account and of all vouchers for the year. Such books, vouchers and other documents shall be submitted to the Auditor at least six days before the annual meeting, and the Auditor shall file a written report with the Board of Directors before the date of such meeting. SECTION 9. The Committee on Membership shall inquire into the eligibility of each applicant proposed for membership, and shall report on same at the next meeting. SECTION 10. The Committee on Legislation shall keep the Asso- ciation informed on all proposed legislation affecting accountancy. SECTION n. The Committee on Education and Publicity shall encourage and promote the cause of accountancy education by what- ever means may be available and secure proper publicity to further generally the interests of public accountancy. SECTION 12. The Committee on Entertainment shall arrange for the literary and entertainment part of all meetings. SECTION 13. The Committee on Ethics shall investigate any complaint made against any member or members alleging- a breach of the ethics of the profession, and shall report on their findings at the next regular meeting of the Association, provided that should any complaint be lodged against a member or members of this Com- mittee, such members shall not serve on the Committee on Ethics while such complaint is being investigated, but the remaining mem- bers of the Committee shall appoint another member or members of this Association to serve temporarily on this Committee until such complaint has been investigated and report made. ARTICLE II MEETINGS SECTION i. Regular meetings of the Association shall be held in each month in the year except July and August, on a day set by the Board of Directors. Notices of each meeting shall be sent to each member not less than five days prior to the meeting. SECTION 2. Special meetings may be called by the President, or Secretary, at any time, and shall be called on the written request of five Fellows. No business other than that for which such meet- ings were called shall be transacted. Notices to each member shall be sent out at least five days prior to the meeting. SECTION 3. The annual meeting of the Association shall take place on the third Tuesday of September in each year. Notice shall be sent to each member not less than five days prior to the meeting. MICHIGAN C. P. A. MANUAL 255 SECTION 4. A meeting of the Board of Directors may be called by the President or Secretary at any time. Two regular meetings shall be held, one in September, immediately following the unmiril meeting for the purpose of electing officers, and another immediately preceding or following the regular meeting in March each year. SECTION 5. All committees shall be subject to call of their re- spective chairmen, and shall meet to perform the duties for which they were appointed or act upon such matters as may be referred to them. SECTION 6. At any meeting of the Association a majority of the Fellows resident in the State of Michigan shall constitute a quorum to transact any business properly presented. SECTION 7. Three directors shall constitute a quorum of the Board of Directors, and a majority of any committee shall constitute a quorum of such committee. ARTICLE III ORDER OF BUSINESS SECTION i. The order of business at all regular meetings shall be as follows : 1. Roll Call 2. Reading of Minutes 3. Board of Directors' Report 4. Treasurer's Report 5. Standing Committees' Reports 6. Election of Members 7. Special Committees' Reports 8. Unfinished Business 9. Communications 10. New Business 1 1 . Program SECTION 2. The order of business at the annual meeting shall be in addition to that in Section i as follows : 12. Reading of Annual Reports 13. Election of Board of Directors 14. Election of Auditor 256 MICHIGAN C. P. A. MANUAL ARTICLE IV EJECTIONS SECTION i. Elections shall be held at the annual meeting of the Association, for the following : Five Directors One Auditor SECTION 2. Elections shall be by ballot. Two tellers shall be appointed to receive and canvas the ballots as cast, and announce the result to the presiding officer, who thereupon shall declare the Fellows receiving the majority of the votes cast elected to the re- spective offices. SECTION 3. In case of no choice for any office or offices on the first ballot, succeeding ballots shall at once take place until a choice is made for such office or offices. SECTION 4. Any member who is three months in arrears for any dues, assessments or other sums owed by him to the Associ- ation, shall not be entitled to vote, or be eligible for any office or committee assignment. SECTION 5. Any Fellow unable to be present at any meeting may vote upon any election or