Accounting theory and practice, Volume 1 (of 3)

Accounting principles cannot be mastered without adequate practice work. Practice work cannot be properly done unless the principles on which it is based have been developed and explained. Practice work should, so far as possible, follow closely after the explanation of new principles. This applies particularly to the introductory work of the first half-year. Later work is cumulative in its effect and may use all principles previously developed as well as the new principles just developed.

The practice work for the first half-year consists largely of disconnected problems. However, a few longer problems running through several assignments are included. Effort has been made to keep to a minimum the purely mechanical work of computation. While emphasis should be placed always on the principles involved, the need for accuracy should not be lost sight of; in its practice in business, accountancy requires accurate and, where possible, proven results.

Of the budget of stationery provided for this work, the loose-leaf supplies—statement, journal, and ledger paper—are for the first half-year’s work. The three-column paper is to be used for balance sheet and profit and loss statements, unless other directions are given for particular assignments. The use of journal and ledger paper is indicated where necessary. Observance of directions given and of forms to be followed, together with careful and accurate work in drafting solutions, will save much time in the location and correction of errors.

Sufficient practice work is furnished to accompany 30 hours of lecture or classroom work, opportunity being provided for two review periods, one at mid-term and one at the close of the semester. Where the lecture period is two hours in length—the class usually meeting but once a week—two of these assignments should be given to accompany each such lecture period. The student should make his solutions as a part of his home-work and these should be taken up for discussion at the next class session and correct solutions should be presented there so that always the student may have a criterion with which to compare his own work. Where more practice work is desired than is provided in this appendix, a collection of miscellaneous problems is given in Appendix C.

I

1. On January 1, 19—, H. L. Lewis has the following property:

• Bank deposit $1,893.74.
• Merchandise $14,987.42.
• Office equipment: safe, desk, counters, cash register, $850.
• Delivery equipment $836.
• Securities held as investments $6,950.
• Accounts due him from customers as follows:
• John Morris $ 90.87.
• Peter Conley $135.
• Chas. Grant $742.93.
• Frank Hewitt $157.48.
• L. M. Moore $790.72.
• N. T. Taylor $48.95.
• A. S. Keene $75.

For merchandise bought there remains unpaid:

• To Jones Bros. $1,350.45.
•  ” T. J. Langdon $890.
•  ” Stewart & Co. $965.
•  ” T. M. Lawes & Co. $4,862.97.
• And a note for $125.

Draw up a statement to show H. L. Lewis’ capital as of the above date.

2. From the following information determine the total amount of the liabilities:

• Cash in bank $840.
• Goods on hand $2,500.
• Accounts receivable $1,600.
• Supplies on hand $320.
• The year’s rent $600, was paid in advance and the
• premises have now been occupied for six months.
• The capital is $2,500.

3. From the following items in a balance sheet, which is complete except as to the asset cash, determine the amount of cash:

• Capital $2,500.
• Supplies $87.50.
• Real estate $2,500.
• Ford delivery truck $575.
• Accounts receivable $2,280.
• Accounts payable $1,800.
• Notes receivable $300.
• Notes payable $500.
• Salaries due but unpaid $50.
• Mortgage on real estate $1,000.

4. The following data, complete excepting for the amount of a certain mortgage and interest accrued thereon, are taken from the records of Benjamin Goodwin for the year ending June 30, 19—. Determine the face amount of the mortgage payable, and the amount of the interest accrued thereon at 6% for one year.

• Cash on hand $75, and subject to check $1,200.
• Factory $6,100.
• Land $2,000.
• Office furniture $185.
• A three-year insurance premium
• was bought one year ago for $300.
• Accounts receivable $4,500.
• Goods on hand $2,800.
• Goods in process of manufacture $1,450.
• Raw materials inventory $2,250.
• Supplies $295.
• Accounts payable $9,150.
• Notes payable $4,650.
• Accrued wages $135.
• Mortgage payable and interest.
• Capital $5,000.

