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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Racine, Samuel Frederick Title: Practical problems graded 3V. Place: [Seattle] Date: [1 920] MASTER NEGATIVE * COLUMBIA UNIVERSITY LIBRARIES PRESERVATION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED • EXISTING BIBUOGRAPHIC RECORD MBti l^iNrlSif ^!p*iPr ^« 410 R115 Racine, Sanuel Frederick, 1882- Practioal problems graded... By SamUel F. Racine... ^Seattle, cl920n 3 ▼, 27g on, ^Aooounting students' series i Contents.— V. 1, Series "A".— v. 2, Series "D". — V, 3. Series "C". » RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA RLM SIZE: ^^^ REDUCTION RATI0:__1^Xk^ IMAGE PLACEMENTMAN IIA IB IIB DATE FILMED: /X- 0- '^ INITIALS: TRACKING # : /fS^/ 079/9 ^) 2^9^ /D . OZ^ig / I / *- vr}dJX^ FILMED BY PRESERVATION RESOURCES, BETHLEHEM. PA. BIBLIOGRAPHIC IRREGULARITIES MAIN ENTRY: Racine. Samuel Frederick Practical problems graded...3V, Bibliographic Irregularities in the Original Document: List all volumes and pages affected; include name of Institution if filming borrowed text. Page(s) missing/not available: yolume(s) missing/not available; Illegible and/or damaged page(s):. .Page(s) or volume(s) misnumberedi. Bound out of sequence: .Page(s) or volume(s) filmed from copy borrowed from X Other: no pagination TRACKING*: MSH02919. MSH02920. MSH02921 > A^ '^. '^W^ %^^ cn 3 3 O > 3 I so N CO U) CJ1 ^-< OOtSI o cn 3 3 > CD o m (DO ^ o O X < N X M o- .'V*' J^ a^ -?} ^c^ a ^^^'^ -^^^^ O o 3 3 m o 3 3 . A^ a? ''S'. ^ >** O O 3 3 O P'^'^ispiSEi^^ Urn CO ro N3 00 O^ 0° b ro In 1.0 mm 1.5 mm 2.0 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghiiklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 2.5 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 \&> >.^^ r^ ^o rd> f^ ?o^ •;«•. ■^/>. # 'S' C^ m H O >£« I TJ ^ "CO 5 m 3D m «^ ^^1% V * «• bi o 3 3 3 3 f§ ii r 3§ I 50 K» VI' #^ 4^:^ ^ / ( Practical Problems Graded Series "A" BY Samuel F. Racine Certified Public Accountant / /I *v \o '^ Columbia ^HniberSitp y in ttjeCitp of ^etogorfe LIBRARY School of Business \ o^. i*- *l \ 1 .<£«» i^ Practical Problems Graded Series "A" BY Samuel F. Racine Certified Public Accountant / COPYRIGHT 1916 BY SAMUEL F. RACINE COPYRIGHT 1920 BY SAMUEL F. RACINE 3 MD « ^ PUBLISHED BY THE WESTERN INSTITUTE OF ACCOUNTANCY, COMMERCE AND FINANCE LEARY BLDG. SEATTLE, WASH. "^ Accounting Students' Series Graded Corporation Problems, 1914 and 1918; containing the most severe C. P A. examination problems used up to the year of publication, 1914 ; since revised and brought down to date, 1918. Guide to the Study of Accounting, 1916; similar to the preceding Guide to the Study to Accounting, but practically a new book, owing to the advent of new books of recognized authority. Guide to the Study of Auditing, 1916. The publication of a new Montgomery's Auditing required that the original Guide to Auditing be rewritten, hence the 1916 book. Accounting Principles, 1917. A new book originally writ- ten in 1913, containing much subject matter not found in other books on accounting. Assuredly it contains more information than any other single book on the subject. Annuity Studies, 1918 ; a set of rules easy to understand, with problems on annuities. Syllabus of Bookkeeping, 1918. As with all of Mr. Racine's books, originality is the keynote of the Syllabus of Bookkeeping. There is nothing else like it in print. It is hoped that it will simplify the method of instruction in bookkeeping to an extent not considered possible by other instructors of the present day. It is designed to combine the advantages of lectures with the other usual methods of bookkeeping instruction and is proving a decided success in the class rooms of The Western Institute of Account- ancy, Commerce and Finance. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Cab "A" and "B" agree to dissolve partnership December 31. 1908. The stated balance sheet was as follows : Assets Merchandise Inventory $ 57,500 Furniture and Fixtures 2,000 Accounts Receivable 85,500 Bills Receivable (discounted) 14,000 Goodwill 5,000 $ 164,000 Liabilities Accounts Payable $ 50,000 Bank 2,500 Bills Payable 11,500 Bills Receivable (discounted) 14,000 "A's" Capital Account 53,500 "B's" Capital Account 17,500 Income Account 15,000 $ 164,000 Profits are divisible, "A" 4-7, and "B" 3-7, five per cent being allowed on capital, and no interest charged on drawings, which were upon the basis of $2,500.00 each. "A" continues the business and assumes all liabilities. "B," opening up business elsewhere takes one-fourth of the stock and agrees to leave in the business $2,500 as a guarantee for one year against floating liability for bad debts and discounted merchandise notes, and to receive or pay any balance in cash, any amount received being derived from ac- counts due the firm. Prepare "A's" balance sheet after dissolution expressive of the terms stated. •« Code: Cabin The Energy Manufacturing Co. draws on its customer, Slo- pay & Company, at two months from date, January 1, 1910, for $5,000.00, and three days thereafter discounts the draft with the City National Bank at five per cent per annum net. At maturity S. & Co. confess they cannot meet the draft, but pay the E. Mfg. Co. $3,000.00 on account, and give an acceptance for a like period for the balance, upon condition that the E. Mfg. Co. retire the original draft, which is done. Detail serially the entries by which the E. Mfg. Co. should record these transactions on its books. PRACTICAL PROBLEMS,. GRADED, SERIES A Code : Cable The ledger balances of the accounts of John Smith at Decem- ber 31st, 1910, are as follows : Accounts Receivable $ 5,140.00 Accounts Payable 2,692.00 Bills Payable 658.00 Bills Receivable 217.00 Loan Advanced by J. Smith 500.00 Cash on Hand 44.00 Bank Overdraft 1,065.00 Inventory, January 1st, 1910 3,020.00 Purchases 7,386.00 Sales 16,406.00 Wages 4,839.00 Office Salaries .*. 1,045.00 Traveling Expenses 503.00 Interest Paid : 173.00 Stationery 284.00 Rent, Taxes and Insurance 222.00 Discounts and Allowances 258.00 Machinery Expense and Fuel 264.00 Freight 206.00 Incidental Expenses 151.00 Commissions 50.00 Rents Received 329.00 Capital 3,249.00 Bad Debts 97.00 $ 48,798.00 Rent, $200.00 a year is charged to September 30th, 1910; repairs to engine estimated at $90.00, account not yet received. Inventory estimated at $4,000.00. Provide 2i/2 per cent on account receivable for discounts, also $150.00 for estimated loss by bad debts, and $20.00 for interest accrued on loan. Prepare Trading and Profit and Loss Account, and Balance Sheet as at December 31st, 1910. t* PRACTICAL PROBLEMS, GRADED, SERIES A Code : Cage Anderson & Brooks are equal partners. Their balance sheet on June 30, 1910, was as follows : I* Assets Merchandise Inventory $ 35,000 Accounts Receivable 61,000 Furniture and Fixtures 2,500 Cash 500 Investments „ 9,000 Liabilities Accounts Payable $ 60,000 Bank Overdraft 16,000 Anderson's Capital 21,000 Brooks' Capital 16,000 $ 102,000 % 102,000 Conway is to enter the firm ; preliminary thereto Anderson & Brooks revise their balance sheet by writing off $15,000.00 for bad debts, $500.00 from furniture and fixtures, 15 per cent from inventory, 25 per cent for loss on investments, and establish a goodwill account of $5,000.00. Conway pays in $5,000.00 as his one-third interest, to which amount the other parties agree respectively to adjust their capital. Give the starting balance sheet of the new firm. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Caliber A firm of three partners with equal capital and interest oper- ates for three years, when the junior withdraws. The partnership agreement provides that a retiring partner shall, in addition to his capital and share of profits, receive by way of goodwill two years* purchase of his share of the average profits shown for the three years next preceding the date of withdrawal. Make out a Balance Sheet, Profit and Loss Account and an account with the retiring partner as of June 30, 1911, from the following memorandum handed to you with your instructions, on September 3, 1911, allowing for the depreciation of plant account 5%, on leasehold account 15%, and for discount and possible loss on accounts receivable 10%. The profits for the two previous years were respectively $44,540.00 and $55,050.00. Capital $ 60,000.00 Plant, Tools and Equipment 37,100.00 Leasehold 11,250.00 Merchandise Inventory — July 1, '10 (Net after de- ducting reserve of $13,470.00) 12,000.00 Merchandise Inventory— June 30, 1911 19,000.00 Accounts Receivable 48,500.00 Accounts Payable 46,975.00 Merchandise Sales 137,970.00 Merchandise Purchases 69,510.00 Wages 11,500.00 General Expense 3,900.00 Bank 9,935.00 "A's" Drawing Account 13,750.00 "B's" Drawing Account 13,750.00 "C's" Drawing Account 13,750.00 The reserve against the merchandise stock which was of a very perishable nature, was found in the final settlement of the ac- counts with the retiring partner not to be required. i« •» PRACTICAL PROBLEMS, GRADED, SERIES A Code : Calm A Water Company finds it necessary to renew a line of service mains which cost $50,000.00 seven years ago. Double capacity is now advisable for which the outlay will be $80,000.00. Depreciation at 10% per annum has been regularly charged on the first installation. Draft the necessary journal entries to meet the essential facts. Code : Canal A firm desires to transfer its property to a corporation duly organized to carry on the business. The net assets of the firm consist of the following: Lands and Buildings ^ $150,000.00 Inventory 100,000.00 Accounts Receivable 150,000.00 Goodwill and Patents 100,00000 Cash 50,000.00 $550,000.00 It is proposed to issue in full payment therefore, bonds, pre- ferred stock, and common stock aggregating the sum of $500,- 000, of which each partner is to receive his proportionate share according to his interest in the firm, viz : Jones, 60% ; Brown, 25%, and Smith 15%. (a) Prepare opening entries for the new company. (b) Prepare a statement of assets and liabilities. (c) State what amount of each class of securities each of the partners should receive. •» PRACTICAL PROBLEMS, GRADED, SERIES A Code : Cane "A," "B" and "C" were partners and contributed the follow- ing capital: "A" $8,000, "B" $6,000, and "C" $4,000. Profits and losses were to be borne equally. At the end of the first year each partner had drawn $1,000. The assets were then disposed of for $3,000, the purchaser discharging all the liabilities of the firm. How should this sum of $3,000 be apportioned among the partners and would any of them have to advance any further sum ? If so, state which partner and how much and make up the neces- sary accounts to show the results. Code : Canter A malting company was placed in the hands of a Receiver in Bankruptcy. The assets inventoried by the Receiver were : Accounts Receivable $218,477.15 Grain and Products in Malt House 29,359.74 An order of the court was entered instructing the Receiver to continue the operation of the business. After the Receiver had operated the business two months, a settlement was eflfected, and the Receiver discharged by the court, the bankrupt company re- suming business. The Receiver's books of the bankrupt com- pany's accounts showed at the date of his discharge : Collections on account of the accounts receivable inventoried above, $10,097.60; they showed that in trade the Receivers had made gross sales to the amount of $114,806.62 ; his grain purchases were $110,786.61; manufacturing expenses $7,279.07; selling ex- penses, $7,956.97; Receiver's charges $1,000.00; discounts, short- ages and merchandise returned $1,370.85 ; on hand in grain and products $51,005.62; he has collected in cash on Receiver's sales $65,448.83 ; he owes an open account $5,237.52 ; borrowed from banks $+6,251.10. Prepare trading statement showing profit or loss from Re- ceiver's operations, and prepare final balance sheet statement from the face of the Receiver's accounts of the bankrupt company at the close of the receivership. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Capital Brown and Jones begin a partnership business Jan. 1st, 1902 ; at the time of closing the books, Dec. 31, 1902, an examination of the account revealed the following : January 1st Brown paid in 4 9,000.00 May 1st Brown paid in 2,400.00 June 1st Brown drew out 1,800.00 September 1st Brown drew out 2,000.00 October 1st Brown paid in 800.00 January 1st Jones paid in 3,000.00 March 1st Jones drew out 1,600.00 May 1st Jones drew out 1,200.00 June 1st Jones paid in 1,500.00 October 1st Jones paid in 3,000.00 Their merchandise account was Dr. $32,000.00, Cr. $27,000.00 balance of merchandise on hand per inventory $10,500.00. Cash on hand $4,900.00. Bills receivable $12,400.00 ; Chas. Green owes on account $250.00 ; F. Reaper owes $700.00 ; Wm. Clark owes $650.00 ; F. Hart owes $850.00. They owe on their notes $1,- 890.00. They owe A. Reed on account $240.00 ; owe C. Smith $500.00; owe A. Clark $100.00. Their profit and loss account shows before closing entries. Dr. $866.00 ; Cr. $1,520.00 ; expense account is Dr. $2,520.00. Commission account is Cr. $2,760.00; interest is Dr. $480.00; Cr. $950.00. The gain or loss is to be divided in proportion to each partner's capital, and in proportion to the time it was invested. Prepare (1) Asset and liability statement. (2) Merchandise account closed. (3) Profit and loss account closed. (4) Each partner's account closed. (5) Balance sheet. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Car A firm of four partners agreed to sell their business to a corporation. Their assets and liabilities were as follows : No. 1 — Capital $145,500.00; No. 2— Capital $123,500.00; No. 3— Capital $153,000.00; No. 4— $152,330.00; Building $125,000.00; Machin- ery, fixtures, etc., $38,335.00; Stock $150,940.00; Accounts re- ceivable $328,680.00 ; Bills receivable $37,005.00 ; Cash $17,030.00 ; Horses and wagons $1,230.00 ; Unexpired insurance $175.00 ; Ac- counts payable $124,065.00. It was further agreed that the partners were to be paid for goodwill, based on a year and a quarter purchase of the last three years' profits, which were respectively $32,620.00, $37,450.00 and $50,650.00. Prepare a balance sheet, bringing in the goodwill as an asset and distributing it equally among the four. Code : Card At the close of its fiscal year, December 31st, 1902, a manu- facturing corporation had a working capital of $86,451.78 consist- ing of — Cash in bank $5,200.00; accounts and note receivable $79,516.80; stock on hand $30,483.20; less unpaid labor and ac- counts payable $28,748.22. During the year 1903, the manage- ment erected as an addition to its main factory, a building costing $18,210.11) and installed therein machinery and equipment costing $16,309.27, with additional hand tools costing $3,298.50. After inventorying stock and closing the books to December 31st, 1903, a dividend of $45,000.00 was declared, out of net profits for the year, amounting to $54,817.96. The company was obliged to borrow money to pay the dividend. Give any reasons which occur to you as to why the loan was necessary and the propriety, or otherwise, of making it. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Carp "M." "F." commenced business January 1, 1913, and early in February handed you his Day Book with the following entries in it and requested you to open a set of Double Entry Books and submit a Trial Balance as of the close of business January 31, 1913. Draft the Trial Balance. Jan. 1 Commenced tuisiness with cash capital $ 12,500.00 " 1 Deposited in bank 11,750.00 " 3 Bought merchandise from Jas. Harrison & Co 2,700.00 " 3 Sold goods to Wm. Adams 2,400.00 " 7 Bought merchandise from W. Smith & Co 3,225.00 " 8 Paid wages in cash 40.00 " 8 Sold goods to H. Allan & Co 2,675.00 " 10 Received check from Wm. Adams (discount $60.00) 2,340.00 " 11 Paid Jas. Harrison & Co. by check (discount $135.00).... 2,565.00 " 12 Paid by cash, 3 months rent 200.00 " 13 Bought merchandise from H. Kershaw 3,700.00 " 15 Paid wages in cash 40.00 " 15 Paid office expenses in cash 35.00 " 17 Sold goods to H. Hobson , 1,600.00 " 19 Sold goods to Wm.^ Adams :. 800.00 " 21 Sold goods to H. Allan & Co 1,250.00 " 22 Paid wages in cash 40.00 " 22 Paid office expenses in cash 25.00 " 25 Paid W. Smith & Co. by check (discount $160.00) 3,065.00 " 26 Received check from H. Allan & Co. (discount $75.00).... 2,600.00 " 26 Bank deposit 2,600.00 " 29 Paid wages in cash 40.00 *' 29 Paid office expenses in cash 20.00 There was $175.00 cash on hand at the close of the month, the balance being "M." "F.'s" personal expenditures. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Carry A Single Entry set of books for 1912 are sent to you with an order to state a Profit and Loss Account for the year and a Balance Sheet as at December 31. The starting capital was $34,500.00. The accounts receivable Jan. 1 payable " " " merchandise " " plant and machinery " " " furniture and fixtures " " $26,500.00 7,500.00 8,500.00 10,000.00 700.00 Dec. 31 $44,000.00 9,750.00 9,500.00 10,000.00 700.00 A summary of the Cash Book for the year shows as follows : Received— Accounts receivable, $30,000.00; capital paid in, $2,500.00 Disbursed— Bank overdraft Jan. 1, $3,700.00; accounts payable, $12,500.00 general expense, $5,000.00; wages, $7,750.00; personal account, $1,500.00 leaving a bank account of $2,000.00 and currency on hand, $50.00. Provide 5% interest on Capital, disregarding additions during the year and personal drafts ; deduct 10% for plant and machinery depreciation, 5% for furniture and fixtures, and 5% for bad debt reserve. Code : Case Prepare a statement of the affairs of Messrs. Wilson & Com- pany from the following figures : Cash on hand, $50.00. Debtors, good, $2,500.00. Debtors, bad, $250.00. Debtors, doubtful, $5,000.00, which are estimated to realize $3,750.00. Creditors, unsecured, $13,000.00. Creditors, partially secured, $6,000.00 ; estimated value of security, $4,000.00. Creditors, fully secured, $9,500.00, estimated value of security, $12,000.00. Landlord, creditor for rent, $1,350.00, of which sum he is a preferred. creditor for $1,200.00. Factory manager, credi- tor for salary, $750.00, of which sum he is a preferred creditor for $250.00. Liabilities on notes discounted, $3,250.00, all of which are expected to be duly met at maturity. Stock of mer- chandise cost $4,250.00, estimated to realize $3,750.00. Interest in a lease of business premises estimated to be worth $900.00. There is a liability in respect of a contract which the debtors cannot com- plete, owing to the failure, amount unknown, but estimated at $1,500.00. Bills Receivable on hand, $375.00, estimated to pro- duce $100.00. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Castle Under the laws of the State of Maine, certain companies were taken over by a newly organized corporation which bought their entire assets and conducted the business for several months before it was discovered that the inventories upon which the transaction was first based were overstated to the extent of $10,000 in the case of one of the constituent companies by reason of a clerical error. It was further found that it would be im- practicable to recover said $10,000, or any portion of it, from any of the original companies, or from any of the original stock- holders. The balance sheet of the Maine corporation, prior to the dis- covery of the error in inventory, was as follows : Plant - $268,137.00 Goodwill and Patents 28,967.49 Cash 5,638.35 Bills Receivable 13,282.22 Accounts Receivable 117,203.88 Inventories 232,751.42 $665,980.36 Capital Stock $500,000.00 Accounts Payable 22,684.26 Bills Payable 102,000.00 Surplus 41,296.10 $665,980.36 What entries would the bookkeeper be justified in making to adjust the accounts? Give reasons for your answer. Code : Catalogue In connection with your general merchandise business, you are a managing partner on a joint account, where your one-half of merchandise cost was $15,000.00. Charges posted $150.00; Total Sales $8,000.00, and Joint Unsold Merchandise $13,500.00. Settlement charges were: Storage $(>0.00; Commission 5% on Sales. Prepare ledger account, and show journal entries closing the account on your books, you giving your partner, Robert Bailey, your note for his one-half of net proceeds. Suppose your one-half first cost was $10,000.00. Charges were $9,000.00 ; Sales $4,500.00 ; Storage $20.00 ; Joint Property unsold $2,100.00; Commission 5%. Prepare ledger account, and show journal entries closing the account on your books, charging Bailey with his share of the deficiency. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Cater The books of a manufacturing corporation at the close of its first year's business show sales $241,863.50; returns and allow- ances $18,416.38; merchandise cash discounts $13,943.87; mer- chandise debit balance $69,346.92 ; labor $52,815.33 ; fuel $16,- 219.46 ; shop expense $9,247.50 ; salaries $16,214.30 ; general ex- penses $8,342.35 ; advertising $52,371.39 ; traveling expenses $4,- 364.28 ; insurance and taxes $6,250.00. The inventory figures up a total of $13,896.12, and before the books are closed, a sufficient sum for depreciation, namely $5,000.00 is written off. The com- pany claims that conservatively stated its net profit for the year is $18,142.10. Arrange the amounts in the form of a profit and loss account, and explain fully how the company could arrive at such a net profit, also give reasons therefor. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Caustic On June 1, 1916, Wm. Smith bought a small manufacturing business for a cash consideration of $25,000.00. He received the following assets free and clear of all liabilities : Machinery which cost $15,000.00 and which was considered as worth $12,000.00; lumber which cost $5,000.00 and which would be worth $6,000.00 at the market prices then prevailing; Other raw material which was worth $2,000.00 at cost and at market. Mr. Smith was not to receive any interest in the accounts receivable, which had a total face value of $8,000.00, but, as an accommodation, he undertook to collect them for the former owners, and by agreement he was to make an accounting to them on August 1, 1916. Between June 1 and August 1, 1916, no regular books were kept, and at the latter date Mr. Smith asks you to open a simple set of books which will record the totals of his transactions to date. He also asks you to prepare a Balance Sheet and a state- ment to be submitted to the former owners. He is able to supply you with the following information from memoranda he has kept : Cash Collections — On Old Accounts Rceivable $ 6,500.00 On New Accounts Receivable 6,000.00 Cash Disbursements— Wages 2,000.00 Other Factory Expenses 300.00 Paid former owners, on account 3,000.00 Collection expenses on old accounts 50.00 Material Purchases 6,000.00 Open items at August 1, 1916 — Old accounts receivable uncollected 1,350.00 New accounts receivable uncollected 6,925.00 Factory expenses unpaid 125.00 Material bills unpaid 1,700.00 Cash on Hand— August 1, 1916 725.00 Material on hand August 1, 1916 — at market price $4,800— at cost 5,500.00 From the above information, prepare the journal entries necessary to record the transactions to date ; also a Balance Sheet as at August 1, 1916. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Cell The Cinema Company, leasing moving picture machines for theaters, has 1,000 machines in operation. On January 1, 1915, the company decides to increase the number of its machines 80% and places an order with the manufacturers of the machines, who agree to complete and deliver the new machines in equal quar- terly instalments. The company arranges to borrow $60,000, by the sale of five year (i% notes, it being agreed that a sum equal to 20% of the total issue shall be set aside annually out of the profits of the company for the redemption of such notes. The average annual cost for maintenance was found to be $120 per machine and $24,880 was estimated for other expenses. What annual charge per machine would the company have to make in order to meet its obligations and pay a dividend of 10% on $200,000 of its capital stock? Code : Central The Wilson Company publish a magazine which is issued on the 15th of the month. They contract for the printing and bind- ing and make equal semimonthly payments to the contractor. A summary of their transactions from October 15 to December 30, 1914, is as follows: Payments on printing and binding con- tract, $25,000; subscriptions obtained, $40,200, of which $200 represent unearned subscriptions ; office expenses, $4,500 ; office salaries, $10,000. The office equipment is valued at $5,000. There are unpaid subscriptions amounting to $17,000; cash on hand, $10,000 ; unpublished manuscripts, $4,500 ; due to authors, $2,000 ; accounts payable, $4,000. The company has capital stock outstanding $25,000 and a surplus on October 15, 1914, of $4,800. Prepare a profit and loss statement for the period from October 15 to December 31, 1914, and a balance sheet as of December 31, 1914. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Certify "A" & "B" are partners owning two retail stores, one in Pater- son and the other in Newark. They agree to dissolve partnership as of July 1, 1912. The two stores are valued July 1, 1912, 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 inven- tory of the Paterson store January 1, 1912, was correct as "A" claims : Value of the alleged inventory January 1, 1912, 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, 1912, was correct as stated. Code : Chalet On April 1st, 1909, a Tobacco Manufacturer purchases 42,- 600 pounds of leaf (lying in bond) at 121/2 cents per pound. His trade is divided into two departments, No. 1 and No. 2. During the* half year ended September 30th, 1909, he takes out of bond 34,200 pounds, paying thereon duty at 75 cents per pound, and sundry expenses one cent per pound. This leaf is used in the manufacturing, viz. : 21,500 pounds for No. 1, and 12,- TOU pounds for No. 2, and in process of manufacture the weights increase by 12 per cent and 15 per cent, respectively. Of the finished article, he sells 19,240 pounds of No. 1 at $1.25 per pound, and 13,()()0 pounds of No. 2 at $1 per poimd, allowing 4 per cent discount in each case. The expenses are: wages, $3,630; packing, $550; freight, $315 ; salesmen's expenses, 980 ; rent, taxes, etc., $715 ; advertising, $435 ; repairs, $280 ; simdries, $165. He values his stock on hand at September 30th, 1909, as fol- lows: leaf in bond at cost; in department No. 1 at $1.02 per pound ; in department No. 2 at 91 cents per pound, which figures, however, might require correction, dividing the expenses thus : two-thirds to department No. 1, and one-third to department No. 2. Prepare ledger account of leaf in bond and Profit and Loss Accounts for tl;ie half year for departments No. 1 and No. 2, showing details, results, and stocks (weight and cost price) on hand. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Change "A" and "B" on winding up their partnership found their assets realized as follows: Factory premises standing in their books at $10,000, realized $4,000. Machinery standing in their books at $7,500 realized $2,500. Merchandise standing in their books at $5,500 realized $4,500. Accounts receivable standing in their books at $9,500 realized $6,500. Their unpaid liabilities were $10,500. "A's" capital stood at $15,000, and "B's" capital at $7,000. In respect to profits and losses they were equal partners. Divide the proceeds of the realization between them after pay- ing off the liabilities, and debit them as having been paid the pro- portion to which each was entitled, and show what amount would be payable, if any, by either partner to the other to settle the accounts. Code : Charge The capital of an irrigation company is made up of $1,000,- 000 common stock and $500,000 5 per cent cumulative preferred stock. The profits of any year are to be applied : 1st. To paying the manager 5 per cent thereof for remun- eration. 2nd. To paying the preferred dividend and any arrears thereof. 3rd. To the common dividend up to 10 per cent. Any surplus on the above to be applied : 1st. 10 per cent thereof to the manager as bonus. 2nd. Two-thirds of the remainder as further dividend on common stock. 3rd. One-third of the remainder to reserve. The profits of the year 1908 were $175,000. The preference dividend of 1907 was 2 per cent in arrears. Distribute the profits on the lines stated, using a ledger form to show the appropriations you make. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Chase "A," "B" and "C" engage in business, "A" contributing $10,- 000 capital; "B" $5,000 and "C" undertakes to take the active management at a salary of $3,000 a year, to be paid to him monthly. After providing 5 per cent interest on capital, they are to divide the net results in the proportion of 5, 3 and 3. At the end of 18 months, they ascertain the position to be unfavorable and decide to wind up. The assets are agreed to be worth $12,- 500, of which "A" takes $10,000 and "B" $2,500. There are no liabilities except for the capital and simple interest thereon, and one month's salary due "C." State the position of the three part- ners to each other. Code : Cheer On June 30, 1905, the following balance sheet of a small merchant is furnished by him : Cash at bankers, $575. Cash in office, $225. Accounts re- ceivable, $3,785. Merchandise, $1,000. Store fixtures, $415. Ac- counts payable $3,500. Bills payable, $2,000. Balance (Capital) $500. Upon inquiry it is disclosed that the following items have been omitted from the balance sheet, and have not been entered on the books, viz. : (a) $1,000 borrowed at 6 per cent, June 30, 1903, upon which nothing has been paid in respect of either principal or interest. (b) $50 due for rent of store. The cash is found to include sundry petty expense items amounting to $35 and an I. O. U. of a former employe for $50, which is worthless. $1,500 of the accounts receivable are known to be bad; $1,500 are good, and the balance is estimated to produce $500. The merchandise can be sold to realize $750. The fixtures will realize $150. The merchant has no personal assets. Prepare a statement of affairs and a deficiency account. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Chew A firm of three partners divided their profits as follows: "A," 11-25 ; "B," 8-25 ; "C," 6-25. By the partnership agreement, it was provided that in the event of the death of either, the sur- vivors should take the deceased's share in the proportion they already shared the profits. "A" dies. What proportion of the profits would "B" and "C" respectively take afterwards ? PRACTICAL PROBLEMS, GRADED, SERIES A Code: Chin Prepare a Trading and Profit and Loss Account from the following Trial Balance and data for the year ending December 31st, 1909: The stock of stores and materials at the end of the year, December 31st, 1909, was $8,500. The rent at the rate of $2,500 was paid up to the 30th of September. Bad debts amounting to $850.00 have to be written oflF. A provision of $1,250 had to be made to meet possible bad debts. Depreciation at the rate of 5 per cent per annum on the plant at January 1st, 1909, has to be written off. The wages are paid up to the 27th of December; the wages from that date to the 31st of December amount to $175. Interest at 5 per cent per annum has to be passed on the amount of the Partners' Capital Accounts at January 1st, 1909. (No in- terest on Partners' Current Accounts.) Profits to be divided equally between the partners. The necessary entries for division of profits and interest, etc., to be passed through the Partners' Current Accounts. It is assumed that no further entries are re- quired to be made to complete the accounts. JOHNSON AND WHITE Trial Balance, December 31st, 1909 Investments $ 2,410.00 $ Accounts Payable 19,125.00 Stores and Materials, January 1st, 1909 2,120.00 Johnson's Capital 29,600.00 White's Capital 15,300.00 Purchases 24,225.00 Johnson's Current Account 2,310.00 White's Current Account 3^910.00 Accounts Receivable 13^265.00 Wages 27i825'00 Rf"^ "V " ~ 1,875.00 Uividends on Investments 115 00 Plant, January 1st, 1909 44,100.00 Bills Payable 4,975.00 Bank 975.00 Office Expenses and Salaries 2,100.00 Installments received on account of work in pro- ^S^^^s 14,355.00 Taxes _ 40.OO Bills Receivable 3,670.00 Cash in Office ' 50.00 Law and Accountancy Charges 255 00 Repairs.. .' 330.00 Work in Progress, December 31, 1909 25,905.00 Bank Charges ' 900O Sales Z ■ 70,035.00 ' $154,480.00 $154,480.00 Also prepare a Balance Sheet and Partners' Current and Capital Accounts from the above trial balance. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dash Before making the charges referred to below, the profit and loss account of a corporation for the year shows a credit balance of $60,000. The accounts receivable are $40,700, and the plant and machinery account is $55,000. The 6% preferred stock is $50,000 and the common stock $150,000. It is decided (a) to provide, out of the above named profit and loss balance, 7%% depreciation on plant and machinery ; (b) to write off as uncollect- able $1,500 of the accounts receivable and to make a reserve of 8% on the remainder of the accounts receivable to provide for possible losses thereon; (c) to provide for the preferred stock dividend for the year; (d) to provide for a bonus of $7,500 to the employes ; (>) to provide for a dividend on the common stock of 15% for the year; and (/) to carry the balance then remaining on profit and loss account to undivided profits account. Draft entries to comply with the above provisions. Code : Deform The following balance sheet is submitted to you by a client for inspection and criticism. Prepare a report to your client, criticising such items as you consider abnormal: ASSETS: Buildings $ 87,50) Machinery 12,500 Stock (inventory) 90,000 Cash _ 3 200 Bills Receivable _ 6800 Accounts Receivable 20000 Goodwill and Patents 30000 '■ — $250,000 LIABILITIES : === Capital and Surplus $155,000 Accounts Payable 70,000 Bills Payable 17500 Suspense Account 7^500 '- — $250,000 «' PRACTICAL PROBLEMS, GRADED, SERIES A Code : Degree Criticize the following balance sheet: ASSETS ■ Machinery, at cost $70,000.00 Buildings, at cost 20,000.00 Goodwill 25,000.00 Formation Expenses , 3,000.00 Inventory — Raw Material, at cost $10,000.00 Merchandise in process of manufacture, at cost... 10,000.00 Merchandise, finished, at selling price 23,000.00 43,000.00 Bills Receivable, face value 3,500.00 Accounts Receivable, face value 22,000.00 Cash 2,500.0P $189,000.00 LIABILITIES : Capital Stock $100,000.00 Bills Payable 50,000.00 Accounts Payable 30,000.00 Undivided Profits 9,000.00 $189,000.00 PRACTICAL PROBLEMS, GRADED, SERIES A Code : Deify You are retained by the Atwood Manufacturing Company to prepare closing entries and balance sheet as of Dec. 31, 1915. Trial Balance of Dec. 31, 1915, was as follows : Cash _ $ 5,259.80 $ Sales : „ „ 241,721.76 Notes payable 16,922.81 Materials and supplies 52,088.94 Notes receivable 5,048.75 Merchandise purchases 4,730.09 Selling wages 22,400.04 Manufacturing wages 88,317.70 Office salaries 5,802.50 Manufacturing expenses 15,353.16 Office expenses 2,496.14 General selling expenses 3,491.50 Advertising 2,064.33 Light, heat and power 3,121.97 Rent of factory 4,000.00 Repairs to machinery and tools 845.78 Delivery expenses ^ 2,201.01 Interest and discount 738.40 Commissions 5,089.30 Machinery and tools 133,817.24 Dividend (paid Dec. 15, 1915) 6,000.00 Furniture, office 12.516.45 Accounts receivable 58,935.20 Accounts payable 17,990.57 Reserve for suspended accounts 320 59 Goodwill 40,000.00 Capital stock „... 200,000.00 Accounts rec. in suspense 2,637.43 $476,955.73 $476,955.73 The Inventory of merchandise, and materials and supplies, amounts to $6,053.90 and $6,400.00 respectively. You discover the following facts not disclosed by the books: Invoices not entered — Buffalo SteelCo., for steel $165.00 Smith Safe & Lock Co., for office safe 110.00 Yates Coal Co., for coal 42.50 Provide the following reserves for depreciation: On machinery and tools _ 10% On furniture 25% PRACTICAL PROBLEMS, GRADED, SERIES A Code : Deitv From the following figures of net sales, costs and expenses prepare a statement, accounting for the shrinkage in profits in 1910, showing in dollars and cents what portion of such shrinkage is due to decreased sales and what portion is occasioned by the several variations in cost and expense items : 1910 1909 Materials $ 230,500 $ 265,335 Direct labor 78,500 108,22875 Indirect labor 6,725 8,379 Factory expenses 27,500 26,999 Trading expenses 23,500 20,947.50 Office expenses 10,500 11,637.50 Net sales 390,750 465,500 Code ; Dey From the under-noted particulars prepare the Profit and Loss Account and Balance Sheet of the Washington Trading Company as at June 30, 1914: BUls Receivable | 2,550.00 Bills Payable 2,300.00 Depreciation Reserve (Property) 5,000.00 Rainier National Bank 11,650.00 Cash 650.00 Office Furniture 2,400.00 Interest Received 50.00 Reserve for Bad Debts 6,350.00 Directors' Fees 2.750.00 Inventory, June 30, 1914 21,300.00 Legal Expenses 130.00 Office Expenses 8,335.00 Rent 1,500.00 Income Tax Paid 150.00 Salaries 3,800.00 Rent and Taxes paid in Advance 165.00 Property (Real Estate and Buildings) 20,000.00 . Accounts Receivable 39,285.00 Accounts Payable 23,590.00 Trading Account (Profit) 27,375.00 Capital Stock, Preferred 25.000.00 Capital Stock, Common 25,000.00 Provide 5% depreciation on the Office Furniture and Fix- tures and reserve a further 10% for Bad and Doubtful Ac- counts. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Diadem The undermentioned errors were discovered in the books of S. Johnson & Company of New York City affecting the year ending June 30. 1910: (1) April 20— A check received from W. Brown for $11.00 was posted to his credit as lie. (2) May 31— A sale of $56.25 was credited correctly, but debited to the customer's account as $52.65. (3) June 29 — Goods were returned by H. Jones & Com- pany of the invoice value of $27.10 and were taken into stock at $22.00, but the returns were not entered in the books until the following month. (4) June 29 — The acceptance of Pomard Freres to John- son & Company's draft for 1,325 francs, payable in Paris, and which had been discounted, was dishonored. The ac- ceptance was worthless and the bank- ers debited Johnson & Company's ac- count on July 1, 1910. Show how the adjusting entries should be made in the books of S. Johnson & Company on June 30, 1910. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dial "A," "B" and *'C" are equal partners. The partnership property is worth $10,000. "A" has $5,000 individually, "B," $4,000, and "C" no assets. The partnership debts amount to $12,000. "A's" debts amount to $3,000, "B's" to $6,000 and "C's" to $2,000. Adjust these sums among the firm and indi- vidual creditors. Code : Dialogue "A" offers to take "B" into partnership on equal terms, upon payment by "B" of a premium of $12,500.00. But, as "B* is unable to pay the money for three years, the following arrange- ment is agreed upon. The profits are to be divided in the pro- portions of two thirds to "A" and one third to "B." "B" will draw one third of his share of the profits, leave one third in the business, and hand over the remainder to "A" in part payment of the premium as above. The profits for the first three years are as follows: 1st year $ 8,000.00 2nd year 10,000.00 3rd year 11,000.00 Draw up the partnership accounts for these three years, and show the amount due from "B" to "A" at the end of the period. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Diamond The Ajax Manufacturing Co., Trial Balance, Dec. 31. 1908 : Inventory, Jan. 1st, '08 $ 4,330.00 $ Purchases 25,000.00 ^^ges . 9,400.00 factory Expense 240.00 Sales _ _ _ 20 810 80 Cash Discount received on Purchases 52700 Allowances 19500 ^^"t -:--- 600.00 ueneral Expense 612 60 Insurance to Sept. 1st, '09 H^l"".** 36000 Salaries, Salesmen ;....;;'; 850"00 Commisson 45 qq Traveling Expense 150^00 Cartage on Deliveries ; " ' 180.20 Salaries, Office and Management 3 34000 ^^^^ ' 56^00 tJank 4 001.00 Interest on Notes Payable ......" 400.00 Accounts Receivable 17013 00 Deposits on Contracts 500.00 Loans 4 234 00 Plant and Machinery ■';■ lO^OOO.OO Accounts Payable 7 583 qq Notes Payable 7 00000 Profit from the Sale of Land ""."..'."1...".. 500000 Capital Stock ic'rifin'nn s-pi- ::::=:::=^^^^^^ IS $81,506.80 $81,506.80 The stock on hand on Dec. 31, 1908, is valued at $11,630.21. Draw up a Profit and Loss Account and Balance Sheet pro- viding for depreciation at the rate of 10% per annum on plant and machinery; make a reserve of 2% of book debts to cover bad and doubtful accounts; also provide a special reserve as an additional compensation for the management of 2% of the net profits. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Diary From the following trial balance, preparing a Trading Ac- count, Profit and Loss Account and Balance Sheet as of Dec. 31, 191L Buildings $ 24,000.00 $ Plant and Machinery 6,000.00 g^*^^.^^" "--"-: 12,900.00 rurniture and Fixtures 180000 Investments 870000 Partners' Capital, Jan. ist,"'ii;;i;;;:;;:;;::;;;;;:;:::i::i;::;: ' ' 112,500.00 Drawing Account 2 775 00 Cash in Bank ZZZIZ". mlsOO'.OO Lash in Safe 375 00 Bills Receivable 5 25000 Bills Payable ' " 4 575 00 Sundry Debtors '.IZIIIZ 11,700.00 ' " sundry Creditors 579Q00 ^Y^hases 51,000.00 T^:s:etr:=^^^^^^^ ,055.00 ^^^^"^ Salaries 7i9i;nn I raveling Expenses j 275 00 Light, Heat and Power 51000 Freight, Outward IZZIZ 1,365:00 Wages j9 755 qq Discounts and Allowances 405 00 Sundry Selling Expenses ^Z."™...... 1 11000 Insurance "" 345 00 Bad Debts j 170 00 Inventory. Jan. 1st. 1911 "ZZIZZIZZ 33,000.00 $203,115.00 $203,115.00 Write oflf 2% on buildings, 71/2% on plant and machinery, and 10% on furniture and fixtures as depreciation, also credit 5% interest on partners' capital from Jan. 1, 1911. • The inventory value of the goods on hand Dec 31 1911 is $46,080.00. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Diasto The following trial balance of the Century Manufacturing Company has been prepared for audit at March 31, 1910, by an inexperienced bookkeeper, who explains that he has not in- cluded the capital items consisting of 10,000 $10.00 6% Prefer- ence Shares fully paid and 20.000 $10.00 Common Shares, upon which only 75% of the par value has been paid. After ad- justing this and other obvious blunders there is still an error m the trial balance which you discover is in the Sales Journal additions, whilst you also find that the stock at March 31. iy09, which was $120,000.00, is omitted as a balance. After making the following provisions: (1) Reserving 2% of the Accounts Receivable for bad accounts. (2) Reserving 5% for Depreciation on Machinery and Plrnt. (; ) Writing back to Reserve the bad debts incurred dur- ing the year. (4) Provision for the payment of a year's dividend on the Preference Shares and a dividend of 5% on the Coirmon Shares. (5) Reserving 6% for lease expiration, y^u Ere required to prepare — (1) A correct trial balance (the accounts to be arranged in systematic order) (2) A Balance Sheet, Surplus and Profit and Loss Ac- count. (3) Closing Journal Entries. (4) List of ledger balances (after closing). lalts''"''' ''"""'^" ""'■ » n%0.00 Qndrvided ProAis ' ! ! : [ l ! i i ! .' : ! ! ! ' ' ! ! ''li^Va Wages • 9Q AA 0,500.00 Accounts Paykbie '.■.:.■:::::::;:::: ' 23,000.00 Bad Debts 5 700 00 ^2,500.00 Repairs ! . . ! ! ! ! ! ! 184000 Value of Lease. 20,'000.00 Depreciation of Lease Reserve i 9nn nn Machinery and Plant 52 000 00 ^•^""•"" Stock March 31, 1910 ., lUOOOOO Discounts on Purchases 2200 00 Rents $5,000. and Taxes $1,150 .' .' .* 6'l5000 Rent from Sub-Tenants s'eOO 00 Traveling Expenses 2900 00 Accounts Receivable .* 135!000]00 (.ash in Hand 690.00 Purchases 196.000.00 Goodwill „p. rtnn nn Bills Receivable .' .* ." .' 6.400 00 -^^'^OO.OO General Office Expenses 10000 00 Stationery and Printing 1120 00 Discount on Sales ' q onn nn Cash on Hand at Bank .' llioOOOO $581,600.00 $429,000.00 PRACTICAL PROBLEMS, GRADED, SERIES A Code : Diatom The following is a trial balance of the Coal Mining and Development Company as of December 31, 1908 : TRIAL BALANCE Dec. 31, 1908 Cash $ 5,674.50 $ Breaker and machinery 145,000 Office building : 5,000 Blacksmith shop 4,000 Inside construction 15,675 Car and mine rail account 7,534.50 Horses and mules : 5,600 Accounts receivable 35,112.25 Bills receivable 10,000 Capital stock— common .: 50,000 Capital stock— preferred 100,000 Coal sales 257,890 Accounts payable —„ 12,500 Surplus 17,709.35 Dep. on buildings and machinery 12,000 Supplies „... 8,240 Pay roll— outside 24,701.50 Pay roll— inside 110,434.25 Salaries — supt., etc 6,000 Salaries — office clerks 4,500 Office expense : 1,147.35 General expense 750 Claims for injuries 4,000 Insurance (expires July 1, 1909) ^ 5,500 Repairs to buildings 4,075 Repairs to construction 3,445 Barn expense 1,500 Selling expense '. 4,500 Royalty account 30,500 Water 800 Fuel 935 Timber and props 5,475 $ 450.099.35 $ 450.099.35 . The total output for the year was 132,300 tons. An examination of the books and records shows that the following charges had not been entered : horses and mules $2,200, car and mine rail account $1,450, claims for injuries $1,000. During the year the bookkeeper through error charged $3,415 to inside construction in. stead of to pay roll inside. Required Profit and Loss Account and Balance Sheet. The Profit and Loss Account to show percentages covering the various elements of cost, etc. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dice The balance sheet of E. F. Co. on Dec. 31, 1908, was as follows : ASSETS. Cash in Bank and on hand $ 7,500.00 Bills Receivable , 5,000.00 Accounts Receivable 25,000.00 Mdse. Inventory at Cost 30,000.00 Furniture and Fixtures 3,000.00 $70,500.00 LIABILITIES. Accounts Payable $32,500.00 Bills Payable 6,000.00 Capital Stock 25,000.00 Undivided Profits _ 7,000.00 $70,500.00 The transactions of the company for the year ending Dec. 31, 1909, were as follows: Net purchases, $80,000.00. Net sales, $94,000.00. Cost Qf goods sold, $75,000.00. Total selling expenses, including interest, $12,000.00, of which $11,000.00 nad been paid in cash up to Dec. 31, 1909. Discounts earned, $2,000.00. Discounts allowed, $1,200.00. Cash dividend of 10% paid on Capital Stock. Bills receivable accepted from debtors, $15,000.00. Bills receivable collected in cash, $16,000.00. Cash collections on accounts receivable, net, $82,000.00. Bills payable paid in cash, $18,000.00. Bills payable issued to trade creditors, $20,000.00. Accounts payable paid in cash, gross, $6i8,000.00. Before closing the books for the year it was decided (a) to set aside as a reserve for bad debts V/2% of the net sales for the year; (b) to write off against the reserve $750.00 for ascer- tained bad accounts : (c) to provide a depreciation reserve of 10% of the book value of furniture and fixtures, and (d) to write off $750.00 from the closing inventory on account of obsolescence of merchandise. You are required to prepare the balance sheet of the com- pany as at Dec. 31, 1909. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dictate Following is a condensed Trial Balance of the Blank Manufacturing Company on Dec. 31, 1908, before closing the books for the year: Inventories, raw materials and work in progress Jan. 1, 1908 $ 31,500.00 $ Purchases of raw materials and freight thereon.... 253,500.00 Productive labor 56,500.00 Factory expense other than labor and materials 11,500.00 Inventories of manufactured goods, Jan. 1, 1908 4,100.00 Administration and general expenses 23,700.00 Sales, gross .; 408,700.00 Freight, outwards 25,800.00 Discounts allowed 1,600.00 Bad accounts written off 600.00 Interest 3,500.00 Discounts received 2,300.00 Cash, and accounts and bills receivable : 172,700.00 Accounts and bills payable 95,000.00 Real estate and buildings : 20,000.00 Machinery and tools 67,000.00 Furniture 1,300.00 Capital stock 100,000.00 Undivided profits 63,300.00 Profit from sale of real estate, 1908 _... 4,000.00 $ 673,300.00 $ 673,300.00 The inventories of Dec. 31, 1908, are: Raw material and work in progress, $05,648.00; manufactured goods, $1,991.00. A reserve of $7,000.00 is to set up for depreciation on ma- chinery and tools, and another reserve of $3,000.00 is to be pro- vided for doubtful accounts. A commission of 5% on the net profits for the year is to be credited to the manager. After taking the foregoing items into account, prepare the following : List of ledger balances after closing books. Manufacturing account. Trading account. Profit and loss account. Balance sheet. Note: For the purpose of class uniformity, allow commission on Profit on Sale of Real Estate. The commission is to be treated as an administration expense. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Differ The directors of a Manufacturing Company, before closing the books for the half year ending June 30, 1905, declare a divi- dent for the half year of 3% on the preferred stock and 2% on the common stock. There was brought forward from last year an undivided profit balance of $15,000. Trial balance June 30, 1905, is as follows: " Debit Balances — Real estate and buildings, $65,000; discount and interest, $1,500; book debts, $84,000; salaries (general), $22,000; trade discounts and allowances, $12,500; stock on hand De- cember 31, 1904, $58,000; plant and machinery, $80,000; management salaries, $10,000; preferred stock in treasury, $10,000; labor, $176,000; patents and goodwill, $160,000; investments, $31,000 ; general expenses, $8,600 ; cash in bank, $16,000 ; freight, $3,000 ; repairs, $2,000 ; insurance, $1,750 ; fuel, $12,000; purchases, $165,000. Credit Balances — Bills payable, $52,000 ; profit and loss account, $8,000 ; com- mon stock, $200,000; sales, $438,350; accounts payable, $20,000; preferred stock, $200,000. The stock on hand June 30, 1905, is $55,000. Compile profit and lo^s account and balance sheet as at June 30, 1905, providing for depreciation at 7^/2% per annum on plant and machinery, and a reserve of 5% on book debts to provide for bad and doubtful accounts : also create a liability for the dividend as stated above. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dilate The Trial Balance given below was taken from the books of a firm of Merchants as at December 31, 1912. You are required to prepare TrPding and Profit and Loss Accounts for the year ending that date. When preparing the accounts it is necessary to take the following n^atters into consideration; (a) Profits and Losses are shared by the partners in the follow ing proportions, A. R. Brown 2/3 and H. D. Jones 1/3. (b) Interest at 5% per annum is to be computed on capital, but not on drawings. (c) 10% Depreciation is to be written off Leasehold Premises. (d) 5% Depreciation is to be written off Furniture and Fixtures. (e) A Reserve for Bad Debts is to be created, amounting to 5% o, the total amount of the Accounts Receivable. it) The Merchandise on hand at December 31, 1912, was valuea at $4,590.00. TBZAI^ BAXiANCE. A. R. Brown, Capital Account (including $10,000.00 paid in on July 1. 1912) H. D. Jones, Capital Account Purchases $147,005.00 Keturns and Allowance on Purchases Taxes 2,100.00 Salaries 16,065.00 Light, Heat and Telephones 390.00 Insurance 245.00 Advertising 1,865.00 Sales Keturns and Allowances on Sales 5,600.00 Bad Debts Written Off 440.00 Discounts on Sales 115.00 Miscellaneous Expenses 3,130.00 furniture and Fixtures 2,050.00 Leasehold Premises 42,632.50 Merchandise Inventory, January 1, 1912 6,510.00 A. R. Brown, Drawing Account 12,000.00 H, D. Jones, Drawing Account 4,000.00 Cash in Bank 6,090.00 Cash on Hand 87.50 Accounts Receivable 31,850.00 Accounts Payable $39,000.00 11,500.00 4,465.00 205,510.00 21,700.00 $282.175.00 $282,175.00 Prepare the necessary Adjusting Journal Entries and the State- ments previously referred to. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dilemma The ledger of the firm of Cutter & Fitler, retail dealers in men's clothing and furnishings, showed the following balances on December 31, 1912: Dr. Cr. Cash $ 2,896.14 $ Accounts receivable 28,226.06 Bills receivable 1,650.00 Furniture and fixtures 6,344.92 Accounts payable 12,518.30 Bills payable 5,598.66 Inventory, Jan. 1, 1912: Clothing department 12,689.54 Shoe department 5,219.78 Haberdashery department 4,711.44 Purchases : Clothing department 36,148.83 Shoe department 15,291.34 Haberdashery department „ 12,680.27 Sales : Clothing department 54,723.57 Shoe department 23,107.82 Haberdashery department ..• 18,560.26 Wages : Clothing department 2,867.50 Shoe department 1,324.80 Haberdashery department 987.65 General expenses 1,834.19 Office salaries 1,450.00 Rent 3,000.00 Taxes 782.96 Insurance 387.39 Bad debts 463.28 Amos Cutler, capital account 20,000.00 Hiram Fitler, " 10,000.00 Amos Cutler, withdrawal account 3,701.68 Hiram Fitler, " " 1,850.84 $144,508.61 $144,508.61 Inventories on December 31, 1912, are as follows: Clothing department $ 14,466.23 Shoe department 4,913.62 Haberdashery department 5,028.96 Prepayments on that date are : Taxes _ 168.22 Insurance 57.30 There are no accrued liabilities. Depreciation of 10% is to be written off from furniture and fixtures. Each partner is to be credited with 6% interest on his capital. No interest is to be charged on partners* withdrawals. Net profit or loss to be divided : Cutter %, Fitler %. Prepare the following : 1 — Trading account for each department. 3 — Profit and loss account. 3 — Capital account of each partner. 4 — Balance sheet. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Diligence "A" and "B" are engaged in business as traders. '*A" offers to purchase ''B's" interest. It is inexpedient to take an inventory or to examine the books. The following facts have been com- piled by the bookkeeper and are to be given full credence. The following data is submitted to an accountant from which he is requested to prepare and to furnish a Profit and Loss Account and a financial statement showing partnership interests. Prepare the statements. CASH TRANSACTIONS "As" Investment $ 5,000 "B's" Investment 2,500 Cash Received from Charge Sales 98,000 Cash Sales 9,200 Cash Payment for Mdse $98,400 Expenses 800 "A's" Drawings 14,000 "B's" Drawings 1,500 Accounts Payable $ 9,000 OTHER DATA Accounts Receivable $10,000 PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dilute Define the following: 1. Voucher Record Book; 2. Fixed Charges; 3. Sinking Fund Investment Account; 4. Current Account; 5. Current Asset; 6. Pay Roll Bank Account; 7. Reserve for Bad and Doubtful Accounts ; 8. Selling Expenses; 9. Reserve for Expiration of Patent Rights; 10. Reserve for Amortization of Improvements on Leasehold Property ; 11. Royalty; 12. Partner's Capital Account; 13. Deferred Charges to Operations; 14. Preferred Stock; 15. Perpetual Inventory; 16. Journal Voucher; 17. Finished Product; 18. Second Mortgage 6% Serial Gold Bonds ; 19. Discount ; 20. Re-insurance Return Premium Recoveries. PRACTICAL PROBLEMS, GRADED^ SERIES A Code : Dim You are called in as a public accountant to assist a firm in the preparation of a balance sheet as at December 31, 1915, and in the balancing of the books. After examination, you find the following facts : 1. On January 3 three items, amounting to $50,000.00 in the aggregate. were received in cash, but were entered as at December 31. 1915. No cash account is kept in the general ledger. 2. An item was posted to the credit of an account in the sales ledger from the cash book as $5,050.00 instead of $50.50. A sales ledger control account is kept in the general ledger. 3. The Petty Cash fund is kept on the imprest system. On December 31, 1915, a voucher covering expenditures to date was passed and entered in the voucher register. The check in payment thereof was not en- tered in the cash book until January 3, 1916. 4. A building had been destroyed by fire, and the insurance recovered had been credited to the asset account and the cost of replacement had been debited thereto. 5. An item was posted to the debit of the interest account in the general ledger from the journal as $3.03. It should have been $303.00. 