5. Debenture

Common Stock Common or ordinary stock is that which is evidence of ordinary ownership in the corporation. The share of ownership of the original organizers of the corporation is usually in the common stock. The common stockholder is a sort of remainderman, a residuary legatee. Upon dissolution, after the special claims and privileges of the other classes of owners have been satisfied, the common stockholders come in for their share. After the satisfaction of the claims of preferred owners, the common stockholders have a right to all that is left, their rights being simply residuary. They are subsequent to those of the other classes and to that extent inferior to them, though they may be more valuable. Preferred Stock Preferred stock has some kind of preference over the common. Such stocks differ among themselves, there being no standardized features applicable in every way to all kinds of preferred stocks. The basic purpose of the various preferences is to make the stock attractive from an investment standpoint. Common to all preferred stocks, however, is a preference as to dividends. Whenever profits have been made and have been set aside for dividend purposes, the preferred stockholders receive their dividends ahead of the common stockholders. If only sufficient profits are available to meet the requirements of the preferred stockholders and are appropriated for that purpose, the common owners receive nothing. Stock may be preferred as to assets as well as to profits. By this is meant that in case of dissolution the net assets remaining after payment of all outside claims are applied first to satisfy the interests of the owners of preferred stock and any remainder then goes to the common stockholders. _Cumulative and Non-Cumulative._ Preferred stock carries with it a definitely stated minimum rate of dividend. The preferred claim to the profits may be cumulative or non-cumulative. In the one case, if profits are insufficient at any time to meet the preferred dividend requirements or are not appropriated for that purpose, the claims of the preferred owners _accumulate_ from period to period until satisfied in full. This satisfaction must take place before the ordinary owners can have any share in the profits. The rate of accumulation is the specified minimum and usually interest on unpaid dividends is allowed when the company finally settles these preferred claims. Of course, since dividends can be declared only out of profits, no claim for preferred dividends or any other kind can exist unless sufficient profits have been made. Non-cumulative stock is stock on which the dividend claim does not, if unsatisfied at any time, accumulate from period to period. Preferred stock is cumulative unless otherwise specified. Dividends on cumulative stock do not have to be paid just because sufficient profits have been made. Declaration of dividends rests entirely with the board of directors who may see fit to appropriate profits to other purposes. A holder of non-cumulative stock may be very unjustly discriminated against in favor of the common stockholder by the withholding of all profits for a number of periods until a large amount has been accumulated. This is then disbursed as a dividend to the common owners after the deduction of as much as may be necessary to satisfy the preferred owner for the _current period_. On this account a non-cumulative stock is not attractive to investors. _Participating and Non-Participating._ Preferred stock may be participating or non-participating. It is said to be participating when the terms under which it is issued provide that it shall share in any dividend in excess of its own specified minimum. Thus, if it is 6% preferred, after the preferred receives its 6% the common stock receives a like dividend, and then the preferred and common may share alike or in any agreed ratio in any further dividends declared in that year. Both participating and non-participating stock is either cumulative or non-cumulative. Preferred stock is non-participating when it is limited to the rate of dividend specified in the terms of its issue. _Redeemable and Convertible._ Other features met in some preferred stocks are redeemability and convertibility. Preferred stock may be issued under a contract to redeem it, after a certain length of time, at a named figure—frequently par plus one year’s dividend. Redemption may be either at the option of the holder or the company. Redemption may be serial, i.e., a certain amount called at stated intervals for redemption. Preferred stock is convertible when under the contract in the terms of its issue it may be converted into some other form of ownership or obligation. Thus, provision may be made that after a certain time has elapsed, preferred shares may be converted into common according to specified rates of conversion; or conversion into bonds of the company is sometimes provided for. Many nice adjustments may become necessary from an accounting viewpoint, when redemption or conversion take place at any ratio other than book values. Guaranteed