2. A balance sheet for the same period.
3. A profit and loss statement for the same period.
4. Adjusting and closing journal entries for the same period.
Note: If possible, give 1, 2, 3, for two successive periods
and prepare a comparative balance sheet and profit and loss
statement.
(c) Prepare:
1. A list of the different books and blanks used to record the
financial transactions.
2. A sample page or blank or a copy of each item listed under 1.
Note: If the copy should require a great deal of space, simply
give the form of ruling, headings, and size of page.
(d) Write one or two typical entries in each book and show the form of
closing in actual use.
(e) As a separate problem:
1. Outline the course of an article from the time the order is
placed until the goods reach you. This would be a purchase
department record.
2. Outline the course of an article from the time you receive
the order until the goods reach your customer. This would
be a sales department record.
Note: For both 1 and 2 attach actual forms used or copy of
same, if possible.
(f) Information in regard to:
1. Terms of sale.
2. Treatment of C. O. D. or approval sales on the books.
3. Treatment of freight inward on the books.
4. Treatment of freight outward on the books.
5. Treatment of accounts for containers or boxes to be returned by
your firm; by your customers.
6. Treatment of petty cash. If this has not been furnished under
(c) 2, give sample page of petty cash.
7. Treatment of consigned goods on the books.
8. Closing journal entries. If this has been furnished under
(b) 4, omit.
9. Treatment of instalment sales.
10. Pay-roll system.
11. Your method of entering payment from customers.
12. Provision for bad debts.
13. Method of providing for depreciation. Give an example.
14. Provision for redemption of bonds payable.
15. Interest on daily or other balances.
16. Proportional discount.
17. Assignment of accounts receivable.
18. Use of check figures.
19. Number of customers.
20. Amount of gross sales.
21. Amount of gross purchases.
22. Methods of obtaining inventories and basis for valuation.
23. Usual gross profit.
24. Usual gross expense.
25. Figuring profits. On selling price or cost price.
26. Figuring expenses. On selling price or cost price.
27. Use of selling or expense charts or charts of any other kind.
28. Insurance carried and manner in which it is written off.
29. System of branch or agency accounts.
30. Nature of items found in allowances.
31. Use of mechanical appliances in offices.
32. Filing systems, other than for correspondence.
33. Frequency of audits by firm’s staff. By outside parties.
34. Cost system in use.
35. Date of installation of present system.
36. Rate of turnover.
37. Treatment of cash sales.
(g) Give:
1. Adverse criticism of any department or part of same which you
know from actual experience does not work out as it should.
2. Your opinion as to the cause.
(h) Constructive criticism of any department or part of same which
you think would make it more effective or less expensive if conducted
according to your plan.
(i) Anything peculiar to your business which has not been included in
any of the previous divisions.
APPENDIX C
MISCELLANEOUS PROBLEMS FOR SUPPLEMENTARY WORK[84]
PARTNERSHIP
1. A partnership on equal terms between A and B is dissolved July 1,
1917, the books on that date showing the following:
[84] Most of these problems in Appendix C are C. P. A. problems of
various states. The dates have been changed to recent dates.
A’s capital paid in was $16,000, and his drawings were $3,500. B’s
capital paid in was $2,000, and his drawings were $1,500. Goods
purchased $50,000; sales $40,000; business expenses $1,800. A loss of
$1,600 was made on a $5,000 consignment of goods to Liverpool. In the
settlement A agrees to pay B an old debt of $3,500. Prepare requisite
accounts, and show final balance payable by one partner to the other.
2. A and B are partners carrying on a business in Winnipeg. On January
1, 1918, after adding profits for the past half-year, A’s capital
amounted to $150,000, and B’s to $100,000. On that date they take
into partnership C, upon the following terms: viz.: he is to bring in
capital amounting to $25,000, and each partner is to be credited with
interest on his capital at 6% per annum. All profits (after debiting
interest) up to $25,000 are to be shared by A and B exclusively in
proportion to the amounts of their capital at January 1, 1918. All
profits in excess of $25,000 are to be shared equally by the three
partners. Accounts are to be prepared and profits and interest credited
half-yearly. C is to be credited with a salary of $5,000 per annum.
On June 30, 1918, the profits divisible after debiting C’s salary,
which he has drawn, but before charging interest on partners’ capital,
amounted to $75,000. The partners’ withdrawals which are not chargeable
with interest were: A $12,500, B $10,000, and C $3,750. Draw up
partners’ separate accounts as they should stand on July 1, 1918.
Assume that instead of a profit, a loss of $75,000 had occurred. How
would you have treated it in the accounts in the absence of any direct
provision in the partnership agreement relative to losses?
3. A, B, and C were partners in business for several years. A died
December 31, 1917. The articles of copartnership provided that on any
change in the firm the good-will should be taken into account and
its value divided—one-half to A and one-quarter each to B and C. The
balance sheet at the date of A’s death was as follows:
_Assets_
Cash $1,500.00
Merchandise on Hand 12,000.00
Sundry Notes and Accounts Receivable 15,000.00
----------
$28,500.00
_Liabilities_
Sundry Accounts Payable $8,500.00
A’s Net Investment 10,000.00
B’s Net Investment 5,000.00
C’s Net Investment 5,000.00
----------
$28,500.00
In January, 1918, B and C arranged with D to come into the firm with
$5,000. The good-will is, by agreement, to be valued at $3,000. The
new firm, consisting of B, C, and D, takes over the business and
good-will in equal shares, subject to an allowance of 2½% on the notes
and accounts receivable. It pays the estate of A $5,000, with the
understanding that the balance due A’s estate shall remain as a loan at
the rate of 5% interest.
Prepare the balance sheet and the capital accounts of B, C, and D as
they should appear at the beginning of the new business, writing off
the purchase of good-will in equal proportions to the amount of capital
invested.
CORPORATION—OPENING THE BOOKS
4. C, D, and E are partners sharing profits in accordance with capital
investments. At end of the fiscal year, after all nominal accounts are
closed, the books show the following:
Cash $20,051.00
Plant 60,422.00
Inventory of Merchandise 41,300.00
Bills Receivable 18,028.00
Book Accounts Receivable 70,402.00
C, Drawings 8,400.00
D, Drawings 6,000.00
E, Drawings 4,800.00
Bills Payable $5,211.00
C, Capital 100,000.00
D, Capital 50,000.00
E, Capital 50,000.00
Profit and Loss, Undivided Profits 24,192.00
----------- -----------
$229,403.00 $229,403.00
=========== ===========
The partners thereupon incorporate a company with an authorized capital
of $250,000. The company so formed purchased the partnership assets and
good-will, not including the cash, for $250,000, payable $200,000 in
stock and $50,000 in cash, the last-mentioned cash being the proceeds
of sale of stock to F.
It is the intention to divide the purchase-money stock among the
vendors in proportion to their former capital and to adjust their
accounts by the division of the cash shown in trial balance, which will
then be placed to their credit as loans to the company at 6% interest
and remain as working capital. The bills payable are to be settled by
the partners. As the drawings of the partners are not in proportion to
their respective shares in the profits, the partners are charged with
the interest thereon in the following amounts, viz.: C $231, D $165,
and E $132.
(a) Frame the necessary entries to close the partnership books and
show the amount of cash received by each partner.
(b) Referring to question (a), frame the necessary entries to open
the books of the company and prepare a balance sheet showing
the condition of the company at the beginning of its operations.
5. The Frost Manufacturing Co. was incorporated April 10, 1918, with a
capital stock of $200,000, divided into 2,000 shares of a par value of
$100 each.
Payments were made on this date as indicated in the following
subscription register:
Subscriber No. Shares Amount Form of Payment
C. Dunn 100 $10,000.00 Cash
E. Ferris 200 20,000.00 Cash
G. Hall 400 40,000.00 Cash $10,000,
and Hall’s note with
interest at 6%, due in
one year, the balance.
April 12. Expenses of $1,200 incidental to the organization of the
corporation were paid in cash.
April 15. The corporation purchased J. King’s entire plant valued at
$170,000 and assumed his liabilities amounting to $70,000, giving in
full payment 1,200 shares of stock at par.
April 20. S. Samson subscribed for 50 shares of stock and paid an
instalment of $30 per share in cash.
April 22. To provide working capital, each of the following
stockholders donated 1/10 of his shares of stock: Dunn, Ferris, Hall,
and King.
April 25. Cash was received for 100 shares of donated stock sold at 85.
April 27. Samson gave his note due in six months for the balance due on
his stock subscription.
April 28. The directors authorized an issue of $50,000 in bonds, with
interest at 5%, to mature in 20 years.
April 30. Bonds having a par value of $30,000 were sold for $28,000 in
cash.
(a) Write journal entries to record fully all the above
information in the financial books of the corporation.
(b) Prepare the corporation balance sheet for April 30, 1918.
MANUFACTURING STATEMENT
6. The Marine Equipment Co., a corporation, manufactures metal boats
and deals in marine supplies. A trial balance of the general ledger,
December 31, 1917, is given below:
Land $20,000.00
Buildings 50,000.00
Machinery and Tools 40,000.00
Automobile Trucks 5,000.00
Patents 7,000.00
Office Furniture and Fixtures. 700.00
Accounts Receivable 19,000.00
Notes Receivable 10,700.00
Notes Receivable Discounted $6,000.00
Raw Materials Inventory, January 1, 1917 20,000.00
Goods in Process Inventory, January 1, 1917 5,000.00
Metal Boats Finished Inventory, January 1, 1917 8,000.00
Marine Supplies Inventory, January 1, 1917 12,000.00
Union National Bank 8,740.00
Capital Stock 100,000.00
Surplus 18,000.00
Treasury Stock 10,000.00
Bonds Payable, 5% First Mortgage 40,000.00
Reserve for Depreciation, Buildings 1,200.00
Reserve for Depreciation, Machinery and Tools 1,000.00
Reserve for Depreciation, Automobile Trucks 200.00
Notes Payable 2,000.00
Accounts Payable 24,000.00
Purchases, Raw Material 40,000.00
Purchases, Marine Supplies 30,000.00
Freight Inward, Raw Materials 2,450.00
Freight Inward, Marine Supplies 1,340.00
Freight and Cartage Outward 824.00
Sales, Metal Boats 131,130.00
Sales, Marine Supplies 58,960.00
Productive Labor 32,400.00
Non-Productive Labor 15,230.00
Superintendence 3,420.00
Heat, Light, and Power 8,500.00
Shop Supplies 2,490.00
Miscellaneous Factory Expense 1,300.00
Insurance 300.00
Repairs to Machinery and Tools 2,146.00
Taxes 400.00
Advertising 3,420.00
Returned Sales and Allowances, Metal Boats 1,200.00
Returned Sales and Allowances, Marine Supplies 862.00
Discount on Sales 3,710.00
Discount on Purchases 5,071.00
Salesmen’s Salaries 6,570.00
Salesmen’s Traveling Expenses 2,354.00
Advances to Salesmen 450.00
Office Salaries 8,630.00
Legal Expense 540.00
Stationery and Printing 1,200.00
Postage 190.00
Interest 315.00
Miscellaneous Selling Expense 1,180.00
----------- -----------
$387,561.00 $387,561.00
=========== ===========
Additional information to be considered:
Inventories, December 31, 1917:
Raw Materials $21,000.00
Goods in Process 7,000.00
Metal Boats Finished 13,000.00
Marine Supplies 8,000.00
Accrued Items:
Interest on Bonds Payable, 1 year at 5% $2,000.00
Interest on Notes Payable 40.00
Interest on Notes Receivable 75.00
Taxes (estimated) 100.00
Unexpired insurance $100.
