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Columbia Untoersftp 

Business 25-26 













1. From the following information set up ledger accounts, take a trial balance, 
close the ledger through the journal, and make summary statements as of De- 
cember 31: 

Notes Receivable on hand, $3,000; Accounts Receivable, $7,500; Notes Pay- 
able, $2,100; Accounts Payable, $4,600; Real Estate, $6,000; Plant and Machin- 
ery, $8,000; Rent and Taxes, $600; General Expense, $2,000; Salaries, $1,500; 
Wages, $600; Freight, $150; Duty, $200; Cash on hand, $150; Cash in bank, 
$1,800; Bad debts written off, $140; Goods on hand at beginning of year, $9,500; 
Purchases, $26,000; Sales, $40,000; Interest paid, $210; Furniture, $600; Jas. 
Buckham, partner, invested $10,000, withdrew $1,450; E. J. Cockburn invested 
$14,000, withdrew $1,300; the merchandise on hand is valued at $9,000; Rent 
unpaid, $250; Insurance unexpired $140; Interest accrued on notes receivable, 
$25; Wages accrued, $115. Allow 10% depreciation on Plant and Machinery 
and I2>^% on Furniture. Estimate losses from bad debts as 5%. Losses and 
gains are divided 4-7 to Cockburn and 3-7 to Buckham, allowing interest on 
capitals at 6%. 

2. At the end of the first year of a partnership, Wilson has an interest of 
$18,000 and Peters of $9,000, each drawing profits in proportion to his capital. 
They decide to admit Johnson into the partnership selling him a one-quarter 
interest, valuing their good- will at $3,000. Under the conditions named, in 
what two ways may Johnson secure his interest? What will be the amount of 
his investment? 

3. J. B. Rogers and B. R. Jay, owners of similar businesses, agree to consolidate 
under a partnership agreement whereby each turns over his business as it stands, 
subject to the liabilities shown and the deficient partner contributes sufficient 
cash to equalize their capitals. Rogers's standing is: Cash, $750; Stock,$3,9OO; 
Notes Receivable, $1,000 with interest accrued on same, $10.25; Accounts Re- 
ceivable $750 estimated as worth $725; Furniture, $975; Notes Payable $1,000 
being his personal non-interest bearing note at 60 days discounted at 8% with 
20 days yet to run; Accounts Payable, $325. Jay's standing is: Cash, $365; 
Stock, $4,500; Accounts Receivable, $1,350, guaranteed as good; Furniture, 
$825; Delivery Equipment, $325, valued at $300; Accounts Payable $265 ; Notes 
Payable $1,200 with accrued interest of $8.69; Salaries earned but unpaid, $50. 
The furniture in each case is taken in at its face value. Make the opening journal 
entry and balance sheet for the new firm. Make journal entries for each partner 
to close his old set of books. 




Messrs. Stanley Jackson, J. T. Edwards, and P. Hansen, on September I, 1909, 
made application as incorporators to the Secretary of State for a Certificate of 
Incorporation authorizing the Acme Office Furnishings Company to transact a 
general business of all kinds in trading, manufacturing, and printing, as prin- 
cipals or as agents, to acquire and trade in real estate, patents, trademarks, 
licenses, and the like, and to act as promotion and financial agents. The cus- 
tomary certifications were made, the organization tax of $50 was paid, and the 
certificate duly issued. The authorized capital was $100,000 divided into 1,000 
shares of common stock only of par value $100 each. Subscriptions at par to 
capital stock had been made as follows: 

Stanley Jackson 225 shares 

J. T. Edwards 162 " 

P. Hansen 113 " 

T. J. Noble 100 " 
A. H. Lawrence 75 

H. C. McCullough 50 " 

At the first meeting o the incorporators and subscribers, after the adoption 
of a set of by-laws and organization thereunder, a proposal of sale made by the 
Jackson, Edwards, Hansen firm of their business and good-will at a stated figure 
of $50,120.97 was referred to the Board of Directors for their consideration and 
investigation, with authority to act. After looking over the properties, all of 
which it was found would be advantageous to the company, the proposal was 
accepted and transfer was made. A committee from the Board was appointed 
to make a careful appraisal of the purchased properties and report as soon as 
possible. Accordingly on September 15, the following report of valuation was 
made and accepted and authority given for the opening up of a set of accounting 
records with the stated values of the properties. The services of a public ac- 
countant were secured to plan and install a system that would meet the needs of 
the proposed business and to open the books. The properties acquired were: 
Cash, $5,269.14; Accounts Receivable, as per schedule following, $10,125.61; 
Notes Receivable, $1,250; Desks and Tables, Inventory $15,694.00; Bookcases 
and Filing Cabinets, Inventory, $18,392.00; Sundry Office Supplies, Inventory, 
$8,196.27; Rent prepaid, $125.00; Insurance unexpired, $95.36; Delivery Equip- 
ment, $492.50; Store Furniture and Fixtures $526.00; Office Furniture and Fix- 
tures, $274.00; Good Will, $4,500.00: The liabilities assumed were Accounts 
Payable, as per schedule following, $10,126.73; Notes Payable $4,692.18. Upon 
the guaranty of Jackson, Edwards, Hansen of the accounts and notes receivable 
taken over, the company assumed the contingent liability on notes receivable 
under discount amounting to $250.00. Payment was made to Jackson, Edwards, 
Hansen by the cancellation of indebtedness on their subscription contracts in 
the amounts severally shown, and in cash for the balance, distributed in the 
ratio of their subscriptions. 

A. H. Lawrence and H. C. McCullough on September 20, paid in cash 75% of 
their subscriptions, the balance due in 30 days. 

Certificates of stock, properly executed, were issued to all the above mentioned 
parties in the amounts of their subscriptions. 

Open the books and prepare a balance sheet of the company according to the 
data given. 


The first 43 pages of the ledger blank constitute the General Ledger, the next 
4 the Customers Ledger, and the next 3 the Creditors Ledger. 

Open the following accounts in the various ledgers as indicated. The numeral 
preceding the account title indicates the ledger folio on which the particular 
accounts are to be opened. 


Note: Trade Debtors and Subscription should each be allowed 16 lines, shortening 
the allowance for the account next succeeding or preceding. All others, 1-3 page to 

1. Knoxfraud Mfg. Co., Common Stock 
Knoxfraud Mfg. Co., Preferred Stock. 
Knoxfraud Mfg. Co., 

2. Plant and Sundry Assets. 
Jackson, Edwards, Hansen, Vendors. 
Organization Expense. 

3. Goodwill 

Patents and Trade Marks. 
Factory Land. 

4. Machinery. 

Depreciation Reserve Machinery. 

5. Factory Buildings. 

Depreciation Reserve Factory Buildings. 

6. Power Equipment. 

Depreciation Reserve Power Equipment. 

7. Furniture and Fixtures. 

Depreciation Reserve Furniture and Fixtures. 

8. Patterns. 

Depreciation Reserve Patterns. 

9. Delivery Equipment. 

Depreciation Reserve Delivery Equipment. 

10. Merchandise Inventory. 
Raw Materials Inventory 
Goods in Process Inventory. 

11. Knoxfrauds. 

Boston Office Co. Consignments 
Accounts Receivable Special. 

12. Prepayment on Purchases. 

Trade Debtors. 

Reserve for Doubtful Accounts. 

13. Notes Receivable Special. 
Notes Receivable. 

Notes Receivable Discounted. 

14. Sinking Fund. 
Petty Cash. 

Drew National Bank. 

15. Notes Payable. 
Vouchers Payable. 

Purchase Money Mortgage on Machinery. 

1 6. Bonds. 
Unissued Bonds. 
Discount on Bonds. 

17. Unissued Capital Stock. 
Capital Stock Common. 
Capital Stock 1st Preferred. 

18. Capital Stock 2nd Preferred. 
Discount on Stock. 

19. Call No. i. 
Call No. 2. 
Treasury Stock. 

20. Surplus. 

Donated Working Capital. 
Sinking Fund Reserve. 

21. Dividends on Common. 
Dividends on First Preferred. 
Dividends on Second Preferred. 

22. Raw Material Purchases. 
Desks and Tables Purchases. 
Bookcases and Filing Cabinet Purchases. 

23. Sundry Office Supplies Purchases. 
In. Freight and Delivery. 
Direct Labor. 

24. Indirect Labor. 
Factory Supplies. 
Light, Heat and Power. 

25. Royalties. 

Sundry Factory Expense. 
Building Maintenance and Repairs. 

26. Machinery Repairs. 
Experimental Expense. 

27. Assembling and Setting Up Expense. 
Receiving and Shipping Room Expense. 

Desks and Tables Sales. 

28. Desks and Tables Returned Sales and Allowance. 
Bookcases and Filing Cabinets Sales. 

Bookcases and Filing Cabinets Returned Sales and Allowance. 

29. Sundry Office Supplies Sales. 

Sundry Office Supplies Returned Sales and Allowance. 
Knoxfraud Sales. 

30 Knoxfraud Returned Sales and Allowance. 
Warehouse Expense. 

31. Warehouse Rent. 
Delivery Expense. 
Salesmen's Salaries. 

32. Salesmen's Travelling Expenses. 
Salesmen's Commissions. 

33. Sundry Selling Expense. 
Office Salaries. 
Stationery and Printing. 

34. Telephone, Telegraph and Postage. 
Sundry Office Expense. 


35. Interest and Discount. 
Collection Expense. 

36. Taxes. 

Bond Interest. 

Loss from Sale of Power Equipment. 

37. Purchase Discount. 
Sales Discount. 
Rent Income. 

38. Commission Income. 
Bad Debts. 

Fire Loss. 

39. Strike Costs. 
Damage Claims. 
Damage Claims Reserve. 

40. Manufacturing. 

41. Trading. 

42. Profit and Loss. 

Allow 1-3 page to each account. 

44. Smith Brooks Stationery Co. 
The Brush Co. 
The Kistler Stationery Co. 

45. C. F. Hoeckle Office Supply Co. 
John Bach & Sons. 

T. J. Stewart Office Specialties Co. 

46. Saxon Edwards. 
T. C. Macie & Co. 

The Alexander Jacobs Co, 

47. Field Marshall & Co. 
Sundry Customers. 
Salesmen Advances. 


48. P. J. Johnson Mills Co. 

B. F. Brainard & Co. 

Jackson City Supply Co. 
49- F. C. Good Rubber Co. 

B. A. Franklin Press. 

Brickley Desk Co. 
50. R. M. Goddard Furniture Co. 



1. The Ibex Manufacturing Company is incorporated with an authorized 
capital of $500,000 common stock and $250,000 6% preferred stock. $150,000 
of the preferred is subscribed for and paid in full. One-half of the common is 
subscribed for and 50% paid in, the balance to be paid in five monthly install- 
ments. The remaining preferred stock is later subscribed for at 101 and 50% 
paid and half of the remaining common is subscribed for at 90 and paid in full. 
After operating for six months the remaining common is sold at 102 to provide 
funds for enlargement; one-half paid in cash and the balance in one month. 
Bring all of the above transactions onto your journal. 

2. At the close of the first year, the Ibex Manufacturing Co., being short of 
ready funds and not desiring to extend its credit further, secures from its stock- 
holders a donation of $50,000 common and $10,000 preferred, one-half of which 
is immediately sold at 90 and 101 respectively. At the end of the second year 
the remainder of the donated stock was disbursed to the stockholders as a divi- 
dend, net profits for the year amounting to $45,000. Journalize all the above 
transactions, showing ultimate disposition of the working capital. 

3. The Smith Brooks Publishing Co. has a capital of $750,000 of which one- 
third is 6% cumulative preferred stock. The company has a surplus of $65,000. 
It has an outstanding bond issue of $200,000 at 4^% interest. The profits for the 
year are $61,392.75. No profits have been distributed for three years. The 
directors pay the bond interest, declare a 3% dividend on common and carry 
$7,500 to the Sinking Fund. Bring all of the above onto your books. 

4. A corporation has been formed with an authorized capital stock of $200,000, 
one-fourth of which is 7% cumulative preferred. The entire issue of preferred 
is subscribed for at par and 50% paid in. When the balance is paid, one share 
of common is to be given as a bonus with every five shares of preferred. The pro- 
moter of the company is given $15,000 in common for his services. The company 
paid cash $250 for new set of records; $25 for corporate seal; $500 for lawyer's 
fees in incorporating; $250 for state charter; and $375 for sundry expenses in 
organizing. $75,000 of the common stock has been subscribed for at par to be 
paid in five monthly installments. The balance has been paid on the preferred 
stock and three installments on the common. Make journal entries covering 
the above transactions. 


1. Draw up a form of voucher check suitable for a professional man. 

2. Draw up a form of voucher check suitable for a trading concern. 

3. Draw up a form of voucher register for a manufacturing concern desiring 
to segregate manufacturing, trading, and general expenses under which there 
are twelve, ten, and fifteen subdivisions of expense, respectively. Provide for 
other possible expenditures. Treat purchases discounts as a reduction of cost 

4. What change would you make for treating purchases discount as a general- 
administrative expense. 

5. Using your own data for a purchase ledger in which there are at least six 
open accounts, show the entries necessary to close it and open a voucher regis- 
ter to take its place. 


The following schedules support their respective titles found among the assets 
and liabilities taken over and appraised by the Acme Office Furnishings Co.: 


Smith Brooks Stationery Co. 6-24, $750; 7-7 $100; 8-25 $113.14, 

2/10 $963-14 

The Brush Co. 5-20 $825; 8-15 $216.69, 2/10, 1/30 1,041.69 
The Kistler Stationery Co. 4-18 $1,000; 6-15 $250; 8-20 $317.40, 

2/10 1,567-40 

C. F. Hoeckle Office Supply Co. 3-12 $1,000; 7-18 $123.90 1,123.90 

John Bach & Sons, 6-13 $300; 7-30 $119.36 419.36 

T. J. Stewart Office Specialties Co. 7-20 $319.45; 8-12 $523.12 842.57 

Saxon Edwards 2-10 $585; 5-23 $206.75 791-75 
T. C. Macie & Co. 5-11 $115.10; 6-21 $210.15; 7-8 $450; 8-25 

$465.15, 2/10, n/30 1,240.40 

The Alexander-Jacobs Co. 8-28 $362.25, 3/5, 2/10 362.25 
Field, Marshall & Co. 6-15 $1,015.05; 7-6 $250; 8-24 $508.10, 

2/10, n/30 1,773.15 

' The P. J. Johnson Mills Co. 1-15 $1,895.60, 8-5 $736.15, 1/30 $2,631.75 

B. F. Brainard & Co. 4-18 $590.10; 7-11 $802.15 1,392.25 

Jackson City Supply Co. 6-10 $512.60; 6-25 $428.20; 7-18 $622 1,562.80 

F. C. Good Rubber Co. 7-1 $175.19; 8-13 $300, 2/10, 1/30 475-19 

B. A. Franklin Press 5-2 $850; 6-22 $262.15 1,112.15 

Brickley Desk Co. 3-8 $912.50; 5-6 $1,500; 8-16 $540.09, 2/10, 1/30 2,952.59 


John Bach & Sons, dated 7-4 for 3 mos. with interest at 6% and discounted 
at the Drew National Bank 8-16 at 8%. Face of note $250. 

Andrew Jackson, dated 8-25 for 60 das., without interest. Face $750. 
The Brush Co., dated 7-29 for 2 mos. with interest at 6%. Face $500. 


No. 91, favor Second National Bank for $2,500, dated 7-15 at 3 mos. dis- 
counted at 6%. 

No. 95, favor Brickley Desk Co. for $1,261.40, dated 8-20 at 4 mos., interest 

No. 96, favor B. F. Brainard & Co., for $930.78, dated 8-25 at 60 days., in- 
terest 6%. 

The new system provides for a Voucher Register but due to delay on the part 
of the printer, a creditors' ledger will have to be opened temporarily, using the 
last two pages of your customers' ledger for that purpose. Open the Sales and 
Purchases Ledger according to the data given. 

The Board, having completed negotiations with T. J. Noble, authorizes the 
purchase from him of the whole of his right, title, and interest in a patent de- 
vice known as Knoxfraud for the purpose of preventing the raising of the amounts 
of commercial paper. The transfer is made, including the trademark covering 
"Knoxfraud" and payment to Noble is made by the cancellation of 90 shares 
on his subscription contract and full paid stock is issued him therefor. Make 
the entry under date of September 20. 


The directors plan to keep sufficient funds on hand that they may be able to 
take advantage of all discounts offered on purchases. All invoices will, there- 
for, be entered "net" in the Vouchers Payable column of the Voucher Register. 
Extension will be "gross" however. In order to avoid detail all additional cus- 
tomers will be handled under a collective account in the Sales Ledger called 
Sundry Customers. Transactions will be grouped and summarized. Make 
records under proper dates. 

The transactions ending November 30, 1909, were as follows: 
September I, received check for $311.05 from Kistler Stationery Co. in pay- 
ment of their bill of 8-20 less $6.35 discount. September 3, Alexander Jacobs 
Co. paid their bill of 8-28 $362.25 less $10.87 discount. Sold the Brush Co. at 
2-10, n~3O, desks and tables $875.40 and bookcases $469.75. Sept. 4, drew 
petty cash voucher-check for $150 and placed it in petty cash drawer in charge 
of bookkeeper. Field Marshall and Co. paid their bill of 8-24 $508.10, less 
$10.16 discount, and $500 on account. September 5, paid P. J. Johnson Mills 
Co. bill of 8-5 $736.15, less discount $7.36, and $500 on account. Smith Brooks 
Stationery Co. paid their bill of 8-25 $113.14 less $2.26 discount. T. C. Macie 
& Co. paid their bill of 8-25 $465.15 less $9.30. September 6, bought of R. M. 
Goddard Furniture Co. at 1-30, n-6o, desks and tables $5,912.60, bookcases 
$3,190.10, and office supplies $837.40. Sold C. F. Hoeckle Office Supply Co. 
n~3O desks $1,512.75, filing cabinets $647.80, office supplies $215.69. September 
8, C. F. Hoeckle Office Supply Co. paid $750 on account. Sept. 9, paid B. F. Brain- 
ard & Co. bill of 4-18 $590.10; sold T. C. Macie & Co. at 2-5, i-io, tables 
$1,575.50, filing cabinets $440.25, office supplies $175.30. September n, paid 
Jackson City Supply Co. bill of 6-10 $512.60. Sept. 12, sold C. F. Hoeckle 
Office Supply Co. at 1-30, n-6o tables and desks $1,895, bookcases $625.30, 
office supplies $110.85. September 13, paid F. C. Good Rubber Co. bill of 8-13 
$300 less $3 discount; Jno. Bach & Sons paid $250 on account; the Brush Co. paid 
their bill of 9-3 $1,345.15 less $26.90 discount. September 15, paid Brickley Desk 
Co. bill of 8-16 $540.09 less $5.40 discount and bill of 3-8 $912.50 less special 
discount of $12.50 in consideration of giving our note No. I, for $1,500 at 6% 
payable in 6 mos. in settlement of bill of 5-6 $1,500. Brush Co. paid bill of 
8-15 $216.69 less $2.17 discount. Sold Jno. Bach & Sons at 2-10, n~3O desks 
$1,680, filing cabinets $725.90, office supplies $240.60. September 16, bought of 
P. J. Johnson Mills Co. at 2-10, n~3O, tables $3,085.95, bookcases and filing 
cabinets $5,293.85, office supplies $1,750.90. September 18, T. J. Stewart Office 
Specialties Co. paid their bill of 7-20 $319.45; sold Alexander Jacobs Co. at 1-30, 
n-6o, desks $1,465.85, bookcases $625.95, office supplies $145.60. September 19, 
T. C. Macie & Co. paid their bill of 9-9 $2,191.05 less $21.91 discount. September 
2 1, sold Saxon Ed wards, at 2-5, i-io, tables and desks $1,327. 85, bookcases $842.60, 
office supplies $222.60. September 24, sold Field, Marshall & Co. at, 1-30, n-6o 
tables and desks $1,825, bookcases and filing cabinets $735, office supplies $246. 
September 25, Saxon Edwards paid on account $500. September 26, bought of 

B. F. Brainard & Co., at 1-30, n-6o, desks $4,675, filing cabinets $5,080, office 
supplies $1,280; Jno Bach & Sons paid bill of 9-15 $2,646.50 less $52.93 dis- 
count; paid P. J. Johnson Mills Co. bill of 9-16 $10,130.70 less $202.61 discount. 
September 27, sold Smith Brooks Stationery Co. at 2-5, i-io, tables and desks 
$1,200, bookcases and filing cabinets $1,150, office supplies $175. September 28, 
paid B. A. Franklin Press bill of 5-2 $850. September 29, Brush Co. paid their 
note of 7-29 $500 with interest $5; the Board of Directors authorized the pur- 
chase of a piece of land lying outside the city limits, with good shipping and ware- 
house facilities, to be used as a sight for a factory for the manufacture of Knox- 
frauds, paying the Hoboken Development Co. $10,000 (with the current year's 
taxes of $75 unpaid and due February I, 1910) and $125 to J. N. Hicks fees in 
connection with special search of title and recording of deed. Plans and specifi- 
cations which Noble had had prepared six months ago when negotiations with 
him had been opened by Jackson in behalf of the Jackson-Edwards-Hanson 
firm, were adopted and ordered placed with contractors for bids to be received 
not later than October 6, the Board reserving the right to accept any or reject 
all bids. September 30, sold Brush Co. at 2-5, i-io, tables $1,475.80, bookcases 
$723.85, office supplies $340; paid salesmen's salaries $2,500, commission to 
salesmen $500, salesmen's travelling expense $1,500, in freight and delivery 
$529.69, delivery expense $200, rent 9-15 to 10-15 $250, receiving and shipping 
room expense $150, sundry office expense $100.25, office salaries $600, adver- 
tising $275, petty cash voucher $137.10 of which $45.50 was for telegraph, tele- 
phone and postage, $50 for office supplies, $25 for sundry selling expense, and 
$16.60 for sundry office expenses; Cash sales for the month were, office supplies 
$1,325.40, bookcases $2,150, desks and tables $4,250. 