Stock Stock which is issued under a guarantee to pay a specified dividend is said to be guaranteed stock. Inasmuch as dividends can be declared only out of profits, a company cannot guarantee its own stock—or rather a guarantee on the company’s own issue must always be dependent or contingent upon the earning of profits sufficient for that purpose. Stock issued by one company and guaranteed by another may with strict propriety be called guaranteed stock. Thus, a large company may enter into a contract of lease with a smaller concern whereby the compensation shall be, let us say, an 8% dividend guaranteed to all holders of the stock of the smaller concern. Such a guarantee is not contingent but becomes a lien or claim on the guarantor company, regardless of the amount of its earnings. Founders’ Stock In England there is issued what is known as “founders’” stock, a stock preferred as to its _share_ of dividends. Thus, a comparatively small portion of the common stock authorized might be set aside as founders’ or promoters’ shares with the stipulation that these founders’ shares shall receive a dividend out of proportion to the ratio which they bear to the total common stock. The provision might be that these shares shall receive one-half or one-third—or any other specified share—more dividends than shall be given to the common owners. Instead of being preferred stock with specified dividend rate, it is preferred over the rest of the shares of the group from which it was originally set aside but its share of dividends is dependent upon the dividends given the rest of the shares. The par value of the founders’ shares might represent only one-twentieth of the value of the rest of the group, while their share of the dividends would be, say, one-fourth as much as that of the other shares. This preference as to amount of dividends may give founders’ shares a much higher market value than the other shares. Provision is sometimes made for their redemption, as usually there is such a marked difference between their amount ratio and their dividend ratio as compared with the other shares, that dissatisfaction among the owners results. Outstanding founders’ shares may then interfere seriously with the marketability of the other shares. Debenture Stock The term debenture stock is applied to a class of liabilities rather than to proprietorship items. In England debentures of various kinds are frequently used. A recent book[1] thus describes them: “In Great Britain the term ‘debenture stock’ is used to designate an unsecured loan issued in _irregular_ amounts. If the amounts were fixed and equal, the issue would be called ‘debenture bonds’ or simply ‘debentures.’ Debenture stock is a debt of the corporation and does not resemble stock as used in this country.” Debenture stock has not proven popular in this country, although used to some extent in Canada. The Public Service Commission of the State of New York defines debenture stocks as “those issued under contract to pay absolutely thereon at specified intervals a specified return.” These stocks, while usually of limited life like bonds, are sometimes “perpetual and give the holders no right to demand the repayment of their capital, and the company no right to repay it.”[2] When issued as perpetual, they somewhat resemble capital stock, as the term stock is used in this country. Because of the fixed and absolute charge for interest—or dividends as it is sometimes called—which these stocks carry, they are much more of the nature of bonds than of a stock indicating _proprietorship_. Debenture stocks are therefore to be classed as liabilities. [1] “Business Finance” by Lough. [2] “Stocks and Shares” by Hartley Withers. Stock of No Par Value A characteristic of most stock is that it bears a specified par value which must be uniform for all the shares within a class. The par value of the different classes may differ, however. In most states no regulation is made of the amount of par value. A par value of $100 is customary for industrial and commercial concerns, and of $1 for mining companies. Between those limits, and even beyond them, one finds stocks of almost any par value. In the State of New York the issuance of stock of no par value is allowed. Both preferred and common classes may be issued without par value, but if the preferred shares have preference as to assets, the certificates for preferred shares shall state “the amount which the holders of each of such preferred shares shall be entitled to receive on account of principal from the surplus assets of the corporation in preference to the holders of other shares.” With this exception, none of the certificates may express any nominal or par value and this statement of the amount of preference is regarded as an expression of par value for this purpose. Each share is equal to every other share within its class. Every certificate of such stock must bear plainly on its face the number of shares which it represents and the number of shares the corporation is authorized to issue. Regardless of the price paid