Provide for Reserve for depreciation on: buildings, 5% on original
value; machinery and tools, 10% on diminishing value; automobile
trucks, 20% on diminishing value. Also provide a 2% reserve for bad
debts. Write off depreciation of 10% on the original cost of furniture
and fixtures. Patents expire 14 years from January 1, 1917. One-half of
advertising is to be carried to the next period.
Distribute as follows:
Item Mfg. Selling P. L.
Insurance ¾ ¼ 0
Depreciation Auto Trucks ½ ½ 0
Taxes ¾ 0 ¼
From the trial balance and the additional information prepare:
(a) Income statement.
(b) Balance sheet.
(c) Journal entries to record the additional information
and close the ledger.
CONSIGNMENTS, COMMISSIONS, JOINT VENTURE
7. December 1, 1917, a New York merchant ships goods of the value of
$5,000 on consignment to a commission merchant at Rio de Janeiro,
insuring them in the Atlantic Mutual against loss or damage in transit
and prepaying freight and insurance amounting to $250. On arrival the
goods are found to be in a partially damaged condition and the loss is
adjusted at $1,000, the certificates for which the consignee transmits
to the consignor together with an account sales for $3,000, dated March
1, 1918, and a final account sales for $2,000, dated April 1, 1918. A
draft on New York for $4,300 accompanied this final account, being the
balance due after deducting duty paid and commission earned.
Give expression to these transactions on the books of the consignor.
8. On November 15, 1917, Isaac Cohen & Co., Ltd. sent for sale on
their account a consignment of goods valued at $5,000 to John Stimson
& Sons, factors of Boston; sale to be on a 5% basis with 1% additional
for guaranty of collection of accounts. Prepaid freight amounted to
$25.40. December 26, an account sales from Stimson & Sons showed sales
of $5,775.20, and expenses in connection therewith, exclusive of
commission and guaranty, of $42.25. The net proceeds were placed to
Cohen & Co.’s credit, subject to sight draft.
(a) Show the alternative treatment of all the accounts affected on
Cohen & Co.’s books in order either to show the profit or loss on this
consignment, or to include the profit or loss with their regular sales.
(b) Stimson & Sons’ fiscal year ended November 30. On November 25 they
had sold one-fourth of the Cohen & Co. consignment for $1,500 and had
incurred the expenses of $42.25 mentioned above but applicable to the
whole consignment. Show Stimson & Son’s accounts affected properly
closed.
(c) If Cohen & Co.’s fiscal year ends on November 30, what entries
would be needed to make the record in accord with the additional data
of question (b) above?
9. A, B & Co. and C, D & Co. enter a joint adventure to ship machinery
to New Zealand. C, D & Co., October 5, 1917, handed A, B & Co. $600 in
cash and granted them their acceptance at 6 months for $1,500. A, B &
Co. were to provide balance of cash required, to manage the venture, to
receive a commission of 2% on amount of invoice for machinery. Profits
of venture to be divided equally.
On October 6, 1917, A, B & Co. paid J, K & Co. for machinery $2,500,
and on the same date discounted acceptance of C, D & Co. for $1,500,
paying $30 for discount thereon. On the following day A, B & Co. paid
$210 for freight and $30 for insurance. On March 25, 1918, A, B & Co.
received from New Zealand to account of proceeds of machinery a draft
payable in London for $1,600, out of which, April 8, 1918, they paid
$1,500 to retire bills for that amount.
On August 8, 1918, A, B & Co. received from New Zealand a draft for
$1,550, being balance of proceeds for machinery, after deducting
agent’s commission charges and duty. They thereupon closed the accounts
and sent C, D & Co. check for balance due to them.
Make up an account showing result of venture, also C, D & Co.’s account
with A, B & Co. Do not regard interest.
10. A B, a commission merchant, doing business on a 5% basis, hands you
the following abstract of his ledger, showing his transactions for the
year.
Furnish A B’s capital account, showing his original investment; also a
balance sheet and a detailed cash account.
Sales $45,000.00 $60,000.00
Freight 2,100.00 1,400.00
Claims and Allowance on Settled
Account only 600.00 1,500.00
Expense 900.00
Customers’ Accounts 60,000.00 45,000.00
Creditors’ Accounts 37,950.00 39,850.00
Cash 59,000.00 40,950.00
Discounts Lost 400.00
---------- -----------
$205,950.00 $188,700.00
=========== ===========
11. A and B, commission merchants, suspect their cashier of
embezzlement. From the following data determine whether or not their
suspicions are well founded, and produce a balance sheet and profit and
loss statement to prove or disprove the suspicion.
Sales $42,000.00
Cash Receipts, Customers $42,000.00
Freight 4,240.00 2,480.00
Duty 2,120.00 1,240.00
Dock Charges 212.00 124.00
Custom House Charges 90.00 45.00
Interest (account sales at 6%) 248.00
Commission (5% on sales) 1,240.00
Office Expense 2,000.00
Documentary Advances 20,000.00 12,000.00
Acceptances against Shipments 12,000.00 20,000.00
Analysis of account sales ledger debits, duty $875, freight $1,560,
dock charges $70, custom house charges $40.
ANALYSIS BY COMPARISON
12. The trading accounts of a company covering two years are herewith
submitted.
Analyze the accounts and make a report to the company showing the
reasons for the difference in results.
1916
Merchandise Inventory, January 1, 1916 $150,000.00
Merchandise Purchases 633,000.00
Merchandise Sales, Travelers 600,000.00
Merchandise Sales, Domestic 150,000.00
Merchandise Sales, Cash 10,000.00
Commissions Paid Travelers 30,000.00
Salaries Paid Travelers 30,000.00
Salaries, Domestic Sales 15,000.00
Rental 5,000.00
Stationery, etc. 3,000.00
Expense 22,000.00
Interest 4,000.00
Inventory, January 1, 1917 125,000.00
1917
Merchandise Inventory, January 1, 1917 $125,000.00
Merchandise Purchases 600,000.00
Merchandise Sales, Travelers 600,000.00
Merchandise Sales, Domestic 150,000.00
Merchandise Sales, cash 10,000.00
Commissions Paid Travelers 30,000.00
Salaries Paid Travelers 10,000.00
Salaries, Domestic Sales 10,000.00
Rental 5,000.00
Stationery, etc. 3,000.00
Expense 15,000.00
Interest 1,000.00
Merchandise Inventory, January 1, 1918 125,000.00
13. A corporation’s balance sheets for August, 1918, and September,
1918, were respectively as follows:
August, 1918
_Assets_
Plant and Equipment $4,000,000.00
Furniture 6,000.00
Tools 3,000.00
Stable 3,811.28
Cash 15,250.36
Material Supplies 30,750.28
Accounts Receivable 28,920.13
Unexpired Insurance 510.29
-------------
Total $4,088,242.34
_Liabilities_
Capital Stock $2,500,000.00
Bonds 1,350,000.00
Accounts Payable 31,336.28
Bills Payable 26,240.12
Accrued Taxes 3,500.00
Accrued Interest 5,625.00
Profit and Loss 171,540.94
----------
Total $4,088,242.34
September, 1918
_Assets_
Plant and Equipment $4,012,310.21
Furniture 6,205.58
Tools 3,218.86
Stable 4,009.37
Cash 8,328.29
Material Supplies 39,280.17
Accounts Receivable 32,321.83
Unexpired Insurance 832.12
-------------
Total $4,106,506.43
_Liabilities_
Capital Stock $2,500,000.00
Bonds 1 ,362,000.00
Accounts Payable 33,445.59
Bills Payable 18,240.12
Accrued Taxes 4,000.00
Accrued Interest 11,250.00
Profit and Loss 177,570.72
-------------
Total $4,106,506.43
Analyze the differences in the corresponding accounts for the period
and show disposition of increased resources.
14. The board of directors of the X, Y, Z Company removed their
manager on April 30, 1918, on the general suspicion that his books
misrepresented the true financial condition of the business. Prepare
a statement showing the nature and the probable extent of the
misrepresentation, also an approximate statement of income and profit
and loss for the four months ending April 30, 1918, and a balance sheet
as of April 30, 1918.
The following is a trial balance taken from the books April 30, 1918:
Capital Stock $75,000.00
Fixtures $10,000.00
Inventory, January 1, 1918 128,600.00
Cash 15,450.00
Accounts Receivable 24,600.00
Accounts Payable 39,000.00
Loans Payable 10,000.00
Sales 51,000.00
Purchases 40,700.00
Salaries, Salesmen 2,200.00
Advertising 1,650.00
Salaries, Office 1,100.00
Rent 400.00
Interest 200.00
Insurance, January 1 to December 31, 1918 999.00
Stationery and Printing 105.00
Reserve for Depreciation of Fixtures 2,710.00
Surplus, January 1, 1918 48,294.00
----------- -----------
$226,004.00 $226,004.00
=========== ===========
An analysis of the Purchases and Sales accounts revealed the following:
purchases, year 1915, $122,000; sales, year 1915, $153,750; inventory,
January 1, 1915, $101,000; purchases, year 1916, $123,000; sales, year
1916, $153,170; inventory, January 1, 1916, $100,000; purchases, year
1917, $121,000; sales, year 1917, $154,722; inventory, January 1, 1917,
$102,000.
