Knowledge that Transforms

Abstract An expenditures tax may have definite merits; it seems clear, however, that while rich people spend more than poor ones do, they neither spend proportionately nor as much as they have the ability to spend. Such a tax is, therefore, not in conformity with the principles of progressive taxation and may result in inequitable tax burdens. For purposes of an income tax aimed to tax individuals according to their ability to pay, it would seem that any item of receipt that adds to tax paying ability is a fit item for income taxation and as such capital gains may properly be regarded as a source of income. The income tax on capital gains, which never has existed in England, should be abolished, or, if that be not possible, reduced to a small, uniform and definite per cent, as in the case of corporations so that when an individual invests his principal, with all the risks that are involved in any investment, he may have some assurance that he may be able to retain a reasonable portion of any profits made as a result of such investment. If capital gains are not considered part of income because they are not subject to capitalization, and only items subject to capitalization are considered items of true income, then it follows, as Irving Fisher maintains, that only spent income is true income. The income tax thus becomes an expenditure tax and the difficulties of such a the have been indicated.

Abstract Accountants, almost without exception, agree that goodwill should not be recognized in accounts until a bona fide purchase has been made. They are fully aware of the fact that goodwill created by a concern is just as valuable and in most instances, more valuable to that concern than to the firm which might make a specific purchase of that goodwill. Apparently there are a number of valid reasons which could be given in support of this position taken by accountants, other than the use of the term goodwill in connection with the watered stock frauds of the past. It is a generally accepted rule in accounting that it is the function of accounts to show the costs of assets, not the present value. This view may appear illogical at first sight. However, since an asset may have more than one value at a particular date, and since the actual cost of the asset to the organization is the only one which is capable of accurate determination, the latter, however, appears to provide a more realistic basis for the development of accounting principles, in spite of the fact that it encounters an obstacle in the situs of legal title.

Abstract A review of the accumulated criticisms of the American Accounting Association's "Tentative Statement of Accounting Principles" shows that points made are of two kinds, those concerned with various details and those expressing fundamental differences in point of view. Criticisms raise certain fundamental issues. For example, are accounting principles related to the function of accounting, and if so, what is that function? Are accounting principles to restrict or liberate managerial freedom to deal with changing conditions? In discussions of function there is a tendency to confuse central purpose with possible uses. Uses to which accounting data may be put are many and diverse, obviously, principles and procedure cannot be oriented equally well to all uses, nor can each use have its own set of principles and procedure. It may be said that accounting serves several purposes. If some of these purposes are in conflict, as they are very likely to be, accounting is then pulled this way by one interest and that way by another, and as a result one cannot say that a corporation's financial statements are continuously in accord with a single coordinated body of accounting theory.

Reviews the book "The Financial Development of the United States," by William J. Schultz and Marlan R. Caine.

Abstract While the corporation has contributed much to economic development, it is not fundamentally an economic entity, nor is the legal corporation fundamentally an accounting entity. For purposes of economics and accounting, the corporation might well be viewed as a group of individuals associated for the purpose of business enterprise, so organized that its affairs are conducted through representatives. Numerous illustrations may be cited of instances in which this latter, or representative, viewpoint has been taken even by the law and the courts and in its attempt to control the development of trusts, the law has frequently found it necessary to go behind the corporate fiction and prescribe penalties for corporate officers as well as for the corporation. The income-tax law and regulations dispense with the corporate entity in the principle of constructive ownership, in the imposition of a tax upon corporations for improperly accumulating surplus and of a surtax on personal holding companies.

Abstract Distributions by corporations differ in amount, frequency, and mediums of payment, but all are popularly known as dividends. Some dividends are stated amounts paid at stipulated intervals; such is the case of dividends on so-called preferred stock. Other dividends are unstated before actual declaration by the directors' resolution, both the amount and the frequency of the dividend being left to the discretion of directors in accordance with the contractual terms of the shares owned by the stockholders. This is the usual arrangement under which dividends on common stock are paid. Variation also exists in the medium of dividend payment. The most important medium used is corporate assets, cash being by far the leading specific asset used. Another form is the distributing corporation's obligations, scrip or note payable being the common forms. The third principal medium is un-issued capital stock. Adoption the requisite of realization has introduced another difficulty; it raises the issue of what constitutes realization. Ordinary dividends paid in cash constitute income upon receipt if it be admitted that any realized money gain is income. Money income is the closest practical thing to real income evidenced by consumable commodities and services. This is the chief virtue of income received in cash. However, the receipt of money's worth has come to be recognized as the equivalent of money because the bulk of business claims are not actually liquidated in cash. Thus cash dividends are commonly paid by check which are taken up as income upon receipt.

Abstract The following problems were presented by the Board of Examiners of the American Institute of Accountants as the second section of the examination in accounting theory and practice held in May, 1938. On January 3, 1936, the Eastern Manufacturing Corp. organized a subsidiary, the Eastern Sales Company of France, to operate at retail in Paris. Not having had any previous experience with foreign exchange, the treasurer of Eastern Manufacturing Corp. consults an account in February, 1937, concerning the valuation to be placed on the inventory of Eastern Sales Company of France at December 31, 1936, and the handling of intercompany transactions. The following data are furnished, sales of product by Eastern Manufacturing Corp. to Eastern Sales Company of France at $5 per unit, payable in dollars, February 15, 1936, 200,000 units, April 4, 1936, 10,000 units, July 20, 1936, 20,000 units and November 14, 1936, 50,000 units. The following information is requested, a statement showing transactions in the intercompany dollar account with Eastern Manufacturing Corp. as they should be recorded in the books of Eastern Sales Company of France.

Reviews the book "The Investment Value of Good Will," by Lawrence N. Bloomberg.

Reviews the book "The Folklore of Capitalism," by Thurman W. Arnold.

Abstract The responsibility of the practitioner in connection with a program of professional education, is one of great current interest to the practitioner as well as to the educator. Implicit in the term responsibility is a general recognition of certain standards of action and degrees of obligation. For example, there is recognition of such responsibilities as those of the head of the family to support his family, those of a citizen to bear arms in the defense of his country, those of any person, whether citizen or not, to act within the law of the land. The idea of duty is also implicit in the term, and even further carries the idea of accountability, not only to a court of opinion but even to a court of law. The nature of a professional man's responsibilities may be treated under three general heads, those to his clients, those to his profession and those to society at large. In connection with responsibilities to his client, it should always be remembered that the basis of that responsibility is either a specific or an implied contract of service entered into. This contract is so generally recognized that it is enforceable at law.