question which is submitted at that meeting by mailing his proxy to the Secretary, or to any other mem- ber of the Association. SECTION 6. Honorary Members shall not be entitled to vote or be eligible for any office or committee assignment. ARTICLE V INITIATION FEES AND DUES SECTION I. There shall be an initiation fee of ten dollars col- lected from each Fellow when application for membership is made, SECTION 2. The annual dues to be collected shall be ten dol- lars from each Fellow. SECTION 3. Dues shall be payable annually in advance on Octo- ber ist of each year, or at the date of a member's election to mem- bership. Until such payment of dues at election to membership, no certificate shall be issued, and such dues shall be apportioned to September 3Oth at the rate per meeting month of $1.00. SECTION 4. The Association may by a majority vote of all Fel- laws levy membership assessments of not to exceed in any one year the amount of the yearly dues. SECTION 5. No Fellow shall be permitted to vote at any meet- ing of the Association who is three months in arrears for dues, assessments or other sums owed by him to the society. MICHIGAN C. P. A. MANUAL 257 ARTICLE VI BXPUtSION l ; ko.M AlK.Mi'.KkSUIP SKCTIOX i. (a) If any member of the Association shall be de- clared by a court of competent jurisdiction to have committed any fraud, or shall be convicted of felony or misdemeanor, or (.In If any member is held by the Board of Directors on the written complaint of any person to have been guilty of any act or default discreditable to the profession, or (c) If any member shall fail to pay any dues, assessments or other sums owed by him to the Association within three months after such debt has become due, he renders himself liable to be expelled from membership by a resolution of the Board of Directors presented to the Association at any regular or special meeting. SI.CTIOX 2. Due notice shall be mailed to the accused member by the Secretary at least five days prior to the meeting. SIXTIOX 3. A two-thirds vote of the members present shall be necessary to a decision. SKCTIOX 4. Upon the expulsion of any member for whatever cause, the Secretary shall for the Beard of Directors, demand the return of the certificate of membership as provided by Article IV of the Constitution. ARTICLE VII RULES OF GRUKR Si-X'Tiox i. The rules of parlimentary procedure as laid down in "Robert's Rules of Order" shall govern at all meetings of the Association. MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS IAXTARV i, ig20 FELLOWS Ashman. Evan. T Detroit, Mich. At '.\iiison, ( itorge X'.- Detroit, Mich. Ik-mu'tt. Robert J. . . Philadelphia, Pa. Beck, Howard C' Baltimore, Mel. lUanrharil, ( ilynn F Grand Rapids, Mich. I'.onthmn. \Yilliam I) Detroit, Mich. I'ootlu- J. T.tr Detroit, Mich. Mullock. Cyril X Detroit, Mich. r.nriH-11, Lortn/o 1) Detroit, Mich. Dadson, Elclon E Detroit, Alich. P.utler, William Detroit, Mich. Kvans. Thomas H Detroit, Mich. R-uldis. Thomas M Detroit, Mich. 258 MICHIGAN C. P. A. MANUAL Pick, H. William Grand Rapids, Mich. Foy, Arphaxed Detroit, Mich. Gibbs, George R Detroit, Mich. Hawkins, Norval A Detroit, Mich. Hollis, Ralph T Detroit, Mich. Jerome, John J Lansing, Mich. Kerr, Percy A Detroit, Mich. Leslie, William Detroit, Mich. LaBonte, Frank G Detroit, Mich. McDonald, John A Detroit, Mich. Miller, Ralph C Detroit, Mich. Morton, Fred W Detroit, Mich. Neff, C. Earle '..... Detroit, Mich. Palmer, Leslie E New York, N. Y. Porte, T. L. Whitford Detroit, Mich. Ross, William F. G Detroit, Mich. Rowland, William C Detroit, Mich. Ruple, Harry Saginaw, Mich. Shaefer, Francis M Lansing, Mich. Shultus, Walter H Grand Rapids, Mich. Smith, David Detroit, Mich. Springer, Durand W Ann Arbor, Mich. Stevenson, Richard A Detroit, Mich. Steff ens, Henry, Jr Detroit, Mich. Sunley, William T., Jr Detroit, Mich. Staub, E. Elmer Detroit, Mich. Thayer, Arthur F Detroit, Mich. Thompson, Melville W. . New York, N. Y. Tilton, Frederic A Detroit, Mich. Tringham, William Detroit, Mich. Turner, Robert L Detroit, Mich. Whitlock, Christopher C Detroit, Mich. Wixson, Fred Detroit, Mich. Wolfe, Richard H Detroit, Mich. HONORARY Bland, J. Edward Detroit, Mich. Broomfield, Archibald Detroit, Mich. Byrns, Charles J Ishpeming, Mich. Denby, Edwin Detroit, Mich. Ferris, Woodbridge N Big Rapids, Mich. Hart, Ray Midland, Mich. Peek, Archibald J Jackson, Mich. Sleeper, Albert E Bad Axe, Mich. Warner, Fred M Farmington, Mich. Woods, Nicholas W Detroit, Mich. Zimmerman, Henry M Pontiac, Mich. MICHIGAN C. P. A. MANUAL 259 THE MICHIGAN CERTIFIED PUBLIC ACCOUNTANTS IN WAR ACTIVITIES All the Michigan certified public accountants were active sup- porters of the government