for a share of such stock, all shares issued by the corporation shall be “deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or its creditors in respect thereof.” To the heedless a named value on a certificate of stock is sometimes misleading as to the real value of the stock. The no-par-value stock overcomes this in that a prospective purchaser is at once put on his guard to find out the worth of the stock. Another advantageous feature is that the questionable practices sometimes indulged in of booking stocks sold at a discount have no place here because the stocks, having no par value, cannot be sold at a discount and the record of their sale will carry therefore the price at which they were sold. Some points in connection with booking this stock will be discussed later. Watered Stock So-called watered stock is stock which has a higher nominal value than the true value of the properties for which it has been issued. Thus, if $1,000,000 worth—par value—of stock is issued for the purchase of property which has a marketable value of only $750,000, the stock is said to be watered to the extent of $250,000. The bookkeeping equation requires that an equality be shown between the properties purchased and the par value of the stock, and this is usually done by inflating the value of the properties when they are brought onto the books. Treasury Stock Treasury stock, when the term is used properly, is stock which has been once issued as fully paid and which through purchase or gift comes back into possession of the issuing company. Stock which has never been issued should not be called treasury stock. The distinction between the two lies in the liability (or freedom from it) to further contribution, in case of need to meet the claims of creditors, on the part of stockholders who have bought their shares at less than par value. In some states the sale of stock at less than par is forbidden. In those states where the practice is allowed, the purchaser of a previously unissued share at less than par is liable to the creditors (if the assets are insufficient to satisfy their claims) for a further contribution equal to the difference between par value and the price paid for the stock. If, though he pays less than par, the stock is issued to him by the corporation as fully paid and non-assessable, he is not liable to the corporation for any further payment to entitle him to all the rights and privileges of a shareholder; but he may be liable in case of need to outside creditors who have a right to expect always that assets of equal value to the stock issued therefor have come into possession of the corporation. As mentioned above, this trouble is obviated in the case of no-par-value stock. However, after stock has once been paid for in full, all future purchasers may hold it without liability for further contribution regardless of the price they pay for it. Because of its freedom from this liability, treasury stock has a readier marketability than unissued stock. In some enterprises, particularly those of a speculative character where it is extremely difficult if not impossible to place a true valuation on the property to be used or exploited, the practice is very prevalent of issuing the entire authorized capital stock in payment for the properties to be acquired. The stock so issued thus becomes fully paid and its owners liable to no further contribution. To provide working capital, some portion of the stock is usually donated to the company for resale. This is sometimes called donated stock and is, of course, true treasury stock. In states where a corporation is permitted to buy its own stock, treasury stock may be acquired by purchase. Theoretically, stock which has been issued under a contract providing for redemption becomes treasury stock when redeemed and may be reissued until it has been canceled through charter provision to reduce the capital authorized. (See also pages 15, 16.) Forfeited Stock Stock is said to be forfeited through failure to make the agreed purchase payments on it. The laws of the different states vary with regard to the conditions under which stock may be declared forfeited. In some states the instalments paid on the stock—or all but a small amount to cover the cost of handling the transaction, or a specified portion of the amount paid in—must be returned to the purchaser. In others, the entire amount paid in may be declared forfeited. In the State of New York the provision in the law is as follows: “If default shall be made in the payment of any instalment ... the board may declare the stock and all previous payments thereon forfeited for the use of the corporation, after the expiration of sixty days from the service on the defaulting stockholder, personally or by mail directed to him at his last-known post-office address, of a written notice requiring him to make payment within sixty days from the service of the notice at a place specified therein, and stating that, in case of failure to do so, his stock and all previous payments thereon will be forfeited for the use of the