Introduction

Disposition of Corporation Profits Shareholders’ Rights as to Profits Directors’ Control over Profits Provisos as to Declaration of Dividends Stockholders’ Rights to Dividends Declaration of Dividends Liability of Director Revocation of Dividends Payment of Dividends Dividends Paid as Salaries Methods of Paying Dividends Borrowing to Pay Dividends Dividends Paid in Property, or by Borrowing on Property Bond and Scrip Dividends Stock Dividends Dividends Proportional to Holdings To Whom Payable Accounting Record Relation of Capital Losses to Dividends Liquidating Dividends XXV THE SINKING FUND 447 Origin and Use Definitions Mathematical Principles on which Based Accumulation Based on Agreement Effect of Settlement of Debt Relation of Fund to Profits Accounting for Sinking Fund The Sinking Fund on the Balance Sheet Entries to Sinking Fund Booking the Trustee’s Report Treatment of Income and Expense Final Disposition of Fund Treatment of Sinking Fund Reserve Relation Between Depreciation and Sinking Fund XXVI PROBLEMS IN CONNECTION WITH THE PROFIT AND LOSS SUMMARY 466 Interrelation of Profit and Loss and Balance Sheet Periodic Adjustments Interest as a Cost of Manufacture Arguments Against the Inclusion of Interest Problem of Charging Interest on Books Unrealized Profits Corporation Dividends Discount on Bonds Sinking Funds Working Capital The Correction of Closing Errors XXVII THE PROFIT AND LOSS SUMMARY—FORM AND CONTENT 477 Standardization of Form Synonymous Terms Cost of Goods Sold—Manufacturing Concern Cost of Goods Sold—Trading Concern Further Differentiation of Terms Desirability of Uniformity in Terms Used Profit and Method of Showing Form of Presentation—Account Form Non-Technical or Report Form Examples of Forms of Presentation Form for Manufacturers and Merchants Content and Manner of Showing Supporting Schedules Adjustment of Inventories Selling Expense and Administrative Schedules Schedules for Special Needs XXVIII LIQUIDATION OF A CORPORATION 493 Reasons for Liquidating—Partial and Complete Liquidation Current Assets Transferred into Fixed Assets Tying up Cash in Stocks of Material Unwise Use of Cash for Paying Dividends Inability to Secure Cash for Refunding Operations Excessive Borrowing on Short-Term Securities Losses in Conducting the Business Loss Through Fraud, Theft, or Unavoidable Causes Methods of Liquidation Liquidation under Bankruptcy Liquidation under Voluntary Dissolution Liquidation under Receivership Status of Creditors in Liquidation Accounting for Liquidation XXIX COMBINATIONS AND CONSOLIDATIONS 507 Reason for Combination Types of Consolidation Accounting for the Holding Company Distinction between Consolidation and Merger Formation of Consolidation and Merger Principles of Valuation of the Constituent Companies Fundamental Principle of Equalization of Conditions Valuation of Partnership Earning Capacity Good-Will Capitalization of a Consolidation or a Merger Payment of Amalgamated Interests Closing the Books of the Merged Concerns Opening the Books of the Merger XXX BRANCH HOUSE ACCOUNTING 521 Advantages of Branch and Agency System Agency and Branch Differentiated Degree of Control Desired Factors of Successful Management Main Principles of Branch Accounting Agency Accounts Branch Accounting Records Illustration of Simple Branch Accounts Illustration of More Complex Branch Accounts Purchases Sales Adjustments on Branch and Head Office Books Example of Adjusting Entries Reports from the Branch Examples of Reports XXXI BRANCH HOUSE ACCOUNTING (Continued) 542 Foreign Exchange The Accounting Problem of the Foreign Branch Accounts Opened on Books Handling Fluctuations in Foreign Exchange Conversion of Branch Results Illustrative Bookkeeping Problems Local Supervision of the Foreign Branch The Foreign Sales Agency Method of Conversion of Results The Foreign Purchasing Agency XXXII SUSPENSE ACCOUNTS; NUMBERED ACCOUNTS; ADJUSTMENT