Knowledge that Transforms

Reviews the book "Financial Reports for Colleges and Universities."

The article deliberates on whether the stock dividends should be considered as income in hands of the recipient. Numerous views are being given on the subject. However, the views expressed are conflicting because different aspects of the problem are being emphasized by different persons. Under the series of Federal income tax laws since the sixteenth amendment was passed in 1913, dividends have been subject to tax in the hands of the recipient. The act contained no mention of stock dividends, but the Bureau of Internal Revenue interpreted the law to include stock dividends as income and hence subject to tax. This interpretation was questioned by a taxpayer, H.R. Towne, who carried the case to the United States Supreme Court. The court decided in favor of the taxpayer, declaring that stock dividends were not taxable as income under the act. The court ruled that a stock dividend really takes nothing from the property of the corporation, and adds nothing to the interest of the shareholders. Its property is not diminished and their interests are not increased. The proportional interest of each shareholder remains the same.

The article asserts that the general law governing the value of capital goods has been known for some time. It may be stated briefly by saying that any capital good may be bought or sold for the present value of all future services expected from it. This rule is continuously being applied in practice by bond-traders and all bond tables are based upon it. Nevertheless, apparently no one has made systematic use of it to explain the formation of common stock values. Discussions upon the subject are frequent, but they seldom clear the hurdle of terminological difficulties. To review this preliminary difficulty, the article discusses the behavior of fair market value and yield of common stock. It highlights that when the earning rate equals the money rate, the expansion rate and the horizon lose their significance. The fair market value of the investment will equal the book value and the yield will equal the money rate. Moreover, when the money rate is very low, the fair market value of investments is very high, and their yields correspond closely to their expansion rates.

Reviews the book "The Monetary Problem: Gold and Silver," edited by Ralph Robey.

Reviews the book "Changes in the Financial Structure of Unsuccessful Industrial Corporations," by Raymond F. Smith and Arthur H. Winakor.

Reviews the book "Money and Banking," by George W. Dowrie.

The article focuses on interpreting the two principal annuity formulas. It is assumed that the student already understands the formulas for compound interest and compound discount and recognizes them in the said formulas. For calculating annuity, most of the students employ the formula for the sum of a geometric progression. However, the two principal annuity formulas can be explained without reference to a geometric progression and in terms that a student can understand and remember. Without referring to a geometric progression, the author attempts to show why the first formula is compound interest on one divided by the interest rate per period and why the second formula is compound discount on one divided by the interest rate per period. The author believes that the explanations presented in the article are preferable to the usual textbook discussion because the student can see why the annuity formulas are as they are; namely, compound interest on one divided by the interest rate per period and compound discount on one divided by the interest rate per period.

Reviews the book "Speculation and Gambling," by Ernest D. MacDougall.

The substance of the power of the Securities and Exchange Commission, in so far as it concerns accounting, derives from that passage in the Securities Act which in effect enables the Commission to stop the issue of new securities if it appears to the Commission at any time that the registration statement includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading. For the Commission the various items of a balance sheet and of an income statement are material facts, and what in accounting parlance is often referred to as the disclosure or non-disclosure of information becomes in the law the statement or omission of material facts. The corresponding powers in the Exchange Act make it unlawful for any member to effect any transaction in any security unless a registration is effective as pit scribed by the Commission.

Reviews the book "Present Day Banking."