I. Using the voucher register you drew up for problem IV, 3, from your own 
data, make at least one entry in each column and three in the sundries column. 
Show the register foote'd, closed, and posted. 


Caxton & Dolton began business January I, 1902. Caxton invested $12,000 
and Dolton invested $11,000. May I, 1902 Caxton withdrew $3,000 and Dolton 
invested $1,000. July I, 1903, Evans was admitted to the partnership, invest- 
ing $8,000. October I, 1903, Evans invested $4,000 more and Dolton withdrew 
$2,000. July i, 1904, Dolton and Evans purchased Caxton's interest in the 
business. On that date their books showed the following financial condition: 
Cash $19,364.50; Merchandise $17,500; Notes Receivable $10,000; Accounts Re- 
ceivable $8,945; Interest Receivable $248.50; Real Estate $6,500; Accounts Pay- 
able $14,000; Notes Payable $5,130; Interest Payable $167.40; Accrued Ex- 
penses $325.60. For the purpose of the sale Good Will was estimated at $5,000; 
depreciation on real estate 5%; bad debts at 3%. Each partner was to share in 
profits on the basis of capitals and the length of time the capital was invested. 
Of the purchase price of Caxton's share, Dolton and Evans were to pay such 
amounts respectively as would make their new capitals equal. Set up the part- 
ner's ledger accounts and show all entries to them in order to take effect of all 
the above data. 


October I, delivery of the voucher register having been made, your accountant 
closes the Purchase Ledger and opens the Voucher Register, transferring the 
balances thereto. The Kistler Stationery Co. presented their bill for $150 
($95-5 for accounting books, records, etc. and $54.50 for printing). Paid New York 
Novelty Works $15 for corporate seal; paid Northwestern Fire Insurance Co. 
$125 for i year policy on stock of goods. October 3, sold Jno. Bach & Sons, at 
2-10, n~30, desks $1,755, bookcases and filing cabinets $658.90, office supplies 
$140. In order to raise money for the purpose of building and equipping the 
Knoxfraud factory, the Board of Directors authorized the sale of the rest of 
the unsubscribed stock at not less than 95. Accordingly subscriptions were 
received from A. J. Scobey for 90 shares at 96, from A. K. Ladd for 125 shares at 
95, and from J. B. Gaynor for 60 shares at 97. One-half is received in cash, the 
rest due on the 25th instant. Certificates of stock are issued the new stock- 
holders. October 4, Smith Brooks Stationery Co. paid their bill of 9-27 $2,525 
less $50.50 discount. October 5, the bank notified you John Bach & Son's note 
for $250, dated 7-4 for 3 mos. at 6% and under discount with them since 8-16 
has gone to protest; you took up the note, drawing your check in favor of the 
Drew National Bank for $256.25 including protest fees, and notified John Bach 
& Sons; paid R. M. Goddard Furniture Co. bill of 9-6 $9,940.10 less $99.40 
discount. October 6, bought of Jackson City Supply Co., at 1-30, n-6o, office 
supplies $3,028.95; sold T. C. Macie & Co., at 2-5, i-io, desks $1,685, bookcases 
$642, office supplies $156; paid Hoboken Electric Co. light and power bill for 
September $50 ($30 was for sign display). October 7, the bids for the construction 
of the factory were opened and all found to exceed the architect's estimate by 
$10,000 or more. It was accordingly decided to reject all bids and construct 
the factory upon their own responsibility, retaining I. M. Builder as supervising 
architect and appointing J. T. Noble as purchasing agent and general superin- 
tendent during construction. All funds from the sale of stock were ordered 
placed under a Building Fund account in the Drew National subject to drawing 
by Hansen in payment of all bills when passed for payment by Edwards and 
Noble. The transfer of funds was accordingly made. Alexander Jacobs returned 
desks and tables $465.85 of their purchase of September 18. Brush Co. paid 
their bill of 9-30 $2,539.65 less $50.79 discount; C. F. Hoeckle Office Supply Co. 
paid their bill of 9-6 $2,376.24. October 8, drew check for $500, advances to 
salesmen, which the bookkeeper charged to an account entitled Salesmen Ad- 
vances opened in the Customers Ledger; paid N. G. Goodfigure, accountant, 
$250 for services. October 9, sold Kistler Stationery Co., at 1-30, n-6o, tables 
and desks $1,858.95, bookcases and cabinets $720, and office supplies $248. 
October 10, took furniture from stock for store and office (desks and tables $150 
for office and $300 for store; bookcases and filing cabinets $175 for office and 
$75 for store). October n, bought from the New Model Truck Co., delivery 
trucks for $3,000, giving our note with 6% interest at 6 mos. for $2,500 and $500 
cash. October 12, sold C. F. Hoeckle Supply Co., at 1-30, n-6o, tables and 
desks $1,625, bookcases and cabinets $720, and office supplies $140. October 

13, received J. T. Noble's demand note without interest for $1,000 in payment 
of balance of subscription contract; the C. F. Hoeckle Office Supply Co. paid bill 
of 9-12 $2,631.15, less $26.31 discount; T. C. Macie & Co. paid their bill of 
10-6 $2,483 less $49.66 discount; October 15, sold Alexander Jacobs Co. at 1-30, 
n-6o, desks $1,825.85, bookcases $642, office supplies $240; paid note No. 91, 
$2,500; Jno. Bach & Sons paid their bill of 10-3 $2,553.90 less $46.98 discount 
and an allowance of $50 on bookcases and $155 on tables account of damage. 
October 16, bought of R. M. Goddard Furniture Co., at 1-30, n-6o, tables and 
desks $9,425, bookcases and cabinets $8,227, office supplies $1,025. October 18, 
sold T. J. Stewart Office Specialties Co., at 2-5, i-io, desks and tables $1,878, 
bookcases and cabinets $580, office supplies $249. October 19, Alexander Jacobs 
& Co. paid their bill of 9-18 $1,771.55 less $17.72 discount. October 20, T. J. 
Stewart Office Specialties Co. returned office supplies $49.50 and cabinets $75 
of their purchase of October 18; A. H. Lawrence and H. C. McCullough paid 
$3,125, the balance on their subscriptions. October 24, Andrew Jackson paid 
his note of 8-25, $750; the T. J. Stewart Office Supplies Co. paid their bill of 
10-18 $2,582.50 less $51.65; sold Field, Marshall & Co. at 1-30, n-6o, desks 
and tables $1,789, bookcases and cabinets $680, office supplies $348; sold Sun-, 
dry Customers, at n~3O, desks and tables $1,100, bookcases and cabinets $860, 
office supplies $350; paid note No. 96, $930.78 with interest $9.31. October 25, 
A. J. Scobey, A. K. Ladd, and J. B. Gaynor paid the balance on their subscrip- 
tions $13,167.50; October 26, bought from Brickley Desk Co., at 2-10, n~3O, 
tables and desks $6,240, bookcases and cabinets $3,780; paid B. F. Brainard 
& Co. bill of 9-26 $11,035 less $100.35; R- M. Goddard Furniture Co. made us 
an allowance on purchase of 10-16 of $200 on desks and $150 on cabinets due 
to latent defects. October 27, paid Kistler Stationery Co. bill of 10-1 $150. 
October 30, sold Jno. Bach & Sons, at 2-10, n~3O, tables and desks $1,465, book- 
cases and cabinets $456, office supplies $435; sold Sundry Customers, at n~3O, 
desks and tables $1,800, bookcases and cabinets $620, office supplies $300; cash 
sales for the month were desks and tables $3,500, bookcases and cabinets $2,832.60, 
office supplies $3,167.40; office supplies used by the office $350; payroll check 
on Building Fund carried $1,950.70 for excavating and foundation labor, Noble 
$200 salary, Builder $350 commission; paid Hoboken City Hospital $50 bill for 
workmen injured during construction; paid payroll, salesmen's salaries $2,650, 
salesmen's commission $580, salesmen's travelling expense $1,525.50, delivery 
men $250, receiving and shipping clerks $163.50, office salaries $600; N. Y. C. 
Ry., freight-in $631.72; N. Y. Paper Co. for sundry office expense $84.75: Ward 
& Gow Publicity Co. for advertising $280 and sundry selling expense $50.25; 
petty cash voucher $144.95 of which $50.75 was for telegraph, telephone, and 
postage, $5 to Bullinger Publicity Co. for entry in city directory, $62.50 for 
stationery and printing, $10 for credit information to R. G. Dunn and Co., 
$16.70 for sundry office expenses; paid the Builders Testing Laboratories $50 
for test of cement and concrete for use in factory construction ; paid J. P. Landown 
rent 10-15 to 11-15 $ 2 5o; Sundry Customers returned tables $150, bookcases 
$85, and sundry office supplies of $52.50 of their purchase of 10-24 as not being 
what they had ordered; we returned bookcases $500 to the Brickley Desk Co. 
of our purchase of 10-26, because of failure of patent doors to operate. 



Close the Cash Book, Journal, Sales Register, and Voucher Record, post and 
take a trial balance as of October 30. When posting, make the Customers Ledger 
self-balancing and take a trial balance of it. Verify the Vouchers Payable bal- 
ance against the Voucher Record. 

Make the following detailed entries for transactions with customers and credi- 
tors under the dates given: 

November 2, Field, Marshall & Co. gave their note for I year at 6% for $3,571.05 
in payment of invoices of 7-6, 9-24, and balance 6-15; gave P. J. Johnson Mills 
Co. our note at 6 mos. for $1,462.59 including $66.99 interest to date at 6% for 
balance of bill of 1-15 $1,395.60. November 3, Kistler Stationery Co. honored 
our sight draft for $1,250 payment of bills of 4-18 and 6-15. 

November 4, wrote B. F. Brainard & Co. claiming a $10 adjustment on account 
of overpayment on October 26 of bill of 9-26, on which the discount allowed 
was $110.35. November 5, paid Jackson City Supply Co. bill of 10-6 $3,028.95 
less $30.29 discount; gave Brickley Desk Co. our note for $9,329.60 at 4 mos. at 
6% for bill of 10-26 $10,020 less $190.40 discount and credit memo of 10-30 
for $500. November 6, Field, Marshall & Co. wrote stating that our monthly 
statement of account to them carried a charge for 10-24 of $2,817 whereas their 
bill of that date carried $2,310. An investigation showed their contention correct, 
the error being due to a transposing of charges between them and Sundry Customers 
for sales on 10-24 when the Sales Register entry was made. The error was 
corrected and correct statements were sent out. The Brush Co. paid their bill of 
5-20 $825. November 7, received credit memo from B. F. Brainard & Co. for $10 
in reply to letter of November 4. November 10, Kistler Stationery Co. gave their 
note for 6 mos. at 6% for $2,826.95 payment of bill of 10-9. November 12, Jno. 
Bach & Sons paid their bill of 10-30, $2,356, less $47.12; Saxon Edwards paid 
their bill of 5-23 $206.75 and balance on 2-10 $85; paid B. F. Brainard & Co. 
bill of 7-11 $802.15 l ess credit memo of 11-7 $10. November 15, paid R. M. 
Goddard Furniture Co. bill of 10-16 $18,677, less credit memo of 10-26 for $350 
and discount of $183.27; C. F. Hoeckle Office Supply Co. paid their bill of 10-12 
$2,485 less $24.85 discount. November 18, Alexander Jacobs paid their bill of 
10-15 $2,707.85 less $27.08 discount. November 21, Saxon Edwards paid their 
bill of 9-21 $2,393.05. November 24, Sundry Customers paid their bill of 10-24 
$2,529.50. November 25, Field, Marshall & Co. paid their bill of 10-24 $2,310 
less $23.10 discount. November 27, T. C. Macie & Co. gave their note for $775.25 
in payment of bills of 5-11, 6-21, and 7-8. November 30, Sundry Customers 
paid their bill of 10-30 $2,720; C. F. Hoeckle Office Supply Co. paid their bill 
of 7-18 $123.90 and balance on 3-12 $250. December 4, paid Jackson City 
Supply Co. $1,050.20 for bills of 6-25 and 7-18. December 9, Smith Brooks 
Stationery Co. gave their note for $873.15 including interest $23.15 on unpaid 
bills for their bills of 6-24 and 7-7. December 13, T. J. Stewart Office Specialties 
Co. honored sight draft for bill of 8-12 $523.12. December 17, offered Field, 
Marshall & Co. a discount of $71.05 from the face of their note of 11-2 if they 

would pay $2,000 cash and give a new note for $1,500 for the balance. Offer was 
accepted and cash and new note for $1,500 received on December 20. (In making 
adjustment on our books, take account of accrued interest on old note of $26.79.) 
December 18, paid F. C. Good Rubber Co. bill of 7-1, $175.19. December 20, 
paid our note No. 95, $1,261.40, with $25.23 interest, held by the Brickley Desk 
Co. December 23, honored B. A. Franklin Press draft at sight for bill of 622 
$262.15. Bank's statement of account showed charges of $1.25 and 75c respec- 
tively for collection of Kistler Stationery Co. draft of 11-3 and T. J. Stewart 
Office Specialties Co. draft of 12-13. 


The following transactions took place during the year and are to be entered 
as of the given date. 

Due to lack of floor space in the sales department and the necessity of carrying 
a large assortment of styles in stock at all times, on January 2, 1910, a warehouse 
was rented nearby for a monthly rental of $100 payable in advance. Under 
date of September i, 1910, enter a payment of $900. The surplus stock was 
removed thereto and insured January 3 for I year at a cost of $250. 

The receiving and shipping room quarters were also removed to the ware- 
house. On March I, a portion of the warehouse was sublet at a monthly rental 
of $40 payable in advance. Enter a receipt of $280 under date of September I, 
1910. Services of A. Pinkerton for $20 a month beginning March I were secured 
to watch store, warehouse, and factory. Record on August 31, 1910, a payment 
of $120. 

On February I, the accrued taxes of $75 at date of purchase of factory site 
were paid. 

August 15, 1910, the factory building was completed. The following expendi- 
tures had been made: For steel, concrete, brick and other materials $15,740.20; 
for labor of all sorts $11, 579.35; for insurance, injuries incurred during construc- 
tion, legal expense in defense, and interest on moneys borrowed for the building 
fund $750; J. T. Noble's salary $2,000 paid and $100 accrued; I. M. Builder's 
fees and commission $1,113.51; and Builders Testing Laboratories $250. The 
factory was largely of concrete and numerous tests were necessary. Several 
purchases of cement had been returned as not being of the required standard. 
The company's note for $10,000 had been discounted for $9,800 and the pro- 
ceeds placed in the Building Fund to finance the undertaking. The $200 dis- 
count is included in the $750 mentioned above. Noble reported that orders for 
machinery and equipment had been placed with Sundry firms and that about 
three months would be required before the machinery could be placed and ready 
for operation as some of the machines were of delicate and complex construction 
and would require careful testing before acceptance. He suggested that orders 
for the raw materials used in the manufacture of the protectograph be now 
placed to take advantage of a low market. Accordingly $10,000 worth was 
ordered from the New Method Mdg. Co., an advance payment of $2,500 being 
made on August 25 and charged to Trade Debtors, the balance to be paid when 
delivery is made, not earlier than October 31. It was decided to close out the 
division of Sundry Office Supplies and dispose of the balance on hand October 
31 at a lump sum. 

June 15, the Boston Office Co. sent $5,000 of office specialties to be sold on a 
5% commission basis for their account. 

July i, a statement of affairs was received from Jno. Bach & Sons showing 
their insolvency and copy of an agreement signed by several creditors to accept 
settlement of all claims on a 40% basis. Your attorney, having been unable to 
collect and having investigated, advised the acceptance by you of their offer. 

Accordingly on July 27, a check was received from Bach & Sons for 40% of the 
balance as shown by your books. (Charge Jackson, Edwards, Hanson with 60% 
of $169.36, the part guaranteed by them, and Reserve for Doubtful Accounts 
with 60% of $256.25.) 

March I, on account of the flourishing condition of the sales, an interim divi- 
dend of 4% was declared and paid. Noble's was applied as a partial payment 
on his stock note. 


On November 15, 1914, Isaac Cohen & Co. Ltd., sent for sale on their account 
a consignment of goods valued at $5,000 to John Stimson & Sons, factors of 
Boston, sale to be on a 5% basis with i% additional for guaranty of collection 
of accounts. Prepaid freight amounted to $25.40. December 26, an account sales 
from Stimson & Sons showed sales of $5,775.20 and expenses in connection 
therewith, exclusive of commission and guaranty, of $42.25. The net proceeds 
were placed to Cohen & Co.'s credit, subject to sight draft. 

1. Show all the accounts affected on Cohen & Co.'s books in order to: 

a. Show the profit or loss on this consignment. 

b. Include the profit or loss with their regular sales. 

2. Stimson & Sons fiscal year ended November 30. On November 25 they 
had sold one-fourth of the Cohen & Co. consignment for $1,500 and had incurred 
the expenses of $42.25 mentioned above but applicable to the whole consignment. 
Show Stimson & Sons' accounts affected properly closed. 


In addition to the special data given in XII, the following transactions in due 
course took place. 

Make the record as of August 31, 1910 with summary entries. 

SALES JOURNAL: Sales to Sundry Customers were: Desks and Tables $200,- 
670.20, Bookcases and Filing Cabinets $153,803.40, and Sundry Office Supplies 
$16,115.26. Return Sales and Allowances were: Desks and Tables $4,240.15. 
Bookcases and Filing Cabinets $4,250.65, and Sundry Office Supplies $675.50. 
Cash Sales were: Desks and Tables $35,000, Bookcases and Filing Cabinets 
$21,500, and Sundry Office Supplies $2,825.15. Included in this last item is the 
$250 stationery referred to under "Journal" below as drawn from stock. 

CASH BOOK: Received: from Cash Sales as above; from Sundry Customers 
$269,359.50 less Sales Discount of $3,940.20; from Notes Receivable $5,000; 
from Notes Payable discounted $42,500 less $350 discount; from Notes Receiv- 
able discounted $15,000 less discount of $50. Disbursed for Vouchers Payable 

JOURNAL: Gave our notes to Sundry Creditors for $8,500; received notes from 
Sundry Customers $25,200.50; notes receivable discounted were paid by makers 
at maturity $10,250; Stationery was drawn from stock $250 and used for adver- 
tising purposes. 

VOUCHER REGISTER. Bought Desks and Tables $99,842.95, Bookcases and 
Filing Cabinets $73,758.15, and Sundry Office Supplies $12,684.40. Purchases 
discount was $2,153.40; In freight and delivery $3,740.28; Receiving and Ship- 
ping Room Expense $2,690.14; Heat, Light and Power $725.16; Salesmen's 
Salaries $65,840.20; Salesmen's Commissions $20,730.30; Travelling Expenses 
$42,420.70; Advertising $12,280; Sundry Selling Expense $940.03; Delivery Ex- 
pense $7, 280.90; Warehouse Expense $50; Office Salaries $11, 600; Stationery and 
Printing $450; Collection and Exchange $30.05; Interest and Discount $1,096.27; 
Sundry Office Expense $72.15; Telephone, Telegraph, and Postage $475.03; 
Notes Payable $47,250.19; Rent $3,250; Power Equipment $5,000; Taxes $160.15; 
Noble's salary for August $200. (Charge $100 to Factory Building and $100 to 
Power Equipment.) 