corporation. Such stock, if forfeited, may be reissued or subscriptions therefor may be received as in the case of stock not issued or subscribed for. If not sold for its par value or subscribed for within six months after such forfeiture, it shall be canceled and deducted from the amount of the capital stock.” The provisions are very specific and must be carefully followed. The method of accounting is given on page =19=. Bonus Stocks or Bonds Bonus stocks or bonds are stocks or bonds given as a bonus upon the purchase of other stocks or bonds. Thus, upon the purchase of a share of preferred stock, one share of common may be given as a bonus. ACCOUNTING FOR STOCKS Accounting for the original issue of stock has been treated in Volume I. There several different methods of opening the records of the corporation were given and the manner of treating premiums and discount and instalment subscriptions was shown. Here some additional problems peculiar to corporation accounting will be discussed. Discount on Stock In the State of New York the stock of a corporation cannot be sold below par. Where sale below par is allowed, the proper booking of the discount requires consideration. The Interstate Commerce Commission requires that discounts or premiums be shown on the books under those titles, i.e., Discount on Capital Stock and Premium on Capital Stock. This method is to be commended as being true to fact and presenting a full and sufficient record of the facts. In the case of other concerns over whose accounting practices there is no regulation, that method is honored more in the breach than in the observance. A prevalent feeling is that the appearance on a balance sheet of such an item as discount on stock is a serious reflection on the standing of the corporation and is to be avoided in any way possible. Discount on stock is not an attractive item on a balance sheet, but there is little justification for such sentiment in those states where the sale of stock at a discount is a perfectly legitimate transaction. The balance sheet ought to represent facts as they are until they change; then the new conditions should be shown. So long as the discount on stock remains a fact it should be so shown. When the discount has ceased to exist through its absorption against premium on stock or the general surplus, it should no longer be reported because it is then a matter of ancient history with which the present is not concerned. A favorite method of charging the discount on stock to organization expense is not approved, not because it is a misnomer, for discount may well be looked upon as one of the expenses of organization, but because it is an item of sufficient importance and interest to require separate record. Charging the discount to some asset account, when payment of stock is made by property instead of by cash, is to be severely condemned. Inflation of asset values to cover up such an item cannot be justified. Premium on Stock The premium on stock sold above par is best recorded in a premium account which should remain on the books as a part of the permanent capital and not therefore be transferred to surplus and returned as a dividend to the shareholder. It may be legitimately used to cancel any discounts. In the State of New York a corporation cannot issue its stock “except for money, labor done, or property actually received for the use and lawful purposes of such corporation.” A broad interpretation has been given the word labor so that under the law it may comprise both manual and mental labor and services of almost any kind legitimately received at the time of organization of the corporation or at any subsequent time. Stock may thus be used to pay for organization expense, promoters’ fees, etc. Property Exchanged for Stock Where stock is issued for property, no more is supposed to be issued than has a par value equal to a fair market value of the property received therefor. In valuing the property the judgment of the directors is conclusive, unless fraud can be shown. Any stock issued for property becomes full-paid and the owner is neither subject to further call by the corporation nor liable to contribution for the benefit of creditors. In all statements and reports required by law to be published, stock issued for property purchased must be so reported. Treasury Stock Donated When treasury stock comes into the possession of the company by donation, the entries needed to show the transactions are somewhat as indicated below, some variations from the form shown being sometimes met with. Practice varies as to the value at which treasury stock shall be brought onto the books, some concerns booking it at an arbitrary value based on an estimate as to what it will probably bring when sold; others booking it always at par. Practice varies also as to the manner of showing treasury stock on the balance sheet, some listing it among the assets at the value at which it was brought on the books; others treating it as a deduction from authorized capital, a sort of valuation account for the capital stock. These points