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(2) Deferred Charges to Operations
$ 456.00 Advertising
12,575.00 To set up Deferred Charges to Operations as follows: (a) Insurance Unexpired
$456.00 (b) Advertising $25,150.00 to be charged off over period of two years, one half deferred
$12,575.00 (3) Accrued Assets
$1,131.17 Interest and Discount
$1,131.17 To set up Accrued Assets: (a) Interest accrued on investment of surplus
$124. 59 (b) Interest accrued on Sinking Fund. 875.34 (c) Interest accrued on Notes Receivable 131.24
$11,522.95 Res. for Dep'n. on Buildings, 242%
$3,750.00 Res. for Dep'n. on Machinery, 6%
6,012.90 Res. for Dep'n. on Horses and Wagons, 10%
1,500.00 Office Furniture
260.05 To set up proper amount of depreciation on fixed assets.
NoteOffice Furniture is credited direct for amount of depreciation, no reserve being set up.
(5) Organization Expense Charged Off
$735.00 Unapportioned Organization Expense
$735.00 To charge off 10% of Organization Expense.
(6) Bond Discount Charged Off
$300.00 Bond Discount Unamortized
$300.00 To charge off 5% of Bond Discount.
Loss on Doubtful Notes
$ 258.12 Loss on Bad Debts
1,694.43 Reserve for Doubtful Notes
$ 258.12 Reserve for Bad Debts
1,694.43 To set up reserves for estimated loss of 2% on Notes and Accounts Receivable.
(8) Inventory, Finished Stock-new account.
$80,000.00 Inventory, Materials and Stock in Process-new account
59,875.00 Inventory, Finished Stock-old account.
$80,000.00 Inventory, Raw Material-old account.
59,875.00 To set up Inventories as of Dec. 31, 1918.
The Working Sheet on the following pages shows the Trial Balance, the posting of the preceding correcting and adjusting entries, and a proper classification of the nominal and real accounts as prepared by E. R. Stockman, senior accountant, from his working papers and those of the juniors, J. I. King and C. E. Shaw, his assistants.
THE BLANK MANUFACTURING CO.
Working Sheet, December 31, 1918.
Capital Stock, (5000 Sh. at $100) 500,000.00
500,000.00 Sinking Fund Reserve 15,000.00
15,000.00 Sales Less Returns & Allowances 625,275.00
625,275.000 Rent of Part Bus. Premises
59,875.00 37,310.50 59,875.00
80,000.00 80,000.00 15,000.00 80,000.00 80,000.00
1,131. 172,118.83 Stable Expense 2,000.00
2,000.00 Office and Other Expense 12,875.00
12,875.00 Maintenance and Repairs 13,471.00
13,471.00 Surplus (12-31-17)
13,719.93 Accrued Assets
5,190.071 Deferred Charges to Operations
735.00 Bond Dis. Charged Off
258.12 Material and Stock in Process (12-31-18)
78,969.17) 765,400.00 765,400.00 827,197.12 827,197.12 A. THEORY QUESTIONS
1. Would you advise showing profits for prospectus purposes before or after deducting war profits and income taxes? State your reasons briefly.
Inst. Ex. 1919. (a) What items do you consider should be charged or credited direct to surplus?
(b) Would you regularly make small adjustments of subsequently discovered errors through this account?
(c) Is the balance at credit of surplus ever in any circumstances a liability, and, if so, to whom?
Inst. Ex. 1918. 3. What would you consider satisfactory evidence of the correctness and propriety of expenditures of the following classes:
Inst. Ex. 1918. 4. There is a confusion in the minds of many people between statements of “revenue and expense" on the one hand and of "receipts and payments" on the other hand. Discuss the distinctive features of such statements showing wherein they differ.
Inst. Ex. 1918.
B. ACCOUNTING PROBLEMS
1. Write a reply to the following letter and prepare a Balance Sheet as requested therein: Dear Sir:
Our bank has asked us for a statement for credit purposes. Will you please prepare one for us?
Our plants stand at their cost price, which is $60,400. We have set up a reserve for a depreciation of $10,200. There is a mortgage for $20,000 on the plant and interest on the mortgage is at 6 per cent and is paid up to 3 months ago. We hold $10,000 of notes receivable and have discounted $25,000 of notes with the bank. Our accounts receivable, which we consider good, amount to $18,000, including $3,000 due from one of our employees on personal account. Our trade accounts receivable are subject to 5 per cent discount if paid at due date, and only $1,000 is now past due. Our accounts in suspense amount to $4,000. I believe these are 50 per cent good. We have ordered a new machine to cost $6,000, but it has not yet been delivered. We have endorsed a note for $6,000 for our friends, the A. B. Co., but I am confident they will take care of it when it is due. Our accounts payable amount to $4,200. Our insurance amounts to $400 a year and has six months
We have a note at the bank for $5,000, interest paid to date. We own 50 shares of stock in the company from which we buy raw material. They cost us $2,800 and are surely worth it, though we might have some difficulty in selling them in a hurry. Our inventory is taken at a low selling price, which is 10 per cent more than it cost us. The amount is $17,600. In addition we have a special contract for one of our customers. The contract price is $25,000. We have spent $12,000 on it and expect to have to spend $4,000 more, and we have received $10,000 on account. Our cash in bank is $4,800 and cash in hand $200.
I have told you all the facts I think you need. Perhaps some are not required, but I want to give the bankers all the information they ought to have in the way they expect to get it.
I do not, of course, expect you to accept any responsibility for the figures in the statement, but simply to prepare the statement in the best form you can from this letter. If you have any suggestions as to how
can better meet the bank's requirements let me have them.
(Signed) H. A. SMITH
Inst. Ex. 1917. 2. You are asked to audit the books of the Michigan Manufacturing Company with a view to ascertaining their true financial position at the close of the year ending Dec. 31, 1918. The following Trial Balance is submitted:
TRIAL BALANCE, DEC. 31, 1918
20,797.80 Real Estate and Buildings.
35,333.83 Machinery and Equipment.
12,344.88 Horses, Wagons, etc.
1,265.40 Power Machinery Co.
727.77 Manufacturing Materials..
133,848.53 Misc. Factory Supplies.
1,631.09 Productive Labor...
63,842.23 Freight, Express and Cartage "In 1,734.70 Stable Expense.
1,694.11 Misc. Non-Productive Labor.
1,993.50 Fuel ...
3,872.32 Repairs to Machinery
507.73 Water Tax..
378.58 Discount allowed to Customers. 3,362.19 Postage....
6,170.00 Stationery and Office Supplies.
296.02 Miscellaneous Main Office Expense 241.08 Interest Paid..
3,386.80 Accrued Pay Rolls
487.66 Notes Payable.
22,344.81 Accounts Payable.
5,512.34 Sundry Creditors.
2,511.89 Reserve for Bad Debts.
1,059.51 Capital Stock...
85,000.00 Sales ...
187,540.38 Discounts Earned on Purchases..
2,081.59 Interest Earned....
463.17 Miscellaneous Earnings..
724.75 $307,726.10 $307.726.10