6. Sales aggregating $25,000.00 were entered on the books as at December 31, 1915, but the goods were not all delivered until January 25, 1916. Indicate what adjustments you would make of the books or of the accounts for the purpose of the balance sheet. Give jour- nal entries. Code: Dime An electric light company finds that its feed wires to a cer- tain district are not adequate to carry the load and installs a new wire on the same poles. The cost of the new line was $15,000.00 for material and $7,000.00 for the expense of installation. The cost of that part of the old line which was removed was $6,000.00 for material and $3,000.00 for installation. The salvage value of the old material was $5,000.00. The cost of that part of the old line which was not removed was $4,000.00 for material and $3,000.00 for installation. The line had been in service for 8 years, and depreciation had been regularly provided at 3% of the cost value of the trans- mission system. Draft the journal entries necessary to record properly the facts. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Diminish John Adams lost his stock of merchandise May 1, 1914, 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. P>om the following data ascertain his merchandise inven- tory: Net profits May 1, 1914, $4,452.91; drawings, $1,598; legal expenses, $17.50; interest debit, $313; advertising, $14; commis- sions debit, $961.01; insurance, $196.23; sales, $81,688.04; inven- tory December, 1911, $1,568.62; purchases, $55,415.82; labor pro- ductive, $19,499.58 ; telephone, $416.06 ; sundry factory expenses, $3,201.92; repairs, $16; surplus May 1, 1914, $2,854.91. Code : Dimple The "A" corporation, to prevent injurious competition, pur- chases from the "B" corporation, a competing firm, the whole of its business as a going concern on January 1, 1905, for $500,- 000.00, subject, however, to certain conditions stated below. The "B" corporation agrees to continue trading under its old management on behalf of and at the expense of the "A" cor- poration until December 31, 1905, when, if the profits earned amount to less than $40,000.00, the "A" corporation reserves to itself the right to cancel the agreement for purchase on payment of the difference between the earnings for the year and $40,000.00. At December 31, 1905, the profits for the year earned by the "B" corporation amount to $50,000, and the "A" corporation actually takes over the "B" corporation, paying $450,000.00 in full settlement. Criticize the following methods of treating the transaction, and state which you consider correct ,giving reasons for your opinion : (a) Debit investment account with $500,000.00 and credit profit and loss with $50,000 earnings. (b) Debit investment account with $450,000.00. (c) Debit Investment Account with $500,000.00 and credit special reserve account with $50,000.00. It may be taken as an ascertained fact that the assets are fully worth $500,000.00 at the time of purchase by the "A" corporation. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dingey TRIAL BALANCE OF THE GENERAL LEDGER OF JOHN DOE, CIVIL ENGINEER, AT DECEMBER 31, 1911 Cash $10,572.44 Furniture and fixtures 1,054.68 Real estate (Rutherford home) 6,000.00 Investments in stocks 15,157.50 Investments in bonds 3,000.00 Missouri Pacific Margin account 13,000.00 Accounts receivable 15,331.32 General expense 9,800'.00 Interest 1,060.00 Manhattan Construction $ 5,000.00 Report #1 Swanee Creek rail- road 6,300.00 Report #2 Englewood reservoir 4,500.00 Report #3 Long Acre library.... 3,200.00 Connecticut Tramways Co 1,950.00 Earnings — consulting 2,000.00 Report fees 16,000.00 Sharp & Co., brokers 11,310.00 Stocks and bonds 4,300.00 Capital 21,745.94 $75,305.94 $75,305.94 ANALYSES General Expense — Salaries: John Doe $6,000, other salaries $1,800; rent $1,000; advertising $600; cables and telegrams $90; stationery and printing $110; other expenses $200. Interest — Debited with $1,300 charged by Sharp & Co., brokers, on margin account ; reduced by dividends of $390, credited by Sharp & Co. on margin account. Balance on loans since repaid. Manhattan Construction Co. — Represents consulting fees received dur- ing the year 1911, the contract running from month to month, with no expense to John Doe. Reports 1-3 — Are completed and delivered. Account contains fees, less expenses. Connecticut Tramways Co. — Represent $2,000, received November 1, 1911, and expenses of $50; according to terms of contract, John Doe is to act as consulting engineer for 10 months and to receive alto- gether $5,000. Report Fees — Fees received under contract for report. $9,000 received on contracts on which no work has been done; balance is earned. Stocks and Bonds — Are sold. Account represents balance. Additional Facts — Dividends on stocks received during the year amount to $1,985, of which $1,000 was applied to the account Invest- ment Stocks, and $985 was applied to Stocks and Bonds Sold. Prepare (a) bc\lance .sheet at December 31, 1911, with your certificate attached, (b) income statement showing John Doe's true earning power as a civil engineer. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dinner A corporation is burned out of its factory, and leases other property for a long term of years, at an annual rental of $6,000.00. Subsequently the owner of the property donates $5,000.00 in cash to apply on the cost of fitting up the building for the tenant's use. Make journal entries covering the donation and explain its treatment. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dip The treasurer of ths United Manufacturing Company submitted the following figures, taken from the ledger of the company, as representing the condition of the business, December 31, 1915: Cash - - $ 7,500.00 Accounts receivable 45,000.00 Notes receivable 1,875.00 Raw materials $ 20,000.00 L-abor A- 30,000.00 Manufactured goods 16,250.00 -66,250.00 $ Accounts payable Notes payable .- Capital stock Surplus, December 31, 1915. 5,875.00 20,000.00 80,000.00 14,750.00 $120,625.00 $120,625.00 A comparison of the above statement with a former one showed a net loss, for the period, or $6,250. The directors had expected a profit, basing their expectations on the resuh obtained by apply- ing their cost calculations to the volume of sales for the period, and they employed an accountant to investigate the matter. All the nominal accounts had been closed into either the Merchan- dise Account or the Profit and Loss Account, and an analysis of these accounts disclosed the following : Inventory at beginning of period : * oo cm m Raw material ...* $ ^o riv!r5^ Labor «'nmm Manufactured goods cnnmm Purchases during period „— - 59'95?n2 I ohor ~ 87,50U.UU Wages """i"i"";;i""-"";i..-~ 10,000.00 Traveling expenses, commission, etc ^n'^SSS Salaries ^?'??^m Rent o,/i)U.UU Bad debts 6,375.00 Depreciation ^'52?-2S Interest 625.UU Sales ...r."... 250,000.00 Return sales 7,500.00 The consumption of material and labor shown by the cost rec- ords was: Material ^ iS'SSSSS Labor 80,000.00 Prepare a statement showing any discrepancy that may exist in the above figures; also a statement of income and profit and loss, and a statement of assets and liabilities December 31, 1915. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Diploma Two piofessicnal firms, consisting of two partners each, agree to amalgamate. Jones and Robinson have accounts re- ceivable, $12,500.00 and other assets taken as net, $1,250.00. Sikes and Wilson have accounts receivable, $11,000.00, and other as- sets net $1,000.00, each firm bringing $2,500.00 in cash and dis- charging their own liabilities, with an arrangement that the part- ners of each firm shall have a preferential allowance of 15 per cent on professional fees arising from the connection of each firm. At the end of twelve months, the earnings were $49,500.00, of which $19,000.00 came from Jones and Robinson's introduction, $23,000.00 from Sikes and Wilson's and the rest from neutral ground. The accounts receivable of Jones and Robinson were realized at an average loss of (> per cent ; those of Sikes and Wilson at 5 per cent. The expenses were $16,725.00. As at the end of the year, make out the Realization Account of each firm, the Profit and Loss Account of the amalgamated firm, and the Capital Accounts of each partner, allowing interest on the net assets and cash brought in at 5 per cent per annum, but none on the accounts receivable. The drawings have been: Jones, $5,000.00; Robinson, $3,250.00; Sikes, $5,500.00 ; Wilson, $3,500.00, without interest. Profits are divided as follows : Jones and Sikes, three-tenths each; Robinson anJ Wilson, two-tenths each. The same propor- tions govern the divisions of assets brought in and the preferen- tial allowances. Code : Diplomat On December 1, 1907, the following particulars are furnished of the position of John Mapleton, insolvent : Factory equipment cost $15,000.00, estimated to realize $10,000.00. Stock of finished goods, $10,000, estimated worth $7,500.00. Material and supplies $2,500.00, estimated worth $1,000.00. Furniture and Fixtures $900.00, estimated worth $200.00. Investments valued at $25,- 275.00, of which $15,000.00 is held by bankers as security for loan of $12,000.00. Accounts receivable, $6,250.00, of which $2,500.00 are good, $1,250.00 bad, and $2,500.00 estimated to realize $1,500. Cash, $575.00, of which $25.00 represents petty expense items not charged up, and $50.00 an I. O. U. of a former employe which is 'worthless. Accounts payable, $28,500.00. Bills Payable, $25,- 000.00, of which $12,000.00 is due bankers. Wages due, $500.00. Rent due and past due, $1,000.00. Capital on January 1, 1907, as shown by books, $15,000.00. Loss by sale of investment May 1, 1907, $5,000.00. Loss in trading account January 11, 1907, to December 1, 1907, $3,500.00. Drawings charged personal ac- count of John Mapleton, $1,000.00. Make up a statement of aflfairs and a deficiencv account as on December 1, 1907. PRACTICAL P ROBLEMS, GRADED, SERIES A Code : Dipper Proposition A. In 1906, a manufacturer's gross sales amounted to $202,700.00, against which his outlay was : Material $94,645.00 Wages 61,725.00 Shop expense 17,135.00 Administrative expense 14,250.00 State the ratios of the several features of departmental ex- pense to the gross sales ; also the per centum of profit. Proposition B. The same excepting, gross sales $435,000.00 Material $233,000.00 Wages 88,840.00 Shop expense 27,825.00 Administrative expense 17,585.00 Review the conditions and apparent causes that result in the great difference shown in the percentage of profit between the two propositions. Code : Dipthong "A, B" & Co. agree with "C, D" & Co. that the latter shall ship on consignment to Honolulu on joint account 20 cases of commodity "X," the invoice price of which is $2,100, less 2% per cent. "A. B" & Co. pay the packing charges, $25 ; also freight, in- surance and other charges, $90, and they draw on their correspon- dents in Honolulu in advance for $1,600 at 90 days, which is discounted at a cost of $20, and the proceeds handed to "C, D" & Co. as part payment. These transactions may be dated March 1st, 1909. On the 30th of November, 1909, "A. B." & Co. receive the account sales and net proceeds, $418, and they then pay "C, D" & Co. the balance due to them. Prepare a Joint Consignment Account charging interest on the amount lying out at 5 per cent per annum for nine months, closing it by dividing the loss; also an account to be rendered by "A, B" & Co. to "C, D" & Co. closed by payment of the bal- ance, and proving that the losses borne by each are equal. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dire Mr. John Allan has purchased the business conducted by Mr. Hugh Smith; the transfer taking place on January 1, 1916, the consideration being $200,000.00 payable in cash. The balance sheet at the date mentioned showed as follows : ASSETS Cash on hand $ 100.00 Cash in bank. 10,000.00 Accounts Receivable 50,000.00 Notes Receivable 10,000.00 Inventories of Merchandise... 100,000.00 Real Estate, Buildings, etc 150,000.00 Prepaid Insurance, Taxes, etc. 3,000.00 Board of Trade Membership 1,800.00 LIABILITIES Notes Payable $ 75,000.00 Mortgage on Fixed Assets.... 100,000.00 Accounts Payable 25,000.00 Mr. Hugh Smith, Capital Account 124,900.00 $324,900.00 $324,900.00 Under the agreement above mentioned, the cash in bank be- longs to Mr. Smith, while the accounts and notes receivable will be collected on his account. The notes and accounts payable will be paid by the purchaser, but are recoverable from the seller. You are asked to examine the balance sheet, to make the neces- sary journal entries in terms of this agreement and to prepare a balance sheet to show the position as taken over by Mr. Allan. As a result of your examination, you ascertain that the inventory is understated by $10,000.00 and that the prepaid expenses are overstated by $1,500.00. On your recommendation Mr. Allan has decided to incorporate with a capital of $200,000.00, of which $100,000.00 will be 7% preferred and $100,000.00 common stock. Prepare a balance sheet after incorporation, giving effect to all the transactions just enumerated. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Direct From the books of Messrs. Deas & Alexander, which are kept by single entry, the following balance sheet as at June 30, 1914, was taken : ASSETS LIABILITIES Cash in Bank and on Hand....$10,800.00 Accounts Payable.... $10,309.00 Accounts Receivable 16,032.00 Capital Accounts: Inventories 29,980.00 Deas $ 3,263.00 Building and Equipment 8,000.00 Alexander 51,240.00 54,503.00 $64,812.00 $64,812.00 It was agreed that the partnership would be dissolved as at October 31, 1914, but that Alexander would continue the busi- ness. It was further agreed that Deas would be paid the balance t) his L .dit at jun: ,.(), 1914, together with a sum of $5,000.00 to cover his interest in the goodwill of the business and his profits up to October 31, 1914, which latter was estimated at $1,200.00 From this amoiuit, however, his drawings, amounting to $800.00 were to be deducted. The following balances were shown on the books at June 30,1915: Cash in Bank and on Hand $ 8,130.00 Accounts Receivable 12,203.00 Inventories - 29,143.00 Buildings and Equipment 8,103.00 Accounts Payable 8,706.00 You ascertain that on April 30, 1915, merchandise valued in the books at $500.00 was destroyed by fire. As this loss was not covered by insurance, Mr. Alexander reduced the book value of his inventory to take care of the loss. The additions to Buildings and Equipment during the year cost $503.00, but the book value of these assets was reduced by the sum of $400.00 to take care of depreciation. Alexander's personal drawings during the year amounted to $2,500.00. You are instructed to prepare a balance sheet for Alexander as at June 30, 1915, together with statement showing profit or loss for the year and the distribution of same. You are also required to write up Alexander's capital account for the year to June 30, 1915. No value is to be placed on the goodwill. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Direction A company issues serial bonds in the sum of $600,000.00, $100,000.00 being payable one year after date of issue and $100,- 000.00 each year thereafter. The bonds bear 5% interest and are sold at a flat rate of 90. What is the average rate of interest paid, without considering the question of interest on interest? PRACTICAL PROBLEMS, GRADED, SERIES A Code: Director Owing to a rapid growth of the business, the "A, B" Com- pany found it necessary to raise additional funds, and accordingly on January 1, 1911, it entered into an agreement with a bond house for an issue of $500,000.00 First Mortgage C) per cent Gold Bonds, v/hich were ultimately sold to the bond brokers at 95 per cent of par ; the company also paying as additional compensation to the brokers, a commission of 2 per cent. The expenses of the issue, including legal expenses for drawing the mortgage, etc., cost of engraving the bonds and trustees' fee, were $10,000.00, the net proceeds of the issue being finally paid over to the company's treasurer. During the year 1911, the company made net profits of $150,000.00 after providing or setting aside $50,000.00 for the depreciation and obsolescence of properties, and it also paid a dividend to stockholders of $50,000.00. The real estate was also appraised during the year at an increased valuation of $25,000.00, which was credited to Surplus account. The financial position of the company on Jan. 1, 1911, before the bond issue was negotiated, and again on December 31, 1911, the end of the company's fiscal year, are set out below, from which you are requested to prepare a brief and intelligent statement showing what was done with the new funds provided as indicated above. A. B. CO. BALANCE SHEET January 1, 1911 December 31, 1911 Capital Stock $ $ 250,000.00 $ $ 250,000.00 6 per cent 1st Mtg. Gold Bonds 500.000.00 Real Estate 50,000.00 75,000.00 Btiildin g s, Plant Equipment, at cost 300,000.00 425,000.00 Inventories at cost.... 200,000.00 350,000.00 Accts. Receivable .... 150.000.00 • 245,000.00 ♦M'k'able Securities.. 50,000.00 Advances on build- ing contracts 20,000.00 Cash on hand and in bank 35,000.00 85,00^00 Notes payable Bankers' loans .... 200,000.00 Accounts payable .... 150,000.00 100.000.00 Depreciat'n reserve.. • 75,000.00 125,000.00 Expense bond issue.. 10.000.00 Surplus 110,000.00 235.000.00 $ 785 033.03 $ 785,000.00 $1,210,000.00 $1,210,000.00 * Sold during year for $40,000.00, loss of $10,000.00 being charged off to Profit and Loss Account. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dircie * A. Wells, a manufacturer of novelties, is joined by I. M. Anxious in partnership upon the following terms : A. Wells is to receive a monthly salary of $100 for the first year, which shall be a first charge upon the profit, after pro- viding for the usual business expenses, and before reckoning 3% upon the partner's capital. In the event of such profit during the first year, or any subsequent year, not exceeding 6% of the total capital (after payment of the salary), this salary shall be reduced to $75.00 per month the following year, and remain so •until the yearly profits advance to more than 6%, when such salary shall return to $100, commencing the year succeeding the one showing the required increase of profit. Should the profit in any one year amount to more than 10% on capital, A. Wells shall be entitled (in addition to the salary he has received for that year) to a bonus of 3314% upon any sum in excess of $1,500.00, and 25% upon any further excess and this bonus shall be a charge against profit, before allotting the interest at 3% upon capital. Any profit then remaining shall be divided equally. From the following particulars, construct separate capital accounts for the partners for five years. Starting capital: A. Wells, $6,000.00; I. M. Anxious, $5,000.00. 1st Year $1,750.00 2nd Year 1,800.00 3rd Year 4,250.00 4th Year 5,000.00 5th Year 5,500.00 No drawings on account. Distribution of profits when ascer- tained. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dirk The Get-Rich Book Company, a corporation, goes into volun- tary liquidation and the directors of the company, three in number, are designated as trustees in liquidation. Below is a trial balance of the company as of June 28, 1912, the date when its affairs were turned over to the trustees : 1 Capital Stock $ $ 20,000.00 2 Cash 553.69 3 Office Furniture 1,666.92 4 Meter Deposit ~ 60.00 5 Accounts Receivable 26,153.95 6 Rogers & Co., monies collected for their acct 14,738.00 7 Notes Payable 27,573.50 8 Accounts Payable 4,197.22 9 Merchandise Purchased 27,404.74 10 Merchandise Sales 8,045.35 11 Expense 10,751.97 12 Loss and Gain 7,962.80 $ 74,554.07 $ 74,554.07 Value of Merchandise on hand, $20,183.86 ; other assets, (items 3, 4 and 5), valued as in ledger. Trustees' cash receipts and payments as follows: RECEIPTS Balance on hand $ 553.69 Meter Deposit 60.00 Office Furniture sold 487.90 Accounts Receivable collected 22,872.75 Additional Collections for Rogers & Co 1,965.24 Sales of Merchandise 22,090.70 Commission received from Rogers & Co 6,703.24 PAYMENTS Notes paid $27,573.50 Accounts paid - 4,197.22 Merchandise bought 562.55 Expenses 5,697.01 Remitted Rogers & Co. in full , 16,703.24 Accounts Receivable not collected are worthless. Prepare the accounts of the trustees in liquidation. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dirt Three brothers, "A," "B," and "C," own all the capital stock (each 1-3) of a certain corporation "X." They own also, but not equally, 55% of the capital stock of a kindred corporation, "Y," which is capitalized for $100,000, the par value of the shares being $10. The holdings of each in the "Y" corporation are as follows : A 2222 shares 2 2222 " C ZZIZZZZ'ZZZZZZ 1056 " The three brothers, acting as the corporation "X," purchase out of corporate funds the remaining 45% interest in the corpora- tion "Y," paying $100,000 therefor. Without further cost to "X" they now wish to merge the two corporations under the cor- porate name "X" and dissolve "Y." "C" proposed to make compensation to "A" and "B" individ- ually for an equal interest in the 5,500 shares upon the same basis as the 45% interest was acquired so that all may share equally in the merged properties. How much should "C" pay to each of the other stockholders? Outline the entries necessary to record all the above stated trans- actions on the books of "X" and "Y." PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disable A factory consists of two blocks of buildings, "A" and "B." On the first of January, 1907, "A" contains engine and boiler which cost $4,000, and machinery costing $13,000 ; "B" contains machinery costing $7,000. The following are purchases of ma- chinery: October 1st, 1907, "A," $1,000; July 1st, 1908, "A," $750; "B," $1,500; April 1st, 1909, "A," $600; "B," $900; Octo- ber 1st, 1909, "B," $250. On January 1st, 1908, machinery (costing January 1st, 1907, $1,000) is sold from "A" for $625, and on July 1st, 1908, ma- chinery (costing $1,300 January 1st, 1907) is sold from "B" for $1,000. The accounts are made up to December 31st of each year. On December 31st, 1909, the whole premises and contents are de- stroyed by fire, and the fire insurance company agrees to pay upon the following basis: engine and boiler, cost price, less de- preciation 8 per cent per annum upon that sum; machinery in "A," cost, less depreciation at 10 per cent per annum upon dimin- ishing values; machinery in "B," cost, less depreciation at 7% per cent per annum upon diminishing values. Prepare ledger accounts showing how much is recoverable upon this basis. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disadvantage The following is a trial balance taken from the books of the Haven Manufacturing Company, December 31, 1915: TRIAL BALANCE Accounts payable $ Accounts receivable Bonding of employees (office) Capital stock Cartage outward Cartage inward Cash Cash discounts on sales Cash discounts on purchases Collection and exchange Directors' fees Employers liability premiums Factory expenses Freight outward Freight inward Finished goods inventory, Jan. 1, 1915.... Insurance, machinery, tools and patterns.. Interest, general Labor, productive Labor, unproductive Machinery and tools Notes payable - — Notes receivable Office pay roll Office furniture and fixtures Postage Power Patterns Patents Purchases •■ Raw material inventory, January 1, 1915 Return sales Repairs, machinery Sales Sales allowances Salesmen's traveling expenses Salesmen's commissions and salaries Salesmen's expenses Salaries, officers .-. Stationery and printing Surplus Taxes, income and personal Telegrams and telephones Trade discounts on purchases Trade discounts on sales 625,000.00 625.00 ""i6,'750."00 9,375.00 112,500.00 7,000.00 i;75a66 3,750.00 10,000.00 7,525.00 25,000.00 57,500.00 87,500.00 1,250.00 11,175.00 750,000.00 87,500.00 121,250.00 7;625'o6 45,000.00 14,250.00 5,000.00 52,500.00 31,000.00 52,500.00 1,026,625.00 100,000.00 102,500.00 3,275.00 '""27"2iom 43,750.00 100,000.00 5,000.00 37,500.00 7,625.00 2;5o6;oo 4,500.00 3;075."o6 $ 107,500.00 500,000.00 3,000.00 «-i 247,625.00 2,621,250.00 108,800.00 12,750.00 $ 3,600,925.00 $ 3,600,925.00 On December 31, 1915, the inventories were: Raw material ^^7c'^nn Finished goods 75,000.00 Prepare a statement of income and profit and loss, in report form, and a statement of assets and liabilities, December 31, 1915. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disaffirm A corporation decided to issue and sell bonds to the amount of $100,000.00 par value. The denomination of such- bonds, $1,000.00 each; term of bonds, fifteen (15) years; interest rate 5%, payable semi-annually. On January 1, 1914, these bonds were sold for ?105,411.33, or on a 41/2% return basis. July 1, 1914, interest was paid amounting to $2,500.00. (a) What entry should the corporation have made when the bonds were sold? (b) What entry should the corporation have made when it paid the $2,500.00 interest referred to above? (c) What entry should the purchaser of these bonds have made when he received the first interest pa)rment ? (d) Sketch the form of a bond ledger which will provide the purchaser of these bonds with a perpetual detail record of this bond transaction. M Code : Disagree The Good Music Company sells pianos on the installment basis. On January 2, 1914, Jones purchased a piano from the company for $375.00, to be paid for as follows : $25.00 down and the balance in quarterly installments of $50.00 each, bill of sale to be given on date of final payment. The piano cost the company $125.00. The four installments for 1914 were duly received, the last one having been paid on December 31st. (a) Set up the proper ledger accounts covering this sale and the payments thereon. (b) Give the journal entry (at the close of the year) by which the year will be credited with its proper proportion of the profit on this transaction. (c) Sketch the ruling of a book or books which might be used to facilitate the handling of installment sales and collections. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disappear A certain railroad, being about to be foreclosed under a con- solidated deed of trust, a committee of the conslidated bondhold- ers, the members of which were large holders of stock and prior bonds, drafted *'a plan for purchase and reorganization," effective Jan. 1, 1880. This provided that the old stock should be de- posited, and that the new company should issue ( 1 ) first mortgage i)% bonds to be used to find the past due and maturing interest on the prior bonds and for permanent construction and improve- ment ; (2) preferred 7% stock to represent the par value of out- standing consolidated bonds; and (3) common stock to represent the outstanding common stock. Holders of the common stock were not to be entitled to shares or to vote until preferred stock had paid five successive annual dividends of 7%. A reincorpora- tion was effected oi this basis. At the end of five years the common stockholders brought action, setting forth that earnings and income which had been wrongfully converted to pay for improvements and extensions, would, if applied to dividends, have been sufficient to pay for five successive dividends of 7% each on the preferred stock, and that the common stockholders were therefore, entitled to representation. The net earnings as reported by the company were as follows : Net earnings for 1880. $133,084.69 Net earnings for 1881 244,037.94 Net earnings for 1882 438,989.89 Net earnings for 1883 488,799.13 Net earnings for 1884 400,303.40 Net earnings for 1885 272,451.77 In 1881 steel rails were laid. The cost of this, less the value of old rails removed was $133,779.03, all of which sum was charged to operating expenses. In 1882 a similar charge was made to the amount of $31,224.50. In 1883, of $65,000.00 ; in 1884, $10,000.00 ; in 1885, $9,996.35. In 1881 new sidings and spurs were charged to operating expenses to the amount of $45,430.00. In 1882 the amount so charged was $9,640.00; in 1883, $16,960.00; in 1884, $11,640.00; in 1885, $5,400.00. In 1883 two steamers owned by the company were enlarged and made more efficient, at a cost of $40,286.44, which was paid out of and charged to earnings. In the spring of 1884, $142,000.00 was expended for 8 new freight engines and 200 coal cars. The funds for this purchase were raised by loan, which was paid off by the company at the rate of $3,000.00 per month and the sum so paid in addition to interest on the loan was charged to operating expenses and with- drawn from earnings. $15,000.00 was thus charged in 1884 and $36,000.00 in 1885. The amount of preferred stock on which the 7% was to be paid annually was $6,500,000. Make out a statement showing whether or not the common shareholders were entitled to repre- sentation on Jan 1, 1886. (Problems in Accounting, by David Friday. ) For class uniformity, compute depreciation as follows : Rails, 7Vl>% ; sidings and spurs, 4% ; steamers, 4% ; freight engines and coal cars, 5% ; all on original cost. «A •« PRACTICAL PROBLEMS. GRADED, SERIES A Code: Disappoint From the following information prepare: 1. Income and Expenditure account — year to March 31, 1917. 2. Comparative Balance Sheet, March 31, 1917, and March 31, 1916. 3. Stores Account, showing operations (and profit or loss) for year to March 31, 1917. 4. Investment or Capital Account — year to March 31, 1917. RECEIPTS Cash on hand, AiJiii 1, i!fi > Dues— Collected .../$12,318.75 Stores 2,989.80 Initiation Fees Miscellaneous Employees' Christ- mas Fund 5 617.63 15,308.55 300.00 370.78 470.50 17,067.46 DISBURSEMENTS Lunches $ 2,063.34 Entertainment 25.00 Tournaments 41.25 Repairs 889.12 Printing, Postage, etc 350.50 Wages — S t e w a r d and Help 4,011.50 Lisjht 625.68 Heat and Fuel 599.75 Taxes and Assess- ments 1,462.35 Certificate of Life Membership Pur- chased 160.00 Stores 2.691.30 Papers and Period- icals 199.15 House Expense........ 1,590.37 Furniture and Fix- tures — New 511.84 Insurance 437.06 Improvements on Property 359,30 Employees' Christ- mas Fund Distrib uted 460.00 Cash on hand and in bank March 31, 1917— ASSETS AT MARCH 31, 1916: Real Estate Permanent Improve- ments Furniture and Fix- tures Accounts Receiva- ble — Current Accotmts Receiva- ble — •Delinquent- Accounts Receiva- able — Christmas, Fund* Notes Receiv able for Dues Stores — Inventory .. Stores — due from Members Cash on hand 26,400.00 40.18.3.71 12,208.60 137.50 47.60 5.25 255.00 147.63 231.20 617.63 LIABILITIES AT Accounts Payable for Stores Dues Paid in Ad- vance MARCH 124.73 412.50 80,236.02 31, 1916 537 23 Balance — March 31, 1916 79,698.79 At March 31, 1917, the Accounts Re- ceivable, etc., 16,477.51 were: Accounts Receiva- ble — Delinquent- Notes Receiv able for Dues Stores — Due from Members Stores — Inventory.. 63.75 120.00 317.45 326.04 589.95 The Dues paid in advance amount- ed to 30.00 17,067.46 PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disapprove Prepare from the following figures, as if for a meeting of creditors, a Statement of Affairs of Brown & Company: Cash at bank, $500.00 ; cash in hand, $50.00 ; present value of lease, $5,000.00, upon which a loan of $2,500.00 has been obtained ; debtors good, $10,000.00 ; ditto doubtful, $1,500.00, which it is ex- pected will produce $750.00; ditto bad, $2,500; creditors unse- cured on open accounts, $40,000.00; creditors on bills payable, $10,000.00; stock-in-trade, cost $20,000.00, estimated to realize $12,000.00; plant and machinery, cost $12,500.00, estimated to produce $6,000.00; credit for an advance of $4,000.00, holding security valued at $1,750.00; liabilities on accommodation bills of exchange, $15,000.00, of which it is expected $7,500.00 will rank for dividend ; liabilities on bills discounted $20,000.00, of which it is expected $3,500.00 will rank for dividend; creditors for rent and wages, $250.00. ( Footing $341,000. ) As the statement of affairs referred to above shows insolvency prepare Trading and Deficiency Accounts from certain facts there- in disclosed, and from the following : Capital at commencement, $12,500.00 ; sales, $270,000.00 ; loss on shipment to Cape Town, $7,000.00; purchases, $241,000.00; drawings, $14,000.00; wages (manufacturing) $15,000.00; trade charges and expenses, $30,000.00 ; profit on purchase and 'sale of shares, $1,750.00. Code : Disarm A railroad company known as '*A" leased for fifty years the property of a smaller railroad company known as **B" and guar- anteed the G per cent coupons on the latter's bonds and their face and a sinking fund against them of 1 per cent per annum; each yearly installment to be $30,000.00 in cash or in bonds at par of "B." After the lapse of twenty years, when "B's" bonds were at a premium of 18 per cent, "A" was found to be in arrears on the sinking fund for five installments, the fifth one having just matured due, aggregating $150,000.00. In settlement of such arrears ''A" offers to pay "B" in cash such sum as would make "B" whole, the same as if no lapses in payments had occurred. "B" refuses the offer and proposes that "A" shall pay into the sinking fund $150,000.00 in bonds. During the five years money ruled at an average of 4 per cent. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disband The fiscal year of a manufacturing company ends June 30, 1908, and the bookkeeper presents a statement to the directors made up in the following form : Gross Sales $285,000.00 Increase in Inventory 15,000.00 $300,000.00 Cost of Sales: Operating expenses, material and supplies $257,000.00 Plant expense 12,000.00 Freight on returned goods 600.00 Sundry purchases finished goods 10,400.00 $280,000.00 Manufacturing Profit $ 20,000.00 Other Income : Miscellaneous earnings $ 1,500.00 Profit on contracts .— 6,500.00 Discount on purchases 500.00 $ 8,500.00 $ 28,500.00 Less: Discount on sales $ 2,875.00 Rebates and allowances 1,125.00 $ 4,000.00 Net Plant Profit $ 24,500.00 Less : General expenses $ 5,500.00 Interest 1,500.00 7,000.00 Net Profit $ 17,500.00 You are required to make up a Profit and Loss statement in regular form, showing purchases, etc., and using such of the above figures as may be necessary together with those following: In- ventory June 30, 1907— Material, $115,000; Supplies, $35,000; Finished Goods, $45,000. Inventory, June 30, 1908— Material $140,000 ; Supplies, $10,000 ; Finished Goods, $60,000 ; Material used in factory during the year, $75,000 ; Wages, $122,500 ; Fuel, $2,500 ; Repairs and Renewals, $2,000 ; Other operating expenses, $55,000, which includes $25,000 supplies used. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disburse On Aug. 20th John Doe put in Richard Roe's store on joint account, merchandise amounting to $3,240.00, Roe adding the same amount. Aug. 25th, they buy on joint account merchandise amounting to $9,000.00, each partner paying his share in cash. Aug. 28th, they put into the account $4,000.00. Roe puts in of this amount $2,500.00 in merchandise from his store. Doe puts in $1,500.00 in merchandise from his store, and pays Roe $500.00 in cash to share equally in this investment. Sept. 10th, Roe sells on their joint account merchandise amounting to $9,500.00. On the same date by agreement they withdrew $6,480.00 in merchandise, each one-half, $3,240.00. Sept. 22nd, Roe sells to John Green on account merchandise amounting to $4,800.00. Oct. 4th, Roe sold to Green & Joyce 50 shares of his own Merchants' Bank stock for $5,500.00, and bought of them in part payment merchandise amounting to $5,000.00 for joint account of himself and Doe, receiving the balance in cash, $500.00. Oct. 25th, they agreed to close their speculation and joint ac- count and they each take delivery of one-half of the merchandise remaining unsold. Total amount unsold, $5,000.00. Write the journal entries necessary to present these transac- tions on Roe's books. Prepare ledger account. Roe charges commission on sales 2%%, and remits Doe one-half of the net proceeds in cash. Show journal entries closing the ledger account on Roe's books. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Discern The balance sheet of a certain institution as at the close of business, December 31, 1913, which had been prepared by an ac- countant, appeared as follows : ASSETS Cash $30,344.94 Accounts Receivable for Food 44.39 Accrued Interest 500.00 Office Supplies 6.85 Sundry Food Supplies 1,226.72 Investments — at cost 10,095.00 Furniture and Fixtures 300.00 LIABILITIES Accounts Payable: Office Supplies $ 2.00 Food Supplies 480.00 Nurses' Salaries 680.50 Laundry and Cleaning 28.00 Total $42,517.90 1,190.50 Note Payable 5,000.00 Surplus 36,827.40 Total $42,517.90 The accounts included in the foregoing balance sheet, with the exception of "Cash," are not incorporated in any books of the organization, as the only record maintained is a cash receipt and disbursement book. You were instructed to audit the cash book for the year ended December 31, 1914, and found the cash receipts and disburse- ments for the year to be made up as follows : Receipts : Contributions $ 25,330.68 Special Campaign 6,800.00 Sale of Food Supplies 1,352.32 Bank Loan 10,500.00 Sub-rentals _ 77.00 Interest on Investments 850.00 Bonds sold, including accrued Interest at $25.00 5,010.00 Total Receipts $ 49,920.00 Disbursements : Station Expenses $ 6,103.76 Food Supplies 1 ,821 .00 General Expenses 12,262.20 Loan Repaid 5,000.00 Interest 638.50 Office Supplies 15.00 Nurses' Salaries 19,820.00 Laundry and Cleaning „ 720.00 Bonds purchased at cost 28,020.00 Interest accrued on above bonds 215.00 Total Disbursements $ 74,615.46 From the information available at the close of your examin- ation you ascertain the following facts : Accounts Receivable for Food amounted to $ 58.20 Accrued Interest on Investments amounted to 756.00 Office Supplies Inventory amounted to 10.00 Food Supplies Inventory amounted to 926.50 The original cost of the bonds sold during the year was 4,965.00 Unpaid invoices for food supplies 360.20 Nurses' Salaries unpaid 923.50 You are required to prepare a revenue and expenditure statement for the year ended December 31, 1914, and a balance sheet as at the close of the year. PRACTICAL PROBLEMS, GRADED, SERIES A «> Code : Discharge John Jones, William Brown, and Alexander White are partners in a business, their respective interests in the profits of the business being five-tenths, four-tenths and one-tenth. It is agreed between the partners that Mr. Jones' son be taken into the business as at January 1, 1916, on the understanding that White's interest in the business be increased to 12%, which increased share is now considered to be applicable to the four previous years, while the shares of Mr. Jones and Mr. Brown are to be 40% and 39% respectively, while Mr. Jones' son is to be given 9% interest in the profits of the business. It is further agreed that the value of the goodwill of the business, amounting to $50,000.00, be set up on the books. This amount is to be divided between Mr. Jones and Mr. Brown in proportion to their original interests in the profits. Mr. Jones is to transfer the sum of $6,000.00 to his son's credit, which will be in addition to the sum to be allowed him out of profits of previous years. The profits divided during the four years to December 31, 1915, were as follows: 1912, $41,030.00; 1913, $49,000.00; 1914, $52,- 000.00; 1915, $48,000.00. The balances at credit of the capital accounts at December 31, 1915, were: John Jones, $230,310.00; William Brown, $185,- 112.00 ; Alexander White, $21,809.00. Prepare a detailed statement showing the balances at credit of the various partners on January 1, 1916, after giving effect to the provisions of the new partnership agreement as above indicated. Ignore any question of interest. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Disciple From the following trial balance of the A. B. Stevens Manu- facturing Co., prepare a Balance Sheet as at December 31, 1915, and a Statement of Profits for the year. Accounts Payable $ $ 15,000.00 Accounts Receivable 70,000.00 Accrued Taxes 1,200.00 Advertising 3,000.00 Allowances 2,200.00 Capital Stock 100,000.00 Cash .- 15,000.00 Depreciation of Equipment 3,500.00 Discount on Sales 3,100.00 Discounts Received 1,800.00 Electricity 1,300.00 Factory Supplies and Expenses 3,600.0(J Freight on Purchases 9,000.00 Income from Bonds 1,000.00 Insurance 300.00 Interest Paid '. 300.00 Inventory December 31, 1914 50,000.00 Investment in Bonds 15,000.00 Notes Payable— secured by deposit of $15,000.00 of Bonds 10,000.00 Office Expenses 900.00 Out Freight 8,500.00 Plant and Equipment 40,000.00 Purchases 100,000.00 Rent 2,500.00 Repair Parts 1,100.00 Return Sales 1,000.00 Salaries— Office and Officers 10,000.00 Salaries — Salesmen 6,000.00 Salaries — Shipping Department 1,500.00 Salary — Superintendent 2,000.00 Sales 200,300.00 Salesmen's Expenses 2,100.00 Sales of Waste 1,200.00 Surplus 37,600.00 Taxes 400.00 Unexpired Insurance 800.00 Wages in Factory -. 15,000.00 $368,100.00 $368,100.00 The inventory at December 31, 1915, amounted to $45,000.00. The company's officials also have asked you to give them your opinion of the proper percentage to labor which they should use to cover overhead in figuring costs. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Discipline J. C. Thompson conducts a general real estate business but specializes in opening up new subdivisions. He agreed with Mr. M. C. Roberts, that, if Roberts would furnish the capital necessary to buy and develop the Happy Home subdivision, he, Thompson, would undertake to sell it for their joint account. Thompson was to receive no salary for selling the property and keeping the books, but all other selling expenses were to be charged as expense. No allowance is to be made for interest on partners' balances, but all other expenses are to be charged and the profits divided equally. On Feb. 1, 191G, they purchased the 20 acres comprising the subdivision, at $3,000.00 per acre, paid one-half in cash from Roberts' funds, and gave a 6% mortgage for the balance. By the terms of the mortgage, any part of the property could be released from the mortgage at any time by paying the pro-rata amount. In February and March the property was improved by grad- ing, etc., at a cost of $10,000.00, which also was paid from funds supplied by Roberts. The property was subdivided into 160 lots of equal size, 80 of which were listed to sell at $900.00 and the balance at $600.00. Forty-five of the $900.00 lots were sold in May and twenty- three in June. Twelve were still unsold at June 30. Twenty-nine of the $600.00 lots were sold in May and thirty-five in June, leav- ing a balance of sixteen still unsold at June 30. All of the lots were sold for one half cash, and the mortgages for the balance were immediately sold to banks at par without endorsement oi guarantee. In each case the lots were released from the purchase money mortgage by payment of the pro rata amount. The releases were obtained and the payments made on the last of the month in which the sale was made. The expenses of advertising and selling, amounting to $11,- 000.00 were paid by Thompson from the proceeds of the sales which he had deposited in his own account when they were re- ceived. He also made the payments on the mortgage. Prepare a statement showing the respective interests of the two partners, and also a statement showing the profits to June 30, 1916. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Discolor A is the owner and operator of a stone quarry which, owing to weather conditions, cannot be operated between December 1 and February 28. **B" caused damage to the quarry which de- layed the commencement of operations until April 15th, from which date the quarry was worked until November 30 and pro- duced 71,000 cubic yards at a quarry cost of 29c per cubic yard. The product was all sold at 77c per cubic yard. Overhead ex- pense for the year $10,000. "B" repaired the quarry at his own expense. You are required by the lawyer for *'A" to indicate the measure of consequential damage as a basis for action. In your answer illustrate your method. Code : Discount The following is a trial balance of the general ledger of a partnership in which the profits are shared equally at the end of the first year of its existence : Building and equipment $ 6,000.00 $ Merchandise and materials 7,000.00 Accounts receivable 4,000.00 Profit and loss account 5,700.00 John Smith, drawing account 2,500.00 Arthur Morris, drawing account 2.000.0U George Jones, drawing account 1.300.00 John Smith, capital account 10,000.00 George Jones, capital account 8,500.00 Arthur Morris, capital account 6.500.00 Accounts payable 3.500.00 The firm decided to sell the business and to dissolve the partnership, and procured a purchaser who offered the sum of $5,000.00 for the business including goodwill, etc. State how the proceeds of the sale should be apportioned among the partners, showing the amount each would receive. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Discourse The following is the condition of affairs of the "X" "Y" "Z" Company on December 31, 1912, when a receivership is applied for: TRIAL BALANCE OF X Y Z COMPANY Dr. Cr Goodwill $ 25,000.00 $ Real estate at cost 10,000.00 Building and plant 37,500.00 Machinery and equipment 32,500.00 Inventories material and supplies v 17,500.00 Finished and partly finished stock 36,000.00 Accounts receivable — Good 60,000.00 Doubtful 25,000.00 Bad 15,000.00 Notes receivable 10,000.00 Investments 5,000.00 Cash 5,000.00 Experimental and development expenses 22,000.00 Prepaid insurance premiums 3,000.00 Notes payable 100,000.00 Mortgage payable, secured by real estate 7,500.00 Accounts payable 61 ,000.00 Rentals due 5,000.00 Pay rolls accrued 10,000.00 Reserve fund 15.000.00 Surplus • 30,000.00 15.000 shares of $10.00 each, $5.00 paid up 75,000.00 $303,500.00 $303,500.00 The real estate has increased in value and is said to be worth $20,000.00, while it is estimated that the buildings and plant are fully worth $25,000.00, the machinery and equipment, being of a special character and unsuitable for any other business, are worth no more than scrap value, viz., $2,500.00. The materials and supplies are good and fully worth the price at which they are carried on the books, but of this stock, material of a value of $10,000.00 is pledged as collateral on warehouse receipts against accounts payable on open account. The finished and partly fin- ished stock, if put into saleable condition will bring $30,000.00, but it is estimated that it will cost $5,000.00 to accomplish this. Of the doubtful accounts, 50^ is all that is cons'idered collectible, while the notes are good and investment are of no value. Of the notes payable, $50,000.00 are fully secured by accounts receivable pledged thereagainst while all other accounts payable except those partially covered by raw material are unsecured and the rentals due and pay rolls accrued are considered as preferential claims. The unpaid subscriptions on the capital stock are considered to be worth 75% of the face value. Customers' notes to the extent of $25,000.00 have been dis- counted at the banks on the company's endorsement on which it is estimated $5,000.00 will eventually Drove to be uncollectible. Draw up a Statement of Affairs for submission to the credi- tors with relative Deficiency Account, showing separately the position of the unsecured creditors and of the stockholders, re- spectively. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Discover (a) The following figures are for three departments of a store in the central west. You are to prepare a table such as you would present to the proprietor showing for each department : 1. Cost of Sales 3. Gross Profit 2. Percentage of Cost to Sales 4. Percentage of Gross Profit Inventory first of month — January 1, 1917 Dept. Cost Price Retail Price A $ 12,045.87 $ 20,260.78 B 2,264.00 3,911.62 C 4,916.45 7,505.13 Purchases for January Returned Purchases Dept. Cost Retail on Cost on Retail Cost Retail A $260.25 $437.11 $ 1015 $ 20.00 $ 32.50 B 259.24 419.74 $ 25.40 C 303.72 458.26 .'..... 27.25 Sales for January Mark down Dept. Sales on Retail A $ 1,332.94 $0.99 B : 280.89 2.49 C „... 909.09 3.20 Depreciation of 2% is figured on the cost of all purchases. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dock "X" and "Y" purchase an invoice of coffee for $12,000. "X" contributes $7,500 and "Y" $4,500. They sell "Z" a one third interest in the venture for $6,000. How much of the $6,000 should "X" and "Y" receive, respectively, in order to make "X," "Y" and "Z" equally interested? Code : Docket "A" and "B" carried on business in partnership and divided profits and losses in proportion to their capital, three-fifths and two-fifths, respectively. On January 1, 1915, "A's" capital was $52,500.00 and "B's" $35,000.00, as shown by a balance sheet of that date. They agreed to admit "C" as a partner from the same date on the following terms : (1) Assets and liabilities and capital to be taken as shown in in the balance sheet; (2) $12,500.00 to be added to the assets for goodwill; (3) The amount of goodwill to be added to **A's" and "B's" capital in the proportion in which they divide profits ; (4) "C" to pay to the partnership such a sum as will give him a one-fifth share in the business. (a) State what amount of capital ''C" has to bring in. (b) Set out the capital accounts of each partner in the new partnership, and (c) State in what proportions the profits will be divided in the future, ''A" and ''B," as between themselves, sharing in the same proportions as before. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dockyard "A," having a capital of $10,000, took "B" into partnership on condition of his bringing in $5,000. In ascertaining profits each year, "A" was to have $3,000 salary, and "B" $1,500, and 5% interest upon capital was to be allowed to each partner, but no interest charge was to be made on withdrawals. The profits thereafter were to be divided: Up to $9,000 : Two-thirds to "A," and One-third to "B." Any excess equally. No limitation as to withdrawals in anticipation of profits was shown in the deed of partnership, and at the end of the first year "A" had drawn $3,000 and "B" $750 in excess of their salaries. The profit for the year, before making the above charges, amount- ed to $17,500 Complete the profit and loss account, and show the partners* accounts as they should appear. Code : Doctor On December 31, 1912 three partners had the following amounts at the credit of their Capital Accounts: X $25,000.00 Y 15,000.00 Z 10,000.00 On January 1, 1912 they had to the credit of their Draw- ing Accounts: X I 3,750.00 Y 2,500.00 Z 2,000.00 Profits are to be divided in the same proportion as the capital up to $10,000.00; above that amount X gets 25%, Y, 35% and Z, 40%. X drew during 1912 | 2,500.00 Y " " " 2,000.00 Z •• " " 1,500.00 The profit for the year 1912 amounted to $15,000.00, be- fore charging interest on capital (to which all are entitled) at 4%. Give the drawing account of each partner on December 31, 1912; interest on drawings to be ignored. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Doctrine Smith, Bro^vn and Jones agree to join in partnership for the purpose of working a patent. The patent is the property of Jones. Smith puts into the business in cash $10,000.00 and Brown $15,000.00. Jones has no cash capital, but his patent and machin- ery are taken in as equivalent of $7,500.00 and $2,500.00, respec- tively, and are credited to. his capital account accordingly. The life of the machinery is estimated at ten years, and the patent has fifteen years to run. Half of the annual depreciation on the patent is to be charged against Jones' drawing account. Jones is to draw $100.00 per month as manager of the business, and is to have one-third of the net profits (subject to depreciation as above), the remainder of the net profits is to go two-fifths to Smith and three-fifths to Brown. The profits (before charging management salary and deprecir ation on machinery and patents), and the drawings, are as fol- lov/s : 1906. 1907. 1908. Profits $7,500.00 $10,000.00 $20,000.00 Drawings by Smith 1,000.00 750.00 1,000.00 Drawings by Brown 1,500.00 1,000.00 1,250.00 Drawings by Jones (in excess of salary and before charging depreciation) 500.00 400.00 450.00 You are required to: (a) Prepare final profit for each year showing distribution of net profits to the partners. (b) Prepare Capital Accounts of the partners for each year. (c) Prepare Patent and Machinery Accounts for each year. . Note. — In answering this question it is not necessary to show journal entries. Interest on capital is not to be considered. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Document H. Pratt, F. Jones and J. Todd entered into partnership on July 1, 1914. Pratt brought in as capital $15,000.00 ; Jones, $10,- 000.00, and Todd, $5,000.00. They were to share profits in the proportions of three-sixths, two-sixths and one-sixth, but as Jones and Todd were the working partners they were to be credited at the close of each current year, by way of salary, with the respec- tive sums of $1,250.00 and $750.00. Pratt was to be allowed to draw each year as against profits $2,500.00, Jones $1,650.00 and Todd $1,250.00, but interest at 6% was to be charged on such drawings. The partnership agreement also provided that Jones and Todd should have the right to bring in extra capital not exceeding $8,000.00 each, and that upon such capital they were to be credited with 6% interest. On closing the books on June 30, 1915, it was found that the partners had drawn : Pratt Sept. 1.... $ 500.00 Nov. 1 750.00 Dec. 1 1,000.00 Jones Aug. 1 $ 400.00 Sept. 1 350.00 Oct. 1 500.00 Dec. 1 425.00 Todd Aug. 1 $ 300.00 Sept. 1 250.00 Nov. 1 400.00 Dec. 1 100.00 On October 1, Jones brought into the business as additional capital the sum of $1,250.00 and Todd $2,000.00. On closing the books at June 30, 1915, and before the salary or interest of partners on investments and loans had been dealt with, the balance to the credit of Profit and Loss stood at the sum of $11,000.00. Make the closing entries and prepare Capital and Drawing Ac- counts showing the exact position of the partners on July 1, 1915. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dodger J. Smith's Balance Sheet showed the following Assets and Liabilities : Land and Building $750,000.00 Merchandise 500,000.00 Work in Progress 213,000.00 Sundry Debtors 275,000.00 Patent Rights 40,000.00 Cash at Bank 25,000.00 Sundry Creditors 250,000.00 Sundry Bills Payable 30,000.00 * A corporation (J. Smith, Sons & Co.) was formed to pur- chase the business for the sum of $1,750,000.00, payable $500,- 000.00 in common stock, $500,000.00 in preferred stock, $500,- 000.00 in 41/2% debentures, and the balance in cash, the com- pany agreeing to take over the assets of J. Smith (with the excep- tion of the bank balance) and to assume the liabilities to creditors. The capital stock of the company was $2,000,000.00, divided into 250,000 common and 150,000 preferred shares of $5.00 each. 50,000 shares of common stock and the balance of the pre- ferred stock were offered for sale to the public, payable 25% on application, 25% on allotment and 50% one month after allot- ment. These shares were all sold and were allotted by the com- pany on March 1, 1910. By June 30, 1910, all moneys due thereon had been received by the company except the amounts due on allotment and call accounts in respect of 200 common and 100 preferred shares, and the directors had paid the cash indebtedness to the vendor and the organization expenses of $25,000.00 and had declared the shares forfeited upon which allotment and calls were in arrears* Give the entries which should appear to record these trans- actions in the company's journal, cash book and ledger. Give also the company's balance sheet after the opening of the books. