Knowledge that Transforms

Abstract The article presents ways to determine effective rate of interest on series of bonds. The article also demonstrates a rather simple mathematical system, which will give the required rate as accurately as desired and which will eliminate a great deal of the guesswork and labor in estimating charges of this type. No difficulty arises when dealing with one bond, or a group of bonds due on a single date, or in the simpler cases, since Makeham's formula or other methods in current use will serve satisfactorily. An accountant must choose from a number of arbitrary methods and be satisfied with approximations, or resort to a tedious trial and error method for establishing the true rate of interest effective in the case under consideration. A purchaser of bonds may be willing to supply information relative to the basis of his bid of premium or discount, and hence furnish an initial approximation to the rate required. Because of various factors, the information would never be sufficiently accurate for the purposes the accountant has in mind.

Abstract The article presents information related to overcapitalization as applied to corporations. It is proposed in this paper to discuss critical analysis of currently accepted definitions of overcapitalization, to point out the fallacies upon which they are based and to consider the possibilities of formulating a definition not subject to these criticisms. A U.S. senate bill introduced in 1911 maintained that the registration of any corporation can be revoked by a commission on the ground of overcapitalization that is to say upon the ground that the par value of the total securities including shares of stock and all obligations running for a term of some years or more, of such corporations, issued and outstanding at any time clearly exceeds the true value of the property of the corporation at that time. In determining such true value the said commission shall consider the original cost of such property, its present replacement cost, its present market value, including the goodwill of the corporation's business and the fair value of the services rendered in the organization of such corporation.

Abstract The article presents problems prepared by the Board of Examiners of the American Institute of Accountants, which were presented as the first part of the examination in accounting theory and practice held in the cooperating states on May 15th and 16th. One of the questions requires the students to prepare intelligible columnar work sheets showing the consolidation of the accounts, minority interests, earned surplus at beginning, and profit and loss from the provided balance sheets, profit and loss accounts and other data. Another question provided data for the preparation of a statement of operating results of the Zinc Mining and Milling Company in October that will show the operations on the company's own account and its activities in furnishing milling services to others, both for zinc and for lead concentrates. All supporting schedules had to be presented. Computations were to be carried the third decimal The students were required to observe and offer suggestions concerning, the form and substance of the accounts presented, and the treatment therein of depreciation on appreciation.

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

Abstract 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.

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

Abstract 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.

Abstract 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.

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

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