Summarize the various books and post completely. 


Take a trial balance of the General and Customers Ledgers. 


From the following trial balance and adjustment data for the Excelsior Trad- 
ing Co. prepare a statement of income and balance sheet as of December 31, 1914: 

Cash $15,324.00 

Land 260,000.00 

Buildings 350,000.00 

Furniture and Fixtures: 

Store 25,430.00 

Office 5,201.00 

Delivery Equipment 45,000.00 

Notes Receivable 35,812.00 

^Totes Receivable Discounted 10,000.00 

Accounts Receivable 163,374.00 

Investments 20,000 . oo 

Salesmen's advances 1,960.00 

Organization Expense, $15,000 less 2% 14,700.00 

Good Will 200,000.00 

Notes Payable 22,000.00 

Accounts Payable 78,5 1 1 . oo 

Mortgage on Land and Buildings 55,000.00 

Special Accounts Payable 61363 . oo 

Reserve for Doubtful Accounts 3% 298.90 

Reserve for depreciation buildings 2^% 8,750.00 

Reserve for depreciation delivery equipment 20% 9,000.00 

Reserve for depreciation furniture and fixtures 10% 3.063 . 10 

Capital Stock 1,000,000.00 

Sales less returns and allowances 1,240,600.00 

Rent of part of business premises 500 . oo 

Inventory Dec. 31, 1913 104,621.00 

Purchases including in-freight and cartage 996,062 . oo 

Office Salaries 75,120.00 

Salesmen's Salaries 60,440.00 

Advertising 50, 300 . oo 

Taxes 4,020.00 

Insurance 2,600.00 

Interest and Discount 6,500.00 

Repairs and Maintenance: 

Buildings 20,042 . oo 

Delivery Equipment 6,900.00 

Surplus 60,070 . oo 

Sundry Office Expenses 1 5 , 500 . oo 

Sundry Selling Expenses 14,250.00 

$2,493,156.00 $2,493,156.00 

Inventory December 31, 1914 $270,560.00 

Salesmen's Salaries accrued 5,750.00 

Unexpired Insurance 912.00 

Advertising prepaid 1 ,300 . oo 

Taxes accrued 5 1 2 . oo 

Interest accrued on investments 125.00 

Write off 2% of the Organization Expense, make the same reserves for depre- 
ciation and doubtful accounts as for the preceding year; take into account an 
item charged to buildings maintenance and repairs of $2,500 which was a build- 
ings' betterment. 


Close the books, by journal entry, for the fiscal year ending August 31, 1910, 
taking account of the following adjustments and inventories: 
Rent Income received in advance, $40. 
Warehouse rent paid in advance, $100. 
Interest accrued on notes receivable, $50. 
Salesmen's Salaries accrued, $420. 
Salesmen's Commissions accrued, $125. 
Advertising bills unpaid, $100. 
Advertising paid in advance, $250. 
Stationery on hand, $50. 

Insurance: first policy, one year, bought 10-1, cost $125, 1/12 unexpired 
$10.04; second policy, one year, bought 1-2, cost $250, 4/12 unexpired $83.33. 
Taxes for the year 1910, estimated $565.42, 2/3 used $376.95. 
Purchases Discount not yet taken advantage of on unpaid vouchers $475. 
The Knoxfraud patent had 15 years to run when purchased. 
Write off 1/15 of its value, it being the policy of the company to maintain 
an experimental laboratory and so overcome any possible supersession. 
Write off Organization Expense and Good Will 5% each. 
Create reserves for: Furniture and Fixtures 10%. 
Delivery Equipment 15%. 
Doubtful Accounts, 3% on Trade Debtors and 2% on 

Notes Receivable. 

Take no account of depreciation on Factory Building or Power Equipment. 
Inventories of Stock-in-trade: 

Desks and Tables $4,943 . 86 

Bookcases and Filing Cabinets 1,521 .31 

Sundry Office Supplies 3,197.20 

In-freight and delivery: charge $2,500.00 to Desks and Tables purchases 

2,100.00 to Bookcases and Filing Cabinets 


297 . 69 to Sundry Office Supplies purchases 
Light, Heat and Power: charge 3/4 to Selling 

i /4 to General- Administrative 
Receiving and Shipping Room: charge 3/4 to shipping 

i /4 to receiving, of which 
50% to Desks and Tables 
45% to Bookcases and Filing Cabinets 

5% to Sundry Office Supplies 
Rent: charge 4/5 to Selling 

1/5 to General-administrative 
Insurance: charge $335.24 to Selling 

41.75 to General-Administrative 

Taxes: charge all of the 1909 taxes ($160.15) to Surplus 
Discount on Stock: charge to Factory Buildings 


Draw up statements for the year, the Income statement to be supported by 
a condensed statement showing percentages of cost of sales, gross profit, selling 
expense, general and administrative expense, and net profit. 


The results for the year proving very unsatisfactory in comparison with the 
volume of business transacted, N. G. Goodfigure was retained to make an audit 
of the year's operations in an effort to locate the trouble. In his report cover- 
ing the audit, he called attention to the following items: 

1. In the Trade Debtors are included two charges, viz. advances to salesmen 
$500 and prepayment on purchases $2,500 which are in no sense charges to 

2. In the Notes Receivable is included Noble's note given in payment of the 
balance on his subscription to capital stock $1,000 but now reduced to $600 
through the application of his March dividend as a partial payment. This does 
not belong in the Notes Receivable account. 

3. There is no record on the books of the Boston Office Co. consignment re- 
ceived on 6-i5~'io. Investigation showed that on 7-2 a sale of $4,500 was made 
from the consignment and the balance was included in your Sundry Office Sup- 
plies inventory, being there valued at $1,000. It was ascertained that the freight 
and cartage paid on the incoming consigned goods amounted to $25.12 and had 
been charged to your own In-freight and Cartage account. 

4. The inadequacy of the purchases system was shown. Perhaps due to the 
fact that during the year your main stock was withdrawn from the store and 
the immediate supervision of the responsible head and placed in the warehouse, 
the stock had been allowed to run down so that it amounted at the close of the 
year to only $9,662.37 correct value being $8,662.37 when allowance for the in- 
clusion of the Boston Office Co. consigned goods was made as compared with 
$42,282.27 on hand at the beginning. Suggestion for the installation of a dis- 
tinct purchasing department and the introduction of a stock record was made in 
order to keep track of the condition of the stock. 

5. The depreciation of Good Will is to be reversed. 

6. The discount on capital stock, charged to Factory Building, is to be taken 
out and shown as a separate item under its own name. 

7. An analysis of the sales developed that: on Desks and Tables Sales gross 
profit was 47% and rate of turnover was 9 + ; on Bookcases and Filing Cabinets 
gross profit was 38% and turnover 6.4+ and on Sundry Office Supplies a gross 
loss of 17+% was sustained and the turnover was only 3+. Taken as a whole, 
the selling expense was too high, very probably due to an abnormal salesmen's 
travelling expenses and commissions. The present commissions' policy was 
severely condemned as tending to an increase of sales without regard to the 
financial standing of the customer. For the purpose of establishing a consistent 
policy of passing on credits and following up collections, the installation of a 
department of Credits and Collections was advised. 

8. It was advised that the Petty Cash be taken out of the bookkeeper's control. 

9. Of the 1909 taxes charged to Surplus, one-third should have been charged 
to Profit and Loss. 

Make all of the entries necessary to adjust the books in accordance with the 

auditor's suggestions. Post, close, and draw up corrected statements including 
the adjustments to Surplus, supporting the Income statement with a schedule 
showing cost of sales and gross profit by departments and percentages of gross 


September 10, 1910 a one-year fire insurance policy covering factory building 
and equipment was bought from the Northwestern Fire Insurance Co. for $584.68. 

At a meeting of the directors and stockholders for the purpose of reviewing 
Goodfigure's report and forecasting a policy for the coming year the following 
items were thoroughly considered: 

1. In order to pursue a vigorous sales policy such as would now be necessary 
and along the lines suggested by Goodfigure, immediate purchases in large 
amounts would have to be made. 

2. The company's credit, at the present time, with more than $70,000 of cur- 
rent payables outstanding, would not bear further expansion. Ready funds of 
at least $20,000 would have to be provided within the next month to take up 
outstanding notes and the more pressing bills, to say nothing of the amount 
needed to take advantage of all discounts offered on new purchases. 

3. The contracts entered into for purchases of machinery and raw materials 
would soon have to be fulfilled requiring an additional sum of $20,000 or $25,000. 

4. In view of the policy previously decided upon to close out the division of 
Sundry Office Supplies on October 31 and push with vigor the new" knoxfraud, 
a wide-spread advertising campaign was decided upon for the next six months in 
order fully to present the need for the new device and its merits. It was estimated 
that $15,000 or $20,000 would be needed for this. 

5. The absolute necessity for additional capital was apparent. Before the 
company could hope successfully to secure subscriptions to a new issue of stock, 
not only would that stock have to be made attractive, but the company's con- 
dition as to surplus would have to be improved. Accordingly, it was voted to 
donate 10% of the capital stock into the treasury and offer it for sale first to 
the present stockholders and then to the public at not less than 90. Then it was 
ordered that the capital stock be increased by the issuance of $50,000 of First 
Preferred 6% cumulative and $25,000 of Second Preferred 8% non-cumulative, 
both classes of stock to have further participation on the following basis: 

In the event of dividends in excess of the requirements for the preferred stock 
and 6% on the common, the first preferred should share 1-3 and the common 2-3 
of such excess for an additional dividend until they should have received in all 
an 8% dividend and so be placed on an equality with the second preferred. Of 
all further dividends the common was to share 3-4 of the amount of such excess 
dividends and the two preferred classes the other 1-4 distributable between them 
in the ratio which the amount of each outstanding bore to the total of both 
classes outstanding. 

The necessary legal requirements for increasing their capital having been met, 
the present stockholders took all the treasury stock at 90 and the two classes of 
preferred were entirely subscribed for at par, payable y* down and the remainder 
subject to two equal calls at the end of 4 and 8 months respectively. Cash on 
account of treasury stock and the preferred was received as indicated. 

Make the entries to record the above data under date of October 25, 1910. 
(Charge the discount on stock against the surplus received from donation). 
Transfer the cash balance in the Building Fund into the General Cash, there 
being no longer any need of the separation. 



The Colorado Rock Drill Co. authorized the issue of $100,000 of 6% cumu- 
lative preferred stock callable by lot in amounts as follows: 

$10,000 at the end of 5 years at 107 in cash 

$10,000 at the end of 7 years at 106 in cash 

$15,000 at the end of 10 years at 105 in cash 

$15,000 at the end of 12 years at 104 in cash 

$50,000 at the end of 20 years at par in cash or convertible into the company's 
common stock at the option of the company. The entire issue was sold for cash 
at 103. 

Set up the accounts showing the handling of all redemption transactions at 
the five periods above referred to, with these additional facts: it is the expecta- 
tion of the company to provide for a permanent increase in capital of $100,000, 
the amount of the preferred stock issue, during the life of the issue; and at the 
end of the 20 years, the company exercises its option by converting $30,000 of 
the preferred into common stock out of unissued common to that amount held 
in the treasury. 


By October 31 all of the Sundry Office Supplies had been closed out for $2,000 

The raw materials contracted and partially paid for on August 25, were re- 
ceived and on November 10, a check for the balance due less 2% discount on 
the contract, was sent to the New Method Mfg. Co. (Be sure to book the proper 
charge to Raw Materials.) Materials were insured for I year at a cost of $175. 

On November 30, the last of the machinery was received from the Harvey 
Machine Mfg. Co. and installed. The invoice cost was $15,000 of which $12,000 
was paid in cash and the company's note secured by mortgage was given for 
the balance. In-freight and delivery on the machinery amounted to $675.40 and 
placement expense, not including concrete platforms and piers which had been 
charged to the building at a cost of $750, amounted to $225. Noble's salary 
for the three months while passing upon and superintending the placing and 
erection of machinery was charged $400 to machinery and $200 to power equip- 
ment. The additional expenditure of connecting the machinery with the power 
including shafting, belting, labor, etc. amounted to $550.50. December 2 
an insurance policy for I year covering machinery was purchased for $275.40 
from the New Jersey Mutual. 

Full factory operations were commenced on December I and orders were 
taken for knoxfrauds for delivery beginning with the first of the year. It 
was determined to extend the current fiscal period and not close the books until 
December 31, 1911. The advertising campaign was producing results so that to 
fill orders the factory had to work two shifts of men beginning with March I. 
As a result of seeming prosperity and a discontent engendered by labor leaders 
who had recently unionized the works, a demand for a 15% increase in wages 
was made and refused, resulting in a walk-out on March 30. A patrol against 
strike breakers was established on April 2 after about one-third of the full com- 
plement of workers needed for operation had been secured. Some of these de- 
fected and the rest were quartered in the shops to prevent violence. After three 
weeks of partial operation at an increased expense of $1,500 directly attributed 
to the strike, one of the boilers exploded damaging the building and equipment, 
the resulting fire consuming supplies and damaging raw materials. An investi 
gation placed the blame on a half-crazed workman whose sympathies were with 
the strikers. Hospital fees for injured workmen amounted to $500. (Record 
these two items as cash expenditures for the purposes named under date of 
April 20.) The insurance companies settled the losses as follows: the building 
and the power equipment on which the estimated damage was $3, 500 were placed 
in complete repair; the estimated damage on materials, determined after an 
inventory and comparison with stock records, amounted to $4,000 and was 
covered by $3,200 insurance which was paid in making the estimate scrap 
value of damaged goods was placed at $1,000 but only realized $750 when sold; 
machinery costing $3,500, with a scrap value of $500, realized on sale by the 
company $650, the insurance received being $2,000. (On the machinery 81-3% 

annual depreciation is to be taken into account and the portion of the unexpired 
insurance roughly estimated at $150 now cancelled by the payment of the 
insurance on both raw materials and machinery is to be considered in making 
charges to the Fire Loss account.) Additional loss and expense due to decreased 
production and cancellation of orders because of not being able to deliver goods 
when promised was estimated at $7,500. The strike was finally settled by grant- 
ing a 5% increase in wages. 

The directors had under 5 consideration the incorporation with the knox- 
fraud of a patent listing and adding device owned by J. Q. Osgood. In view 
of the need of some additional capital anyway due to the strike losses, it was 
decided to incorporate the new device now since it would be easier to make 
the needed changes at this time than after operations had been resumed. Accord- 
ingly a rearrangement of the machinery was necessary to make room for the 
new machinery and place it for proper routing of the product. This entailed 
an expenditure of $750 for the rearrangement and $5,500 for new machines to 
replace those disposed of and to manufacture the new device. (Make the record 
as of April 30.) The contract entered into with Osgood was on a royalty basis 
per unit turned out by the machines and for one year's time beginning May I. 
The directors decided on a continuation of the advertising campaign. To pro- 
vide funds for these purposes a bond issue was determined upon $20,000, 
20 year, 6%, interest coupons redeemable November I and May I secured by 
mortgage on the factory and its equipment. The trust agreement provided for 
the payment at the close of each fiscal year of $750 out of profits into the hands of 
the Guaranty & Trust Co. for investment in securities until a sinking fund suf- 
ficient to retire the bonds at their maturity shall have been established. $15,000 
of the bonds were offered for sale and were purchased at 95 for cash except one 
purchase on a note for $950. The remaining $5,000 were held in the treasury 
until needed. 

Record the above transactions as of the dates given the bond transactions 
took place on May I. 



The remaining data for the 16 months ending December 31, 1911, have been 
summarized in most instances and were as follows: (In making record, use the 
dates given or December 31, where none are given.) 

September 2, 1910 the remainder of the Boston .Office Co. consignment was 
sold for $1,250 cash and a check sent them for the balance due. Desks and tables 
$575 and filing cabinets $250 were taken from stock for use in the factory. Addi- 
tional benching and racks were bought for $450 cash. Shop and hand tools cost 

June i, 1911 a dynamo costing $525 was sold for $415 and a larger one pur- 
chased from the General Electric Co. at a cost of $975.50 installed. (Take into 
account depreciation at I2>% per annum.) Additional motor trucks were 
purchased from the New Model Truck Co. for $1,790. (Entry was made at 
$1,740, taking into account a special discount of $50 for payment within 10 days. 
Through oversight the voucher was not paid till July I, thus losing the discount.) 

Voucher Register: Bought Desks and Tables $200,431.95, Bookcases and 
Filing Cabinets $149,878.79, Raw Materials $62,749.63. Purchases discount was 
$4,290.89; In-freight and Delivery $8,650. Payroll; Direct Labor $99,475.50, 
Indirect Labor $11,900.17; Engineers and Firemen's wages $5,125.67; Building 
Maintenance and Repairs $200; Machinery Repairs $193.50; Receiving and 
Shipping clerks, $1,550.20; Assembling and Setting-up labor $500.80; Salesmen's 
Salaries $173,790.25; Travelling Expense $91,475.89; Salesmen's Commissions 
$79,612.40; Delivery men $3,500; office salaries $15,900; Patterns $1,250; Fac- 
tory work benches $75; Experimental laboratory $2,500. Materials purchased 
for Building maintenance and repairs $326.40, for Machinery repairs $85, for 
Patterns $550. Coal and water cost $11,193.40; Sundry light, heat and power 
expense $1,062.60; Packing and shipping supplies $4,469.70; Delivery expense, 
including motor-truck repairs and maintenance, $12,989.14; Taxes $585.43; 
Factory supplies $1,124.17; Sundry factory expense $750.28; Royalties $875; 
Insurance, including employers' liability insurance for factory workmen, $2,277.45; 
Warehouse expense $540; Warehouse rent $850; Sundry selling expense $2,- 
196.40, Rent $7,500; Stationery and printing $2,310.17; Telephone, telegram 
and postage $1,092.15; Sundry office expense $1,312.43; Collection expense 
$1,025.43; Interest and discount $902.20; Bond interest $450; Materials for 
laboratory $1,500; Legal expense in defending patents $175; Street and sewer 
improvement tax on factory sight $525.60; Advertising $123,470.10; Notes 
Payable 125,261.75: Notes Receivable discounted but protested and charged 
back $1,260.50, Advances to salesmen $1,500. 

SALES JOURNAL. Sales to Sundry Customers: Desks and Tables $290,721.15; 
Bookcases and Filing Cabinets $204,422.20; Knoxfrauds $351,622.50. Cash 
Sales were: Desks and Tables $91,213.10; Bookcases and Filing Cabinets $71,- 
253.20; Knoxfrauds $124,121.25. Sales returns and allowances were: Desks 
and Tables $10,192.50; Bookcases and Filing Cabinets $8,269.10; Knoxfrauds 

CASH BOOK. Received: from Cash Sales as above; from Sundry Customers 
$624,736.74 less Sales Discount of $15,962.14; from interest $750; from Notes 
Receivable discounted $19,260.25; from Notes Receivable $10,192.60; from Rent 
income $160 the sub-lease on the warehouse was cancelled because the room 
was needed for increased stock from first call on outstanding subscriptions to 
capital stock $18,250, from second call $18,000. 

Disbursed: for vouchers payable $1,005,833.95. 

JOURNAL. Received notes from Sundry Customers $59,370.50. Gave notes to 
Sundry Creditors $45,000. Notes receivable discounted were paid by makers at 
maturity $12,379.60. Call No. I on unpaid subscriptions to capital stock for 
one-half the outstanding was made on February 25 and call No. 2 on June 25. 
Trade debts proved uncollectible from bankruptcy or other cause to the amount 
of $3,572.40. 