15. Robert Adams and William Stevens are equal partners. On the night
of July 3, their stock and fixtures were destroyed by fire. A trial
balance, which Adams had at his home, showed the following condition of
the ledger at the close of business, June 30:
Robert Adams $600.00 $7,450.00
William Stevens 600.00 7,450.00
Cash 3,309.00
Fixtures 1,500.00
Merchandise Purchases 32,600.00
Merchandise Sales 24,800.00
Notes Receivable 1,000.00
Notes Payable 2,000.00
Interest 120.00 50.00
Expense 780.00
Customers 4,500.00
Creditors 3,259.00
---------- ----------
$45,009.00 $45,009.00
========== ==========
The property is fully covered by insurance. The insurance company, for
the purpose of estimating the value of the merchandise destroyed has
agreed to allow 35% as the average gross gain on the sales, and to pay
66⅔% on the value of the fixtures as shown by the ledger.
On the basis of this agreement, state the result of the business and
the capital of each partner.
STATEMENT OF AFFAIRS
16. C. C. Carter and A. D. Walker were unable to meet their
obligations. From the books of the firm and additional information you
ascertained the following:
Real Estate (estimated to produce $18,000; subject to
a mortgage of $12,000) $20,000.00
Notes Receivable 6,000.00
Expense 7,820.00
Furniture and Fixtures (estimated to produce $2,700) 3,500.00
D. L. & W. Stock (estimated to produce $12,000 pledged
with fully secured creditors) 14,000.00
Horse and Wagon (estimated to produce $500) 700.00
Other Securities (pledged with partially secured creditors)3,000.00
Accounts Receivable (good $3,000; doubtful $1,800,
but estimated to produce $1,440; bad $600) 5,400.00
Notes Payable 2,000.00
Creditors, Unsecured 18,000.00
Creditors, Partially Secured 8,000.00
Creditors, Fully Secured 10,000.00
Wages, Salaries and Taxes, preferred by law 560.00
Carter, Capital 15,000.00
Walker, Capital 5,000.00
Carter, Drawings (debit) 3,050.00
Walker, Drawings (debit) 1,000.00
Cash 870.00
Sundry Losses 5,220.00
Prepare statement of affairs and deficiency account as of September 30,
1918.
17. On December 1, 1918, the following particulars are furnished of
the position of John Mapleton, insolvent: factory equipment cost
$15,000, estimated to realize $10,000; stock of finished goods $10,000,
estimated worth $7,500; material and supplies $2,500, estimated worth
$1,000; furniture and fixtures $900, estimated worth $200; investments
valued at $25,275, of which $15,000 is held by bankers as security for
loan of $12,000; accounts receivable $6,250, of which $2,500 are good,
$1,250 bad, and $2,500 estimated to realize $1,500; cash $575, of which
$25 represents petty expense items not charged up, and $50 an I O U of
a former employee which is worthless; accounts payable $28,500; bills
payable $25,000, of which $12,000 is due bankers; wages due $500; rent
due and past due $1,000; capital on January 1, 1918, as shown by the
books, $15,000; loss by sale of investment May 1, 1918, $5,000; loss in
trading account January 1, 1918, to December 1, 1918, $3,500; drawings
charged personal account of John Mapleton $1,000.
Make up a statement of affairs and a deficiency account as on December
1, 1918.
18. John Thompson exhibits the following balance sheet of his business
dated June 30, 1918:
Cash $750 Sundry creditors $6,000
Book debts 9,500 Bills Payable 7,500
Stock on hand 6,500 Bank (overdraft) 3,000
Fixtures, etc. 1,750 Balance 2,000
------- -------
Total $18,500 Total $18,500
On questioning Thompson it was found that he had omitted the following
from his balance sheet: $250 owing for rent; $75 owing for taxes;
$2,500 borrowed at 5% from his wife three years ago, no payment having
been made on account of either principal or interest; a draft for $500
accepted by a firm without consideration, falling due in 30 days. His
private and household debts amounted to $600.
The item entered on his balance sheet as cash included his personal I O
U’s for $600.
Of the book debts about $3,500 might be considered bad and the rest
good. The stock was good except $1,000, which would not produce more
than $100. The fixtures, if sold, would not realize more than $250.
The only other assets were household furniture worth about $1,250 and
residence valued at $7,500, subject to a first mortgage for $5,000
at 4%, and also a second mortgage held by his bank as security for
overdraft.
Prepare a statement of affairs and deficiency account.
19. June 30, 1918, as a result of careless management, the firm of
Howard, Mason & Co. finds itself in a critical financial condition.
The following trial balance shows the accounts as they appear on the
books after closing the ledger.
POST-CLOSING TRIAL BALANCE, JUNE 30, 1918
Land $10,000.00
Buildings 42,000.00
Reserve for Depreciation, Buildings $6,000.00
Delivery Equipment 7,000.00
Reserve for Depreciation, Equipment 1,500.00
Furniture and Fixtures 4,200.00
Good-Will 5,000.00
Cash 2,316.00
F. D. Co. Stock 4,000.00
Accounts Receivable 16,000.00
Reserve for Bad Debts 1,996.00
Notes Receivable 9,400.00
Notes Receivable Discounted 3,800.00
Merchandise Inventory, Bags, June 30, 1918. 4,780.00
Merchandise Inventory, Trunks, June 30, 1918 8,910.00
Mortgage Payable 25,000.00
Accounts Payable 21,000.00
Notes Payable 12,000.00
Thomas J. Howard, Loan 6,000.00
Thomas J. Howard, Capital 15,000.00
Thomas J. Howard, Drawing 1,700.00
Joseph Mason, Loan 4,000.00
Joseph Mason, Capital 9,000.00
Joseph Mason, Drawing 1,000.00
John H. Bartlett, Loan 3,000.00
John H. Bartlett, Capital 6,000.00
Accrued Interest, Mortgage 1,500.00
Accrued Interest, Notes Payable 300.00
Accrued Interest, Notes Receivable 150.00
Prepaid Insurance 60.00
Taxes Accrued 300.00
Accrued Labor 200.00
Miscellaneous Office Supplies 80.00
----------- -----------
$116,596.00 $116,596.00
=========== ===========
There is dissatisfaction among the partners and they finally agree
to dissolve partnership. Preparatory to dissolving they appraise the
assets and rank the liabilities on a liquidating basis.
It has been found that the buildings had been damaged by fire to the
extent of $3,000 but that no adjustment had been made in the buildings
account. The delivery equipment is estimated to produce $4,800.
Furniture and fixtures have a value of $3,600. The land has increased
in value $6,000.
Of the notes payable, $5,000 has been partially secured by all the
F. D. Co. Stock, which is expected to yield 80% of its book value.
Collateral in the form of good notes receivable of $4,500 has been
given to creditors whose claims amount to $3,700.
Among the cash there are I O U’s in the amount of $180 that cannot
be considered as worth more than $50. The accounts receivable are
classified as worthless $3,000; doubtful $2,000, which are expected to
produce $1,400; the balance are good. Both inventories of merchandise
were reduced by 10%.
The accrued taxes and labor are claims preferred by law. Prepaid
insurance, miscellaneous office supplies, and good-will were assumed to
have no value in case of liquidation.
From the information at hand:
(a) Prepare a statement of affairs showing the financial
condition of the partnership in anticipation of
liquidation.
(b) Prepare a statement accounting for the impairment
of capital.
REALIZATION AND LIQUIDATION
20. It has been mutually agreed that Joseph Mason shall act as
liquidating partner with full authority to sell all property, pay all
debts and distribute liquidating dividends among the partners. Mason’s
fee as liquidator shall be 5% commission on the converted value of all
the assets and is to be paid at each dividend date.
Interest is to be allowed on the loan accounts, and profits and losses
are to be shared ½ by Howe, and ¼ each by Mason and Bartlett, during
the period of liquidation.
Settlements are to be made on the last day of each month.
Based on the post-closing trial balance in the preceding problem and
the information given below:
(a) Prepare a working sheet which will present the information
in convenient form for preparing the statements incidental
to liquidation.
(b) Show the partners’ loan accounts properly closed for
each period.
(c) Set up the partners’ capital accounts, and balance them
after the payment of each liquidating dividend.
During the month ended July 31, 1918, delivery equipment having a
book value of $3,300 was sold for $3,000 in cash; accounts receivable
in the amount of $4,000 were collected and $980 in bad debts were
charged off. A sale of the land and buildings granted the use of the
premises during the liquidation. The land was sold for $17,000 and the
buildings for $31,500, the mortgage (with accrued interest to July 3)
being assumed by the purchaser as part payment. The partially secured
creditors accepted the F. D. Co. Stock held as collateral at 90% of its
book value and the balance of their claim was paid in cash. Incidental
expenses of $350 and the liquidating fees were paid in cash. From the
goods in the inventories there were sold bags of a book value of $1,200
for $1,120, and trunks, book value $2,530, for $2,280. There was paid
to holders of unsecured notes payable $2,000 and interest of $100. The
accrued labor was paid and $10,000 in unsecured accounts payable were
settled. The balance of the cash was applied in paying off partners’
loans and capital as a liquidating dividend.
The next month the delivery equipment was sold for $1,850. Furniture
and fixtures having a book value of $2,100 were sold for $1,700. Of
the I O U’s $70 was collected; the balance proved worthless. The notes
receivable as collateral in the hands of fully secured creditors were
settled in full and our equity was paid to us in cash, also accrued
interest of $120. Bags having a book value of $2,500 were sold for
$2,100, and trunks at book $3,700 brought $3,200. Mason accepted $4,200
in settlement of $5,000 in accounts receivable.
Legal fees of $150; sundry expenses of $460; all the existing debts
and the liquidating fees were paid in cash. The cash remaining was
distributed as a liquidating dividend.
In the course of the last month the remaining furniture and fixtures
were sold for $1,900. The good-will went to the same purchaser for
$1,000 additional.
The prepaid insurance is without value. Office supplies yielded $20.
The notes receivable, together with the balance of accrued interest
were collected in full. There was lost in bad debts $740. The bags
were sold at a 10% reduction. The partners divided the trunks among
themselves one-third to each, taking them at book value.
Sundry expenses of $340 and the liquidating fees were paid in cash,
after which the cash on hand was distributed.
Note: Converted value means the value at which any asset is disposed
of, whether for cash or in the cancellation of any claim.
21. Show on the books of the firm of Howard, Mason & Co. all the
entries necessary to carry into effect the liquidation of the business
under the conditions set forth in the foregoing problem.
22. The firm of Norton & Brown decided to liquidate at a time when
their condition, as shown by the balance sheet given below, was still
solvent.
