Chapter LVI: Appendix: D (1)

REVIEW QUESTIONS

=Chapter I=

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

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

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

4. What is meant by watered stock?

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

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

7. To what uses is donated surplus restricted?

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

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

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

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

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

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

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

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

=Chapter II=

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

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

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

4. What is a voucher?

5. State the essential characteristics of a formal voucher.

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

7. What are the advantages of the voucher check?

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

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

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

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

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

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

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

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

=Chapter III=

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

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

3. For what special purposes are cost records kept?

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

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

6. How would you classify labor for factory accounting?

7. Explain the use of the time card.

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

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

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

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

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

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

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

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

=Chapter IV=

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

=Chapter V=

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

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

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

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

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

6. What is meant by cost value?

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

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

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

10. Define and explain:

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

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

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

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

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

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

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

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

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

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

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

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

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

=Chapter VI=

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

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

3. Define “accounting” depreciation.

4. What is meant by complete depreciation? Incomplete?

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

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

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

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

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

10. Give a clear distinction between repairs and renewals.

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

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

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

14. Give a clear distinction between depreciation and depletion.

=Chapter VII=

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

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

3. Explain “functional” depreciation.

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

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

6. Discuss obsolescence as a cause of functional depreciation.

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

8. Name the various items comprising contingent depreciation.

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

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

=Chapter VIII=

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

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

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

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

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

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

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

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

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

10. Upon what considerations is the normal rate based?

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

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

=Chapter IX=

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

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

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

4. What is meant by condition per cent?

=Chapter X=

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

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

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

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

=Chapter XI=

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

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

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

4. Upon what basis are plant assets usually grouped?

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

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

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

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

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

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

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

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

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

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

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

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

=Chapter XII=

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

=Chapter XIII=

1. Define the term “stock-in-trade.”

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

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

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

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

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

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

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

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

10. How may a perpetual inventory be kept?

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

=Chapter XIV=

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

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

3. Explain the method of valuing stock rights.

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

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

6. What kind of an asset is unissued stock?

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

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

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

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

11. Explain the “accrual method.”

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

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

14. Define and give examples of prepaid expense items.

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

=Chapter XV=

1. State the characteristics of permanent investments.

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

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

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

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

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

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

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

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

10. Explain the two methods of recording bond investments.

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

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

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

14. Explain the three methods for valuing bonds.

15. On what basis should sinking funds be valued?

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

=Chapter XVI=

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

2. Distinguish clearly between real and personal property.

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

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

5. What is the valuation formula for machinery?

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

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

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

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

10. When should scrap material be disposed of?

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

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

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

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

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

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

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

=Chapter XVII=

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

2. What items enter into the cost of buildings?

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

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

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

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

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

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

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

10. Distinguish between depletion and depreciation.

11. How is periodic depletion calculated? Explain fully.

12. Discuss fully the valuation of leaseholds.

=Chapter XVIII=

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

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

3. What items enter into the cost of patents?

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

5. What is the basis of valuation for:

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

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

7. How should organization expenses be handled and valued?

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

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

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

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

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

=Chapter XIX=

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

2. How should the liabilities be classified?

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

4. How should current liabilities be classified?

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

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

7. In what sense is deferred income a liability?

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

=Chapter XX=

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

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

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

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

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

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

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

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

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

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

=Chapter XXI=

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

2. Define the different kinds of value of stocks.

3. What is watered stock? Illustrate.

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

5. What attitude does the law take towards capitalization?

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

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

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

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

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

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

=Chapter XXII=

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

2. What two methods are used to determine profits?

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

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

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

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

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

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

9. What about profits due to appreciation of assets?

10. How would capital profits be handled?

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

=Chapter XXIII=

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

2. Explain the booking of the appropriation of profits.

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

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

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

6. How should expected collection costs be handled?

7. Distinguish between reserves and accrued items.

8. What are contingent reserves?

9. What are proprietorship reserves?

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

11. Give the arguments for and against secret reserves.

12. What are covered reserves?

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

14. Give a logical classification of reserves.

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

16. Give the form for the statement of surplus.

=Chapter XXIV=

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

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

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

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

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

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

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

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

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

(a) From a legal standpoint.

(b) From a business standpoint.

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

=Chapter XXV=

1. Define a sinking fund and trace its origin.

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

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

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

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

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

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

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

=Chapter XXVI=

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

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

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

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

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

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

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

=Chapter XXVII=

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

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

3. Indicate the content of the trading section.

4. Indicate the content of the general administrative section.

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

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

7. What purpose does the use of schedules serve?

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

=Chapter XXVIII=

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

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

3. Name the methods of liquidation.

4. What are acts of bankruptcy? Discuss.

5. Outline the process of liquidation under bankruptcy.

6. Outline the process of liquidation under voluntary dissolution.

7. Outline the process of liquidation under receivership.

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

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

=Chapter XXIX=

1. What various kinds of consolidations are there?

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

3. Distinguish between a consolidation and a merger.

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

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

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

7. What is meant by earning capacity?

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

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

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

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

=Chapter XXX=

1. Discuss the branch and agency methods of marketing.

2. Differentiate between the branch and agency.

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

4. What are the fundamental principles of branch accounting?

5. How may agency accounts be kept?

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

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

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

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

=Chapter XXXI=

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

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

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

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

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

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

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

=Chapter XXXII=

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

2. In what sense are valuation accounts suspense accounts?

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

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

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

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

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

8. Present a complete schedule of numbered accounts.

9. Explain the insurance contract.

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

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

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

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

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

=Chapter XXXIII=

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

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

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

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

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

6. What principles should be observed in graphical presentation?

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

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

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

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

=Chapter XXXIV=

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

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

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

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

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

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

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

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

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

=Chapter XXXV=

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

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

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

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

5. What is a liquidating dividend?

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

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

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

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

10. What theories underlie its make-up?

11. How are cash and valuation reserves best handled?

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

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

INDEX

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

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

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