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
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?