Knowledge that Transforms

Reviews the book "Management Trading, Stock-Market Prices and Profits," by Frank P. Smith.

The article presents the authors reflections on his twenty five years with the American Accounting Association. The author realizes that he was fortunate enough to have attended all the meetings of the Association. The members of the Association have missed many pleasant days at home, have neglected their work, have spent without reimbursement over $2,000 in attending these annual meetings, eleven of which have been on the Atlantic seaboard and six in Pittsburgh, Columbus, Cincinnati, Cleveland, and Detroit. The author admits there have been some very dry moments in some of the sessions, when it seemed necessary to exercise a maximum of self discipline. At times they had to seek relief in the hallways or the great out of doors in order to ponder over the serious problems and proposals made by the learned authors of some papers which were read. The truth of the matter is that though the span of years the members have considered the intangible values derived from these meetings as great enough to justify the personal detriments incurred in attending them.

Reviews the book "Exchange Control in Central Europe," by Howard S. Ellis.

The article discusses a case of International Salt Co. related to dividends out of subsidiary surplus at date of acquisition. An examination of the financial statements of the International Salt Co. from 1934 to date discloses two major points of interest, namely, a long-drawn-out controversy with the U.S. Securities and Exchange Commission as to the treatment of dividends received from subsidiaries, and a changing concept of the amortization of bond discount or premium. The International Salt Co. was incorporated in New Jersey on August 22, 1901, with a perpetual charter, and in 1934 was a holding company with six subsidiaries. While the correspondence files of the Securities and Exchange Commission may contain a plausible defense of the company's earlier position in refusing to classify these dividends as reductions in investments rather than as additions to income, on the basis of the disclosed information the demand of the Commission would appear to be entirely legitimate and in accordance with common accounting practice. Turning now to the second issue, the treatment of bond discount and premium by the International Salt Co. has undergone an interesting evolution. The treatment scarcely accords with generally accepted accounting practice.

The paper considers criticisms which have been advanced relative to the Tentative Statement of Accounting Principles. An analysis of accounting writings since 1936 indicates that relatively few articles have dealt exclusively with the propositions contained in the Tentative Statement, on the other hand, scarcely any expression in connection with theoretical aspects of accounting can avoid implying either agreement or lack of agreement with or more of the propositions. In considering the possible need for uniform accounting principles, one must look to the sphere of relationships between the stockholder and the corporation, since it is in this connection that the statement of principles was established. Adverse criticisms divide themselves into four classes. The first relates to alleged defects of workmanship in the formulation of the statement. The second pertains to alleged incongruities of the various parts of the whole. The third deals with the practicality of certain propositions. The final class represents differences of opinion on fundamental theses.

Reviews the book "Financing Defense Orders," by Lynn L. Bollinger.

Reviews the book "The Balance Sheet of the Future," by Roy A. Foulke.

Reviews the book "Operating Results of Department and Specialty Stores in 1940," by Macolm P. McNair.

In the corporate field the most important use of accounting lies in the preparation of statements of financial position and of operating results. So many vital decisions of business and government depend on the interpretation of such statements that they have come to be of prime economic and social significance. The subject may be approached by considering the uncertainties of corporate accounting practice which sometimes vitiate comparisons of published financial statements of different corporate enterprises, and even comparisons of the financial statements of the same enterprise for successive years. In some instances business managements and accountants have permitted themselves such freedom of action that published statements have been difficult of interpretation without extensive supplemental information. To avoid these difficulties every corporate statement should be based on accounting principles which are sufficiently uniform, objective, and well understood to justify opinions as to the condition and progress of the business enterprise behind it.

The article presents various problems that were presented on May 16, 1941 as the second half of certified public accountants examination prepared by the board of examiners of the American Institute of Accountants. The total weight allotted to this section was 50 points and was divided as follows: problem 1, 20 points; problem 2, 16 points; problem 3, 14 points. Examinees were allowed six hours to prepare their solutions. In one of the questions examinees were requires to prepare an estimate of fair market value of the stock of the Hall Instrument Co. and submit full explanations and computations. In addition other determinations and estimates that are made with respect to the position and prospects of the Hall Instrument is the gross volume of business for the next three or four years is expected to average around $110,000. In another question, a detail of the annual report to shareholders of the State Stove Co. is provided. Examinees are required to submit worksheets and complete computational analysis of the data.