Knowledge that Transforms

Reviews the book "The Big Business Executive--The Factors That Made Him--1900-1950," by Mabel Newcomer.

Abstract This article provides tips for answering examination questions of certified public accountants' (C.P.A.) examination. The results of C.P.A. examinations given in the past show that each year the percentage of candidates passing the entire examination is relatively low, ranging from ten to thirty-five per cent in the various states. Examiners have long been puzzled by this condition. Is it due to insufficient formal education, lack of practical experience, inability to express oneself or other causes. While it was found that the best of candidates, under the pressure of the examination, will give an occasional poor answer.

Abstract Savings and loan associations are permitted to deduct, under Sec. 593 of the Internal Revenue Code of 1954, any amount they choose as additions to reserves for bad debts, so long as those amounts do not bring theft total reserves, surplus, and undivided profits accounts to more than 12 per cent of savings capital. This provision is in direct contradiction to established accounting theory, which holds that deductions for bad debts should be estimated in relation to the risk assets owned as part of the process of matching costs and revenues of any given period, so that the net income of that period may be determined. Even though the savings and loan industry is apparently suffering no current tax pain, a longer-range look at Sec. 593 should provide a sobering view for the associations. Competitors and opponents of the associations may argue that Sec. 593 is a tax-avoidance device, giving the associations an unfair tax advantage. The tremendous growth of the savings and loan business since the removal of tax exemption in 1951 has permitted the great majority of the associations to add to their reserves with an almost complete disregard for the income tax factor. Thus the provision could lead to much more onerous and burdensome taxation being imposed upon the associations. Another danger in the reserve provision is the likelihood that the 12 per cent level set by the law for tax-free building of reserves will have the effect of a ceiling upon efforts to build reserves, even though much higher reserves may be needed. It is extremely difficult to predict what level of reserves may be necessary for any given association, and it is dangerous to think in terms of a stipulated reserve level which may be applied to the entire savings and loan industry. Finally, the provisions of Sec. 593 are dangerous to associations in periods of economic tension because, as savings and more liquid assets might contract sharply, continued deductions for reserves would be desirable, but they perhaps could be provided only by paying the penalty of corporate income taxation, whereas in prosperous times, no tax need be paid. Thus, at the time the institutions might most need liquidity, their stability and solvency would be most threatened by taxation. The provisions of Sec. 593 may prove very harmful if they induce the associations to modify their business behavior solely in order to minimize their corporate income taxes. It would appear that, since the bad debt deduction is one which applies for nearly all accrual basis taxpayers-not savings and loan associations alone -before net income may be computed, the amount of the deduction is essentially an accounting problem and should be computed according to accounting principles applying to the determination of net income.

Abstract The article presents some problems prepared by the board of examiners of the American Institute of Accountants as part of an examination in accounting practice. The first problem required a student to prepare a schedule showing the cash payment of the buyer to the selling party, profit and loss statement of the company involved in the transaction and total taxable income statement of the selling party on the basis of information and conditions given to him. The second problem required the student to prepare a schedule showing how cash payments should be made to partners who are selling, with the realization of assets. The third problem required the student to prepare entreaties to reflect the exchange on the books of a corporation and compute depreciation on the purchase made by the corporation on the basis of the entreaties. The fourth problem required the student to prepare a statement accounting for the decrease in net working capital and a statement accounting for the decrease in cash on the basis of the information supplied. The solutions to each of the problems have been provided.

Reviews the book " The Great Enterprise," by Herryman Mauer.

Reviews the book "Elementary Accounting," by John Arch White and Marcus H. Bean.

Abstract This article focuses on new internal revenue act and the prosperity of the economy of United States. The devices to stimulate enterprise, employment and prosperity, five features are set forth. They are: the extension to two years of the carry-back for net business losses, the modifications in the taxation of dividend income received by individuals, the provisions for accelerated depreciation, provisions for deduction of research and development expenditures and the relaxation of provisions relating to the taxation of undistributed earnings of corporations. The author suggests that perhaps this new code should be looked upon as the first step, or the first few steps, toward a tax system that gives more attention to economic incentives. These features offer some promise of helping. It would be a mistake to regard them as anything more than helpers. They are only a part of an intricate tax system. The system itself is not an all-purpose economic tool, it is only one of several regulators in the economy.

Abstract The article presents cost concepts in reports for management purposes. The article explains the functions of the basic concepts described, which are, the indication of desired measures of cost and an inducement to the development of improved techniques and procedures for supplying appropriate cost information to management. It explains the statements of accounting principles underlying corporate financial statements which suggest concepts and standards in preparing accounting reports. The purposeful aspect of the term "cost" and the methods of measuring value releases have been discussed in detail with the uses of business cost reports. Costs for project planning have been described as estimates of future value releases. Expected cash outlay has been explained as the basis for estimating future costs of differential services. Adjustments for time, risk and uncertainty, pricing as a special area of planning, costs for period planning and control of current operations, Cost as a device for communication, motivation, appraisal have been discussed in detail. Cost reports for planning and control and costs for external purposes have been briefly discussed.

Reviews the book "Administering a Conversion to Electronic Accounting," by Harlord F. Craig.

Reviews the book "Examination of Insurance Companies," edited by Adelbert G. Straub.