BALANCE SHEET, MARCH 31, 1918
================================+============================
_Assets_ | _Liabilities_
|
Plant and Equipment $20,000.00 | Notes Payable $6,000.00
Office Furniture 2,000.00 | Accounts Payable 17,000.00
Inventory, Material 12,000.00 | Norton, Loans 5,000.00
Notes Receivable 5,000.00 | Brown, Loans 3,000.00
Accounts Receivable 29,000.00 | Norton, Capital 25,000.00
Cash 3,000.00 | Brown, Capital 15,000.00
---------- | ----------
$71,000.00 | $71,000.00
========== | ==========
Profits and losses were shared three-fourths by Norton and one-fourth
by Brown. Interest was allowed on the loan accounts but not on the
capital accounts. At the end of the first month, April 30, it was found
that material inventoried at $5,000 had produced $3,600; accounts
receivable to the amount of $15,000 had been collected in cash and
$2,800 in bad debts charged off; notes receivable collected in cash
$2,000; expenses of $600 had been paid in cash; equipment valued at
$4,000 produced $3,000. Interest on partner’s loan accounts was not
entered this month.
During the month ended May 31, office furniture valued at $1,600
was sold for $1,000. Material costing $4,000 produced $3,200 and
the balance of material was divided equally between the partners at
cost. Plant equipment listed at $6,000 was sold for $6,200. A $200
note proved worthless and was charged off. Accounts receivable to the
amount of $6,065 and notes receivable of $2,000 were collected in cash.
Bad debts charged off $435. Expenses paid in cash $300. Interest was
credited on Norton’s loan account $40 and Brown’s loan account $25.
Arrange your solution to show:
(a) Your method of obtaining the proper cash distribution.
(b) A statement showing each partner’s capital and loan at
the end of each month, or a detailed capital and loan
account for each partner with a balance entered in each
account each month.
(c) A balance sheet at the close of the second month.
23. Walter Hopkins, while perfectly solvent and doing a profitable
manufacturing business, had so tied up his capital in plant and
materials that he was on the point of suspending for want of funds
to pay for labor, and his creditors were preparing to commence legal
proceedings to enforce a settlement. The condition of his affairs at
this time was as follows:
BALANCE SHEET
=====================================+======================
_Assets_ | _Liabilities_
|
Plant $25,198.00 | Creditors $20,230.00
Cash 212.00 | Capital 50,000.00
Materials, Raw and Surplus 4,900.00 |
Partly Finished 40,400.00 |
Finished Goods 6,070.00 |
Accounts Receivable 3,250.00 |
---------- | ----------
$75,130.00 | $75,130.00
========== | ==========
At a meeting of creditors he said that while his plant was entirely
efficient, it was all of special character and would realize on forced
sale only the value of scrap, that the unfinished goods would require
the employment of skill and processes known to him only, and that while
forced suspension would yield to his creditors not over 50%, it would
ruin him absolutely.
The creditors decided to advance him a loan of $5,000 to continue
operations and allow him additional credit for materials and expenses.
A trustee was appointed to see that the proceeds were used solely for
recuperation of the business.
The subsequent operations under the supervision of the trustee were as
follows:
Purchases on book account, charged to materials $5,100, to expense
$12,100; sales on book account $57,802; losses on bad debts $300; cash
receipts (loan from creditors) $5,000; settlement from debtors $58,100;
cash payments for labor $12,500, for expense $4,350; for plant $600;
creditors $42,030; Walter Hopkins’ personal drawings $3,000.
There remained raw materials $4,000, finished goods $22,388.
Prepare:
(a) Realization and liquidation account.
(b) Trustee’s cash account.
(c) Balance sheet of the estate as restored to Walter Hopkins.
24. X, Y, and Z, foundrymen, unable to meet their obligations,
suspended payment January 1, 1918, and appointed a trustee to realize
and liquidate for the benefit of their creditors. The books showed the
following assets and liabilities:
_Assets_
Land and Buildings $125,000.00
Machinery and Tools 75,000.00
Furniture and Fixtures 10,000.00
Materials and Supplies 95,000.00
Bills Receivable 15,000.00
Accounts Receivable 115,000.00
Cash 450.00
Total Assets $435,450.00
_Liabilities_
Mortgage on Foundry Premises $100,000.00
Bills Payable 135,000.00
Accounts Payable 105,000.00
Interest Accrued on Mortgage 1,250.00
Taxes Accrued (estimated) 835.00
Capital 93,365.00
Total Liabilities $435,450.00
The trustee’s cash receipts and payments during the year 1918 were as
follows:
_Receipts_
Bills Receivable
(outstanding January 1, 1918) $15,000.00
Accounts Receivable
(outstanding January 1, 1918) 106,500.00
Cash Sales 5,435.00
Bills Receivable
(contracted during year 1918) 13,500.00
Accounts Receivable
(contracted during year 1918) 212,000.00
----------
Total Receipts $352,435.00
_Payments_
Bills Payable $25,000.00
Accounts Payable 35,000.00
Interest on Mortgage (one year at 5%) 5,000.00
Taxes for the year 1917 865.00
Purchases of Materials and Supplies 98,000.00
Labor 135,000.00
General Expenses 45,000.00
Interest on Bills Payable
(to September 30, 1918, at 5%) 2,800.00
----------
Total Payments $346,665.00
Other transactions were as follows:
Sales on Credit $335,000.00
Bad Debts Written Off:
Accounts prior to January 1, 1918 $8,000.00
Accounts subsequent to January 1, 1918 2,000.00 10,000.00
---------
Discounts and Allowances to Customers:
Accounts prior to January 1, 1918 $500.00
Accounts subsequent to January 1, 1918 300.00 800.00
---------
Notes Received from Customers 20,000.00
Notes Given to Creditors
($110,000 being renewals) 180,000.00
Inventory of Materials and Supplies,
December 31, 1918, amounted to 92,000.00
The trust terminated at the end of the year and the business was turned
back to the owners.
Prepare realization and liquidation account; also a balance sheet
showing the financial condition of the business at the termination of
the trust. Accrued taxes for the year in the usual manner, i.e., on the
basis of the charge for previous year.
BRANCHES
25. The trial balance of Jones & Smith, Chicago branch, shows December
31, 1918, the following:
Home Office $2,000.00
Due from Customers $2,500.00
Cash on Hand 1,000.00
Expenses 1,900.00
Merchandise 3,400.00
--------- ---------
$5,400.00 $5,400.00
========= =========
Inventory $1,000.
Draft the necessary journal entries to close the accounts on the branch
books, and the entries to be made in the home office to make the books
agree.
26. A branch office business was started at the first of the year, the
head office advancing $5,000 cash. During the first year merchandise
was shipped to branch, invoiced at $75,000.
An auditor checking up the business at the close of the year finds the
following: Merchandise sales were $60,000, with selling price of goods
20% advance on invoice. Proper vouchers were on file duly receipted for
following payments: rebates and allowances on damaged goods $1,500;
salaries and other expenses $4,500; freights $2,500.
The books also showed: remittances to head office $35,000; uncollected
accounts $15,000. The balance of the sales having been realized in
cash, less rebates and allowances as noted.
The cash on hand and inventory of unsold goods, together with the
foregoing records, properly accounts for everything.
Prepare statement, such as an auditor would make in reporting to the
head office, balancing the business of the branch house.
27. The condition of the Atlantic Co. at the close of business December
31, 1918, is reported by them as follows:
================================+===================================
_Assets_ | _Liabilities_
|
Real Estate $150,000.00 | Capital Stock $500,000.00
Machinery 200,000.00 | Mortgage on Real Estate 100,000.00
Cash 24,500.40 | Accounts Payable 67,000.00
Accounts Receivable 320,800.50 | Notes Payable 100,000.00
Merchandise 375,480.70 |
Surplus 200,000.00 |
Profit and Loss 103,781.60 |
------------- | -------------
$1,070,781.60 | $1,070,781.60
============= | =============
The company has a branch to which it sells its goods at 20% over
inventory prices and carries this account, together with other branch
assets, as a receivable. The statement of the branch on the same date
was:
=================================+===============================
_Assets_ | _Liabilities_
|
Fixtures $6,205.79 | Atlantic Co. $25,033.43
Cash 1,107.55 |
Accounts Receivable 12,478.14 |
Merchandise at price |
billed to Branch 5,241.95 |
---------- | ---------
$25,033.43 | 25,033.43
========== | =========
(a) What was the inventoried value of the branch merchandise?
(b) Prepare a corrected statement of the Atlantic Co.
SINKING FUND
28. A corporation issues 10-year bonds to the amount of $50,000,
securing same by a mortgage on its property, which is placed in the
hands of a trust company.
The trust deed provides for the establishment of a sinking fund to
retire the bonds at maturity and that equal annual payments be made
on the first of January in each year. Give the amount of this annual
payment, interest compounded at 6%.
29. The United Manufacturing Co., on January 1, 1918, placed in service
a piece of machinery which would depreciate, according to its chief
engineer, at the rate of 15% per annum. The original cost of this
machinery was $84,000 and the board of directors agreed to set aside
annually a sinking fund which, together with interest thereon, will
amount to the original cost at the end of the prospective life of the
machinery.
This sinking fund is to be deposited with a trust company on December
31 of each year, and a proportionate amount at the end of the last
partial year of the life of the machine. Interest is to be credited by
the trust company at each of these dates at the rate of 4% per annum.
Show how the amount of the annual sinking fund payments may be arrived
at, and prepare a detailed statement for the board of directors proving
that the amount so obtained is correct.
CONSOLIDATIONS, MERGERS, AND REORGANIZATIONS
30. Three manufacturers, each having an independent business and
wishing to effect a consolidation of their respective interests,
organize the United States Manufacturing Corporation, with an
authorized capital stock of $1,500,000, consisting of 7,500 shares of
preferred stock and 7,500 shares of common stock, of $100 each. They
sell to the new company all of their real estate, buildings, machinery,
tools, fixtures, merchandise, and supplies, in consideration of
$1,500,000, and agree to accept in payment $750,000 of preferred and
$750,000 of common stock of the United States Manufacturing Corporation
at par. The vendors donate to the treasury of the company $150,000 of
preferred stock and $150,000 of common stock to provide for working
capital. The company sells $100,000 of its preferred stock in the
treasury for 80% cash, giving a bonus to the purchaser of 20% in common
stock.
For the purpose of raising additional funds for improvements and
additions to plants, the company mortgages its real estate and
buildings, as security for an issue of bonds amounting to $250,000.
These bonds the company sells to bankers at 90%, giving as a bonus 10%
of preferred stock and 20% of common stock.
Draft entries to express correctly the above transaction on the books
of the corporation, and prepare a statement of assets and liabilities
of the company.
31. It is proposed to organize a corporation for the purpose of
acquiring the stock and controlling three existing corporations, A,
B, and C, two of which latter, A and B, have been in operation for
five and three years, respectively, while C has been newly organized.