A trial balance taken from the general ledger of the Metal Bed Mfg. Co. for 
December 31, 1914 showed as follows: 

Bed Sales $325,198.67 

Bed Sales Returns and Allowances $10,240.80 

Bed Accessories Sales 192,460.90 

Bed Accessories Sales Returns and Allowances 8,175.25 

Raw Material Inventory 25,240. 16 

In-Freight and Drayage 1,460.24 

Beds in Process 15,970.20 

Finished Beds 42,490.70 

Accessories Inventory 19,580.65 

Direct Labor 35,9 1 8 . 60 

Indirect Labor 10,372.40 

Light, Heat and Power 8,917.18 

Manufacturing Expense 5,890.10 

Rent 3,300.00 

Machinery Repairs and Renewals 575 . oo 

Raw Materials Purchases 175,460.18 

Raw Materials Purchases Returns & Allowances 9,840.60 

Accessories Purchases 95,640.81 

Accessories Purchases Returns and Allowances 4,890.06 

Advertising 4,800.00 

Salesmen's Salaries 13,690.75 

Salesmen's Commissions 4,610.15 

Travelling Expense I o, 1 1 1 . 25 

Out-Freight and Shipping 790.20 

Delivery Expense 3,8 16 . 25 

Insurance on Sales Room Stock 475.00 

Insurance on Factory Materials 820.00 

Insurance on Buildings and Equipment 1,890.00 

Miscellaneous Selling Expense 4 I 75-3O 

Office Salaries 1 5 ,2 1 o . 40 

Interest and Discount 3,620.55 

Bank Expense I 25 . 45 

Office Furniture and Fixtures 1,240.00 

Depreciation Reserve Office F. and F. 620.00 

Office Supplies 720.20 

Miscellaneous Office Expense 1,810.65 

Leasehold (99 years) 99,000.00 

Extinction Reserve for Leasehold 24,000 . oo 

Buildings 125,000.00 

Depreciation Reserve for Buildings 50000.00 

Machinery 72,520.70 


Depreciation Reserve for Machinery 



Depreciation Reserve for Patterns 

Factory Furniture and Fixtures 

Depreciation Reserve Factory F. and F. 

Sales Room Furniture and Fixtures 

Depreciation Reserve Sales Room F. and F. 

Sales Discount 

Purchases Discount 

Good Will 

Accounts Receivable 

Notes Receivable 

Accounts Payable 

Notes Payable 

Mortgage Payable 

Petty Cash 


Reserve for Doubtful Accounts 

Capital Stock Common 

Capital Stock Preferred 6% 

Harriman National Bank 

Common Dividend No. 37 

Preferred Dividend No. 25 

$ 1 ,042 ,966 .04 $ 1 ,042 ,966 . 04 

The company conducts a factory for the manufacture of metal beds. It deals 
also in mattresses, springs, bed furnishings, etc., which it buys ready-made and 
sells to the retail trade. Its two classes of sales, beds and accessories, are kept 

Draw up a balance sheet and income statement for the year showing cost to 
manufacture, taking into account the following inventories and other adjustments: 


















50,000 . oo 





Accrued Expenses: 

Prepaid Expenses: 

Raw Materials 

Beds in Process 

Finished Beds 

Bed Accessories 

Direct Labor 

Indirect Labor 


Light, Heat and Power 


Sales Commissions 


Coal, waste, oil, etc. 


Office Supplies 















Bank Discount 125.00 

Insurance on Sales Room Stock 50 . oo 

Insurance on Factory Materials 125.00 

Insurance on Buildings and Equipment 256 . 40 

Interest earned on notes receivable but not yet due 75 . 20 

Depreciation is estimated as follows on a yearly basis: 

Office Furniture and Fixtures 81-3% 

Factory Furniture and Fixtures 10% 

Sales Room Furniture and Fixtures 10% 

Buildings 2% 

Machinery 10% 

Patterns 20% 

The Leasehold was originally for 99 years of which 25 years have now expired. 
Bad Debts are calculated as 2% of the accounts and notes outstanding. 
Tools now on hand amount to $4,800.25. 

In-freight and drayage is to be charged 55% to factory and 45% to selling. 
Light, Heat and Power charge 90% to factory, 9% to selling, and i% to office. 
Rent, charge 60% to factory, 35% to selling, and 5% to office. 
Insurance on buildings and equipment, distribute according to the values 
invested, separating buildings' values on the same basis as rent. 

Dividends No. 26 for 3% on preferred and No. 38 for 6% on the common are 
declared and paid. 


Post the books and prepare a trial balance before closing the ledger, as of 
December 31, 1911. 


Close the books, through the journal, for the sixteen months ending December 
31, 1911, taking account of the following adjustments and inventories: 

Coal and power supplies on hand $1,240. 19 

Packing materials on hand 340 . 20 

Gasoline on hand 1 25 . oo 

Factory Supplies I oo . oo 

Insurance unexpired 540 . 23 

Warehouse rent prepaid 150.00 

Stationery on hand 1 50 . oo 

Experimental laboratory materials on hand 425 . oo 

Advertising prepaid 500 . oo 

Advertising unpaid 1 ,000 . oo 

Purchases discount not yet taken on unpaid vouchers 840.22 

Direct labor accrued 1 ,793 . 75 

Indirect labor accrued 225 . 33 

Engineers and firemen's wages accrued 125.67 

Receiving and shipping clerks' wages accrued 75 . 50 

Assembling and setting up wages accrued 15.00 

Salesmen's salaries accrued 2,524.50 

Salesmen's commissions accrued i ,360 . 1 8 

Deliverymen's wages accrued 67 . 50 

Royalties accrued 1 50 . oo 

Rent accrued 400 . oo 

I nterest payable 17.25 

Taxes on factory accrued 819 . 37 

Taxes on stock accrued 395 . 62 

Bond interest accrued 1 50 . oo 

Inventories of stock-in-trade and raw materials were: 

Desks and Tables 20,855 J o 

Bookcases and Filing Cabinets 17,671 .40 

Knoxfrauds, finished 2,511.20 

Raw Materials 15,241.92 

Goods in Process 9,255 . 65 

Calculate depreciation at the yearly rates given below. Except in the case of 
motor trucks where the date of the last purchase is to be taken into account, 
the balance in the account is to be used as the basis, reckoning for 16 months. 

Power Equipment 12 1-2% 

Machinery 81-3% 

Factory Buildings 11-2% 

Patterns 20% 

Patents 1-14 

Delivery Equipment 15% 

.Furniture and Fixtures, Factory 12 1-2% 

Furniture and Fixtures, Store and Office 10% 

Organization Expense 5% of the original cost 

Tools inventory $825 . 50 

Allocate the following charges as indicated : 
Insurance: $2,196.43 to Factory and $519.24 to Selling. 
Taxes: 1,012.24 to Factory and 411 .23 to Selling. 

Receiving and Shipping: ^ to Shipping and y* to Receiving of which, 

40% to Desks and Tables. 
35% to Bookcases and Filing Cabinets. 
25% to Raw Materials. 
In-freight and Delivery: $4,400 to Desks and Tables. 

3,500 to Bookcases and Filing Cabinets. 

750 to Raw Materials 
Rent: $6,400 to Selling, $1,500 to Office. 
Light, Heat, and Power: 92% to Factory; 6% to Selling; 2% to Office. 

Create a reserve for doubtful accounts of 3% on Trade Debtors balances and 
2% on Notes Receivable still unpaid. (Do not reckon on a 16 mos. basis). It 
is decided to take into account as an additional expense chargeable to this period 
1/4% of outstanding Trade Debtors for sales discounts that will probably still 
be taken advantage of. 

Close Loss on Sale of Dynamo against Surplus. 

Close Fire Loss into Strike Loss and charge Strike Loss to Surplus. 

In closing, Bond Discount is to be amortized on a straight line basis, i.e. 1-40 
each half year. 

The Experimental Laboratory has succeeded in securing a patent for a listing 
and adding device for use with the knoxfraud, of much simpler operation and 
cheaper to manufacture, than the one on which royalty is being paid. Hence, 
when the royalty contract expires it will not be renewed. Capitalize the Labora- 
tory expense to date. 

A very careful analysis of the Advertising costs shows an expenditure of $78,- 
445.25 above normal. It is decided to transfer this to Good Will. 

Claims for damage have been filed against the railways amounting to $1,025.10. 
(Bring this onto your books with an offsetting reserve of the same amount.) 

A dividend of 12^% n the common is declared payable January 20, 1912. 

Take into consideration the sinking fund requirements of the bond mortgage. 


Finish the work given under XXVI. 


A fire partially destroyed the power plant and equipment of the Zehner Manu- 
facturing Company on the night of June 30, 1910, entailing a loss of $25,000 
on the building and a 2-3 loss on the equipment. Insurance for one year, with 
the 80% coinsurance clause, had been purchased January I, 1910 for $1,775 
covering the above property. The policies carried $40,000 on the power house 
and $100,000 on the power house equipment. On that date January i, 1910 
the values of the power house and equipment as shown on the balance sheet were: 

Power House $75,000.00 

Less Depreciation Reserve 12,000.00 


Power House Equipment 200,000.00 

Less Depreciation Reserve 80,000.00 

1 20,000 . oo 

Depreciation was estimated at the rate of 4% per annum on the power house 
and 10% on the equipment. 

The insurance company settled on the above basis. 
Make all the necessary adjustments in the accounts. 


Prepare a Balance Sheet and Income Statement as of December 31, 1911. 
Show the Cost of Sales in a supplementary schedule. Prepare also a statement 
of Surplus adjustments since the last regular closing and a condensed Income 



All work must be completed and ready to turn in by the close of the session. 
No credit is given for work presented after this date. 



At the close of the fiscal year ended June 30, 1900, Thomas J. Howe called you 
in to determine his financial condition. From the books, which were kept on the 
single-entry plan, and from other sources you gathered the following informa- 

The ledger contained the following accounts: Thomas J. Howe, c-a $4,000; 
Thomas J. Howe, d-a (debit) $472; Expense (debit) $184; Sales $18,945; Pur- 
chases $17,450; customers' accounts considered good: H. E. Brewer $110; D. 
Cohen $85; Will Benton, $190; Linn Bros., $77; Customers' accounts which 
have proved uncollectible: Peter Metz, $43; L. C. Fish, $101; Creditors' ac- 
counts: Stone Bros., $942; Little & Co., $1,082; H. Hudson, $1,220; also ac- 
counts with Salaries, $375; Advertising, $112. 

Other sources yielded this information: Stock of goods on hand inventoried 
at $5,641; Horses and wagons estimated as worth $730; Store Fixtures, $1,114; 
Rent of store building unpaid, $300; Clerks' salaries unpaid, $84; Notes Re- 
ceivable, $2,300; Notes Payable outstanding (non-interest bearing) $2,400. 
Bill of goods received from Stone Bros., which has been included in the in- 
ventory but which has not been entered in Stone Bros.' account, $193; Interest 
accrued on Notes Receivable, $16; Cash in the bank and safe, $1,724. 

It was found that the following information was available for determining 
his financial condition as at the close of the preceding fiscal year, June 30, 1899: 
Cash, $1,478; Notes Receivable, $500; Notes Payable, $800; Howe's Capital 
a-c, $4,000; Store Fixtures, $900; Inventory of goods in stock, $2,800; Horses 
and Wagons at an estimated value of $800; Customers' accounts total, $2,314; 
Creditors' accounts total, $3,609. 

From the foregoing, prepare 

1. Statement of financial condition of Thomas J. Howe as of June 30, 1900. 

2. Statement showing the amount of profit made or loss sustained for the 
fiscal year ended June 30, 1900. 


1. Prepare a statement setting forth in numerical order the advantages of 
double-entry over single-entry accounting systems. 

2. As a result of your convincing argument Mr. Howe has decided to change 
his system of accounting from single to double-entry. 

From data obtained from the solution of Problem No. I, prepare the neces- 
sary entries to change the accounting system to double-entry, continuing the use 
of the old ledger and providing for controlling accounts for customers and 

3. Show by means of a skeleton ledger the present condition of all the accounts 
after converting the single-entry ledger into a double-entry ledger. 

4. Prove that you have the ledger in double-entry form by presenting a trial 


The following trial balance was taken from the books of Thomas J. Howe at 
the close of the next fiscal year. 


Cash $894 . oo 

Notes Receivable 5,000.00 

Accounts Receivable 18,000.00 

Thomas J. Howe, c-a 6,000.00 

Thomas J. Howe, d-a 560 . oo 

Notes Payable 3,ooo . oo 

Accounts Payable 15,640.00 

Purchases 77,100.00 

Sales 93,620.00 

Mdse. Inventory, 6-30-1900 5,641.00 

Purchase Discounts 743 . oo 

Sales Discounts 1,420.00 

Freight Inward 2,884.00 

Insurance 300.00 

Interest Earned 146.00 

Returned Sales 930 . oo 

Returned Purchases 760.00 

Furniture and Fixtures 2,000.00 

Horses, Wagons and Harness 1,200.00 

Rent 1,500.00 

Advertising 300 . oo 

Expense 180.00 

Salaries 1,600.00 

Commissions Paid on Sales 400 . oo 

$119,909.00 $119,909.00 

At this date, you will find that the following items must be considered to de- 
termine the financial condition of Mr. Howe: 
Mdse. Inventory, 6-30-01, $2,470. 
Insurance Unexpired, $100. 
Interest accrued on notes receivable, $66. 
Interest accrued on notes payable, $30. 
He owes for two months' rent, $300. 

i% of net sales is to be set aside as a reserve for uncollectible accounts. 
Furniture and Fixtures are to be written off in the amount of 10%. 
Provide for a reserve of 10% for depreciation of Horses, Wagons and Harness. 
Advertising carried forward to the next period, $75. 
Unused stationery and other expense items, $42. 
Commissions on sales due but unpaid, $90. 

1. Prepare the working sheet. 

2. Construct the Balance Sheet as of June 30, 1901. 

3. Prepare Profit and Loss Statement, showing percentages based on net sales. 

4. Write the adjusting and closing journal entries. 


Joseph Mason was Howe's greatest competitor. After getting better ac- 
quainted with each other, Howe conceived the plan of uniting their capital 
and services in the form of a partnership. After some discussion it was decided 
to operate as Howe & Mason, the capital to consist of $12,000 of which Howe is 
to contribute $8,000 in the form of his existing business. The excess of Howe's 
net worth, as shown by the Balance Sheet of June 30, 1901, over $8,000, his 
investment in the partnership, is to be considered as a loan to the firm. Mason 
is to transfer his entire business assets and liabilities and sufficient cash to 
make his net investment $4,000, or one-third of the total capitalization. 

As of July i, 1901, the date of the formation of the partnership, Mason's assets 
and liabilities were as follows: Cash, $1,340; accounts receivable, $2,460; notes 
receivable, $1,120; stock of goods inventoried at $4,590; furniture and fixtures 
appraised at $1,316; accounts payable, $5,280; notes payable, $1,770; rent unpaid 

1. Prepare journal entries to give effect to the foregoing on Howe's books, 
which are to be continued for the partnership. 

2. During the year Charles Palmer purchased one-third interest in the capital 
and profits of the firm by contributing $9,000 in cash. The total capital of the 
new firm is set at $18,000. Business is to be conducted under the old firm name, 
the old partners retaining their respective capital investments. Howe's loan 
account is to be continued at its original amount. 

Write the necessary journal entries to record on the books of the firm the 
admission of the new partner and the adjustments between Howe and Mason. 

3. Before determining the profits for the year Palmer assigns his interest 
in the capital and profits of the firm to John H. Bartlett, who settles directly 
with Palmer for $10,000. Howe and Mason agree to admit Bartlett as a partner 
in place of Palmer and new articles of partnership are signed by the members. 

Give journal entries to show the effect on the partnership books. 


The business has been in operation as a partnership one year. At the con elusion 
of this period the trial balance given below shows the condition of the accounts 
on the books of the firm. 



Accounts Receivable 

Reserve for Bad Debts 

Horses, Wagons and Harness 

Reserve for Depreciation, H. W. & H. 

Furniture and Fixtures 

Mdse. Inventory, 6-30-01 

Notes Receivable 

Notes Receivable Discounted 

Accounts Payable 

Notes Payable 

Thomas H. Howe, Loan a-c 

Thomas J. Howe, c-a 

Thomas J. Howe, d-a 

Joseph Mason, c-a 

Joseph Mason, d-a 

John H. Bartlett, c-a 


Returned Sales and Allowances 


Freight Inward 

Warehouse Labor and Supplies 

Returned Purchases and Allowances 

Salesmen's Salaries 


Freight and Cartage Outward 

Office Salaries 


Stationery and Printing 

Legal Expenses 

Office Heat and Light 

Interest Earned 

Interest on Bank Balances 

Cash Discount on Sales 

Cash Discount on Purchases 

Interest Paid 

Telephone and Telegrams 














8,000 . oo 


4,000 . oo 


6,000 . oo 








872 . oo 






212. OO 






1 1 7 . 00 


Miscellaneous Expense 74 oo 

Commissions on Sales 380.00 

$221,765.10 $221,765.10 

Additional information: 

Mdse. Inventory 6-30-02, $13,260. 

Stationery and printed matter on hand, $35. 

Unused postage stamps, $17. 

One-fourth of advertising is to be applied to the next year. 

Warehouse labor of $130, due but unpaid, has not been recorded on the books. 

Interest accrued but not recorded: On notes receivable, $71 ; on notes payable, 
$47; on bank balances, $8. 

Rent prepaid, $200. 

You find that no record has been made on the books for $750 worth of mer- 
chandise received from Marsh & Co., but that these goods have been included 
in the inventory of 6-30-02. 

Four-fifths of the insurance has expired. 

Interest is to be accrued on Howe's Loan account at 6%. 

Through error $100 of commissions on sales has been charged to Salesmen's 
Salaries account. 

It has been decided to provide for depreciation and reserves as follows: 

10% reserve on reducing balances for Horses, Wagons and Harness. 

A reserve of %% on sales for uncollectible accounts. 

By writing off 10% of the book value of Furniture and Fixtures. 

Profits and losses are to be shared according to the original investments of the 

Give due consideration^ to the foregoing and construct 

1. The Working Sheet as of June 30, 1902. 

2. Balance Sheet. 

3. Profit and Loss Statement containing percentages on sales. 

4. Adjusting and closing journal entries. 


July I, 1902, the capital of the firm of Howe & Mason is increased to $30,000 
and Wm. R. Gray is admitted as a partner. 

Among other things, the articles of copartnership provide that : 

Business is to be conducted under the firm name of Howe, Mason & Co. 

The representation of the partners in the capital of the firm shall be Howe, 
8-20; Mason, 5-20; Bartlett, 3-20; Gray, 4-20. 

Profits and losses shall be shared according to the capital representation 
of the partners as at the time of formation of this partnership. In the event of 
the death of a partner an accounting shall be made at the close of the fiscal 
year in which the death occurs and the value of the deceased partner's estate 
determined as of the date of his death by prorating profits on a monthly basis. 

Gray is to pay for one-fifth (1-5) interest in the capital of the firm by giving 
the firm his note for $2,000 and $4,000 in cash. The difference in capital is to be 
supplied by goodwill, which is to be distributed among the three partners con- 
stituting the firm of Howe & Mason on the basis of their original capital contribu- 
tions to that firm. 

After adjustments have been made the respective partners' drawing accounts 
shall be settled in cash. 

1. Write the necessary journal entries to admit Gray as a partner and to adjust 
the several partners' capital and drawing accounts . 

2. Set up the capital and drawing accounts of all the partners. 


Wm. R. Gray died November 30, 1904, two years and five months after he 
became a partner in the firm of Howe, Mason & Co. As provided in the articles 
of partnership, the business continued until the end of the fiscal year, June 30, 
1905, at which date an accounting was made on the basis of the following trial 
balance and subjoined data. 

Land $10,000.00 

Buildings 40,000 . oo 

Reserve for Depreciation Buildings 2,000 . oo 

Delivery Equipment 6,000.00 

Reserve for Depreciation Equipment 1,200.00 

Furniture and Fixtures 5,99O.oo 

Goodwill 6,000.00 

Cash 2,010.00 

Accounts Receivable 26,000.00 

Reserve for Bad Debts 1,460.00 

Notes Receivable 7,500.00 

Notes Receivable Discounted 4,500.00 

Mdse. Inventory Bags, 6-30-04 6,770.00 

Mdse. Inventory Trunks, 6-30-04 12,410.00 

Mortgage Payable 25,000.00 

Accounts Payable 26,000.00 

Notes Payable 14,400.00 

Thomas J. Howe, Loan a-c 2,000.00 

Thomas J. Howe, c-a 12,000.00 

Thomas J. Howe, d-a 1,210.00 

Joseph Mason, c-a 7,500.00 

John H. Bartlett, c-a 4,500.00 

Wm. R. Gray, c-a 6,000 . oo 

Wm. R. Gray, d-a 1,100.00 

Sales Bags 7 1 ,432 . oo 

Returned Sales and Allowances Bags 3,690.00 

Sales Trunks 212,386.00 

Returned Sales and Allowances Trunks 1,508.00 

Purchases Bags 59,3 1 5 . oo 

Returned Purchases and Allowances Bags 4i23O . oo 

Purchases Trunks 184,824 . oo 

Returned Purchases and Allowances Trunks 2,716.00 

Freight Inward 7,020.00 

Warehouse Labor and Supplies i ,875 . oo 

Salesmen's Salaries 4>33 

Salesmen's Traveling Expenses 2,809.00 

Advertising 2, 146 . oo 

Freight and Cartage Outward 1,154.00 

Commissions on Sales 981 .00 

Office Salaries 2,274.00 

Miscellaneous Office Supplies 170.00 

Legal Expense 200 . oo 

Postage 127.00 

Telephones and Telegrams 93 . oo 

Interest Earned on Notes Receivable 385.00 

Cash Discounts on Purchases 3547-OO 

Rent Collected 1,500.00 

Taxes 1,312.00 

Insurance 680.00 

Interest Paid 472.00 

Cash Discounts on Sales 2,789.00 

Collection and Exchange 24 . oo 

$402,756.00 $402,756.00 

The books have been closed at the end of each fiscal year. 