in some of the many ways which were presented to citizens generally. Many of the men rendered army service proper. Others took on specific civilian tasks which were officially recognized by the government. Some were connected with organizations doing army contract work for the government. The remainder were active members of one or more of the various com- mittees which war conditions made necessary. The following is a statement of the specific lines in which the members of the first two groups were engaged : Beck, Howard C. Prepared monograph "A Statement of Accounts for Re- tail Coal Dealers'' for the United States Fuel Administration. Bennett, Robert J. Chief Accountant, Division of Auditing for Pennsylva- nia, United States Food Administration; Auditor, Southeastern Penn- sylvania Chapter American Red Cross; Auditor, Army and Navy De- partment Brotherhood of St. Andrew, Episcopal Church; Special In- vestigator for Federal Trade Commission and United States Fuel Ad- ministration. Bonthron, William D. Chairman Auditing Committee, Executive Liberty Loans Committee for Detroit and Wayne County. Burnell, Lorenzo D.- (Lieutenant) Cost Accounting Section, Ordnance Department, Washington; (Captain) Disbursing Officer, Ordnance De- partment, American Expeditionary Forces. Butler, Ernest B. Production Expert, Signal Corps, United States Army: Cost Inspector, Bureau of Supplies and Accounts, Navy Department. Butler, W T illiam (Major) Infantry, Canadian Expeditionary Forces with service in Canada, England, Belgium and France, July 1915 to June 1917; District Manager of Finance, Finance Division, Bureau of Air- craft Production, United States Army, after July 1917. Dowd, Martin Treasurer, War Camp Funds, Knights of Columbus, Grand Rapids; Cost Accountant, Ordnance Department; District Examiner, Ordnance Claims Board. Evans, Thomas H. Internal Revenue Agent. Goodrich, George C. Quartermasters Corps, United States Army, Camp Custer; (Sergeant) Finance Division, Headquarters Detachment, Mth Division, United States Army. Gridley, William D. Member Michigan State Troops during period of war. Hawkins, Norval A. Asistant Chief, Detroit District, Motors Branch, Di- rector of Purchase, Storage and Traffic. 260 MICHIGAN C. P. A. MANUAL Hosmer, Ansel F. Cost Accountant, Ordnance Department, General Ad- ministration Bureau. LaBonte, Frank G. (Captain) Headquarters Troop, I4th Division, United States Army. Mortlock, George C. Auditor, Milling Division, United States Food Ad- ministration; prepared monographs "Suggested Accounting System for Wheat Flour Millers" and "Organization of the Auditing Department of the United States Food Department." Neff, C. Earle Accountant, Cost Accounting Section, Finance Branch, Ord- nance Department. Rowland, William C. (Infantry Sergeant) Camp Personnel Office, Camp Custer; prepared monograph "Outline of Mustering Procedure" used as text at Training School for Personnel Officers; transferred to Pro- motion and Assignment Section, Commissioned Personnel Branch, Op- erations Division, General Staff, Washington; prepared office system for handling statistics in that Section. Ruple, Harry Investigator, United States Grain Corporation. Seidman, Frank E. Supervising Accountant, Signal Corps, United States Army; Overhead Supervisor, Bureau of Aircraft Production. Shaefer, Francis M. (First Class Sergeant) Cost Accountant, Bureau of Aircraft Production, United States Army. Smith, Charles A. Secretary and Assistant to the Director, Bureau of Trusts, Alien Property Custodian, Washington; Special Accountant, Au- thorizations and Appropriations, Auditing Division, Emergency Fleet Corporation. Smith, David Auditor, Post Exchange, United States Hospital. Springer, Durand W. Educational Director, Army Y. M. C. A., Camp Cus- ter; Educational Director, Army Y. M. C. A., Central War Depart- ment; Special Agent, Commercial Education, Division of Rehabilita- tion, Federal Board for Vocational Education, Washington. Stewart, Charles W. Chief Auditor, Division of Enforcement, United States Food Administration. Stradley, Edward M. 1 Internal Revenue Agent. Sunley, William T. Jr. Auditor, Detroit Chapter, American Red Cross. Suter,, Fred A. Drill Master 6gth Regiment Armory, New York. Thompson, Melville W. (Lieutenant Colonel) United States Army; Com- manding Officer, Finance Division, Finance Department of Equipment Division; transferrerd to Administration Division; Member, President and Governor, War Credits Board. Turner, Robert L. Accountant, Cost Accounting Section, Ordnance De- partment. Whitlock, Charles C. (Second Lieutenant) i6oth Depot Brigade, Camp Custer; (First Lieutenant) loth Infantry, United States Army. VC 35355