The assets and liabilities of the several existing companies and the
dividends paid are as follows:
_Assets_
A B C
Plant $400,000.00 $300,000.00
Material 295,000.00 425,000.00
Cash 40,000.00 15,000.00 $500,000.00
----------- ----------- -----------
$735,000.00 $740,000.00 $500,000.00
=========== =========== ===========
_Liabilities_
A B C
Capital $100,000.00 $300,000.00 $500,000.00
Surplus 60,000.00 40,000.00
6% Bond at 5 years 500,000.00 300,000.00
Current Liabilities 75,000.00 100,000.00
----------- ----------- -----------
$735,000.00 $740,000.00 $500,000.00
=========== =========== ===========
_Dividends Paid_
$120,000.00 $30,000.00
For the purpose of the issuance of stock in the new company to the
holders of stock in the three existing companies, it is proposed to
capitalize the latter upon the following basis:
Money assets at double their value; plant at 80% of book values;
material at 70% of book values; annual net earnings at 8%; and the
liabilities at par.
The new company will be organized with a capital stock of $2,200,000,
all of which is to be used in acquiring the stock of the existing
companies.
(a) What amount of stock in the new company are the owners
of the stock in each of the existing companies entitled
to receive?
(b) Give a short criticism attacking the above basis of stock
allotment and submit a more equitable basis.
32. The Smith Brewing Co. with $1,000,000 capital stock, the Young
Brewing Co. with $500,000 capital stock, and the Star Brewery with
$400,000 capital stock, agree to consolidate as the Universal Brewing
Corporation, the new company to buy all the properties of the old
companies at a valuation to be fixed by appraisal, payment therefor to
be made in full-paid stock of the new company, the old companies to pay
off their own indebtedness.
The appraised values of the old companies are as follows:
==========+========+========+=======+=======+=======+======+==========
| Real | | | Bills |Horses,|Office|
| Estate | Plant | Cash |Receiv-|Wagons |Furni-| Total
| and | | | able | and | ture |
| Build- | | | |Harness| |
| ings | | | | | |
----------+--------+--------+-------+-------+-------+------+----------
| | | | | | |
Smith |$680,000|$390,000|$15,000|$10,000|$4,000 |$1,000|$1,100,000
Young | 327,000| 160,000| 3,000| 6,000| 3,000 | 1,000| 500,000
Star | 126,000| 71,000| 1,000| | 1,500 | 500| 200,000
Total | | | | | | |
Appraised| | | | | | |----------
Value | | | | | | |$1,800,000
----------+--------+--------+-------+-------+-------+------+----------
On this valuation, the Universal Brewing Corporation issued $2,000,000
of stock, shares $100 each, which was divided pro rata among the old
companies on the basis of their appraised value, no fractional shares
of stock to be issued, odd amounts to be paid old companies in cash.
Give journal entries necessary to set up property accounts and credit
old companies with their pro rata on books of the new company.
At the time of the consolidation the ledger accounts of the Star
Brewery were as follows:
======================================+=============================
Real Estate and Buildings $250,000.00 | Bills Capital
Plant 247,000.00 | Stock $400,000.00
Cash 1,000.00 | Payable 50,000.00
Horses, Wagons, | Accounts Payable 51,000.00
and Harness 1,800.00 |
Office Furniture 1,200.00 |
----------- | -----------
$501,000.00 | $501,000.00
=========== | ===========
Make the proper journal entries to liquidate in stock of the new
company the liabilities other than capital stock, to apportion the
remaining stock and cash, and to close the books of the Star Brewery.
33. The Elton Manufacturing Co. and the Star Manufacturing Co. were
engaged in manufacturing the same kind of goods. To avoid the losses
due to competition, the two companies decided to combine their plants
into one corporation under the name of the Union Manufacturing Co. and
finally agreed upon the following plan for the merger:
The assets received from, and the liabilities assumed for, the separate
companies were taken at the values given in the respective balance
sheets, subject to the following adjustments: the buildings, machinery,
and patents at 90% of their stated value; delivery equipment, and
furniture and fixtures at 80% of their value. A reserve of 2% on
accounts receivable was established by the Star Manufacturing Co.
ELTON MANUFACTURING CO.
BALANCE SHEET, JUNE 30, 1918
==================================+================================
Land $10,000.00 | Accounts Payable $30,000.00
Buildings 60,000.00 | Mortgage Payable 14,000.00
Machinery and Tools 30,000.00 | Accrued Wages 1,500.00
Delivery Equipment 3,500.00 | Reserve for Bad Debts 1,500.00
Furniture and Fixtures 1,500.00 | Stock, Capital 100,000.00
Inventory, Materials 10,000.00 | Surplus 10,000.00
Finished Goods 2,500.00 |
Accounts Receivable 35,000.00 |
Unexpired Insurance 500.00 |
Cash 4,000.00 |
---------- | -----------
$157,000.00 | $157,000.00
=========== | ===========
STAR MANUFACTURING CO.
BALANCE SHEET, JUNE 30, 1918
=====================================+=============================
Machinery and Tools $35,000.00 | Accounts Payable $30,000.00
Motor Trucks 4,000.00 | Notes Payable 19,000.00
Patents 6,000.00 | Capital Stock 50,000.00
Furniture and Fixtures 500.00 | Surplus 11,000.00
Inventory, Materials, etc. 8,000.00 |
Finished Goods 5,000.00 |
Accounts Receivable 50,000.00 |
Cash 1,500.00 |
----------- | -----------
$110,000.00 | $110,000.00
=========== | ===========
After making the adjustments and allowing interest at 6% on the
invested capital, the excess earnings were capitalized on a basis of
10% to obtain the amount of the good-will.
Average net profits for a period of three years: Elton Manufacturing
Co. $17,000; Star Manufacturing Co. $10,800.
The Union Manufacturing Co. was capitalized at an amount equal to the
net assets (after adjustments) and the good-will of the two merged
companies.
(a) Find the capitalization of the Union Manufacturing Co.
and the amount of preferred and common stock allotted
to each of the merged companies.
(b) Write the journal entries to open the books of the
Union Manufacturing Co.
(c) Prepare the balance sheet for the
Union Manufacturing Co.
(d) Write the closing journal entries for the
Star Manufacturing Co.
34. The following is abstracted from an agreement of merger and
consolidation made December 31, 1917, between the Pennsylvania Tool
Co., party of the first part, and the Keystone Tool Co., party of
the second part. Said parties of both parts being corporations duly
organized and existing under the laws of the State of Pennsylvania, by
this agreement merge and consolidate into a single corporation.
The name of the corporation hereby formed by said consolidation shall
be the Pennsylvania Tool Co.
The amount of capital stock of the new corporation is $100,000, all of
which shall be common stock divided into 1,000 shares of a par value of
$100. The manner of distributing capital stock shall be as follows:
The capital stock of the Pennsylvania Tool Co., party of the first
part, shall be exchangeable for capital stock of the new corporation,
share for share, and the balance of the capital stock of the new
corporation hereby formed shall be distributed to the stockholders of
the Keystone Tool Co., in proportion to their present holdings.
The Pennsylvania Tool Co., party of the first part, was incorporated
shortly before the date of the merger, and had transacted no business
other than the issuance of ten shares of capital stock, $100 each, for
which payment of $1,000 had been received, and which was on hand in the
treasury of the company on the date of the merger, and directly after
the merger transferred to the bank deposit account of the consolidated
company and credited to an account called “Suspense.”
The Keystone Tool Co. had for a number of years been actively engaged
in business. Its fiscal year ended September 30, 1917, at which time an
inventory was taken and its accounts had been properly closed. At the
date of the merger the following trial balance was drawn from the books:
Cash $20,000.00
Accounts Receivable 15,000.00
Merchandise Inventory, September 30, 1917 130,000.00
Merchandise Purchased 250,000.00
Expenses 25,000.00
Accounts Payable $10,000.00
Sales 300,000.00
Capital Stock 30,000.00
Undivided Profits Balance, September 30, 191 100,000.00
----------- -----------
$440,000.00 $440,000.00
=========== ===========
The account books of this concern were not closed at the date of the
merger and no inventory was taken, although the exchange of capital
stock was effected and also all business after December 31, 1917, was
transacted under the name of the Pennsylvania Tool Co., and it was
not until March 31, 1918, that an accountant was asked to state the
accounts of the new company from the date of the consolidation.
At March 31, 1918, before the accountant had commenced his work, an
inventory was taken which showed the value of merchandise on hand as
at that date, to be $216,250, and the following trial balance was
abstracted from the books:
TRIAL BALANCE, MARCH 31, 1918
Cash $26,000.00
Accounts Receivable 10,000.00
Merchandise Inventory, September 30, 1917 130,000.00
Merchandise Purchased 600,000.00
Expenses 60,000.00
Accounts Payable $10,000.00
Sales 685,000.00
Suspense 1,000.00
Capital Stock 30,000.00
Undivided Profits 100,000.00
----------- -----------
$826,000.00 $826,000.00
=========== ===========
Prepare:
(a) Balance sheet of the consolidated company as at March 31, 1918.
(b) Profit and loss account arranged to show the profits of the
consolidated company for the three months ended March 31.
(c) Profit and loss account of the Keystone Tool Co., for the
three months ended December 31.
(d) Statement showing the disposition of profits taken over by
the new company.
(e) State what basis you make use of in determining the approximate
value of merchandise on hand at December 31.
MISCELLANEOUS
35. A manufacturer is desirous of selling his business, and furnishes a
statement showing the condition of affairs for the past five years as
follows:
Amount of Sales averaging per year $800,000.00
Wages Paid ” ” ” 200,000.00
Expenses Paid ” ” ” 80,000.00
Raw Material Purchased ” ” 350,000.00
Supplies on Hand at present time 40,000.00
Machinery in use at commencement of the five years 150,000.00
(50% of the above amount has been in use for 10
years previous, and all additions made at cost
prices, and nothing marked off for depreciation.)
Carried at present at $225,000.00
(All repairs have been charged to expense.)
Real Estate valued at 200,000.00
What report would you make as to a fair valuation of this business?
Explain fully your reasons for same.
36. The factory of an automobile company assembles its cars only on
receipt of orders from the main office. A summary of the factory
operations for a certain period is as follows:
Parts Purchased $162,500.00
Parts Manufactured (material cost) 562,500.00
Productive Labor (125% of material) 703,125.00
Factory Expense 1,128,000.00
Cost of Cars:
Parts Purchased, Consumed 137,500.00
Parts Manufactured (material cost) 187,500.00
Productive Labor (145% of material) 471,250.00
Factory Expense 565,500.00
Material on Hand, Unmanufactured 500,000.00
Prepare a technical trial balance of the cost ledger and an inventory
of the stock room.