Mdse. Inventories, June 30, 1905, Bags, $2,431; Trunks, $4,380. 

A reserve of %% of the sales is to be provided for bad debts. 

The furniture and fixtures are to be written down 10% of their book value. 

The old account of Horses, Wagons and Harness was closed and Delivery 
Equipment opened when the horses were sold and an automobile service installed. 
It is deemed advisable to increase the reserve by 10% of the declining value. 

An additional 5% of the original cost of the buildings will be set aside as a 
reserve for depreciation. 

Accruals as follows: Taxes, $3 70; Interest on mortgage 9 months at 5%; Interest 
on notes receivable, $80; Interest on notes payable, $520; Interest on bank 
balances, $61.20; Office salaries, $150; Interest on Loan a-c 6% for one year. 

Advances made to salesmen on salaries, $400; Tenants paid $300 in advance 
rent; Unused postage, $32; Miscellaneous office supplies on hand, $30; One-fourth 
of the insurance remains in force; Advertising applicable to the next period, $600. 

Profits and losses are to be shared according to the original investments, as 
stated in the articles of partnership. 

In the event of dissolution, goodwill is to be increased at the rate of 24% per 

As of June 30, 1905 

1. Prepare Working Sheet. 

2. Construct Balance Sheet. 

3. Construct Income Statement. 

4. Write entries which will adjust the partnership interest represented by 
Gray's estate. 

5. Write the closing journal entries. 

6. The three remaining partners take over the interest of Gray's estate, 
paying therefor cash $1,000 and three equal notes with interest at 6%, maturing in 
one, two and three years, for the balance. 


Three years later, June 30, 1908, as a result of careless management, the firm 
of Howe, Mason & Co. finds itself in a critical financial condition. 

The following trial balance shows the accounts as they appear on the books 
after closing the ledger. 




Reserve for Depreciation Buildings 

Delivery Equipment 

Reserve for Depreciation Equipment 

Furniture and Fixtures 



F. D. Co. Stock 

Accounts Receivable 

Reserve for Bad Debts 

Notes Receivable 

Notes Receivable Discounted 

Mdse. Inventory Bags 6-30-08 

Mdse. Inventory Trunks 6-30-08 

Mortgage Payable 

Accounts Payable 

Notes Payable 

Thomas J. Howe, Loan a-c 

Thomas J. Howe, c-a 

Thomas J. Howe, d-a 

Joseph Mason, Loan a-c 

Joseph Mason, c-a 

Joseph Mason, d-a 

John H. Bartlett, Loan a-c 

John H. Bartlett, c-a 

Accrued Interest, Mortgage 

Accrued Interest, Notes Payable 

Accrued Interest, Notes Receivable 

Prepaid Insurance 

Taxes Accrued 

Accrued Labor 

Miscellaneous office supplies 


7,000 . oo 

4,200 . oo 
4,000 . oo 

9,400 . oo 






6,000 . oo 



4,000 . oo 
9,000 . oo 


6,000 . oo 


300 . oo 

300 . oo 

2OO . OO 

$116,596.00 $116,596.00 

There is dissatisfaction among the partners and they finally agree to dissolve 
partnership. Preparatory to dissolving they appraise the assets and rank the 
liabilities on a liquidating basis. 

It has been found that the buildings had been damaged by fire to the extent 
of $3,000 but that no adjustment had been made in the buildings account. The 
delivery equipment is estimated to produce $4,800. 

Furniture and fixtures have a value of $3,600. 

The land has increased in value $6,000. 

Of the notes payable $5,000 has been partially secured by all the F. D. Co. 
Stock, which is expected to yield 80% of its book value. 

Collateral in the form of good notes receivable of $4,500 has been given to 
creditors whose claims amount to $3,700. 

Among the cash there are I. O. U.'s in the amount of $180 that cannot be 
considered as worth more than $50. 

The accounts receivable are classified as worthless $3,000; doubtful, $2,000, 
which are expected to produce $1,400; the balance are good. 

Both inventories of merchandise were reduced by 10%. 

The accrued taxes and labor are claims preferred by law. 

Prepaid insurance, miscellaneous office supplies and goodwill were assumed 
to have no value in case of liquidation. 

From the information at hand 

1. Prepare a Statement of Affairs showing the financial condition of the 
partnership in anticipation of liquidation. 

2. Prepare a statement accounting for the impairment of capital. 


It has been mutually agreed that Joseph Mason shall act as liquidating partner 
with full authority to sell all property, pay all debts and distribute liquidating 
dividends among the partners. Mason's fee as liquidator shall be 5% commis- 
sion on the converted value of all the assets and is to be paid at each dividend 

Interest is to be allowed on the loan accounts and profits and losses are to be 
shared % by Howe and % each by Mason and Bartlett, during the period of 

Settlements are to be made on the last day of each month. 

Based on the post-closing trial balance in Problem VIII and the information 
given below: 

1. Prepare a working sheet which will present the information in convenient 
form for preparing the statements incidental to liquidation. 

2. Show the partners' loan accounts properly closed for each period. 

3. Set up the partners' capital accounts, balancing each account after the 
payment of each liquidating dividend. 

During the month ended July 31, 1908, Delivery Equipment having a book 
value of $3,300 was sold for $3,000 in cash; accounts receivable in the amount 
of $4,000 were collected and $980 in bad debts were charged off. A sale of the 
land and buildings made subject to the mortgage, granted the use of the premises 
during the liquidation. The land brought $17,000 and the buildings yielded 
$31,500. The partially secured creditors accepted the F. D. Co. Stock held as 
collateral at 90% of its book value and the balance of their claim was paid in 
cash. Incidental expenses of $350 and the liquidating fees were paid in cash. 
From the goods in the inventories there were sold Bags of a book value of $1,200 
for $1,120 and Trunks, book value $2,530, for $2,280. There was paid to holders 
of unsecured notes payable $2,000 and interest of $100. The accrued labor was 
paid and $10,000 in unsecured accounts payable were settled. The balance 
of the cash was applied in paying off partners ' loans and capital as a liquidating 

The next month the delivery equipment was sold for $1,850. Furniture and 
Fixtures having a book value of $2,100 was sold for $1,700. Of the I. O. U.'s 
$70 was collected; the balance proved worthless. The notes receivable as colla- 
teral in the hands of fully secured creditors were settled in full and our equity 
was paid to us in cash, also accrued interest of $120. Bags having a book value 
of $2,500 were sold for $2,100 and Trunks at book $3,700 brought $3,200. Mason 
accepted $4,200 in settlement of $5,000 in accounts receivable. 

Legal fees of $150; sundry expenses of $460; all the existing debts and the 
liquidating fees were paid in cash. The cash remaining was distributed as a 
liquidating dividend in such amounts as to make the profit and loss and capital 
ratios on the same basis. 

In the course of the last month the remaining furniture and fixtures were 
sold for $1,900. The goodwill went to the same purchaser for $1,000 additional. 
The prepaid insurance is without value. Office supplies yielded $20. The notes 

receivable, together with the balance of accrued interest were collected in full. 
There was lost in bad debts $740. The Bags were sold at a 10% reduction. 
The partners divided the Trunks among themselves one-third to each, taking 
them at book value. 

Sundry expenses of $340 and the liquidating fees were paid in cash, after which 
the cash on hand was distributed. 


Show on the books of the firm of Howe, Mason & Co. all the entries necessary 
to carry into effect the liquidation of the business under the conditions set forth 
in Problem IX. 


The Ironclad Trunk Corporation was organized and incorporated November 
I, 1908 for the purpose of manufacturing trunks, bags and brushes of all kinds 
and dealing in traveling requisites of every description. 

The authorized capital of $100,000 consists of 750 shares of common stock 
having a par value of $100 per share and 250 shares of preferred stock of the same 
par value. 

The incorporators subscribed to and paid for the common stock as indicated 

Thomas J. Howe, 250 shares in cash. 

Joseph Mason, 150 shares by transferring the following assets and liabilities: 
cash, $3,000; accounts receivable, $7,000; notes payable, $3,000; notes re- 
ceivable, $2,000; stock of raw material, $9,000; accounts payable, $5,000; furni- 
ture and fixtures, $2,000. 

Edward Harrison, 100 shares by giving bill of sale of machinery appraised at 
$6,000; the balance to be paid in one year. 

Charles E. Wells, 50 shares by his personal note for $5,000 with interest at 
6%, due in one year. 

In connection with the organization of the corporation the following items 
were paid in cash: corporation tax, $50; filing fees, $20; recording fees, $12; 
legal expenses, $500. 

1. Write journal entries to record this information on the books of the corpora- 

2. Prepare a balance sheet showing the condition of the corporation at this 


The following trial balance was taken from the books of the Ironclad Trunk 
Corporation at the close of its first year. From it and the additional notations 
appended thereto you are asked to furnish 

1. Working Sheet. 

2. Balance Sheet. 

3. Income Statement. 

4. Closing journal entries. 

Fifth National Bank 
Imprest Cash 

Machinery and Tools 
Materials and Supplies 11-1-08 
Accounts Receivable 
Finished Goods 11-1-08 
Notes Receivable 
Notes Receivable Discounted 
Advertising unexpired 
Insurance prepaid 
Purchases Material 
Notes Payable 
Taxes Accrued 
Wages Accrued 
Returned Sales 
Returned Purchases 
Factory Supplies 
Labor Direct 
Heat, Light and Power 
Miscellaneous Wages Factory 
Factory Expense 
Accounts Payable 
Res. for Dep. Buildings 
Int. Accrued on Notes Payable 

Interest on Bank Balances 
Freight Inward 

Rent of Building 
Res. for Dep. of Machinery 
Salesmen's Salaries 
Repairs to Machinery 

OCTOBER 31, 1909. 




30,000 . oo 










2,600 . oo 
70,000 . oo 

4,000 . oo 

400 . oo 





4,000 . oo 


2OO . OO 


26,000 . oo 

3,000 . oo 






Res. for Bad Debts 1,000.00 

Cash Discount on Purchases 3,110.00 

Interest Earned 418.00 

Commissions Salesmen 3,600.00 

Office Salaries 2 , 800 . oo 

Insurance 150.00 

Freight Outward 1,100.00 

Provision for Bad Debts 1,000.00 

Furniture and Fixtures 3,700.00 

Authorized Capital Stock Preferred 25,000.00 

Authorized Capital Stock Common 75,000.00 

Unissued Stock Preferred 12,000.00 

Unissued Stock Common 20,000.00 

Subscriptions 4,000 . oo 

Notes Rec. Stock Subscription 6,000 . oo 

Bonding Employees Office I oo . oo 

Cash Discount on Sales 2,300.00 

Provision for Depreciation Machinery 2,500.00 

Advertising 600 . oo 

$380,880.00 $380,880.00 


You are presented with properly certified statements showing the present in- 
ventory of Materials and Supplies to be $16,300; Goods in Process, $1,400; Fin- 
ished Goods, $9,800 and Factory Supplies in storeroom, $700. It has been esti- 
mated that $200 of the Freight Inward is applicable to the present inventory. 
Salesmen have been overpaid $600 on their salary accounts. Items aggregating 
$400 which have been charged to Expense are found to be on hand. In the Cus- 
tomers' Ledger you find accounts having credit balances amounting to $1,500, 
and uncollectable accounts to the amount of $710. You decide to write down 
Furniture and Fixtures 10%. 


After Edward S. White, the inventor of a process for constructing a superior 
fiber for trunk making, demonstrated the practicability of his process, the Iron- 
clad Trunk Corporation purchased all his rights in patents granted by United 
States, Canada, Mexico and Great Britain. The sale went into effect January i, 
1910. The consideration of $100,000 was made payable $60,000 in cash; $20,000 
in bonds at par and $20,000 in two year interest-bearing notes of the company. 

To provide for payment of the patent, the corporation, after duly complying 
with all legal requirements, issued $100,000 in 15 year 5% sinking fund bonds, 
under date of December i, 1909. During the month $70,000 in bonds were sold 
for cash at 98. 

1. Formulate journal entries to give effect to the foregoing on the books of 
the corporation. 

2. Prepare a statement setting forth the successive yearly instalments to pro- 
vide a sinking fund on a 4% basis which will be sufficient to retire the bond issue 
at maturity. 

3. Write the journal entries for 

a. The first sinking fund instalment. 

b. The first interest accumulation. 

c. The liberation of the sinking fund at maturity. 

d. The retirement of the bonds at maturity. 


Several customers protested vigorously against paying their accounts when 
we sent them statements requesting payment. They denied that they owed the 
amounts shown on our books and produced receipts and cancelled checks to 
prove their contentions. In many cases we found that the receipts and checks 
were dated several weeks before the credits appeared on the books and in some 
cases no credits had been entered. 

The manager immediately requested Leroy Swift, a certified public accountant, 
to make a thorough audit. Among other things, the accountant's report dis- 
closed the following: 

The petty cash sales had been entered in the Cash Book at smaller amounts 
than the records showed. The discrepancy between Cash Book and sales records 
were, Trunks, $1,040; Bags, $360. 

Freight bills had been raised $300. The Railroad Company had been overpaid 
this amount but refunded it on the request of our bookkeeper, S. O. Bright, who 
cashed the checks and retained the money. 

The Customers' column and Net Cash column in the Cash Book were short 
footed $8,430. To make the balance in the Customers' Controlling Account agree 
with the total of the individual accounts, the Sales Book was short-footed the 
same amount Bags, $2,790 and Trunks, $5,640. 

Credits to customers accounts in the amount of $4,740 were missing. Not a 
trace of a record for this amount or any part thereof could be found in any book. 

Leather novelties amounting to $1,560 had been sold from the National Novelty 
Co.'s consignment but no remittance had been made. The only record of the 
transactions were duplicate bills of the sales made. The money received for 
these sales had not been deposited and was appropriated by the embezzler. 

Nine productive labor pay-rolls had been over-footed $100 each. 

A $1,000 note receivable had been transferred by forged indorsement as $950 
part payment on a $1,300 automobile bought by the embezzler for his personal 

Checks for $1,800 were drawn to the order of fictitious creditors. The indorse- 
ments were forged by Bright and the checks duly passed through the bank. 

The relatives and friends of Bright agreed to repay the company the greater 
part or all of the losses due to his embezzlement. In order to provide funds for 
immediate needs the present stockholders donate 20% of their present holdings 
of stock. 

i. Prepare journal entries to give effect to the foregoing as of December 13, 


The City of Oswego donated to the Ironclad Trunk Corporation a building site 
having a market value of $40,000, on condition that the company build a factory 
worth at least $100,000 and operate at least five years, employing not less than 
100 factory operators. 

To take advantage of this offer the corporation obtained permission to issue 
$100,000 of 7% cumulative preferred stock having a par value of $100 per share, 
dividends payable semi-annually. A condition of the issue made the stock 
redeemable by lot at the call of the company, the shareholder having the option 
of receiving no in cash or 120 in common stock. 

A redemption fund is to be created out of profits at the rate of 20% per year. 

The entire issue was sold for cash May I, 1910, at iooj^. On the same day 101 
Blue Valley R. R. 4% bonds were purchased at 98 with accumulated interest. 
The bonds are payable July I, 1920. Interest payable January I and July I. 
The entire bond investment was set aside as a building fund. 

Record as of July 31, 1910, the transactions that took place in connection with 
the erection of the building and the removal from the old to the new plant. 

The corporation paid taxes of $400 on the building site and partially com- 
pleted building. Of this amount $100 applied to the uncompleted building. 
During the period the manager devoted two-thirds of his time to superintending 
building operations and one-third to supervising installation of machinery and 
equipment. His salary amounted to $3,000. 

The old land and building and part of the machinery was sold to the American 
Harness Company for $49,000, payable $11,000 in cash and the balance covered 
by mortgage for five years at 6%. The amount of the sale was distributed 
land, $12,000; building, $29,000; machinery and tools, $8,000. At the date of 
the sale the accounts appeared on the books as follows: Land, $10,000; Build- 
ings, $31,000 with a reserve of $3,000 and nine months depreciation on a 5% 
basis still to be provided for; Machinery and Tools, $25,000 with a reserve for 
depreciation of $2,500. The machinery and tools sold cost $12,000, on which 
depreciation has been booked for one year at 10% on original cost. Take into 
consideration an additional period of nine months. 

The remaining machinery, having been designed especially for our use, could 
not be sold for more than one-half its cost; accordingly, the directors had the 
machines moved to the new plant. The old machines appear on the books at a 
cost of $13,000, with reserve recorded for one year at 10% and nine months 
depreciation still to be booked. Additional expenses of removing were as follows: 
Dismantling, $40; crating, drayage and freight, $170; labor for setting up 
machines, $60; superintendent's time for moving and installation, $150. 

The manager, not being sure as to the amount at which to book the machinery, 
obtained an estimate to duplicate this particular machinery and put it in running 
order for $9,000. 

1. Write the journal entries to place the above data on the company's books. 

2. Explain briefly the theory underlying your treatment of the old machinery 
transferred to the new plant. 




The Directors of the Ironclad Trunk Corporation, after receiving full authority 

from the stockholders, set December 3ist as the close of the fiscal year, thereby 
making the present fiscal period fourteen months instead of one year. 