are discussed in Chapter XXI and will not be treated here except to state a conclusion on which the booking of the transactions depends. Manifestly, if treasury stock is to be treated as a deduction from capital stock, it will have to be brought onto the books at par. Such treatment usually results in an inflated showing of the surplus arising from the donation until that has been adjusted to the values realized from its sale—an adjustment which cannot be completed with accuracy until all treasury stock has been disposed of. If treasury stock is to be shown among the assets on the balance sheet, it is perhaps best booked at an estimated realizable price, a method which will show the donated surplus also at an estimated realizable figure. While authorities differ on these points, the weight of opinion seems to favor booking treasury stock at par and showing it as a valuation account on the balance sheet. For the sake of illustration assume that the stockholders donated $100,000 par value of common stock to the corporation and that $50,000 of it is sold at 60 cents on the dollar. The entries to record the transactions would be: (1) Treasury Stock, Common $100,000.00 Donated Surplus $100,000.00 (With suitable explanation.) (2) Cash 30,000.00 Discount on Treasury Stock, Common 20,000.00 Treasury Stock, Common 50,000.00 Other titles for Donated Surplus are “Donated Working Capital,” “Donation Account,” etc. The account “Discount on Treasury Stock, Common” will ultimately be closed against Donated Surplus, and there is no objection to making the charge for discount directly to Donated Surplus instead of as shown above, although the method shown perhaps makes more easily available the information as to the discounts allowed on sales of various portions of the treasury stock. If it is sold at one price, the charge for the discount should be direct to Donated Surplus. A balance sheet drawn up at an intermediate period, i.e., before Discount on Treasury Stock is closed, should show Donated Surplus at its adjusted figure, viz., book value less discount. After all treasury stock has been sold, the Donated Surplus account, as adjusted, will show the true surplus arising out of the donation transactions. The proper disposition of this—as to whether it should be maintained as a permanent increase in capital, be transferred to general surplus and so be made available for dividends, or be treated as a deduction from plant values on the theory that they have been overstated as originally booked—is discussed in detail in Chapter XXI. Bonus Stock Bonus stock is usually treasury stock for the very good reason that, if it carried a liability for contribution in amount up to its par value, recipients of such stock might not be overly appreciative of the gift. Instead of being an incentive to purchase the securities which it accompanies as a bonus, it might act as a deterrent. Bonus stock is a gift on the part of the corporation and is therefore an expense. While custom favors recording the expense under the title “Bonus”—or even including it with organization expenses—and treating it as a deferred expense for a number of periods, a correct analysis of a bonus stock transaction may dictate other method of record. If the bonus stock is given with an issue of bonds which could by themselves be disposed of only at a discount, the difference between the market value of the bonds alone and their par value should be charged to Bond Discount, and the rest of the loss on the transaction may be charged either to Bonus account or Discount on Treasury Stock. This distinction is important, as will be seen in Chapter XX where the true nature of bond discount is discussed. When data are available for making the separation it should always be done. Thus, if a $1,000 par bond has a market price of $950 but when sold with one share ($100) of treasury stock as a bonus brings $1,000, the record should be: (3) Cash $1,000.00 Bond Discount 50.00 Bonus (or Discount on Treasury Stock) 50.00 Bonds Payable $1,000.00 Treasury Stock 100.00 The customary method of showing, as in entry (4) below, is theoretically incorrect, though it may be necessary to use it when the data needed for the other entry, i.e., (3) above, are not available. (4) Cash $1,000.00 Bonus 100.00 Bonds Payable $1,000.00 Treasury Stock 100.00 If a bonus of treasury stock is given with the sale of preferred stock, similar treatment would make possible a showing of the portion which is really discount on stock and the portion, if any, which is true bonus. Inasmuch as discount on stock and bonus are very similar in kind and in manner of treatment on the books, nothing of real value is perhaps gained in making the separation. The ultimate disposition of the Bonus account is, as indicated above, to treat it as a deferred expense, charging it against profits as rapidly as conditions warrant. It is an undesirable item on the balance sheet or ledger and should be expunged as soon as possible. Treasury Stock Purchased Treasury stock which is created by purchase by the issuing company requires