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dog Ear "P," "Q" and "R" are partners, shar- ing in the profits in the proportion of 5, 3 and 2. Their balance sheet on January 1st, 1913, stood thus: LIABILITIES "P," Capital £3,500 "Q" do 2,100 "R" do 800 Bank 1,300 Creditors 1,820 £9,520 ASSETS Debtors £2,800 Stock 6,600 Cash 120 £9,520 Owing to the rumors of the firm's in- stability, the creditors were pressing for immediate payment. As the stock and debts could not be realized at short notice, "P" agreed to bring into the firm 3,000 £1 shares in Haberdashers, Limited, at an agreed value of £2750. The shares were sold by the firm for £2650, the ex- pense of £20 being paid by the firm. There was no stipulation in the partner- ship deed as to the respective shares of the partners in the capital. The firm paid off the bank overdraft and reduced the creditors by £1300, but, finding that they could not continue business, determined to dissolve. Owing to the stock and debts being both very old, they only realized £2600 and £1600, respectively, and the cost of realization" was £200. Discuss the question whether "P's'* new contribution is to be treated as capi- tal or loan. Close the accounts and make the final adjustment between "P," "Q" and "R," showing the difference caused by regarding "P's" contribution as capi- tal or as loan. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dome On the date of a partnership settlement, two contracts are in hand and uncompleted ; one for $1,200, estimated to cost $900, is three-quarters finished and is^ already charged to customer at $1,200 as of date of contract; the other for $2,000, estimated to cost $1,500, is half finished, and no entry has been made thereof. Suggest entries necessary to adjust these accounts so that antici- pation of profits shall not occur. Code: Domestic A. J. Andrews has conducted a retail business for three years. His profits have been $7,000.00 for 1913, $8,000.00 for 1914, and $10,000.00 for 1915 before charging any salary for his own serv- ices. In order to obtain the capital needed to purchase the new fixtures necessary in a new store, which he proposes to lease, and also to increa«^e his stock of merchandise, he decides to incor- porate on Dec. 31, 1915, for $50,000.00 and to sell part of the capital stock. C. F". Martin agrees to purchase $20,000.00 of the stock at par and to pay for it imniediitely. It is also agreed that in the new corporation Andrews is to be allowed credit for goodwill equal to the sum of his profits for the past three years after de- ducting an innual salary of $4,000.00. Draft the journal entries necessary to adapt Andrews' books for use as the books of the corporation, and prepare a Balance Sheet showing the conditions as completed. Andrews presents the following list of assets and liabilities, which Martin accepts as correct : Assets : Furniture and Fixtures — Book value $0,000.00 — Worth $4,000.00. Merchandise— Market value $20,000 00— Cost $18,000.00 \ccounts Receivable— Book value $0,500.00— Collectible $0,000.00. Cash— $400.00. Liabilities : Trade Creditors— $8,900.00. Bank Loans— $1,500.00. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dominical "A" and *'B" entered into a venture in flour, agreeing to share profits and losses equally. *'A" supplied 3,000 sacks of flour at $5.00 per sack, which were consigned to '*C" on June 25, 1914. "A" drew on "B" at three months' date from July 1, 1914, for the price of the flour, "A" discounting the note at his own bank and paying discount charges, $150.00. On June 30 "A" paid in connection with the shipment of the flour : Insurance Premium $100.00 Loading Charges 150.00 Freight 500.00 *'C" disposed of 1,000 sacks of flour at $7.50 a sack, and he granted a note in favor of *'A" at one month's date from August 1 for the amount, less his commission of 5%. On August 7, 1,000 sacks of flour were reshipped by "C" to "B," who sold them at an average price of $10.30 per sack, and received a commission of 5% for his trouble. "B" made the following disbursements on August 20, 1914: Freight and Insurance $250.00 Landing Charges 150.00 On August 31, 1914, "A" sent a check to "B" for the balance due to the latter, including his share of the profit on the trans- action. Disregard interest on the account. Prepare a Profit and Loss Account of the transactions and also the account of "B" in "A's" books. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Domicile The balance sheet of the Greenleaf Manufacturing Co. at December 31, 1913, and December 31, 1914, may be summarized as follows : Dec. 31, 1913 Dec. 31, 1914 Goodwill $ 200,000.00 $ 230,000.00 Land and Buildings 450,000.00 750,000.00 Machinery „ 200,000.00 400,000.00 Tools 40,000.00 80,000.00 Unexpired Insurance 3,000.00 4,000.00 Inventories 400,000.00 375,000.00 Accounts Receivable 175,000.00 250,000.00 Cash 25,000.00 20,000.00 Investment in Stocks and Bonds 95,000.00 $1,588,000.00 $2,109,000.00 Capital Stock $ 800,000.00 $1,100,000.00 Bonds 350,000.00 500,000.00 Bank and Other Loans 70,000.00 80,000.00 Accounts Payable 145,000.00 125,000.00 Accrued Interest 7,000.00 11,000.00 Accrued Taxes 4,000.00 6,000.00 Surplus 212,000.00 287,000.00 $1,588,000.00 $2,109,000.00 During the year a dividend of 4% was declared and paid on the stock outstanding at the beginning of the year. $7,000.00 was provided for the depreciation of the buildings, $16,000.00 for ma- chinery, and $4,000.00 for tools. The bonds were sold for par. The stock was sold at 90 and the difference was charged to goodwill account. Tn the light of the above facts interpret the changes that have taken place in the financial position of the company between the two dates and, so far as possible, indicate how they were effected. PRACTICAL PROBLEMS, GRADED, SERIES A CODi:: DOMJNANT The following are the assets and liabilities of Jones & Jones at December 31, 1914: ASSETS LIABILITIES Accounts Receivable $30,000.00 1914: Mdse. on Hand 17,500.00 Accounts Real Estate and Bldgs 10,000.00 Payable $20,000.00 Plant and Machinery 7,500.00 Capital at Jan. 1, Cash 10,000.00 John Jones..$40,000.00 Invested in Union Pacific David Jones 25,000.00 65,000.00 Bonds 25,000.00 It is explained to yon that David Jones is retiring from the firm at December 31, 1914, and the following additional informa- tion is given to enable you to adjust the partnership accounts and carry through the settlement : 1. The books have been kept by single entry, 2. Profits and losses are shared equally. 3. Partners are to get interest for the year at 6%*on their credit balances on January 1, as shown. There are no drawings apart from salary. 4. 2V,% is to be taken off Accounts Receivable, 3% off Mer- chandise on hand, and $1,000.00 off Plant and Machinery. 5. The retiring partner receives an allowance of $5,000.00 in respect of goodwill. fi. David Jones' interest in the firm will be paid out by John Jones — who continues the business — by bills at six, twelve, eighteen, and twenty-four months from December 31, with interest at 6% added. Prepare a P>alance Sheet, after giving effect to the foregoing, showing John Jones' position after the settlement ; also make up an account to be submitted to the retiring partner. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dominate On June 30, 1913, "X" and ''Y", partners, operating a manu- fatcnring plant, incorporated under the laws of the State of New York as the "X" and '*Y" Manufacturing Company with an authorized capital of $500,000.00. The corporation purchased all of the assets and assumed all of the liabilities of the partnership as set forth in a balance sheet dated June 30, 1913, giving as consideration its entire issue of capital stock, which stock was all taken by "X" and "Y". BALANCE SHEET, JUNE 30, 1913 ASSETS Plant and Machinery $175,000.00 Material on Hand, per Inventory 102,625.00 Accounts Receivable 113,750.00 Notes Receivable 7,500.00 Cash 32,125.00 LIABILITIES "X," Capital $240,000.00 "Y," Capital 160,000.00 Accounts Payable 26,250.00 Notes Pavable 3,500.00 Wages Due and Unpaid 1,250.00 Total $431,000.00 $431,000.00 The change in organization was not reflected on the books at the time of incorporation, but at the close of the fir.st fiscal year, June 30, 1914, of the corporation's existence, the condition of the books was shown by the following trial balance : TRIAL BALANCE, JUNE 30, 1914 "X" Capital $ $ 240,000.00 "Y" Capital 160,000.00 Plant and Machinery 187,500.00 Material per Inventory, June 30, 1913 102,625.00 Sales 657,025.00 Purchases 240,000.00 Labor 172,500.00 Office Salaries 35,000.00 Traveling Expenses 12,000.00 Interest 3,000.00 Stationery and Printing 875.00 Rent and Taxes 21,000.00 Discount and Allowances 11,250.00 Fuel 23,000.00 Insurance 875.00 Freight, Inward 8,750.00 Commission 31,875.00 Advertising 2,500.00 Notes Receivable 30,575.00 Notes Payable 5,500.00 Accounts Receivable 180,575.00 Accounts Payable 39,250.00 Cash ...., 37,875.00 $1,101,775.00 $1,101,775.00 Depreciation on plant and machinery 5% ; unexpired insur- ance $375 ; bad debts $1,625 ; inventory of material on hand, June 30. 1914, $98,025. Make such entries as would convert the partnership books into those of the corporation, and prepare a statement of income and profit and loss for the year July 1, 1913, to June 30, 1914, and a balance sheet as of June 30, 1914. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dominee "A." **B." has on December 31, 1914, at "C." "D/s" credit xa his accounts payable ledger $1,800.00, and at his debit in the Sales Ledger $4,000.00, both due for payment in January, less 2%%. On January 25, "A." "B." draws on "C." "D." at three months' date, for the balance due to him, plus interest at 5% per annum. On January 28, "A." "B." discounts the note with his bankers, paying $25.00 for discount. Make entries in journal entry form in "A." "B.'s" books, recording these transactions, keeping in view that there are ac- counts in the General Ledger controlling the Accounts Payable and Sales Ledgers. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Domineer Alexander, Brown, and Clark entered into a partnership ar- rangement on January 1, 1914, their business being the operating of a dry goods store in Galesburg, Illinois. ' At December 31, 1914, the trial balance of the partnership, before making any ad- justments, was as follows: Dr. Cr. Alexander, Capital Account $ $ 50,000.00 Brown, Capital Account 30,000.00 Clark, Capital Account 20,000.00 Inventories of Merchandise, January 1, 1914.... 125,000.00 Accounts Receivable, Customers 75,000,00 Accounts Receivable, Employees 3,000.00 Cash in Bank „. 5,000.00 Cash on Hand 1,000.00 Notes Payable 60,000.00 Accounts Payable - 15,000.00 Sales 500,000.00 Purchases, including Freight 323,000.00 Salaries and Store Expenses 125,000.00 Bad Debts Written off 2,500.00 Interest Paid on Notes Payable 6,000.00 Salary to Mr. Alexander 2,500.00 Salary to Mr. Brown 4,000.00 Salary to Mr. Clark 3,000.00 $ 675,000.00 $ 675,000.00 Prepare an Income, Profit, and Loss Account for the year 1914 and a Balance Sheet as at December 31, 1914; also prepare an account for each partner, showing transactions for year, after giving eflFect to the following adjustments : PRACTICAL PROBLEMS, GRADED, SERIES A Code: Doming Define the following accounting words ^nd terms 1. Balance Sheet Audit, 2. Appraisal, 3. Cost System, 4. Fixed Capital, 5. Capital Expenditure, 6. Administration Expenses, 7. Trade Discount, 8. Raw Material, 9. Local Improvement Assessment, 10. Purchase Journal, 11. Preliminary Expenses, 12. Work in Progress, 13. Petty Cash Fund, 14. Books of Original Entry, 15. Inter-Company Profits, 16. Depreciation Reserve, 17. Internal Check, 18. Joint Account, 19. Partner's Drawing Account, 20. Amortization. Code: Dominic "X" receives from his customer, "Y," a note in settlement of his account. This note "X" discounts at his bank. Draft entries. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Domical An electric light company finds that its feed wires to a cer- tain district are not adequate to carry the load and installs a new wire on the same poles. The cost of the new line was $15,000.00 for material and $7,000.00 for the expense of installation. The cost of that part of the old line which was removed was $6,000.00 for material and $3,000.00 for installation. The salvage value of the old material was $5,000.00. The cost of that part of the old line which was not removed was $4,000.00 for material and $3,000.00 for installation. The line had been in service for 8 years, and depreciation had been regularly provided at 3% of the cost value of the transmis- sion system. Draft the journal entries necessary to record properly the facts. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Domino "X" and "Y" enter into partnership, "X . ' capital being $20,000, and "Y's" $15,000. Capital is to bear interest at 10% per annum ; profits are to be divided equally between thp parties. The profits for the first two years (after charging i:?terpst on capital) were: 1st year $6,000 2nd year 7,500 and the drawings of the partners (in excess of salaries) were: 1st year 2nd year 3 - $1,500 $1,750 Y" 1,200 1,500 At the end of the 2nd year "Z" was admitted to partnership, and put into the business the same amount of capital as "Y" had in the business at that time, and on the same conditions as to inter- est and division of profits. The profits of the business for the third year after charging interest on capital were $12,000, and the partners' drawings in excess of salary were : ;;x;' ^,,750 Y" 1600 "z" - — „ lisoo « Construct the capital accounts of the partners for each of the three years, showing the balance of each at the end of the third year. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Donate "A" and "B," who had hitherto been in business separately, decided to enter into partnership on July 1, 1905. The balance sheets of "A" and "B" were on that date as follows: "A." LIABILITIES: Accounts Payable $1,000 Capital Account 5,000 $6,000 ASSETS : Furniture $ 750 Accounts Receivable (face value) 2,500 Merchandise 2,550 Cash 200 $6,000 "B." LIABILITIES: Accounts Payable $1,500 Capital Account 3,000 $4,500 ASSETS : Furniture ^ $ 600 Accounts Receivable (face value) 1,500 Merchandise 2,000 Cash 400 $4,500 It was ^reed that "A" and "B" should take over their re- spective accounts receivable at $200 and $150 less than the face values shown in the balance sheets, these amounts to be charged against their capital accounts and carried on the partnership books as a reserve for bad and doubtful acci>unts. Of "B's" furniture, only $250 was to be taken over by the partnership. With the above exceptions, the assets and liabilities of the parties were to be taken over by the partnership at the balance sheet figures, except that "B" was to invest in the partnership, in cash, a sum which, after making the adjustments above referred to, would make his capital account the same as that of *'A." Draw the balance sheet of the "A" and "B" partnership on July 1, 1905, giving effect to the foregoing provisions. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Done **A" & "B" purchased the assets and took over the liabiHties of a business for which they paid $40,000, each providing $20,000. The price was made up as follows : Real Estate $17,500 Plant and Machinery 10,250 Stock of Merchandise 15,000 Accounts Receivable 11,920 Total Assets $54,670 LESS :— Accounts Payable $13,250 Allowance for discounts and bad debts 1,420 $14,670 Purchase money paid in cash $40,000 "A" & "B" agreed to admit "C" into partnership, on the terms that they first add to the price paid, $4,000 for goodwill, and that "C" bring in a sum in cash sufficient to make him an equal partner. ''C" paid the necessary sum into the partnership ac- count at the bank. Make the opening entries in the journal of the new firm, re- cording the above transactions, and draw up a balance sheet as at the commencement of "A," "B" and C's" partnership, assuming that all the capital had been brought in before there was any change in the assets or liabilities. Code : Donor Two parties, "A" and **B," have been in business for the three years ending December 31, 1904, on which date they agree to dissolve partnership. "A" takes over the business, paying "B" $7,500 for his share of the goodwill. "A" has drawn out each year $2,000, and "B" $3,000. "A's" capital at start was $10,000, and "B's" $12,500, and the profits of each year have been $3,500, $4,200 and $4,600 respectively. There was no deed of partner- ship, nor any arrangement as to interest on capital. Draft ac- counts showing "A's" capital on taking over the business, and the amount "B" will receive on retiring. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Doom A partnership was formed July 1, 1907, to act as factory selling agents with capital invested by Baker $5,000, Draper $7,000, Fowler $8,000, profits and losses to be shared in propor- tion to original capital investments, no interest to enter into part- ners' accounts. On December 31, 1909, the books, which had been badly kept, showed the following balances which were not disputed by any of the partners : Baker net credit $3,000, Draper net debit $3,370, Fowler net credit $4,650; cash in banks and on hand $804.20 ; expense debit $4,550 ; interest credit $350 ; accounts re- ceivable factories $2,240 ; investment account $12,000. The firm holds a number of one year sales contracts under which the minimum guaranteed will net $15,000 in commissions. The factories make shipments to customers direct and send monthly statements to Baker, Draper and Fowler of shipments and commissions. The investment account represents holdings at par of 75% of the capital stock of a company on whose books at the end of 1909 appears a deficit of $2,700. Baker and Draper have agreed to sell their interest in the business as of December 31, 1909, including the firm name, to Fowler for 200 cents on the dollar, taking notes covering 18 months. Prepare a statement showing the settlement between partners on December 31, 1909, and a balance sheet as of January 1, 1910, of Baker, Draper and Fowler. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Door Charles Cabell, William West and Henry Hart form a partnership for the purpose of engaging in the manufacture of plug and smoking tobaccos. Cabell invests $75,000, West $50,000, and Hart $25,000. Profits or losses are to be shared as follows : Cabell 1-2, West 1-3, and Hart 1-6. Interest is not to be al- lowed on capital, nor charged on with- drawals, but each partner's withdrawals during any one year are not to exceed one-tenth of his capital in the business. At the end of their first fiscal year their ledger shows the following balances : Charles Cabell, Capital Account $ $ 75,000.00 William West, do 50,000.00 Henry Hart, do 25,000.00 Charles Cabell, With- drawal Account 5,842.17 William West, do 4,179.16 Henry Hart, do 2,033.88 Machinery 11,026.92 Land and Buildings 25.000.00 Furniture and Fixtures.. 1,866.13 Cash 8,730.45 Accounts Receivable 131,244.49 Bills Receivable 4,999.97 Accounts Payable 6,138.16 Bills Payable 118,060.62 Sales— Plug Tobacco 249,472.43 , do —Smoking Tobacco 61,882.25 ' do —Stems 841.95 Leaf Tobacco 200,044.57 Licorice and Flavoring.... 21,918.66 Boxes 8,572.10 Labor „ 25.182.47 Stamps 48,476.24 Power, Light and Heat.. 3,571.60 Factory Expense 7,380.55 Hauling In 1,451.30 Salaries 12,443.71 Office Expense 4,228.87 Insurance 1,682.90 Interest and Discount.... 9,164.47 Postage 1,211.97 Attorneys' Fees 769.25 Salesmen's Salaries, Commissions, etc 38,795.15 Advertising 5,149.09 Lost Accounts 1,429.34 $586,395.41 $586,395.41 Ten per cent is to be charged oflf from Machinery Account, to cover deprecia- tion, and a reserve equal to 2 per cent of the Accounts and Bills Receivable is to be created to cover possible undeveloped losses. The unexpired insurance premiums amount to $331.11. The inventories are: Finished Goods $38,189.42 Goods in Process „..„ 11,209.35 Leaf Tobacco 49,128.98 Licorice and Flavoring 1,511.68 Boxes 1,073.04 Stems _ 43.31 Draft journal entries for closing the books (separating Profit and Loss Ac- counts into Manufacturing, Trading, and Profit and Loss Divisions) and prepare a balance sheet. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dormer "A" and "B" carried on business in partnership for a number of years. Their original capital was $4,500, which had been contributed as to two-thirds by "A" and one-third by "B." The profits and losses were divided in the same proportions. "A" died March 31, 1907, and "C" was appointed to realize and dis- tribute the assets. The last balance sheet was dated September 30, 1906. The assets realized $15,000. There was owing for accounts payable $6,000, and the costs and expenses in connection with the winding up of the business were $500. The balances on part- ners' accounts at the date of "A's" death were: "A," capital account, $3,000; "A," current account (credit), $3,750; "B," capital account, $1,500; "B," current account (credit), $3,500. Continue and complete the partners' ledger accounts; credit "A" with interest at 5% on $250 for 6 months, and prepare a final statement embodying the results of the realization. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dorsal "The firm "C" & "D" carry on business as dry goods mer- chants at Seattle and Tacoma, and decide to dissolve partnership on Dec. 31, 1907. At that date their balance sheet was as follows: ASSETS : Cash $ 100.00 Merchandise — At Seattle $12,000.00 At Tacoma 7,250.00 19,25000 Accounts Receivable „ 17,000.00 Furniture and Fixtures — At Seattle $ 1,700.00 At Tacoma 1,100.00 2,800.00 Goodwill 3,000.00 $42,150.00 LIABILITIES : Overdraft $ 1,050.00 Accounts Payable 11,100.00 "Cs" Capital _ 20,000.00 "D's" Capital 10,000.00 $42,150.00 The partners divide in proportion to their respective capital investment, and agree that at the date of dissolution "C" shall take over the merchandise and furniture at Seattle, and "D" the merchandise and furniture at Tacoma, at the values shown in the above balance sheet. The accounts receivable realize $16,000, and all the liabilities are paid less $300 discount on accounts payable. The realization is completed by June 30, 1908, and you are required to continue all the accounts appearing in the balance sheet up to and including that date, and to show the final closing of the accounts, (including those of the partners). PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dotage A. is a manufacturer of carpets and his balance sheet at a certain date shows as follows : ASSETS Cash in Bank $ 815.00 Real estate, appraised value.^ 20,000.00 Machinery, after 10% depreciation 40,000.00 Book accounts, receivable 7,227.50 Inventory, stock finished 11,000.00 " stock in looms 850.00 " raw material and supplies.. 107.50 $80,000.a) LIABILITIES Bills payable $22,000.00 Book accounts payable 28,000.00 He agrees with B. to sell him one- half interest in the business for the sum of Twenty Thousand Dollars, to be con- tributed to new firm, the new firm to take the assets of A., with the exception of the real estate, and assumes all the liabilities, and that the goodwill of the business of A. should be rated at $20,000 in the new firm's books. It was discovered shortly after the commencement of business of the new firm that the inventory of fin- ished stock was incorrect, and that the value should have been stated at $8,500 instead of $11,000 and that of the book accounts receivable only $6,227.50 were collectible, one of the debtors, owing $1,000, having failed and absconded, leaving no assets, previous to the forma- « tion of the co-partnership, which fact was known to A., and his bookkeeper had been instructed to charge oflf the ac- count but failed to do so. No correction was made of these discrepancies. The trial balance at the end of one year's business showed as follows : A, Capital account $ 25,000 B, Capital account 25,000 A. Personal account $ 3,100 B, Personal account 3,100 Merchandise 78,000 Book accounts receivable 15,400 Expense 1,500 Machinery 40,000 Manufacturing expense 22,000 Wages 44,000 Rent 1,500 Profit and loss 600 Book accounts payable 45,200 Cash 22,000 Goodwill 20.000 $173,200 $173,200 The inventory at close of year footed up: Finished stock $ 28,000 Stock in looms 1,500 Raw material and supplies 1,500 $31,000 No amount had been charged oflF for depreciation of machinery, which should be 10%. Make proper entries to correct books, and formulate balance sheet showing the standing of the firm, and give reasons for any correction that may be made. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dotation How would you vouch the following items appearing in the books of a company you are auditing; and state specifically the papers or documents you would call for in support of the dis- bursement : (1) The Rapid Typewriter Co. — Typewriters purchased in exchange for old ones....$ 3,000.00 (2) Alex. Greene — Real Estate acquired for plant site 7,500.00 (3) Automatic Sprinkler Co. — Installment paid on sprinkler system 10,000.00 (4) John Mace — Stumpage purchased 625.00 (5) Safety Trust Co. — Par Value $3,000.00 Bonds 2,970.00 (6) Machinery constructed and erected by the com- pany's staff 10,500.00 (7) Thomas Jones, Salesman — Traveling Expenses for week 73.20 (8) A. B. Co.— Note payable discounted 987.50 PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dote John Williams is a building contractor who enters into a contract with Frank Brown by which they agree that they will make a joint bid to design and construct a proposed office build- ing. The contract provides that Brown and Williams are to share equally in the profits or losses of the venture. Brown is to supply the larger part of the working capital necessary and is to be allowed interest at 6% on the excess of his investment over the investment by Williams. They are successful in securing the contract for the erection of the building, but owing to adverse physical conditions the cost considerably exceeds the bid. At a meeting to effect a settlement, they each present statements of expenses which are agreed upon with the exception of certain items included in Williams' bill, which Brown claims are excessive, although he acknowledges the accuracy of all the facts involved. In order to settle the matter amicably they ask your opinion of the justice of the following charges by Williams: Concrete Mixing Machine— Cost, $3,000.00. Used for four months on this job and used on the average 10 months per year. Interest at 6% is $180.00 per year, 4/lOths year .$ 72.00 Depreciation at 15% is $450.00 per year, 4/lOth year.... 180.00 Repairs, average cost $100.00 per year, 4/lOth year 40.00 Second hand lumber, used for platforms, etc. Used by Williams on a previous job and destroyed during con- struction of this building. For the purpose it was fully as good as new lumber and will have to be replaced by new lumber. Cost to replace 1,500.00 Proportion of Material Yard Expenses. Determined by ap- plying to the total yard expenses for the year, the ratio of the purchases for this contract to the total purchases for the year 300.00 Special Shape Steel Beams. — Taken from Williams' material yard. Originally bought for a previous contract at a cost of $1,500.00 but were never used. If they had not been used on this contract they would have been sold as junk for about $500.00. Cost to buy in present market 2,000.00 PRACTICAL PROBLEMS, GRADED, SERIES A Code : Doth John Doe and Richard Roe started in business in 1910 as a partnership and although the business was incorporated at December 31, 1914, the old books were continued and no entries were made to record the change to the corporate form. The assets and liabilities of the firm at December 31, 1914, are shown on the books as follows: Land $ 10,000.00 Notes payable $ 10,000.00 Building 20,000.00 Accounts Payable 15,000.00 Machinery and Capital Acounts— Equipment 15,000.00 John Doe..$45,000.00 Accounts Receivable 25,000.00 Richard Notes Receivable 5,000.00 Roe 54,000.00 99,000.00 Cash 4,000.00 Merchandise 45,000.00 $124,000.00 $124,000.00 No definite agreement has been reached as to the dispo- sition of the diflFerence in the capital accounts of the partners and you are required to state the reasons in favor of the treat- ment you recommend. For the purposes of the remainder of this problem you will assume that the treatment you have recommend- ed has been adopted. Give the journal entries necessary to adapt the books of the partnership to the use of the corporation based on the above information. Also prepare a balance sheet after the entries have been posted. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dotterel The Nitrite Deposits Company is incorporated locally to take over the business in Chile of Messrs. W. E. Greetham and S. O. Else. The assets of the partnership are valued at $1,000,000.00 exclusive of any goodwill. The company is incorporated with a nominal capital of $2,000,000.00 in shares of $100.00 each, of which the vendors receive 15,000 shares, and the remainder are issued to the public at par. The vendors enter into an agreement by which they hand back 2,000 shares as a gift to the company after the issue to the public has been effected. The board decided to take these shares up on the books at $50.00 each, which was done. During the year, however, the shares were sold, and realized an average price of $90.00 per share, and it is now proposed to credit the difference to Profit and Loss Account. (a) State your views as to this treatment, and if you do not consider it correct, indicate the course you would recommend should be followed, and state also if your answer would be the same in the event the company had been capitalized at only $1,000,000.00 and the vendors' and other shares had been reduced proportionately. (b) Draft the entries necessary to record the above trans- actions on the books of the company. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Double The condensed trial balance of a partnership follows ; Partner ''A/' capital $ $ 65.000 Partner "B," capital 25,000 Merchandise „ 50,000 Accounts Receivable 51000 Partner "A," loan 1 "." ' 20,000 Fixtures, etc _ 1 1,500 Lash Items i 500 Partner "A," interest Z"™Z^"I!""^Z".." ' 3 500 Partner "B," interest 2000 Accounts Payable Z la.'oOO Proht and Loss 14 500 $128,500 . $128,500 ^ ■ ■ * ■ - I N The partnership agreement provides for no salaries of part ners. Profits and losses are to be divided equally between part ners. The facts disclosed by the profit and loss account lead to a dissolution. It is agreed that assets shall be applied to liquidation as fast as realized. They become applicable in the following order and yield the valuations named : cash items and fixtures, 100% ; merchandise, 40% ; accounts receivable, 80%. Show the entries that you would make covering the liquidation and for finally closing the books. Code : Doubled Suppose that, for the corresponding figures in the preceding question the following were substituted: Partner "A," capi- tal, $35,000; Partner "B," capital $20,000; Accounts Pay- able, $48,000; merchandise yielding 25% of valuation, and ac- counts receivable, 40%. All other items are the same as before. Show the entries covering the liquidation, assuming that neither partner personally has more than $5,000 of property beyond his share in the assets of the business and that this amount is availa- ble, if necessary, toward liquidating the debts of the firm, and that, if this is not enough, the partners are by bankruptcy proceed- ings acquitted of further liability. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Doubt "X" and **Y" were co-partners, sharing equally the net profits of the business : "Y" had exclusive charge of the business and of the accounts of the firm, with duty of furnishing to "X" at the close of each year a statement of the condition of the firm's accounts, together with details of the profit and loss account for the year. According to the statements rendered by "Y" for the years 11)00, 1901, 1902, the following conditions of account appeared: On Jan. 1, 1900, ''X's" capital account was $135,000 and the inventory amounted to $175,000; the purchases during the year were $950,000 ; the sales were $1,175,000 ; expenses were $110,000 and the inventory Dec. 31 amounted to $160,000. For the year 1901 the inventory Jan. 1 was $160,000; the purchases were $875,000 ; the sales were $1,180,000 ; the expenses were $125,000 and the inventory Dec. 31 amounted to $150,000. For the year 1902 the inventory Jan. 1 was $150,000, the purchases were $910,000; the sales were $1,210,000; the expenses were $130,000, and the inventory Dec. 31 amounted to $110,000. "X" had an examination made of the books and the follow- ing irregularities in the accounts were thereby discovered: 1. There were included in the sales for 1902 goods at an estimated cost of $20,000, which formed no part of the inven- tories or purchases. 2. Goods were omitted from the inventories of several years as follows: Jan. 1, 1901, valued at $30,000; Jan. 1, 1902, valued at $50,000; Jan. 1, 1903, valued at $50,000. State "X's" capital account for the several years as it would appear from the statements rendered by "Y," and determine and state what modification of it will result from a correction of the above irregularities, giving the correct amount of his capital for each year. Give details of process by which you reach your results. t^ PRACTICAL PROBLEMS, GRADED, SERIES A Code: Doubtful Black & White were partners upon the following terms : 1. They were to receive 5% interest upon their respective partnership capital; 2. They were to receive as partnership salaries as follows: Black, $250.00 per month ; White, $100.00 per month ; and were to draw no further sums pending the ascertain- ment of profits ; 3. Depreciation at 10% per annum to be. written off Plant and Machinery as standing on the books at the close of the year; 4. Provision at 5% (for doubtful accounts) to be reserved for all accounts receivable, not including, however, bills receivable ; The net profit or loss to be shared as follows: Black, two-thirds ; White, one-third. On November 30, 1915, the following was the trial balance of the firm's books, which were kept by double entry : DR. CR. Partners' Salary Account ". ....$ 3,850.00 $ Purchases 127.310.00 Investments (at cost) 6,150.00 Wages 19,205.00 John Jones & Co 17,130.00 Jas. Smith & Son 35,695.00 Wm. Owen 18,120.00 Legal Expenses 70.00 Cash 50.00 Bank 6,025.00 Real Estate 103,205.00 Machinery and Plant 27,200.00 Bills Receivable 2,570.00 Manager's and Clerks* Salaries 4,725.00 Office Expense „ 540.00 Discount 1,070.00 Inventory January 1, 1915 19,210.00 Rent (11 months) 3,300.00 Albert Black (Capital Account on January 1, 1915) 21,000.00 Benjamin White (Capital Account on January 1, 1915) 7,500.00 Dividends Received on Investments „ 150.00 Bills Payable :. 19,075.00 Sales 242,805.00 Roberts Brothers 41,215.00 Robinson & Co 28,840.00 J. Green & Son 34,840.00 $395,425.00 $395,425.00 / (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES A Code: Doubtful— Continued Amend the foregoing balances so far as may be necessary by posting the following transactions for the month of December, 1915: Dec. 2. Purchased from Roberts Bros, on credit $39,205.00 " 8. Paid taxes 705.00 *• 9. Paid Robinson & Co. (after deducting discount of $60.00) 1,200.00 •' 10. Paid bill payable to H. Brown & Co 500.00 " 11. Received from J. Smith & Co. (less discount of $210.00) 4,740.00 " 12. Sold Wm. Owen (on credit) 5,000.00 ** 15. Purchased from J, Green & Son (on credit) 17,105.00 ** 16. Bought gas engine from Al-Ki Gas Engine Co. (on credit) 1,750.00 " 17. Paid wages 2,210.00 •• 21. Paid taxes ; 105.00 ** 24. Paid premium on fire insurance policy for year ending December 24, 1916 525.00 " 30. Received for sale of investments 6,000.00 " 31. Paid office salaries 1,800.00 Paid office expenses 100.00 Paid wages „ 2,200.00 Sold James Smith & Co. (on credit) 5,245.00 All of the above payments were made by check and all amounts received were paid into the bank upon receipt. The stock on hand on December 31, 1915, was agreed by the partners as worth $17,000.00. The outstanding rent due to Benjamin & r.cwis for December, $300.00, and the partners' drawings for the same month must be provided for. After making ail adjust- ments provided for in the clauses of the partnership agreement, balance the books as at December 31, 1915, and prepare trial balance. Make up a profit and loss account divided into the proper trading and general sections. Close this by dividing the net profits between the partners in the proper proportions and prei)are a balance sheet. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dove Thomas Jones and William Thompson are trading in partnership as wholesale grocery merchants, sharing profits equal- ly. On Jan. 1st, 1912, their balance sheet is as follows : ASSETS. Stock in trade $27,245.00 Furniture 2,752.00 Debtors 37,625.00 Cash 752.00 Goodwill 5,000.00 $73,374.00 LIABILITIES. Bank of B. N. A $10,000.00 Creditors 27,528.00 Jones 25,243.00 Thompson ..._ 10,603.00 $73,374.00 An agreement is made to amalgamate with Joseph Smith and George Brown, also trading in partnership, and sharing profits respectively % and Y^. Their bal- ance sheet as on Jan. 1st, 1912, is as I^elow : ASSETS. Stock in trade $35,424.00 Furniture 3,840.00 Debtors 42,741.00 Bank of Toronto 3,415.00 $85,420.00 LIABILITIES. Creditors $35,818.00 Smith 22,176.00 Brown 27,426,00 $85,420.00 A company is formed to take over the business under the name of Smith, Jones & Co., Limited, with an authorized capi- tal of $200,000.00, divided into 2000 shares of common stock at $100 each. George Wilkins, John Lister, and Robt. Ryder subscribe for 20 shares each, for which they pay cash.# The Jones and Thompson business is taken over at book figures, except that goodwill is raised to $10,000 and $1000 is set up as a reserve for doubtful debts. The Smith and Brown business is taken as shown, with an addition of $15,000 for goodwill and $1500 reserve for doubt- ful debts. The partners in the two busi- nesses are to take stock for their interests, making an even amount by paying cash if required. All cash is deposited in the Bank of British North America. Show by means of journal entries the various transactions incident to taking over the bu^sinesses and allotment of shares, giving the number of shares al- lotted to each party, and make out the balance sheet of Smith, Jones & Co., Ltd. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dow Give fully your understanding of the following accounting terms: 1. Deferred Charges to Operations. 2. Bonded Indebtedness. 3. Cost of Goods Sold. 4. Capital or Fixed Assets. 5. Surplus. ^ 6. Profit and Loss Account. 7. Current Liabilities. 8. Suspense Account. 9. General or Private Ledger. 10. Sinking Fund Investment Account 11. Controlling Account. 12. Petty Cash Fund. , 13. Cumulative Preferred Stock. 14. Partners' Capital Account. ' 15. Organization Expenses 16. Work in Progress. 17. Non-Productive Labor. 18. Trading Account. 19. Royalty Paid (Coal Mining Company). 20. Working Capital. 21. Inrome and Expenditure Account. 23. Contingent Liability. 22. Re-Insurance Recoveries (Marine Insurance). PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dowager Give your understanding of the following accounting terms: 1. Account Sales. 2. Current Account. 3. Wasting Assets. 4. Certificate of Deposit. 5. Consignment Account. 6. Gross Profit. 7. Gross Income. 1. 8. Cost Ledger. 9. Contingent Liability. ! 10. Deferred Credit to Income 11. Internal Check. 12. Treasury Stock. • 13. Reserve Fund. 14. Preliminary Expenses. 15. Petty Cash Book. 16. Operating Expenses. 17. Joint Account. 18. Sinking Fund. 19. Trade Discount. 20. Preferred Creditors. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Drama You are instructed to prepare a Statement of Affairs of Samuel Harris as at Aug. 31, 1907. Following are the particu- lars: Accounts Payable $ 4,000.00 Bills Payable 3,500.00 Loan from Wm. Jones 15,000.00 Bank Overdraft 1 ,000.00 Accounts Receivable 2,800.00 Furniture and Fixtures 500.00 Real Estate and Improvements 5,000.00 Merchandise 7,000.00 Harris his other merchandise, to the amount of $5,000.00 in addition to the $7,000.00 above stated, $1,200.00 of which is held by the bank as security for the overdraft, and $3,800.00 by Wm. Jones as security for his loan. Jones also holds a first mort- gage on the Real Estate and Improvements. Of the Accounts Receivable, $300.00 are considered bad, and $250.00 are expected to realize 50% of their face value. These items must be properly dealt with, and the deficiency shown. Code: Drive Idle & Stretch, merchants, are unable to meet their obliga- tions. I^rom their books, papers and information, the following particulars relative to their affairs are ascertained: Cash on hand ; $ 250 Accounts Receivable: Good, $1,250; Doubtful, $600 (estimated to produce $200) ; Bad, $1,000. 2,850 Real Estate 14,000 Bills Receivable (good) 4,250 Idle, Drawing Account 9,000 Stretch, Drawing Account 8,400 Sundry Losses on Trading 13,500 Trade Expenses 7,400 Creditors — Unsecured '. 25,000 Partly Secured 23,900 Fully Secured 17,000 Securities: $5,000 in hand; $11,000 pledged with partly secured Creditors ; and balance pledged to fully secured Creditors 33,000 Preferential claims for Wages 750 Idle, Capital 10,000 Stretch, Capital 16,000 Prepare (a) a statement of affairs showing the assets and lia')ilities with respect to their realization and liquidation ; and (b) a deficiency account in respect of the deficiency shown by the .statement of affairs. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Driven Required : The journal entries to be made on the books of all parties mentioned to properly record the following trans- actions : June 18, 1914— Walton & Company issued to Greaves Manufacturing Com- pany a note for $947.69, payable three months after date, without interest. July 1, 1914— Greaves Manufacturing Company transferred said note to the Holmes Foundry Machines Company on account, less discount at 6%. July 28, 1914— Holmes Foundry Machines Company transferred said note to G. B. Dean & Company, less discount at 6%, in part pay- ment of a bill on which they were entitled to a discount of 2%% on the amount paid. G. B. Dean & Company dis^ counted the note at the bank at 6%, receiving a draft on New York for the proceeds, less one-eighth of 1% exchange, which they remit to M. Grace & Co., in part pa)mient of a bill on which they are entitled to a discount of 3% on the amount paid. September 18, 1914— Walton & Company paid the note. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Drollery Describe various forms of cash books used in any three differ- ent kinds of businesses with which you may be familiar, indi- cating in what respect the basic principles of their use may be the same or similar, and whether or not you think it may be possible to adopt a standard method of recording cash receipts and dis- bursements in the case of all corporations having a fairly large volume of business. Give reasons for your answer. ^* *)» <|* 'I* JK In connection with the audit of the books of a corporation, describe briefly the procedure you would consider to be essential in verifying the following assets, liabilities and reserves: 1. Goods in Transit; 2. Capital Stock Outstanding; 3. Hills Receivable; 4. Accrued Taxes ; 5. Reserve for Bad and Doubtful Accounts ; 6. Bills Payable; 7. Cash in Bank ; 8. Reserve for Allowances and Discounts. *^t *jff ^f ^t J^ T* T* '^ The following particulars are extracted from the statistical records of a corporation : AVERAGE NO. OF TIMES TURNOVER STOCK TURNED OVER 1910 $ 500,000.00 $ 50,000.00 10 1911 900.000.00 100,000.00 9 1912 1.000,000.00 125,000.00 8 To what conclusions do these figures point ? ^^ ^F ^C ^S^ ^1^ ^n ^K ^% ^^ ^t^ A Taxicab Company builds and repairs its own vehicles, and for these purposes is compelled to maintain stock in large quanti- ties of accessories. What system would you recommend to insure accuracy in distinguishing between the cost of: (a), repairs and replacements, and, (b), additions to capital? :): ^ ^ :): 9|c You have been requested by the Sixteenth National Bank, of Ballard, to make a verification of the assets and liabilities of Hammond & West, a partnership, engaged in business as plumb- ing jobbers and contractors. The books have been out of balance for some time, and you, for urgent reasons, cannot continue your examination to the extent of locating the difference. What view would you take of this situation in reporting to the bank, and would it make any difference whether the discrepancy were under $10.00 or over $500.00, and whether there was an excess of debits or an excess of credits ? (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES A Code : Drollery —Continued One of the most important considerations in connection with any audit where there are either merchandise stock, raw materials, work in progress or manufactured stocks, is the question of the proper valuation and verification of the inventories. With proper appreciation of the importance of this question, you are asked to outline what, in your opinion, an auditor could and should do to insure as complete a verification as possible of as many different general classes of inventories as may readily occur to you. ***** Percentages of gross profit are calculated on the selling price of goods and also on the buying price. Give illustrations with figures of the two methods, and state which you prefer and why. ***** In auditing the first annual Balance Sheet of a company, you rind the following items on the debit side : 1. Goodwill ; 2. Increase in value of Investments; 3. Commission on issue of Bonds; 4. Preliminary Expenses ; 5. Loss on Consignment Accounts. The credit side shows a "Balance of Profit and Loss Ac- count," and the directors have informed you they intend to de- clare a dividend. Explain fully how you would propose to deal with each of the five items referred to when discussing the Bal- ance Sheet at the next Board meeting, which you have been re- quested to attend. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Drone R. Martin, who keeps his books by single entry, requests you to prepare Trading and Profit and Loss Accounts. The following information is handed you: BALANCE SHEET, DEC. 31st, 1911. LIABILITIES. Bank Overdraft $ 100.00 Sundry Creditors 680.00 Capital Account, after ad- justment of Profits and Drawings 830.00 ASSETS. Cash .$ 40.00 Sundry Debtors 770.00 Fixtures 60.00 Stock 740.00 $1,610.00 $1.610.00 BALANCE SHEET, JUNE 29rH, 1912. ASSETS. LIABILITIES. Cash at Bank $ 30.00 Cash on Hand 20.00 Bills Receivable 30.00 Sundry Debtors 910.00 Fixtures 60.00 Stock 940.00 Sundry Creditors .$ 710.00 Bills Payable 60.00 Capital Account, after ad- judgment of profits and drawings 1,220.00 $1,990.00 $1.990.00 SUMMARY OF CASH BOOK. From Jan. 1st to June 29th, 1912. To Cash on hand .$ 40.00 To Cash Sales 430.00 To Credit Sales 1,480.00 $1,950.00 By Overdraft at Bank $ 100.00 By Cash Purchases 320.00 By Credit Purchases 1,020.00 By Wages 75.00 By Rent and Taxes 100.00 By Lighting 35.00 By Drawings 120.00 By Sundry Expenses 130.00 Balance at Bank «. 30.00 Balance on Hand 20.00 $1,9500? .^. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Druid A lumber mill, owing to slack business, stops manufacturing, but not selling. During the period of shut down the mill is almost entirely rebuilt; the old machinery thoroughly overhauled; new and additional machinery added and an entire and more efficient rearrangement of the entire plant had. During the previous six years the book value of the plant has been reduced by the following depreciations: On Buildings, 10% per annum on the original cost. On Machinery, 6% per annum on the original cost. You, as Auditor for the Company are asked to advise to what accounts the costs of rebuilding, of overhauling, and of the additions are to be charged. Give your answer, stating fully your reasons. Also advise as to when, in your opiniour depreciation should be taken into consideration on the rearranged plant if active operations are not resumed for six months after the completion of the changes. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Duel A manufacturing corporation had an appraisal made of its buildings and machinery with the result that the appraised values were below the book values. The difference was largely account- ed for by the fact that the price of building material, labor and some classes of machinery, at the date of appraisal, were lower than they were when certain portions of the plant were erected. On the other hand, the value of the real estate occupied by the plant had, since its purchase, increased to an extent far greater than the net difference between the book value and the appraised value of the buildings and machinery. On the company's books, depreciation on buildings and ma- chinery had been regularly written off on the basis of what was considered to be a fair percentage of the original cost. You are asked to give your opinion as to whether the book value of the buildings and machinery should be reduced to the appraised value, and, if so, whether the company would be justi- fied in appreciating the book value of the real estate either to its actual value at the date of the appraisal above referred to, or by an amount sufficient to cover the difference between the book value and the appraised value of the buildings and machinery. Prepare a brief report to the company embodying your sug- gestions. Code : Duet A company desirous of extending its premises obtains esti- mates for the work from builders, the lowest of which is $20,000. On consideration of the circumstances, the directors of the com- pany decide to carry out the work by means of their own staff, and after completion the additional premises figure in their balance sheet at $20,000.00, made up as follows : Net cost of materials purchased $ 6,500.00 Discount thereon transferred to Interest and Discount Account.... 150.00 Labor on erection 11,200.00 Supervision by management (part of the annual salaries) 500.00 Proportion of office expenses 250.00 Interest on outlay to date of completion 200.00 Profit, transferred to Profit and Loss Account 1,200.00 $20,000.00 What view should an auditor take of this transaction and of the various items involved? See ''Accounting Principles, Chapter XII, Articles Prepared for u.se of Firm." PRACTICAL PROBLEMS, GRADED, SERIES A Code : Duke At the close of the fiscal year the books of an Engineering Construction Company show the condition of certain uncom- pleted contracts as follows: Contract No. 1 — This is a **cost plus percentage" contract on which the company gets cost of materials and labor plus 10% thereon for its services. The contract account shows cost to date of materials and labor to have been $50,000.00, in addition to which the company's expenses on the contract have been $2,000.00. Contract No. 2 — This is a contract taken at the inclusive price of $100,000.00. It is estimated to be three-fifths completed, and the cost to date is $50,000.00. Contract No. 3 — This is a contract taken at the inclusive price of $50,000.00. It is estimated to be four-fifths completed, and the cost to date is $45,000.00. Show how as auditor you would expect each of these con- tracts to be dealt with in closing the books for the year. Code: Dummy What should you debit, for each of the following purchases made on July 1st, for a business that closed its books on December 31st preceding: (a) A new machine, costing $1,600, purchased to take the place of an old one exactly similar that cost $1,500 four years ago, which had been written down, by annual credits, to $300, and which was applied as part payment toward the new one at an allowance of $150 ? (b) A new machine costing $1,200, purchased to take the place of one exactly similar that cost, originally, $1,500, which had been written down to $300, and which was applied as $150 toward the purchase price of the new one, supposing that a fund of $1,350 had been accumulated toward the replacement of the old machine? (c) A machine costing $1,000, purchased to replace a similar new one which had been destroyed by the capsizing of a boat in an attempt to convey equipment for a mill into a country acces- sible only through dangerous rapids ? See "Accounting Principles, Chapter XTl. PRACTICAL PROBLEMS, GRADED, SERIES A Code: Dungeon A fire occurred in the factory of a firm, and the following sums were recovered from the insurance companies: For loss on Buildings .$ 4,000 Machinery 6,500 Merchandise 10,000 $20,500 The firm spent, in restoring them to their original condition, $4,750 on the buildings and $6,000 on the machinery. They also spent, in cleaning and sundries incidental to the fire, $100. The firm's valuation of the merchandise lost and damaged was $11,600. After the fire $1,000 was realized from the sale of damaged stock. Prepare journal entries to show how the above matters should be dealt with on the firm's books. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dust Give your opinion as to the proper methods for valuing the inventories of the following kinds of businesses: (1) Breweries. (2) Wholesale Liquor Merchants. (3) Grain and Feed Merchants. (4) Salmon Cannery Companies. (5) Lumber Manufacturing Companies. Code : Dustless What are the units of output or earning used in the prep- aration of cost accounts for the following classes of busi- nesses? 1. Lumber Manufacturing. 2. Breweries. 3. Logging. 4. Salmon Packing. 5. Coal Mining. 6. Brick Manufacturing. 7. Steam Railroads. 8. Electric Light Plant. 9. Gold Mining. 10. Iron and Steel Manufacturing. PRACTICAL PROBLEMS, GRADED, SERIES A Code : Dutch The following is a Trial Balance of a manufacturing com- pany at the end of 12 months, before making any closing entries : Dr. Cr. Machinery $ 57,081.00 $ Tools and Equipment 54,981.00 Land 5,000.00 Buildings 54,021.00 Patents and Goodwill 31,847.88 Merchandise Inventory at beginning of year 94,080.38 Material purchases 249,154.46 Labor 115,173.67 Manufacturing Expenses 45,565.61 Accounts Receivable ^ 80,113.17 Cash 16,005.82 Insurance Unexpired 305.37 Capital Stock 100,000.00 Unissued Capital Stock 32,750.00 Sales of Scrap 9,955.40 Bills Payable 35,000.00 Returns and Allowances 11,275.55 Cash Discount ^.. 5,837.84 Interest Paid on Loans 2,0C9.83 General Expense 6,698.82 Selling Expense 7,991.19 Packing and Shipping Expense 3,678.79 Expense moving Plant to new quarters 2,145.47 Accounts Payable, including Wages 67,334.12 Taxes Accrued 3,652.68 Sales 503,359.18 Interest Received 5,501.28 Reserve for Depreciation 34,535.52 Reserve for Bad Debts 2,249.26 Surplus at beginning of year 114,129.41 $875,716.85 $875,71685 The accounts at the beginning of the year may be accepted as correct. At the close of the year the following matters require consideration : The Merchandise Inventory is found to be of a value of $98,062.06. The amount of Insurance Unexpired is found to be $505.37. A review of the Accounts Receivable sTiows that a total reserve of $5,000.00 is required for bad debts at the close of the year. Depreciation should be provided at the following rates: Machinery 5% Tools and Equipment 10% Buildings 3% (These rates are to be calculated on the debit balances at the close of the year.) Your audit shows unrecorded liabilities at the date of the closing, as follows: Affecting Manufacturing Expenses - $2,000.00 Affecting General Expenses „ 1,000.00 Affecting Selling Expenses 1,000.00 1. Prepare Balance Sheet as at the close of the year. 2. Prepare Profit and Loss Account for the year with such percentages as you think would be useful or interesting to the client. „■ _ ^ aJE*'. - , i "''77'' I."*"' -^ :.'.■■ ■ ■'■•.'.*' , . .-.■ I''- -'v • <■«:•. ^' •■ ...-■■^•■^ir'] :- .