Most textbooks call convertible bonds and convertible preferred stocks hybrid securities because they have the characteristics of senior securities together with many of the attributes of common stocks. In most, if not all, balance sheets they are classified as senior securities and their claim against earnings is reported to be the coupon interest or the dividends declared.' Yet, in most cases the nominal rates of return on these securities are substantially below those of equivalent-risk nonconvertible securities. It is apparent that these nominal rates are an inadequate measure of the real cost of convertible securities to the firm.2 What then is the cost of convertibles? To what extent do published reports understate or overstate their cost? What are the important variables affecting that cost? How does the cost of debt affect earnings per share? This paper presents the results of an empirical study intended to answer those questions. It seems clear that a convertible security, either bond or stock, derives its value from the magnitude of its share of the firm's earnings, present and future. That share however is not limited to the cash payout alone; it also includes a pro-rata, per equivalent common share portion of the current period earnings retained by the firm. To the extent that earnings

Abstract The main purpose of this article has been to look rationally at the area of income reporting. Reporting of earnings per share has certainly been controversial and has even led to charges that it has created a chain letter growth effect in the absence of real growth. The reason for this has been that earnings, as reported today, are an odd mixture of income determination and income distribution and little effort has been made to distinguish between the two concepts. Moreover, income as reported on a per share basis has been allocated among an arbitrarily determined number of shares representing a combination of past, present, and future transactions. Finally, current reporting gives no recognition to the critical difference between cash distribution of earnings vis-a-vis earnings retained and its corollary, the two class method of computing earnings per share. The points raised by the Accounting Principles Board against the two-class method are precisely those which support it. The Board seems to have forgotten that the holder of a convertible security is free to exchange that security for common at any time and that the only reason for not doing so is that the value of the convertible is greater than the value of an equivalent number of shares of common.

Abstract Reviews the book "The Auditor's Report and Investor Behavior," by Ralph Estes.

Abstract Reviews the book "Financial Accounting: An Input/Output Approach," by William J. Schrader, Robert E. Malcom and John J. Willingham.

Abstract The article focuses on a procedure followed by practitioners of accounting for the method of inventory determination. The procedure is called dollar-value last in first out (LIFO), may be used to achieve the lowest obtainable final inventory for a manufacturing concern. The dollar-value method was developed in many companies to offset the perpetual inventory limitation of the use of LIFO. The dollar-value method uses a technique of double extension. In this way, ending inventory quantities are extended to two columns, one at current cost, the other at the cost of the base year, the first year that the LIFO method was used. In its effects, LIFO is income statement oriented. As current revenues are realized current cost factors (i.e., costs incurred at the same time as revenues were realized) are deducted immediately from revenues. The net effect is to make the stable monetary unit assumption into more of a reality on the income statement, thus eliminating much of the time lag between costs and revenues during which the value of dollars may change appreciably.