OF FIRE LOSSES 556 SUSPENSE ACCOUNTS Definition of Suspense Accounts—General Purpose Reserve for Doubtful Accounts as a Suspense Account Use of Suspense Ledger Accounts Receivable Hypothecated Accounting for Accounts Receivable Discounted NUMBERED ACCOUNTS Allotment of Numbers to Accounts ADJUSTMENT OF FIRE LOSSES The Insurance Contract Requirements in Case of Loss Determination of Value of Loss Adjustment of Differences Effect of Coinsurance Clause Method of Record-Keeping to Facilitate Ready Adjustment Adjusting Entries for Fire Losses XXXIII STATISTICS IN BUSINESS; PRIVATE BOOKS; JOURNAL VOUCHERS; BUILDING EXPENSES AND INCOME 581 STATISTICS IN BUSINESS Value of Business Statistics Railroad Statistics Manufacturing Statistics Mercantile Statistics Use of Graphs in the Presentation of Statistics Advantages of the Use of Graphs Principles of Graph Construction PRIVATE BOOKS Purpose and Content Operation of Private Books JOURNAL VOUCHERS Need for the Journal Voucher Index to Journal Vouchers Content of Voucher Other Methods of Authorizing Entries BUILDING EXPENSES AND INCOME Allocation of Building Expense XXXIV THE CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS SUMMARY 600 Purpose and Function Problem of Partial Ownership Conditions under which Used The Setting Up of the Consolidated Balance Sheet Showing of Intercompany Accounts Showing of Notes Discounted Reconcilement of Current Accounts Valuation of Inventory Reserve for Intercompany Profits Valuation of Inventory—Minority Interests Valuation of Liabilities Showing of Capital Stock Showing of Surplus Showing of Deficit Showing of Profit and Loss Summary The Consolidated Profit and Loss Summary Illustration of Consolidated Balance Sheet XXXV ACCOUNTS AND REPORTS OF RECEIVERS AND TRUSTEES 620 Appointment of Assignee or Receiver Appointment of Trustee Accounts and Reports of a Receiver in Equity Reports to the Court ACCOUNTS AND REPORTS IN BANKRUPTCY PROCEEDINGS Initial Statements Presented to the Court Reports and Accounts of Receiver or Trustee Liquidating Dividends Relative Standing of the Creditors Statement of Affairs Basis of Valuations in Statement of Affairs Deficiency Account Illustration of Statement of Affairs and Deficiency Account REALIZATION AND LIQUIDATION ACCOUNT Evolution of the Realization and Liquidation Account Supporting Schedules The Question of Cash The Handling of Valuation Reserves Illustration of Realization and Liquidation Statement Uses to which Realization and Liquidation Statement May be Put LIQUIDATION OF A PARTNERSHIP BY INSTALMENTS Nature of the Problem Illustration of Liquidation by Instalments APPENDIX A—PRACTICE WORK FOR STUDENT—FIRST HALF-YEAR 655 B—PRACTICE WORK FOR STUDENT—SECOND HALF-YEAR 694 C—MISCELLANEOUS PROBLEMS FOR SUPPLEMENTARY WORK 727 D—REVIEW QUESTIONS 755 FORMS AND CHARTS PAGE Stock Book or Stock Ledger 22 Stock Book to be Kept by Brokers (New York Form Prescribed by Comptroller) 23 Stock Book to be Kept by Corporations and Transfer Agents (New York Form Prescribed by Comptroller) 23 Voucher 30, 31 Voucher Check—Double 33 Voucher Check—Single 34 Voucher Register 35 Chart Showing Actual and Theoretical Depreciation 105 Chart Showing Progress of Uniform Depreciation and of Diminishing Efficiency 115 Graphic Chart—Straight Line Method 153 Graphic Chart—Working Hours Method 155 Graphic Chart—Fixed Percentage of Diminishing Value Method 158 Graphic Chart—Sinking Fund Method 162 Graphic Chart—Annuity Method 166 Plant Ledger 193 Branch Report to Head Office 541 Head Office Ledger Account—Summary of Branch Expenses 541 Chart Showing Comparison of Sales with Cost of Advertising 585 Chart Showing Comparison of Sales with Gross Profits 586 Chart Showing Comparison of Sales, Purchases, and Sales Salaries 587 Chart Showing Comparison of Sales with Cost of Sales 588 Journal Voucher 593 Card Index for Journal Vouchers 594, 595 Accounting—Theory and Practice