*^_.';,(<^. ^-^v,j;<^s^:s ^ \ \ Practical Problems Graded Series "B" ^^iMl- BY Samuel F. Racine Certified Public Accountant NO n\\^ Columbia ?Hntoer2!itp 2- tn tlie Citp of ^etn l^orb LIBRARY School of Business t - f Practical Problems Graded Series "B" BY Samuel F. Racine Certified Public Accountant ^^, / // G^ 6' COPYRIGHT 1920 BY SAMUEL F. RACINE 3 ^10 PUBLISHED BY THE WESTERN INSTITUTE OF ACCOUNTANCY COMMERCE AND FINANCE LEARY BLDG- SEATTLE, WASH. »' Accounting Students' Series By Samuel F. Racine, C. P. A. Graded Corporation Problems, 1914 and 1918; containing the most severe C. P. A. examination problems used up to the year of publication, 1914; since revised and brought down to date, 1918. Guide to the Study of Accounting, 1916, containing ana- lytical questions similar to the preceding Guide to the Study of Accounting, but practically a new book, owing to the advent of new books of recognized authority. Guide to the Study of Auditing, 1916. The publication of a new Montgomery's Auditing required that the original Guide to Auditing, with a new set of analytical questions, be rewritten, hence the 1910 book. Practical Problems, Series "A," 1916 ; containing the great majority of the C. P. A. examination questions used in the State of Washington. This book has been revised three times. Practical Problems, Series "C" (In preparation). Accounting Principles, 1917. A new book originally writ- ten in 1913, containing much subject matter not found in other books on accounting. Assuredly it contains more information than any other single book on the subject. Syllabus of Bookkeeping, 1918. As with all of Mr. Racine's books, originality is the keynote of the Syllabus of Bookkeeping. There is nothing else like it in print. It is hoped that it will simplify the method of instruction in bookkeeping to an extent not considered possible by other instructors of the present day. It is designed to combine the advantages of lectures with the other usual methods of bookkeeping instruction and is proving a decided success in the class rooms of The Western Institute of Account- ancy, Commerce and Finance. Annuity Studies, 1918 ; a set of rules easy to understand, with problems on annuities. Cost Accounts (In preparation). PRACTICAL PROBLE MS, GRADED, SERIES B Code : Earth A company issues more than 10,000 checks annually on three different banks with which it does business, recording every check on the corresponding check book stub, and then entering them in detail in the general cash book, where charges are made to the various operating, expense, or other ledger accounts for which the disbursements have been made. Suggest such changes in these methods as would facilitate the work and point out the . advantages to be gained thereby. < PRACTICAL PROBLEMS, GRADED, SERIES B Code : Ease A wholesale house has on its books 300 individual accounts with creditors, 500 with city customers, and 500 with country customers, besides about 75 impersonal or representative accounts. Owing to the methods of bookkeeping in force, it is necessary in order to ascertain the amount of accounts receivable or pay- able to take off a complete list of the accounts in question. You are called upon to advise as to how this difficulty can be overcome, and also as to whether the bookkeeping work on ac- counts payable cannot be reduced, having regard to the fact that the firm discounts all of its bills. Embody your suggestion in a brief report. Code : Easter The private ledger of a business contains two kinds of in- formation: matters desired to be withheld from the knowledge of the general bookkeeper, and summaries of all the business whether known to the general bookkeepers or not. The following facts are to be kept from the knowledge of the general bookkeep- ers, except that in this case the bookkeepers must know the amount of all changes in cash. Show what entries will be made on the private books and what on the general books. Partner "A" draws $1,000 salary. Partner "B" lends $5,000 to the business. Partner "A" transfers to the business, as investment, a build- ing worth $25,000. Taxes are paid on the building, $500. Commission is paid to an employee, $500. A special discount is given to a customer, $50. • The inventory of merchandise is found to be $89,000, and, after transferring sales of $300,000 and purchases of $250,000 from the general to the private books, the profit on merchandise is found to be $65,000. Profits are distributed to partners "A" and "B" in cash, $12,000 each.. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Ebb For a manufaxjturing concern you have the following data from which to make up the annual statements as at December 31, 1911 (prior to audit): Dr. Cr. Stock on Hand — General Manufacturing Accounts Jan. 1, 1911 $40,000.00 Stock on Hand — Brass Foundry Accounts Jan. 1, 1911 35,000.00 General Expenses 3,303.65 Machinery Repairs l,29t>.81 Keal ii^state and Building 28.446.33 Commissions 5,838.65 J? reight — General Accounts 1,852.00 — Brass Foundry 367.97 Interest 2,280.40 Wages— General Factory 24,621.88 — Brass Foundry 9,924.87 Traveling Expenses 665.05 Plant and Machinery 57,407.66 Salaries 6,294.84 Accounts Receivable 14,939.12 insurance 500.43 . I Coal 800.05 Cash on Hand and in Bank 336.22 Taxes ^ 421,71 Building Repairs 30.91 Interim Dividend paid July, 1911 2,247.50 Heat and Light 1,359.04 Office Furniture and Fixtures 527.33 Legal Expenses 1,599.30 Purchases — General Factory 95,000.00 — Brass Foundry 95,000.00 Sales — Brass Foundry Accounts |148,589.24 '* — General Manufacturing Accounts.. 152,444.61 Capital Stock 100,000.00 Bills Payable 2,723.44 Accounts Payable 3,848.30 Profit and Loss — Special Rebates 2,000.67 Reserve for Depreciation, Building 6,455.46 Reserve for Bad Accounts 4,000.00 Reserve for Depreciation, Plant and Ma- chinery 10,000.00 $430,061.72 $430,061.72 Inventory, December 31, 1911: ______ = General Factory $31,136.42 Brass Foundry 16,318.08 Prepare (1) Trading Account; (2) Profit and Loss Ac- count; (3) Surplus Account; (4) Balance Sheet for the twelve months' business ending December 31, 1911. The gross profit of each department to be shown separately. After making your statements from the figures as fur- nished you above you are informed that the following errors have been found to have occurred in them and are requested to rectify your statements accordingly: (a) Of the $40,000.00 given as the Factory stock on Jan- uary 1, 1911, 13,000.00 was in fact patterns. (b) Of the $35,000.00 stock of Brass Foundry on the same date $1,000.00 should have been charged to Plant and Machin- ery. (c) Of the amount charged to Factory wages ($24,621.88) $600.00 was spent on Improvement of Patterns and is now to be charged to that account. (d) Of the interest item ($2,280.40) $150.00 was not earned prior to December 31, 1911. (e) There are wages accrued due and unpaid to Decem- ber 31, 1911 of Factory, $1,200.00; Foundry, $1,000.00. Make amended statements. Note: Apportion unexplained items one-half to each department. Provide 10% depreciation on plant and 5% on buildings. %• PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elder The output of the A. B. C. Coal Company for the year end- ing Dec. 31, 1911, was 1,576,833 tons, and the trial balance at that date was as follows: Plant and Machinery $5,000,000.00 $ Construction „ 85,750.50 Bills Receivable 63,000.00 Accounts Receivable 21,650.29 Cash 98,752.31 Materials, etc 145,853.20 Coal on hand, Jan. 1, 1911 (9,000 tons) 12,750.36 Wages 1,973,376.89 Supply Purchases 389,442.20 Injuries to Persons 10,000.00 Salaries 45,750.00 Insurance 20,482.00 Taxes „ 26,597.40 Office Expenses 29,872.50 Legal Expenses 36,731.09 Dividends _ _ .'. 150,000.00 Rentals and Royalties 262,530.20 Freight, Outward 361,951.17 Horse and Wagon Hire 109,532.10 Discounts and Allowances 94,321.60 Miscellaneous Expenses ~ - 8,750.21 Capital Stock 5,000,000.00 Sales „ 3,857,642.76 Accounts Payable 89,451.26 $8,947,094.02 $8,947,094.02 Coal on hand, per inventory, $15,903.00. Supplies, per inventory, $8,000.00. Materials, per inventory, $5,000.00. From the foregoing prepare a Balance Sheet and Income and Profit and Loss Account, the latter to show gross earnings, net earnings, per cent of expenses to gross earnings, average cost per ton (carried to four decimal places) and average net earnings per ton (carried to four decimal places). PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elect At the close of business on February 29, 1916, you are re- quired to make an examination of the Mukilteo State Bank. Prepare a condensed Balance Sheet and Profit and Loss Account for the period since the books were last closed and indicate your procedure in making the examination. The trial balance as obtained by you from the general ledger of the bank was as follows : DR. Loans and Discounts $422,881.18 Overdrafts 7,446.84 Stocks, Bonds and Warrants _ 34,256.38 Premiums on Bonds 397.82 Furniture and Fixtures 3,000.00 General Expenses 1,445.32 Salaries 3,245.00 Rent 1,800.00 Interest Paid 2,418.12 Railroad National Bank, Seattle 85.891.68 Edmonds National Bank 4,928.40 Second National Bank, Kirkland 10,430.81 Coppersmiths' National Bank, New York 20,814.82 Ocean National Bank, New York 13.003.06 Lake Erie National Bank, Chicago 17,056.68 Wimbago Trust Co., St. Louis 13,760.26 Nineteenth National Bank, Los Angeles 32,624.55 Willamette National Bank, Portland 43,279.47 Remittance Account „ 1,617.18 Exchanges for Clearing House 15,225.32 Cash on Hand *. 75,608.33 Over and Short 5,43 Capital Stock Surplus Undivided Profits Safe Deposit Vault Rentals „ Exchange Interest and Discount Individual Deposits Bank Deposits „ Demand Certificates of Deposit Cashiers' Checks Certified Checks Savings Deposits Time Certificates of Deposit Reserve for Taxes $ CR. 50,000.00 35,000.00 9,806.98 135.00 756.05 10,186.45 420,047.31 68,964.76 1,153.31 806.50 600.12 57,405.31 156,155.66 119.20 $811,136.65 $811,136.65 PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electric You are consulted by a manufacturer who is considering the installation of a cost accounting system. After a preliminary discussion, he asks you to submit, for his further consideration, a report in writing setting forth fully the advantages of cost- accounting and the inadequacy, in a manufacturing business, of a commercial accounting system. Prepare the report asked for. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electrician The Alpha Quarries Company on January 1, 1913, call you in to straighten out the books. You find the following items on the Trial Balance: Coal - $ 900.00 $ Expense 500.00 First National Bank 12,160.87 Insurance 484.70 Land and Improvements 100,000.00 Machinery and Tools 22,143.70 New Plant 17,927.20 New Process 1,000.00 Old Plant 17,000.00 Bond Account 17,872.14 Profit and Loss 69,909.99 Repairs 750.00 Sand - 1,890.00 Stock 75,000.00 Stripping „ 543.98 J. C. Rollins 235.00 D. H. Brill .» 8,500.00 E. J. Brill 1,500.00 C. Austin _ 1,300.00 American Car & Foundry Co 1,689.99 R. B. Brill 2,238.00 R. B. Brill 5,000.00 F. Howell 3,081.59 F. Howell, Special 10,000.00 Accounts Receivable 7,787.08 $189,707.12 $189,707.12 f* It develops that on March 1, 1912, a first mortgage had been placed uopn the entire property of the company to secure a bond issue of even date $100,000.00, 6% interest payable semi-annually after January 1, 1913. The Desirable Trust Co. was the trustee under the mortgage and money was secured and deposited from time to time on sale of the bonds as follows : April 9-12 $ 7,000.00 $95.00 and accrued interest 10-12 1,000.00 95.00 • 1 (1 « 12-12 3,000.00 90.00 ' 1 « . « 13-12 3,000.00 87.50 • 1 u u 16-12 2,000.00 87.50 ' 1 tt t* May 1-12 500.00 90.00 ' 1 f( If 25-12 7,000.00 90.00 ' 1 « « 25-12 5,000.00 90.00 • 1 « (f 28-12 14,500.00 90.00 '* I (( « July 16-12 5,000.00 95.00 ' t « M Dec 6-12 1,000.00 95.00 • ( (( M ^ The analysis of the book account for proceeds from bonds, including the above sales, appears as follows: (Continued on next page.) «• PRACTICAL PROBLEMS, GRADED, SERIES B Code: Electrician — (Continued) Debit Credit April 4-12 Interest paid on aid M'rtgage..$ 22.36 V^% Mtg. Tax.. 500.00 April 18-12 Sale of $16,500 Bonds and In- terest $ 15,386.09 Trustee's fee.... 173.59 Sept. 13-12 Interest on De- 27-12 Stationery r e posit 181.50 Bond Issue... 8.20 Dec. 6-12 Sale of Bonds May 1-12 Attorney's fees.. 550.00 and Interest.. 995.83 Dec. 30-12 Bond Interest.... 2,450.00 Trustee account handling cou- pons 37.50 Dec. 13-12 Sale of Bonds.. 4,862.50 Interest on De- posits 181.50 Interest on De- posits 6.37 $ 3,741.65 $21,613.79 A stock dividend of ^G^s^c was declared payable as of April 1, 1912, coincident with an increase in authorized capital from $75,000.00 to $200,000.00. Additional stock was subscribed as follows : R. B. Brill $ 5,000.00 F. Howell „.- 10,000.00 E. J. Brill -...- 1,500.00 D. H. Brill 8,500.00 J. C Rollins » 7,000.00 Geo. S. Smart 1,000.00 The Smart item was paid for by Engineering services in connection with the new plant. Formulate journal entries in adjustment of the books and show corrected Trial Balance. «• PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electricity The Star Department Store organized January 1, 1911, suf- fers a complete fire loss just before inventory December 31, 1913. The books disclose the following facts : Dec. 91-11 Dec. 31-12 Dec. 31-13 Inventory Beginning $ 44,244.04 $ 51,894.68 $ 50,396.40 Purchases during Year 171,133.33 173,478.81 157,188.09 Allowances on Purchases 11,900.12 15,182.62 8,293.54 Sales 197,474.49 209,397.00 195,937.98 Allowances on Sales 4,294.37 4,594.50 5,179.19 Advertising 3,487.39 3,334.45 2,987.56 Salaries 8,295.92 9,196.72 9,196.72 Wages 16,684.30 16,628,75 17,531.22 Delivery 567.34 567.38 1,053.34 Depreciation on Furniture 169.31 372.92 112.94 Stationery and Printing 282.40 309.30 300,00 Gas 75.09 46.55 62.02 Rent 5,350.00 5,400.00 5,400.00 Insurance „ 927.15 856.42 770.40 Interest .~ 1,571.02 1,506.89 1,695.80 Light 612.53 567.40 625.06 Water 29.21 28.51 27.63 Taxes 438.80 » 697.00 891.07 Telephone 33.75 52.27 54.00 General 2,041.30 3,343.37 2,581.32 Traveling 352.94 351.93 278.28 Furniture and Fixtures Depreciated 9,000.00 9,500.00 10,500.00 You are asked by the appraisers: (1) To determine the value of assets destroyed. (2) Arrive at correct amounts to effect a complete adjust- ment under the following concurrent policies containing the 80% co-insurance clause: Home Insurance Company $10,000.00 Glen Falls Insurance Company 15,000.00 Globe Insurance Company 5,000.00 Equitable Insurance Company 10,000.00 (3) Assuming the property loss to have been 50%, what amounts would have been the proper adjustments? PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electricute By reason of the death of its founder, the J. E. Smith Wire & Iron Company organized in 1885 is obliged to reorganize or consolidate with your client, a competitor concern. A tentative offer is made by the attorney for the heirs. The following facts are issued by the attorney, together with the accompanying propo- sition : Assets Cash on Hand and in Bank $ 920 Accounts Receivable 89,000 Bills Receivable 30,000 Merchandise 150,000 Plant, Machinery and Equip- ment 250,000 Deferred Charges 880 Liabilities Wages Payable $ 4,000 Accts. Payable 75,000 Bills Payable 115,000 Accrued Charges 1,590 Capital 100,000 Surplus 225,210 $ 520,800 $ 520,800 Annual sales, $500,000.00; Expenses, $450,000.00; Annual Profits, $50,000.00. Attorney offers to sell for the amount of the net earnings capitalized at 5%. On examination you find the following record and facts : 1909 1910 Net Sales $350,000.00 400,000.00 Cost of Sales $200,000.00 250,000.00 300,000.00 400,000.00 360,000.00- Selling Exp'se $50,000.00 60,000.00 70,000.00 80,000.00 75,000.00 Admin. Exp'se $40,000.00 45,000.00 50,000.00 55,000.00 15,000.00 Net Profit $60,000.00 45,000.00 30,000.00 1 ^ 000 00 1911 1912 450,000.00 550,000.00 1913 500,000.00 50,000.00 Analysis of the expenses shows that the various elements are regular except that the proprietor's salary which had appeared for several years at $25,000.00 had not been credited in 1913, but appeared as a charge among Accounts Receivable. Other accounts receivable warranted a scaling down on account of doubtful debts extending over three years respectively: 1911, $6,000.00; 1912, $9,000.00; 1913, $10,000.00; total, $25,000.00. Bills Re- ceivable were uncollectable to the amount of: 1911, $3,000.00; 1912, $2,000.00; 1913, $4,000.00. Inventory was found to include obsolete and defective stock to the amount of $20,000.00, distributable over the 5 years. Liabilities on account of merchandise purchased and inventoried, but omitted from the books, $10,000.00. You find that no ap- praisal ever has been made of the plant and equipment, and no depreciation charged off during the history of the business, al- though the plant is in good repair. Prepare a report to your client making such recommendations as you consider feasible, and containing such exposition of facts by way of exhibits as you consider necessary to convince. <* PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electrify * Determine, from the following particulars, the book balances of Plant "B" of the United Finishing Company, January 1, 1913, and raise intermediate accounts. All purchases are made by the main office as well as payments of wages, expenses, etc. Sales are made direct and collections are remitted to the main office in the same form as received. The operations during the year 1913 were as follows: Raw Material and Supplies purchased $320,000.00 Wages accrued and paid '. 125,000.00 Expenses distributed to operations 70,000.00 Expenses accrued and paid 75,000.00 Charge Sales 425,000.00 Cash Sales 500.00 Cost of finished product 400,000.00 Cost of sales 380,000.00 Allowances to customers 5,000.00 Collections from charge customers 410,000.00 Raw material entered manufacture 300,000.00 The following balances appear on closing : Inventory (raw) ^ $ 25,000.00 Imprest Cash 1,000.00 Accrued Payroll Liability 2,000.00 Inventory in Process 142^000.00 Expenses not distributed to operating 15!oOO.OO Accounts Receivable — Good .". 70,000.00 Accounts Receivable— Doubtful 5,000 00 Inventory (finished) ^ 34^500.00 Reserved for Bad Debts 5 00000 Surplus 20[500!00 PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electrine In an audit of the Atme Motor Car Company you find the reserve for Depreciation account and the Surplus account com- posed of the items as here enumerated. The Reserve for Depreciation account was opened on Dec. 31, 1915, the close of the first business year, by debiting the depre- ciation accounts of the various assets with $205,000. The Reserve for Depreciation Account was also credited with $25,000 on Dec. 31, 1916, and with $20,000 on Dec. 31, 1917. During 1916 and 1917 the following items have been charged" against this Reserve for Depreciation account : Assets Scrapped $125,000 Bad Debts 25,000 Repairs - 10,000 Fire Loss on Building and Equipment 7,500 Organization Expenses 65,000 Salesmen's Extra Commission 12^000 The surplus account for 1915 and 1916 has been closed, the balance having been paid out in dividends. The surplus account on December 31, 1917, is found to consist of the following credit items : Reserve for Car Guarantees $ 50,000 Premium on Stock Sold 50,000 Reserve for Obsolescence 5o!oOO Bonus from Commercial Club 50^000 Reserve for Income and Excess Profits Taxes, 1917 80,000 Operating Profits 750,000 You are requested to make such adjustments in the Reserve for Depreciation account and Surplus account as are appropriate, and to show how the several items and accounts should appear in the financial statement. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Electro A receiver who has been appointed for the retail business of A. Adams, retains you to ascertain the approximate percentage which unsecured creditors, will receive on their claims. From the following data, you are asked to answer your client's question and also to prepare the proper statement and the proper accom- panying account as preliminary thereto : ASSETS Cash on Hand $ 500 Cash on Deposit : 2,000 Accounts Receivable $ 28,500 Reserve for Bad Debts 2,500 26,000 Notes Receivable Trade 15,000 Notes Receivable, Gem Co 60,000 Bank Stock— 200 shares at 131 1-8 26,225 Stock— Gem Co 45;000 Merchandise Inventory _ 20 000 Land 25^000 Buildings 175,000 Less Reserve for Depreciation 35,000 140,000 Machinery and Tools 187,500 Less Reserve for Depreciation 44,500 143,000 Automobile Trucks 15,000 Less Reserve for Depreciation 12,500 2,500 Office Furniture nnd Furnishings 4,000 Less Reserve for Depreciation 2,000 2,000 Unexpired Insurance 375 Accrued Interest on Trade Notes, Etc 225 Total Assets $507,825 LIABILITIES Notes Payable $ 200,000 Accounts Payable 175,725 Taxes Accrued 1,500 Wages Accrued 275 Accrued Interest on Notes Payable 12,000 Mortgage on Land and Buildings 125.000 Accrued Interest on Mortgage Loan 6,250 Total Liabilities , $ 520,750 A. Adams, Investment 50,000 A. Adams, Drawing, Dr 62,925 $ 12,925 The following appraisals and estimates of values have been made : Land $ 30,000 Buildings 135,000 Machinery and Tools 85,000 Auto Trucks « 2,000 Furniture and Furnishings 1,200 Merchandise Inventory ^ 12,000 Accounts Receivable — Good ^ 20,000 Accounts Receivable — Bad „ 2,000 Accounts Receivable — Doubtful - _ 6,500 but estimated to realize » 3,000 The following additional facts should be taken into considera- tion: Trade Notes Receivable and Accrued Interest are secured by 150 shares of an industrial stock quoted at 156. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electro — ( Continued ) Cash on Hand includes an I. O. U. of the proprietor for $75 and a salary advance ticket to the cashier of $10. The Bank stock is quoted at 150; 175 shares of this stock is pledged to secure Notes Payable of $20,000 with accrued interest of $1,000. Accounts Payable to the extent of $5,725 are secured by a chattel mortgage on merchandise of $3,000. The financial statement of the Gem Co. shows : Assets !.. $ 150,000 Liabilities » -...., 85,000 Capital Stock Outstanding 50,000 Surplus 15,000 The Assets have been appraised at 135,000 Trade notes receivable not yet due have been discounted at the bank to the amount of $5,000 ; and an examination of these dis- counted notes shows that one of $1,000 will be dishonored. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electrode The Standard Trust Company is appointed by the Peninsular Mining Company as trustee of a bond issue, aggregating $1,- 000,000.00, all bonds of $1,000.00 denomination, rate 5% and bearing date January 1, 1914. Bonds mature in ten equal annual installments, beginning January 1, 1917, unless previously con- verted or retired. The issue is not purchased by the trustee, but is sold through Emory Davis & Company, Brokers, the company realizing 90% and accrued interest less the cost of appraisal of property, print- ing, trustees' expenses, etc., amounting to $9,310.80. The entire issue was taken over, and paid for by the brokers on January 20, 1914. Among other things the trust deed provides : Bonds convertible on any interest date for 6% preferred stock at 90%, at option of holder. Bonds may be retired out of surplus on any interest date at 103, at option of company. Sinking fund, for payment of principal only, to be based on production of ore at ten cents per ton. Trustee to charge 14% of principal on issue, and 14% on coupons. Interest payable January 1st and July 1st. The company's production for three years is assumed to be, for the purpose of this problem, 1,000,000 tons per year. January 1, 1916— $100,000.00 are converted to preferred stock. January 1, 1917— $200,000.00 are redeemed at 103. Formulate all necessary entries for books of : (a) Standard Trust Company. (b) Peninsular Mining Company. (c) Emory Davis & Company. which may be occasioned by the above incidents to and including January 1, 1917. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electrometer By the terms of an agreement entered into between an export agent and a manufacturing company, the agent was to reimburse the company for the vakie of any of the company's product de- stroyed through causes over which the company had no control. On December 1, 1915, the storehouse containing all the company's product was mysteriously destroyed and in accordance with the contract the company submitted its estimate of the amcunt due from the agent as $17,659.05. The agent wished to verify this and obtained the following data from the company's books : Commissions, debit balance, $2,925.03; insurance $588.69; interest, debit balance, $939 ; interim dividend $4,794 ; inventory, January 1, 1915, $4,705.86; labor productive $58,498.74; legal expense $52.50 ; net profits, December 1, 1915, $13,358.73 ; pur- chases $166,247.46; repairs $48; sales $245,064.12; sundry fac- tory expense $9,605.76 ; surplus, December 1, 1915, $8,564.73 ; telephone $1,248.18. Prepare a statement showing the value of the company's prod- uct on hand, December 1, 1915: PRACTICAL PROBLEMS/GRADED, SERIES B Code : Electromotor A partnership between three persons had run for three years upon the following capital and interest in profits : "A" $9,000.00 3-8 Interest "B" 8,250.00 3 8 Interest "C" 2,000.00 1-4 Interest The annual profits, which had been credited to the partners' personal accounts, were as follows: 1908 $30,510.75 1909 , 29,026.30 1910 37,026.75 Thereupon '*C" expressed his dissatisfaction and announced his intention of dissolving the agreement on December 31, 1910, so far as he was concerned, unless he was placed in the same position as to profits as "A" and "B," dating back to the opening of the agreement, January 1, 1908. "A" and "B" agree to this provided "C" will agree to a trans- fer from his personal account of a sum sufficient to equalize the capital accounts. This is accepted by "C" subject, however, to the aggregate stated profits being revised by charging "A's" Capital Account with $2,250.00, and $1,500.00 against "B's" Capital Ac- count, also that $1,250.00 be charged to office furniture. Assuming the books to have been closed each year under the original terms of agreement, draft the journal entries necessary to adjust the accounts and show the relative condition of the respective capital and personal accounts at the opening of the new partnership, January 1, 1911. PRACTICAL PROBLEMS, QRADED, SERIES B Code : Electroscope A receiver is appointed to take charge of the Farm Imple- ments Company, on June 1st, 1915, and employs a C. P. A. to de- termine from the books the exact conditions of the business. He finds the books to show the following: Cash on hand $ 623.10 $ Cash on Deposit at Reserve National Bank 34,000.00 Notes Receivable - 95,000.00 Notes Receivable Discounted 650,000.00 Notes Receivable Assigned to Bank 100,000.00 Accounts Receivable : 40,058.40 Accounts Receivable Assigned to Bank 50,000.00 Reserved for Losses on Notes and Accounts 37,923.12 Doubtful Notes and Accounts 8,417.51 Material and Supplies 239,516.75 Branches, Net Advances 156,397.00 Land, Buildings and Equipment 705,742.34 Reserve for Depreciation Bldgs. and Equipment.. 98,351.68 Patterns, Tools. Etc 13,000.00 Deferred Charges ^ „ 12,121.37 Bills Payable— Reserve National Bank 397,667.73 Bills Payable — Merchandise 45,033.43 Bills Payable— Equipment Notes 40,000.00 Accounts Payable 67,152.98 Accrued Pay Roll 5,000.00 Accrued Taxes 5,000.00 Accrued Interest Bank 3,000.00 Accrued Interest Sundry 2,340.20 Accrued Interest Equipment Notes 1,000.00 Land Contract 1,750.00 Commission Contingent to become payable to agents when customers' notes are paid - 1,506.43 Dealers' Deposits 5,000.00 Capital— Preferred Stock 500,000.00 Capital— Common Stock 600,000.00 Surplus 394,150.88 Subscription Account (Common Stock) 100,000.00 $2,204,876.47 $2,204,876.47 The accountant finds that the Company has secured its line of credit at the Reserve National Bank, on filing one of the usual forms of statment for securing credit at National Banks. The Real Estate has been appraised at $100,000.00 as to land, and $100,000.00, as to buildings as a going concern, but in case of liquidation the land and buildings would bring only $150,000.00. The Machinery and Equipment have been appraised at $400,000.00 as a going concern, and $50,000.00 on liquidation. The Material and Supplies are worth $239,516.75 as a going concern and $125,- 000.00 on liquidation, except that on a further investment of $20,000.00 to complete the manufacture of goods in process they would bring $200,000.00. Examination of the notes and accounts receivable discloses that the notes will show a shrinkage of $50,000.00 on collection and the accounts which include credit balances aggregating $1,- 250.62 will show $15,000.00 shrinkage. Subscriptions to capital stock are considered to be worth 60% of their face value. Pat- ( Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electroscope — ( Continued ) terns. Tools and Dies are worth $10,000.00 as a going concern, and $1,000.00 on liquidation. Doubtful notes and accounts are considered worth 50%. Net advances to branches involve the consideration of sale of finished product, collection of local ac- counts, payment of accrued salaries, rent, etc., to net $150,000.00 as a going concern, and $100,000.00 on liquidation. Deferred Charges may be considered worth $1,000.00 on liquidation. Land Contract represents a balance due on principal of $3,000.00. It is estimated that the receivership fees, including special allowance, will amount to 3% of the unpledged assets if sold in their present condition, or 5% if the plant is operated by the receiver. Prepare a Statement of Affairs to submit to the creditors as a result of a complete audit, showing the position and relation of the secured and unsecured creditors and stockholders, the book, going and liquidating values in comparison, together with a Deficiency Account. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Electrum A syndicate having invested in a coal property, presents the following balance sheet : ASSETS Acreage $1,500,000.00 Physical equipment 500,000.00 LIABILITIES Capital stock $1,000,000.00 Bonds, 1st Mtg., 5s 1,000,000.00 The syndicate estimates it will mine and sell 1,250,000 tons per year, and the life of the mines at this rate will be 25 years. The surface acreage is not marketable. It will require $50,000 expended annually in additional equip- ment. This physical equipment will carry only a small salvage value at the expiration of 25 years. The bonds are to be called at the rate of $40,000 per annum. At what net profit per ton must the coal be sold, so that a dividend of seven per cent, can be paid yearly on the stock, and leave at the close of business 25 years hence, sufficient convertible assets to pay the stockholders in cash, the par value of their stock? Explain. Make a statement winding up the syndicate's aflFairs, assum- ing the general correctness of the estimates. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elegance George R. Street is engaged in the real estate, loans and insurance business as a sole proprietor, and his net worth is up- wards of $50,000.00. He enters into an arrangement with H. L. Ranney and John Sterns whereby the three are to purchase a par- cel of ground and erect buildings for sale or rent. Contributions of capital and distributions of profits are to be equal. Record the following transactions on the books of Mr. Street : George R. Street takes title to 100 feet of land at 2233-35 Fairfax Avenue from Mr. Henry Proctor for a consideration of $5,000.00. He pays Mr. Proctor $500.00 cash and gives back a mortgage on the property at 2233 for $2,250.00 and at 2235 for the same amount. He pays $44.80 for bringing down the abstract and for recording fees. He pays $25.00 for survey. He sells a 10-foot strip off the back of the property for $650.00 cash. Twin houses are erected on the remaining property at a cost of $5,107.00 each, by Mr. John Sterns. A mortgage of $4,000.00 is executed by the three partners jointly on each of the pieces of property, and the proceeds are turned over to Sterns in part payment of his contract for the erection of the houses. The mortgagee, how- ever, deducts $27.30 insurance premium on the two houses before turning over the proceeds. In addition. Street pays Sterns $1,000.00 in cash. Sterns renders a bill for a garage and extras on the property at 2235, of $679.77. Mrs. Elsie Hemple purchases the property at 2235 for $9,- 335.00 paying $200 earnest money. Ranney and Sterns pay $750.00 each to Street, who pays oflF the original mortgage of $2,250.00 on this property. Mrs. Hemple then assumes the $4,000.00 mortgage on the property including interest amounting to $78.67, and gives back a second mortgage of $3,800.00. She is given credit for $20.00 on a change made in a radiator, and in closing the deal she pays a further sum of $1,- 236.33 in cash. Disregard interest on joint account advances. It is not re- quired that the profit on the property should be calculated, nor that separate accounts should be opened for the respective pieces. After recording these transactions on the books of George R. Street, (1) Draw a trial balance of the syndicate transactions, and (2) Show what amount should be paid by one or more members of the joint account direct to others to equalize their respective in- vestments. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elegant Three merchants, "A," "B" and "C," decide to commence business and pay in as capital $25,000.00, $15,000.00 and $10,- 000.00, respectively. Profits or losses to be apportioned corre- spondingly. At the end of the first year, an account is taken showing a profit of $7,500.00. "A" withdraws from the firm, and after an amount is agreed upon as an allowance for bad debts, viz., $1,250.00, he is paid oflF in cash, and "B" and "C" take over the business jointly. Draft the necessary entries, showing the closing and adjust- ments occasioned by the change. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elegy The "A, B & C" Co. operates a retail store with two depart- ments — "X" and "Y." The following balances appear on the books of the company before closing : Accounts receivable— All good— "X" $ 15,000.00 $ "Y" 6,125.00 Accounts payable 25,423.00 Advanced to "B" 1,075.00 Bad debts ("X" $1,400.00 and "Y" $500.00) 1,900.00 Barn rent and expense 350.00 Bank loans 12,000.00 Bills receivable -650.00 Cash on hand „ 250.00 Capital stock 20,000.00 Discount on purchases — "X" 15,500.00 •T" 9,768.00 Drivers' wages 2,400.00 Feed 640.00 Furniture and fixtures 5,000.00 First National Bank 2,496.00 General advertising 7,720.00 Horses, wagons, etc 1,700.00 Inventory— December 31, 1913— "X" 26,106.00 "Y" 15,000.00 Insurance 1,125.00 Interest and discount on notes payable 925.00 Loan from "A" 7,000.00 Office and general expenses 1,200.00 Purchases— "X" 224,300.00 "Y" 99,600.00 Rent and light 4,000.00 Surplus 2,920.00 Sales— "X" 243,800.00 "Y" 106,500.00 Salaries— Office 2,850.00 Officers 10,000.00 Salesmen— "X".-. 7,553.00 "Y" 4,946.00 $442,911.00 $442,911.00 The books were closed on the basis of the above trial bal- ance by taking up the inventory of merchandise which amounted to $33,400.00 for Department "X" and $15,000.00 for Department "Y." Prepare a draft of the adjusting entries necessary to bring the books into accord with the adjusted statements, a balance sheet, and a departmental statement of profits based on the fol- lowing information: Delivery expenses should be charged equally to the two de- partments, and general expenses % to "X" and Ys to The furniture and fixtures, horses, wagons, etc. were taken up on the books at the appraisal values at January 1, 1914. No additions were made during the year except that additional fixtures costing $450.00 were received in December. The bill for these fixtures had not yet been entered. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elegy — ( Continued ) Depreciation should be provided at the rate of 10% of the beginning balance of the furniture and fixtures account and at 20% for horses, wagons, etc. An error of $350.00 was discovered in the final inventory of Department "X," which resulted in an overstatement of that amount. The unexpired insurance amounted to $225.00 at December 31, 1914, and $200.00 at December 31, 1913. The bank loans consisted of two notes for $6,000.00 each. One note dated October 1 and due in four months bore interest at 6% and the other dated November 1 and due in four months was a non-interest bearing note which had been discounted at 5%. There were no bank loans outstanding at the beginning of the year. Accrued taxes have never been taken up. The amount ac- crued is estimated to be the same as it was a year ago» i.e. $300.00. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Element In 1895, the Chicago Mfg. Company purchase real estate costing $12,000, erect a building for $30,000, and purchase ma- chinery costing $25,000. No further purchases are made and on January 1, 1905, a balance sheet of the Company discloses the following condition : Real Estate $ 12,000 Buildings 30,000 Machinery 25,000 Merchandise Inventory 60,000 Accounts Receivable 75,000 Cash 10,000 Liabilities Capital Stock $ 150,000 Surplus 23,500 Reserve for Depreciation: On Buildings 7,500 On Machinery 16,000 Accounts Payable 16,000 $ 212,000 $ 212,000 On May IG, 1905, their factory is burned, a total loss ensuing. Their books of account as on that date show the follow- ing ledger balances : Debit Balances Real Estate $ 12,000 Buildings 30,000 Machinery 25,000 Merchandise inventory, Jan. 1, 1905 60,000 Purchases 150,000 Labor and other factory cost.. 60,000 General expenses 45,000 Accounts receivable 73,000 Cash 32,000 Credit Balances Capital Stock $ 150,000 Surplus 23,500 Reserve for depreciation: On Buildings 7,500 On Machinery 15,000 Sales (net) 280,000 Accounts payable 11,000 $ 487,000 $ 487,000 For the years 1902, 1903 and 1904 their books showed a gross profit on manufacturing averaging 25 per cent of the net sales. The company, however, succeeds in obtaining only $55,000 from the Fire Insurance Companies for merchandise lost. In respect to the buildings and machinery, the companies ac- knowledge that the cost of replacing same would be 10 per cent higher in 1905 than in 1895 and after taking this fact into con- sideration and determining what they consider fair depreciation, they settle these two items as follows: Building $28,000, ma- chinery $17,500. The company erects a new building costing $40,000 and purchases machinery costing $35,000 and, finding that the value of its real estate is now $24,000, it makes a book entry to so record it. Prepare cash book and journal entries to properly record all of the above transactions, losses or gains *due to fire, actual trad- ing profit from Jan. 1, 1905, to date of fire and balance sheet after making all of the above entries. For the purposes of this question, assume no accounts receivable collected or accounts payable paid. For class uniformity, provide depreciation for partial year as follows: Buildings 2^2%, Machinery 6%. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elephant A branch office business was started the first of the year, the head office advancing $5,000.00 cash. During the first year mer- chandise was shipped to branch, invoiced at $75,000.00. An auditor checking up the business at the close of the year, finds the following: Merchandise sales were $60,000.00, with selling price of goods 20% advance on invoice. Proper vouchers were on file duly receipted for the following payments : Rebates and allowances on damaged goods $ 1,500.00 Salaries and other expenses 4,500.00 Freights 2,500.00 The books also showed : Remittances to head office $35,000.00 Uncollected accounts 15,000.00 The balance of the sales were realized in cash, less rebates and allowances as noted. The cash on hand, and inventory of unsold goods, together with the foregoing records, properly account for everything. Prepare a statement, such as an auditor would make in report- ing to the head office, balancing the business of the branch house. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elevate The trial balance of the American Mfg. Co., as at Decem- ber 31, 1906, before closing the books for the year is given below In addition to the information obtainable from the trial balance, the following data must be taken into consideration in closing the books : Inventory of merchandise at Dec. 31, 1906, $90,000. Inventory of tools at Dec. 31, 1906, $4,500. Inventory of patterns at Dec. 31, 1906, $4,000. Depreciation on buildings at rate of 2% per cent. Depreciation on machinery at rate of 10 per cent. Depreciation on patents at rate of 6 per cent. Depreciation on office furniture and fixtures at rate of 10 per cent. Half of 1 per cent of the net sales is charged each year to profit and loss and credited to reserve for bad debts. As this company owns its own plant, it is its custom to treat its investment in real estate and buildings as a separate investment from which it expects to receive 5 per cent and to charge the cost of maintain- ing same, plus interest on investment, to the cost of manufacture as rent. Prepare closing journal entries and prepare following state- ments : Balance sheet as at January 1, 1907. Real estate operating account.. Profit and loss account showing — (I) Cost of manufacturing and gross profit. (II) Cost of selling, administration, and net profit. (III) Surplus account. Insurance unexpired, and accrued accounts need not be con- sidered in this question. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elevate — ( Continued ) TRIAL BALANCE AS AT DECEMBER 31, 1906 Merchandise sales account $ Real estate 25,000 Buildings 50,000 Machinery 40,000 Tools 7,000 Patents 25,000 Patterns 5,000 Merchandise purchase account 420,000 Bills receivable - 1,500 Accounts receivable 250,000 Insurance on buildings 300 Insurance on machinery, tools and patterns 500 Insurance on merchandise 650 Taxes, real estate 1,500 Interest, general 7,000 Bond interest 2,500 Cash - 45,000 Labor, productive 310,000 Labor, unproductive 55,000 Power 21,000 Repairs to building 950 Repairs to machinery 1,310 Factory expenses 3,010 Employers* liability 4,000 Office pay roll 18,000 Inventory merchandise January 1, 1906 75,000 Return sales account 41,000 Allowances 10,900 Office furniture and fixtures 5,700 Salaries to officers 15,000 Postage 2,000 Telegrams and telephones 1,800 Taxes, personal property 1,000 Collection and exchange 700 Stationery and printing 3,050 Freight in ..-". — 23,000 Freight out 11,000 Cartage and express - 3,750 Bonding of employes (office) 250 Traveling expense, salesmen 17,500 Salesmen's commissions and salaries ~ 40,000 Bad debts 7,400 Bond account Bills payable • Accounts payable ~ Surplus Capital Stock ...-.- Reserves to provide for depreciation on — Buildings Machinery Patents — Office furniture and fixtures - Bad debts — $ 1,090,500 40,000 100,000 43,000 39,020 200,000 5,250 12,500 7,500 2,500 13,000 $ 1,553,270 $ 1,553,270 PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elevation On January 1, 1900, "A" purchases the plant and business of 'B" for $400,000, payable $100,000 cash; $150,000 January 1, 1901; $150,000 January 1, 1902, with interest on deferred pay- ments at G per cent. None of the book accounts or stock of fin- ished goods on hand January 1, 1900, is included in the sale, but is specifically reserved by "B." Of such, the Accounts Receivable are $28,500 and finished goods, per inventory, $45,000. The agree- ment further stipulates that "B" shall operate the plant during the year 1900 ?.nd shall be reimbursed on January 1, 1901, for all 1 '.nds advanced for supplies, expense, labor or any other purpose in connection with the operation of the business during 1900, as shown by "B's" books. Such advances to be computed monthly and to bear interest from the last day of each month at 6 per cent per ann..m to January 1, 1901. The profits of the business ror the year 1900 belong to ''A." On December 31, 1900, ''B" reports that inventory of finished goods on hand is $48,5u0. Expenses have been $284,000 and sa'es $350,000. Condensed particulars of transactions are as follows : January .....? 15,000 February 10,000 March 5.000 April 5,000 May . 5,000 June 5,000 Ju'.y 100,000 August 80.000 S ptember 75.U00 October 25,000 Novcmbek 15,000 D.cembei 10,000 Cash Cash Interest Collections Advances Due"B" $ 10,000 $ 10,000 $ 550.00 15.000 25,000 1,250.00 10,000 12,000 540.00 15,000 32,000 1,280.01. 5.500 35,000 1,225.00 18,000 25,000 750.00 55,000 30,000 750.00 75,000 25,000 500.00 55,000 30,000 450.00 45,000 30,000 300.00 50,000 15,000 75.00 19,000 15.000 $350,000 $372,500 $284,000 $7,670.00 ''B"* presents the following statement to "A" on January 1, 1901, and fcv^^ests .settlement: Sale of plant and business as per contract $400,000 Less cish paid by \" January 1, 1900 100,000 $300,000 Interest 6 per c*^iit 1 vear 18,000 Advanced bv "B" monthly 284|000 Intertot on advances 7,670 Sales $609,670 . 350,000 Balance due "B" $259679 Jf which $150,000 deferred to Jan. 1, 1902 150^000 Due January 1, 1901 $109,670 "A" is not satished with the statement and employs Certified Public Accountants to investigate and report another basis of settlement. It is found that the Accounts Receivable, December 31, 1900, are $6,000, and '*B" has taken these, as well as the fin- ished goods remaining on hand ($48,500) and claims both items belong to him. There are no liabilities. Make a statement for "A," as requested, using your own methods. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elevator By the partnership deed of a -Taanufacturing firm consisting of four members, "A," "B, "C' and "D," it was provided that in the event of the death of any partner before the expiration of the partnership by eflFluxion cf time on December 31st, 1911, there should be paid to the legal representatives of ihe deceased the amount appearing to his credit on December 31st, next preceding the death, together with interest thereon at 5 per cent per annum to December 31st following the decease and a share of the profits of the year of his decease corresponding to the number of days that he liv*id during it, calculated after the rate of the average of his share for the last three completed years, together with interest on such share from the date of death to the end of the year. The four partners shared profits equally and each took inter- est on his capital at 5 per cent per annum, but no interest was charged on the drawings, for each drew at the end of every month an equal sum in anticipation of profits. The surviving partners were to share the profits equally. "C" died on June 30th, 1905. The profits of the three im- mediately preceding years had been respectively $70,000.00, $78,- 000.00 and $63,500.00. With the aid of the followmg Trial Balance, of December 31st, 1905, taken out before interest, depreciation, and an amount in lieu of factory rent have been charged, prepare Manufacturing and Profit and Loss Accounts for 1905, showing the various items in their proper divisions, and allowing $2,500.00 for depreciation of plant and machinery and of office furniture and fixtures (15% and 10% respectively) and 5 per cent on the amount of the real estate (as appearing in the Trial Balance) for factory rent. Also construct a Balance Sheet showing what was due to the deceased's estate and what capital stood on the credit of each of the surviving partners. The inventory at December 31st, 1905, was $125,000.00. Bills Receivable to the amount of $1,000.00 falling due after Decem- ber 31st, 1905, had been discounted. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elevator — ( Continued ) TRIAL BALANCE. DECEMBER 31, 1905. "A," Capital Account $ "B," Capital Account "C," Capital Account "D," Capital Account "A," Drawing Account 12,000.00 "B," Drawing Account 12,000.00 "C," Drawing Account 5,000.00 "D," Drawing Account 12,000.00 Inventory, December 31st, 1904 100,000.00 Purchases during the year after crediting returns 1,775,000.00 Factory Wages and Salaries 250,000.00 Balance of Discounts Received, and Allowed Sales during the year, after debiting returns Cash in Hand and at Bank 29,500.00 Bad Debts 16,000.00 Bills Receivable 15,000.00 Office Salaries 9,000.00 General Office Expense 2,500.00 Accounts Receivable 414,000.00 Traveling Expenses i 10,000.00 Taxes, Factory 1,000.00 Rent and Taxes, Office _ 2,000.00 Real Estate „ - 60,000.00 Plant and Machinery 15,000.00 Office Furniture and Fixtures 2,500.00 Bills Payable Accounts Payable Interest and Bank Discount, paid 7,500.00 $ 120,000.00 110,000.00 100,000.00 90,000.00 20,000.00 2,110,000.00 50,000.00 150,000.00 $2,750,000.00 $2,750,000.00 PRACTICAL PROBLEMS, GRADED, SERIES B Code : Eleven Two merchants, C. F. Munton and W. A. Spencer, agree to ^hare equally in a joint adventure in trade to the West Indies. On March 1st, 1907, they charter a small vessel and purchase ship materials which cost them $197.00, for which Munton gives his r^heck. This cargo, they consign to John Smith, their agent at Havana, which he disposes of, a^d in return ships on board the same vessel 4,000 cases of Comm- dity "A" and 100 cases of Com- modity "B" ; and he draws on Muntun at sight for $125.00, this being the amount of the agent's charges and disbursements over and above the net proceeds of the cargo consigned to him. Mun- ton accepts v.u\ pays the bill. On April 1st, the vessel arrives, whereu'^on Munton pays sundry charges of $337.50. Spencer pays the freight amounting to $493.00. On April 4th, Munton sells 1,000 cases of Commodity "A" to Henry Chamberlain for $239.58, and collects $150.00, and on April 10th S^',.icer collects the rest. About this time, Mr. Spenrer happens to have occasion for 1,400 cases of Commodity "A," which he takes on April 14th, and with Munton's consent values at $291.66. He also takes 10 cases of Commodity ''B," valued at $47.50. Munton sells the other 1,600 cases of Commodity *'A" on April 20th to John Walters for $383.33, and a month after accepts $382.50 in full payment. Mr. Munton next sells on April 25th the other 90 cases of Commodity ''B" in barttr for 30 cases of Comn^odity "C," which he and Spencer divide equally between them on the basis of $4.75 per case for Commodity "B." The goods being thus dirposed of, Munton presents his bill of charges, which comes to $22.66, and desires to have accounts stated between Mr. Spencer and him. You are required to give the ledger accounts of the joint adventure. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elf A cloak manufacturing concern, turning out but one grade of cloaks, claims to have been robbed on the night of April 16 and forthwith files a claim under a Burglary Insurance Policy it was carrying. The proof of the loss filed by the assured contained two items, viz.— 300 cloaks valued at $12,000.00 and 1,000 yards of silk stated to be worth $1,500.00. The insurance company being notified of the loss, immedi- ately ordered an inventory to be taken, which was done on the morning of the 17th and disclosed the following: 1,250 Cloaks 6,250 Yards of Cloth 2,500 Yards of Silk On the same day you were called in by the insurance com- pany to examine the books for the purpose of proving or disprov- ing the claim, when the following information was obtained : First — That a complete inventory had been taken on January 1, 1913, of the cloaks, cloth and silk on hand at that date, the in- ventory sheets of which had subsequently been lost or destroyed. However, the books showed that the total valuation was $32,- 675.00 and the firm's representatives assured you that this was correct and that the inventory had been properly valued at cost prices which had not fluctuated since. Second — That the cloth and silk purchases subsequent to January, 1913, had amounted to 18,750 yards of cloth and 5,000 yards of silk at average prices of 50c and $1.00 per yard of each fabric respectively. Third^That 3,000 cloaks had been manufactured during the same period which had consumed 20,000 yards of cloth and 5,000 yards of silk, while 4,500 cloaks had been sold. You were further informed that the manufacturing cost was as follows: Material $5.00 per Garment Labor and other Expenses 3.50 per Garment Give the gist of your report to your client ; and state what, if any, diflFerent case you could have made out for the Firm had you been employed by it instead of by the Insurance Company. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elfin "A" and "B" purchased land in Porto Rico on January 1st, 1909, and started a tobacco plantation, the former bringing in $100,000.00, and the latter $50,000.00 capital in cash. Five per cent per annum is paid upon capital, while the net profits or losses are divided equally. They draw as partnership salaries, $1,250.00 a year each and make no other withdrawls. In the first year, they spend $75,000.00 for the purchase of and payment for the land, buildings, etc., and $15,000.00 in planting the 1910 crop, which was sold in 1910 for $40,000.00, but upon which had been paid in 1910 and up to the date of the sale $2,- 500.00 for wages and sundry expenses. In 1910 they spent $25,000.00 in further developing the estate and $40,000.00 in planting the 1911 crop. Draw a Balance Sheet as at the end of each year, 1909 and 1910, and in the Partners* Capital Accounts therein show the condition consequent on results, there being no other assets or liabilities than these mentioned above, and the bankers' debit and credit balance, as the case may be. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elict A Partnership existing between "A" and "B" expired by effluxion of time, and "A" being the senior member,, decided to withdraw altogether in favor of his son **C" who, for some years had been connected with the firm. This "B" agreed to on the understanding that he should assume the senior position and take the larger share of profits which "A" up to that time had enjoyed, while "C," in turn, should take the place of "B." A new part- nership on these lines was entered into, it being further agreed that for the purpose of the adjustment of the partners' accounts, inter se, the goodwill of the business should bt valued on the basis of five years' purchase of the average profits for the last three years, after allowing "B" a salary for having taken the active part in managing the business during this period, of $5,000.00 per annum. As between *'A" and "C" it was also agreed that "A" would loan "C" the necessary funds for the new partnership, while "B" met his obligaticiis in cash on the morning of January 1, 1913. From the foregoing and the following data, prepare — First — A Balance Sheet of the old Partnership as at Decem- ber 31, 1912, with relative Statement of Profits for the year ending on that date, showing sales, cost of sales, and gross and net profits, etc., supplemented with statement showing how '*Cost of Sales" is arrived at. Second — Prepare statements of the partners' accounts, giving effect to the retirement of "A" from the firm and the admission of "C," and to the change in the status of "B." Third — Show the Balance Sheet of the new partnership at January 1, 1913, after "B" had met his obligations. Assume (1) That in the old partnership "A" had a %-in- terest and "B" 1/3 ; (2) that the net profits for the years 1910 and 1911 as originally arrived at and passed to the credit of the part- ners' accounts were $30,000.00 and $40,000.00, respectively; (3) that interest is to be received on the capital accounts at the rate of 5% per annum; and (4) that depreciation should be written off the properties at the rate of 6% per annum. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elict — (Continued) TRIAL BALANCE OF "A" AND "B"— AT DECEMBER 31, 1912 Dr. Cr. Cash $ 50,000.00 $ Accounts receivable 100,000.00 Accounts payable 101 ,000.00 Sales 500,000.00 Inventories of raw materials at Jan. 1, 1912 97,500.00 Inventories of operating supplies, Jan. 1, 1912 15,000.00 Inventories of finished stock, Jan. 1, 1912 67,500.00 Raw material purchases 140,000.00 Productive labor 105,000.00 Power, heat and light expenses and taxes 40,000.00 Other operating expenses and supplies purchased.. 18,000.00 Property account '. 125,000.00 "A's" capital account 200,000.00 "B's" capital account 100,000.00 "A's" drawings 12,000.00 "B's" drawings 6,000.00 Selling expenses 85,000.00 General and administration expenses 40,000.00 $901,000.00 $901,000.00 The inventories at December 31, 1912, were as follows: Raw material $100,000.00 Finished stock 75,000.00 Operating supplies 17,500.00 Taxes accured and not taken up amounted to 2,500.00 Payrolls accrued and not taken up amounted to 7,500.00 Insurance premiums prepaid.. _ 3.000.00 PRACTICAL PROBLEMS, GRADED, SERIES B Code : Eligible Adam Smith and Thomas Gray have been in business as con- tractors for the last six years. Each invested $63,000 cash and was to receive one-half of the gain and bear one-half of the losses, which were as follows for the entire period : Year 1899, Gain T. $15,000.00 1900, Gain 18.000.00 1901, Gain - 21,852.00 1902, Gain 1,500.00 1903, Loss 1.500.00 1904, Loss 3,000.00 Each withdrew from the business for priva'^e use $6,000 per year.' On December 31, 1904, an assignment was made and the assignee obtained the following information in addition to that already given, from which he proceeded to make a Statement of AflFairs and a Deficiency Account to be placed before the cred- itors : Unsecured Creditors on open account $ 27,000.00 Fully secured Creditors 6,900.00 Securities held by above consist of patents, valued at 9,000.00 Partly secured Creditors 105,000.00 Securities held by above consist of railway shares, valued at 60,000.00 Wages due 2,000.00 Rent due 400.00 Bills Payable 60,000.00 Book Debts (Good) 3,000.00 Book Debts (Doubtful), (Est. worth $225.00) 800.00 Book Debts (Bad), of no value 900.00 Stock in Trade 112,500.00 Above is estimated worth 66,600.00 Plant and machinery cost 120,000.00 Above estimated to produce 60,000.00 • Office Furniture, $900, estimated worth 600.00 Bills Receivable under Discount 10,000.00 Estimated Liability of Estate on above :. 