consideration. If the price paid is less than par, carrying the treasury stock on the books at par requires an offsetting credit account similar to the Donated Surplus account used above when the stock is created by donation. This credit account simply represents a book surplus and should not usually be made the basis for a dividend. This account may be called “Treasury Stock Surplus,” “Contingent Profit on Treasury Stock Bought,” or other title indicating the true nature of the item. When the treasury stock is resold and the discount or premium on it is charged against this surplus or credited to it, as the case may be, the balance of the Treasury Stock Surplus account will then show the realized profit or loss on the completed treasury stock transactions and may be disposed of as indicated above for Donated Surplus. On the other hand, if the price paid by the company in the purchase of its own stock is more than par, the premium paid must be charged against general surplus because there is usually no other place for the charge unless there is still open on the books a Premium on Stock account arising out of a previous sale of stock at a premium. Purchase of stock at a premium may represent simply the payment to the owner of the stock of his share in the general surplus of the company, in which case the premium paid must be shown as a reduction of that surplus. Redemption of Preferred Stock Handling redemption of a preferred stock issue is exactly the same as handling treasury stock by purchase. If by contract agreement at the time the preferred stock was issued it can only be redeemed at a premium, the premium must be charged, as indicated above, to an open premium account or to general surplus. The effect is similar to the payment of a special or extra dividend at the time redemption is made. Forfeited Stock Payments made on stock which is declared forfeited constitute an item of surplus but of a permanent nature, i.e., not a surplus applicable to the declaration of dividends, though there may be no legal inhibition to that use. If the stock is resold any discount on the resale is properly charged against the surplus arising from the forfeiture. By way of illustration, assume that $1,000 worth of stock has been subscribed for and payments amounting to $400 have been made when the stock is forfeited for failure to pay further instalments. The stock is offered again for subscription and is sold for $900 and payment has been received in full. The entries necessary to show the above are: (5) Subscribers $1,000.00 Capital Stock Subscriptions $1,000.00 (6) Cash 400.00 Subscribers 400.00 (7) Subscribers 400.00 Surplus from Forfeited Stock. 400.00 To transfer the forfeited payments to Surplus. (8) Capital Stock Subscriptions $1,000.00 Subscribers $1,000.00 To reverse. (9) Subscribers 900.00 Surplus from Forfeited Stock 100.00 Capital Stock Subscriptions 1,000.00 (10) Cash 900.00 Subscribers 900.00 (11) Capital Stock Subscriptions 1,000.00 Capital Stock 1,000.00 Stock of No Par Value Booking capital stock of no par value presents no new principles. Inasmuch as the stock has no fixed par value, its sale is recorded for what it fetches. There can be neither discount nor premium. Payment of the subscription may be made, just as in any other case, by means of cash, property, or services, and the same care must be exercised in placing proper valuations on the property taken over. Here there is not the danger of inflating property values to show them equivalent to the par value of the stock issued therefor. Rather, subscription for the stock is made at the figure of the fair value of the property to be turned over in payment of the subscription. In the case of no-par-value stock even greater care must be exercised to see that the contributed capital shall never be encroached upon in the declaration of dividends, and careful supervision is somewhat more difficult because the _number_ of shares issued bears no relation to the _amount_ of the capital stock. Distinctive Records The accounting and other records peculiar to a corporation are explained in Volume I, Chapter XLVIII. These records are the subscription book and subscription ledger or instalment book, the stock certificate book and stock ledger, the stock transfer book, the minute book, sometimes a dividend book, in large companies a register of transfers (which classifies the information as to transfers given in the stock transfer book, and so may serve as a convenient posting medium for the stock ledger), and a stock register (a record kept by the officially appointed registrar of the corporation, whose duty it is to see that there are no irregularities in the issue of stock and that there is no overissue). The stock register should show the amount of stock authorized and the amount issued at any given time, the balance being the stock not yet issued. A form for the stock transfer book and several forms for stock ledgers as prescribed by the Comptroller of the State of New York are shown below.