37. John Doe commenced business with a cash capital of $15,000. At
the close of his fiscal period the ledger accounts were: accounts
receivable $4,312.50; merchandise debit balance $5,062.50; accounts
payable $5,375; expense $900. Doe’s total loss was $2,775.
Prepare a statement of assets and liabilities and the profit or loss.
38. John Adams lost his stock of merchandise May 1, 1918, through a
flood in the Mississippi River.
Adams applied to the local Mutual Flood Insurance Society for
reimbursements, claiming a loss of $5,886.35 on merchandise stock. From
the following data ascertain his merchandise inventory:
Net profits May 1, 1918, $4,452.91; drawings $1,598; legal expenses
$17.50; interest debit $313; advertising $14; commissions debit
$961.01; insurance $196.23; sales $81,688.04; inventory, December,
1917, $1,568.62; purchases $55,415.82; labor, productive $19,499.58;
telephone $416.06; sundry factory expenses $3,201.92; repairs $16;
surplus May 1, 1918, $2,854.91.
39. The directors of a manufacturing company, before the closing and
auditing of the books for the half-year ending December 31, declared
out of the net earnings of the company a dividend for the half-year of
4% on the preferred stock of $100,000 and 3% on the common stock of
$100,000. There has been brought forward from the last half-year, an
undivided balance of profit of $4,000, and after the audit of the books
the trial balance is found to be as follows:
TRIAL BALANCE, DECEMBER 31
Real Estate and Building $32,500.00
Plant and Machinery 40,000.00
Patents and Good-Will 80,000.00
Inventory, July 1 29,000.00
Purchases 82,500.00
Labor 88,000.00
Coal 6,000.00
Salaries, General 11,000.00
Salaries, Management 5,000.00
Insurance 875.00
Allowances 6,250.00
Freight 1,500.00
Discount and Interest 750.00
Cash in Bank 8,000.00
Investments 15,500.00
Miscellaneous Expense 4,300.00
Book Debts 42,000.00
Preferred Stock in Treasury 5,000.00
Repairs 1,000.00
Preferred Stock 100,000.00
Common Stock 100,000.00
Sales 219,175.00
Notes Payable 26,000.00
Accounts Payable 14,000.00
----------- -----------
$459,175.00 $459,175.00
=========== ===========
Stock on hand $26,500.
From the above prepare profit and loss and income statement and balance
sheet, giving effect in accounts to depreciation at the rate of 7½% a
year, on plant and machinery, and making an allowance of 5% on the book
debts to provide for bad debts; also create a liability in the balance
sheet for dividend as stated.
40. Wm. Bates commenced business June 1, 1917, with a capital
consisting of cash $60,000, and a building and lot worth $85,000,
subject to a mortgage of $25,000, dated June 1, 1917, bearing interest
at 6%.
One year later, June 1, 1918, an abstract of his books disclosed the
following accounts: purchases $78,000; sales $85,000; sinking fund
$8,000; cash drawings $6,000; goods returned to creditors $5,000;
expenses paid in cash $9,000; profit and loss, debit $3,500; contingent
fund $3,000; due to creditors $49,000; reserve for bad debts $4,250;
due from customers $32,620; discounts allowed customers on accounts
paid $755; returned sales $4,520; discounts on accounts paid to
creditors $650. No goods were sold to creditors or purchased from
customers. Unsold goods June 1, 1918, $9,500.
From the above data, prepare a trial balance, income statement, and
balance sheet.
Note: Two items affecting accounts in the trial balance are missing and
must be supplied.
41. In taking off a trial balance a bookkeeper finds that his debit
footings exceed the credit by $131.56, which he carried to a suspense
account. Later, he discovers that a purchase amounting to $417.50 has
been debited to a creditor as $192.94; that $312.50 for depreciation
of furniture has not been posted to depreciation account; that $500
withdrawn by the proprietor has been charged against wages account;
that a discount of $76.13 allowed to a customer has been credited to
him as $71.13, and that the total of sales returned was footed $5
short. Give detailed entries showing how you would remedy these errors,
and starting with the original difference prepare a supplemental trial
balance showing whether the books balance or not.
42. A and B are partners owning two retail stores, one in Paterson and
the other in Newark. They agree to dissolve partnership as of July 1,
1918. The two stores are valued July 1, 1918, as follows: Paterson
$4,573.50; Newark $3,600. On this basis B contemplates purchasing A’s
interest. On being furnished with the following data, B requests you to
inform him if the inventory of the Paterson store, January 1, 1918, was
correct as A claims:
Value of alleged Inventory, January 1, 1918, in the
Paterson store $3,800.00
Purchases for both stores, January to July, paid for 5,128.80
Due to Creditors on account of both stores, July 1 1,500.00
Cash Sales, Newark store 1,875.00
Cash Sales, Paterson store 3,105.00
Purchases, Paterson store, January to July 3,326.00
Profits 50% of Sales
Prepare a statement proving whether or not the inventory of the
Paterson store, January 1, 1918, was correct as stated.
43. On paper ruled as for a stock ledger, make entry of the following
stock transactions of William Henderson, closing the account as of
October 31, 1918, and carrying down the balance:
100 shares (par value $100) originally issued, full paid at par to
William Henderson by certificate No. 5. August 16, 1918.
William Henderson sells 50 shares of the original 100 to Charles
Gibbons at $120, September 14, 1918, receiving certificate No. 37 for
shares retained.
October 28, 1918, William Henderson purchases from John Hogan 25 shares
at $115 and receives certificate No. 78.
44. Stockholders of the Deep Canal Company donated 400 shares of stock
of a par value of $100 per share for the purpose of providing working
capital.
Three hundred shares of the treasury stock were sold by agents at 90.
A commission of 10% and expenses of $516 was allowed the agents for
selling. The 300 shares of treasury stock were sold on the instalment
plan, 10% down and 10% a month for the balance. Certificates of stock
not to be issued until paid in full.
Six months later you are to enter the total amount of cash paid on
instalments, excluding the initial payment which was made at the time
of subscription.
At the end of eight months 100 subscribers defaulted on their
subscription contracts. Their subscriptions were canceled and the
payments they had made declared forfeited.
The balance of all subscription accounts except those canceled by
default have been paid in full and stock certificates therefor duly
issued.
(a) Write all the necessary journal entries.
(b) Construct a suitable instalment book and record
in it the above transactions.
APPENDIX D
REVIEW QUESTIONS
=Chapter I=
1. Name the two general classes of corporations, and subclassify each.
2. Discuss briefly the working organization of the stock corporation.
3. Name the different classes of stock and discuss each briefly.
4. What is meant by watered stock?
5. How, on the balance sheet, would you show discount on stock? Premium
on stock?
6. What are the correct journal entries covering the receipt of
treasury stock, and its sale at a discount? At a premium?
7. To what uses is donated surplus restricted?
8. What is bonus stock, and when may it be issued?
9. What kind of an expense does bonus stock constitute when given with
an issue of bonds which would otherwise be sold at a discount?
10. When treasury stock is purchased by the issuing company at a
discount, how would the transaction appear on the ledger? How if bought
at a premium?
11. Contrast the redemption at a premium of a preferred stock issue,
with the purchase of treasury stock at a premium.
12. What is meant by stock of no par value? Explain fully.
13. How is the issue of no par value stock handled on the books?
14. Name and discuss those records peculiar to the corporation.
15. Of what value to the accountant are the records kept in the minute
book?
=Chapter II=
1. In what way are the purchasing activities of a manufacturing concern
more complex than those of a concern selling stock-in-trade?
2. Why is the old purchase journal inadequate to meet the needs of the
manufacturing concern? In what way, however, can it be improved to meet
these needs?
3. Discuss the development of the voucher register, showing its
improvement over the purchase journal.
4. What is a voucher?
5. State the essential characteristics of a formal voucher.
6. Describe in detail the operation of a voucher system.
7. What are the advantages of the voucher check?
8. What are “treasurer’s numbers,” and why are they sometimes put on
vouchers?
9. In what way does the use of the voucher register eliminate much of
the work that is usually done on the cash book?
10. How is it possible, when using the voucher system, to keep a record
of the volume of business done with each creditor?
11. How is the general ledger account, Vouchers Payable, proven?
12. State the steps that must be taken when substituting the voucher
system for the old journal method of handling purchases.
13. Explain two methods of treating purchases returns and allowances
on the voucher register. Which method is the most satisfactory for a
concern doing a large volume of business?
14. Explain in detail the methods of handling the following items on
the voucher register: (a) Partial payments on vouchers. (b) Payment by
means of a note payable. (c) Cash discounts on purchases.
15. Enumerate the advantages claimed for the voucher system. The
disadvantages.
=Chapter III=
1. In what respect does factory accounting differ from financial
accounting?
2. What three main elements enter into the manufacture of a product?
Discuss each.
3. For what special purposes are cost records kept?
4. What is meant by raw materials from the manufacturer’s viewpoint?
5. Describe the two methods used in accounting for material cost. Which
method is preferable for the large concern?
6. How would you classify labor for factory accounting?
7. Explain the use of the time card.
8. Describe the general content of a pay-roll.
9. Why and how should the pay-roll be safeguarded?
10. How are the workmen paid from the pay-roll?
11. How is distribution of the pay-roll made? Distribution of accrued
wages?
12. Name a few items which enter into overhead expenses.
13. What constitutes the real difficulty in accounting for factory
expense or overhead?
14. Why is a common basis of distribution of expense usually
unsatisfactory?
15. What relation has a manufacturing statement to a profit and loss
statement?
=Chapter IV=
1. Discuss the growing importance of the balance sheet in its relations
to the business world.
2. What relation is there between the trial balance and the balance
sheet? Between the post-closing trial balance and the balance sheet?
3. What is the purpose of the balance sheet? What uses may it serve?
4. Differentiate between the English and the American or Continental
form of balance sheet.
5. How is the origin of the English form of balance sheet explained?
6. What is the “Statement of Receipts and Expenditures on Capital
Account?”
7. Name and criticize a few of the balance sheet titles met with.
8. What is the purpose in classifying the items appearing in the
different sections of a balance sheet?
9. What controlling principle usually governs the order of these
sections and the items within each section?
10. Give an outline of the group arrangement of the balance sheet.
11. State and describe the two methods of arranging the three main
classes of balance sheet items. Which method is usually preferred?
12. How is a valuation account usually shown on the balance sheet? Give
examples.