4,000.00 Cash in Bank 252.00 From the facts given above prepare : (a) A Statement of Affairs. (b) A Deficiency Account. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Eliminate On January 1, 1915, "A," "B," "C," and "D" held shares in the Bright Gold Mining Company, as follows : "A" 5,000 shares; "B" 4,000 shares; "C" 3,000 shares; ^'D" 2,000 shares. These shares were purchased by the parties men- tioned as individuals for $5.00 each, which was their par value. It was decided by "A," "B," "C" and "D" that they should purchase for joint account 6,000 shares of the above company at the market price of $10.00 per share. This purchase was made on March 30, 1915, the parties being interested in the purchase equally. The money was obtained from the Good Friend Banking Company, all the shares held being given as security for the loan. At this point an arrangement was made to pool the shares, each party becoming interested in the adventure in accordance with the shares originally held and the purchase made on joint account. On April 15, 1915, the Bright Gold Mining Company issued new capital, one share being allotted for every five held. The shares were issued at a premium of $1.00 per share. The pool borrowed money from the bank and on April 18, 1915, took up the shares, depositing them with the bank. Owing to a boom on the gold mining market, the shares rose rapidly and were partially sold as follows : 10,000 shares @ $20.00 per share for settlement June 30, 1915. 3,000 shares @ $18.50 per share for settlement July 2, 1915. 3,000 shares @ $15.75 per share for settlepient July 3, 1915. 4,000 shares @ $15.00 per share for settlement July 10, 1915. As the proceeds of the various sales were obtained on the dates mentioned, the bank was paid off with interest at 8%, and any surplus paid into a current account with the bank. On July 31, it was decided to break the pool and that each party would receive his share of the stock unsold and the pro- portion of the cash in bank due to him. From the above information, prepare a detailed statement bringing out the result of the above transactions, and a further statement showing in detail the division of the cash in bank and shares unsold between the adventurers. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elison The "A" "B" ''C" Estate Company was formed on January 1, 1912, and the following is the trial balance as at December 31, 1913, before closing the income and expenditure accounts for the current year: THE A. B. C. ESTATE COMPANY TRIAL BALANCE DECEMBER 31, 1913 Dr. Cr. Capital stock authorized and issued $ $140,000.00 Bonds issued — 120,000 20-year 5% bonds issued Jan. 1, '12, at a discount of 5% 120,000.00 Discount on bonds issued 6,000.00 Property (Jan. 1, 1913) 250,280.50 Capital stock in treasury 12,000.00 Calls unpaid 500.00 Additions to property 1913 — Sinking artesian well 5,000.00 "A." "B." "C" Estate Co.— Bonds purchased 1912 (and can- celled) $6,000.00 5,850.00 Bonds purchased 1913 6,000.00 5,750.00 Rents collected 24,500.00 Fire insurance paid to June 30, 1914 300.00 Agents' fees and expenses 2,850.00 General office expenses 1,050.00 Cash at bankers and on hand . 1,389.50 Secretary's salary and commission 2,380.00 Income and expenditure account 1912 14,250.00 Interest on bonds (paid annually) 5,400.00 $298,750.00 $298,750.00 The rent collections include rents paid in advance — ^$750.00 and there are sundry rents outstanding not taken up on the books, amounting to $2,050.00 of which it is estimated $15.00 will not be collected. No provision has been made in the year's accounts for de- preciation of the buildings, included in the property account, the original co.st of which was $120,000.00. In the year 1912 the amount written off was based on an estimated life of 20 years. Prepare Balance Sheet as at December 31, 1913, and Income and Expenditure Account for the year ended that date, after making the necessary adjustments. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elite A company is formed at January 1st, 1907, with a capital of $1,750,000.00, consisting of 17,500 shares of the par value of $100.00 each. Of these, 16,250 shares are sold to subscribers at par for cash. The following is a summary of the transactions of the com- pany during the first twelve months of carrying on business : The preliminary and formation expenses are $12,500.00, which are paid in cash. They purchase freehold and leasehold of an iron works and collieries from "A. B." Company for $1,250,000.00. They take over from them the necessary plant and machinery at $375,000.00, and a stock of iron, coal, etc., at $229,250.00. The vendors take in part payment of their purchase money $50,000.00 of First Mortgage Bonds, and $125,000.00 in shares of the company, fully paid. There is $1,679,250.00 paid to them in cash to close the account. The company expends during the year, $54,200.00 in addi- tions to the plant and machinery by purchases from sundry credi- tors to the extent of $41,300.00, and by payments through the cash account of $12,900.00. They purchase materials from sundry creditors to the extent of $461,500.00, and they purchase for cash to the extent of $67,- 310.00. They pay for wages, rents, royalties, tolls, wagon hire, repairs, etc., $842,700.00. Their sales from iron and coal to sundry debtors amount to $1,526,585.00. They receive in cash from sundry debtors $1,- 040,700.00. They draw on sundry debtors bills to the extent of $419,- 740.00. They transfer of the above amount to sundry creditors $54,- 510.00, and the bank credits their account with $361,400.00, the proceeds of those discounted. The balance is discount. They pay in cash to sundry creditors $231,415.00. They accept for creditors, bills of exchange to the extent of $142,110.00; of this amount they meet $86,005.00 through their banking account, the balance being still current at the end of the year. They borrow on First Mortgage Bonds $375,000.00 which is paid into their banking account as received. They pay to their bankers for interest and commissions $8,040.00; for salaries, oflfice expenses, and management, $15,- 670.00 ; law charges, $410.00, and for directors' and auditors* fees, $3,010.00. They write off five per cent from the original amount of the plant and machinery for depreciation, but nothing from the addi- tions. I They also write off the following amounts : $25,000.00 from the freehold and leasehold property to cover minerals taken from the freehold and to provide for the expiration of the leases; $3,005.00 for bad debts, and one-fifth from the preliminary ex- penses. The discount allowed to sundry debtors amounted to $5,- 530.00. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elite — ( Continued ) There is due at the close of the year $2,250.00 for interest on bonds, and the value of the stock of materials then on hand is $154,285.00. All receipts are paid into the bank, and all payments are made by check. Prepare Trading and Profit and Loss Accounts and Balance Sheet as at December 31st, 1907, showing the result of all the foregoing transactions. Marshall the assets and liabilities, be- ginning the former with the most liquid asset, and the latter with the liability to be first paid. Criticize in any way that occurs to you the information that the Trading and Profit and Loss Accounts and Balance Sheet give. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elixer The co-partnership of Kimball, Bagley and Pettey find they havf merchandise on hand December 31st, 1903, that cost $8,- 724.00 and is inventoried by them at a 10 per cent advance ; they also have unexpired premiums on insurance amounting to $46.75, and accrued interest on notes receivable amounting to $232.40 not entered on the books ; and owe interest on a note for $4,000.00 for 9 months at 5 per cent, payable to Wm. C. Bagley. The articles of co-partnership provide that 4 per cent shall be paid each part- ner on his investment, and in event of partners drawing for per- sonal use they are to pay 6 per cent for such money so drawn. Profits are to be divided in the following proportion: Jas. H. Kimball, 45 per cent ; Wm. C. Bagley, 32 per cent ; Geo. R. Pettey, 23 per cent. The trial balance of the firm and its partner's accounts on the books are as follows: ' Dr. Cr. Jas. H. Kimball, Investment Account $ $ 12,675.00 Wm. C Bagley, Investment Account 9,410.15 Geo. R. Pettey, Investment Account 8,011.05 Merchandise 40,425.00 Expense 1,147.26 Insurance 162.50 Freight, Cartage and Express 7,458.98 Salaries 4,000.00 Clerk Hire 2,250.00 Telegraph and Telephone 311.44 Accounts Receivable 27,816.42 Notes Receivable 8,640.00 Notes Payable 10,000.00 Accounts Payable 2,692.65 Interest and Discount 1,118.36 Jas. H. Kimball Drawing Account 3,750.00 Wm. C. Bagley Drawing Account 1,000.00 Geo. R. Pettey Drawing Account 1,425.00 Returns and Allowances 1,186.79 Sales 57,551.00 Cash 1,648.10 $101,339.85 $101,339.85 Jas. H. Kimball, Drawing Account: Dr. Cr. March 10th, withdrew $ 1,650.00 June 22nd, withdrew 1,725.00 July 15th, paid in 3,000.00 October 1st, withdrew 2,000.00 November 1st, withdrew 1,000.00 December 29th, withdrew 375.00 Wm. C. Bagley, Drawing Account : June 1st, withdrew 2,000.00 September 20th, withdrew 1,000.00 December 1st, paid in (6% interest to be credited him) 4,000.00 Geo. R. Pettey, Drawing Account: April 1st, withdrew _ 356.25 July 1st, withdrew ~ 356.25 October 1st, withdrew ~ 356.25 December 31st, withdrew 356.25 Prepare from the foregoing, a profit and loss account and a balance sheet. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elk A corporation needing some additional capital for a short term of years, issues $300,000.00 of debenture bonds carrying 6% interest, and payable one-fifth each year for five years. Coupons are attached to the bonds maturing every six months ; the bonds are sold at 90 flat. What average rate of interest does the company pay for the money ? PRACTICAL PROBLEMS, GRADED, SERIES B Code : Ell "C" and "D" owned adjacent vacant real estate and after consideration decided to go into partnership. When the agree- ment was drawn on January 1, 1913, the situation was as follows : "C" turned over the following properties, subject to incum- brances noted : Tract 1 2 3 4 Valued at $10,000.00 30,000.00 20,000.00 50,000.00 Mortgage 5,000.00 20,000.00 10,000.00 30,000.00 Interest Accrued 150.00 200.00 300.00 900.00 "D" turned over the following properties, subject to incum- brances noted : Tract 5 6 7 8 Valued at 75.000.00 15,000.00 30,000.00 20,000.00 Mortgage 50,000.00 5,000.00 20,000.00 15,000.00 Interest Accrued 1,500.00 100.00 300.00 300.00 "C" turned in a cash fund of $7,500.00 and the partnership as.sumed his liability on notes payable amounting to $20,000.00. "D" owned 10,000 shares in the Canadian Townsite Company which he transferred to the partnership at a valuation of $50,- 000.00. The partnership assumed his obligations to the bank amounting to $30,000.00. During the year 1913, "C" operated the properties and sold the following: On June 30, 1913 : Tract No. 1 for $15,000.00, the purchaser assuming the liability for mortgage and accrued interest. The cash was paid into the partnership bank account. On September 30, 1913 : One half of Tract No. 4 was sold for $35,000.00, the purchaser assuming $20,000.00 of the mort- gage. All interest on the entire mortgage had been paid to Sep- tember 30, 1913. On December 31, 1913 : Tract No. 6 was .sold for $10,000.00, the purchaser taking over the mortgage and all interest to date. On December 31, 1913 : Tract No. 8 was sold for the amount of the mortgage and all interest to date. "C," in addition to paying all the interest at 6%, except as above noted, to December 31, 1913, paid the following expenses from his own pocket: Surveying, $5,000.00; legal, $2,000.00; office, $1,000.00; salesmen, $2,500.00. "D," not having been active, agreed to pay **C" $2,500.00 in respect of "C's" work during the year. At December 31, 1913, ''D" agreed to purchase from "C" the latter's .stock in the Aetna Copper Company at a price of $40,000.00. Record the above transactions by journal entry and there- after prepare the necessary accounts for submission to the two partners, ''C" and ''D." Profits and losses will be shared equally. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Ellipse BALANCE SHEET OF THE OREGON COMPANY AS AT DECEMBER 31, 1915. Dr. Cr. Machinery and Equipment -.. $ 460.000.00 $ Patents and Goodwill 500,000.00 Investment in Nevada Company — 900 Shares at par value of $100.00 each, purchased on July 1, 1915, at cost of 180,000.00 Current Assets — Inventory $520,000.00 Accounts Receivable 340,000.00 Bills Receivable — Advances to Nevada Company 98,000.00 Cash 52,000.00 1,010,000.00 . Deferred Charges — Insurance, Interest, etc 8,000.00 Preferred Stock, 7% 700,000.00 Common Stock 800,000.00 Current Liabilities: Bills Payable $200,000.00 Accounts Payable 180,000.00 Accrued Liabilities 42,000.00 422,000.00 Surplus, balance at beginning of year $ 89,000.00 Net Income for year 229,000.00 $318,000.00 Less— Dividends paid 82.000.00 236,000.00 $2,158,000. 00 $2,158,000.00 BALANCE SHEET OF THE NEVADA COMPANY AS AT DECEMBER 31. 1915. % Dr. Cr. Land and Building $ 80,000.00 $ Machinery and Equipment 90,000.00 Uncompleted Construction 89.000.00 « Current Assets — Inventory $ 43,000.00 Accounts Receivable 61,000.00 Cash 1,200.00 105,200.00 Deferred Charges — Insurance, Interest, etc 1,000.00 Common Stock (1.000 Shares) 100,000.00 Current Liabilities — Bills Payable (Oregon Co.) $ 98,000.00 Accounts Payable 102,200.00 Accrued Liabilities 3,000.00 203,200.00 Srrplus, balance at bcginnin-^ of year....$ 14.000.00 Net income for year (No Dividends paid) 48.000.00 62,000.00 $365,200.00 $365,200.00 PRACTICAL PROBLEMS, GRADED, SERIES B Code : Ellipse — ( Continued ) With the above figures and assuming that the profits of the Nevada Company were earned proportionately throughout the year — 1. Prepare a ConsoHdated Balance Sheet as at December 31, 1915, in which the surplus section thereof will show the balance at the beginning of the year, the net income for the year, the dividends paid and the balance at the close of the year. 2. Discuss the relative merits of submitting accounts of the Oregon Company by itself, and submitting Consolidated Accounts in this case and advise what attitude you would take if the client stated that, for credit purposes, he would like a certified balance sheet of the Oregon Com- pany by itself. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Ellipsis The Sound Farm Mortgage Investment Company operates in Montana and Chicago. Its business is the loaning of money on the security of mortgages of farm property — loans being limited to 50^ of the appraised value of the proposed security — and the selling of mortgages. The loans are made in Montana at a practically effective interest rate of 9% per annum, but as mortgages bearing only 6% are saleable in Chicago, the difference of 3% per annum for the term of the loan is added to the amount loaned, and the mortgage deed is drawn up to cover the amount. The mortgages are sold at face value, the company making a com- mission amounting to the difference between the face value of the mortgage and the amount loaned. For example, if a farmer desires a loan of $5,000 for five years, he is required to pay 9% per annum, but in the f :llowing manner: The mortgage deed is drawn up, specifying interest at 6% per annum, in the amount of $5,750.00, but he is actually loaned only $5,000.00. The differ- ence, $750.00, represents 3% per annum for five years on $5,- 000.00. The mortgage would be sold for $5,750.00. The company, in order to carry on business, has to borrow extensively, paying about 6% per annum for money, and of course the loans have to be covered by deposit of mortgages as collateral. You are required to show, in journal form, the entries necessary to record loans made and the sale of mortgages. Give reasons for your treatment. How would you show mortgages on hand in the balance sheet? Give reasons. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elliptic As on January 1st, 1890, a corporation is formed for the purpose of acquiring and conducting a cemetery, and starts busi- ness on that date with a capital stock of $100,000.00 paid for in cash. The company first purchases forty acres of land within easy access of a large city, paying for it at the rate of $1,000 per acre. It proceeds to expend considerable sums of money in the purchase and planting of trees and shrubs, laying out drives and pathways, sodding, building of glass houses, etc. The policy of the company is to withhold the selling of burial lots until after January 1st, 1900, so as to allow the trees and shrubs to become more fully grown and in the expectation that with the growth of the city their property will become more valuable. In the year 1900 the company commences selling burial lots, and all are sold under a special provision whereby the company agrees to apply fifty per cent of all cash received on sales, in the purchase of four per cent bonds until a total of $150,000.00 of such bonds shall have been so purchased. The agreement further provides that after all lots have been sold the company will wind up its affairs and shall use the income of such bonds for keeping up the ceme- tery. It is the custom of the company not to purchase bonds until after the close of each fiscal year and after the total sales of that year have been determined. In March, 1905, the directors of the company find that, while they believe the books to be in balance, no proper entries have been recorded showing the total cost of their investment, and that no entries have been made with respect to the fund of $150,- 000.00 from which said bonds are to be purchased. While cash dividends have been declared and paid, the directors are in ig- norance of what their profits actually have been and how much of the dividends so received have been paid out of the profits and how much in the nature of liquidated dividends, representing a return of their original investment. They, therefore, employ a certified public accountant to determine all these matters and to make the necessary entries on their books and render report to them. After determining the clerical accuracy of the books, the accountant draws oflF the two trial balances given below and from them prepares the necessary entries and obtains the information required by the directors. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elliptic — (Continued) TRIAL BALANCES Debits-- Jan. 1„1900 Jan. 1, 1905 Real estate $ 40,000.00 $ 40,000.00 Improvements 45,000.00 45,000.00 Bonds 125,000.00 Administration expense 20,000.00 46,'000!00 Upkeep of cemetery 45,000.00 Dividends paid 130,000.00 Cash 7,000.00 40,800.00 $112,000.00 $471,800.00 Credits — Interest account representing interest at 4 per cent on unexpended cash during development period..$ 12,000.00 $ 12,000.00 Bond interest account 9800.00 Sales of lots 35000000 Capital stock 100,000.00 lOO.'oOO.OO $112,000.00 $471,800.00 An inventory of their unsold lots as on January 1, 1905, shows that they have ten acres left unsold of equally desirable character with that already sold. Draw up entries, prepare profit and loss account for the period and balance sheet as on January 1st, 1905, in the same manner as if you had been the accountant engaged. In any interest calculation use four per cent simple interest. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elm The following trial balance was taken from the books of the Moore & Smith Hardware Company, of date December 31, 1914: Cash on Hand ^ $ 100.00 $ Cash in Bank 3,000.00 Sales — : 1,150,000.00 Discounts on Purchases „ _ 20,000.00 Interest on Notes Receivable _ l^OOO.OO Accounts Receivable ^ 150,000.00 Notes Receivable 10,000.00 Capital Stock _ 200,000.00 Real Estate 50,000.00 Buildings 200,000.00 Equipment 50,000.00 Horses, Wagons, and Harness 5,000.00 Motor Trucks ^ „ 5,000.00 Insurance 2,000.00 Taxes 5,000.00 Purchases 900,000.00 Discounts on Sales— Cash 20,000.00 Wages of Men in Warehouse „... 25,000.00 Salaries of Department Managers i 10.000.00 Salaries of Office Assistants '. 5,000.00 Drivers, Teamsters, etc 5,000.00 Horse Feed 2,000.00 Auto Expense 1,500.00 Inventories— as at January 1, 1914 300,000.00 Inventories of Horse Feed, Auto Accessories, etc., as at January 1, 1914 3,000.00 Inventories of Stationery, Advertising, etc., as at January 1, 1914 2,000.00 Office Supplies, Stationery, etc 3,000.00 Advertising 50,000.00 Salesmen's Salaries 20,000.00 Salesmen's Commissions 11,000.00 Interest on Notes Pavable 10,000.00 Dividend on Capital-^% 12,000.00 Notes Payable 250,000.00 Accounts Payable _ 150,000.00 Real Estate — not used in Business 150,000.00 Investment in Union Hotel Co., at Cost 50,000.00 Sprinkler System — at face of Contract 10,000.00 Liability on Sprinkler System „ 8,000.00 Surplus _ 290,600.00 $2,069,600.00 $2,069,600.00 On December 31, 1914, the company authorized the issue of $300,000.00 cumulative 7% Preferred Stock and sold same to the Grand Investment Company at 90%, giving also a bonus of $30,000.00 common stock. $70,000.00 common stock was sold to the present stockholders at par, the total issue of common stock being $300,000.00. Of the proceeds of these sales, $150,000.00 was to be expended on new buildings, the balance to be retained for working capital. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elm — (Continued) On January 2, 1915, a dividend of $40,000.00 was declared, payable on January 15, 1915. The inventories at December 31, 1914 were : Merchandise $325,000.00 Horse Feed, Auto Accessories, etc 1,000.00 Stationery, Advertising, etc 1,500.00 Of the insurance paid, $500.00 applies to the year 1915; also $1,500.00 of the taxes. The sprinkler system was installed on July 1, 1914. Of the contract price $2,000.00 was paid on that date and $2,000.00 is payable on each date August 1, 1915, 1916, 1917 and 1918. Two Thousand Dollars of interest applies to the period subse- quent to January 1, 1915. The depreciation on buildings for the year is $10,000.00 and on equipment $5,000.00. The real estate not used in the business has appreciated $50,000.00, while that used in the business has been appraised at $75,000.00. From the foregoing trial balance and data, prepare an income and profit and loss account for the year and a balance sheet at December 31, 1914. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elocution The Universal Cash Register Company is engaged in the manufacture of cash registers, and suppHes pertaining thereto. The sale of these cash registers, etc., is accomplished by means of a large number of branch houses and agencies, and all goods shipped by the factory to these branch houses, etc., are put on consignment account at list prices. In addition to the sale of new cash registers, they also sell a large quantity of second-hand registers, which they have obtained by taking second-hand regis- ters in part payment of ntvv registers. These second-hand regis- ters also are put on consignment account, but not at list prices, but at actual cost to the company ; the reason for this procedure being that they have no fixed belling price for second-hand ma- chines, their branch house managers and agents being authorized to sell them at as a high a figure as they can get, but on no account to allow themselves to become over-stocked with them. It often happens that, on receiving the second-hand register at a branch, it is found advisable to ship it to the factory, so that certain re- pairs may be effected to put it in saleable condition. When these repairs are completed, the second-hand register may be shipped lo some point entirely different from that which it originally came. Branch house managers are paid a fixed salary, but attached to each branch house are a number of salesmen who receive no salary, but are paid on a purely commission basis, and on the same terms as those given to agents. For the purpose of this question it will be assumed that no register is ever sold without a com- mission being paid to a salesman or agent, and on the sale of every new register the rate of commission is thirty (30) per cent. But when a second-hand machine is accepted in part payment of a new register, the salesman or agent only receives twenty (20) per cent of the net amount that will be received in cash and notes from the customer. On sales of second-hand machines a commis- sion of twenty per cent is paid. The terms to customers are 25 per cent cash, and the balance in ten equal monthly installments ; a separate note being given for each installment. Upon failure of a purchaser to pay any part of the purchase price, the register is pulled (that is, taken out and returned to the agency or branch house selling it), and the agent or salesman then only receives pro-rata amount of his commission, the actual cash collected being the basis of his commission. The amount that has been paid in on account of a register which is pulled is clear profit, barring any legal expense in connection therewith, and the customer's open account or notes receivable account is closed out by a transfer to an account termed "Retained Payments," or "Retained Second- hand Machines." The branch houses and agents keep no ac- ( Continued on next page.) V PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elocution — (Continued) counts, all accounts and collections being attended to at the head office. Amongst others, the following accounts are kept on the general books : New Register Consigned Stock Account (always debit balance). New Register Consignment Account (always credit balance, and offset- ting balance of Consigned Stock Account). Second-hand Consigned Stock Account. Second-hand Consignment Account. New Register Sales Account. Second-hand Register Sales Account. New Register Commission Account. Second-hand Register Commission Account. Retained Payments Commission Account. New Register Commission Adjustment Account. Notes Receivable Ledger Account. Customers Ledger Account. Second-hand Register Cost Account. Agent and Salesman's Commission Ledger Account. Retained Payments. Retained Second-hand Machine Account. As a check upon the New Register Commission Account, a rule is laid that in all sales of new registers, whether a second- hand register be accepted in part payment or not, the New Regis- ter Commission Account must be charged with 30% of the list price of the register sold. Draw up journal entries for the following transactions: (a) Herbert Davison, a salesman in the Chicago branch, sells a new cash register to the Madison Restaurant Company, having a list price of $240.00. The restaurant company, one month after the delivery of the register, pays cash of $G0.00, and gives ten installment notes of $18.00 each, the first one due one month after date, the second two months after date, and so on. After meeting the first five notes, the Madison Restaurant Company becomes bankrupt, and the Universal Cash Register Company pulls the register. Show all of the entries necessitated by the above trans- actions, including commissions to salesman. (b) Thomas Smith, an agent for the company, sells a cash register to Herbert Findlay for $350.00, and takes in part payment a second-hand register at $50.00. After delivery of the new register to Herbert Findlay and the receipt at the factory of the second-hand register, a settlement of the account is effected by a cash payment of $75.00 and the acceptance by the company of ten installment notes of $22.50 each made by Herbert Findlay. The latter pays the first two notes, but fails to make any more pay- ments on the other notes. The register is, therefore, pulled. Show all of the entries necessitated by the above transactions, including commission to Thomas Smith, the agent. (c) The second-hand register returned to the factory and re- ferred to in the last question has repairs put upon it costing $25.00, and it is then shipped to the New York branch and consigned to PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elocution — ( Concluded ) them at the actual cost, commission saved not being considered, to the Universal Cash Register Company up to that time. A sales- man, Edgar Robinson, sells the register to Abner Johnson for $100.00, and the latter settles for it by paying cash down. Show all of the entries necessitated by the above transaction including commission to Edgar Robinson, and also state what profit the com- pany made on this register, and how you arrive at it. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elongate The shareholders of a company with bonds outstanding of $500,000.00 bearing interest at 5% per annum, resolve to provide for paying them off when they fall due on December 31st, 1912, by investing $50,000.00 per annum out of the profits and allowing it to accumulate with interest ; this arrangement to commence with the balance-sheet for the year ending December 31st, 1904. Show the "Bond Redemption Account" on December 31st, 1908, on the assumption that on December 31st, 1904, and on the same day in each year following, the $50,000.00 referred to was invested in 4% railroad bonds at par, that the interest thereon to June 30th and December 31st in each year was received in July and January following, and was allowed to accumulate in the bank until June 30th and December 31st following, when it was invested in the same class of securities at the same price in multiples of $1,000.00. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Elope A Share and Investment Corporation promoted a subsidiary corporation, and on January 1, 1905, subscribe $30,000.00 worth of stock receiving also $70,000.00 stock as consideration for their services as promoters. Their promotion expenses amounted to $500.00. Sales of their holdings in the subsidiary corporation are made as follows : Stock Price Realized February $ 5,000.00 $ 1,000.00 March 10,000.00 2,500.00 April 10,000.00 3,000.00 May 10,000.00 5,500.00 June _ 10,000.00 7,500.00 October 5,000.00 1,500.00 At December 31, 1905. the parent corporation's financial year closes, at which date they hold a balance of $50,000.00 of the stock, the current market price being $25 per $100 share. Give detailed ledger account, bringing down the balance at the figure at which it should be shown on the balance sheet, and assign your reasons for the valuation you place upon it. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Eloquent "X" of New York is the purchasing agent of "Y," a South American trader, who pays "X" a commission of 5% on all transactions executed. "X" executes his orders, draws a draft on "Y" for the amount involved and discounts the draft with a New York bank, which pays the debts created by the purchase. The bank forwards the draft of "X" for collection. "Y" orders through "X" 100 barrels of flour, purchased of "A," "B" & "C," @ $10.40 per barrel ; freight paid $92, cartage paid $38, insurance etc. $18. He orders also through "X" miscella- neous goods purchased of "D," "E" & "F," amounting to $7,500 ; freight paid $72, cartage paid $32, insurance $20. "X" draws a 60 day draft in favor of the bank for the amount due, which was discounted at 1%. Create ledger accounts to express correctly the above trans- action. The insurance is covered under a floating policy. Fur- nish a trial balance of the ledger. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Else The Black Birch Spool Company decided to retire from business and dissolve the corporation. To that end a meeting of the stock- holders was called for September 10, to consider and determine the advisability of such action. The stockholders decided to dis- solve the company and authorized the president and the treasurer to perform all necessary acts to accomplish this end at the earliest possible date. A trial balance from the company's books taken at the close of business, August 31, showed the following amounts: Land and building $ 55,000 Machinery and machine tools.... 35,000 Shop and hand tools (in store).. 5,000 Furniture and fixtures 9,700 Raw materials and freight there- on 10,350 Accounts receivable 23,400 Cash in bank and in offices 11,320 First mortgage 6% bonds $ 26,000 Interest accrued on above bonds 312 Accounts payable 21,700 Reserve for depreciation of building 5,300 Reserve for depreciation of ma- chinery 8,000 Reserve for depreciation of fur- niture and fixtures 5,100 Surplus 23,358 Capital stock, authorized, issued and outstanding 60,000 $ 149,770 $ 149,770 The land and building were sold to the mortgagee for $50,000 as of August 31. The entries on the cashbook between September 1 and September 30 show the following receipts and disburse- ments : Receipts: Land and building $21,234; machinery $25,340; shop and hand tools $2,100 ; furniture and fixtures $3,700 ; raw mate- rials $7,950; accounts receivable $23,130. Disbursements: Accounts payable $21,700; miscellaneous ex- penses $1,530.20. Prepare (a) journal entries reflecting the dissolution of the company, as at September 30, (b) statement of realization and liquidation that will show the percentage payable to the stock- holders on their holdings. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elucidate A fire insurance company began business with a capital of $400,000 and a surplus of $400,000 paid in cash. At the end of the year, its books show the following: Income: gross premiums $707,135.84, less reinsurance rebates and return premiums $94,971.27; interest on mortgage loans, received in cash $6,803.65, and interest accrued and due $1,349.87 ; interest on collateral loans, received in cash $1,014.44 and accrued and due $4,228.32; interest on bonds and dividends on stock, received in cash $16,841.65 and accrued and due $186; profit on sale of assets $4,204.52. Outgo: gross amount paid for losses $115,048.22, less salvages $14,900; gross claims for losses in process of adjustment $32,- 263.83; gross claims for losses resisted $8,618.50, less due and accrued for reinsurance $11,412.71 ; commissions or brokerage paid in cash $123,544.19, and due or to become due $9,519.24; salaries, fees and all other charges of officers, clerks and other employees paid $24,755.68 ; rents paid $4,224.93 ; taxes, licenses, insurance department fees paid $9,764.99 ; all other expenses paid $20,820.12; due and accrued expenses $621.29; due and accrued return premiums $9,597.36; due and accrued reinsurance pre- miums $6,856.48. The market value of securities owned was $20,625 less than their cost. The risks in force at the end of the year carried premiums of $580,867.07, of which sum $424,747.65 was the aggregate of premiums on risks running one year or less, and $156,119.42 was the aggregate on risks running more than one year, the unearned premiums on which amounted to $111,950.46. Set up the income accounts, making due allowance for un- earned premiums. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elude James Stetson i« appointed trustee of the manufacturing busi- ness of John Brightlawn, for the purpose of rehabihtation. On taking charge, he finds that the available assets are : Cash in bank, $35o; accounts receivable (a) good, $3,712, (b) probably uncol- lectible, $350. The working and trading assets consist oif: Raw materials, $17,258; sundry manufacturing supplies, $700; finished goods, $8.000 ; goods in process, $30,945.70. Other assets com- prise : Machinery and machine tools, $41,000 ; shop and hand tools, $1,300; deferred debits to manufacturing, $530. The liabilities are : Creditors' accounts, $39,700 ; wages accrued, productive $500, unskilled $230. The transactions under the trusteeship are as follows : Loaned by creditors for immediate needs, $7,000. Purchased on book accounts : Raw materials, $8,300 ; sundry manufacturing supplies, $9,500. I-actory expense: Paid in cash, $1,300; incurred as a liability to creditors and subsequently liquidated, $2,100. The doubtful accounts receivable proved worthless. Cash paid for: Productive labor, $16,000; unskilled labor, $2,500; general ex- pense, $8,000 ; additional shop tools, $009 ; freight inward, on raw materials manufactured and sold, $(50. Interest allowed to credit- ors on their accounts amounted to $143.10. The trustee advanced $4,300 to John Brightlawn on account of expected profits; the sales of finished wares amount to $91,000. At the close of the trusteeship, the trustee's books show the working and trading assets to be: Finished goods, $11,000; goods in process, $10,450; raw materials, $1,945.70; manufacturing sup- plies, $395.25. There is besides an amount of $750.10 represent- ing factory expenses unapplied. The creditors' accounts show a balance of $1,650.30, while the uncollected accounts receivable amount to $2,975.36. The shop and hand tools amount to $1,009. Prepare a report which will reflect logically and clearly the result of J. Stetson's administration. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Elusion "A" contracts with a textile establishment to sell the mill's an- nual output on the following conditions: The mill is to bill the output to "A" at cost. "A" is to finance the mill to the extent of 75% of cost on receipt of goods. The balance is to be remitted by "A," as the various shipments are sold, less 5% and advances. At the end of a year, an analysis of "A's" affairs reveals the following, as shown by his books, the goods being sold at 10% profit above factory cost (mill shipments $7,327,918.18) : ,,„ Debits Credits Mill advances $ 5,545,938 $ 5,000,000 Mill sales 6,400,000 7,840,710 Freight and cartage 90,000 80,000 Customers 7,840,710 7,632,200 Cash 7,610,200 5,635,938 Discounts 22,000 Commission 320,000 Mill account .-. 1,000,000 $27^508,848 $27,508,848 Prepare "A's" financial statement. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Emanate Plant & Company and Edwards & Company ship merchandise to South America on joint account. Edwards & Company gave Plant & Company $1,200 in cash and their acceptances at six months for $3,000. Plant & Company were to provide balance of cash required, to manage the venture and receive a commission of 2% on amount of invoice for merchandise. Profits to be divided equally. Plant & Company paid Smith & Greer for merchandise $5,000, and discounted Edwards & Company's acceptances for $3,000, at 2% discount. Plant & Company prepaid freight $420, insurance, $60. In due time, Plant & Company received from South America an account sales for merchandise and a draft for the net proceeds, payable in London for $3,200, out of which Plant & Company paid $3,000 to retire bills for that amount. Later Plant & Company received a draft for $3,100, being bal- ance of proceeds of sale of merchandise. The joint account with Edwards & Company was closed and a check for the balance due them was paid to Edwards & Company. Prepare a statement showing details of the joint account, also a statement of Edwards & Company's account. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Embalm The office of a firm of traders, doing business in San Francisco, was destroyed by an earthquake. The books of account, which had been fully posted, were badly damaged. The following ledger accounts were found to be legible : Purchases, net $69,000; Discounts Lost, $640; Discounts (Gained, $3.150 ; Sales, $54,000 ; Bills Receivable, $33,000. Inquiry at the bank disclosed a balance on. deposit $129,000. Bills receiv- able amounting to $45,000 had been discounted at the bank. An audit of the checks paid by bank showed that $99,000 had been paid creditors (including $60,000 notes payable). A balance sheet prepared at the last closing of the books was produced, containing the following items : Cash, $60,000 ; Accounts Receivable, $126,000 ; Loans Receiv- ed ble, $24,000 ; Real Estate, $90,000 ; Notes Receivable, $78,000 ; Capital, $318,000; Notes Payable, $60,000. Prepare a trial balance supplying the missing accounts. f) Code: Enable PRACTICAL PROBLEMS, GRADED, SERIES B On paper ruled as for a stock ledger make entry of the following stock trans- actions of William Henderson, closing the account as of October 31, 1904, and carrying down the balance : (a) 100 shares (par value $100.00) originally issued, full paid at par, to Wil- liam Henderson by certificate No. 5, August 16, 1904. (b) William Henderson sells 50 shares of the original 100 to Charles Gibbons at $120.00, September 14, 1904, receiving certificate No. 37 for shares retained. (c) October 28, 1904, William Hen- derson purchases from John Hogan 25 shares at $115.00 and receives certificate No. 78. Code: Enact Of $300,000 authorized capital (com- mon stock) $260,000 has been subscribed. $80,000 was paid in cash and $100,000 in property. The remainder is to paid in cash in five equal instalments. The first instalment has been called and collected. The second instalment has been called, but has not yet been collected. Make original entries covering above trans- actions and prepare ledger accounts. / PRACTICAL PROBLEMS, GRADED, SERIES B Code: Encamp It is proposed to organize, for conducting a manufacturing business, a small corporation based on certain rights and franchise-, owned by one of the proposed stockholders in the corporation. The amount of capital stock is to be $100,000. The owner of the rights and franchises agrees to transfer them to the corporation in consideration of $50,000 of the capital stock, though he believes them to be worth much more than that amount. The remainder of the capital, stock is to be sold to produce working capital. Certain capitalists are to be approached for cash subscriptions to the capital stock, but it is uncertain what opinion they will hold concerning the enterprise, and it is desired to have the stock in the treasury in such form that it can be sold below par if necessary. What method would you suggest for accomplishing the object in view? Formulate the journal entries for opening the corporation books. % PRACTICAL PROBLEMS, GRADED, SERIES B Code: Enchain A Mining Company is organized with a capital stock of $100,000 in shares of $1 each. The entire capital stock is issued in payment for the properties acquired by the company. The stockholders then return to the company, as a gift, 25,000 shares, which are to be sold by the company for the purpose of providing working capital. The company afterwards sells 10,000 of these shares at 50c each, and the remainder at 75c each. Prepare journal entries covering these transactions. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Enchant "A," "B" and "C" constitute a firm engaged in a manufacturing business, which they have decided to change into a stock company with a capital of $100,- 000, equally divided into common and preferred stock, par value of each share $100. Each partner is to take stock to the amount of his net investment in the business on the basis of 75% preferred and 25% common stock, and the remain- ing shares authorized are to be offered for sale. On the taking over of the busi- ness the books of the company show as- sets as follows: real estate, $25,000; machinery and tools, $10,000; merchan- dise, $15,000; material and supplies, $8,000; cash, $5,000; notes receivable, $3,000 ; accounts receivable, $9,000. The liabilities are: notes payable, $10,000; accounts payable, $5,000 ; "A," $25,000 ; "B," $20,000, and "C," $15,000. Formulate the necessary entries to close the books of the firm and to open the corporation ledger. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Encircle Being called upon to audit the books of a company which is engaged upon perfecting a patented machine to be placed upon the market you have found it necessary to give consid- erable attention to the transactions recorded in the books in connection with the issuance and installment sales of the capital stock. Originally 1,000,000 shares of the par value of $1.00 ieach were issued to the inventor of the machine in exchange for the patent rights, but 400,000 shares were donated back to the company to provide working capital. Stock was then sold at a discount of 50% through selling agents, who received as their commission, in the case of stock sold for cash, 45% of the amount received, and in the case of stock sold on the basis of 10% cash and the balance in 9 equal installments, 60% of the first four payments and 40% of the . remaining six payments. Occasionally in the case of substan- tially large sales of stock for cash, a stock bonus of 5% was given by the selling agents, who, however, were to pay for the bonus stock at a further discount of 50%, out of their com- mission. Give the entries necessary to record the stock transactions up to the point where the 400,000 shares was received back by the company and an outline of a plan for properly recording the installment stock sales. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Enclose The Domestic Manufacturing C ompany, organized with a capital stock of $5,000,- 000, one-half preferred stock and one-half common stock, sells five shares of the common stock at par for cash. It issues lo John Jones $1,500,000 preferred stock and $1,000,000 common stock in consid- eration of the assignment by him of. cer- tain patents, rights and contracts. Later, Jones agrees to surrender for valuable consideration to the treasurer of the Domestic Manufacturing Company $1,- 000,000 common stock and $500,000 pre- ferred stock. Still later, Jones agrees with the Domestic Manufacturing Com- pany to surrender $1,000,000 preferred stock and to take in lieu thereof $l,00u,- 000 common stock. Jones makes a fur ther agreement with the Domestic Manu facturing Company to deliver to it all the stock in the Blank Manufacturing Com- pany, appraised at $350,000, and to pay the Domestic Manufacturing Company $150,000, for which he is to receive $500,- 000 of preferred stock of the Domestic Manufacturing Company. Illustrate by journal entries the neces- sary accounts to be opened on the books of the Domestic Manufacturing Company to show each step taken in the foregoing agreement. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Encore "A*' and "B" are partners and share profits in proportion to their capital in- vested. "C," "D" and "E" are partners, having equal interest in the business. A balance sheet from the books of "A" and "B" is as follows : ASSETS : Accounts Receivable :. $ 2,500.00 Cash in Bank 1,000.00 Merchandise as per inventory 2,500.00 $ 6,000.00 LIABILITIES : Accounts Payable $ 1,200.00 "A's" Investment 1,500.00 "BV Investment ..._ _ 2,000.00 Bills Payable 500.00 Undivided Profits 800.00 $ 6,000.00 "C," "D" and "E" kept no books, but have the following assets and liabilities: ASSETS : Cash in Bank $ 800.00 Accounts Receivable 3,000.00 Merchandise as per inventory 3,000.00 Real Estate— Warehouse 1,200.00 $ 8,000.00 LIABILITIES : Mortgage on Real Estate 4 500.00 Accounts Payable 300.00 $ 800.00 "A'' and "B" arrange with "C," "D" and "E" to form a corporation with a capital stock of $15,000.00. The cor- poration to assume all assets and liabil- ities of both partnerships. Each partner- ship agrees that a reserve of 10% against accounts receivable shall be created and charged against their individual partner- ship holdings prior to the consolidation. The entire capital stock is to be allotted to "A," "B," "C," "D" and "E," in pro- portion to their partnership holdings. The organization expense paid by the new company was $200.00. Make a balance sheet for the new com- pany, and give each of the aforesaid part- ners his allotment of shares. '• PRACTICAL PROBLEMS, GRADED, SERIES B Code: Encumber The following figures are taken from Me books of a firm as at December 31, 1912: . Accounts Receivable $27,850.00 Merchandise Inventory 9,750.00 Furniture and Fixtures 2,250.00 Plant and Machinery 20,000.00 Investments — Schedule I 24,000.00 Investments — Schedule II 17,500.00 Accounts Payable 48,000.00 Bills Payable 45,000.00 On January 1, 1913, a corporation was formed to take over the business but the investments listed in Schedule II were retained by the partners. 10,000 out of 25,000 shares of Common Stock of the par value of $5.00 each were issued to the vendors as fully paid and 5,000 shares were issued for cash. 9,000 out of 25,000 shares of 6% Preferred Stock of the par value of $5.00 each were given in payment of the Bills Payable of $45,000. Prepare statement showing the position of the firm's accounts upon the formation of the corporation, the opening journal entries on the books of the new company, and a Balance Sheet for the company after formation, dealing with any difference according to your judgment. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Endear A corporation took over the business of an individual whose books showed him to be worth $125,000, for the sum of $200,000, payable $50,000 in bonds, $50,- 000 in preferred stock, $50,000 in com- mon stock and the remainder in cash. The capital of the company was $100,000 preferred stock and $100,000 common stock. The balance of the stock was sub- scribed for and bonds were issued for $100,000. According to the subscriptions the stock was to be paid in as follows: 10% on application, 40% in 30 days after allotment and 50% in three months thereafter. On the bonds 10% was to be paid on application and the balance in 30 days after allotment. Make the necessary journal entries on the books of the company to cover these transactions in accordance with the state- ment following: Property and plant $ 75,000 Raw material 25,000 Unfinished orders 15,000 Accounts receivable 25,000 Cash 10,000 Accounts payable $ 25,000 Make journal entries closing the books of the individual vendor. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Endeavor "A" is the owner of a business with property valued as fol- lows: Real Estate and Buildings $100,000 Machinery and Tools 79,000 Stock in Trade 93,500 $272,500 "A," "B," "C," "D" and "E" organize a corporation ("F") with an authorized capital of $350,000, divided into 3,500 shares of $100 each, under the following conditions: **A" receives 2,725 fully-paid shares for his prop- erty as above. "B" subscribes for 100 shares. "C" subscribes for 100 shares. "D" subscribes for 100 shares. "E" subscribes for 125 shares. 100 shares are placed in the treasury for future disposition, and 50 shares of fully paid stock are given to each incorporator for the cash payment of 10% of par value, in consideration of services in the organization of the company. Each incorporator then donates 30 shares to the company for sale to provide work- ing capitaf. Draft the necessary opening entries for corporation "F," giving effect to the above transactions, and prepare resulting trial balance. ^ PRACTICAL PROBLEMS, GRADED, SERIES B CuDE : Ending The Patent Specialty Company was organized July 1. 1907, with a capital of $100,000, to manufacture novelties. The following transactions occurred : July 1, 1907, one-half of the capital stock was subscribed and issued, 10% being called and paid on that date in cash. Legal and other incorporation ex- penses, amounting to $500, were paid. August 20, 1907, patent, covering novelty, was purchased for $50,000, pay- able one-half in stock and one-half in cash ; the stock was issued and delivered, $2,000 paid in cash and note given for balance, due in one month, 6% interest. The patent was subject to royalty rights granted to the novelty company, which terminated at date of purchase. All ac- rued royalties were to pass with patent and no royalty rights were granted by the Patent Specialty Company. August 27, 1907, the village Board of Trade donated a lot, valued at $5,000, in consideration of agreement to erect and equip a plant at a cost of not less than $25,000. September 13, 1907, a further call of 70% was paid. The note was paid a* maturity. December 31, 1907, the following factf existed : Payments on account of salaries, in- terest, insurance, etc., amounted to $2,250, with $250 accrued ; contracts for construction and equipment amounting to $35,000 had been given which were 75% completed and 40% paid; royalties amounting to $2,725 had been received and $190.00 was accrued. Prepare journal entries to cover fore- going, and statement to display financia; condition at December 31, 1907. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Endure "A." and "B." were partners trading under the name of the "A." ''B." & Co. June 30, 1908, the following balances appear on their ledger: "A", Capital account $ 70,000.00 "B", Capital account 50,000.00 Real Estate 22,000.00 Buildings 20,000.00 Machinery & Tools 44,000.00 Furniture & Fixtures 2,000.00 Accounts Rec 50,000.00 Cash 7,000.00 Material & Mdse 53,000.00 Accounts Payable 35,000.00 Bills Payable 48,000.00 Bills Rec 5,000.00 On June 30, 1908, the business is in- corporated as the "X" Co., on the follow- ing plan : 1. Capital Stock, $150,000.00. 2. "X" Company takes over the entire assets and liablities of "A." "B." & Co. at the book figures as above, except (a) real estate of the book value of $5,000.00, which is retained by "A." "B." & Co.; (b) the accounts receivable, which are taken over at $48,000.00, and (c) the capital accounts of the partners. 3. "X" Company pay ''A." "B." & Co. $30,000.00 for the goodwill of the busi- ness. 4. Payment to "A." "B." & Co., is made as follows: $50,000.00 in first mortgage bonds, and the balance in capi- tal stock of the "X" Co. 5. After paying off "A." "B." & Co. the remainder of the capital stock is sold for cash to sundry persons. The real estate which was retained by A." "B." & Co. is bought from "A." B." & Co. by "A." for $7,000.00 and is to be charged to "A.'s" capital account. After the completion of the above de- scribed transactions "A." and ''B." dis- solve partnership. You are required: (a) to prepare clos- ing entries for the books of "A." "B." & Co., (b) a statement setting forth the partners' accounts down to their final closing, beginning with the balances shown by the books on June 30, 1908; (c) opening entries of the "X" Co. << a 1l » . PRACTICAL PROBLEMS, GRADED, SERIES B Code : Enemy "A" obtained a franchise to operate a street car system for 14 years. He sold it to a syndicate for $25,000.00; paid in $5,000.00 as capital, and was appointed manager at $2,500.00 per annum. "B" patented a new motor (rights for 10 years), which was taken over and for which he was credited by the syndicate with $10,000.00. He was appointed engineer at $2,000.00 per annum. "C" brought in the rest of the capital required, $225,000.00. The tracks and right-of-way cost $125,000.00 and the plant and rolling stock, $60,000.00. It was agreed to write off 10% of the former each year, and to consider the life of the latter as 10 years. After providing for repairs and renewals, but excluding tht salaries of the manager and engineer (which were paid) and all depreciation, the profits of the first seven years averaged $40,000.00 per year. "C" was entitled to three-fourths of the balance, and "A" and "B" to the remainder in equal shares. Draw up a balanced statement showing the position of the capital accounts at the end of seven years, assuming no debits for drawings and no credits for interest. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Energetic Method & Practice, who are equal partners, carry on busi- ness as manufacturers, and their position, as stated in their balance sheet, at December 31, 1910, is as follows: ASSETS LIABILITIES Merchandise $ 14,000.00 $ Machinery and Plant _ 6,000.00 Office Furniture 500.00 Book Debts 20,000.00 Life Insurance Policy on Joint Lives, surrender value 2,500.00 Leasehold Property 7,500.00 A. M. Methcd, Drawing Account 3.000.00 B. D. Practice, Drawing Account 1.000.00 Profit and Loss Account 5,500.00 Sundry Creditors 18,500.00 Overdraft at Bank 9,500.00 Bills Payable 3,500.00 A. M. Method, Capital Account 11,000.00 B. D. Practice, Capital Account • 17,500.00 $ 60,000.00 $ 60,000.00 The business is carried on until June 30, 1911, by which time a net profit of $4,100.00 has been made for the half year, after 5% has been written off leaseholds. Meanwhile Sundry Creditors have been reduced by $4,000.00, Bills Payable by $975.00 and Overdraft by $1,000.00, and partners have withdrawn $1,000.00 each during the half year. Merchandise now stands at $15,100.00, Book Debts at $15,- 400.00, and, subject to any necessary alterations, the other items remain as at December 31, 1910. In September, 1911, the firm agrees to sell the business to a corporation upon the basis that Merchandise shall be taken over at a discount of 5%, and Book Debts at a discount of 2i/2% as at June 30th, the corporation paying $2,500.00 for profits in the interval, less $500.00 each, withdrawn by partners since June, the partners to retain and surrender the life insurance policy, and the corporation, with these exceptions, taking over, on the basis of the balance sheet at June 30th, and agreeing to pay a goodwill of $12,500.00. The purchase money is to be paid: (a), by the discharge of the firm's liabilities of $25,000.00; (b), by $5,000.00 in cash; and, (c), by the issue to the partners of $5.00 preferred shares to satisfy any balance due to them respectively. Disregarding interest on drawings and capital, you are re- quired to prepare : ( 1 ) , A Realization Account ; (2), A Capital Account with each partner showing the final settlement; (3), Opening Balance Sheet of the new corporation. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Energy Jones & Brown, partners, decided to incorporate on Decem- ber 31, 1904. At that date their balance sheet was as follows: ASSETS : Real Estate and Improvements $25,000 Bills and Accounts Receivable 30,000 Inventory 20,000 Cash 2,500 $77,500 LIABILITIES: Bills and Accounts Payable $33,500 Jones, Capital Account 22,000 Brown, Capital Account 22,000 $77,500 A corporation (The Jones-Brown Co.) was organized with a capital stock of $100,000. It entered into an agreement with Jones & Brown whereby it was to take over all the assets, and assume all the liability on bills and accounts payable, at the above figures, except that the real estate and improvements were to be taken over at $35,000, and that $31,000 was to be paid Jones & Brown for the goodwill of the business. The entire payment to Jones & Brown was to be made as to $5,000 in cash and $80,000 in stock. Cash subscriptions for stock were received as follows : From Smith $ 5,000 Robinson 10,000 Jenkins 5,000 Prepare (1) journal entries of the above transactions for the books of the corporation, assuming that the capital stock has been issued as stated; (2) balance sheet of the corporation after making the entries, and (3) journal entries to close the books of the Jones & Brown partnership. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Enforce A corporation organizes under the laws of Michigan to conduct a manufacturing business. Authorized capital, $400,- 000.00, half each common and preferred stock; shares $100.00. Five incorporators each subscribe for ten shares of common stock at face value. John Smith purchases from three manufacturing companies their complete plants for $395,000.00 and transfers said plants to the incorporated company for the remaining $395,000.00 of common and preferred stock and $150,000.00 of first mortgage 5% bonds out of a total issue of bonds of $200,- 000.00, leaving $50,000.00 of bonds in the treasury. Make opening journal entries and trial balance showing the company's condition after the transaction. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Engaged Brown and Jones have dry goods stores near each other. They decide that by amalgamating their businesses and forming a joint stock company they can do a larger and more profitable business at less expense. Both have kept their books by single entry. You are called in to give the necessary statements to en- able them to ascertain how they stand and to open the books of the Brown-Jones Company, Limited. You find the follow- ing accounts in the ledgers, viz. : BROWN'S LEDGER BALANCES AS AT AUGUST 1, 1909. Cash on hand $ 250.00 $ Bank Balance 5,400.00 Cash Sales 10,000.00 Book debts 25,000.00 Bills receivable 3,000.00 Store and land 30,000.00 Fixtures 2,000.00 Wages and expenses 4,000.00 Accounts payable 6,000.00 Bills payable 2,550.00 Brown's drawings 10,000.00 Freight, duty and cart- age 8,000.00 Inventory of goods 8,700.00 Unexpired insurance .. •200.00 JONES' LEDGER BALANCES AS AT AUGUST 1, 1909. Cash on hand $ 100.00 $ Bank balance 3,500.00 Cash sales 12,000.00 Stores and land 25,000.00 Fixtures 1,500.00 Wages 2,000.00 Jones' personal account 6,000.00 Expenses 1,500.00 Book debts 15,000.00 Bills receivable 1,000.00 Freight, duty and cart- age 5,000.00 Accounts payable 5,000.00 Bills payable 3,000.00 Inventory of goods 5,800.00 Unexpired insurance 100.00 The capital of the company is to be $150,000.00, in shares of $100.00 each, of which Brown is to take $70,000.00 and Jones $50,000.00. If the capital invested in the business of either exceeds these sums, they are to receive the surplus in cash, but if it is less, they are to pay in the difference in cash. The bal- ance of the stock is subscribed and paid for in cash. Make necessary changes in Brown's and Jones' ledger balances to show stand- ing of firms and capital invested, and give trial balance from company's ledger after opening entries have been made. PRACTICAL PROBLEMS, GRADED, SERIES B Code: Enhance On December 31, 1909, the Trial Balance of the Motor Sales & Engineering Co., Inc., was as follows : DEBITS CREDITS Common Stock, 5,000 shares $ $ 25 000 00 Mortgage sioOO.OO Goodwill 10,000.00 Real Estate 7,500.00 Machinery and Tools ' 500.00 Fixtures and Fittings 100.00 Hire Cars 2 500.00 Sundry Accounts Receivable 12,500.00 Stock of Accessories, Tires, Oil, etc., at Decem- her 31, 1909 1,250.00 Cash at Bank 5,275.00 Sundry Creditors 755 qq Reserve for Bad Debts (Dec. 31, i908) .'ZZ 40000 Accessories, including tires and tubes (used).... 10,000.00 Oil, Gasoline, etc. (used) 2,750.00 Cost of Repairing Cars, Wages and Material 3750.00 Charges to Customers for Repairing Cars 400000 Expenses of Hire Cars 1,000.00 ' Wages (Yardmen, etc.) 600.00 Charges to Customers for Hire Cars 1 650.00 Sales of Accessories, including Tires and Tubes 1325000 Cars Purchased for Resale _ 55,000.00 Sales of Oil, Gasoline, etc 3 75000 Sundry Receipts (Washing Cars, Charging Bat- ^ ^^fs) 425.00 Car bales _ ^ 000.00 Management Expenses 2,250.00 Garage Rents 225 00 Repairs to Plant 90.00 Bad Debts written off 250.00 Freight on Cars Sold 400.00 Mortgage Interest to December 31, 1909. 250.00 Common Shares Dividend to Dec. 31, 1908 2,500.00 Profit and Loss Dec. 31, 1908 400000 $ 118,465.00 J 118,465.00 Depreciation to be written off Machinery and Tools at the rate of 20% per annum; Fixtures, 10%; Hire Cars, 25%. The Reserve for Bad Debts is to be increased to 5% on the Sundry Debtors and 25% of the Net Profits for the year is to be reserved for commissions to the manager. Prepare complete statements in the form which, in your opinion, is calculated to give at a glance the greatest amount of information to the directors as to the working results of the business. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Entire "A" pays "X" $2,000.00 for the right to subscribe for $10,000.00 worth of stock in the "M" Co. at par. Prior to the issuance of the stockholders' rights, the "M" Co. had a capital stock of $100,000.00 and a surplus of $40,000.00 To what amount is the "M" Co. increasing its capital stock, provided "A" is paying the true worth of the "right" as determined from the books of "M" ? Code : Entrench On May 31, 1905, corporation "A" sells its assets (except cash) to corporation *'B." The balance sheet of corporation "A" is as follows: ASSETS: Real Estate, Buildings, Machinery and Furniture ^0,000 Merchandise Inventory 15,000 Bills and Accounts Receivable 20,000 Cash 5,000 $80,000 LIABILITIES : Capital Stock— 500 shares of $100. - $50,000 Bills and Accounts Payable 25,000 Undivided Profits 5,000 $80,000 The selling price to corporation "B" is $100,000; $50,000 being payable in cash and $50,000 in the capital stock of corpora- tion "B." On completion of the sale to corporation "B," corporation "A" pays its bills and accounts payable, distributes the assets then remaining, to its stockholders pro rata and dissolves. Prepare journal entries for corporation "A," covering the above transactions and closing out corporation "A's" books ; also state how much, (a) in cash, (b) in stock of corporation "B," each share of corporation "A" is entitled to in the final distribu- tion. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Envious The Randolph and Madison Novelty Co. manufactured the "Shriek" automobile horn and as a side line also manufactured the "Handy" trouble lamp. It was a very profitable business until a new horn was put on the market which was received with such favor by the public that it was no longer possible to sell the "Shriek." The company was very soon in difficulties, and a receiver was applied for on Oct. 31, 1916, at which time the books showed as follows : Land and Building at cost $ 35,000.00 $ Machinery and Equipment at depreciated value 25,000.00 Inventory of Raw Material and Supplies 30,000.00 Inventory of Finished Stock 60,000.00 Accounts and Notes Receivable — Good 15,000.00 Doubtful 15,000.00 Bad 7,000.00 Deferred Charges — Adv. Campaign 30,000.00 Unexpired Insurance 350.00 Bank Loans 30,000.00 Other Notes Payable 40,000.00 Mortgage Loan on Real Estate 20,000.00 Accounts Payable — secured 10,000.00 Accounts Payable — unsecured 50,000.00 Accrued Payroll 1,700.00 Accrued Interest on Mortgage Loan 1,800.00 Accrued Interest on Other Notes Payable 350.00 Surplus : 13,500.00 Capital Stock 50,000.00 $217,350.00 $217,350.00 The land and buildings have appreciated and now have a market value of $40,000.00, but the machinery and equipment would have very little value to any other concern, and it is esti- mated • that it cannot be sold for more than scrap value of $5,000.00. The inventory of raw material and supplies has in- creased because of a rise in the market, and it is expected to bring $35,000.00, but the finished stock can be sold only at barg-ain prices and will probably bring not more than $10,000.00. It is estimated that $2,500.00 will be realized on the doubtful accounts and nothing on the accounts classified as bad. If cancelled at the short rate, the insurance policies will bring $300.00. An oflFer has been received to purchase the exclusive rights to the trade name "Handy" trouble lamp for a consideration of $3,000.00. The bank loan is secured by the deposit of warehouse re- ceipts covering all of the raw material and supplies, and the secured accounts payable creditors have received assignments of accounts receivable of an equal face value and will be fully satisfied from the collections thereon. Prepare a Statement of Affairs and a Deficiency Account for submission to the creditors and stockholders. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Environ A manufacturing company organized for the purpose of marketing timber products acquired certain timber lands and water rights for a relatively nominal cash consideration. In addition to its cash disbursement in this connection it also issued ''for services in procuring properties" $1,000,000.00 of its common stock. Of this issue $500,000.00 of the stock was donated back to the company at a later date and credited to its surplus account. Against the credit to surplus of $500,000.00 the sum of $300,- 000.00 was charged during 1912 and 1913 covering the issuance of that much of the donated common stock as a bonus in connec- tion with preferred stock sold. The company passed from the construction and development stage to a period of actual operat- ing as from January 1, 1914, and at the date of your examination of its books, for the year 1915, you have found that the surplus at December 31, 1915, amounts to $320,000.00. This amount consists of the following figures : Balance of donated common stock $200,000.00 Profit from operations for 1914 (before providing for deprecia- tion) 70,000.00 Profit from operations for 1915 (before providing for deprecia- tion) 120,000.00 $390,000.00 Less dividend on preferred stock for 1914 and 1915 declared and paid, being at the rate of 7% on $500,000.00 preferred stock outstanding during both years : 70,000.00 $320,000.00 The remaining donated common stock is held by the com- pany and is carried on its books at the debit of Treasury Stock Account, $200,000.00. You have been informed that no more of the treasury stock will be given as a bonus in disposing of the remaining preferred stock, of which the authorized issue was $750,000.00 Officials of the company have told you that (since the operations have been successful ), if the treasury common stock is disposed of at all it will not be sold at less than par. All of the authorized issue of common stock, $2,000,000.00, is credited to the capital stock account in the books and has been issued. Under these circumstances, you are asked to indicate, so far as the capital liabilities and surplus of the company are con- cerned, how the figures mentioned herein should properly be set forth on the balance sheet, bearing in mind that you have audited the books only for the year 1915, although you have (for your own protection ) made a general audit of the charges to the capital assets of the company since its inception and have made a suffi- cient scrutiny of the surplus account to justify your assumption that the figures stated for the surplus prior to January 1, 1915, are correctly stated as herein indicated. A further consideration is that you may qualify your certifi- cate to the balance sheet in whatever respect you may consider necessary. The only object of this question is to ascertain if you know how the surplus and the capital liabilities should be set forth on the face of the balance sheet so that they will, so far as reasonably possible, be self-explanatory. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Envisage The following are the Trial Balance of the books of Messrs. Strong & Short, as at December 31, 1916, and their Balance Sheet as at the same date, prepared from the accompanying Trial Balance and certain other information. The last previous closing of the books was at December 31, 1915. From this information prepare a Profit and Loss Account for the year 1916. DEBITS CREDITS Light and Water $ 255.00 $ Sundry Expenses 775.00 Traveling Expenses 1,555.00 Discounts Received on Purchases 1,510.00 Discounts Allowed to Customers 1,365.00 Fuel 690.00 Insurance 425.00 Postage, Telegrams and Stationery 520.00 Exchange ---. 1,820.00 Repairs to Plant (and purchase of Repairs Stores) 3,770.00 Freight and Cartage 2,805.00 Stable Expenses 670.00 Bad Debts 2,095.00 Audit Fee 210.00 Bills Payable 78,440.00 Bills Receivable 1,080.00 Plant and Machinery 19,090.00 Purchases 67,095.00 Sales 148,040.00 Salaries and Wages 21,790.00 Rent and Taxes 1,235.00 Buildings 14,535.00 Merchandise Stock, Dec. 31, 1915 (there were no Repair Stores on hand) 87,700.00 Bad Debt Reserve, Dec. 31, 1915 3,895.00 Cash on Hand 795.00 Sales Ledger 76,160.00 Purchase Ledger 13,635.00 A. Strong, Capital Account, Dec. 31, 1915 (in- terest for 1916, $2,030.00) 40,620.00 K. Short, Capital Account, Dec. 31, 1915 (in- terest for 1916, $1,350.00) 27,055.00 A. Strong, Drawing Account —- 3,800.00 K. Short, Drawing Account - 2.960.00 $ 313,195.00 $ 313,195.00 (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES B Code: Envisage — (Continued) STRONG & SHORT BALANCE SHEET December 31, 1916. ASSETS Cash on Hand $ Accounts Receivable — Open Accounts as per Sales Ledger $ 76,160.00 Less — Reserve for Discounts 3%.. ..$2,280. 00 Reserve for Bad Debts 4,000.00 6,280.00 Bills Receivable $ 69,880.00 1,080.00 Merchandise Stock $ 75,500.00 Repairs Stores 1,250.00 Plant and Machinery, per last Balance Sheet $ 19,090.00 Less — Depreciation 5% 955.00 Buildings, per last Balance Sheet $ 14,535.00 Less — Depreciation 2%% 365.00 Insurance Paid in Advance LIABILITIES Accounts Payable — On Open Accounts, per Sales Ledger $13,635.00 Less — Reserve for Discounts, 2%% 340.00 $ 13,295.00 Sundries — Salaries and Wages $ 1,160.00 Gas and Water 50.00 Freight and Cartage 1,625.00 Rent and Taxes 375.00 Stable Expenses 60.00 Bills Payable Capital Accounts— A. Strong $ 49,675.00 K. Short 36,270.00 795.00 70,960.00 76.750.00 18,135.00 14,170.00 140.00 $ 180,950.00 3,270.00 $ 16,565.00 78,440.00 85,945.00 $ 180,950.00 PRACTICAL PROBLEMS, GRADED, SERIES B Code: Envoy The Licking L.ight & Power Co. was organized on June 30, 1910, with an authorized capital of $300,000, consisting of 2,000 shares of common stock, par value $100 each, and 1,000 shares of 5%, cumulative preferred stock, par value $100 each. On the same date the company authorized an issue of 5%, sinking fund, gold bonds, in the sum of $300,000. On July 1, 1910, the company acquired all of the capital stock of the Citizens Electric Light & Power Company and the Newark Light & Power Company, for the following consideration : $5,000 in cash, 800 shares of preferred stock, 1,700 shares of common stock, and $100,000, par value, of bonds. After making this purchase, the company had $35,000 in cash and held in reserve $20,000 par value of preferred stock, and $140,000 par value of bonds. No further sales of stocks or bonds were made during the first fiscal year, and on June 30, 1911, after the necessary adjust- ments had been made, the following facts and figures were ascertained : Cash in Banks $15,198.79 Accounts Receivable 15,435.65 Materials and Supplies -... 1,593.22 Unexpired Insurance 207.86 Accounts Payable .■. 177.75 Meter Deposits 2,121.50 Accrued Taxes ~ 805.20 Improvement Expenditures 18,577.21 Sinking Fund 2,000.00 Net Earnings - 16,908.28 Interest on Bonds 8,000.00 Make the necessary journal entries to open the books of the company on July 1, 1910, and prepare a balance sheet dated June 30. 1911. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Epigram An Investment Company purchased for investment $100,- 000.00 6% 10-year municipal debentures at 96, and $200,000.00 5% industrial bonds, fifteen years to run, at 104. How would you treat the discount and the premium in the accounts. Give journal entries. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Eraser The premises of a trading company are held on lease for thirty years. They were acquired at a premium, and large sums have been expended on additions and improvements. In the first ten years considerable sums have been set aside in the accounts for leasehold redemption before disclosing to the stockholders the profits of each year, and the total amount so provided to December 31, 1912 is largely in excess of the amount necessary to write off the leasehold asset propor- tionately during the thirty years. The eleventh year, 1913, has been a bad year, the profits have fallen off materially, and to enable the company to pay the customary dividend the directors determine to make no provision out of the profits of that year for leasehold de- preciation. State what you would do as auditor, showing the form your action would take as regards the eleventh year, suppos- ing you had already audited the accounts for the previous ten years. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Erect A coal mine is operated under a twenty-year lease at a royalty of 10 cents per ton, but for which a minimum payment of $5,000.00 per annum must be made. After the third year an arrangement was effected between the lessor company and the lessee company whereby the minimum royalties were to apply, if in excesF of the tonnage mined, against future operations. In the first year 25,000 tons were mined ; in the second, 26,500 ; in the third, 24,600 ; in the fourth, 31,000 ; and in the fifth, 30,500 tons. Journalize these transactions and state how the respective royalties paid would affect the Profit and Loss Account and Balance Sheet. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Eristic "A," "B" and "C" form a partnership January 1, 1917. "A" invests $65,000.00, "B" $45,000.00, and "C" $40,000.00. Profits are to be determined semi-annually and are to be shared in the ratio of the original investments. No interest to be calcu- lated on Partners' Capital Accounts. At the end of six months the ledger contains the following balances : Accounts Receivable $100,000.00 Accounts Payable 32,400.00 Insurance 6,000.00 Interest Paid _ 200.00 Interest Received 500.00 Notes Receivable 20,000.00 Notes Payable 20,000.00 Purchases 600,000.00 Purchase Allowances 1,000.00 Purchase Discounts ^. 6,000.00 Purchase Returns 3,000.00 Sales 592,600.00 Sales Returns 2,000.00 Sales Allowances 500.00 Salaries and Wages 30,000.00 Rent 5,000.00 Securities Owned 5,000.00 Miscellaneous Expense 11,800.00 Cash 25,000.00 "A" Capital Account 65,000.00 "B" Capital Account 45,000.00 "C" Capital Account 40,000.00 The inventory of stock on June 30 amounted to $110,000.00. Of the Accounts Receivable, it is estimated that 2% are uncollectible. During the six months the firm discounted Notes Receivable amounting to $10,000.00, of which a note of $1,000.00 will not be due until August 1. The Insurance Premiums paid were for insurance covering a three year period, expiring January 1, 1920. The following minor bills are outstanding: Telephone and telegraph, $20.00; electric light, $130.00; dravage, $100.00. The estimated taxes for the year 1917 are '$6,800.00. The Notes Payable are represented by two notes of $10,000.00 each, for four months at six per cent interest, dated May 1 and June 1, respectively. The first note was discounted; interest on the second note was payable at luaturity. On July 1, 1917, "A" withdraws from the firm, his interest being purchased by "B," "C" and "D" in such proportions that the capital of all partners shall be equal. It is agreed by all parties that the value of the goodwill is $15,000.00, which has been created during the period of the partner- ship, and which amount it is decided should be set up on the books. (a) Construct trial balance as at July 1 ; (b) Prepare journal entries indicating the necessary adjustments ; (c) Prepare a profit and loss statement for six months ended June 30; and (d) Prepare a balance sheet as of July 1 after the withdrawal of "A" and the entrance of *'D." PRACTICAL PROBLEMS, GRADED, SERIES B Code: Ermine In the books of a company, all accounts affecting profit and loss or surplus are carried in or transferred to one account entitled Surplus Account. This account shows the following entries for the year 1912 : Dr. Cr. Balance at January 1, 1912 $ $180,000.00 Sales 500,000.00 Net book value of plant destroyed by fire April 1, 1912 , 8,000.00 Amount recovered from insurance company in re- spect of above fire 9,000.00 Manufacturing Cost of Sales, including Material, Labor and Manufacturing Expenses 280,000.00 Selling Expenses 35,000.00 General and Administration Expenses, including Taxes 30,000.00 Interest on Bonds 25,000.00 Interest received on bank balances and customers' Notes 4,000.00 Amount appropriated for Employees' Pension Fund 7,500.00 Bad Debts during year 4,500.00 Discount on Bonds (annual proportion) 5,000.00 Depreciation for year 1912 on plant assets (at rea- sonable rates) 28,0(X).00 Bonus to officers, payable only after payment of 7% Dividend on Preferred Stock 10,000.00 Amount applied in reduction of goodwill 100,000.(X) Dividends Paid — Preferred 7% 35,000.00 Common 4% 20,000.00 Excess Value of Plant Assets as shown by appraisal at December 31, 1912, over the book value at that date of the properties appraised 140,000.00 Balance at December 31, 1912 245,000.00 $833,000.00 $833,000.00 To the extent that the above figures permit — 1. Prepare Profit and Loss Account showing results of the year's operations ; and 2. Show how you would incorporate the figures in the Surplus section of the Balance Sheet, or in a separate stateiiient of the Surplus Account. PRACTICAL PROBLEMS, GRADED, SERIES B Code : Erosion You are called in to make an audit of the accounts of the "A.," "B." & **C." Company. Upon taking up the work and ccounting cash, you find that the system employed maintains a bank account in the ledger, charging it for all deposits and credit- ing it for all withdrawals, but that it is not the practice to deposit the entire receipts in the bank. You also find only $176.15 of coin on hand to represent the balance called for by the cash book of $573.15. Upon reporting this shortage to the management, the bookkeeper is suspended and you are instructed to immediately proceed with the audit. Upon taking oflf the balances of the ledger accounts you obtain the following, indicating that the ledger is out of balance: Cash ^ ^ Bank iNotes Receivable Accounts Receivable Merchandise Inven Merchandise Purchases General Expense Office Expense Insurance 573.15 8,116.10 375.00 15,675.00 37,500.00 41,516.52 3,526.00 986.15 708.52 Notes Payable $ 10,500.00 Accounts Payable 8,756.82 Sales 63,815.27 Capital Stock 20,000.00 Surplus 5,116.10 $108,976.44 $108,188.19 During your audit you find : That there are errors in the credit postings to the sales account, which result in understating the balance by $788.25 ; that sales sheets aggregating $1,365.00 have not been entered and upon sending invoices for these un- entered sales you find that a portion of them, aggregating $675.00, have been paid by the debtors, but without record in the accounts. You find that the footing of the credit side of the bank account in the ledger has been erroneously increased by $1,000.00; that the posting of purchases to the merchandise purchase account has been increased in two instances, one by $650.00 and the other by $350.00; that the footing of the general expense column in the cash book is erroneously in excess to the extent of $182.00 ; that one of the postings to the credit of accounts receivable, repre- senting the collections of a month, has been erroneously in- creased $350.00 ; that the footing of the credit side of the sales account is $350.00 too little; that of the insurance policies indi- cated to have been purchased, two have been canceled. That the returned premiums on these canceled policies which have been paid amount to $86.15, but that no record of their receipt appears in the accounts. Make the necessary entries to adjust and correct all of the accounts, producing the total shortage. The bookkeeper you find is covered by a $2,000.00 surety bond with the National Indemnity Company. Exhibit the journal entries necessary to make the adjustments and corrections and also the ledger accounts which are aflfected. Is any other work then necessary? It is understood that the Accounts Receivable and Accounts Payable are controlling accounts and that prior to the correction of the errors the indi- vidual ledgers are in true agreement with the controlling accounts. IDa-vo 2. /] Q4-/ <^ AUGU1994 J3 mn \ ) [ Practical Problems Graded Series "C" BY Samuel F. Racine Certified Public Accountant / \. / \ \ '.■>- -5 m^ ^r ••■'?■ ^■-•'■'' ^*-* •.-r-;-> •^:.--'.'' :-.■?■-- ., :*- c. •: *- t^ »■[.■* \ IM^ 3«^'I 10 Columiita tHmbersiitp in tlie Cttp of ^tn |9orfc ~R\iS v3 LIBRARY School of Business 'It ^ 4 }, .4-. i. • 1 ■ •, . . -r^ ^6 .1 ,,N' w > "-J^ Practical Problems Graded Series "C" BY Samuel F. Racine Certified Public Accountant 'v?* ■ iBiii n ■rii~ COPYRIGHT 1920 BY SAMUEL F. RACINE 3) ^\D • \ \\s .3 PUBLISHED BY THE WESTERN INSTITUTE OF ACCOUNTANCY COMMERCE AND FINANCE LEARY BLDG. SEATTLE, WASH. I Accounting Students' Series By Samuel F. Racine, C. P. A. Graded Corporation Problems, 1914 and 1918 ; containing the most severe C. P. A. examination problems used up to the year of publication, 1914; since revised and brought down to date, 1918. Guide to the Study of Accounting, 191(), containing ana- lytical questions similar to the preceding Guide to the Study of Accounting, but practically a new book, owing to the advent of new books of recognized authority. Guide to the Study of Auditing, 1916. The publication of a new Montgomery's Auditing required that the original Guide to Auditing, with a new set of analytical questions, be rewritten, hence the 191() book. Practical Problems, Series "A," 1916 ; containing the great majority of the C. P. A. examination questions used in the State of Washington. This book has been revised three times. Practical Problems, Series ''B." The second text in point of severity in the series of practical problems. Accounting Principles, 1917. A new book originally writ- ten in 1913, containing much subject matter not found in other books on accounting. Assuredly it contains more information than any other single book on the subject. Syllabus of Bookkeeping, 1918. As with all of Mr. Racine's books, originality is the keynote of the Syllabus of Bookkeeping. There is nothing else like it in print. It is hoped that it will simplify the method of instruction in bookkeeping to an extent not considered possible by other instructors of the present day. It is designed to combine the advantages of lectures with the other usual methods of bookkeeping instruction and is proving a decided success in the class rooms of The Western Institute of Account- ancy, Commerce and Finance. Annuity Studies, 1918 ; a set of rules easy to understand, with problems on annuities. Cost Accounts (In preparation). v^ PRACTICAL PROBLEMS, GRADED, SERIES C 2. 3. Code : Habit Based on the following brief facts, give a rough outline of the character of accounting organization which would be suitable to reasonably safeguard a company engaged in the manufacture of foodstuffs in the handling of the funds, assets, etc. Give titles and duties of the most important members of the accounting organiza- tion (if desired, the outline of the organization may be indicated in the form of a chart.) 1. The company does a business of $50,000,000 per year, of which 70% is handled through branches and 30% through dealers. There are three manufacturing plants, all within a radius of fifty miles from the head office. There are seven selling branches (not separately incor- porated) located at some of the principal distributing centers in the United States, each of which has its own warehouse for carrying stock on hand. The company maintains a proper cost system. All invoices for outlay on manufacturing (except petty items) and for salaries and other important expenses at branches are paid from the head office. The branches keep their own accounts receivable and make collections from their customers, the total of the collections being remitted to the head office daily. All the dealers' accounts are carried on the head office books. All the purchases of materials are made through a central channel at the head office. The manufacturing plants are not concerned with the selling end of the business and make shipments only on instructions of the head office. 4. 5. e. •7. 8. 9. 10. Each plant and branch keeps a petty cash fund for minor disbursements. Your reply should include a list of the records which should be kept at the head office, plants and branches, respectively. i PRACTICAL PROBLEMS, GRADED, SERIES C Code. Habitable An insurance firm acts as general agent for two insurance companies — Company **A" and Company ''B." On January 1, 1907, the books of the general agent disclose the following finan- cial conditions : Assets Liabilities Cash $ 2,340 Due to Company "A" $ 5,890 Agents Ledger, Company "A" 10,980 Due to Company "B" 7,437 Agents Ledger, Company *'B" 15,360 ParLners Accounts lfi,35:] Furniture and fixtures 1,000 $ 29,680 $ 29,680 === By treaty agreement between companies "A" and "B," this general agent has to reinsure SO^J of all '*A's" risks in Company "B," and 30% of all "B's" risks in Company "A-." The general agents receive from each company a commission of 35% on the net business written each month. The general agents pay 20% commission on the net business to their agents, thus making net 15% for themselves. The agents of Company "A" report to the general agents, premiums of $12,000 during January, and return premiums of $3,000. The agents of Company "B" report to the general agents, premiums of $15,500 during: January, and return premiums of $2,750. The expenses of the general agents during January amount to $2,000, and the partners' withdrawals amount to $1,000. They receive in cash from agents of Company "A" the sum of $11,- 000, and from agents of Company *'B" the sum of $12,500. They pay to their companies during January their indebtedness as on the first of the month. Prepare journal and cash book entries recording the above transactions, taking into consideration reinsurance, commissions, etc., and prepare a statement of assets and liabilities of the gen- eral agents after closing the balance of the month's profit into the partners' accounts. i / PRACTICAL PROBLEMS, GRADED, SERIES C Code : Habitat On February 20, 1903, the Board of Commissioners for a certain county met for the purpose of preparing the annual budget of the appropriation bill for the year 1903, said appropriation to be based upon the estimated receipts for the year, as compiled by the comptroller. Estimated receipts and appropriations are as fol- lows: ESTIMATED RECEIPTS Cash on hand $ 800,000.00 Net income from tax levy 4,000,000.00 Income from fee offices 2,400,000.00 Total Estimated Receipts $7,200,000.00 APPROPRIATIONS Principal of and interest on bonds $ 800,000.00 Salaries 3,800,000.00 Supplies 1,300,000.00 Juror's fees 400,000.00 Election purposes 300,000.00 Old liabilities 60,000.00 Buildings 140,000.00 Contingent 400,000.00 Total Appropriations $7,200,000.00 Prepare journal entries placing appropriations on books. The estimated receipts were realized, except in the item of Fee Offices, where only $2,350,000.00 was earned. The entire appropriation was expended. Prepare journal entries, trial balance, and balance sheet, recording the results. Code : Hag **A*' in London in current account with *'B" of New York, engages an accountant to prepare a statement, to be mailed to **B," from the following data: 1914 Debits May 12 £ 750 May 30 1 17 June 12 340 July 1 150 Total debits £ 1,357 1914 Credits June 10 „ £ 500 June 30 300 Total credits £ 800 Balance „ £ 557 Find the average due date of the account and the interest at 5% to July 1st, 365 days to the year. i PRACTICAL PROBLEMS, GRADED, SERIES C Code : Habitation 1. What is your opinion as to the liability of the person whose name is signed to a promissory note: (a), Where he signs and delivers the note, without con- sideration, to the party who tried to enforce it? (b). Where his signature is forged by the party who tries to enforce it ? (c), Where the note is not dated, does not state that it is given for value, nor specify the place where it is payable? (d) Where the holder of the note has unintentionally marked it canceled? 2. "A" is endorser on a note, and, before the note falls due, is adjudged bankrupt. Is his liability as an endorser a provable debt against his estate ? 3. "A" presents his check to the Blank National Bank and has it certified. He then gives it to ''B" in payment of a debt. The bank fails before "B" presents it. Can "B" hold "A" for the amount of the check? 4. What rights has an unpaid seller over goods: (a), in transit; (b), after delivery to the purchaser? 5. (a) What is the general rule as to a carrier's liability for goods lost? (b) Would a carrier be excused for non-delivery caused by seizure of goods under legal process? (c) Where does the liability of a carrier begin, and where does it end ? (d) Has a carrier any lien with respect to goods he transports? If so, to what extent? 6. Define — ( 1/ Assignment ; 2. Annuity ; 3. Bailment; 4. Rill of Lading ; 5. Bona Fide ; 6. Chattel ; 7. Escheat ; 8. Escrow ; 9. Fiduciary ; 10. Indemnity; 11. Intestate; 12. Jettison ; 13. Mandamus; 14 Perjury; 15. Prima Facie; 16. Quorum ; 17. Replevin ; 18. Tenure ; 19. Usury; 20. Waiver. 7. As to United States Laws : (a) What is a copyright and how may it be obtained? (b) What is a patent and how may it be obtained? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Habitual Wright, Dunbar & Company, of New York, U. S. A., and Van Allen & Company, of Amsterdam, Holland, bankers and dealers in foreign exchange, enter into a joint venture on January 2, 1914, for the purpose of dealing in foreign exchange. It is agreed that profits or losses are to be shared equally, that interest on the account current is to be figured at 6% per annum, exact number of days per month, and that guilders at sight are to be calculated at 4014- The blotter of the New York bankers records the following completed transactions for the joint venture of the first month's operations : ( January 10, 1914 January 16, 1914 January 16, 1914 January 16, 1914 January 27, 1914 January 28, 1914 Received on a/c from Borton Bros., New York, and sent to Van Allen & Company, a/c joint venture, £2000 on London, due February 10, 1914, at 4.87 sight and 4^%. Received from Van Allen & Company value January Z, 1914, their draft on Wiener Bros., due February 25, 1914, kronen 48,000 on Vienna at 49^ guilders, 2 months, discount 4%. Cable from Van Allen & Company that they have sold for a/c joint venture, value this day, £2(X)0 on Lon- don, due February 10, 1914, at 12 guilders, 2 months, discount 4%. Discounted this day at National City Bank, New York, for a/c joint venture, value this day, £2000 on Lon- 48,000 on Vienna, due February 25, 1914, at 20%, 3 months, discount 4%. Received from Van Allen & Company value January 13, 1914, their draft on Charles & Company, in Berlin, due February 13, 1914, Rm. 30,000 at 59 guilders, 2 months, discount 5%. Sold for cash a/c joint venture, value this day, Rm. 30,000 on Berlin, due February 13, 1914, at .95, 3 months, discount 5%. Prepare as at January 31, 1914: a A statement showing separately the results of above opera- tions as conducted in New York and Amsterdam, re- spectively. b The ledger accounts of the joint venture and of Van Allen & Company as kept by the New York firm of bankers. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hack You are called upon to audit the accounts of Roland Stone & Co., stock brokers, Chicago, as of January 11, 1908. Statement "A" is an account rendered by Henry Hudson & Co., the New York correspondents of Roland Stone & Co. Statement "B" is an account current made up from Stone's books. Bring down the long and short currency balances on state- ment *'A" and establish the net balance; also show balance of stocks open, both long and short. Bring down stock balances on statement "B," both long and short. Make up reconciliation statement, showing currency differ- ences between **A" and "B" statements. Statement "A" January 1 to 11, 1908 ROLAND STONE & CO., CHICAGO IN ACCOUNT WITH HENRY HUDSON & CO, NEW YORK Dr. Bought 1908 Jan- 1 . Balance— long $ 65,782.25 — ^200 Atchison Com. —100 Wabash '""Z — 60 Reading —200 Steel Com. Z'Z ?~!22«P?*- 47% 4,793.75 3 — 100 Wabash IQ 1 006 25 .~^92 ^'■^o ''^ ^^^ 22 2!206.'25 4- 10 B. & O. Rec'd — 50 Anaconda ' Rec'd 6 — 200 Northwestern 137 27412 50 o~ ?S I:- & Nashville 90 i;801.'25 8- 10 So. Pacific 72% 725.63 iA~ 5S i*^^! P'-e^rred 87% 4,390.63 10— 40 Steel Preferred 88 '? '>22 '^0 11-100 Wabash H tj^fs cy to Mr. Stone 200.00 Express on bonds to Boston i 50 Balance down — Short [^ 11 BALANCE— Long __ Sold Cr 1908 ^*^- •^^"' ^ inn T, . ^ • Balance— short $ 15.900.00 —100 Pressed Car 2,200 —100 Northwestern 13,700 2 — 100 Atchison Com. 71% 7168 75 — 100 Steel Com. 26 * 2'w^ 7«; 3—100 U. Pacific 125 12,49375 4 — Check on Chemical National 1500000 -^2JJ g^^^j.Com. . 26% 2,625:00 — 50 Readmg Deliv'd 6—100 Amal. 43 4 793 75 7—150 Wabash 10 149062 — 50 Wabash Deliv'd 8—100 L. & Nashville 91 "QcHiTi 10-100 Steel Preferred 90 8,'99375 11 — Dividend So. Pacific ' is^O Balance down — Long ' $106,901.62 11 BALANCE— Short (Continued on next page.) i PRACTICAL PROBLEMS, GRADED, SERIES C Code: Hack — (Continued) Statement "B" January 1 to 11, 1908 HENRY HUDSON & CO., NEW YORK IN ACCOUNT WITH ROLAND STONE & CO., CHICAGO Dr- Bought 1908 Jan. 1 — —100 Press'd Car I..." ."."Z — 100 Northwestern 1—100 Atchison Com. 71% 7,168.75 2—100 Union Pacific 125 12,493.75 —Draft Chemical National 15,000.00 3 — 50 Reading Rec'd —100 Amal. 48 1^ 4,843 75 6—150 Wabash 10 li49o!63 7— 50 Wabash Rec'd —100 Steel ^om. 26 2^59375 —100 Steel Com. 26% 2,668.75 8—100 Northwestern 137 13,693.75 9 — 100 Union Pacific 125 12 493 75 10—100 L. & Nashville 91 9093 75 11—100 Steel Pref'd 90 8,'993.'75 — 200 Mo. Pacific 45 4i493.75 Balance down 11 873.49 1908 Jan. 1 — Balance- Sold -Short Long it per & Co. 65.782.25 15.900.00 $106,901.62 Cr. 49.882.25 —200 Steel Com. 47% 10 22 Deliv'd Deliv'd 137 90 72% 46 — ^200 Atchison Com. —100 Wabash — 60 Reading — 3—100 Amal 4—100 Wabash —100 Press'd Car 10 B. & 0. 6 — 50 Anaconda 4,793.75 1,006.25 2.206.25 — ^200 Northwestern 7— 20 L. & Nashville 8— 10 So. Pacific 10 — Dividend Am. Biscui 11 — cy from Jones, Hoo] —400 Mo. Pacific 27,412.50 1,800.00 725.62 150.00 500.00 18,425.00 $106,901.62 i Jan. 11— BALANCE $ 11,873.49 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hackle At the close of the first year, after engaging in business, the ledger balances of an Illinois fire insurance company may be as- sumed to be correctly stated as follows : Losses adjusted and paid $ 16,785.90 $ Losses adjusted, not paid 5,210.85 Premiums in hands of Agents 7,892.54 ^apital ' ' 200,000.00 ^"'■P'HS 100,000.00 Premiums 97,500.00 Interest g 942 59 Commissions 26,847.25 J^^? 1,510.83 Salaries 7,428.10 Vjeneral Expenses 16 582 72 Investments and Loans ZZZZ'Z. 290,150.69 (Jrhce Furniture 2 49510 Stationery and Supplies (Inventory) 1,828 90 Accounts Receivable 16825 95 Accounts Payable.. :::::z;;::;:: ' ■ 3,180.75 Reserve for losses adjusted 5 21085 Organization expense 182203 ' ^ash ZZZIZ \9A5324 $414,834. 10 $414,834.10 The policy register shows : Policies Premiums T7 • • -1 Issued Received Expiring in 1 year $1,300,000.00 $ 15,00000 Expiring in 2 years 1.075,000.00 18,50000 Expiring in 3 years 1.450,000.00 34,50000 Expiring in 5 years 1.250,000.00 29,500!00 $ 5,075,000.00 $ 97,500.00 The Illinois statute reads : ^^ "In estimating profits, there shall be reserved therefrom a sum equal to the whole amount of unea ned premiums on unexpired risks and policies. * * * * * * The company may declare dividends, not exceedmg 10 per cent of its capital stock, in any one year that shall have accumulated and be in possession of a fund, in addition t6 the amount of its capital stock and of such dividends and all actual outstanding liabilities, equal to one-half of the amount of all ore- miums on risks not terminated at the time of making such dividends A year is defined to mean a calendar year." ******** Determine the reserve required and state what sum, if any, is available for dividends without impairing the surplus shown in the ledger balances. Changes in relation to policies cancelled or settled from under claims for losses may be ignored. i PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hackney From the following trial balance of the "P. Q." Company at December 31, 1914, and other data, prepare a Balance Sheet and Profit and Loss Account. Give details showing the method of arriving at any adjustments you make. Accounts receivable $250,000.00 $ Accounts payable 273,000.00 Accrued taxes 2,000.00 Advertising 12,500.00 g"»Jding 100,000.00 Bad debts written off 4,000.00 Capital stock ' 300,000.00 Cash on hand and in bank '... 1100000 gividends 50,000.00 Discount on sales 15,000.00 Discount on purchases ' 1000000 Direct labor ""Z". 250,000.00 Depreciation of building 2,000.00 II ]| machinery 8,000.00 factory fixtures, tools and equip- ment 3 000.00 Depreciation of office furniture and fixtures .".. 500.00 Factory fixtures, tools and equipment 20,000.00 General office expenses 500000 Indirect labor ZZZZZZ^. 95!000"00 insurance on factory and contents 2 00000 Inventory at January 1, 1914 — Raw material 7000000 Work in process and finished stock 130000 00 Supplies 10',000.00 Investment in capital stock of Wilson Selling T C^'— subscribed for at par— (l-6th interest).... 10,00000 |-?^--r-" "--v-v ■ : 50.000.00 Light, heat and janitor service 1000000 Machinery " IQO.'OOO^OO Urtice furniture and fixtures 5 000 00 Office salaries "Z 12;000:00 Officers salaries 20.000.00 P^^t'" 60,000.00 Purchases 345,000.00 Kepairs to building 2.090 00 Repairs to machinery 8 000 00 Salesmen's salaries Z'Z'Z 22!o00.00 expenses 19,000 00 Salaries of foremen and superintendents 12,000.00 Sales — less return sales and allowances ' 945 00000 taxes ... 3,000.00 Unexpired msurance 100000 $1.717,000.00 $1.717.000.00 The Wilson Selling Co. was organized to handle the selling of part of the product of this company and of several others and it is now disposing of about one-fifth of the product of this com- pany to advantage. Although the stock is now selling at 70% of its par value, there is no immediate likelihood of the company being disorganized and it is thought that it may subsequently prove more profitable. For the purposes of this problem, it may be assumed that the inventory at January 1, 1914, was correctly valued. (Continued on next page.) } PRACTICAL PROBLEMS, GRADED, SERIES C Code: Hackney — (Continued) The inventories at December 31, 1914, may be summarized as follows : Raw material — wood (market value $28,000.00) — cost $30,000.00 Raw material — metal (market value $48,000.00) — cost 45,000.00 $ 75,000.00 Work in process and finished product — an analysis of the inventory prices shows that it consists of: Material $60,000.00 Direct labor 40,000.00 Overhead (125% of direct labor) 50,000.00 150,000.00 Supplies— at cost 15,000.00 Total inventory / $240,000.00 4 t PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hackneyed I 1. What is the general nature of a partnership? 2. What are the liabilities of partners : (a) To the public; (b) To each other? 3. What is: (a) A general partnership ; (b) A special or limited partnership' 4. As to kinds of partners, what are: (a) Ostensible partners ; (b) Secret partners ; (c) Dormant or silent partners; (d) Nominal partners? 5. How may a partnership be dissolved ? 6. What is an agent's liability: (a) To his principal ; (b) To a third party? 7. How is agency revoked? 8. An agent without express or implied authority sold the principal's goods with warranty. The principal with full • knowledge of the facts received the sale price. Can he set up the agent's lack of authority to give the warranty as a defense, if sued for a breach of the warranty? 9. As to kinds of agency, what are : (a) Special agency; (b) General agency ; m (c) Limited agency; (d) Unlimited agency; (e) Factor; (f) Broker? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Haddock The Detroit United Railway Company with an authorized Capital Stock of $1,000,000 consisting of 5,000 shares each of Preferred and Common Stock at the par value of $100, had on January 1st, 1912, assets and liabilities as follows : Assets txeal Estate and Building $ 200,000 Power Plant and Machinery.... 250,000 Aerial Construction 200,000 Surface Construction 200,000 Underground Construction 150,000 Rolling Stock 300,000 Accounts Receivable 10,000 Cash 5,000 Liabilities Preferred Stock $ 450,000 Common Stock 400,000 First Mortgage Bond, 5% 350,000 Accounts Payable 5,000 Surplus 110,000 $1,315,000 $1,315,000 The Pontiac Electric Company, with an authorized Capital Stock of $500,000, had on the same day, assets and liabilities as follows : Real Estate $ 300,000 Power Plant and Machinery.... 150,000 Aerial Construction 125,000 Underground Construction .... 100,000 Sundry Assets 16,000 Profit and Loss 10,000 Liabilities Capital Stock $ 600,000 Mortgage, 6% 100,000 Accounts Payable 100,000 $ 700,000 $ 700,000 The Detroit United Railway Company purchased securities of the Pontiac Electric Company in quantities and at prices as follows : $400,000 of the Capital Stock at $125, payable in cash. $50,000 of the Capital Stock at $130, payable with $30,000 of the preferred stock of the Detroit United Railway Company at $150 and cash to balance. $100,000 of the bonds at $115, payable in the unissued com- mon stock of the Detroit United Railway Company, at $93 and cash to balance. $10,000 of the cash payable for the stock purchased to be passed to credit of Profit and Loss account of the Pontiac Elec- tric Company by the vendors to cancel the charge of like amount to said account. To divide funds to meet the above obligations and also to re- tire its 5% Mortgage Bonds at $105, the Detroit United Rail- way Company issued $1,000,000 of 4% Bonds and sold the entire amount for cash at 95%. Assuming that the dividend of the Pontiac Electric Company declared during the year 1912 amounted to $25,000, and the profit of the Detroit United Railway Company from operating exclusive of interest on its bonded debt amounted to $100,000 to wlrat extent has the profit and loss of the Detroit United Rail- way Company been affected, during the year, by reason of its acquisition of the securities of the Pontiac Electric Company and of the redemption of its own 5% Bonds. Show also the condi- tion of accounts of the Detroit United Railway Company at the end of the year. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hades A French merchant having a debt of £10,000 to liquidate in London in 45 days, desires to know where it would be the most advantageous for him to purchase English money, in Paris, Amsterdam or Berlin. The market quotations in the respective places on a certain given date reveal the following: Paris Frs. London paper at sight 25.275 less 6% Amsterdam paper at 3 mo. 205 and 4% Berlin paper at 3 mo. 121 ^ " 4% Amsterdam Guilders Disc, in London 12.075 at 2 months 6% Berlin Reichsmarks Disc, in London 20.25 at 3 months 6% Prepare the required statement, ignoring all banking charges and selling commissions. ft PRACTICAL PROBLEMS, GRADED, SERIES C Code : Haft A public library presents the following trial balance of its ledger : Allen fund for purchase of historic literature $ $ 92,000 Smith fund for purchase of Civil War literature 18,000 Receipts from lost books 100 Membership annual fees 14,500 Income from Allen fund „ 3,680 Income from Smith fund 540 Salaries and sundry expenses 8,640 Rent 6,400 Purchase of historic literature 3,400 Purchase of Civil War literature 4S0 Cash in bank 4,930 Securities Allen fund « 90,000 Securities Smith fund , 15,000 $ 128,820 $ 128,820 4 Prepare a report showing the financial status of the library. (I PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hag "A" in London in current account with "B" of New York, engages an accountant to prepare a statement, to be mailed to "B," from the following data : 1914 Debits May 12 £ 750 May 30 1 17 June 12 340 July 1 _ 150 Total debits „ £ 1,357 1914 Credits June 10 £ 500 June 30 300 Total credits £ 800 Balance £ 557 Find the average due date of the account and the interest at 5% to July 1st, 305 days to the year. \ PRACTICAL PROBLEMS, GRADED, SERIES C 'I Code : Haggard Union County undertakes two public improvements, viz., a road estimated to cost $50,000, and a sewer estimated to cost $40,000. The work is to be paid for out of proceeds of county bonds falling due at various dates and redeemable from assessments levied against property presumably benefited, to the amount of the actual cost of the work and incidental charges when these are determined. Bonds to the above amounts are sold realizing a premium of 1% which is added to the funds. The cost of the two undertak- ings when completed is $50,000 and $40,500 respectively, for which assessments are levied. Assessments are collected as follows : For roads $30,200, with interest of $1,310; for sewers, $29,400, with interest of $1,250. The interest in each case goes to the funds. Road bonds par value $20,000 and sewer bonds par value $15,000 mature and are redeemed. Prepare a trial balance of the transactions from which the status of the county debt and of the funds and assessments at the conclusion of the above transaction could be ascertained. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Haggle The following is a trial balance of a firm of stockbrokers, doing business under the name of Adams & Jones : Customers $10,500,000.00 $ Customers 250,000.00 Cash 150,000.00 Loans 9,500,000.00 Borrowed on loan account 110,000.00 Investments 580,000.00 ' Furniture and fixtures 3,600.00 Interest 33,400.00 Commission account 190,600.00 Expenses 34,400.00 Adams 650,000.00 Jones 534,000.00 $1 1,268,000.00 $1 1,268,000.00 Stocks borrowed $ 370,000.00 Stocks loaned 480,000.00 Commissions due other brokers 1.500.00 Interest accrued on loans 3,040.00 Stocks pledged to secure loans 11,400,000.00 Stocks in transfer 130,000.00 Stocks loaned to other brokers 486,000.00 Stocks on hand 384,000.00 Prepare, in technical accounting form, a financial statement of the firm. i '♦ PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hail A Municipal Comptroller had upon his books at the beginning of his fiscal year the following bonds outstanding totaling $500,000.00 as follows : Improvement Bonds $100,000.00 Building Bonds 300,000.00 Refunding Bonds 100,000.00 Cash in the hands of the Treasurer, $100,000.00. Credit Balances to the following funds: a $ 25,000.00 b 10,000.00 c 15,000.00 d 30,000.00 e 20,000.00 The earnings of the municipality for the ensuing year and the amounts necessary to be raised by taxation were estimated as follows : Earnings from various departments $200,000.00 Liquor Licenses 500,000.00 Taxes 300,000.00 The earnings from various departments and liquor licenses are placed in Fund a. Taxes are divided among the funds as fol- lows: b, 30% ; c, 20% ; d, 15% ; e, 35%. At the close of the fiscal year the following collections had been received: Earnings from various departments $175,000.00 Liquor Licenses 490,000.00 Taxes 250,000.00 Make the necessary entries in full and present a balance sheet at the beginning and close of the fiscal year. I PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hair A New York corporation builds a plant and establishes a branch in Liverpool, England. At the expiration of its fiscal period, a trial balance is forwarded to the New York office, as follows: Plant £ 250,000 Accounts receivable 187,500 Expenses 25,000 Inventory (end of fiscal period) 50,000 Remittance account 150,000 Cash 12,500 Accounts payable £ 87,500 Income from sales 250,000 New York office 337,500 £675,000 £675,000 A trial balance of the New York books at the same date was as follows : Capital stock $ 2,500,000.00 Patents $ 1,500,000.00 London account 1,640,250.00 Remittance account 729,281.25 Expenses at New York 25,000.00 Cash 64,031.25 $ 3,229,281.25 $ 3,229,281.25 I The Remittance Account is composed of four sixty (60) day drafts on Liverpool for £37,500 each, which were sold in New York at $4.85i/2, $4.86, $4,861/2 and $4,863/4, respectively. Prepare a balance sheet of the New York books after closing and a statement of assets and liabilities of the Liverpool branch reconciled with the New York books. Close the books at rate of exchange on last day of fiscal period $4.8714 (conversion of remittance to be made at the average rate of the four bills). PRACTICAL PROBLEMS, GRADED, SERIES C Code : Haitain On January 1, 1906, the Never Slip Razor Company was in- corporated with a capital stock of $50,000.00, subscribed as follows: J. Colgate, $10,000.00; T. Williams, $20,000.00; R. Armour, $20,000.00. Colgate's subscription was settled by the transfer of patent rights to the company. Williams and Armour paid cash. W. Morgan was appointed manager, at a salary of $5,000.00, and 10% commission on the profits prior to charging his com- mission. As at December 31, 1915, the financial position of the com- pany was as follows: Assets : Current and Working $ 75,000.00 Patents, etc 65,000.00 Total $14 0,000.00 Liabilities : Current and Accrued $ 10,000.00 Capital Stock 50^000.00 Surplus 80,000.00 Total . $140,000.00 The current and accrued liabilities of $10,000.00 include $4,000.00 due to W. Morgan for excess of salary and commission to date over drawings. The profit and loss account for the ten years showed net profits available for dividends as follows: 190(5, $4,500.00; 1907, $13,500.00; 1908, $27,000.00; 1909, $18,000.00; 1910, $27,- 000.00; 1911, 36,000.00; 1912, $45,000.00; 1913, $03,000.00; 1914, $81,000.00 ; 1915, $126,000.00 ; total, $441,000.00. It was decided to form a new company, The Never Slip Corporation, with a capital stock of $500,000.00, to take over the business as at January 1, 1916. Stock was to be allotted and distributed to the original stock- holders of the old company in the ratio of eight fully paid new shares for one old share. The balance was to be issued to W. Morgan to secure his services as manager, with an annual salary of $5,000.00 and no commission. The Patents Account in the books of the old company was as follows : • Jan. 1, 1906 Patent Rights acquired from J. Colgate $10,000.00 Dec. 31, 1906 Application Fees, Attorney Fees, etc 1,000.00 Dec. 31, 1907 Application Fees, Attorney Fees, etc 500.00 Dec. 31, 1908 Application Fees, Attorney Fees, etc 500.00 Dec. 31, 1909 Application Fees, Attorney Fees, etc 2,000.00 Dec. 31, 1910 Application Fees, Attorney Fees, etc 12,000.00 Dec. 31, 1911 Application Fees, Attorney Fees, etc 8^000.00 Dec. 31, 1912 Application Fees, Attorney Fees, etc 7,000.00 Dec. 31, 1913 Application Fees, Attorney Fees, etc 7,000.00 Dec. 31, 1914 Application Fees, Attorney Fees, etc 7^000.00 Dec. 31, 1915 Application Fees, Attorney Fees, etc lO^OOO^OO Total $65,000.00 (Continued on next page.) 4 PRACTICAL PROBLEMS, GRADED, SERIES C Code: Haitain — (Continued) The date of the principal patent was January 1, 1909. It was decided that all expenditure on patents until that date should be capitalized. But, after that date, the account was to be adjusted by provided for writing off the principal patent by January 1, 1926 ; all expenditure — before and after January 1, 1909 — being considered as connected with the principal patent. Depreciation to be computed on final balances each year. Show how you would adjust the Patents Account. Also ad- just the accounts so that W. Morgan is credited with 20% com- mission in lieu of the salary and the 10% commission during the 5 years ended December 31, 1915, no adjustment being required for previous period. Give (1) W. Morgan's account, (2) a sum- mary of net profits for the 10 years, (3) balance sheet of the old company, (4) balance sheet of the new company, (5) and a recom- mendation as to depreciation to be written off the intangible assets of the new company. 