5. The following was taken from the books of the treasurer of the Yorktown Lodge:

• Balance in Fifth National Bank, January 1, 19—, $689.22.
• The receipts during the year were:
• Proposition fees $515.
• Initiation fees $2,510.
• Lodge dues $4,904.60.
• Interest on Liberty bonds $332.14.
• Summary disbursements for the year were:
• Grand lodge dues $554.
• Printing and postage $818.25.
• Entertainment $2,199.86.
• Sundries $216.20.
• Returned proposition fees $80.
• Rent for lodge room $750.
• Salaries $387.50.
• Charity $1,211.84.
• Supplies $38.80.
• Testimonial dinner $846.48.
• There is also cash $4,498.67, on deposit in the Irving Savings Bank
• December 31, 19—, on which interest at the rate of 4% per annum
• is now due for one-quarter.
• The treasurer holds $10,000 in Liberty bonds.

Submit statement showing the available balance of cash for the new year.

II

1. Make up three problems, using your own data, to illustrate the three types of business organization.

2. On January 2, 19—, Allen B. Dawes has in his business the following assets and liabilities which you are to classify for balance sheet purposes according to the definitions which have been given, changing the descriptions here used to standard titles:

3. Dawes has reached a point where it is not only profitable but really necessary to expand his business if he is to retain the good-will of his old customers and secure new ones. He has therefore persuaded Edward A. Robbins, a capitalist, to put cash into the business equal to Dawes’ net interest and so become a partner with him.

The partnership uses $3,100 of this new capital to purchase additional raw material, and $2,500 for some partly finished stock (bought at a sacrifice sale). They spend $1,600 for new machinery, $250 for tools, and $100 for new patterns. With an eye toward future building facilities they acquire another and adjoining strip of property with a building on it. The latter costs them $5,470 and the land $2,500.

To facilitate securing and delivering goods, the partners invest $1,800 in a small truck. They add shop furniture amounting to $80.

These various deals were consummated by the early afternoon of January 2, 19—. The partners ask you for a new balance sheet to show the condition of the business and the respective interests of each.

4. At the end of the year’s operation, Dawes & Robbins ask you to draw up a statement of assets, liabilities, and net worth, the following figures being submitted:

• Balance of cash in the bank $28,000.
• Accounts owing the partnership $12,000; notes $6,000.
• The inventory is again split up into:
• Raw materials $9,000.
• Partly finished goods $5,000.
• Finished stock $500.
• Still on hand unused:
• Advertising material $640.
• Oil, waste, and supplies $500.
• Packing supplies $750.
• Other assets:
• Models and patterns $500.
• Loose tools $75.
• Shop furniture is to be shown at the last balance sheet figure
• less an estimated depreciation in value of $161.
• Machinery in the same manner less depreciation of $2,669.
• Delivery equipment less depreciation of $360.
• Factory less depreciation of $3,498.
• Land as it was on the last balance sheet.
• Liabilities are as follows:
• Accounts owing to creditors $1,000.
• Notes $250.
• Accrued pay-roll $200.
• The mortgage had been reduced to $2,000.

5. Robbins is anxious to withdraw from active participation in the partnership. To facilitate this and to secure additional funds with which to buy new models and other things needed for the growing business, it had been decided some time ago to incorporate and to dispose of some of the stock to outsiders. The necessary steps had already been taken. In accordance therewith the corporation takes over the business at the values shown in the balance sheet of Problem 4, with the exception of $14,252 cash which Robbins retains. For the good-will of the business the corporation gives the partners $15,000 of its capital stock. $25,000 of the capital stock is sold to outsiders for $25,000 cash. The rest of the capital stock is used in purchasing the partnership.

Set up the balance sheet of the corporation.

III

1. A. K. Sutton is proprietor of hardware store. On June 30, 19—, he has the following assets and liabilities:

• Bank deposits $1,980.47.
• Notes receivable $450.
• Accounts due from customers:
• L. M. Taylor $190.
• L. K. Jones $275.
• G. Sanford $18.73.
• F. Daly $87.54.
• C. Baker $103.13.
• Merchandise inventory $4,745.
• Office equipment $135.
• Delivery equipment $575.
• He owes:
• First National Bank $565.
• Chas. Goodwin $487.97.
• L. Birch $150.
• H. Tuttle $92.50.
• James Bros. $325.

Sutton’s 60-day promissory note for $200 with interest at 6% is due today, but payment is deferred, with consent of the creditor, to tomorrow morning.