From the following trial balance and supplementary data prepare 

1. Classified Balance Sheet. 

2. Income Statement. 


Land Donated $40,000.00 

Buildings 120,000.00 

Machinery 47 ,000 . oo 

Tools 4,680 . oo 

Delivery Equipment 5,900.00 

Furniture and Fixtures 2,300.00 

Patents 108,000.00 

Loans to Employees 6,320 . oo 

Dividend No. 6 Cum. Pfd. Stock Payable 1/10/15 

Dividends No. 7 Preferred Stock Payable 1/10/15 

Dividend No. 8 Common Stock Payable 1/10/15 

Interest Accrued on Bonds Receivable 3,200.00 

Freight Inward 4,334 82 

Freight and Express Outward 

Royal Leather Preferred Stock (100 shares) 7,480.00 

Fire Loss 6,000.00 

Strike Loss 4,200 . oo 

Credit Dept. Expenses 2,950.40 

Pamphlets, Price Lists and Posters 973 . oo 

Advertising Space Prepaid 260.00 

Advertising 731.40 

Directors' Fees 200 . oo 

Entertainment of Customers' Agents 174.50 

Charity 60 . oo 

Workmen's Compensation Insurance Premiums 640.00 

Rent from Houses for Employees 

Maintenance of Houses for Employees 318.30 

Watchmen's Wages 700.00 

Bonuses Paid to Employees 1,980.10 

Experimental Expense 2,300.00 

Contingent Royalties 2,140.00 

Mercantile Agency Reports 80.00 

Accounting Expense 500.00 

Legal Expenses 300.00 

Claims Against Transportation Companies 3,792.00 

Bright Special 1 4,500 . oo 

Suspense 370 . oo 


Delivery Expense $ i , 1 94 . 50 

Due to Consignors $4,387 . 20 

Imprest Cash 200.00 

Raw Materials Inventory 10/31/13 21 ,304 . oo 

Customers 88,946 . 63 

Finished Goods Inventory 10/31/13 22,100.00 

Notes Receivable 18,000.00 

Notes Receivable Discounted 3,460.00 

Insurance Prepaid 200.00 

Insurance 480.00 

Raw Materials Purchases 240,000.00 

Accrued Office Salaries 760.40 

Accrued Taxes 1,220.00 

Accrued Advertising 190.00 

Sales Trunks 396,775 . oo 

Sales Bags 93,5 1 8. 80 

Returned Sales Trunks 1,750.00 

Returned Sales Bags 6 1 9 . oo 

Returned Purchases Raw Material 2,320.00 

Returned Purchases Bags 974 -OO 

Factory Supplies 2,436 . oo 

Labor Direct 78,751.20 

Labor I ndirect 3 ,497 . oo 

Superintendence 3,200 . oo 

Heat, Light & Power Service 7,147 . 10 

Miscellaneous Factory Expense 283 . 14 

Creditors 40,309.00 

Reserve for Depreciation of Buildings 5% 13,810.00 

Reserve for Depreciation of Machinery 10% 18,411 .00 

Reserve for Depreciation of Delivery Equipment 12% 2,300.00 

Reserve for Depreciation of Furniture and Fixtures 12% 750.00 

Reserve for Expiration of Patents 21,000.00 

Reserve for Sinking Fund Bonds of 1924 27,049.71 

Reserve for Contingent Royalties 2,140.00 

Reserve for Supercession of Patents 20,000 . oo 

Interest Earned 7,810.00 

Interest Paid 11,200.00 

Office Expense 1,873.38 

Delivery Expense 1 , 1 43 . 26 

Salesmen's Salaries 4,500.00 

Salesmen's Commissions 12,305 . 40 

Repairs to Machinery 1,748.80 

Repairs to Buildings 3,755 50 

Reserve for Doubtful Accounts 3,330.70 

Discount on Purchases 3,75* -3O 

Discount on Sales 6,400.00 

Office Salaries $7,974 oo 

Provision for Doubtful Accounts 2,379.12 

Capital Stock Cumulative Preferred $100,000.00 

Capital Stock Preferred 50,000 . oo 

Capital Stock Common 200,000 . oo 

Unissued Stock Common 10,000.00 

Treasury Stock Common 40,000 . oo 

Assessment for Street Improvements 2,000.00 

Bonding Employees Office 200 . oo 

Surplus 35,662.16 

Drawings and Patterns 4,606 . oo 

Mortgage Receivable 38,000.00 

Accrued Payroll 957-75 

Reserve for Land Donated 40,000 . oo 

Bonds Payable 100,000.00 

Employees Pension Fund 47,500.00 

Reserve for Employees Pension Fund 47,500.00 

Discount on Bonds Payable 1 ,600 . oo 

Wrapping and Crating Supplies 1,418.90 

Ralston National Bank 17,841.53 

Sinking Fund Bonds of 1924 27,049.71 

Redemption Fund Cumulative Preferred Stock 80,000 . oo 

Reserve for Redemption of Cumulative Preferred Stock 80,000 . oo 

Houses and Land for Employees 24,600 . oo 

Purchases Bags 9 1 ,360 . oo 

Trunks in Process 10/31/13 4,984.20 

Commissions Earned 564 . 80 

Notes Payable 7 , 1 08 . oo 

Taxes 1,520.00 

Accrued Interest Receivable 250.00 

>337,332. 89 i, 

Supplementary data : 

A careful investigation disclosed the following: 

Interim dividends had been paid May 15, 1914. Dividend No. 5, Cumulative 
Preferred Stock, $1,400; No. 6, Preferred Stock, $1,500; No. 7, Common Stock, 

The Royal Leather Co. stock now has a market value of $90 per share. 

Items to be distributed: 

Account Distribution 

Light Heat and Power Selling, $842.90; Office, $392. 
Accrued Payroll Direct, $683.45; Indirect, $274.30. 

Freight Inward Materials, y^\ Bags, ><. 

Taxes Building and Equipment, $1,300; Employees Houses, 


The Suspense account was credited for $370 received from a former customer in 
payment of an old account which had been charged off as uncollectible some 
years ago. 

In many cases Notes Payable have been issued with interest included in the 
face of the notes. Of this interest $290 is applicable to the succeeding period. 

Provision for Contingent Royalties was begun two years ago in anticipation 
of an unfavorable decision in an action brought against us for infringement of 
patents. Recently the action was decided in our favor. 

Legal expenses of $1,500 for prosecution of infringements of patents had been 
charged against profits at the close of the previous year. Of the present legal 
expenses, $100 was paid for services in protecting patents. 

Inventories as at December 31, 1914: 

Wrapping and Crating Supplies unused $387 5 

Factory Supplies on hand 718 . 50 

Pamphlets, Price Lists and Posters on hand 450 . oo 

Workmen's Compensation Insurance prepaid 160.00 

Bags in Stock 12,542 .00 

Trunks in Stock 28,050 . oo 

Trunks in process as under: 

Materials, $6,497.10; Direct Labor, $2,680.40; Manufacturing 
Expense, $976.50. 

Fire Loss was debited for $6,000 which represents the net damage to Buildings 
of $4,000 and loss of Machinery of $2,000 after making due allowance for depreci- 
ation. Just after the trial balance was made a check for $5,400 was received from 
the insurance company in full settlement of our claims for fire damage. 

The Repairs to Buildings account contains $3,500 of charges for replacing the 
parts destroyed by fire. 

Provision for reserve for depreciation is to be made at the following yearly rate: 

Buildings, 5%; Machinery, 10%; Delivery Equipment, 12%; Furniture and 
Fixtures, 12%. 

It was deemed advisable to write off 20% of the accounts of Tools, and Drawings 
and Patterns. Also, to reserve from profits $2,000 for supercession of patents 
in addition to providing for the reduction in the life of the patent. 

Interest has accrued on bonds payable for one month. 

Bright Special account shows the balance due on Bright's embezzlement. 
The company holds collateral in the form of stock for the full amount of the 


From the information furnished in Problem XVI : 

1. Construct a Surplus Statement. 

2. Write the adjusting and closing journal entries. 

3. What changes would you introduce in the accounting system to place it 
on a cost basis? Illustrate by means of skeleton ledger accounts, using the figures 
given in Problem XVI. 


Sometime ago the stockholders of the Ironclad Trunk Corporation and the 
Randall Manufacturing Company appointed committees on merger. At a joint 
meeting of the two committees a plan for merger of the two companies was 
adopted. The stockholders of the respective companies accepted the plan of the 
joint committee and instructed and authorized their boards of directors to carry 
out the terms of the merger. The agreement provided that a new corporation 
be formed to acquire the assets and assume the liabilities of the two companies 
as shown on their balance sheets of December 31, 1914, except as noted. 

For the Ironclad Trunk Corporation (see Problem No. 16), the machinery, 
tools and delivery equipment were taken over at a reduction of 10%, and the 
Royal Leather Preferred Stock was accepted at $85 per share. The surplus was 
reduced to even multiples of $10,000. 

The balance sheet submitted for the Randall Mfg. Co. has been adjusted to 
meet the conditions of the merger agreement. 




Motor Trucks 
Furniture and Fixtures 
Raw Material 
Goods in Process 
Finished Goods 

Notes Receivable 
Accounts Receivable 



Accounts Payable $35,800.00 

Notes Payable 20,000 . oo 

Wages Payable 2,000.00 

Interest Accrued 1,000.00 

Reserve for Bad Debts 1,200.00 

Bonds Payable (5%) 100,000.00 

Capital Stock Preferred 50,000 . oo 

Capital Stock Common 100,000.00 

Surplus 40,000 . oo 
Profits for the current year 
were $30,000 

$90,000 . oo 
70,000 . oo 

60,000 . oo 

8,000 . oo 

8,000 . oo 
40,000 . oo 


350,000 . oo 

After making the adjustments and allowing interest at 6% on the invested 
capital, the excess earnings for the last period, in even thousands of dollars not 
to exceed $30,000 for each company were capitalized on a 10% basis. 

To carry out the plan of the merger the Sterling Trunk Corporation was 
organized with sufficient capital in 7% cumulative preferred stock and common 
stock to acquire the two other companies. 

1. Submit a statement showing the capitalization of the Sterling Trunk 
Corporation and the distribution of the capital stock to the other companies 
on an equitable basis. 

2. Prepare the balance sheet of the Sterling Trunk Corporation as of Decem- 
ber 31, 1914. 


The Sterling Trunk Corporation, hoping to recoup excessive trade losses, 
engaged in the manufacture of war supplies. Instead of realizing the enormous 
anticipated profits, they sustained a severe loss through an explosion followed 
by a disastrous fire on August I, 1916. The assets destroyed were only partially 
protected by insurance because of difficulty in getting a reasonable rate. Also 
some policies which had expired had not been renewed before the explosion. 

The following information was accepted by the insurance companies as a 
basis for settlement: 

Date of policies January I, 1916. 





Name of 




of Prop- 




Value of 


Rate of 

Face of 

erty de- 

on Policy 

in the 


Jan. i, 


Aug. i, 

Aug. i, 





















Furniture & 









Patterns & 















of selling 

of selling 



The finished goods* were listed at the factory cost but the policy covered the 
selling price which was based on a profit of 60% on the factory cost with 10% 
on sales added for selling expenses. 

1. What is the effect of the co-insurance clause? 

2. Determine the amount received from the insurance companies for each 

3. Indicate, by means of journal entries, the effect on the various accounts 
involved in the settlement of the losses. 


The European war caused a reduction in the income of the trunk company by 
an abrupt falling off of sales; also as a result of the rapid increase in materials 
several contracts were completed at a loss. These losses together with the 
unexpected loss by fire placed the company in an embarrassing financial condi- 
tion. There was great pressure from bondholders because the interest for the 
last year had not been paid and dissatisfaction among stockholders because 
dividends had been passed. Current debts could not be met and it was clearly 
evident that the business could not continue long in its present condition. To 
remedy this a meeting of the stockholders was called and a committee on reor- 
ganization appointed. The recommendations of the committee, which are 
given below, were put into effect on December 31, 1916. 

The holders of the 1 5-year 5% sinking fund bonds issued in 1909 were given 
one share of new cumulative 7% preferred stock for each bond in payment of 
defaulted interest. The holders of the $100,000 of 5% bonds assumed for Randall 
Mfg. Co. contributed in cash 5% of the amount of their bonds and received for 
each $1,000 bond a new $500 bond bearing 5% interest and $700 in non-cumula- 
tive 6% preferred stock. The holders of $60,000 in 6% bonds issued to operate 
the war munitions plant received for each $1,000 bond $600 in 6% preferred 
stock and $500 in common stock. The old cumulative preferred stockholders 
were given new non-cumulative preferred stock. The old common stockholders 
were given new common stock and were assessed $20 per share for which they 
were given new preferred stock. 

1. Determine the amount of cash, bonds and various classes of stock to 
carry into effect the reorganization. 

2. Present the journal entries necessary to record this data. 


Use the following instructions as a guide in preparing a special report on a 
business with which you are familiar, either by experience or through investi- 

A. Write a short history of the business, giving 

1. Title 

2. Character of business in which engaged 

3. Date of beginning and amount of capital invested 

4. Successive changes affecting 

a. The ownership (individual, partnership or corporate) 

b. The amount of capital 

c. The character of the business in which engaged 

B. Submit 

1 . A trial balance at the close of a fiscal period 

2. A balance sheet for the same period 

3. A profit and loss statement for the same period 

4. Adjusting and closing journal entries for the same period. 

Note If possible, give i, 2, 3, for two successive periods and prepare 
a comparative balance sheet and profit and loss statement. 

C. Prepare 

1. A list of the different books and blanks used to record the financial 


2. A sample page or blank or a copy of each item listed under i . 

Note If the copy should require a great deal of space, simply give the 
form of ruling, headings and size of page. 

D. Write one or two typical entries in each book and show the form of closing 

in actual use. 

E. As a separate problem 

1. Outline the course of an article from the time the order is placed until 

the goods reach you. This would be a Purchase Department record. 

2. Outline the course of an article from the time you receive the order until 

the goods reach your customer. This would be a Sales Department 

Note For both i and 2 attach actual forms used or copy of same, 
if possible. 

F. Information in regard to 

1. Terms of sale 

2. Treatment of C. O. D. or approval sales on the books 

3. Treatment of freight inward on the books 

4. Treatment of freight outward on the books 

5. Treatment of accounts for containers or boxes to be returned by your 

firm. By your customers 

6. Treatment of Petty Cash. If this has not been furnished under C. 2, 

give sample page of petty cash 

7- Treatment of consigned goods on the books 

8. Closing journal entries. If this has been furnished under B. 4, omit 

9. Treatment of installment sales 

10. Pay Roll system 

1 1 . Your method of entering payment from customers 

12. Provision for bad debts 

13. Method of providing for depreciation. Give an example 

14. Provision for redemption of bonds payable 

15. Interest on daily or other balances 

1 6. Proportional discount 

17. Assignment of accounts receivable 

1 8. Use of check figures 

19. Number of customers 

20. Amount of gross sales 

21. Amount of gross purchases 

22. Methods of obtaining inventories and basis for valuation 

23. Usual gross profit 

24. Usual gross expense 

25. Figuring profits. On selling price or cost price 

26. Figuring expenses. On selling price or cost price 

27. Use of selling or expense charts or charts of any other kind 

28. Insurance carried and manner in which it is written off 

29. System of branch or agency accounts 

30. Nature of items found in allowances 

31. Use of mechanical appliances in offices 

32. Filing systems, other than for correspondence 

33. Frequency of audits by 

a. Firm's staff 

b. Outside parties 

34. Cost system in use 

35. Date of installation of present system 

36. Rate of turnover 

37. Treatment of cash sales 
G. Give 

1. Adverse criticism of any department or part of same which you know 

from actual experience does not work out as it should 

2. Your opinion as to the cause 

H. Constructive criticism of any department or part of same which you think 
would make it more effective or less expensive if conducted according 
to your plan 

I. Anything peculiar to your business which has not been included in any of 
the previous divisions 


1. Illustrate and explain the steps to be taken to change a Single Entry set of 
books to Double Entry and continue the use of the old ledger. The Single Entry 
ledger contained a Merchandise account and an Expense account in addition to 
the customers' and creditors' accounts. 

2. The firm of Smith and Hart has a net capital of $24,000 of which Smith's 
share is $14,000 and Hart's $10,000. Jones pays them $10,000 for one-third inter- 
est in the firm. Write the journal entries to record the transaction on the books 
of the partnership. 

3. The partnership of Lewis and Porter is insolvent. The articles of partner- 
ship state that Lewis contributed for his partnership investment the stock of 
goods from his former business at an estimated value of $18,000. The goods 
were very much out of date and shopworn, and finally were sold for $3,600. 
Porter contributed $5,000 in cash. After settling the claims of the firm's creditors, 
$1,000 in cash remained. Show the partners' accounts and explain the distri- 
bution of the $1,000 and the final adjustment between the partners. 

4. Name three economic elements in the profits of a business and explain how 
each may be expressed on the books of a partnership. 

5. You have open on your ledger a Consignment Inward account which shows 
only a credit item of $500 for sales. You are entitled to a commission of 5%. 
How would you classify this account on your Balance Sheet, and at what amount? 
Give reasons for your answer. 

6. Prepare a cost formula and illustrate the relation of the different elements 
by means of a diagram. 


From the following items prepare Trial Balance, Profit and Loss Account and 
Balance Sheet. Also find present capital and prove the gain as shown by the 
Profit and Loss Account. 

Cash $7,ooo 

Sales 21,000 

Purchases 17,000 

Inventory 9,000 

Discounts Gained 180 

Real Estate 8,000 

Accounts Payable 9,000 

Discounts Lost 220 

Surplus 1,850 

Expense 750 

Notes Payable 1,100 

Accounts Receivable 6,000 

Profit and Loss (Credit) 700 

Drawings 1,500 

Notes Receivable 1,300 

Charles H. Spencer (Proprietor) 8,000 
Present Inventory, $7,000 

A Trial Balance made from these items will not balance. The student is to 
complete the balance and prepare the statements asked for at the beginning of 
this problem. 


Wm. Bates commenced business June I, 1908, with a capital consisting of 
cash $60,000, and a building and lot worth $85,000, subject to a mortgage of 
$25,000, dated June i, 1908, bearing interest at 6%. 

One year later, June i, 1909, an abstract of his books disclosed the following 
accounts : 

Purchases, $78,000; sales, $85,000; sinking fund, $8,000; cash drawings, 
$6,000; goods returned to creditors, $5,000; expenses paid in cash, $9,000; 
profit and loss, debit, $3,500; contingent fund, $3,000; due to creditors, $49,000; 
reserve for bad debts, $4,250; due from customers, $32,620; discounts allowed 
customers on accounts paid, $755; returned sales, $4,520; discounts on ac- 
counts paid to creditors, $650. 

No goods were sold to creditors or purchased from customers. 

Unsold goods June i, 1909, $9,500. 

From the above data, prepare a Trial Balance, Income Statement, and Balance 

Note: Two items affecting accounts in the trial balance are missing and must be 


In taking off a trial balance a bookkeeper finds that his debit footings exceed 
the credit by $131.56, which he carried to a suspense account. Later, he dis- 
covers that a purchase amounting to $417.50 has been debited to a creditor as 
$192.94; that $312.50 for depreciation of furniture has not been posted to depre- 
ciation account; that $500 withdrawn by the proprietor has been charged 
against wages account; that a discount of $76.13 allowed to a customer has been 
credited to him as $71.13, and that the total of sales returned was footed $5.00 
short. Give detailed entries showing how you would remedy these errors, and 
starting with the original difference prepare a supplemental trial balance show- 
ing whether the books balance or not. 
Illinois, 1910. 


A partnership on equal terms between A and B is dissolved July i, 1897, the 
books on that date showing the following: 

A's capital paid in was $16,000, and his drawings were $3,500; B's capital paid 
in was $2,000, and his drawings were $1,500. Goods purchased, $50,000; sales, 
$40,000; business expenses, $1,800. A loss of $1,600 was made on a $5,000 
consignment of goods to Liverpool. In the settlement A agrees to pay B an old 
debt of $3,500. Prepare requisite accounts, and show final balance payable by 
one partner to the other. 
New York, 1898. 


A corporation's balance sheets for August, 1907, and September, 1907, were 
respectively as follows: 

ASSETS: August, 1907. 

Plant and Equipment $4,000,000.00 

Furniture 6,000.00 

Tools 3,000.00 

Stable 3,811.28 

Cash 15,250.36 

Material Supplies 30,750.28 

Accounts Receivable 28,920.13 

Unexpired Insurance 510.29 

Total $4,088,242.34 


Capital Stock $2,500,000.00 

Bonds 1,350,000.00 

Accounts Payable 31,336.28 

Bills Payable 26,240.12 

Accrued Taxes 3,500.00 

Accrued Interest 5,625.00 

Profit and Loss 171,540.94 

Total $4,088,242.34 

ASSETS: September, 1907. 

Plant and Equipment $4,012,310.21 

Furniture 6,205.58 

Tools 3,218.86 

Stable 4,009.37 

Cash 8,328.29 

Material Supplies 39,280.17 

Accounts Receivable 32,321.83 

Unexpired Insurance 832.12 

Total $4,106,506.43 


Capital Stock $2,500,000.00 

Bonds 1,362,000.00 

Accounts Payable 33,445-57 

Bills Payable 18,240.12 

Accrued Taxes 4,000.00 

Accrued Interest 11,250.00 

Profit and Loss 177,570.72 

Total $4,106,506.43 

Analyze the differences in the corresponding accounts for the period and show 
disposition of increased resources. 
Illinois, 1907. 


The trading accounts of a company covering two years are herewith submitted. 
Analyze the accounts and make a report to the company showing the reasons 
for the difference in results. 


Mdse. inventory 1/1/08 
Mdse. purchases 
Mdse. sales (travelers) 
Mdse. sales (domestic) 
Mdse. sales (cash) 
Commissions paid travelers 
Salaries paid travelers 
Salaries (domestic sales) 

Stationery, etc. 
Inventory 1/1/09 

Mdse. inventory 1/1/09 
Mdse. purchases 
Mdse. sales (travelers) 
Mdse. sales (domestic) 
Mdse. sales (cash) 
Commissions paid travelers 
Salaries paid travelers 
Salaries (domestic sales) 

Stationery, etc. 

Mdse. inventory i/i/io 
Penna., igog. 





