13. Tell what you know of the statutory requirements governing the
frequency of financial statements of both financial and public service
corporations.
14. What are the reasons for having a condensed balance sheet? What
precautions must be taken when condensing a balance sheet?
15. Enumerate several of the purposes which a balance sheet may serve.
=Chapter V=
1. What points demand consideration before an accountant can definitely
arrive at the content of a balance sheet?
2. State the chief purpose for valuing the assets of public utilities.
3. Give a few principles involved in the valuation of property for the
purpose of sale or purchase.
4. Name three kinds of valuations relating chiefly to the commercial
balance sheet.
5. What principles are involved in the valuation of a going concern?
6. What is meant by cost value?
7. Give a few sources of data as to value.
8. What is an “experience figure” in connection with an appraisal?
9. What is the most usual basis for values which are shown in the
commercial balance sheet.
10. Define and explain:
(a) Capital expenditures.
(b) Revenue expenditures.
(c) Capital receipts.
(d) Capital expense.
11. Do the expenses of organization constitute capital or revenue
expenditures?
12. Define and discuss: (a) Maintenance. (b) Replacements. (c)
Renewals. (d) Repairs.
13. When should a renewal be considered an expenditure on capital
account?
14. Describe the best method of handling expenses involved in making
“cost-cutting” changes.
15. How may expenditures for assets subject to depreciation be
considered as deferred charges to operations?
16. The cost of repairs upon second-hand equipment, immediately after
purchase, constitutes what kind of an expenditure?
17. Name a few construction costs which may justly be considered as
capital expenditures.
18. Upon what is the distinction between capital and revenue
expenditures often based?
19. Name the three general heads under which the assets may be classed
on the balance sheet.
20. What are the principles of valuation for the assets appearing under
each group?
21. Are the principles of valuation applicable to liability items?
22. Would you say that a balance sheet is a statement of fact, or
merely an opinion based on experience? Why?
=Chapter VI=
1. Define depreciation and show why the depreciation factor demands
consideration.
2. Distinguish between “absolute or actual” and “theoretical”
depreciation.
3. Define “accounting” depreciation.
4. What is meant by complete depreciation? Incomplete?
5. How can a consideration of complete depreciation be of value?
6. What is the relation of individual depreciation to composite
depreciation?
7. What is meant by “normal” or “average” value in connection with
composite depreciation?
8. Define “deferred maintenance,” “accrued depreciation.”
9. What is the attitude of the law in regard to depreciation?
10. Give a clear distinction between repairs and renewals.
11. What relation is there between the reserve for depreciation and the
productive efficiency of the plant?
12. Explain how the efficiency of the unit bears a different relation
to depreciation than does that of the plant as a whole. Give an example.
13. Is it correct to allow fluctuations in market value to influence
the charges to depreciations?
14. Give a clear distinction between depreciation and depletion.
=Chapter VII=
1. Give a complete outline showing the cause of depreciation as related
to: (a) Tangible property. (b) Intangible property.
2. In what ways is age a distinct cause of depreciation? Wear and tear?
3. Explain “functional” depreciation.
4. What two main factors or compelling forces may bring about
inadequacy?
5. Name and discuss each of the forces of internal origin which may
bring about inadequacy. Those of external origin.
6. Discuss obsolescence as a cause of functional depreciation.
7. Do the courts recognize obsolescence as a factor of depreciation?
8. Name the various items comprising contingent depreciation.
9. When must provision be made for the depreciation of intangible
property, or rights?
10. What constitutes the effective depreciation for any given asset?
=Chapter VIII=
1. State the real purpose of the depreciation charge as viewed first
from the standpoint of the balance sheet, and second from that of the
profit and loss statement.
2. Among what items of expense do accountants include depreciation
charges?
3. What two methods of distributing depreciation charges over several
fiscal periods are possible?
4. Show how the factor of idle time would affect the charges of
depreciation for different fiscal periods.
5. What three views must an accountant always consider when making the
depreciation charge?
6. Have there been any successful efforts to standardize depreciation
rates?
7. Of what importance are local conditions in determining an individual
depreciation rate?
8. Name the important normal and contingent factors which must be taken
into account in determining the depreciation rate.
9. Upon which of these factors must the rate be based at the time of
installation?
10. Upon what considerations is the normal rate based?
11. What influence has the policy as to repairs upon the normal rate?
12. Explain the three methods of handling repairs and renewals on the
books.
=Chapter IX=
1. What are the usual factors which enter into the calculation of
depreciation charges under most methods?
2. Name and subclassify the four general methods of calculating
depreciation charges.
3. Explain and give the essential characteristics of each of the
methods used for estimating depreciation.
4. What is meant by condition per cent?
=Chapter X=
1. Name the causes of depreciation as viewed from the aspect of time.
As viewed from the aspect of service.
2. What is the ideal basis for distributing the depreciation charge?
3. Discuss the advantages and disadvantages of the various depreciation
methods as outlined in Chapter IX, and state the conditions under which
each method might work to advantage.
4. Should stability of income on the investment be considered in
commercial valuations?
=Chapter XI=
1. What are the two methods of booking depreciation in the ledger?
Which method is preferable?
2. Explain and criticize the two methods of handling the depreciation
reserve account at the time of the renewal of parts or replacement of
the asset.
3. Why are subsidiary records necessary in accounting for a group of
assets which are subject to depreciation?
4. Upon what basis are plant assets usually grouped?
5. Name the five headings under which a record of each plant unit
should be kept.
6. Discuss the importance of a periodic revision of depreciation rates.
Upon what does the frequency of such a revision depend?
7. What is meant by the rate of composite depreciation?
8. Explain, by assuming data from which to work, the two methods of
estimating the composite life of a group of assets, and also their
composite rate of depreciation.
9. What does a depreciation reserve on the balance sheet show as to the
management’s policy in treating plant properties?
10. Upon studying the depreciation reserve account for successive
periods, what conclusions might be drawn in the case of: (a) A
fluctuating reserve? (b) An increasing reserve? (c) A decreasing
reserve?
11. Should the depreciation reserve ever serve as a means of financing
the replacement of plant equipment?
12. Name the three courses which the management might pursue in
financing plant replacements.
13. Explain the secret reserve. Is the policy of carrying a secret
reserve advisable? What is the result of carrying too low a reserve?
14. Name the various causes of the appreciation in value of an asset.
15. When is one justified in offsetting depreciation with appreciation?
16. What effect might an over-or under-charge for depreciation have
upon the stockholders of the corporation?
=Chapter XII=
1. Discuss some of the items often considered as cash, and give reasons
why many of them should not be included in that account.
2. Explain fully the customary method of receiving stamps as cash
payments.
3. Discuss the impropriety of accepting and listing I O U’s and due
bills as cash.
4. How should the disposition of the various cash funds be shown when
listing the cash items?
5. What rate of exchange should be used by the home office in valuing
cash held in a foreign branch?
6. What is the important problem in valuing accounts and notes
receivable?
7. Why is the title “accounts receivable” objectionable?
8. How may large losses from bad debts be avoided?
9. What relation does the percentage of loss from bad debts bear to the
term of credit granted?
10. Explain how customers’ accounts are analyzed as a basis for
estimating bad debts. When is such an analysis of value?
11. What three bases are used in estimating the percentage of bad
debts? Give a criticism of each base.
12. What allowance should be made for discounts and collection costs
when valuing the trade debtor’s accounts?
13. What is the common practice in providing for loss on bad notes
receivable?
14. How should non-interest bearing notes be valued?
15. What items should be included under the title of “notes receivable”?
=Chapter XIII=
1. Define the term “stock-in-trade.”
2. What is the most conservative basis upon which to value
stock-in-trade? Criticize other bases of valuation which may be used.
3. Explain the use of balance sheet footnotes to indicate the market
value of stock-in-trade.
4. What is the proper basis of valuation for depreciated stock-in-trade?
5. Discuss all of the items that may go to make up the cost of
stock-in-trade.
6. How may items of cost, which are not directly attributable to any
one department, be equitably distributed?
7. Discuss some of the problems met in valuing inventories.
8. In the case of a manufacturing concern, discuss the valuation of the
following inventories: (a) Finished goods. (b) Raw materials. (c) Goods
in process. (d) Uncompleted contracts. (e) Scrap.
9. State the two rules to be observed when taking a physical inventory
and discuss their application.
10. How may a perpetual inventory be kept?
11. Is a physical inventory necessary when a perpetual inventory is
kept?
=Chapter XIV=
1. What is the usual basis upon which temporary investments should be
valued?
2. What are the advantages in the use of the “Reserve for Investment
Fluctuations” account?
3. Explain the method of valuing stock rights.
4. How are temporary investment costs handled on the books?
5. Discuss the principles governing the valuation of bonds purchased at
either a discount or a premium for temporary account.
6. What kind of an asset is unissued stock?
7. Differentiate between the valuation of unissued stock and that of
treasury stock.
8. Give a summary of the principles of valuation of temporary
investment assets.
9. Define and give a few examples of accrued income.
10. Explain the cash method of handling accruals and tell why it is
inadequate.
11. Explain the “accrual method.”
12. On what basis should accrued items be valued, and how should they
be classed on the balance sheet?
13. Discuss and illustrate the methods of accounting for accrued income.
14. Define and give examples of prepaid expense items.
15. On what basis should they be valued, and how should they be shown
on the balance sheet?
=Chapter XV=
1. State the characteristics of permanent investments.
2. In what three ways may a permanent or fixed investment be effected
so as to act as an aid in the operation of any business?
3. What is the chief problem in valuing those investments which aid
operation?
4. When may the “consolidated balance sheet” be used to advantage by
holding companies?
5. Discuss the factors involved in valuing claims against subsidiary
concerns on account of advances.
6. Under what conditions would it be advisable to value partial or
minor holdings at cost?
7. On what basis should investments producing no income be valued?
8. Explain the influence of interest rates upon the valuation of bonds.
9. Describe the nature of bond discount and of bond premium.
10. Explain the two methods of recording bond investments.
11. What data must necessarily be known in order to calculate the
periodic amortization of bond discount or premium?
12. Derive the formula for the present worth of a given sum at compound
interest.
13. Derive the formulas for the sum and present worth of an annuity.
14. Explain the three methods for valuing bonds.
15. On what basis should sinking funds be valued?
16. On what basis should investments in land be valued?
=Chapter XVI=
1. What principles are particularly applicable to the valuation of
equipment assets?
2. Distinguish clearly between real and personal property.
3. Why is it necessary to keep separate records of machinery and tools?
4. Describe the operation of the machine account where subsidiary
records are kept.
