The entire issue was sold for cash at 103.
Set up the accounts showing the handling of all redemption transactions at the five periods above referred to, with these additional facts: It is the expectation of the company to provide for a permanent increase in capital of $100,000, the amount of the preferred stock issue, during the life of the issue; and at the end of the 20 years, the company exercises its option by converting $30,000 of the preferred into common stock out of unissued common to that amount held in the treasury.
Instructions
- Problem 1. Refer to [Chapter XXXII].
- Problem 2. Refer to Chapters [I] and [XXI].
XVIII
The Sterling Trunk Corporation, hoping to recoup excessive trade losses, engaged more extensively in the manufacture of war supplies. Instead of realizing the enormous anticipated profits, they sustained a severe loss through an explosion followed by a disastrous fire on August 1, 1918. The assets destroyed were only partially protected by insurance because of difficulty in getting a reasonable rate. Also some policies which had expired had not been renewed.
The following information was accepted by the insurance companies as a basis for settlement. Date of policies January 1, 1918.
- LEGEND:
- (A) = Name of Property Insured
- (B) = Original Value of the Property
- (C) = Reserve for Depreciation, Jan 1, 1918
- (D) = Yearly Rate of Depreciation
- (E) = Face of Ppolicy
- (F) = Amount of Property Destroyed on Aug 1, 1918
- (G) = Unexpired Premium on Policy Aug 1, 1918
- (H) = Coinsurance Clause in the Policy
| (A) | (B) | (C) | (D) | (E) | (F) | (G) | (H) |
|---|---|---|---|---|---|---|---|
| Buildings | $110,000 | $10,500 | 5% | $30,000 | $80,000 | $200 | 80% |
| Machinery | 76,000 | 14,000 | 10% | 20,000 | ¾ | 150 | 100% |
| Furniture & Fixtures | 4,700 | 1,200 | 12% | 4,000 | 70% | 10 | 80% |
| Patterns & Drawings | 3,500 | 20% | 1,500 | All | None | 60% | |
| Finished Goods[83] | 16,400 | 80% of selling price | 90% of selling price | 120 | 80% | ||
(a) What is the effect of the coinsurance clause?