[3] The two latter forms of the stock ledger are applicable only to the State of New York. Ledger Folio 27 Transfer No. 556 ALLIANCE AUTOMOBILE COMPANY For value Received, I hereby sell, assign and transfer unto John H. Lansing, of Newark, New Jersey, Seventy-six Shares of the Capital Stock of the above-mentioned Company, now standing in my name on the Company books and represented by surrendered Certificates Nos. 32, 37, and 44. Witness my hand and seal this 28th day of September, 1918. GEORGE B. GOLDMAN [L. S.] By GEORGE GALE, _Attorney_. New Certificate No. 224 Issued to John H. Lansing Ledger Folio 84 _Stock Transfer Book_ [3] From “Corporate Organization and Management,” by Thomas Conyngton. JOHN H. KIRCHER, 230 Broadway, New York =============+================+=========================+======= | | CERTIFICATE | | | NUMBERS | | +-------------+-----------+ DATE OF | TO WHOM | | | NUMBER TRANSFER | SHARES ARE | | | OF | TRANSFERRED | SURRENDERED | REISSUED | SHARES -------------+----------------+-------------+-----------+------- 1917 | | | | March 13 | W. K. Howard | 15 | 70 | 10 July 15 | Robert Moyer | 70 | 145 | 40 July 31 | Harold McKain | 145 | | 40 December 3 | James McNeil | 85 | 175 | 20 December 16 | James Archer | {175} | 231 | 105 | | {165} | | December 31 | Balance | | | 180 | | | +------- | | | | 395 | | | +======= =============+================+=============+===========+======= DATE OF | FROM WHOM | AMOUNT |CERTIFICATE| NUMBER TRANSFER | SHARES WERE | PAID ON | NUMBERS | OF | TRANSFERRED | SHARES | | SHARES -------------+----------------+-------------+-----------+------- 1917 | | | | January 10 | Original Issue | Full-Paid | 15 | 90 March 25 | George Holmes | ” | 85 | 75 August 1 | Harvey Cornell | ” | 150 | 35 August 15 | Howard Gaines | ” | 160 | 50 September 2 | John Woodwell | ” | 165 | 100 | | | | October 5 | Henry Simpson | ” | 42 | 45 | | | +------- | | | | 395 | | | +======= 1918 | | | | January 3 | | | | 180 -------------+----------------+-------------+-----------+------- _Stock Book or Stock Ledger_ [Illustration: _Stock Book to be Kept by Brokers (New York Form Prescribed by Comptroller)_] [Illustration: _Stock Book to be Kept by Corporations and Transfer Agents (New York Form Prescribed by Comptroller)_] Stock Ledger The stock ledger is a subsidiary ledger controlled by the Capital Stock account or accounts on the general ledger. It may, of course, be made self-balancing just as any other subsidiary ledger. There has been some controversy as to whether the stock ledger is normally a credit or a debit balance ledger. In some concerns the stockholder is debited with the shares owned, and in others he is credited. Theoretically, in accordance with the principle of all other controlling accounts, the subsidiary ledger—in this case, the stock ledger—merely carries the detail of the controlling account. If, then, the controlling account is a credit balance account, the accounts on the subsidiary ledger must similarly have credit balances. Accordingly, the stockholder should be credited with his net holdings. Practically it makes little or no difference because the subsidiary ledger is no integral part of the debit and credit scheme of the general ledger. Of course, unless practical difficulties prevent, practice should always follow the theoretically correct method. No difficulty need be experienced, however, in accommodating oneself to either method of record on a subsidiary ledger. In the stock ledger the record of holdings is kept in terms of the number of shares owned rather than by the par value of the holdings. Minute Book Before leaving the subject of the records peculiar to a corporation, it is desired again to call attention to the keeping of a careful record in the minute book. This book should contain first a copy or duplicate of the corporation’s charter. Following this should be the by-laws of the corporation. Sufficient blank space should be left at the end of each of these documents to make record of any amendments to charter or by-laws. There should follow a complete record of the deliberations and authorizations of the board of directors as affecting the management and control of the corporation’s policy. The minute book is often the source of authority for many of the most important entries made on the books of account, and great care must be used to make the record full, complete, and accurate. Such matters as leases, purchase and sale of properties, bond issues, dividends, and other similar items should have very careful record. Conclusion Other features of the corporation from the accounting point of view are treated under their respective heads in later chapters. These include such items as bond issues, sinking and other funds, reserves and surplus, scrip and stock dividends and other dividend considerations. It is proposed in the next two chapters to discuss the corporation from the manufacturing viewpoint, types of accounting records sometimes used therefor, and the elements of manufacturing costs. After that the problem of the balance sheet and the principles of valuation applicable to it will claim attention.