While other cases in the journal "The Accounting Review," have considered the matter of depletion policy, an entirely different viewpoint is expressed in a prospectus recently issued by the Inspiration Consolidated Copper Company. This company's case is about net income without deduction for depletion and control through minority stock ownership. The latter company was incorporated in Maine, on December 18, 1911, to own, operate, and develop mines, water rights, waterpower, mineral and other lands, and to own and operate mills, power plants, reduction works, and railways. The company started commercial operations in June, 1915, and continued such operations until May, 1932,when the depression necessitated a shutdown of slightly more than three years, although sales and deliveries of copper on hand were continued. On September 18, 1935, plant operations were resumed. The company produces electrolytic copper, cement copper, and copper concentrates. The ultimate smelting and refining of much of this copper is done in plants of the International Smelting and Refining Company, a subsidiary of the Anaconda Copper Mining Company.

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.

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.

The article focuses on a court case involving Metropolitan Edison Co. related to restriction on dividends on common stock. A recent release of the U.S. Securities and Exchange Commission under the Holding Company Act raises several significant issues with respect to the reclassification of surplus and the legality and financial advisability of dividends on common stock. The Metropolitan Edison Co. is a Pennsylvania corporation and a public utility operating company doing business in eastern Pennsylvania. It is a direct subsidiary of NY PA NJ Utilities Co., which is controlled by the Associated Gas and Electric Corp., which in turn is controlled by the Associated Gas and Electric Co. A series of resolutions adopted by the board of directors of the Metropolitan Edison Company resulted in the transfer of $6,111,333.00 from earned surplus to stated value of common stock between 1925 and 1931. The Securities and Exchange Commission on December 1, 1939, issued an order to the Metropolitan Edison Co. to show cause why an order should not be entered to prevent the declaration and payment of dividends on its capital stock.

The United States Securities and Exchange Commission in a recent release discusses the application of accounting principles to three issues raised by the financial statements, for 1934 to 1937 inclusive, of the Alleghany Corp. These include the handling of bond discount and expense, the treatment of gains and losses on the sale of investments, and the proper recording of a contract between the Alleghany Corp. and the Chesapeake and Ohio Railway Co. covering the sale of securities by the Alleghany Corp. The Securities and Exchange Commission points out that accounting authority sanctions the amortization of bond discount and expense as an additional element of interest cost on borrowed capital, and the setting up of the unamortized portion on the asset side as a deferred charge. However, in a footnote the Commission warns investors that such an item does not constitute a tangible or realizable value. The Commission illustrated the effect of the improper accounting principles originally used in the three instances under consideration by comparing the uncorrected surplus balances for December 31, 1934, with the amended balances.

The article presents accounting case of Underwood Elliott Fisher Co. The enterprise, one of the leading manufacturers of business machines, was incorporated on March 8, 1910, in Delaware under the name of the Underwood Typewriter Co. On December 29, 1927, the name was changed to Underwood Elliott Fisher Co. The corporation manufacturers typewriters and flat-surface accounting and writing machines, including the Elliott Fisher with flat platen and the Underwood and Sundstrand with cylindrical platen. A subsidiary manufactures tally rolls, carbon paper, ribbons and other supplies for the machines of the parent company. The company's products are marketed primarily through branches in the U.S. and through dealers in foreign countries. During the past ten years the surplus accounts of the Underwood Elliott Fisher Co. has undergone two complete cycles involving transfers between earned surplus and capital surplus, arising in the first instance out of the virtual elimination of intangible assets from books of the company.

On August 27, 1919, the Phillips-Jones Corp. was incorporated in New York, succeeding Phillips-Jones Co. Inc., which had been organized in 1914. The business, dating back to 1887, consists of the manufacture and sale of fabrics, men's shirts, Van Heusen Co. collars, pajamas, and underwear. An examination of the financial statements of the corporation for the past few years reveals a striking transformation in surplus, from a substantial earned surplus and no capital surplus to an even more substantial deficit and a large capital surplus. The marked transition, which occurred in 1938, can be traced through the Statement of Profit and Loss and Deficit for the year ended December 31, 1938. The special charges and adjustments included an inventory adjustment of $326,041.17 arising from a change in the valuation of inventories whereby the basis of the lower of cost or market, was adopted. Another adjustment was necessitated by a change in policy as of December 31, 1938, whereby the outstanding stock of five subcontracting companies was transferred to the Phillips-Jones Corp., and the notes of these companies for which the stock had been held as collateral were canceled.

The article presents accounting case of Gimbel Brothers Inc. Recent financial statements of Gimbel Brothers Inc. disclose several features of interest, which may be discussed under the three general headings of appreciation of fixed assets, handling of earnings of subsidiaries and a group of miscellaneous items of significance, several of them characteristic of a large retail merchandising establishment. The business of Gimbel Brothers, Inc. had its inception in Vincennes, Indiana, in 1842, but the present parent company was not incorporated until August 22, 1922, in the State of New York. The business is primarily of department-store character, including selling of a complete line of wearing apparel, dry goods, and house furnishings in conjunction with the operation of a number of restaurants and other service departments. Books of the corporation reflect two appraisals, both dating back to the early twenties. Immediately after incorporation in 1922, Gimbel Brothers Inc. acquired the net assets of two predecessor corporations and two subsidiary companies.

The article presents accounting cases of Akron Brass Manufacturing Co. Inc. The history of the Akron Brass Manufacturing Co. Inc. presents some rather interesting features in conjunction with a very simple reorganization, the appreciation of fixed assets and a brief experience with a single, unprofitable subsidiary. The company was organized in Ohio on July 6, 1935, to take over the business of The Akron Brass Manufacturing Co. The latter had been incorporated on December 26, 1919 and continued as a going concern until July 8, 1935, when all of its assets were transferred to; and all of its liabilities assumed by, the Akron Brass Manufacturing Co. Inc. The Akron Brass Manufacturing Co. Inc. is principally engaged in the manufacture, sale and assembly of brass and alloy goods for fire and mill equipment. The company's products include nozzles, hose couplings, siphons, coupling expanders; fire hose test pumps and other fire fighting equipment. An abortive attempt to expand its activities through a wholly owned subsidiary was made in 1937. The balance sheet of the company prior to the reorganization is presented in the article.

The recent history of the Centrifugal Pipe Corp. includes some interesting points in connection with accounting for patents as wasting assets, as well as the effect of the present war in curtailing the scope of the operations of some American companies. The Centrifugal Pipe Corp. is a Delaware corporation, organized in 1923 for the purpose of holding and licensing certain patented processes for casting iron pipe by a centrifugal process. The Centrifugal Pipe Corp. holds the United States patents, while a wholly owned Canadian subsidiary, International De Lavaud Manufacturing Corporation Limited owns the patents for most of the rest of the world. The stockholders on December 20, 1939, approved the two structural changes in capital stock, and the writing down of investments and the declaration of a partially liquidating dividend followed this action. The nature of patents as wasting assets, and the similarity of experience of the Centrifugal Pipe Corp. to a mining company which does not replace its property as it is exploited, is quite evident. This parallel extends to the distribution of liquidating dividends and the gradual contraction of the scope of operations as the stage of exhaustion is approached.