4 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ha n dsom e As to the Administration of Estates : 1. What is the difference between an administrator and an executor ? 2. What is the meaning of: (a) Letters Testamentary; (b) Letters of Administration ? 3. Under what conditions is a surviving partner entitled to administer upon the partnership estate? 4. What are the responsibihtiej of an executor or adminis- trator for funds of the estate deposited by him at a bank ? As to banks and trust companies : 1. What process is followed by the county assessor in levy- ing a tax against bank stock ? How are such taxes paid, and how and by whom are the taxes paid deductible in income tax returns? 2. What is the limit of the liability of a stockholder in a bank? 3. What is a trust company ? 4. What is a building and loan association? As to corporations: 1. What is a corporation? 2. How is a corporation organized under the laws of the State of Washington ? 3. Can a corporation perform corporate acts, such as the mortgaging of its real property, while there is a vacancy in its board of trustees? 4. Are the stock certificates of a corporation negotiable ? 5. How may a corporation be dissolved under the laws of the State of Washington ? 6. Do minority stockholders, who may not have assented tc the dissolution of a going corporation, not insolvent, have anv remedy at law? 7. What are the different kinds of corporations ? As to the United States Bankruptcy Laws: 1. What are acts of bankruptcy ? 2. Who may become bankrupts? 3. What are the duties of bankrupts ? 4. What are the compositions with creditors ? 5. What are the duties of a trustee in bankruptcy? 6. What are preferred creditors? Give illustrations. » 4 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Halbkrd Adams of New York and Lotimer of St. Paul each maintain an account current with the ether. Settlements to be made semi- annually, by 30 day notes, including interest on the account at G%. Their transactions for the six months ending June 30, 1915, were as follows : Adams charges Lotimer : 1915 January 15, Acceptance drawn by Lotimer. due January 31, $ 21,000 February 10, Draft in favor of Hardens bank due February 28, 1,200 March 31, Cash due March 31, 1,500 April 12, Draft in favor of Lotimer due March 31, 1,800 May 14, Net proceeds, Account Sales.... due August 31, 6,000 June 28, Note— Smith and Company due October 31, 4,500 — — I— ■ $ 36,000 Lotimer charges /\.dams : 1915 January 15, Net proceeds. Account Sales due March 31, $ 6,000 February 28, Cash, note of Reynolds due February 28, 1,800 March 31, Cash, repayment due April 15, 1,500 April 12, Joint Account, one half interest on loss due March 31, 1,200 May 14, Acceptance favor Johnson & Company due August 31, 4,500 June 28, Account Sales, Wood due July 31, 21,000 $ 36,000 Prepare an account current, with interest, as rendered by either party to the other, supplying the credit side of the account and showing the net balance of account at October 31, for which a note should be given. 4 PRACTICAL PROBLEMS, GRADED, SERIES C £4000= $19,480 £ 100= 487 £ 900= 4,383 Code : Hale William Pitt and John Fox, merchants with offices in Manches- ter and New York, equally interested in a business venture, decide to dissolve the partnership as at Dec. 31, 1911, at which time their financial position is as follows: Accounts receivable uncollected Office furniture on hand Accounts payable unliquidated The accounts had been kept in dual currency. Pitt acts as liquidator and takes over the business, agreeing to purchase the furniture at a 10% reduction as at January 1, 1912 and to allow on the same date to Fox £600 = $2922 for his share of the goodwill. The accounts receivable are collected on the following dates: April 15/12 £1000= $4,870 April 23/12 £ 100= $ 487 June 10/12 £1600= 7,792 October 8/12 £1200= 6,844 The balance is uncollectible and considered lost. The accounts payable are liquidated in full as follows: March 11/12 £100= $ 487 April 20/12 £200= $ 974 May 30/12 £300= 1,461 October 26/12 £300= 1,461 After deduction of the payments made, the net receipts are realized on a certain average date (to be determined) from the date of dissolution. Pitt advances to Fox £1000 = $4870 on March 31, 1912, and pays him the balance on January 1, 1913, with interest at 6% per annum. Prepare an Account Current in English currency only (calcu- lating interest at above stated rate) as Pitt shall render to Fox, disclosing the amount due the latter as at January 1, 1913. » 4 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Halftone In auditing the accounts of a wtiolesaie company what consideration, if any, would you give to the verification of purchased goods in transit at the date of the Balance Sheet you are asked to prepare*' « 4c « 3|e # For what purposes are the following accounts created, and, in what manner would you undertake to satisfy your- self as to the necessity for their creation and as to the amounts which should be provided; 1. Reserve for Bad and Doubtful Accounts; 2. Reserve for Allowances; 3. Reserve for Discounts? ♦ 4^ ♦ * « In auditing the accounts of a mi nufacturing business you are asked particularly to ascertain that all outstanding ac- counts have been brought in. How would you satisfy yourself on this point as regards: Wages ; Taxes; Trade Creditors' Accounts? * * * * ^ State two other classes of accounts which you would probably investigate. * if * iti * You are instructed to make an auuii of a Lighting ana Water Company in connection with a proposed issue of bonds. State the points to which you would consider it necessary to give particular attention. Also state what financial statements you would give to your clients. « * « « 1^ How may the amount of Stock on Hand of a merchant be estimated from time to time when it is not practicable to t?.kf a physical inventory more than once a yerr? * 4( 4e ♦ « State the object of keeping stores accounts, and explaiL how they are used in a system of cost accounts. * >o ♦ ♦ * In reporting upon an audit you include as an asset "Ad- vances to Officers," $10,000.00. The advances have been authorized and there is every probability th£t they will be repaid. The President of the company asks you to make up a UfcW Balance Sheet and include this item among Accounts Receivable. How would you answer him? * * * * * In auditing the books of a Steamship Company you find the following journal entry: Bond Sinking Fund Account Dr. $25,000.00 Bond Sinking Fund Reserve Cr. 25,000.00 The Bond Sinking Fund Account was at the close of the year transferred to Surplus Account. State what action you would take in this connection. PRACTICAL PROBLEMS, GRADED, SERIES C Code: Highland 1. (a) What are the general requisite of a negotiable in- strument ? (b) What is consideration ? (c) What is a holder for value? 2. As to promissory notes: (a) What is an individual promissory note? (b) What is a joint promissory note? (c) What is a joint and several promissory note? 3. Define : (a) Presentment. (b) Protest, and its object. 4. As to endorsements, what are: (a) Endorsement in blank ; (b) Special endorsement; (c) Restrictive endorsement : (d) Qualified endorsement; (e) Conditional endorsement? 5. As to drafts, what are: (a) Sight drafts; (b) Time drafts; (c) What is a bill of exchange with documents attached? What documents would you expect to find on a ship- ment of, say, tea from Japan ? 6. In case of unreasonable delay in presenting a bill of ex- change what would be the effect? 7. A debtor wrote to his creditor enclosing a check for $250.00, "in full settlement of your claim," the amount claimed being $275.00. The creditor endorsed the check, paid it into his bank and sent the debtor a receipt for $250.00 "on account," re- questing payment of the balance. Under these circumstances is the creditor estopped from denying that the check was taken in satisfaction of his claim? 8. What are the requisites to constitute a valid legal tender in discharge of a debt when the amount is in dispute ? 9. What is the extent and nature of the liability incurred by a director who is a party to the payment of dividends out of capital? What is the position of a shareholder who receives a dividend with knowledge that it is so paid? 10. What practical objects are served by reducing the paid- up capital of a company on the ground that capital has been lost or is not represented by available assets? 11. If a bill or note is taken by a creditor in payment of money due under a contract, is such payment considered to be conditional or absolute ? Give an instance. 12. Can a corporation be bound by a contract entered into before its incorporation ? Give your reasons for your answer. 13. How may the remedy be revived where the right of action on a contract has become barred by lapse of time ? : PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hill Outline a pay roll system for a Logging Camp, the men being paid monthly. The company conducts a store, from which purchases are made by the men; company also makes the men cash advances, supplies medical attendance on an assessment basis, and board at a rate a week. It reimburses itself from the Pay Roll before distribution. Arrange the Pay Roll so that the labor costs of each operation in Logging are distinctly shown. : PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hinder A lumber company owns its own timber lands end an operating saw mill, a planing mill, a shingle mill and a sash and door factory. It conducts its own logging operations, but also finds it convenient to buy logs which may be obtained either delivered at its saw mill, or at other points. When purchased logs are not delivered at its mill it is customary for the company to do its own towing with its own tugs. Required — an outline of the Profit and Loss Account of such a company with the main features set forth in such subsidiary statements as you think necessary in order that a comprehensive view of the results of the various operations may be obtained. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Hobby Following is a list of the accounts appearing on the trial balance of a manufacturing company which deals in finished merchandise purchased as well as in its own products. From this list, and without using figures, draw up plans of financial state- ments (balance sheet, manufacturing account, profit and loss ac- count, etc.) in the form which you think most suitable: Accounts Payable Capital Stock Bills Receivable Cash Salaries, Management Bills Payable Salaries, Office and Store Real Estate Fuel Insurance (plant) Light Freight (on mdse purchased) Machinery and Tools Freight (on raw materials) Buildings Sales (own products) Inventory, own products Inventory, raw materials Inventory, partly manufactured goods Inventory, merchandise purchased Inventory, repair supplies Sales (merchandise purchased) Undivided Profits (end of last year) Purchases (merchandise) Rent, Factory Rent, Store and Office Printing and Stationery Accounts Receivable Advertising Purchases (raw materials) Machinery Repairs Producti/e Labor (Factory) Labor (Warehouse) Office Furniture Reserve for Bad and Doubtful Accounts Reserve for Depreciation Insurance (Merchandise) Bad and Doubtful Accounts Travellers' Expenses and Salaries Management Salary, Factory Management Salary, Office Discounts Allowed Interest Payable Depreciation Goodwill Sundry Factory Expenses Sundry Office Expenses Postage Subscriptions and Donations Discount Received Rents (Receivable) Insurance unexpired — Plant Insurance unexpired — Merchandise PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ibex On January 1, 1913, the *'AB" Company owned 90% of the stock of the "XY" Company and 80% of that of the "PQ" Company, two subsidiary companies which it thus controlled, and in fact, actually directed the policy and general administra- tion, the minority holdings in each case being in the hands of the officers and employes of the subsidiary company or of other interests friendly to the "AB" Company. On June 30, 1913, the holdings in the "XY" Company were reduced to 80% by the sale of 100 shares at $200.00 per share, to certain employees not theretofore stockholders, while in the case of the "PQ" Company, owing to the resignation of an officer, his holdings, consisting of 100 shares, were purchased at par, the holdings by the "AB" Company being thus increased to 90^^, so that on December 31, 1913, the proportion of holdings in the two companies was just reversed. The following are the trial balances of all three companies after closing at December 31, 1913 : TRIAL BALANCE AT DECEMBER 31, 1913 Particulars— "A. B." Co. "X. Y. " Co. "P. Q." Co. Properties $ $ $ 85,000 $ $ 75,000 $ Goodwill 100,000 Stockholdings — In *'X. Y." Co.— 800 shares (book value).... 115,000t In "P. Q." Co.— 900 shares at cost 82,000 Current assets 132,000 136,000 90,000 Capital stock — "A. B." Co., 3000 shares 300.000 "X. Y." Co., 1000 shares 100,000 "P. Q." Co., 1000 shares 100,000 Accounts payable 125,000 30,000 10,000 Surplus at Jan. 1 50,000 60,000 10,000 1913 profits 44,000* 45,000 35,0p0 Dividends paid in Dec, 1913... 30,000 40,000 25,000 Current accounts 60,000 25,000 35,000 $519,000 $519,000 $260,000 $260,000 $190,000 $190,000 tAfter crediting the proceeds of the 100 shares sold, prior to which the investment had been valued at cost. •Dividends received from subsidiary companies, less expenses of parent company. First, prepare a table showing the book value of subsidiary companies' stock at each important date. Second, journalize '*AB's" books to show changes in its values of the stocks. Third, prepare Consolidated Balance Sheet, showing cor- rectly— The liability to the minority stockholders in respect of their equity. The proportion of surplus and profits appertaining to the stockholders of the "AB" Co. The goodwill of the combined companies. Assume that the profits earned by the "XY" Co. and "PQ" Co. respectively to June 30, 1913, were exactly 50% of the profits for the complete year. : PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ice On January 1, 1916, a corporation, the "C" Company, was formed with a capital stock of $6,000,000, of which $5,000,000 was common stock and $1,000,000 was preferred stock. The "C" Company as of January 1, 1916, purchased the capital stocks of the "A" and "B" Companies, balance sheets of which at De- cember 31, 1915, are shown below. The preferred stock of the "C" Company was sold to the public for cash at par, the stock- holders of the **A" Company received the entire $5,000,000 of the common stock of the "C" Company for their holdings in the "A" Company, while the stockholders of the "B" Company were paid $500,000 in cash for their holdings in the "B" Company. Prepare a consolidated balance sheet showing the financial position of the "C" Company as of January 1, 1916, after giving effect to the foregoing transactions. Your working papers should show the process by which you arrive at the final balance sheet figures. It also should be understood that the "A" Company had in its inventory at December 31, 1915, materials valued at $250,000, purchased from the "B" Company on which the "B" Company had made a gross profit of 20%. "A" COMPANY BALANCE SHEET— DECEMBER 31, 1915 ASSETS Real estate, buildings, machinery and equipment — $1,000,000 Inventories 1,500,000 Accounts receivable 500,000 Cash 50,000 Prepaid insurance and taxes 10,000 LIABILITIES Capital stock — 15,000 shares, $100 each $1,600,000 Notes payable — "B" Company 100,000 Others 400,000 Accounts payable — "B" Company 100,000 Others 700,000 Surplus 260,000 $3,060,000 "B" COMPANY BALANCE SHEET— DECEMBER 31, 1915 $3,060,000 ASSETS Real estate,buildings, machinery and equipment $ 250,000 Inventories 75,000 Accounts receivable — "A" Company 100,000 Others 50,000 Cash 25,000 Prepaid insurance and taxes 2,000 LIABILITIES Capital stock — 1000 shares, $100 each $ 100,000 Accounts payable 140,000 Surplus 262,000 Contingent liability in respect of notes of "A" Company dis- counted at banks $100,000 $ 502,000 $ 502,000 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Icelander Three-fourths of the capital stock of Company "A" and two- thirds of the capital stock of Company "B" is owned by the hold- ing Company'^C'*. Company "C" purchased the above stock of Company "A" at $150 on February 1st, 1905, on the basis of the balance sheet given below, dated January 1, 1905: ASSETS Real estate, plant, machinery, etc.. $100,000 Inventory merchandise 100,000 Accounts and bills receivable 75,000 Cash 25,000 LIABIUTIES Capital stock $150,000 Bills payable 75,000 Surplus 75,000 $300,000 $300,000 During the year 1905, Company "A" made a net profit after providing for depreciation, bad debts, etc., of $5,000.00, and the directors of Company "A" declare and pay a dividend of 10 per cent, as of February 15, 1906. The stock of Company "B" owned by Company "C" was pur- chased on March 1st, 1905, at 125 on the basis of the balance sheet below, dated January 1, 1905: ASSETS Real estate, plant, machinery, etc.. .$450,000 Patents 50,000 Inventory merchandise 200,000 Accounts receivable 150,000 Cash 37,500 LIABILITIES Capital stock $500,000 Bonded indebtedness 200,000 Accounts payable 62,500 Surplus , 125,000 $887,500 $887,500 During the year 1905, Company "B" makes a net profit of $50,000.00 after making all necessary provisions for depreciation on plant, machinery and patents, a? also for bad debts, and tho directors of Company "B" declare and pay a dividend of 8 per cent, as on February 14, 1906. Draw up all the necessary entries in respect to the dividends of the above two companies as they should appear on the books of Company "C", the holding company. State reasons therefor. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Icicle The Jones Investment Co., on June 30, 1915, obtained a controlling interest in three operating companies, viz., "A" Co., "B" Co., and "C" Co. The Balance Sheets of the four companies as at June 30, 191() are as follows : Debits Tones Invest- ments Co. "A" Co. "B" Co. "C" Co. Investment in other companies "A" Co.— 60% interest (Cost $900,000.00) $1,000,000.00 $ | $ "B" Co— 75% interest at cost 600,000.00 "C" Co.— 80% interest at cost 400,000.00 Advances to "A" Co 100,000.00 Advances to "C" Co 50,000.00 Cash 50,000.00 100,000.00 10,000.00 50,000.00 Accounts Receivable 100,000.00 50,000. 00 100,000.00 Inventories 2^0,000.00 100,000.00 50,000.00 Plant 1,000,000.00 600,000.00 400,000.00 Deficit 40,000.00 Total Debits .$2,200,000.00 $1,400 ,000.00 $800,000.00 $600,000.00 Credits Capital Stock $2,000,000.00 $1,000,000.00 $800,000.00 $400,000.00 Jones Investment Co 100,000.00 60,000.00 Surplus 200,000.00 300,000.00 l.'iO.OOO.OO Total Credits $2,200,000.00 $1,400,000.00 $800,000.00 $600,00 0.00 The Surplus and Deficit Ac- counts as shown above may be analyzed as follows: Balance to June 30, 1915 $100,000.00 $200,000.00 $ 4,000.00 $100,000.00 Surplus income: 6 months to Dec. 31, 1916.... 180,000.00 46,000.00 25,000.00 6 months to June 30, 1916.... 217,600.00 220,000.00 40,000.00* 26,000.00 Increase in value of "A" Co. Stock 100,000.00 Dividends paid Jan., 1916 217,600.00* 300,000.00* 50,000.00* Balance June 30, 1916 $200,000.00 $300,000.00 $40,000.00* $150^000^)0 Debits indicated by * Prepare a consolidated balance sheet of the four companies as at June 30, 1916. A statement of the consolidated earnings and surplus account for the year to June 30, 1916, is not required, but may be sub- mitted if desired. In preparing the balance sheet the following additional facts should be considered : 1. The holding company has no other source of income than the dividends from the subsidiaries, which have been taken on to its books when received. 2. In accordance with a resolution of the Board of Directors of the Jones Investment Co., the following entry was made on the holding company books at June 30, 1916 : Dr. Investment in "A" Co $100,000.00 Cr. Surplus $100,000.00 3. The inventories of the "A" Co. include $100,000.00 of stock purchased from "B" Co. in 1916 The cost of these goods to the "B" Co. was $90,000.00. 4. Part of the plant of the "C" Co. was built by the "A" Co. in September and October, 1915, at a cost of $80,000.00. For this work the "A" Co. charged the "C" Co. $95,000.00. 5. In February, 1916, part of the equipment of the "B" Co., which was carried on the books at the cost price of $50,000.00, was destroyed by fire. The only entry that has been made in re- spect to this loss was to credit the Plant Account with the salvage of $5,000.00. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Icing The following are the Balance Sheets of two companies which, carrying on similar businesses, have decided to amalgamate on the basis that the goodwill and assets (except the shares of **Y. Z/' Minmg Company held by the "A. B." Mining Company) are of equal value. How would you recommend that the amalga- mation should be effected? State two possible methods, with full explanation of your reasons, and give in each case the Balance Sheet of the amalga- mated company. THE "A. B." MINING COMPANY Balance Sheet at December 31st, 1907 Assets Cost of Mines and Other As- sets $ 250,000 Shares in the "Y. Z." Mining Company, 1250 shares of $100.00 each, costing 187,500 Accounts Receivable 5,000 Cash 2,600 Stock of Minerals 5,000 Liabilities Accounts Payable $ 12,500 Creditors for cost of purchase of 1250 shares in the "Y.Z." Mining Company (per con- tra) 187,500 Capital Stock, 2500 shares of $100.00 each 250,000 $ 450,000 $ 450,000 THE "Y. Z." MINING COMPANY Balance Sheet at December 31st, 1907 Assets Liabilities Cost of Mines and Other As- Accounts Payable $ 10,000 sets $ 250,000 Capital Stock, 2500 shares of Stock of Minerals 2,500 $100.00 each 250,000 Accounts Receivable 5,000 Cash 2,600 $ 260,000 $ 260,000 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Icy 1. A company has a factory which is carried on as a distinct business, with a separate banking account. The head office deals with the factory, buys goods from it and pays for them, as if it were a separate business, and the factory sells to the head office at the same price as it does to outsiders. At the end of the year, '=eparate Trading Accounts are prepared for the factory and for he head office ; the balances are carried to a Joint Profit and Loss Account and a Joint Balance Sheet is prepared. The stock at the head office consists largely of goods bought from the factory. On what basis do you consider this should be valued and why? 2. What is the Budget System and what is its relation to the finances of a municipality? Give your opinion regarding it and what you would recommend (if anything) in its place? 3. In the accounts of a Public Service Corporation how would you treat : (a) Interest on bonds during construction; (b) Interest on bonds after the construction period; (c) Interest received on money from proceeds of bond sales loaned on call, because not immediately required for construction ; (d) Discount on bonds sold; (e) $100,000.00 in capital stock given for property of an appraised value of $75,000.00. 4. Explain briefly what is meant by the exchange value of a foreign currency. Why does it vary from time to time? 5. On the formation of a corporation to take over an estab- lished business, it frequently happens that a considerable sum is paid for goodwill. Give an instance where you would consider it necessary that yearly provision should be made ou: of profits to extinguish the asset, and a further instance where yon would con- sider such a course unnecessary, and state your reasons. 6. A corporation has removed its business to a new factory which has cost, including the plant site, $150,000.00. A portion of the machinery and plant, at an estimated value of $70,000.00, has been removed to the new factory at a cost of $9,000.00. The re- mainder has been sold, showing a loss on the total book value of the machinery and plant o-f $16,000.00. The profits for the year, after making provision for depreciation of 71/2% on the machinery and plant, are $22,500.00, without taking into account the above named loss, and are about the normal amounts of profits in previous years. State your views as to the proper mode of dealing with the cost of removkl and the loss on the sale and whether, apart from financial considerations, the directors would be justified in declar- ing a dividend. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idea From the following trial balances, after ciosing, prepare a Consolidated Balance Sheet as at January 31, 1915. This Con- solidated Balance Sheet must be prepared in form suitable for submission to a firm of commercial paper brokers and to bankers. It is assumed that you audited all these balance sheets and had every opportunity of inquiring and satisfying yourself rela- tive to their accuracy. This being so, append to the Balance Sheet such a certificate as you would feel warranted in signing. "A. B. C." MANUFACTURING COMPANY Trial Balance — after closing — as at January 31, 1915. Dr. Real estate, buildings, machinery, etc $1,000,000.00 Good will - 1,000.000.00 Investment in and advances to Paris Manu- facturing Company : Capital stock — at book value at beginning of fiscal period..$250,000.00 Advances 150,000.00 400,000.00 Accounts receivable, less reserve, $10,000 150,000.00 Inventories of raw material, work in process, finished material, etc 300.000.00 Cash 50,000.00 Notes payable Accounts payable Investment in and advances to Brown-Smith Company: Capital stock — book value at beginning of fiscal period $100,000.00 Advances 100,000.00 200.000.00 Cr. $ 250,000.00 50,000.00 First mortgages (f/r gold bonds Preferred stock — 7% cumulative, 10,000 shares Common stock — 10,000 shares Surplus 500.000.00 1,000.000.00 1,000,000.00 300.000.00 $3,100,000.00 $3,100,000.00 PARIS MANUFACTURING COMPANY Trial Balance — after closing — as at January 31, 1915 Dr. Cr. Real estate, buildings, machinerv, etc $250,000.00 $ Goodwill 200,000.00 Accounts receivable 60,000.00 Inventories of raw material, work in process, finished materials, etc 175,003.00 Cash 25,000.00 Reserve for bad debts 10,000.00 Notes payable 90.000.00 Accounts payable 10,000.00 "A. B. C." Manufacturing Company 150,000.00 Capital stock— 1,500 shares 150.000.00 Surplus 300,000.00 $710,000.00 $710,000.00 « (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES C Code: Idea — (Continued) BROWN-SMITH COMPANY Trial Balance— after closing— as at January 31, 1915 Dr. Cr. Real estate, buildings, machinery, etc $ 50,000.00 $ Accounts receivable 25,000.00 Finished goods on consignment — at selling price.... 100,000.00 Inventories of raw material, work in process, finished materials, etc 125,000.00 Cash 25,000.00 Notes payable 150,000.00 Accounts payable 25,000.00 "A. B. C." Manufacturing Company 100,000.00 Capital stock— 1,000 shares 100,000.00 Deficit 50,000.00 $375,000.00 $375,000.00 In preparing the Balance Sheet required, bear the following facts in mind: The dividends on the preferred stock of the "A. B. C." Manufacturing Company were paid to March 31, 1914. The finished goods on consignment (Brown-Smith Balance Sheet) cost to manufacture $60,000.00. On realization it is esti- mated a profit of $10,000.00 will be made. Disregard any freight expense. All inventories are priced on proper basis. All accounts re- ceivable are considered collectible after allowing for reserves. •A* PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ideal You are called upon by the Secretary of the Wisconsin Manu- facturing Co., at Milwaukee, to close the books for the year 1915 .and assist him in preparing his annual report. He informs you that the company was organized January 1, 1914, to manufacture and market a specialty and that it operates its own factory at La Crosse. Sales are confined to dealers, and are made from the factory, from the main office at Milwaukee, and from a branch at Kenosha. The Secretary's report of December 31, 1914, did not correctly state the result of operations during the first year as no provision was made for anticipated profits and discounts in inventories. There is not enough time before the annual meeting to visit the other offices of the company and examine the books and records there, but you are asked to prepare statements, based upon the books at the Milwaukee office and reports received from the fac- tory and branch Tianagers showing: 1. The condition of the company December 31, 1915. 2. The cost of production during 1915. 3. An income and expense statement of the business as a whole for the year 1915. In addition to the main office books, the following papers and information are placed at your disposal: TRIAL BALANCE— FACTORY LEDGER (Before Closing) WISCONSIN MANUFACTURING CO. December 31, 1915 DR, CR. Mil>vaukee office $ $ 20893 49 Cash „ 8,268.00 Accounts receivable 22,843.00 Notes receivable 3^866.00 Sales V 923.485.33 Freight 10,551.07 Raw materials— Jan. 1, 1915 34,071.94 Raw materials — Purchases 375.142.84 Expense 494,617.89 Commissions 4,233.30 Coal 2,900.00 Waste ^ 12,115.22 $9 56.494.04 $956,494.04 ANALYSIS OF EXPENSE— FACTORY LEDGER Labor _ $363,237.53 Factory expense 107,855.17 Selling expense .._ 23,988.70 $495,081.40 Interest on bank account 463.51 $494,617.89 ANALYSIS OF FREIGHT ACCOUNT— FACTORY LEDGER Freighx on PiKrhases $ 7,357.78 Freight oi SaW 3,193.29 $ 10,551.07 Accrued wages amounting to $2,145.00 were not included in the above trial balance. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ideal — ( Continued ) TRIAL BALANCE— MILWAUKEE LEDGER WISCONSIN MANUFACTURING CO. December 31, 1915 DR. CR. La Crosse account $ 20,893.49 $ Kenosha account 23,836.00 Buildings— Factory (5%) 80,000.00 Buildings— Milwaukee (2}^%) 50,000.00 Machinery (8%) 65,000.00 Furniture and fixtures. La Crosse (10%) 2,500.00 Furniture and fixtures, Milwaukee (10%) _ 4,500.00 Capital stock 500,000.00 Treasury stock 1,750.00 Reserve for depreciation 11,150.00 Surplus 29,774.62 Dividend payable 15,000.00 Cash 60,711.95 Accounts receivable 63,231.34 Notes receivable — Trade 41,976.55 Notes receivable— Personal 18,000.00 Accounts payable 77,110.55 Merchandise purchases 829,085 60 Freight in 15,835.55 Sales „ 1,165,596.66 Discount on sales 12,002.44 Freight out 46,766.66 Expense— Selling 369,196.93 Expense — Administrative 1 12,41 1.65 Taxes (1915)— L^t Cros.se 3,933.67 Taxes (1915)— Milwaukee 3,260.00 Discount on factory purchases 26,260.00 $1,824,891.83 $1,824,891.83 INVENTORIES WISCONSIN MANUFACTURING CO. Dec. 31, 1915 Dec. 31, 1914 Factory : Materials at invoice price $ 79,187.91 $ 34,071.94 Finished goods at invoice price to Milwau- kee office 22,992.60 In process, at cost : Materials 19.033.86 Labor 18,219.13 Expense — Estimated 5,465.74 Coal 2,900.00 Waste 3,726.43 Milwaukee : Finished gords at factory invoice price 186,877.18 49.903.56 Kenosha : Finished goods at selling price 14,270.00 Accounts receivable 6,580.00 In the cour.se of your work, you find that uniform selling prices are maintained at all offices of the company and that goods are* billed at a fixed factory price to the MilwaMkee office which rebills all shipments to the Kenosha office at selling price. The Mil- waukee office pays all bills for materials purchased by the factory. The factory office keeps separate records for manufacturing and selling expenses, but dealers' orders received at La Crosse are filled directly from the factory stock of finished floods and are credited to the same account as shipments to Milwaukee. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ideal — ( Concluded ) The Kenosha office handles its own collections, but keeps only a single entry record which is not available at this time. Expenses are paid out of collections and tne balance is sent to Milwaukee. Freight on shipments to Kenosha is paid at Milwaukee. The Kenosha manager is allowed 5 per cent commission on collections and cash sales, but no salary. Rates of depreciation on permanent assets have been fixed by the Board of Directors and appear on the trial balance of the Milwaukee ledger. All depreciation for the year 1914 was charged to the Milwaukee profit and loss account, which also received credit for discounts on factory purchases. One-third of the floor space and three-fifths of the furniture at Milwaukee are used for administrative purposes. The treasury stock consists of ten shares, par value $1,000.00, purchased October 1, 1915, and will not be resold. You are instructed to figure in-freight for inventory purposes at 2 per cent of purchase invoice price at the various offices. The over head on work in process has been estimated. With these exceptions inventories are to be-considered at net cost. The following is an analysis of the Kenosha account as it appears on the Milwaukee ledger: DEBITS Shipments $ 61,850.00 Freight 1,237.00 $ 63,087.00 CREDITS Cash $ 27,934.87 Expense 11,316.13 39,251.00 $23,856.00 The not? receivable for $18,000.00 represents a loan to the president of the company to be repaid out of dividends. A dividend of $30,000.00 was declared March 1, 1915, to be paid, one-half September 1, 1915,- and one-half March 1, 1916. Taxes at La Crosse for the year 1914, amountin*^ to $4G5.00, were included in administrative expense at Milwaukee. The factory production during 1914 was reported by the La Cross office as $283,181.81 at cost and was billed to Milwaukee at $318,401.00. Factory purchases of materials were $131,646.44 in 1914 and the discounts amounting to $7,898.79 were treated as income of the Milwaukee office. All freights were charged to expense. Working papers should accompany your solution. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Identify Compile from the following particulars, supplied by the branches, an account with each branch in the books at the head office of the Wholesale Co., whose year ends December 31, 1909, bringing down the balances as they should appear on January 1, 1910. The branches receive all their goods from the head office and pay in all of their cash every day. They keep their own sales ledgers and do their own collecting. All payments for wages and expenses at the branches are drawn by check from the head office on the Imprest system. A B Merchandise received from head office $10,360.00 $10,730.00 Cash received from customers 11,450.00 10,340.00 Allowance to customers 15.00 35.00 Returns from customers 75.00 20000 One year's sales to Dec. 31, 1909 10,87000 12,605.00 Cash sales 8,400.00 5,700.00 Bad Debts „ 280.00 530.00 Inventory of Mdse. at Jan. 1, 1909 2,300.00 2,500.00 Debtors at January 1, 1909 8,270.00 5,730.00 Debtors at December 31, 1909 7,320.00 8,760.00 Inventory at December 31, 1909 3,750.00 4,320.00 Rent and Taxes paid 600.00 730.00 Wages and other expenses 2,020.00 2,310.00 (b) (a) (b) PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idiocy 1. Give some of the essential features of a Common Law Partnership. 2. Does a participation in the profits of a firm make the person a partner? 3. What courts have jurisdiction in bankruptcy proceed- ings? 4. "A" being a member of a partnership, files an individual petition for voluntary bankruptcy. The firm has no assets. Do the partnership creditors share with '*A's" individual creditors in the distribution of his estate? 5. (a) Against whom may a petition for involuntary bank- ruptcy be filed? Who may file a petition for involuntary bank- ruptcy ? What is negotiable paper? What is accommodation paper, and is it also ne- gotiable ? 7. Supposing **B" gave his note to "A," to assist his credit, and "A" endorsed it to "C." Would "C," even if he had knowl- edge that there was no transaction between "A" and "B," recover against "B"? 8. Name circumstances under which the liability on an in- strument would be discharged as to : (a), a primary debtor; (b), one secondarily liable. What lien rights have mechanics and material men for wages and materials? 9. What are the limitations by law for the collection of debts. 10. What are some of the exemptions in the collection of debts ? 11. Give some of the essential features of: (a), a Private Corporation; (b), a Public Service Corpora- tion; (c), a Municipal Corporation. 12. Outline the processes of organization and dissolution of private corporations. (13. How are the laws of the State of Washington enacted? 14. Define the following legal words and terms : 1. Notary Public; 2. Trust Deed; 3. Power of Attorney; 4. Certificate of Delinquency; 5. Foreclosure ; 6. Setoffs and Counterclaims; 7. Composition with Creditors; 8. Garnishment ; 9. Ultra Vires; 10. Insolvency; 11. Common Carrier : 12. Substantial Performance; 13. Liability of Stockholders; 14. Abandonment ; 15. Insurable Interest; 16. Fee Simple Title ; 17. Statute of Limitations; 18. Deposition ; 19. Affidavit; 20. Quit Claim Deed. PRACTICAL PROBLEMS, GRADED, SERIES C Code: Idiom A company with head office in Chicago and factory at South Bend, Indiana, conducts three selling branches in New York, San Francisco and Montreal, which are supplied with goods from the factory, the invoices being sent out from the head office. The branches keep their own sales ledgers, send out monthly statements to customers and receive cash against their ledger accounts, which they remit weekly to Chicago. All branch expenses, including salaries and wages, are paid by the branches from petty cash accounts, kept at a fixed balance of $500.00, by draft on head office. The following information is supplied by the branches at December 31, 1913, summarizing the transactions of the previous six months : New York San Francisco Montreal Rents and taxes paid $ 200.00 $ 175.00 $ 75.00 Sales for 6 months to Dec. 31, 1913.... 12,500.00 11,800.00 10,225.00 Salaries and wages 1,650.00 1,520.00 1,600.00 Returned sales 200.00 100.00 250.00 Allowances to customers 50.00 40.00 30.00 Bad debts 125.00 60.00 Cash sales 6.250.00 5,380.00 6,100.00 Cash received from customers on led- ger accounts 10,85000 10,260.00 9,150.00 Debtors, July 1, 1913 5,820.00 6,140.00 7,240.00 Debtors, December 31, 1913 7,220.00 7,415,00 7,975.00 Petty cash on hand July 1, 1913 500.00 500.00 500.00 Petty cash on hand December 31, 1913 500.00 500.00 500.00 Stock, July 1, 1913 3,450.00 3.820.00 3,650.00 Stock, December 31, 1913 4,300.00 4,720.00 4,500.00 Goods received from head office fac- tory 11,500.00 10,240.00 10,350.00 From these details, prepare branch accounts as they should appear in the head office books and draw up a final general trial balance with branch profit and loss accounts. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idiot The home office of the Wisconsin-St. Louis Sales Company, a sales company for the St. Louis Motor Corporation, is at Milwau- kee, but it has selling branches in both Milwaukee and Madison. From the following trial balances of the home office and the Milwaukee and Madison sales offices taken on March 31, 1917, prepare (a) the income statement of the Wisconsin-St. Louis Sales Company for the quarter ended March 31, 1917 ; (b) the balance sheet of the company at the close of business March 31, 1917. The trial balance of the home office general ledger on March iil, 1917, is as follows: Bank account $ 10,864.65 $ Madison Branch 160,711.17 Milwaukee Branch _ 259,900.01 Unused Stationery 16.65 Furniture and Furnishings 130.04 Claims — Factory and Customers 3,531.92 Trade Acceptances St. Louis Motor Corporation ^ Illinois-St. Louis Co » 1,252.66 Capital Stock _ Interest Earnings Interest and Exchange 194.60 Telephone and Telegraph 88.38 Executive Salaries ^ 1,950.00 Traveling Salaries _ _ „ 750.00 Executive Expense _ 419.09 Miscellaneous Traveling Expense 1,120.55 Office Salaries — General 1,073.95 General Office Expense 551.59 10,273.12 331,867.89 100,000.00 414.25 $442,555.26 $442,555.26 Note : For the purposes of this problem, the individual operating ex- pense accounts are summarized into one item, Operating Expenses. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idiot — ( Continued ) The trial balance of the Milwaukee Branch on March 31, 1917, is as follows : Petty Cash $ Bank Account Accounts Receivable _ Notes Receivable Personal Accounts _ Autos — Model 1 Autos— Model 2 ".Z^ZZ.Z.. Refund Certificate Account Auto Freight and Decking Inventory Used Cars Shop Labor Automobile Parts Freight— Auto Parts Received ".. Miscellaneous Merchandise Furniture and Furnishings Tools and Machinery Miscellaneous Equipment Deposits Unearned Fire insurance _ _ Unearned Liability Insurance Unearned Customers Insurance Unearned Customers Disccunts Dealers Car Contract Deposits Accounts Payable Home Office Account Model 1 Sales Cost of Model 1 Sales Trade Allowances Model 1 Model 2 Sales Cost of Model 2 Sales Trade Allowance Model 2 Used Car Sales Cost of Used Car Sales Parts Sales Cost of Parts Sales Sales — Miscellaneous Merchandise Cost of Sales — Miscellaneous Merchandise Repair Labor Sales Cost of Repair Labor Sales Discount Earned Interest Earnings Profit and L( ss Adjustment Operating Expenses 1,000.00 7,810.00 68,303.47 1,169.65 251.75 71,125.13 46,713.25 825.00 8,497.83 5,622.64 1,339.24 37,420.12 67.73 14.413.02 1,844.14 2,592.58 148.29 700.00 333.07 537.00 10.00 92,703.79 1,304.00 36,614.49 1,020.00 10,616.90 10,932.42 5,584.71 1,698.90 4,353.71 19,089.11 $ 303.04 6,808.57 2,110.94 259,900.01 106,051.38 43,939.84 9,960.00 14.068.77 7,299.45 3,379.48 169.64 650.82 $454,641.94 $454,641.94 (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idiot — ( Concluded ) The trial balance of the Madison Branch on March 31, 1917, is as follows: Petty Cash $ 1,000.00 $ Bank Account 6,785.04 Accounts Receivable 30,029.08 Autos Model 1 A2jS^.(& Autos Model 2 \ 28,49521 Refund Certificate Account 520.00 Auto Freight and Decking 6,326.23 Inventory Used Cars ^ 13,265.53 Shop Labor Account 463.82 Automobile Parts 25,429.34 Freight— Auto Parts Received 267.82 Miscellaneous Merchandise 11,205.45 Furniture and Furnishings 1,830.88 Tools and Machinery 2,004.69 Miscellaneous Equipment 1,710.16 Unearned Fire Insurance 59.83 Unearned Liability Insurance 468.75 Unearned Customers Insurance 405.80 Unearned Customers Discounts 207.79 Dealers Car Contract Deposits 9,578.56 Accounts Payable 3,914.88 Home Office _ 160^71 l!l7 Model 1 Sales 85,528.94 • Cost of Model 1 Sales 74,803.67 Trade Allowance Model 1 2,976.00 Model 2 Sales 43,526.03 Cost of Model 2 Sales 35,810.04 Trade Allowance Model 2 1,865.00 Used Car Sales 10,501.25 Cost of Used Car Sales 10,373.25 Parts Sales „. 9,803.57 Cost of Parts Sales 7,334.01 Sales — Miscellaneous Merchandise 5,715.98 Cost of Sales — Miscellaneous Merchandise 4,485.48 Repair Labor Sales „ 2,736.44 Cost of Repair Labor Sales 1,368.21 Discount Earned 286.98 Interest Earnings 16.56 Profit and Loss Adjustment 2,506.89 Operating Expenses 19,869.53 $333,397.77 $333,397.77 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idiotic The general ledger of a County Comptroller at the close of the fiscal year shows the following outstanding balances : Debit balances : General Fund $ 3,600,000.00 To Balance Bond Liability 4,000,000.00 Cash 950,000.00 Due from Fee Offices _ 250,000.00 Appropriation Expenditures 3,500,000.00 Credit Balances: Appropriation ^ 3,600,000.00 Bonds, Series A 500,000.00 Bonds, Series B 750,000.00 Bonds, Series C 600,000.00 Bonds, Series D 1,500,000.00 Bonds, Series E 650,000.00 Bonds and Coupons due and unpaid „ 30,000.00 Warrants outstanding 559,000.00 Tavern License Fund S,OOO.OG Laboratory Fund 6,000.00 General Tax Income 2,000,000.00 Fee Office Income 1,600,000.00 Surplus „ 500,000.00 Prepare journal entries, closing operations for the year, and a classified balance sheet as at the close of the year. PRACTICAL PROBLEMS, GRADED, SERIES C Code: Idler You have audited the books of a social club and find that the entrance fees have been credited to a fixed liability account. What position would you take as to the correctness of this procedure? Give your reasons. 4> * 4( 4c « The directors of a manufacturing corporation insist on draw- ing a considerably larger sum for remuneration than they are entitled to and one of their number, with the formal consent of his co-directors, borrowed a substantial sum of money from the company for his own use. Is it necessary for the auditor to make any reference to either of these matters in his report if the state- ment issued to the stockholders discloses the amount of fees drawn by the directors and also discloses the fact that the loan is made to a director? What diflference would it make to the auditor's action if the facts as regards the loan were not dis- closed on the face of the statement? Give your reasons for your replies. ♦ ♦ ♦ * * How would you verify the correctness, both as to quantity and value, of the following : (a) Pig iron and mineral stock of a blast furnace company; (b) Raw cotton and yarn stock of a cotton spinning mill ; (c) Coal stock of a coal merchant; (d) Copper bars in a storage warehouse? « * * 4> * Give your views on the advantage of a continuous (or con- secutive) audit, as compared with a periodical one. * 4( ♦ ♦ 4^ (a) Name various wa/s in which Sinking Funds and Sink- ing Fund Reserves may appear on or aflFect the items of a balance sheet, and (b) Various ways of calculating sinking funds. (c) From a theoretical point of view, are the contributions to such a fund a proper charge against profits? Give reasons. 4> ♦ * ♦ * State briefly the facts that would guide you in arriving at the proper rate of depreciation to provide upon the Plant Build- ings, Machinery and Equipment, and Office Furniture and Fix- tures of a manufacturing business. ♦ * ♦ * * Give three or four methods by which the required provisions to be made during the estimated life of the various classes of assets may be provided for in the books. ♦ ♦ * ♦ * In auditing the books of 1. A school district of the first class, 2. A gas company, outline what your procedure would be? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idol The National Rubber Company of Chicago, is to have an audit of their accounts and your firm is awarded the work. During the time that the Chicago accounts are being prepared you are assigned to take up the accounts of the Oshkosk Plant and the accounts of its selling company located at the same place. When the assets and liabilities of both companies at Oshkosh were taken over on December 31, 1916, no reserves in respect of discounts and freight allowances to trade were on record. The selling company, known in the trade as The Michigan Rubber Company under instructions from Chicago, was to make a net profit equal to 1/20 of 1% of its sales as invoiced. The values established in the inter-company sales and purchases are based on the sales of the selling company less its expenses and a net profit of 1/20 of 1% of sales invoiced. The entire output of the National Rubber Company is sold by the Michigan Rubber Company. Your analysis of the accounts showed that the Michigan Rubber Company had Accounts Receivable at the close of 1916 in the amount of $5o0,000, the discount to the trade averaging 4.6% which was also the prevailing rate at the close of 1917. There was included in the freight allowances of 1917 an amount of $8,400, on sales eflfected in 1916 and the probable credits to present outstandings in this respect were estimated at $11,500. You are advised by officials that this should not disturb the profits of the Michigan Rubber Company ($3,750.00) although the reserves created are to be on the balance sheet of that com- pany. With the following statements, prepare a combined balance sheet that can be further combined with the accounts made up in Chicago, at the same time prepare a combined profit and loss account that will substantiate the profit for each company shown in the combined balance sheet, remembering that the surplus of the subsidiary company is to remain at $3,750.00 regardless of whatever adjustments you make. Trial balances after closing December 31, 1917: NATIONAL RUBBER COMPANY Oshkosh Plant Advances on Construction Contract $ 50,00000 $ Accrued Taxes ' 45.000.00 Accounts Payable 750,000.00 B"'ldmgs 600,000.00 Capital Stock, Michigan Rubber Co 5,00000 Cash 55,000.00 Depreciation Reserve 190,000.00 Land 35,000.00 Liberty Loan Bonds 50'000.00 Insurance Prepaid 12,000.00 Interest Prepaid 17,500.00 Machinery and Equipment 350.000.00 Michigan Rubber Company I,060io00.00 Notes Payable 200,000.00 National Rubber Co. (Chicago) 223150000 Raw Material 1,000,000.00 Work in Progress 198,000.00 Finished Goods 1,232,000.00 Profit and Loss (1917) 1,248,000.00 $4,664,500.00 $4,664,500.00 (Continued on next page.) • PRACTICAL PROBLEMS, GRADED, SERIES C Code : Idol — ( Continued ) Profit and Loss Account Dr. Cr. Sales $ $6,750,000.00 Purchase Discount 59,000.00 Travel 2,500.00 Salaries 6,000.00 Clerical 8,000.00 Miscellaneous 7,00a00 Interest „ 31,000.00 Manufacturing Cost of Goods Sold 5,466,500.00 State Income Tax 40.000.00 Profit 1,248,000.00 $6,809,000.00 $6,809,000.00 THE MICHIGAN RUBBER COMPANY OSHKOSH Dr. Cr. Accounts Receivable $ 775,000.00 $ Advances to Employees 1,000.00 Accounts Payable 1,800.00 Notes Receivable 290,000.00 Cash 4,550.00 National Rubber Co., Oshkosh 1,060,000.00 Capital Stock 5,000.00 Surplus 3,750.00 $1,070,550.00 $1,070,550.00 Profit and Loss Account Dr. Cr. Sales Invoiced $ $7,500,000.00 Sales Salaries 40,000.00 Advertising 40,000.00 Trade Discount 380,000.00 Freight Allowances 1 12,500.00 Purchases 6,750,J00.00 Credits for Defective Tires 510,000.00 Charges for Mileage Used on Defective Tires.... 300,000.00 Recovered from Factory on Guarantee 60,000.00 Clerical 22,800.00 Ttrlephone and Telegraph 950.00 Profit 3,750.00 $7,860,000.00 $7,860,000.00 PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ignite A close corporation, incorporated under the laws of the State of Illinois, known as Company **A," purchases the entire out- standing capital stock .of $35,000.00 of Company "B" in the year 1905 for the sum of $52,500.00. A statement of assets and liabili- ties as on January 1, 1906, of each company is given below : COMPANY "A" Assets Plant, machinery, etc $ 457,500 Merchandise 400,000 Investment in Company "B's" capital stock 52,500 Due by Company **B" on cur- rent account 220,000 Accounts receivable 400,000 Cash 45,000 Liabilities Capital stock $1,000,000 Surplus 500,000 Accounts payable 76,000 $1,575,000 $1,575,000 Assets Plant, machinery, etc $ Merchandise Unsubscribed capital stock Accounts receivable Cash COMPANY "B" 100,000 95,000 65,000 80,000 15,000 Liabilities Capital stock $ 100,000 Surplus 35,000 Due to Company "A" 220,000 $ 355,000 $ 355,000 The directors of Company "A** realizing that it is illegal for an Illinois corporation to own the capital stock of another corpora- tion, and furthermore desiring to eliminate the indebtedness of $220,000 due by Company "B" to Company "A" determine to sell the stock that they own in Company "B" to their own share- holders at 150. Company "B" increases its capital stock from $100,000 to $300,000, declares a stock dividend of 100% and sells 2,300 shares (shares $100 each) to the stockholders of Company "A" at par. Company "A" declares and pays a dividend of 281/4% to its shareholders. Company "B" then liquidates its in- debtedness to Company "A." Prepare journal and cash book entries that each company should make to record the above transactions, with suitable ex- planations, and prepare a balance sheet of each corporation after the completion of the above transactions. In this question, it is to be assumed that the shareholders in Company "A" buy the stock of Company "B" in the same ratio as their holdings in the stock of Company "A" bear to one another. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ignoble Make out a Foreign Bill of Exchange in duplicate. * * * ♦ ♦ Why is the bill duplicated? * * * * :^ What happens when the "first" is presented to the drawee for acceptance, and the "second" is accepted? * 4> « * « In preparing a Profit and Loss Account foF a trading company having several departments, what main features would you endeavor to show? Give sample form with probable names of accounts, but without figures. 4> ♦ * ♦ « The 1st mortgage 10-year 6% bonds of a street railway company, now operating, sell at 105 and the 2nd mortgage 5-year 6^% bonds sell at 931^. What, in your opinion, is the correct way in wUich the premium and the discount on the said bonds should be handled? In both instances the money so raised is to be used for construction worlc. * * * * * You are asked to offer suggestions regarding a system of internal check for a company whose business is that of wholesale merchants. Describe the office methods you would introduce to safeguard the funds and merchandise of the company. If the cash in bank as shown by the Cash Book or Ledger is recon- ciled with the amount shown by the pass book or certificate obtainea from the bank, is it necessary to check the pass book with the deposits as shown by the cash book? Give reasons for your answer, stating the nature of a possible irregularity that might be disclosed by such detail checking. « ♦ 4< * « (a) What is the difference, if any, between a Municipal Balance Sheet and the Balance Sheet of a Mercantile Corporation. (b) Name several different kinds of bonds issued by a city of the first class and state what the funds raised from the sale of said bonds are used for ***** (a) The Directors of a Mining Corporation, of which you are Auditor, decline to provide what you consider an adequate depreciation of wasting assets. What attitude would you assume in these circum- stances? (b) Discuss generally the duty of an Auditor in relation to the question of depreciation and illustrate your argument by dealing with such items as: Lands and Buildings, Lease of Coal Mines, Goodwill, Outside investments of fluctuating value. ***** Do you consider it necessary, and if so, why, for an Auditor of a corporation to peruse the Minutes of Directors' and Shareholders' Meetings? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Ignorance Outline the principles of a system to take care of the "C. O. D." and "Will Call" business of a large retail general store. * * * * * What is a clearing house? Explain the principles under which the clearing house of a city such as Seattle operates. * * * * * Explain the difference between a Trading Account and a Profit and Loss Account, and state in which account you would place the following items, giving your reasons: Purchases Freight and Cartage Bond Interest Depreciation Allowances Biid Debts Wages Commission Manrgement Salaries Advertising Sales Merchandise on Hand Returns Discounts Fuel Packages Directors' Fees Repairs * * m * * In auditing the accounts of a trading company you find that an account is kept in a General Ledger for the Purchase Ledger and also for the Sales Ledgers. Both of these accounts are in agreement with the total balances as abstracted in de- tail from the Purchase and Sales Ledgers, respectively. You are not required to check the postings of the in- dividual entries in the subsidiary ledgers, but, apart from this, you are asked to take such action as shall in your opinion be a check against possible fraud. Describe the work which you think should be done. « ♦ « « ♦ To what special points would you direct your attention if called upon to audit the accounts of a company which had been in business for a number of years, if you found that the books had not previously been audited? * ♦ ♦ * * Which, in your opinion, is the more scientific and safer basis for a company doing a large retail business to figure its percentage of expense cost, upon the total amount of sales or upon the cost of goods sold? * Give reasons for your answer. PRACTICAL PROBLEMS, GRADED, SE RIES C . Code : Ignore On January 1, 1910 "XYZ" Company acquired the entire capital stock of the "PQ" Company, consisting of 1,000 shares of a par value of $100.00 each, for which was paid the sum of $150,000.00. After the transaction was recorded on the books of the "XYZ" Company, the Balance Sheets of the two companies were as follows : "XYZ" Company "PQ" Company Real Estate $ 50,000.00 $ $ 25,000.00 $ Building, Plant and Equip- ment 75,000.00 45,000.00 Goodwill 25,000.00 Investment in "PQ" Co 150,000.00 Inventories 80,000.00 20,000.00 Accounts Receivable 70,000.00* 85,000.00 Accounts Payable ^ 50,000.00 50,000.00 Loans 50,000.00 Capital Stock 250,000.00 100,000.00 Surplus 100,000.00 25,000.00 $450,000.0 $450,000.00 $175,000.00 $175,000.00 - '■ ■ ■ ■ ' ' ' I ■ II m i ^^E=3=3=s= * Includes Account of $15,000.00 due by "PQ" Co. to "XYZ" Co. Prepare a Consolidated Balance Sheet. PRACTICAL PROBLEMS, GRADED, SERIES C Code: Image Describe: (a) Personal property, (b) Real property. * ♦ * ♦ * What is a Bill of La ding? ***** What is meant by a Bill of Exchange with Documents attached? ***** (a) What is the difieerence between a Quit Claim Deed and a Warranty Deed? (b) In any sale or transfer made under the Bulk Law what is the specific duty set out in the law devolving upon a purchaser before paying any part of the purchase price and before giving any security for payment thereof? ***** (a) How and when may a seller or consignor stop goods in transit? (b) When goods are so stopped, to whom do they belong? ***** (a) Define agency? (b) Name two different kinds of agencies? (c) What authority has an agent? (d) What is the meaning of the term "Ultra Vires?" ***** In applying for a Receiver what rights, if any, has a secured creditor over an unsecured creditor? ***** (a) How are the revenues of the state, counties, cities and schools raised, by whom collected and how disbursed? (b) How are the valuations of different classes of property fixea for the purpose of taxation? ***** (a) What is a corporation? (b) What is a partnership? (c) What advantages or disadvantages are there between a coi poration and a partnership? ***** (a) What is necessary to form a corporation? (b) To increase the capital? (c) To disincorporate? ***** Is there an inheritance tax required m this state? ***** Define: (a) Administrator (b) Guardian. (c) (d) (e) Executor. Receiver. Trustee. ***** (a) Draw a negotiable Promissory Note. (b) Draw a non-negotiable Promissory Note. * (c) When is either of the notes outlawed? (d) In what way can the time of legal existence be extended? ***** (a) What is the legal rate of interest in this state? (b) Can a higher rate be exacted or enforced? (c) If a note is executed in this state and payable in another, which would govern if the rate of interest was not alike in both? PRACTICAL PROBLEMS, GRADED, SERIES C Code: Impartial Describe the methods to be adopted in preparing monthly or quarterly balance sheets for a company engaged upon large con- struction contracts, running over several months, where it is the custom for the company to receive advances from its customers based upon the percentage of work completed from time to time, in so far as a proper statement in the balance sheet of the value of work in progress, giving consideration to the question of over- head expenses, and advances by customers may be concerned. In this connection, further, indicate whether or not you think it con- servative practice to take up any profit on contracts not completed, and, assuming that a profit might, under certain conditions, be taken up before completion of a contract, how such a situation would be given eflfect on the face of the balance sheet. ***** A company having an issue of $1,000,000.00 of bonds running for the period of 30 years and bearing interest at the rate of 6% per annum, payable annually, has asked your advice as to an equitable method of disposing in its accounts of a discount of $50,000.00, paid to its brokers for the negotiation of the bonds. You have ascertained that the bonds are payable in annual instal- ments of $25,000.00 during the first 20 years and in instalments of $50,000.00 |>er annum during the next five years, the final pay- ment of $250,000.00 being due at the end of the thirtieth year. In answering this question submit details of the process you adopt in arriving at your conclusions. * * * ♦ * It is now becoming quite common practice for corporations to insure the lives of their principal officers, so that upon their deaths the corporations may be, in a measure, reimbursed for their loss to the business. In this connection you are asked to indicate what sort of entries would be made by a company, from time to time, if it paid the insurance premiums on a policy of insurance for $50,000.00 carried on the life of its president under the four classes of insurance policies indicated below : 10 Year Renewable Term Policy; 20 Payment Life Policy; Straight Life Policy; 20 Year Endowment Policy. Also indicate what entries should be made in the books for the receipt of the $50,000.00 principal, of the different classes of policies, supposing the president of the company died during, say, the fifth year of the insured term. PRACTICAL PROBLEMS, GRADED, SERIES C Code: Impede A railroad company was liable in dam- ages to Henry Johnson and his wife by reason of an accident to the train upon which they were passengers. There was no question of the liability, but in part consideration of the liability and in set- tlement of the claim the railroad com- pany made a contract with them under which they agreed to issue them annually, during their lives, a pass over the road. The accident occurred and the contract was made prior to the passage of the In- terstate Commerce Law. That law pro- hibits the issuing of passes, except to cer- tain specified persons, in none of the classes of which were Henry Johnson and his wife included. After the pas- sage of the law, the railroad company refused to issue passes and were sued for their value. Does the Act impair the ob- ligation of the contract and can Johnson and his wife recover? Give your reasons for your answer. « « * ♦ « * * • George Williamson was duly elected president of the Harrisburg Electric Company. The company was a new one and the success of its business or the amount of income it might receive was problematical, and no salaries were fixed by the board of directors for any of the officers. The president, however, ren- dered faithful and efficient service to the company for a period of two years, be- ing, duly re-elected to the office, and at the end of that time, by reason of a quarrel with the board of directors, he resigned. The company was by that time in successful operation and earning money, and the president made claim for salary for compensation for the two years' service he had rendered, and, the company declining to pay, he brought suit. Can he recover or not? * * * * }f * « State some of the provisions of the new Federal Income Tax Law as to individ- uals. What persons are subject to the tax, on what do they pay and what is the tax? In what cases are returns not re- quired? What exemptions are allowed? What is the meaning of collection at source of this tax? PRACTICAL PROBLEMS, GRADED, SERIES C Code: Imperative Under a partnership agreement to be entered into between Messrs. Black, White & Jones, it is to be stimpulated that the books of the firm are to be audited annually by a Certified Public Accountant. You are asked by the attorneys for the new firm to indicate what essential clauses you, as the prospective auditor, would like to see embodied in the partnership agreement in order that, so far as possible, there may be no disagreement among the partners regarding the partnership accounts, and that the auditor may have no misunderstanding as to the intentions of the partners regarding the division of profits or losses. ***** In a certain social club there are three classes of membership with entrance fees of the following amounts : Active Member, with privilege of transfer upon resignation or death $ 150.00 Life Member, \\ith no privilege cf transfer bnt not liable for an- nual dues 500.00 Non-Resident Member 50.00 How should such entrance fees, when received, be properly credited in the books of the club? ***** The "A." "B." Trading Company, of which you are the auditor, is formed to sell certain special articles, and enters into an agreement with the "A." "B." Manufacturing Company to make the articles in question. Both companies are successful, and, as a result of the grow- ing business, the manufacturing company in three years' time is almost wholly engaged in supplying the trading company ; where- upon it is decided to amalgamate the two companies, and the trading company takes over the manufacturing company, ex- changing share for share as on December 31, 1909, at which date the stocks of both companies were taken on the basis of cost price to each company. On what basis should the stocks at the works and the show rooms of the amalgamated company be taken on December 31, 1910? Give the reasons for your answer, and state the effect on the accounts for 1910. ***** A manufacturing firm has a number of departments, and articles sold by the firm pass through several departments before being finally completed. The manager of each department re- ceives, as part of his emoluments, a commission on the profits of his department. You, as auditor of the firm, are instructed to certify the amount of commission to which each manager is en- titled, and also the net profit of the firm for the past year. To what special points would you direct your attention? * PRACTICAL PROBLEMS, GRADED, SERIES C Code: Inject Define the following legal terms: (a) Beneficiary. (b) Demurrage. (c) Collateral. (d) Escrow. (e) Vendor. (f) Warranty. * * ♦ ♦ * a. Define guaranty; guarantor; guarantee; principal. b. In what ways may a guarantor be discharged of the obligation? c. A guarantor having paid the principal debt, what are his remedies? * * * * * a. Under the laws of the State of Washington, what con- tracts must be in writing? b. Whft is en express contract? c. What is an implied contract? d. Draw a contract in which you as contractor agree to build a house for another party, using such terms as you con- sider will make a satisfactory and valid agreement. e. What is the effect of the death of either of the parties on a contract for the sale of goods; a contract to paint a pic- ture, and a contract of hiring and service? 4e 4c 4e :«[ ^ a. Define interest; compound interest; usury. b. What is the legal rate in this state? c. Can a higher rate be enforced? If so, how, and to what extent? ***** a. Name four negotiable instruments and give an ex- planation of each. b. A note payable to the order of A. B. is indorsed "With- out recourse, A. B." and transferred to C. D. The maker is insolvent, and after presentation to the maker and notice t(' A, B., C. D. sues A. B. What would be the result? ***** a. What advantage has a corporation as compared with a partnership? b. Are there any respects in which a partnership has advantages not possessed by a corporation? c. State some of the powers a corporation has. d. Under what circumstances can a receiver be asked for a corporation? e. In what way may a corporatic^ be dissolved? ***** a. Name five classes of insurance? b. What is premium? c. Can any person or firm do an insurance business In this State? Under what conditions? ***** a. What is a conditional sale? b. What is a bill of sale? c. What is a non-negotiable warehouse receipt? d. What is a warranty deed, and in what respect does it differ from a quit-claim deed? e. What are the two kinds of wills recognized by the State of Washington? ***** What is the Workmen's Compensation Law, and from the standpoint of commercial accounting, what, briefly, are the principles of its application? m^T" PRACTICAL PROBLEMS, GRADED, SERIES C Code : Iron Can a national bank make a loan upon the security of a mortgage upon real es- tate of the borrower? Can a trust com- pany organized under the laws of this state do so? Is there any difference be- tween them and why does it exist? :|c * 3|( 4c :|c Thomas Edmunds was president of the Wyoming Oil Company. This company was largely indebted to various persons and was in fact insolvent. The president of the company applied to one of the creditors for an additional advance, but the creditor, on examining into the af- fairs of the company and seeing its con- dition, declined to make the advance un- less the president gave him a mortgage upon his individual real estate, which ac- cordingly was done and the advance was made. The money was insufficient, how- ever, to relieve the company, and within a month thereafter a petition in bank- ruptcy was filed against it and it was at once adjudicated. Did this constitute a preference and what are the rights of the creditor with respect to proving his debt against the company? K * * >|t ♦ To whom will letters of administra- tion be issued by registrar in case of in- testate, and what are the rights of hus- .band and wife? t * * * * What is a corporation? What is nec- essary to procure a charter in this State ? Give different kinds of charters. The board of directors of the Acme Machine Company consisted of five per- sons, of which, under the by-laws, three were necessary to form a quorum. A meeting was called to be held upon Janu- ary 1, 1913. Two of the members of the board were absent and could not attend. A third one was ill and so gave his proxy to his son, who attended the meeting, which was held. Was the action taken thereat valid? Give your reasons for vour answer. The Star Hosiery Company, a Penn- sylvania corporation, desired to purchase some machinery. The seller, a Pennsyl- vania manufacturer, was doubtful as to the financial ability of the company, and in order to secure himself entered into a contract, which was duly executed by both parties, whereby he sold the Hosiery Company some machines upon terms of one-third cash, one-third in six months, and the balance in nine months, with a condition duly set forth in the contract that the title to the machines should re- main in the seller until they were fully paid for. Before the six months' pay- ment became due, a creditor of the Hosiery Company obtained judgment, is- sued an execution and levied upon the machines, which were then claimed by the seller as his property. Who is enti- tled to the machines and why? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jack Prepare Estate and Distribution Accounts of Chas. Car- machael (widower) deceased, September 30, 1912, who left the following property : Life insurance . „ ^ $ 33,750.00 Household effects, appraised 2,500.00 Real estate, appraised 37,500.00 Bank account 7,500.00 Investment securities (market Sept. 30, 1912) 60,000.00 $141,250.00 Current debts at time of death, $3,000.00. Funeral expenses, $475.00. Law expense and inheritance tax, $9,000.00. The securities realized $65,000.00 and the house effects netted $3,750.00. The special bequests (tax free) were $3,750.00. The eldest son, John, elected to accept the option his father had granted him of taking the real estate at $40,000.00. The residue was to be divided equally among the three sons, John, James and William, who were required to bring into hotch- pot or collation, money advanced to them five years back, to- wit, $17,500.00, $21,250.00, and $10,000.00, respectively. » PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jacket You are called in on June 1, 1915, to assist the executor of the estate of John Brown, deceased, in preparing his accounts in connection with the trust. You find that no books have been kept, the papers given you from which to work consisting of a certified copy of the inventory of the estate filed by the executor with the Probate Court, and check stubs and cancelled checks evidencing his receipts and disbursements of the estate funds. You find that John Brown died on December 27, 1914, and that among the receipts by the executor are the following: RECEIPTS Cash in Bank paid Executor -. $ 1,500.00 Dividend on mining stocks declared Dec. 27, 1914 1,000.00 Interest on note dated Oct. 27, 1914, for $10,000. 150.00 Salary John Brown for Dec. 1914 250.00 Sale N. P. Co. Bonds Inventoried at $5,000.00 6,500.00 Accrued interest thereon from Aug. 1st, 1914 @ 5%.... 125.00 Dividends in Manufacturing Corporation declared Jan. 12, 1915, Cash Dividend i'SSSSS Stock Dividend - -- 2.000.00 Feb. 10 Royalty on account of Brown's interest in Iron Mine, payable quarterly — }'^'99 Sale of rights for subscription to additional Bank Stock 1,000.00 Refund a/c Fire Insurance Premium on policy dated June 1, 1914 - ^^"^ Interest for one year on Farm Mortgage of $3,000.00.... }^^ Apr. 15 Sale of Brood Mare - 200.00 and three months old colt -• ^^ May 15 Profits for fiscal year ending April 30, 1915, in firm of Smith & Brown as per co-partnership agreement 3,000.00 From the foregoing show how these receipts should be shown in the executor's accounts. Jan. Jan. Jan. 25 25 27 Feb. 1 Feb. 1 Mch. 1 Mch. 15 Apr. 1 » PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jaconet "A" purchases of "B" a lot and gives his negotiable note for $5,000, part of the purchase price. Before maturity of the note, "B" bor- rows of "X" National Bank $3,000, and depos- its "A's" note as collateral security, without "A's" knowledge. "A" pays to "B" the $5,000 he owes, but "B" fails to repay the Bank the $3,000 when due, "B" having become insolvent. What is "B's" liability to the bank ? ***** * ♦ "A" tells "B" that he wishes to give him $5,000, and hands him his negotiable note for the amount, payable six months after date. "A" fails to pay the note when due. State whether or not "B" can recover the amount. If "B" had endorsed it and had it discounted before maturity at the "X" National Bank, could the bank have recovered the amount of •'A." r.fter non-payment at maturity? Give reason. ***** * * "A," a merchant, gives "B" a deed of trust on his fixtures to secure a debt of $5,000, on January 1, 1911. On July 1, 1911, "A" makes an assignment of his stock of goods and fix- tures to "C," trustee, for the benefit of his cred- itors. "A's" liabilities aggregate $20,000, exclu- sive of "B's" debt, while his stock inventories $10,000 and his fixtures $3,000. "C" sells the stock and fixtures at 60 per cent of inventory ; and, after paying all costs and expenses, the sum of $7,000 is left for distribution. What amount is payable to "B" and what to the other (Creditors ? "A" is a dealer in wheat, of which he has several grades. "B" calls and inspects his stock, and, deciding to buy all of the X grade at a designated price, ^ays "A" $5,000, the price ascertained by measuring, but says he will move it the next day. **C" calls and leaves an order for 1,000 bushels of Y grade wheat at $1.00, to be delivered in ten days, and deposits $500 on his contract. "A" has 3,000 bushels of that grade in bulk. That afternoon "D," a creditor to whom "A" owes $10,000, levies an execution on all the wheat in "A's" possession, which inventories only $9,000. What are the rights of "B," "C" and "D," respectively? * * * * ♦ * ♦ The firm of "A" & Company (composed of "A" and "B") is engaged in the lumber busi- ness. Without "B's" knowledge "A" buys, through a broker, American Tobacco Stock, signing the firm's name to the contract. The stock declines and is sold at a loss. To what extent, if any, is the firm liable for that loss, and to what extent, if any, is "B" liable? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jade The administrator of a will received $63,000 in cash to be distributed among the heirs and legatees under the terms of the will, as follows : ' Sarah, a daughter of the deceased, after payment of the legacies, including a legacy of $1,000.00 to herself, was to receive one-fifth of the residue of the estate. Jane, a daughter of the deceased, after payment of the lega- cies, was to receive one-fifth of the residue of the estate. Anne, a daughter of the deceased, was to receive the same as Jane. • George, a son, after payment of the legacies, including a legacy of $500.00 for himself, was to receive one-fifth of the residue of the estate. Three children of a deceased son, Jacob, were to receive lega- cies of $500.00 each. Reuben, a son, was to receive one-fifth interest in the residue of the estate, subject to the payment of the legacies as mentioned and also subject to legacies of $3,000.00 each to his wife and each of his three children. The administrator carried out the terms of the will. Open the books of the administrator, showing the receipt of the funds, their proper distribution and payment, also give closing entries. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jail (a) Name the principal debit and credit accounts — ^both cor- pus and income — that an executor should keep, and briefly describe their purpose. (b) Under what heading, corpus or income, would you, as a general rule, place the following: 1. Funeral expenses. 2. Executor's expenses. 3. Profit and loss on sale of investments. 4. Cash dividend on investment of executor. 5. Cash dividend on investment of testator. 6. Cash legacies. 7. Property legacies. 8. Quarterly allowance to widow. « PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jair You are required to write up the accounts of the executor of an estate and show the amounts which would appear in the capital and income accounts as at March 31, 1910. The testator having died November 30, 1909, leaving a widow who is to receive two-thirds of the income, and one child who is to receive one- third. The property consisted of: $40,000 loaned on mortgage at 5 per cent. Interest payable semi-annually on June 30th and December 31st. $10,000 first mortgaged 5 per cent, bonds of a railway company. Interest .semi-annual on March 1st and Sept. 1st. $10,000 5 per cent, cumulative preferred stock of an industrial company: — full dividends on which were declared and paid quarterly in each year up to Dec. 31, 1907. 4 per cent, was paid in 1908; 1 per cent, each quarter in 1909, and on March 31st, 1910, the executor re- ceived 2 per cent, in respect of dividends in arrears, and 1% per cent, for first quarter of 1910. $20,000 common stock of industrial company, which paid 2 per cent, cash dividend on March 1, 1909; 2 per cent. June 1, 1909; 2 per cent September 1, 1909; 2 per cent, cash and a stock bonus of 10 per cent on Dec. 1, 1909, and 2 per cent. March 1, 1910. $ 5,000 in household furniture and effects — devised to widow. $ 175 cash in house — devised to widow. $ 4,250 cash in bank, of which the residue, after discharging $1,250 of debts due sundry creditors and $250 for funeral expenses is de- vised to the widow. Assume all sums receivable to have been collected, and that the debts and funeral expenses have been paid. Also that the cash residue and household effects have been transferred to the widow. Ignore odd days in making apportionment and consider months as l-12th of the year. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jam Upon the death of a retired business man, a will is found conveying real and personal property aggregating $300,000.00 to the widow for her life, and upon her death distributable equally among five children, per stirpes. Among the decedent's papers, is found a bond and mortgage on a piece of real estate owned by a previous deceased wife, and sold by the decedent as special guardian of her two children, Henry and Emma, both of age at father's death, who had never heard of their mother's estate, nor had any accounting of it. The bond and mortgage, amounting to $10,000.00, was taken in part payment for such real estate, the whole price realized having been $20,000.00. The decedent died in June, 1900, and the deceased's wife's real estate was sold in June, 1890. The bond carried 6 per cent, interest, payable semi- annually on the 1st day of June and the 1st of December, and all such payments on the bond had been made. Prepare a statement showing what would accrue to each of five children then living at the death of the widow including the amounts to which Henry and Emma would be entitled on account of their mother's estate. b(t' PRACTICAL PROBLEMS, GRADED, SERIES C Code: Jamb 1 A sends to B, in settlement of an undisputed account amounting to $1,000, a check for $850, bear- ing the inscription "In full payment of account." B deposits the check in his bank for collection but credits A's account only with $650. Is A liable for the balance? If so, why? If not, why not? 2 A received from B an order in writing to ship a barrel of paint "via New York Central" to Roch- ester. When the barrel reached destination it was empty. Can A recover from the railroad for the value of the paint? Explain. 3 A stores goods with B, a warehouseman. The goods are stolen from the warehouse without negli- gence on the part of B. Is B liable for the goods? If so, why? If not, why not? 4 A makes a promissory note in favor of B for $100, payable in one year after date at 4%. The note is dishonored at maturity and nothing is paid on it for two years. How much is due? 5 A guaranteed the performance of a contract by B. The contract was, however, performed by B & Co., a firm of which B was a member. On the breach of the contract the creditor brought action against A on the guaranty. Is A liable? Explain. 6 A steamboat owned by a corporation and not insured by it, is insured by D, a stockholder, in a reputable company. Subsequently the steamboat is destroyed by fire. The insurance company refuses to pay D, claiming that he, D, has no insurable inter- est. Is D's claim collectible? Elxplain. 7 A owns several coal yards; he puts B in charge of one of them with instructions to hire only a certain number of men. B hires more than this number of men. Is A liable for their wages? Explain. 8 With what provision of the law must one com- ply in order to conduct a general mercantile or manu- facturing business in this state in a fixed location as agent for another? 9 A invested $5,000, B $1,000 and C his skill in a partnership. After settlenkent is made with credit- ors it is found that the firm has lost $1,000 and in addition A has loaned the firm $1,000. How would you close up the partnership? What amounts are due the partners respectively? 10 When may a special partner lawfully receive interest on the capital contributed by him? 1 1 Among the assets of a corporation are several notes from subscribers in payment of an instalment of capital stock after it has been called in and pa3rment required. What liabilities does this impose on the directors ? 12 A is the bona fide holder of a note for $1,000, payable three months after date and made by the N Company, a domestic corporation. The note is executed by the proper officers of the corporation, who are authorized to do this by the board of direc- tors, and is to bear interest at the rate of 10%. Is the corporation liable on the usurious note? If so, for how much? If not, why not? 1 3 A piece of real property covered by a mortgage is insufficient to satisfy the mortgage debt. With re- spect to other creditors, what rank does the mortgagee have for the balance due him on the personal property of the mortgagor? 14 Give the order of payment to creditors of an insolvent corporation. 15 a What claim, if any, have stockholders as against other creditors on funds set aside for payment of a dividend declared pay- able. b What claim, if any, have they on the general assets of the corporation when no specific funds have been set aside? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jangle A testator directed that the income of his estate should be paid to the widow during her lifetime, and, in the event of her death, the income to be divided equally between (not among) his son and two daughters. The widow died on August 1, 1908. The income of the estate for the year 1908 was as follows : 1908. Jan. 1. Commonwealth Electric, interest $300.00 Feb. 28. Mortgage, interest, So. Chicago 48000 Mar. 31. Mortgage, interest, Evanston 660.00 April 1, Rent of barn, year in advance ^ 120.00 May 1. Bank dividend -._ ^ 510.00 June 2. Santa Fe, interest „ 285.00 July 1. Commonwealth Electric, interest „ 300.00 Aug. 31. Mortgage interest, So. Chicago ^ 480.00 Sept. 30. Mortgage interest, Evanston „ 66000 Oct. 1. C, B. & Q. R. R., dividend 120.00 Nov. 1. Bank dividend and extra 765.00 Dec. 2. Santa Fe, interest 285.00 Advances to widow during the year— Jan. 31, $250.00; Mar. 28, $500.00; July 25, $1,500.00. Apportion the income by months, using the columnar form of statement for the purpose, and write up the following accounts ; considering the dates of payments to and from as the due dates : Cash Account; Widow's Account; Son's Account; Each Daughter's Account. PRACTICAL PROBLEMS, GRADED, SERIES C Code: Janitor The estate of John Robertson, deceased, consisted of the fol- lowing assets, which were appraised as required by the Probate Court : Appraised Value Disposition under the Will Flat Building $17,000.00 To his daughter Mary. 6% Mortgage — interest To the widow for life, and then payable June 1 and De- to his two sons, John and James, cember 1 35,000.00 equally. Vacant Real Estate — Lot 1 10,000.00 Cash to John, James, and Mary, Lot 2 8,000.00 $5,000.00 each, and the balance of Home 9,000.00 the estate to the widow. Household effects 1,500.00 Cash 2,500.00 At the time of death (June 24, 1915) the accrued interest amounted to $140.00. Debts amounting to $400.00, funeral expenses of $450.00, and the legal probate expenses amounting to $900.00 were paid in cash. In September, 1915, Lot 1 was sold for $12,000.00, and by the consent of all parties John took Lot 2 and paid the estate $3,500.00 in cash in discharge of the bequest to him. The widow died on May 15, 1916, at which date the accrued interest amounted to $962.50. The widow left her entire estate to Mary. The interest on the mortgage was promptly collected on December 1, 1915 and June 1, 1916. Prepare the statements necessary for presentation to the court in closing the estate as at July 15, 1916. PRACTICAL PROBLEMS, GRADED, SERIES C Code : January A testator bequeathed by his will legacies amounting to $6,700.00. His widow was to be paid $1,000.00 within one month after his death, and his household furniture was specifically be- queathed to her. $74.12 was found in the house and the cash at the bankers was $1,842.91. His investments were valued at $48,- 461.12 (their nominal value being $45,000.00). His real property was valued at $68,000.00. Persons were indebted to him for loans without interest for $450.00, while his creditors were $7,276.54. The funeral expenses came to $98.16, probate and miscellaneous expenses to $4,697.45. Draw a statement, showing the net worth of the estate, assuming that the investments were bonds bearing interest at 4 per cent., that the real propery yielded 6 per cent., that the former were paid off half-yearly, and the latter quarterly, and that both interests and rents fell due two months after the testator's death. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Japan Thomas Higgins died in 1895 leaving his entire estate in trust for the benefit of his widow, and upon her death to be given to his children ; the trustees, upon discovering a large contingent liability which might eventually fall upon the estate, refrained from paying out any income. The widow dies, thereby releasing the liability ; therefore, the estate is to be divided into three equal parts. Prepare a trial balance and statement showing the value of the estate, from the following, and without displaying ledger accounts or journal entries: Income $ 1,025.00 Accounts due T. H 12,046.00 Taxes — Inheritance 7,222.00 Trustee expense 257.50 Legacies 557.00 Mortgages paid ^ ^ ^ 3,931.00 Funeral expenses 511.50 Accounts payable _ 245.00 Law expense 388.50 Investments by Trustee .^ 12,755.00 Cash in bank 270.00 PRACTICAL PROBLEMS, GRADED, SERIES C Code: Japanese: In auditing a balance sheet explain the basis upon which you would ascertain the proper valuation of : (a) Notes Receivable, (b) Goodwill, (c) Notes Payable, (e) Accounts Payable. (d) Reserve for Bad Debts, (f) Notes Receivable Discounted, (g) Reserve for Depreciation. The trading profits of a manufacturing concern for a year in which the sales have equalled those of several years past, show a considerable reduction from preceding years. You are asked to investigate and report to the firm the reasons for this reduction in profits. To what special matters would you give your attention and how would you proceed to investigate them? In auditing the accounts of an educational or charitable in- stitution, where the president and the secretary are authorized to collect and receipt for subscriptions and donations, what informa- tion and evidence would your require, before certifying the ac- counts, to satisfy yourself that subscriptions and donations had been properly accounted for, and what methods and safeguards would you suggest to ensure this? A manufacturing company has among its investments a mortgage loan secured by improved real estate. During the course of your audit for the year 1915 you find that it carried in its asset, representing Accrued Interest Receivable as at January 1, 1915, the interest accrued on this mortgage during 1913 and 1914. No payment was made on this interest during 1915. No decision has been reached by the company as to whether or not foreclosure proceedings will be instituted. In preparing your accounts for 1915, having in mind the income tax regulations, would you recommend that the company accrue the interest in its books for the year 1915? Give reasons for your answer. Would your recommendations be changed in any respect if this investment were held by an individual instead of a corporation? PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jar "B" is named as executor of "A," deceased. "B" finds the following assets belonging to the estate : 50 houses, each subject to a mortgage of $1,000, appraised value of, each $ 2,000.00 Cash 20,000.00 1,000 shares Traction stock, market value $ 50.00 each 500 shares Electric stock '* " 30.00 " 10 shares Railroad stock " " 40.00 " 5 shares Gas stock " " 35.00 " 10,000 Bonds Electric Co. " " 95% 50.000 Bonds Railway Co. " " 105% 40,000 Bonds Gas Co. " " 95.50% The appraisement is made on the basis of market value. In addition thereto, he finds the following assets which are appraised at the prices set opposite them: Household furniture $ 1,800.00 Horses, wagons and harness 1,800.00 During the year of his administration of the estate, the follow- ing additional cash comes into his hands : Sale of 1000 shares Traction stock @ $ 48.00 per share Sale of 500 shares Electric stock @ 37.50 Sale of 10 shares Railroad stock @ 42.50 ** Sale of 5 shares Gas stock @ 40.00 10,000 Bonds Electric Co. @ 92% 50,000 Bonds Railway Co. @ 108% 40,000 Bonds Gas Co. @ 95% Horse and wagons and harness 1,650.00 From sale of rights to subscribe for new issue of rail- roid stock 1,200.00 From rentals of houses 8,000.00 F om sale of two houses..... 4,600.00 The following payments have been made by him: Funeral expenses $ 250.00 Debts of decedent _... 2,200.00 Taxes on real estate 2,035.00 Water rents 450.00 Mortgage rn two houses, sold 2,000.00 Interest on mortgages ~ 2,500.00 Repairs real estate - 450.00 Prepare accounts in detail, also copies of final accounts for submission to the court. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jargon An executor comes into possession of the following assets of a decedent: Cash „ $2a000.00 $48,000 Lehigh Valley R. R. Bonds 48,000.00 1,000 shares Penna. R R. Stock 68,000.00 1,000 shares U. G. I. Co. Stock 108,000.00 509 shares Philada. Traction Stock 48,500.00 Real estate, 20 houses assessed value of each 5,000.00 Household furniture 5,000.00 During his administration he receives the following cash: Sales of all the Lehigh Valley R. R. Bonds.... $ 42,747.00 Sales of all the Penna. R. R. Stock 64,283.75 Sales of all the U. G. I. Co. Stock ^ 110,175.25 Sales of all the Philada. Traction Stock 48,125.00 20 houses @ $6,000 each 120,000.00 Income from interest on bonds and dividends on stock 8,400.00 Interest on deposits „ 1,200.00 Rentals of real estate „ 7,500.00 And his payments were as follows : Funeral expenses of decedent 350.00 Sundry indebtedness of decedent 7,482.00 Adjusted taxes and water rents of real estate 1,437.50 Legal expenses and court charges 4,800.00 He has advanced to the widow of the decedent the sum of 8,500.00 The widow is entitled, under the will, to the entire income of the estate ; the corpus of the estate to be held in trust by a trust company as trustee. State all actions necessary to be taken by the executor on com- ing into possession of the estate, formulating such accounts as are neces.sary, and state final account for filing in the Orphans' Court. •% PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jasper James Buck died March 31, 1908, leaving an estate, and in his last will made a public accountant his executor. The will pro- vided the following: Legacies of $3,500.00 each to the testator's two brothers. A legacy of $5,000.00 to the testator's sister. A legacy of $2,500.00 to the testator's nephew. The residuary estate should go to the testator's wife, two sons and three daughters in the following proportions: 2-5 to the wife, 1-5 to the eldest son, and 1-10 each to the second son and daughters respectively. The estate consisted of: Cash on hand $ 246.19 Cash at Safety Trust Co 3,556.50 18 Imp. Jap. Gov. 4%% Gold Bonds at 1,000 18,000.00 30 shares Chicago & Northwestern R. R. Stock at 155 4,650.00 25 shares Penn. R. R. Stock at 122 3,050.00 2 demand notes at $500 each 1,000.00 Stock in Business 9,375.00 The testator owed to F. Harbor $1,500.00. The appraiser appointed by the court inventoried the estate as follows: 18 Imp. Jap. Gov. 4%% Gold Bonds at $1,020.00 each. 30 shares Chicago & Northwestern at 152 1-9. 25 shares Penn. R. R. Stock at 120. 2 demand notes as per inventory. Stock of goods, $8,000.00. The executor collected from the Trust Company the deposit of $3,556.50 and also $28.96 in interest. He sold the stocks at the appraised figures and the bonds at 1025. He paid to F. Harbor th: amount due him, to B. Robert, undertaker, $786, for funeral expenses. He also paid for sundry expenses $286, ap- proved by the court. He deducted his commissions of $500.00 and distributed the funds according to the last will. From the above statement, prepare schedules for presentation to the court in final accounting. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jaunt John Smith dies on October 15, 1901, leaving a will in which he names certain legacies, which, in the aggregate amount to $50,000.00. The executors are then instructed (1) to use their best judgment in the disposition of such assets as may be neces- sary to liquidate all his liabilities; (2) to pay to his widow Mrs. Sarah Smith an allowance at the rate of $8,000.00 per annum from the date of his death to the date of the distribution of the residue of his estate; and (3) to distribute the residue of the estate after all claims and legacies have been met, as follows : ^3 to his widow and % to certain trustees named in the will. After his death, the executors drew up an inventory of the estate, which, upon being appraised, shows the following condi- tion : ASSETS Real estate - $589,000.00 Corporation stock „ 320,000.00 Bonds with premium added 460,928.00 Bills receivable 3,482.00 Land contracts 37,500.00 Interest accrued on bonds, bills receivable and land contracts 7,890.00 Accounts receivable 2,000.00 Cash 29,00000 LIABILITIES Mortgage on improved city real estate $ 50,090.00 Bills payable :.. 150.000.00 Accounts payable 1,980.00 Funeral expenses 1,000.00 Interest accrued on demand notes 1,200.00 Six months after the inventory had been filed it develops that John Smith had endorsed the note of Joseph Stevens for $15,- 000.00, and had discounted same with his bankers. Upon the note coming due, Joseph Stevens failed to meet it. The bank filed a claim against the estate of John Smith for the amount, which was duly paid by the executors. It is, however, believed that in a course of time this note of Joseph Stevens can be realized upon. One year, exactly, after the death of John Smith, the execu- tors distribute the residue of the estate, and close the books. The following transactions, in addition to those enumerated or suggested above, have taken place during the year. 75 Bonds Par $1,000.00 and inventoried at 110 were sold at 103%. 300 Shares Par $100.00 and inventoried at 85 were sold at 90. 400 Shares Par $100.00 and inventoried at 90 were sold at an increase of 10 per cent, of their inventory valuation. Real Estate which was encumbered by the mortgage of $50,- 000.00 was sold by consent of the Probate Court and of the widow for a sum of $35,000.00 in excess of the mort- gage, the purchaser assuming the mortgage. (Continued on next page.) PRACTICAL PROBLEMS, GRADED, SERIES C Code: Jaunt — (Continued) The cash receipts arise from the following sources : Dividends $15,000.00 Interest on bonds 18,500.00 Interest on bills receivable and land contracts 2,400.00 Net rentals after paying taxes, etc 9,000.00 There is a profit on the Real Estate sold of $10,000.00. The charges consist of the following items : Office expenses _ $ 5,000.00 Interest on bills payable ~ 4,750.00 Executors' fees allowed by court 15,000.00 The accrued interest on bonds, bills receivable and land con- tracts at the close of the executor's term of office is found to amount to $6,100.00. Set up journal and cash book entries and ledger account, and prepare suitable summarized statement of executor's transactions for presentation to the beneficiaries. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jaunty What is the Statute of Limitations, and within what period of time are the following barred by the Statute of Limita- tions : a. Open accouats. b. Promissory notes. c. Judgments. * « ♦ * « a. What rights has the seller of goods against the buyer before delivery when the seller becomes aware of the in- solvency of the buyer? b. What rights after delivery? * * ♦ * * a. Who collects the income tax in this State? b. When do returns have to be made? c. Who are affected and to what extent? d. Who are exempt and to what extent? * ♦ * ♦ ♦ Define the following: a. Capital. b. Credit. c. Executor. d. Exchange. e. Receiver. f. Warranty. * * * * * a. What is agency? b. How many kinds of agents ai a there, and describe the authority of each. c. Under what circumstances can an agent delegate his» power? d. How is agency terminated? * * ♦ ♦ ♦ The widow of a deceased partner receives a portion of the profits made in the business in which the deceased person was a partner. Is she thereby constituted a partner in the business, or liable as such? Give reasons for your answer. * * ♦ ♦ ♦ a. Whrt is the liability of the parties to a certified check? b. If an assignee before distribution has notice of a claim, but the creditor has failed, though notified to do so, to put in proof of claim, may the assignee distribute the estate without regard to the claim? * ♦ ♦ ♦ « a. Name a variety of Municipal Bonds and state their purposes. b. Define fully Sinking Fund and set out the purposes thereof. * ♦ ♦ * « Can a company be bound by a contract entered into be- fore its incorporation? Give reasons for your answer. * « « • * What books must be kept by Commission Merchants? PRACTICAL PROBLEMS, GRADED, SERIES C Code: Jean "B" dies March 23, 1905, leaving an estate consisting of the following property in charge of his three executors, "X," "Y" and "Z" : Cash in bank Accounts receivable from — 1 $ 10,000.00 2 3 4 5 2,000.00 3.000.00 1,000.00 3,000.00 1,000.00 6 4,000.00 7 2,000.00 8 3,000.00 9 4,000.00 10 1,000.00 Stocks and bonds — 1 100 shares Union Bank (par $100) $ 12,000.00 40 shares Traders' Bank (par $100) 12,000.00 $ 1,000 C & O. 4's— J. & J 1,050.00 5,000 P. R. R. 6's— M. & S 4,500.00 10,000 N. Y. C. 3^'s— J. & J. 10,450.00 $ 24,000.00 2 3 4 5 $ 40,000.00 And three parcels of unimproved real estate appraised at $14,000.00. Three of his heirs are also indebted to him for money loaned: "C" $ 5,000.00 "D" 6,ooaoo "E" 7,000.00 $ 18,000.00 The will directs the executors to dispose of the real estate, convert the other assets and distribute the funds, to wit : Widow One-half f"C" "D" !- One-sixth each Children "E" Up to April 30, 190G, the executors collect all the accounts receivable with the exception of items No. 3, No. 6 and No. 10, on which they realized only $4500, the balance being uncollectible. Bonds No. 3 and No. 5 matured January 1, 1906, and bond No. 4 matured March 1, 1906, and were redeemed at par. Stock No. 2 is sold at $325.00 and stock No. 1 at $125.00, both sales taking place on April 15, 1905. The real estate is sold for cash, $5000.00 and mortgages $10,000.00. Interest has been received on bank balances, $300.00; accounts receivable, $50.00 ; and on each of the bonds at the regular interest periods in full. The executors pay decedent's debts and funeral expenses, $1000 ; counsel fees, $500 ; safe deposit box rent, $10 ; and office expenses incident to collection of income, $500. The executors waive their claim to comnissions, but ask for an allowance to cover expenses incurred by them to $75.00 each. State the executors' first and final account and prepare a statement for the purpose of guiding the court in directing a distribution to be made to the heirs. In preparing these accounts follow closely the form you would use in actual practice. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jerk The estate of John Smith, consists of securities, etc., appraised as follows: Appraised Value $100,000 Wabash R. R. 5% bonds $ 125.000.00 $200,000 Rio Grande Rwv. Co. 4% bonds 230,000.00 $200,000 Fort Wayne R R. 5% bonds 275,000.00 $400,000 Pittsburgh Traction Co. 3% bonds 400,000.00 $100,000 Canton Water Co. 3^% bonds 100,000.00 Accounts receivable 375,000.00 Cash 50,000.00 $1,555,000.00 .^Iso rcr.l estate appraised at $150,000.00, subject to mortgage liens cf '^lOO.OOO at 5%. The will provides for legacies amounting^ to $100,000 payable to sundry parties, and directs that securities be set aside to pay out of the income derived therefrom, an annuity of $10,000 to the widow, to whom shall also be paid one-third of the net income from the real estate. The income from personal property is made payable: one-fourth to Maggie Jones, one-third to Sarah Peters and the balance to James Smith. The residue of the estate, reaj and personal, is payable to the said James Smith at the death of the widow and of Maggie Jones and Sarah Peters. Five years from the death of decedent, the executors' accounts were as follows : SECURITIES SET ASIDE TO PAY ANNUITY TO WIDOW $200,000 Fort Wayne R. R. 5% bonds : Interest received $ 35,000.00 Interest in default 15,000.00 RECEIPTS Accounts receivable, not appraised in inventory $ 17,000.00 Accounts rcceiv:.l)le 609^ cf value, balance lost 60,000.00 .Accounts receivable en account 175,000.00 Interest en securities 177,500.00 Rental of real estate 127,000.00 PAYMENTS Repairs, taxes, etc., on real estate $ 22,000.00 Betterments to real estate 16,000.00 Decedent's debts 75,000.00 Widow (on account of annuity) 35,000.00 Widow (on account of real estate income) 6.000.00 Maggie Jones 15,000.00 Sarah Peters 18,000.00 James Smith (on account of personal property income) 20,000.00 James Smith (on account of real estate income) 10,000.00 Executors (on account commissions @ 5%) on principal account 25,000.00 Expenses of administration 3,000.00 Incumbrances on real estate and $23,000 interest 123,000.00 Prepare Orphans' Court account with distribution account attached. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jersey The estate of Hiram West, of which you are appointed ad- ministrator, is appraised as follows on January 10, 1913: Shares of First National Bank $100,000.00 500— par $100.00 value. Share's of United Mercantile Co 6,000.00 60— par $100.00 value. Bonds of Southern Lumber Corporation 4,500.00 5— par $1,000.00 value. Real Estate — Residence, 168 F Street 5,500.00 Vacant 2 Lots, E Street 2,000.00 Cash on person 82.00 Cash in Bank— Savings Account $6,220.00 Accrued Interest 31.10 6,251.10 Household Furniture, Jewelry, etc., as per Schedule 1,000.00 Automobile 500.00 $125,833.10 The following transactions appear from your Cash Book: Jan. Feb. Feb. Mar. May June June July Aug. Aug. Sept. Nov. Dec. Dec. Receipts 1913 10 Balance $ First Nat. Bk. Div. United Mer. Co. Div. Southern Lmbr. Co. Int First Nat. Bk. Div. 15 Savings Acct. Int 15 Sale of Residence.... First Nat. Bk. Div. United Mer. Co. Div. First Nat. Bk. Div. Southern Lmbr. Co. Int First Nat. Bk. Div. Savings Acct. Int 1 2 1 10 10 % 10 1 10 15 15 Sale lots. Jan. Jan. 20 82.00 28 2,000.00 300.00 300.00 2,000.00 83.30 6,500.00 2,000.00 300.00 2,000.00 300.00 Feb. 28 2,000.00 Mar. 31 83.30 Apr. 30 1,800.00 May 31 June 15 June 30 July 31 Aug. 31 Sept. 31 Oct. 30 Nov. 30 Dec. 15 Dec. 31 Disbursements Letters Test'y Claims allowed: Groceries Gas Bill _-... Widow's Allowance, January Coal _ Funeral Expenses.... Physician Funeral Notice Commissions Administrator's Bond Widow's Allowance.. Widow's Allowance.. Widow's Allowance.. Widow's Allowance.. Commissions on sale of Property.. Legal Expenses Widow's Allowance.. Widow's Allowance.. Widow's Allowance.. Widow's Allowance- Widow's Allowance.. Widow's Allowance.. Commission Sale of Lots Widow's Allowance.. Balance $ 1.00 26.00 3.80 150.00 83.00 350.00 200.00 3.20 150.00 25.00 150.00 150.00 150.00 150.00 195.00 180.00 150.00 150.00 150.00 150.00 150.00 150.00 90.00 150.00 16,642.60 $19,748.60 $19,748.60 Prepare first and final account, and arrange a division among three heirs in equal amounts. PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jess What is meant by "Balance Account" under the theory of double entry? How was the ac- count used originally? What has become of it in modern bookkeeping practice ? * * * ♦ ♦ Assume that the private ledger of a trading copartnership contains: the capital assets and liabilities, the partners' accounts, the Proht and Loss account, and the Notes Payable account. State the procedure for closing the general ledger, laying particular stress on the disposi- tion of the working and trading assets, and the cash transactions affecting the capital assets and liabilities. ***** The stockholders of a corj)oration authorize an issue of $1,000,000 of bonds; $500,000 of these bonds, duly registered and certified by the trustee, were returned to the corporation and disposed of as follows: Ihe corporation sold $200,000 for cash pledged $200,000 as collateral security for the payment of its notes, and retained ^ * * * * How should this issue of bonds appear on the balance sheet of the corporation ? * * * » ♦ Explain the method of quoting French ex- change in New York, also the following phrase used in a certain work on foreign exchange: * 1 he higher the rate, the lower the quotation." ***** The Bay Side Building and Loan Associa- tion, whose monthly dues were $1 per share, had three series of shares in force at the end of the third year ; the number of shares in each series and the value per share were as follows : First series, 500 shares, value per share, $38.87 Second series, 600 shares, value per share, 25.27 I bird series, 400 shares, value per share, 12.32 A fourth series of 500 shares was issued at the end of the third year. The net profits for tiie fourth year were $3,000 and the total profits for the four years were $5,325. Prepare a statement showing the value of a share at the end of the fourth year, in each series, and explain your method of procedure. An inv estment bond house purchased 10 New ***** Jersey Traction Company first mortgage 5% bonds at SS'A ; 10 New Orleans Gas Light and Power Company first mortgage 5% bonds at 1.04 (accrued interest not to be considered). Prepare the necessary entries to record prop- erly these transactions on the books of the bond house and to facilitate an audit PRACTICAL PROBLEMS, GRADED, SERIES C Code : Jest The duly appraised inventory of the estate of John Smith, who died August 31, 1918, was filed by the executor on October 1, 1918. The items were as follows : PROPERTY. Real Estate and Buildings $150,000 Corporation Stocks 10,000 Corporation Bonds . 25,000 Rents due from the tenants for August 1,500 Cash on Deposit in checking account 3,000 Accrued interest on Corporation Bonds 500 Rents due from tenants for .September 2,000 Notes Receivable 16,000 (a) one year note dated June 1, 1918, int. at 6% payable quarterly, $5,000. (b) one six months note dated July 15, 1918, int. at 6% payable at maturity, $3,000. (c) one three months note dated August 1, 1918, with interest at 6%, $8,000. Homestead 10,000 Personal property (jewelry, automobile, etc.) 3,500 Total $221,500 DEBTS Real Estate and note secured by mortgage on buildings, given July 1, 1917. Interest at 6% is payable semi-annually $ 25,000 Unpaid Funeral expenses 750 Sundry Personal Debts 1,200 Total „ $ 26,950 The executor engages you to determine the net income of the estate from the following transactions which appear properly re- corded upon the ledger : 1. 50 shares of stock par $100 inventoried at 105, were sold at 110. 2. 50 shares of stock par $100 inventoried at 50, were sold at 50. 3. 50 shares of stock of no par value inventoried at 83, sold at 93, 4. Net rent collected from tenants, including those stated in the inventory, and after paying taxes, $13,500. 5. Interest received from bonds while owned $750. 6. Bonds were all disposed of for $27,500, which included ac- crued interest of $350. 7. Real estate inventoried at $30,000 was sold for $33,000 and on January 1, 1919, the note secured by the mortgage on real estate was duly paid with interest to date. 8. The funeral expenses and the sundry personal debts of Smith were paid. 9. The executor was paid a salary of $3,600 during the period, and office expenses amounted to $5,000. 10. Dividends were received from stocks while owned, amount- ing to $350. 11. Taxes, repairs and general expenses of the homestead were paid in cash, $3,000. 12. Taxes on unimproved real estate amounted to $125. 13. The principal and interest of all the notes receivable were paid when due. What original papers or records would you expect to find sup- porting the facts recorded above which you jkvould accept as satis- factory proof of the transactions? \ !D4\^ /?i'r 'VacMO'^ ^^i^ica.) \ ■^m,e/iy\b -^fd^iaiA / 04-10 /njH o i/O? At^iim COLUMBIA UNIVERSITY LIBRARIES 0041390512 '-' « \. ^ '^mmwmmm^i END OF TITLE