SURPLUS AXD ITS USES 555
Donated Surplus.—Closely akin to paid-in surplus is donated surplus.
It may have several sources:
1. Gifts of Assets.—Bonuses of land or other assets may increase cor-
porate surpluses. Corporate leaders and large stockholders may donate cash
or other assets to tide the corporation over periods of stress. These take the
form of donated surpluses. In 1936, the Brown Shoe Co., Inc., carried on
its balance sheet contributed surplus 8895,031, received in earlier years in
the establishment of new factories and transferred from earned surplus for
the first time in 1935.
2. Gifts of Stock.—When stock is exchanged for property and/or services,
a part of it is frequently donated back to the corporation to be sold as
treasury stock in order to obtain circulating capital. Whatever the market
will pay for it is added to the surplus account. In 1936, the holders of Class
B common stock of the Pea body Coal Co. surrendered to the company
991,499 shares, making possible the elimination of a deficit of nearly $3,000,-
000 and the creation of a surplus of nearly $2,000,000, in addition to writing
down assets approximately $7,000,000.
3. Purchased Stock.—Siock purchased by the corporation and resold at
a profit adds to the surplus in much the same manner as donated stock.
Stock purchased at a discount has the same effect. The American Manu-
facturing Co. created a capital surplus by purchasing its own preferred
and common stocks at less than par. The Ohio Leather Co. followed
a similar practice in purchasing its preferred stock. In retiring capital
stock purchased at a discount, the Indiana and Illinois Coal Corp.
increased its capital surplus. The remainder represents revaluation of
fixed assets.
Surplus from Appreciation of Assets.—Corporations in need of a surplus
always have at hand an unfailing Aladdin's lamp in the form of reappraisal
of assets. By a stroke of the pen, fixed assets may be increased in value on
the books, or intangible values may be added or increased. Corporations
that follow this policy have doubtful justification for its use. However,
human memories are short, and a surplus created in this manner will soon be
indistinguishable from other surpluses not so created. Occasionally, though
not often, a corporation is frank enough to indicate the source of such a
surplus by labeling it appreciated surplus.
Corporations that used the tenn or its equivalents—appraisal or revalua-
tion—include The Berg-Warner Corp., Sheridan-Wyoming Coal Co., Coca-
Cola Bottling Corp., Lehigh Portland Cement Co., Devonian Oil Co.,
Chickasha Cotton Oil Co., Hoberg Paper Mills, Inc., Baumann (Ludwig)
and Co., Carnegie Metals Co., Gimbel Brothers, Inc., and Security Title
Building (under leasehold surplus). Some corporations, such as the Porto-
Rican American Tobacco Co., create their capital surplus by revaluation
of intangible assets. An interesting case is that of the Hecla Mining Co.,