A and B are partners carrying on a business in Winnipeg. On January i, 1910, 
after adding profits for the past half-year, A's capital amounted to $150,000, and 
B's to $100,000. On that date they take into partnership C, upon the following 
terms, viz. : he is to bring in capital amounting to $25,000, and each partner is 
to be credited with interest on his capital at 6% per annum. All profits (after 
debiting interest) up to $25,000 are to be shared by A and B exclusively in propor- 
tion to the amounts of their capital at January I, 1910. All profits in excess of 
$25,000 are to be shared equally by the three partners. Accounts are to be pre- 
pared and profits and interest credited half-yearly. C is to be credited with a 
salary of $5,000 per annum. On June 30, 1910, the profits divisible after debit- 
ing C's salary, which he has drawn, but before charging interest on partner's 
capital amounted to $75,000. The partners' withdrawals which are not chargea- 
ble with interest were: A, $12,500; B, $10,000; and C, $3,750. Draw up part- 
ners' separate accounts as they should stand on July I, 1910. 

Assume that instead of a profit a loss of $75,000 had occurred. How would 
you have treated it in the accounts in the absence of any direct provision in the 
partnership agreement relative to losses? 
Penna., 1910. 


A, B and C were partners in business for several years. A died December 31, 
1903. The articles of copartnership provided that on any change in the firm the 
good will should be taken into account and its value divided one-half to A and 
one-quarter each to B and C. The balance sheet at the date of A's death was 
as follows: 


Cash $1,500 

Merchandise on hand 12,000 

Sundry notes and accounts receivable 15,000 



Sundry accounts payable $8,500 

A's net investment 10,000 

B's net investment 5,ooo 

C's net investment 5,ooo 


In January, 1904, B and C arranged with D to come into the firm with $5,000. 
The good will is, by agreement, to be valued at $3,000. The new firm, consisting of 
B, C and D, takes over the business and good will in equal shares, subject to an 
allowance of 2>% on the notes and accounts receivable. It pays the estate of 
A $5,000, with the understanding that the balance due A's estate shall remain 
as a loan at the rate of 5% interest. 

Prepare the balance sheet and the capital accounts of B, C and D as they 
should appear at the beginning of the new business, writing off the purchase of 
good will in equal proportions to the amount of capital invested. 
New York, 1905. 


Three partners contribute capital as follows: X, $90,000; Y, $45,000; Z, 
$15,000. They share profits in the proportion of X, 50%; Y, 30% Z, 20%. 
X's salary is $5,000, Y's salary is $3,000, Z's salary is $2,000. At the end of 
their fiscal period X dies. The books are closed and the net assets ascertained 
to be $152,500. X and Y liquidate the firm's affairs and distribute the surplus 
assets quarterly as follows: 

First quarter $42,410.20 

Second quarter 74,622.30 

Third quarter 31,967.50 


Prepare a statement of the partners' accounts, showing how the distribu- 
tion of assets should be made, together with the apportionment of the loss. 
Give your authorities. 
New York, 1914. 


The firm of Norton and Brown decided to liquidate at a time when their con- 
dition, as shown by the Balance Sheet given below, was still solvent. 


Plant and Equipment $20,000 Notes Payable $6,000 

Office Furniture 2,000 Accounts Payable 17,000 

Inventory, Material 12,000 Norton, Loan a/c 5,ooo 

Notes Receivable 5,ooo Brown, Loan a/c 3,ooo 

Accounts Receivable 29,000 Norton, C/a 25,000 

Cash 3,ooo Brown, C/a 15,000 

$71,000 $71,000 

Profits and losses were shared three-fourths by Norton and one-fourth by 
Brown. Interest was allowed on the loan accounts but not on the capital ac- 
counts. At the end of the first month, April 30, it was found that material 
inventoried at $5,000 had produced $3,600; accounts receivable to the amount 
of $15,000 had been collected in cash and $2,800 in bad debts charged off; notes 
receivable collected in cash $2,000; expenses of $600 had been paid in cash; 
equipment valued at $4,000 produced $3,000. Interest on partners' loan ac- 
counts was not entered this month. 

During the month ended May 31, office furniture valued at $1,600 was sold 
for $1,000. Material costing $4,000 produced $3,200 and the balance of material 
was divided equally between the partners at cost. Plant equipment listed at 
$6,000 was sold for $6,200. A $200 note proved worthless and was charged off. 
Accounts receivable to the amount of $6,065 arj d notes receivable of $2,000 were 
collected in cash. Bad debts charged off $435. Expenses paid in cash $300. 
Interest was credited on Norton's loan account $40 and Brown's loan account $25. 

Arrange your solution to show: 

1. Your method of obtaining the proper cash distribution. 

2. A statement showing each partner's capital and loan at the end of each 
month, or a detailed capital and loan account for each partner with a balance 
entered in each account each month. 

3. A Balance Sheet at the close of the second month. 


1. Define good will. When should the item be placed on the books? Explain 
three methods for determining the value to be placed on good will. 

2. Explain what is meant by par value, book value, market value, and real 
value, as applied to the capital stock of a corporation. 

3. Name three general classes of funds and explain the purpose for which 
each is established. 

4. The directors of a corporation having bonds outstanding asked your advice 
in regard to the advisability of providing a sinking fund for the issue. Give in 
brief your argument in favor of establishing the sinking fund. 

5. (a) Explain five methods of providing for depreciation in the following 

Original value of machine $1,200 

Residual value of machine 300 

Estimated life, five (5) years 

(b) A Reserve for Depreciation of $900 has been provided. You sold the old 
machine for $240 and bought a new machine for $1,400. 

Formulate the journal entries for the accounts affected as a result of selling the 
old machine and buying the new one. 

6. A corporation has been formed with a capital stock of $100,000, all of 
which has been issued for value. Subsequently the stockholders make a pro 
rata donation of 100 shares at par, $10,000, for the purpose of providing work- 
ing capital. Of this stock 40 shares were sold at $90 and 20 shares at $105; 
the balance is in the treasury. Give the journal entries to record the formation 
and subsequent entries on the books of the corporation. 


C. C. Carter and A. D. Walker were unable to meet their obligations. From 
the books of the firm and additional information you ascertained the following: 

Real Estate (estimated to produce $18,000) $20,000 

Subject to a mortgage of $12,000 

Notes Receivable 6,000 

Expense 7,820 

Furniture and Fixtures (estimated to produce $2,700) 3>5oo 

D. L. & W. Stock (estimated to produce $12,000) 14,000 

(Pledged with fully secured creditors.) 

Horse and Wagon (estimated to produce $500) 700 

Other Securities 3,ooo 

Pledged with partially secured creditors 

Accounts Receivable 5,400 

Good, $3,000; doubtful, $1,800, but estimated to produce 

$1,440; bad $600) 

Notes Payable 2,000 

Creditors, unsecured 18,000 

Creditors, partially secured 8,000 

Creditors, fully secured 10^000 

Wages, salaries and taxes, preferred by law 560 

Carter, C/a 15,000 

Walker, C/a 5,000 

Carter, D/a (debit) 3,050 

Walker, D/a (debit) 1,000 

Cash 870 

Sundry Losses 5,220 
Prepare Statement of Affairs and Deficiency Account as of September 30, 1911. 


On December i, 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, $10,000.00, estimated worth $7,500.00. 
Material and supplies, $2,500.00, estimated worth $1,000.00 Furniture and fix- 
tures, $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. Ac- 
counts receivable, $6,250.00, of which $2,500.00 are good; $1,250.00 bad; and 
$2,500.00 estimated to realize $1,500.00. Cash $575.00, of which $25.00 repre- 
sents 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, of which $12,000.00 is due Bankers. Wages due, $500.00. Rent due 
and past due $1,000.00. Capital on January I, 1907, as shown by the books, 
$15,000.00. Loss by sale of investment May I, 1907, $5,000. Loss in trading 
account January I, 1907, to December I, 1907, $3,50000. Drawings charged 
personal account of John Mapleton, $1,000.00. 

Make up a statement of affairs and a deficiency account as on December I, 
Illinois, 1907. 


John Thompson exhibits the following balance sheet of his business, dated 
June 30, 1900: 

Cash $750 Sundry creditors $6,000 

Book debts 9,500 Bills Payable 7,500 

Stock on hand 6,500 Bank (overdraft) 3,ooo 

Fixtures, etc. 1,75 Balance 2,000 

Total $18,000 Total $18,500 

On questioning Thompson it was found that he had omitted the following 
from his balance sheet: $250 owing for rent; $75 owing for taxes; $2,500 bor- 
rowed at 5% from his wife three years ago, no payment having been made on 
account of either principal or interest; a draft for $500 accepted by a firm with- 
out consideration, falling due in 30 days. His private and household debts 
amounted to $600. 

The item entered on his balance sheet as cash included his personal I. O. U.'s 
for $600. 

Of the book debts about $3,500 might be considered bad and the rest good. 
The stock was good except $1,000, which would not produce more than $100. 
The fixtures, if sold, would not realize more than $250. The only other assets 
were household furniture worth about $1,250 and residence valued at $7,500, 
subject to a first mortgage for $5,000 at 4%, and also a second mortgage held by 
his bank as security for overdraft. 

Prepare a statement of affairs and deficiency account. 
New York, 1902- 


Walter Hopkins, while perfectly solvent and doing a profitable manufact- 
uring business, had so tied up his capital in plant and materials that he was 
on the point of suspending for want of funds to pay for labor, and his creditors 
were preparing to commence legal proceedings to enforce a settlement. The 
condition of his affairs at this time was as follows: 


Assets Liabilities 

Plant $25,198 

Cash 212 Creditors $20,230 

Materials, raw and Capital 50,000 

partly finished 40,400 Surplus 4>9OO 

Finished goods 
Accounts receivable 

$75,130 $75,130 

At a meeting of creditors he said that while his plant was entirely efficient, it 
was all of special character and would realize on forced sale only the value of 
scrap, that the unfinished goods would require the employment of skill and 
processes known to him only, and that while forced suspension would yield to 
his creditors not over 50%, it would ruin him absolutely. 

The creditors decided to advance him a loan of $5,000 to continue operations 
and allow him additional credit for materials and expenses. A trustee was ap- 
pointed to see that the proceeds were used solely for recuperation of the business. 

The subsequent operations under the supervision of the trustee were as follows: 

Purchases on book account, charged to materials, $5,100; to expense, $12,100; 
sales on book account, $57,802; losses on bad debts, $300; cash receipts (loan 
from creditors), $5,000; settlement from debtors, $58,100; cash payments for 
labor, $12,500; for expense, $4,350; for plant, $600. Creditors, $42,030; 
Walter Hopkins, personal drawings, $3,000. 

There remained raw materials, $4,000; finished goods, $22,388. 

Prepare (a) realization and liquidation account; (b) trustee's cash account; 
(c) balance sheet of the estate as restored to Walter Hopkins. 
New York, 1906. 


X, Y and Z, foundrymen, unable to meet their obligations, suspended payment 
January i, 1902, and appointed a trustee to realize and liquidate for the benefit 
of their creditors. The books showed the following assets and liabilities: 


Land and buildings $125,000 

Machinery and tools 75,000 

Furniture and fixtures 10,000 

Materials and supplies 95,000 

Bills receivable 15,000 

Accounts receivable 115,000 

Cash 450 

Total assets $43545 


Mortgage on foundry premises 

Bills payable 

Accounts payable 

Interest accrued on mortgage 

Taxes accrued (estimated) 


Total liabilities $435,450 

The trustee's cash receipts and payments during the year 1902 were as follows: 


Bills receivable (outstanding Jan. I, 1902) $15,000 

Accounts receivable (outstanding Jan. I, 1902) 106,500 

Cash sales 5,435 

Bills receivable (contracted during year 1902) ^Soo 
Accounts receivable (contracted during year 1902) 212,000 

Total receipts $352,435 


Bills payable $25,000 

Accounts payable 35,ooo 

Interest on mortgage one year at 5% 5,ooo 

Taxes for the year 1901 865 

Purchases of materials and supplies 98,000 

Labor 135,000 

General expenses 45,000 

Interest on bills payable to Sept. 30, 1902, at 5% 2,800 

Total, payments $346,665 

Other transactions were as follows: 

Sales on credit 

Bad debts written off: 

Accounts prior to Jan. i, 1902 
Accounts subsequent to Jan. I, 1902 

Discounts and allowances to customers: 
Accounts prior to Jan. i, 1902 
Accounts subsequent to Jan. i, 1902 






Notes received from customers 20,000 

Notes given to creditors ($110,000 being renewals) 180,000 

Inventory of materials and supplies Dec. 31, 1902, amounted to 92,000 

The trust terminated at the end of the year and the business was turned back 
to the owners. 

Prepare realization and liquidation account; also a balance sheet showing the 
financial condition of the business at the termination of the trust. Accrue 
taxes for the year in the usual manner, i.e., on the basis of the charge for previous 
New York, 1903. 


AB, a commission merchant, doing business on a 5% basis, hands you the 
following abstract of his ledger, showing his transactions for the year. 

Furnish AB's capital account, showing his original investment, a balance 
sheet and a detailed cash account. 

Sales $45,000.00 $60,000.00 

Freight 2,100.00 1,400.00 

Claims and allowance on settled account only 600.00 1,500.00 

Expense 900.00 

Customers' Accounts 60,000.00 45,000.00 

Creditors' Accounts 37,95O.oo 39,850.00 

Cash 59,000.00 40,950.00 

Discounts lost 400.00 

$205,950.00 $188,700.00 
New York, 1910. 


A and B, commission merchants, suspect their cashier of embezzlement. 
From the following data determine whether or not their suspicions are well 
founded, and produce a balance sheet and profit and loss statement to prove or 
disprove the suspicion. 

Sales $42,000 

Cash Receipts, customers $42,000 

Freight 4,240 2,480 

Duty 2,120 1,240 

Dock charges 212 124 

Custom house charges 90 45 

Interest (account sales at 6%) 248 

Commission (5% on sales) ^240 

Office Expense 2,000 

Documentary advances 20,000 12,000 

Acceptances against shipments 12,000 20,000 

Analysis of account sales ledger debits, duty $875, freight $1,560, dock charges 
$70, custom house charges $40. 
New York, 1914. 


December i, 1905, a New York merchant ships goods of the value of $5,000 
on consignment to a commission merchant at Rio de Janeiro, insuring them in 
the Atlantic Mutual against loss or damage in transit and prepaying freight 
and insurance amounting to $250. On arrival the goods are found to be in a 
partially damaged condition and the loss is adjusted at $1,000, the certificates 
for which the consignee transmits to the consignor together with an account 
sales for $3,000, dated March i, 1906, and a final account sales for $2,000, dated 
April i, 1906. A draft on New York for $4,300 accompanied this final account, 
being the balance due after deducting duty paid and commission earned. 

Give expression to these transactions on the books of the consignor. 
New York, 1906. 


A B and Co. and C D and Co. enter a joint adventure to ship machinery 
to New Zealand. C D and Co., 10/5/96 handed A B and Co. $600 in cash 
and granted them their acceptance at 6 months for $1,500. A B and Co. were 
to provide balance of cash required, to manage the venture, to receive a com- 
mission of 2% on amount of invoice for machinery. Profits of venture to be 
divided equally. 

On 10/6/96, A B and Co. paid J K and Co. for machinery $2,500, and on 
the same date discounted acceptance of C D and Co. for $1,500, paying $30 for 
discount thereon. On the following day A B & Co. paid $210 for freights and 
$30 for insurance. On 3/25/97, A B and Co. received from New Zealand to 
account of proceeds of machinery a draft payable in London for $1,600, out of 
which, 4/8/97, they paid $1,500 to retire bills for that amount. 

On 8/10/97, A B and Co. received from New Zealand a draft for $1,550, 
being balance of proceeds for machinery, after deducting agent's commission 
charges and duty. They thereupon closed the accounts and sent C D and Co. 
check for balance due to them. 

Make up an account showing result of venture, also C D and Co.'s account 
with A B and Co. Do not regard interest. 
Penna., 1901. 


The trial balance of Jones and Smith, Chicago branch, shows Dec. 31, 1904, 
the following: 

Home office $2,000 

Due from customers $2,500 

Cash on hand 1,000 

Expenses 1 ,900 

Merchandise 3,400 

$5,4QO $5,400 

Inventory $1,000. 

Draft the necessary journal entries to close the accounts on the branch books, 
and the entries to be made in the home office to make the books agree. 
New York, 1905. 


A branch office business was started at the first of the year, the head office 
advancing $5,000 cash. During the first year merchandise was shipped to 
branch, invoiced at $75,000. 

An auditor checking up the business at the close of the year finds the following: 

Merchandise sales were $60,000, with selling price of goods 20% advance on 

Proper vouchers were on file duly receipted for 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 having been realized in cash, less rebates and allow- 
ances as noted. 

The cash on hand and inventory of unsold goods, together with the foregoing 
records, properly accounts for everything. 

Prepare statement, such as an auditor would make in reporting to the head 
office, balancing the business of the branch house. 
Mass., 1910. 


C, D and E are partners sharing profits in accordance with capital invest- 
ments. At end of the fiscal year, after all nominal accounts are closed, the books 
show the following: 



Inventory of merchandise 

Bills receivable 

Book accounts receivable 

C drawings 

D drawings 

E drawings 

Bills payable 

C capital 

D capital 

E capital 

Profit and Loss, undivided profits 










$229,403 $229,403 

The partners thereupon incorporate a company with an authorized capital 
of $250,000. The company so formed purchased the partnership assets and good 
will, not including the cash, for $250,000, payable $200,000 in stock and $50,000 
in cash, the last-mentioned cash being the proceeds of sale of stock to F. 

It is the intention to divide the purchase-money stock among the vendors in 
proportion to their former capital and to adjust their accounts by the division 
of the cash shown in trial balance, which will then be placed to their credit as 
loans to the company at 6% interest and remain as working capital. The bills 
payable are to be settled by the partners. As the drawings of the partners 
are not in proportion to their respective shares in the profits, the partners are 
charged with the interest thereon in the following amounts, viz.: C $231, D 
$165, and E $132. 

1. Frame the necessary entries to close the partnership books and show 
the amount of cash received by each partner. 

2. Referring to question i, frame the necessary entries to open the books of 
the company and prepare a balance sheet showing the condition of the com- 
pany at the beginning of its operations. 

New York, 1906. 


The board of directors of the X, Y, Z Company removed their manager on 
April 30, 1915, on the general suspicion that his books misrepresented the true 
financial condition of the business. Prepare a statement showing the nature 
and the probable extent of the misrepresentation, also an approximate state- 
ment of income and profit and loss for the four months ending April 30, 1915, 
and a balance sheet as of April 30, 1915. 

The following is a trial balance taken from the books April 30, 1915: 

Capital stock 


Inventory, January I, 1915 


Accounts receivable 

Accounts payable 

Loans payable 



Salaries, salesmen 


Salaries, office 



Insurance, Jan. I to Dec. 31, 1915 

Stationery and printing 

Reserve for depreciation of fixtures 

Surplus, January I, 1915 
















$226,004 $226,004 

An analysis of the Purchases and Sales accounts revealed the following: 
purchases, year 1912, $122,000; sales, year 1912, $153,750; inventory, Janu- 
ary i, 1912, $101,000; purchases, year 1913, $123,000; sales, year 1913, $153,170; 
inventory, January i, 1913, $100,000; purchases, year 1914, $121,000; sales, 
year 1914, $154,722; inventory, January i, 1914, $102,000. 
New York, 1915. 


The directors of a manufacturing company, before the closing and auditing 
of the books for the half year ending December 31, declared out of the net earn- 
ings of the company a dividend for the half year, of 4% on the preferred stock of 
$100,000 and 3% on the common stock of $100,000. There has been brought 
forward from the last half year, an undivided balance of profit of $4,000, and 
after the audit of the books the trial balance is found to be as follows: 


Real estate and building 

Plant and machinery 

Patents and good will 

Inventory, July I 




Salaries general 

Salaries management 




Discount and interest 

Cash in bank 


Miscellaneous expense 

Book debts 

Pfd. stock in treasury 













Preferred stock 

Common stock 


Notes payable 

Accounts payable 




Stock on hand, $26,500. From the above prepare profit and loss and income 
statement and balance sheet, giving effect in accounts to depreciation at the 
rate of 7^% a year, on plant and machinery, and making an allowance of 5% 
on the book debts to provide for bad debts; also create a liability in the balance 
sheet for dividend as stated. 
New York, igio. 