5. What is the valuation formula for machinery?
6. Is there any necessity for a periodic revision of the depreciation
rate?
7. State the advantages of keeping a life history of units of machinery
in the subsidiary records.
8. What effect has the standardization of methods of operation and of
use of machinery and tools upon the rates of depreciation of these
assets?
9. Enumerate a few points that demand consideration in the calculation
of the depreciation rate for a machine subject to abnormal operation.
10. When should scrap material be disposed of?
11. Due to the possibility of losing small tools, what precautions must
be taken in accounting for this class of assets?
12. Why is depreciation often ignored when estimating the value of
tools?
13. Upon what basis should tools made in the home factory be valued?
14. When might it be proper to capitalize expenditures made for the
rearrangement of machinery within the plant?
15. Will the capitalization of this expense affect profits considered
over the life of the asset?
16. State the basis for valuing: (a) Furniture and fixtures. (b)
Delivery equipment. (c) Carriers and containers. (d) Patterns, molds,
electrotypes, etc.
17. Show the entries necessary to book the disposal of an asset subject
to depreciation.
=Chapter XVII=
1. What objection is there to the account title “real estate”?
2. What items enter into the cost of buildings?
3. What is the basis for valuing: (a) Buildings? (b) Betterments on
leased buildings?
4. What considerations must be taken into account in applying
depreciation to buildings?
5. What is the basis for valuing land used for operations?
6. What account should be taken of depreciation and appreciation of
land?
7. How should the carrying costs of land held for investment be treated?
8. State fully the points to be considered in handling and valuing
donated land.
9. Where land is stock-in-trade, what objection is there to loading the
loss suffered on the sale of some portions onto the carrying value of
the unsold portions?
10. Distinguish between depletion and depreciation.
11. How is periodic depletion calculated? Explain fully.
12. Discuss fully the valuation of leaseholds.
=Chapter XVIII=
1. Discuss the valuation of patents: (a) When purchased. (b) When
developed within the plant. (c) Patents purchased but not used.
2. What elements of depreciation are effective on patents? In what way?
3. What items enter into the cost of patents?
4. How may the life of basic patents be indefinitely extended?
5. What is the basis of valuation for:
(a) Copyrights?
(b) Trade secrets?
(c) Trade-marks?
6. Discuss the commercial valuation of franchises as distinguished from
the valuation allowed by public service boards.
7. How should organization expenses be handled and valued?
8. Define good-will and state its characteristics. What is its essence?
9. When may good-will be shown on the books? Discuss the several cases.
10. State and explain three ways of valuing good-will.
11. Is good-will subject to depreciation? Discuss.
12. What objection is there to using good-will to absorb the water in
watered stock?
=Chapter XIX=
1. State the general problem of valuation as applied to liabilities.
2. How should the liabilities be classified?
3. What considerations must be taken into account to make sure that all
liabilities are shown on the balance sheet?
4. How should current liabilities be classified?
5. What different classes of items may be included under the head,
accounts payable? Under trade creditors?
6. What classes of items are listed under accrued expenses?
7. In what sense is deferred income a liability?
8. Name six different classes of contingent liabilities and show how
they should be treated: (a) On the balance sheet. (b) On the books.
=Chapter XX=
1. What is the basis of separation of fixed from current liabilities?
2. From a financial standpoint, what is the purpose of the incurrence
of fixed liabilities?
3. Distinguish between a corporation bond and an ordinary mortgage or
bond and mortgage.
4. What financial considerations are involved in the determination of
the advisability of a bond issue?
5. State fully the methods of accounting for a bond issue.
6. Explain fully the entries necessary to record properly bond
interest, including the amortization of premium or discount.
7. How should unissued bonds be treated on the balance sheet?
8. How should notes payable secured by real estate mortgage be shown on
the balance sheet?
9. How would you treat the securities pledged as collateral for a bond
or note issue?
10. What are short-term securities and under what conditions are they
issued?
=Chapter XXI=
1. What problem is involved in the valuation of capital stock?
2. Define the different kinds of value of stocks.
3. What is watered stock? Illustrate.
4. What is the objection to earning capacity as the basis of
capitalization?
5. What attitude does the law take towards capitalization?
6. How would you treat stock discount and premium on the books? On the
balance sheet?
7. How would you value: (a) Stock issued for property. (b) Treasury
stock.
8. How is the redemption or reduction of capital stock handled on the
books? Explain fully.
9. How would you value: (a) Dividend stock. (b) Bonus stock.
10. How should unissued and treasury stock be shown on the balance
sheet?
11. What is the problem of a preferred stock covered by a redemption
contract imposing definite dates of redemption on the company?
=Chapter XXII=
1. What are profits? Distinguish between the economic, legal, and
accounting uses of the term.
2. What two methods are used to determine profits?
3. How are profits related to the problem of valuation?
4. What effect have asset losses on profits? Discuss fully.
5. In what three ways may such losses be treated on the books and
balance sheet?
6. How would you treat profit on goods being made for stock?
7. How would you treat profit on long-term contracts?
8. How would you treat profit on goods awaiting delivery?
9. What about profits due to appreciation of assets?
10. How would capital profits be handled?
11. Sum up briefly the considerations governing the determination of
profits.
=Chapter XXIII=
1. Define surplus; margin. What are the sources of margin?
2. Explain the booking of the appropriation of profits.
3. In what different ways is the term reserve used?
4. What is the effect of an under-or over-estimate of valuation
reserves?
5. How would you handle expected sales discounts on outstanding
accounts?
6. How should expected collection costs be handled?
7. Distinguish between reserves and accrued items.
8. What are contingent reserves?
9. What are proprietorship reserves?
10. In what different ways may secret reserves be created?
11. Give the arguments for and against secret reserves.
12. What are covered reserves?
13. What is meant by earmarking reserves? How may continuity of a
reserve policy be secured?
14. Give a logical classification of reserves.
15. Under best practice what should the Surplus account represent?
16. Give the form for the statement of surplus.
=Chapter XXIV=
1. What are the stockholders’ rights as to profits? As to dividends?
2. What control have the directors over profits and dividends?
3. How are dividends declared? May they be revoked?
4. What is the liability of directors as to dividends.
5. In what different ways may dividends be paid? Explain fully.
6. What can be said of the policy of borrowing to pay dividends?
7. What is the problem involved in stock dividends in estate accounting?
8. How are the declaration and payment of dividends booked?
9. What is the relation of capital losses to dividends:
(a) From a legal standpoint.
(b) From a business standpoint.
10. What are liquidating dividends? How are such dividends handled as
related to wasting assets?
=Chapter XXV=
1. Define a sinking fund and trace its origin.
2. State the problem of the calculation of a sinking fund. Derive the
formula.
3. What other basis than the compound interest basis is often used for
the accumulation of a sinking fund?
4. Explain fully the relation of the sinking fund to profits.
5. In what four ways may the sinking fund be handled on the balance
sheet? Explain the meaning of each.
6. How should the sinking fund assets be shown on the balance sheet?
7. Explain fully the entries needed to book the sinking fund
transactions: (a) The origin of the fund. (b) The trustee’s periodic
report. (c) The redemption of bonds and final disposition of the fund.
8. Discuss fully the relation between the reserve for depreciation and
the sinking fund.
=Chapter XXVI=
1. Is the profit and loss a statement of fact or of opinion? Explain.
2. For what purposes is the periodic profit and loss summary
inadequate? Discuss fully.
3. Give the arguments for inclusion of interest as an item of
manufacturing cost.
4. Give the arguments against its inclusion. If its inclusion is
allowed, how must it be booked?
5. State fully the case of bringing unrealized profits on the books.
6. What distinctive problems arise in closing the books of a
corporation? Discuss.
7. How are errors of previous periods to be corrected?
=Chapter XXVII=
1. Give the various titles used for the profit and loss summary and
indicate their special uses, if any.
2. Indicate the subsections, and their content, of the manufacturing
section.
3. Indicate the content of the trading section.
4. Indicate the content of the general administrative section.
5. Indicate the content of any other sections and show their uses.
6. State and discuss the different methods of handling some items, such
as goods in process, discounts, outfreight, rent, insurance, etc.
7. What purpose does the use of schedules serve?
8. Is the profit and loss the proper place to show all adjustments of
surplus?
=Chapter XXVIII=
1. Under what conditions may a corporation liquidate? Distinguish
between actual and legal insolvency.
2. Name and discuss seven causes or conditions resulting in insolvency.
3. Name the methods of liquidation.
4. What are acts of bankruptcy? Discuss.
5. Outline the process of liquidation under bankruptcy.
6. Outline the process of liquidation under voluntary dissolution.
7. Outline the process of liquidation under receivership.
8. What is the status of the several claimants to shares in the assets
of a liquidating concern?
9. What are the fundamental principles of accounting involved in
accounting for a liquidation?
=Chapter XXIX=
1. What various kinds of consolidations are there?
2. What is a holding company and how does it operate?
3. Distinguish between a consolidation and a merger.
4. What are some of the problems involved in the valuation of the
various companies to a merger or consolidation? Discuss their treatment.
5. In such a valuation, why is it necessary to equalize conditions and
what are the conditions which must usually be equalized?
6. In a partnership what particular items must be considered?
7. What is meant by earning capacity?
8. What factors enter into a determination of the amount of
capitalization?
9. How may the interests of the various parties to a merger or
consolidation be settled?
10. State the method of opening the books of the merger.
11. State the method of closing the books of the merged companies.
=Chapter XXX=
1. Discuss the branch and agency methods of marketing.
2. Differentiate between the branch and agency.
3. Discuss the problem of control over the branch by the head office.
4. What are the fundamental principles of branch accounting?
5. How may agency accounts be kept?
6. Indicate the method of keeping both the branch books and the branch
activities on the head office books where goods are billed by the head
office to the branch: (a) At cost price. (b) At some other price than
cost.
7. Discuss briefly the handling of branch purchases, sales, and cash in
order to secure head office control over them.
8. Discuss fully the periodic summary of results and the adjustments
necessary at such a time between the branch and head office books.
9. What reports should the branch make the head office?
=Chapter XXXI=
1. What problems beyond those of the domestic branch are met in
accounting for the foreign branch?
2. What control accounts are usually carried on the head office books?
3. State and explain the principles of the conversion of branch results
and their incorporation with the head office results.
4. How are fluctuations of exchange handled? Discuss fully.
5. What peculiarities of regulation over accounts are sometimes met in
foreign countries?
6. Explain fully the method of keeping foreign customers’ accounts on
the head office books and the periodic adjustment of their control
account.
7. Explain the similar method of keeping creditors’ accounts.
=Chapter XXXII=