On the above date Sutton buys out the automobile accessory business of his neighbor, A. M. Lawrence, and combines it with his own. The deal was completed on the basis of the balance sheet submitted below, except that Lawrence is to retain the cash. Sutton pays Lawrence in cash from his hardware business. Lawrence’s balance sheet contains the following items:

• Cash $347.90.
• Accounts receivable:
• Taxi Service, Inc. $49.50.
• The Market Shops $18.50.
• Whitney’s Delivery Service $80.
• Merchandise inventory $1,597.
• Delivery equipment $475.
• Office equipment $90.
• Accounts payable $850.

Draw up a balance sheet to show Sutton’s condition after his purchase of Lawrence’s business.

Why is Sutton’s net worth the same as before buying Lawrence’s business?

Instructions

Show accounts receivable and accounts payable as totals, with a supplementary schedule listing each separately.

2. From the following particulars prepare a balance sheet of the Mountel Manufacturing Company as of December 31, 19—:

• Premises $2,500.
• Machinery $11,500.
• Buildings $5,300.
• Capital stock $30,000.
• Stock-in-trade: finished goods $12,500;
• goods in process of manufacture $8,670;
• and raw materials $4,980.
• Loose tools $490.
• Models and patterns $650.
• Patents $1,000.
• Good-will $3,000.
• Trade creditors $15,540.
• Cash $50.
• Motor truck $1,580.
• Bank deposits $1,740.
• Outstanding claims against customers on open account $8,975.
• A 60-day note payable for $1,000 had been discounted
• at the bank at 6% and is due in 30 days.
• Office equipment $250.
• Supplies $500.
• Notes receivable $4,970.
• First National Bank stock and other investments $4,000.
• Unexpired insurance premium $150.
• Accrued wages $75.
• Other notes payable outstanding amount to $8,960.
• Purchase money mortgage on machinery $5,500, due in 18 months.
• Mortgage on buildings $2,000, due in six months.
• Unpaid motor truck expense $85.

3. The Cordovan Tanning Company has issued $3,000,000 of capital stock. It suffered heavy losses due to the drop in prices during the year. The following balance sheet submitted to the stockholders as of December 31, 19—, showed:

• Cash on hand $1,805; on deposit $378,090.
• Customers’ acceptances unmatured $249,754.
• U. S. Liberty bonds $47,500.
• General investments $82,950.
• Loans receivable $15,280.
• Income accrued on investments $3,450.
• Accounts receivable $2,948,582.
• Reserve for doubtful accounts $56,125.
• Notes receivable $82,000.
• Prepaid insurance $14,950.
• Finished goods $750,000.
• Goods in process $697,974.
• Raw materials $460,900.
• Plant and equipment, $4,980,760.
• Depreciation reserve for plant and equipment was $460,640.
• Accounts payable $1,980,760.
• Notes payable $350,000.
• Dividends payable January 15 of the next year, and constituting
• a present liability of the company $230,000.

From the following information and the balance sheet as of December 31, 19—, prepare the balance sheet as of December 31 one year later.

• Cash on hand December 31 was $1,790; on deposit $162,875.
• Customers’ acceptances unmatured $449,500.
• The market value of the Liberty bonds was $46,000,
• and general investments $50,000.
• Loans receivable $16,000.
• Income accrued on investments $1,800.
• Accounts receivable $2,310,000.
• Reserve for doubtful accounts $60,000.
• Notes receivable $150,000.
• Prepaid rent $2,400.
• During the year $380,000 worth of goods was added to
• finished stock, and $420,000 at cost price was sold.
• It is decided that the balance must be marked down
• 50% to conform to market replacement costs.
• Goods now in process are valued at $315,890.
• Raw materials carried on the books at $670,000 are to be
• written down 30% to market value.
• 5% of the cost of plant and equipment is to be added to
• the reserve for depreciation.
• Accounts payable $3,670,980.
• Notes payable $1,475,000.
• A dividend of 5% had been declared and was payable
• January 15 of the next year.

4. By comparing the two December 31 balance sheets of the Cordovan Tanning Company, what can you tell as to the progress of the company during the year? Did it make a profit or suffer a loss?

IV

1. Draw up a comparative balance sheet as of December 31, 19— of the Interurban Railway Company, from the balance sheets of December 31, 19— and December 31 of the previous year.

