I. The state variables: balance sheets and information, 279. — II. The model, 284. — III. Numerical illustrations of monetary control, 290. — IV. Conclusions, 301. — Appendix: Derivation of Figure I, 303.

Reviews the book "Financial Accounting Theory I: Issues and Controversies," 2nd ed., edited by Stephen A. Zeff and Thomas F. Keller.

This paper presents estimates of the concentration of personal wealth in the United States from 1922 to 1969. These estimates lead us to conclude that the distribution of wealth (1) became significantly more equal in the 1930's and early 1940's, two periods of massive government intervention in the marketplace, and (2) has remained essentially unchanged since 1945.1 In what follows, we compare the wealth held by the richest 1.0 and 0.5 percent of the population to that of all persons. The wealth of the richest 1.0 and 0.5 percent was estimated by the estate multiplier technique.2 The wealth of all persons was derived from national balance sheets.3 The estimates presented here for the period before 1953 were developed by Robert J. Lampman using highly aggregated Internal Revenue Service (IRS) data. For 1953 and 1958 we use detailed estimates (from special IRS tabulations) by Lampman and Smith, modified slightly to take account of current knowledge. Estimates for 1962, 1965, and 1969 are new detailed estimates developed by the authors using microdata files of estate tax returns prepared by the IRS for its routine publications. Here we focus on the years since 1953. Information available from estate tax returns varies from year to year, so a number of adjustments were made to bring the estimates for individual years into conceptual alignment with one another. The alignment problem was exacerbated because the IRS has destroyed tapes of returns filed before 1963, leaving only Lampman's and Smith's printed tabulations for 1953 and 1958.4 It was impractical to reestimate the distributions for 1953 and 1958 by better methods based on current knowledge. Consequently, the estimates for 1962, 1965, and 1969 were made consistent with those for 1953 and 1958 * The Urban Institute and the Pennsylvania State University. The work reported here is part of the Urban Institute's research program on income and wealth distribution. The support of the National Science Foundation is gratefully acknowledged. 1 We wish to make clear that our concern is with temporal change and that we have sacrificed best estimates for individual years to achieve consistency over the time series. Individual figures have a downward bias of 10 to 15 percent from our best estimates of concentration. (Best estimates for 1969 may be found in Smith; similar estimates for other years will appear later.) 2 Detailed descriptions of the methodology and attendant problems can be found in Smith and Staunton Calvert, Robert J. Lampman, and Smith. I National balance sheets were constructed for a person's sector using data supplied by the Board of Governors of the Federal Reserve System. Helen Stone Tice did the basic work on these special sector balance sheets. Smith provides a detailed description of the balance sheet. I A further problem resulted from the fact that the IRS erased the age field from the 1965 tape. This was most unfortunate because of all years for which the IRS has coded estate tax returns, 1965 had the most detailed classification of information. The erased data was restored by a stochastic process which took into account the relationship between age and other characteristics observable in the files for 1962 and 1969.

I. The problem, 1. — II. The bonus as a function of profit and sales, 4. — III. The iterative process, 9. — IV. A practical look, 12. — Mathematical note, 15.

This article comments on the article "Implicit Factors in the Evaluation of Lease vs. Buy Alternatives," by Lanny G. Chasteen, published in the October 1973 issue of the journal "The Accounting Review." The implications of Chasteen's corollaries are valid and sound if the lease payment period is equal to the U.S. Internal Revenue Service (IRS)'s depreciation guideline life. If, however, the depreciation life for tax purposes differs from the lease period, it is possible to favor leasing over buying even though the implicit interest rate of the lease is greater than the rate at which the firm can borrow. For example, one should assume a potential lessee could lease an asset for $1000 a year for three years and purchase the asset for a nominal amount at the end of the lease period. It is assumed that the lease's implicit interest rate is 8%. An 8% implicit interest rate would mean that the potential lessee could directly purchase the asset for $2577. It is further assumed that the potential lessee can borrow at 6%, uses accelerated depreciation, and the IRS guidelines call for an 8-year depreciable life for this firm.

This article presents comments on an article describing a very useful algebraic teaching aid to explain the differences between the direct costing and full-absorption costing models, written by Don T. DeCoster and Kavasseri V. Ramanathan and published in the October 1973 issue of the journal "The Accounting Review." This assumption leads them to analyze a very special situation in which the overhead charged against profit under absorption costing is the volume variance rather than the more general situation in which the total overhead variance is charged against profit. it may be seen that the difference between the two income measures is the same as that developed by DeCoster and Ramanathan. The adjustment of the DeCoster and Ramanathan discussion for these two changes should be beneficial because students have frequently been introduced to budgets and variance analysis under full-absorption costing before variable costing is discussed.

The article reports that the effect of inflation on the value of the firm, in the case of monetary items, can be analyzed at three levels. First, the price-level increase gain or loss measures the real losses to income and principal based upon the change in the general level of prices. General price-level accounting methodology presently measures this effect, with exceptions as noted below. Second, the net holding gain or loss measures the net effect of holding monetary items, considering the price-level increase gain or loss and the absolute income or costs of the monetary items. The possibilities of normal gains and losses offsetting or magnifying price-level increase gains and losses make this second consideration important. The third consideration, that of anticipated price-level increases, affects the accuracy of the conclusions reached in the first two levels of analysis. The first two levels assume that inflation is unanticipated and thus ignore the fact that prior adjustments in return could compensate for the gains or losses as found in those analyses.

This article presents response from the author to the comments on his article "Behavioral Implications of Taxation," published in the October 1973 issue of the journal "The Accounting Review." It was argued that the author's article did not always maintain a clear distinction between ex ante and ex post research. This issue is basically a semantical difference. The author agrees that behavioral research can be ex ante and ex post. Many specific research methodologies incorporate both ex ante and ex post research. There is no way to know what are the best paths to follow as the body of knowledge is being developed. Tax analysis research would, of course, include both ex post and ex ante research. The 1973 AAA's Committee on Federal Income Taxes indicates that tax research consists of two types: tax compliance and planning research and tax analysis research. The first type refers simply to finding a competent and professional conclusion to a tax problem. It includes such subsets as tax return preparation or review, tax minimization and deferral, and practice before the U.S. Internal Revenue Service and the Tax Court. The second type of research goes beyond this fact-oriented research and focuses upon the data-gathering stage in the testing of tax hypotheses.

This article presents information on expectations and achievements in income theory. A major confusion concerning the relationship between ex ante present value and ex post concepts of income and asset valuation underlies much of the recent literature in income theory and asset valuation. Many claims have been made in favor of the present value concepts and measurements as providing the ideal accounting system which are not valid, and many criticisms of historical accounting which are based on the supposed merits of present value accounting are not sound. The case for the use of current value or replacement cost accounting is thought by many to rest on the merits of present value accounting whereas it really rests upon other grounds. The case for the dominant position of ex ante present value income rests on the needs of investors for information about future income prospects of a firm. Investors in business enterprises, i.e., owners, are interested in the prospects of future income from investments, and it is differences in these future prospects which determine the allocation of their investment funds.