Three manufacturers, each having an independent business and wishing to 
effect a consolidation of their respective interests, organize the United States 
Manufacturing Corporation, with an authorized capital stock of $1,500,000, 
consisting of 7,500 shares of preferred stock and 7,500 shares of common stock 
of $100 each. They sell to the new company all of their real estate, buildings, 
machinery, tools, fixtures, merchandise and supplies, in consideration of $1,500,- 
ooo, and agree to accept in payment $750,000 of preferred and $750,000 of com- 
mon stock of the United States Manufacturing Corporation at par. The vendors 
donate to the treasury of the company $150,000 of preferred stock and $150,000 
of common stock to provide for working capital. The company sells $100,000 of 
its preferred stock in the treasury for 80% cash, giving a bonus to the purchaser 
of 20% in common stock. 

For the purpose of raising additional funds for improvements and addi- 
tions to plants, the company mortgages its real estate and buildings, as security 
for an issue of bonds amounting to $250,000. These bonds the company sells to 
bankers at 90%, giving as a bonus 10% of preferred stock and 20% of common 

Draft entries to express correctly the above transactions on the books of the 
corporation, and prepare a statement of assets and liabilities of the company. 
New York, 1903. 


1. On paper ruled as for a stock ledger make entry of the following stock tran- 
sactions of William Henderson, closing the account as of October 31, 1904, and 
carrying down the balance: 

(a) 100 shares (par value $100) originally issued, full paid at par to William 
Henderson by certificate No. 5, August 16, 1904. 

(b) William Henderson sells 50 shares of the original 100 to Charles Gibbons 
at $120, September 14, 1904, receiving certificate No. 37 for shares retained. 

(c) October 28, 1904, William Henderson purchases from John Hogan 25 
shares at $115 and receives certificate No. 78. 

New York, 1905. 

2. Stockholders of the Deep Canal Company donated 400 shares of stock of a 
par value of $100 per share for the purpose of providing working capital. 

Three hundred shares of the treasury stock were sold by agents at 90. A com- 
mission of 10% and expenses of $516 was allowed the agents for selling. The 300 
shares of treasury stock were sold on the installment plan, 10% down and 10% a 
month for the balance. Certificates of stock not to be issued until paid in full. 

Six months later you are to enter the total amount of cash paid on installments, 
excluding the initial payment which was made at the time of subscription. 

At the end of eight months one hundred subscribers defaulted on their sub- 
scription contracts. Their subscriptions were cancelled and the payments they 
had made declared forfeited. 

The balance of all subscription accounts except those cancelled by default have 
been paid in full and stock certificates therefor duly issued. 

a. Write all the necessary journal entries. 

b. Construct a suitable installment book and record in it the above transac- 



No. Shares Amount 

C. Dunn 

100 $10,000 

E. Ferris 

200 20,000 

G. Hall 

400 40,000 

The Frost Mfg. Co. was incorporated April 10, 1915, with a capital stock of 
$200,000 divided into 2,000 shares of a par value of $100 each. 

Payments were made on this date as indicated in the following subscription 

Form of Payment 

Cash $10,000 and Hall's note with in- 
terest at 6%, due in one year, for the 

April 12. Expenses of $1,200 incidental to the organization of the corporation 
were paid in cash. 

April 15. The corporation purchased J. King's entire plant valued at $170,000 
and assumed his liabilities amounting to $70,000, giving in full payment 1,200 
shares of stock at par. 

April 20. S. Samson subscribed for 50 shares of stock and paid an installment 
of $30 per share in cash. 

April 22. To provide working capital, each of the following stockholders do- 
nated i-io of his shares of stock; Dunn, Ferris, Hall and King. 

April 25. Cash was received for 100 shares of donated stock sold at 85. 

April 27. Samson gave his note due in six months for the balance due on his 
stock subscription. 

April 28. The directors authorized an issue of $50,000 in bonds, with interest 
at 5%, to mature in 20 years. 

April 30. Bonds having a par value of $30,000 were sold for $28,000 in cash. 

(a) Write journal entries to record fully all the above information in the 
financial books of the corporation. 

(b) Prepare the corporation balance sheet for April 30, 1915. 


The Marine Equipment Company, a corporation, manufactures metal boats 
and deals in marine supplies. A trial balance of the general ledger, December 31, 
1913, is given below: 

Land $20,000 

Buildings 50,000 

Machinery and Tools 40,000 

Automobile Trucks 5,ooo 

Patents 7,000 

Office Furniture and Fixtures 700 

Accounts Receivable 19,000 

Notes Receivable 10,700 

Notes Receivable Discounted $6,000 

Raw Materials, Inventory Jan. I, 1913 20,000 

Goods in Process, " i, " 5,000 

Metal Boats Finished, " " I, " 8,000 

Marine Supplies, " i, " 12,000 

Union National Bank 8,740 

Capital Stock 100,000 

Surplus 18,000 

Treasury Stock 10,000 

Bonds Payable, 5% First Mortgage 40,000 

Reserves : 

Depreciation of Buildings i ,200 

" Machinery and Tools 1,000 

" Automobile Trucks 200 

Notes Payable 2,000 

Accounts Payable 24,000 

Purchases, Raw Material 40,000 

Marine Supplies 30,000 

Freight Inward, Raw Materials 2,450 

" Marine Supplies 1,340 

Freight and Cartage Outward 824 

Sales, Metal Boats 131,130 

Sales, Marine Supplies 58,960 

Productive Labor 32,400 

Non- Productive Labor 15,230 

Superintendence 342O 

Heat, Light & Power 8,500 

Shop Supplies 2,490 

Miscellaneous Factory Expense 1,300 

Insurance 300 

Repairs to Machinery & Tools 2,146 

Taxes 400 

Advertising 3,420 

Returned Sales & Allowances, Metal Boats 1,200 

Marine Supplies -862 

Discount on Sales 3, 710 

" " Purchases 

Salesmen's Salaries 6,570 

Travelling Expenses 2,354 

Advances to Salesmen 450 

Office Salaries 8,630 

Legal Expense 540 

Stationery & Printing 1,200 

Postage 190 

Interest 315 

Miscellaneous Selling Expense 1,180 


$387,561 $387,561 

Additional information to be considered : 
Inventories, December 31, 1913 

Raw Materials 21,000 

Goods in Process 7,000 

Metal Boats Finished 13,000 

Marine Supplies 8,000 

Accrued Items: 

Interest on Bonds Payable, I yr. at 5% 2,000 

" Notes Payable 40 

" Notes Receivable 75 

Taxes (estimated) 100 

Unexpired Insurance 100 

Provide for Reserve for Depreciation on 

Buildings, 5% on original value 

Machinery & Tools, 10% on diminishing value 

Automobile Trucks, 20% on diminishing value 
Also provide a 2% Reserve for Bad Debts 
Write off depreciation of 10% on the original cost of 

Furniture and Fixtures 

Patents expire 14 years from January i, 1913 
One-half of Advertising is to be carried to the next period 
Distribute as follows: 

Item Mfg. Selling P & L 

Insurance ^ ^ o 

Depreciation Auto Trucks % % o 

Taxes ^ o % 

From the Trial Balance and the additional information prepare 

a. Income Statement 

b. Balance Sheet 

c. Journal entries to record the additional information and close the 



A corporation issues lo-year bonds to the amount of $50,000, securing same 
by a mortgage on its property, which is placed in the hands of a trust company. 

The trust deed provides for the establishment of a sinking fund to retire the 
bonds at maturity and that equal annual payments be made on the first of Jan- 
uary in each year. Give the amount of this annual payment, interest compounded 
at 6%. 
Canada, 1910. 


The United Manufacturing Company, on January i, 1906, placed in service 
a piece of machinery which would depreciate, according to its chief engineer, at the 
rate of 15% per annum. The original cost of this machinery was $84,000 and 
the Board of Directors agreed to set aside annually a sinking fund which, together 
with interest thereon, will amount to the original cost at the end of the prospec- 
tive life of the machinery. 

This sinking fund is to be deposited with a trust company on December 31 
of each year, and a proportionate amount at the end of the last partial year of the 
life of the machine. Interest is to be credited by the trust company at each of 
these dates at the rate of 4% per annum. 

Show how the amount of the annual sinking fund payments may be arrived at 
and prepare a detailed statement for the Board of Directors proving that the 
amount so obtained is correct. 
New York, 1911. 


1. John Doe commenced business with a cash capital of $15,000. At the 
close of his fiscal period the ledger accounts were: Accounts Receivable, $4,312.50; 
Merchandise Debit Balance, $5,062.50; Accounts Payable, $5,375; Expense, 
$900. Doe's total loss was $2,775. 

Prepare a statement of assets and liabilities and the profit or loss, 
New York, 1914. 

2. John Adams lost his stock of merchandise May I, 1914, through a flood 
in the Mississippi River. 

Adams applied to the local Mutual Flood Insurance Society for reimburse- 
ments, claiming a loss of $5,886.35 on merchandise stock. From the following 
data ascertain his merchandise inventory: 

Net profits, May I, 1914, $4,452.91; drawings, $1,598; legal expenses, $17.50; 
interest debit, $313; advertising, $14; commissions debit, $961.01; insurance, 
$196.23; sales, $81,688.04; inventory December, 1911, $1,568.62; purchases, 
$55,415.82; labor, productive, $19,499.58; telephone, $416.06; sundry factory 
expenses, $3,201.92; repairs, $16; surplus, May I, 1914, $2,854.91. 
New York, 1914. 


A and B are partners owning two retail stores, one in Paterson and the other 
in Newark. They agree to dissolve partnership as of July i, 1912. The two 
stores are valued July I, 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 inventory of the Paterson 
store, January i, 1912, was correct as A claims: 

Value of alleged inventory, January i, 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 I 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 i, 1912, was correct as stated. 
New York, 1913. 


Robert Adams and William Stevens are equal partners. On the night of 
July 3, their stock and fixtures were destroyed by fire. A Trial Balance, which 
Adams had at his home, showed the following condition of the ledger at the close 
of business, June 30: 

Robert Adams 

William Stevens 



Mdse. Purchases 

Mdse. Sales 

Notes Receivable 

Notes Payable 





$600.00 $ 7,450.00 
600.00 7,450.00 

i ,000.00 







$45,009.00 $45,009.00 

The property is fully covered by insurance. The Insurance Company, for the 
purpose of estimating the value of the merchandise destroyed, has agreed to 
allow 35% as the average gross gain on the sales, and to pay 66-2/3% on the 
value of the fixtures as shown by the ledger. 

On the basis of this agreement, state the result of the business and the capital 
of each partner. 

New York, 1902. 


The Elton Mfg. Co. and the Star Mfg. Co. were engaged in manufacturing the 
same kind of goods. To avoid the losses due to competition the two companies 
decided to combine their plants into one corporation under the name of the 
Union Mfg. Co. and finally agreed upon the following plan for the merger: 

The assets received from and the liabilities assumed for the separate companies 
were taken at the values given in the respective balance sheets, subject to the 
following adjustments: 

The Buildings, Machinery and Patents at 90% of their stated value. Delivery 
Equipment and Furniture and Fixtures at 80% of their value. A Reserve of 
2% on Accounts Receivable was established by the Star Mfg. Co. 


Land $10,000 

Buildings 60,000 

Machinery and Tools 30,000 

Delivery Equip. 3,5OO 

Furniture and Fix. 1,500 

Inventory Mat. 10,000 

Fin. Goods 2,500 

Accts. Rec. 35,ooo 

Unexpired Insurance 500 

Cash 4,000 

Accts. Payable 
Mtge. Payable 
Accrued Wages 
Res. for Bad Debts 
Stock, Capital 








Machinery and Tools 
Motor Trucks 
Furn. and Fix. 
Inventory, Materials, etc. 
Finished Goods 
Accts. Rec. 










Accts. Pay. 
Notes Pay. 
Capital Stock 




After making the adjustments and allowing interest at 6% on the invested 
capital, the excess earnings were capitalized on a basis of 10% to obtain the 
amount of the good will. 

Average net profits for a period of three years: 

Elton Manufacturing Co. 


The Union Mfg. Co. was capitalized at an amount equal to the net assets 
(after adjustments) and the good will of the two merged companies. 

1. Find the capitalization of the Union Mfg. Co. and the amount of preferred 
and common stock allotted to each of the merged companies. 

2. Write the journal entries to open the books of the Union Mfg. Co. 

3. Prepare the Balance Sheet for the Union Mfg. Co. 

4. Write the closing journal entries for the Star Mfg. Co. 


It is proposed to organize a corporation for the purpose of acquiring the stock 
and controlling three existing corporations, A, B, and C, two of which latter, A 
and B, have been in operation for five and three years, respectively, while C has 
been newly organized. The assets and liabilities of the several existing companies 
and the dividends paid are as follows : 






$400,000 $300,000 
295,000 4 2 5,ooo 
40,000 15,000 $500,000 

$735,ooo $740,000 $500,000 




6% Bond at 5 years 

Current liabilities 













$735,ooo $740,000 $500,000 


$I2O,OOO $ 3O,OOO 

For the purpose of the issuance of stock in the new company to the holders of 
stock in the three existing companies, it is proposed to capitalize the latter upon 
the following basis: 

Money assets at double their value; plant at 80% of book values; material at 
70% of book values; annual net earnings at 8%; and the liabilities at par. 

The new company will be organized with a capital stock of $2,200,000, all of 
which is to be used in acquiring the stock of the existing companies. 

(1) What amount of stock in the new company are the owners of the stock in 
each of the existing companies entitled to receive? 

(2) Give a short criticism attacking the above basis of stock allotment and 
submit a more equitable basis. 

Penna., 1906. 


The Smith brewing company with $1,000,000 capital stock, the Young brewing 
company with $500,000 capital stock, and the Star brewery with $400,000 capital 
stock, agree to consolidate as the Universal brewing corporation, the new company 
to buy all the properties of the old companies, at a valuation to be fixed by 
appraisal, payment therefor to be made in full-paid stock of the new company, 
the old companies to pay off their own indebtedness. 

The appraised values of the old companies are as follows: 






































i 1,500 



Total appraised 



On this valuation, the Universal brewing corporation issued $2,000,000 of 
stock, shares $100 each, which was divided pro rata among the old companies on 
the basis of their appraised value, no fractional shares of stock to be issued, odd 
amounts to be paid old companies in cash. 

Give journal entries necessary to set up property accounts and credit old 
companies with their pro rata on books of the new company. 

At the time of the consolidation the ledger accounts of the Star brewery were 
as follows: 

Real estate and buildings $250,000 

Plant 247,000 

Cash 1 ,000 

Horses, wagons and harness 1,800 

Office furniture 1,200 


Capital stock 
Bills payable 
Accounts payable 




Make the proper journal entries to liquidate in stock of the new company the 
liabilities other than capital stock, to apportion the remaining stock and cash, 
and to close the books of the Star brewery. 
New York, 1902. 


The following is abstracted from an agreement of merger and consolidation 
made December 31, 1908, between the Pennsylvania Tool Co., party of the first 
part, and the Keystone Tool Co., party of the second part. Said parties of both 
parts being corporations duly organized and existing under the laws of the state 
of Pennsylvania, by this agreement merge and consolidate into a single corpora- 

The name of the corporation hereby formed by said consolidation shall be The 
Pennsylvania Tool Co. 

The amount of capital stock of the new corporation is $100,000, all of which 
shall be common stock divided into 1000 shares of a par value of $100. The 
manner of distributing capital stock shall be as follows: 

The capital stock of the Pennsylvania Tool Co., party of the first part, shall 
be exchangeable for capital stock of the new corporation, share for share, and the 
balance of the capital stock of the new corporation hereby formed shall be dis- 
tributed to the stockholders of the Keystone Tool Co. in proportion to their 
present holdings. 

The Pennsylvania Tool Co., party of the first part, was incorporated shortly 
before the date of the merger, and had transacted no business other than the 
issuance of ten shares of capital stock, $100 each, for which payment of $1000 
had been received, and which was on hand in the treasury of the company on 
the date of the merger, and directly after the merger transferred to the bank 
deposit account of the consolidated company and credited to an account called 

The Keystone Tool Co. had for a number of years been actively engaged in 
business. Its fiscal year ended September 30, 1908, at which time an inventory 
was taken and its accounts had been properly closed. At the date of the merger 
the following trial balance was drawn from the books: 

Debits Credits 

Cash $ 20,000.00 

Accounts Receivable 15,000.00 

Merchandise: Inventory, September 30, 1908 130,000.00 

Merchandise purchases 250,000.00 

Expenses 25,000.00 

Accounts Payable $ 10,000.00 

Sales 300,000.00 

Capital Stock 30,000.00 

Undivided profits: Balance, September 30, 1908 100,000.00 

Totals $440,000.00 $440,000.00 

The account books of this concern were not closed at the date of the merger 
and no inventory was taken, although the exchange of capital stock was effected 
and also all business after December 31, 1908, was transacted under the name of 

The Pennsylvania Tool Co., and it was not until March 31, 1909, that an account- 
ant was asked to state the accounts of the new company from the date of the 

At March 31, 1909, before the accountant had commenced his work, an inven- 
tory was taken which showed the value of merchandise on hand as at that date, 
to be $216,250.00, and the following Trial Balance was abstracted from the 



Accounts Receivable 

Merchandise inventory Sept. 30, 1908 

Merchandise purchased 


Accounts payable 



Capital Stock 

Undivided profits 


$ 26,000.00 




$ 10,000.00 



$826,000.00 $826,000.00 

Prepare a Balance Sheet of the consolidated company as at March 31, 1909, 
and a Profit and Loss account arranged to show the profits of the consolidated 
company for the three months ended March 3 1st; and of the Keystone Tool Co., 
for the three months ended December 3ist; also statement showing the disposi- 
tion of profits taken over by the new company. 

State what basis you make use of in determining the approximate value of 
merchandise on hand at December 3 1st. 
Penna., 1909. 


A manufacturer is desirous of selling his business, and furnishes a statement 
showing the condition of affairs for the past five years as follows: 

Amount of sales averaging per year $800,000.00 

Wages paid 200,000.00 

Expenses paid 80,000.00 

Raw material purchased 350,000.00 

Supplies on hand at present time 40,000.00 

Machinery in use at commencement of the five years 150,000.00 

50% of the above amount has been in use for 10 

years previous, and all additions made at cost 

prices, and nothing marked off for depreciation. 

Carried at present at $225,000.00 

(All repairs have been charged to expense) 

Real estate valued at 200,000.00 

What report would you make as to a fair valuation of this business? Explain 
fully your reasons for same. 
Penna., 1902. 


A New York company doing business in London, received the following trial 
balance from its London office at the end of a fiscal year: 



Accounts receivable 

Accounts payable 




New York office account 

Remittance account 











270,000 270,000 

The New York books showed as follows: 


Capital stock 


London office account 

Remittance account 



$ 600,000. 





[,291,712.50 $1,291,712.50 

The remittance account consisted of four 6o-day drafts on London for 15,000 
each, which were sold in New York at 4.85^, 4.86, 4.86^ and 4.86^ respectively. 

Make such journal entries as are necessary to incorporate with the New York 
accounts the results of the year's business in London (conversion to be made at 
the average rate of exchange of the four remittances) and establish the new 
balance of London office accounts so that it will agree with the London books 
when converted into sterling at 4.87^, the rate of exchange ruling on the last 
day of the year. Show also trial balance of the New York books after closing. 
New York, 


A New York firm of bankers, doing a large foreign exchange business which 
involves numerous transactions daily, desires to change its system of accounting 
so as to show the profit or loss on exchange at the close of each month. The details 
of one month's business are as follows: 

156,742 sterling at an average rate of 4.89^" 
263,500 francs " " " 5.12^ 

189,600 marks " " " " .94 

Bought and deposited with paying agencies: 

100,000 sterling at an average rate of 4.85^ 
250,000 francs " " " 5.15 

150,000 marks " " " .92^ 

Paid at paying agencies: 

By the London bank, 95,000 sterling 
" Paris " 225,000 francs 

" Berlin " 140,000 marks 

Describe a convenient method of showing in U. S. money the profit on this 
one month's business, making the necessary journal entries, and preparing the 
ledger accounts affected thereby. 
New York, IQOI. 


The factory of an automobile company assembles its cars only on receipt of 
orders from the main office. A summary of the factory operations for a certain 
period is as follows: 

Parts purchased $ 162,500 

Parts manufactured (material cost) 562,500 

Productive labor (125% of material) 703,125 
Factory expense 1,128,000 
Cost of cars: 

Parts purchased, consumed 137,500 

Parts manufactured (material cost) 187,500 

Productive labor (145% of material) 471,250 

Factory expense 565,500 

Material on hand, unmanufactured 500,000 

Prepare a technical trial balance of the cost ledger and an inventory of the 
stock room. 
New York, igi6. 




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