Knowledge that Transforms

Reviews the book "Money and Banking," by B. Foster and Raymond Rodgers.

In March of 1940 a stop order was issued by the U.S. Securities and Exchange Commission, suspending the registration statement filed by The Republic Co., an investment trust. The circumstances leading to the issuance of the stop order are of sufficient general interest to warrant an examination of the case. The registrant incorporated on June 21, 1926, in Colorado, under the name of "Protected Bond and Investment Company," with an authorized capital stock of 50,000 no-par assessable shares. It was organized for the purposes of purchasing, improving and dealing in real estate, and functioning as an investment trust. Between 1927 and 1931 the articles of incorporation were amended several times. As a result, the capital structure became much more complicated, and the name of "Republic Company" was adopted. An amendment of September 30, 1931, authorized the issuance of preferred stock at lower dividend rates. The objectives of the new offerings, to reduce the potential cash drain from surrender of savings certificates, and to reduce the dividend rate on preferred stock, were thereby attained.

Reviews the book "The Output of Manufacturing Industries, 1899-1937," by Solomon Fabricant.

Reviews the book "Internal Auditing," by Victor Z. Brink.

The article presents problems presented in the second part of the November 1940, C.P.A. examination prepared by the Board of Examiners of the American Institute of Accountants. One of the problems asked was, the will of E. M. Dodd, who died on December 31, 1933, provided cash bequests of $40,000 to Mrs. Dodd and $15 ,000 each to two children, the residuary estate to be divided equally among the three beneficiaries. Mrs. Dodd was appointed executrix and trustee without fees or other emoluments. By court order Mrs. Dodd was to receive a family allowance of $4,000 a month, commencing January 1, 1934, payable from income or from any cash principal available if the income should be inadequate. The estate never had enough cash available to pay up the full allowance nor could any part of the cash bequests be paid. Accordingly a considerable liability to Mrs. Dodd had accumulated toward the end of 1939 for the unpaid portion of the family allowance. The students were asked to prepare adjustments to the trail balance, columnar worksheet showing the trial balance before and after adjustment.

In the face of all the exciting and absorbing economic, military, and political aspects of the defense program, it is difficult to confine a talk to the prosaic and humdrum affairs which are supposed to be of interest to accountants. One of the obvious effects of the defense program of interest to accountants is the increased demand for accounting services. One of the important questions faced by those who are charged with making defense expenditures is how to contract for the necessary commodities and services. The traditional governmental purchasing technique is by competitive bidding, with very few exceptions. This method is intended to give the government the lowest possible price and to eliminate favoritism and collusion in the award of government business. However, it is slow and cumbersome, and it works best when the quantities of goods ordered are small enough to fit into production programs without too much of an upset. The advantages of negotiation are speed and flexibility. Work on many contracts can actually be gotten under way before all plans, specifications, quantities, delivery dates, and other features of the deal are completely worked out. Also the negotiated contract makes it possible for the contracting officers to take into consideration many matters other than price which have seemed important to the Defense Commission.

With acquisition and disposition prices measuring both the efforts to produce results and the results produced, the principal concern of accounting is the periodic matching of costs and revenues as a test reading by which to gauge the effects of the efforts expended. This concept of "matched costs and revenues" is the main concept discussed here. The standard is simple indeed in its nature: to get a true picture of periodic results of operations, there must be charged against revenues received the actual cost incurred in the process of receiving these revenues. Before the two elements can be "matched," they must be put in some common form so that they will be comparable. The elements are both expressed, therefore, as "price-aggregates." But although costs are handled as price-aggregates it is not just to speak of them as merely price-aggregates. Costs are in reality a measure of efforts expended to produce a product. In the same way it is not enough to speak of revenues as mere price-aggregates; but they must be viewed as a measure of business accomplishment.

The article presents the importance of a common terminology in languages. The author was discussing the handling of municipal expenditures in the operating statements with an official of a large city. Complete agreement was not reached until the official was asked to define "expenditures" and the author discovered that they had been talking about the same thing. This incident illustrates the value of a common terminology, particularly its importance in written communication. For in conversation, if it is not clear what the speaker means, one can question him, but a reader cannot do this. Not only has the value of uniform terminology long been recognized but even the necessity of preparing concise definitions and presenting them in a compilation as one of the means of achieving uniformity is well established. There are two principal classes of terminologies: those prepared for general use and those related to a particular publication. General dictionaries like the Webster's New International Dictionary and the terminologies of the American Institute of Accountants and the Dominion Society of Chartered Accountants are examples of the first class.

Reviews the book "Speed Methods of Statistics," by Donald E. Church.

Time and again the prosperity malpractices of corporate management were the subjects of erudite discussions. Moreover, the courts have always had a tendency toward setting up rules of law which they felt would protect the small absentee owner. Perhaps this depression philosophy may be said to be accountable for the desire to limit the capital raising activities of those large corporate entities in future prosperity periods, who had demonstrated themselves to be given to faulty procedures during the prosperity era of the twenties. But it must be emphasized that there was a trend toward such financial regulations even during the preceding prosperity period. Furthermore, during this period there were evidences indicating that the accountants responsibility would likewise expand and increase under this financial control philosophy. Perhaps the first forecast of accountants' increasing responsibility was the Ultra Mares case which began early in 1924. After 1922, however, corporate management turned to selling securities in order to secure the capital needed.