• Balance sheet of 19— showed:
• Cash $40,909.18.
• Accounts receivable $33,097.49.
• Securities deposited with Workmen’s Compensation
• Commission $4,893.75.
• Materials and supplies $27,112.28.
• Prepaid insurance $5,732.16.
• Work in progress $7,509.81.
• Road and equipment $696,622.49.
• Accounts payable $17,058.81.
• Notes payable $70,000.
• Accrued interest on first mortgage bonds $3,645.84.
• Accrued taxes $6,450.65.
• Depreciation reserve for road and equipment $19,995.96.
• Surplus $223,725.90.
• Capital stock $300,000.
• First mortgage 5% bonds $175,000.
•  
• Balance sheet of the year previous showed:
• Cash $34,313.78.
• Accounts receivable $57,779.47.
• Securities deposited with Workmen’s Compensation Commission $4,893.75.
• Materials and supplies $29,308.56.
• Insurance prepaid $3,639.19.
• Work in progress $98.64.
• Road and equipment $694,216.73.
• Depreciation reserve for road and equipment $15,813.46.
• Capital stock $300,000.
• Accounts payable $25,973.61.
• Notes payable $100,000.
• Accrued interest on bonds $3,645.84.
• Accrued taxes $8,872.31.
• First mortgage bonds $175,000.
• Surplus $194,944.90.

2. Can you tell definitely and in detail how the increase in surplus in Problem 1 was effected?

3. The annual report of the Northeastern Power Company for year ending December 31, 19—, gave the following balance sheet as of December 31, 19—:

• Investments in subsidiary companies $4,244,855.57.
• Cash $1,927,898.84.
• Accounts receivable $1,514,605.11.
• U. S. Government Liberty Loan 4¼% bonds $915,102.
• Canadian Victory Loan 5½% bonds $497,769.88.
• Securities deposited with State Workmen’s Compensation Commission $8,893.75
• Other securities $241,001.
• Mortgages owned $13,500.
• Materials and supplies $364,410.81.
• Work in progress $12,931.10.
• Prepaid insurance $231,350.66.
• Prepaid taxes $624,744.28.
• Real estate, plant and transmission systems $48,230,896.04.
• Mortgage on real estate $15,000.
• Accounts payable $867,763.35.
• Accrued taxes $707,870.94.
• Interest payable $213,896.68.
• Dividends payable $201,519.50.
• First mortgage 5% bonds $10,000,000.
• 6% refunding mortgage bonds $8,226,000.
• 6% debentures $10,200,000.
• Depreciation reserve $2,254,476.13.
• Surplus $138,932.44.
• Capital stock outstanding $26,002,500.

The report for the following year gives the following particulars as to the balance sheet of that year:

• Cash $1,677,663.43.
• Accounts receivable $1,286,731.23.
• U. S. Liberty bonds 4¼% $1,106,452.
• Canadian Victory Loan 5½% bonds $747,769.88.
• Securities deposited with State Workmen’s Compensation Commission $8,893.75.
• Other securities $170,501.
• Mortgages owned $15,500.
• Materials and supplies $391,645.
• Prepaid insurance $355,302.71.
• Investments in subsidiary companies $1,406,325.67.
• Prepaid taxes $607,575.33.
• Real estate, plant, and transmission systems $53,470,089.04.
• There were no changes in the various bond issues nor in the
• capital stock during the year.
• Mortgages on real estate $20,000.
• Accounts payable $875,214.37.
• Notes payable $1,650,000.
• Accrued taxes $484,806.02.
• Interest payable $215,509.58.
• Dividends payable $201,519.50.
• Reserves for depreciation $2,532,715.94.

Draw up a comparative balance sheet and determine the profit for the year.

4. Make an analytical statement showing the effect on the various assets and liabilities of the profits made during the year.

5. Discuss these changes and so far as possible show how they were brought about.

V

1. On December 31, 19—, James Good’s books revealed the following facts:

• Cash $25,000.
• Due from customers $130,000.
• Plant and equipment $100,000.
• Other assets $15,000.
• Due creditors for merchandise $55,000.
• Accrued expenses $7,980.
• Mortgage on plant $50,000.
• Other liabilities $49,500.
• Merchandise now on hand $67,800.
• Capital at beginning of year $150,000.
• Drawings during the year $10,000.
• Sales $300,000.
• Initial inventory $75,000.
• Purchases $200,000.
• Selling expenses $30,000.
• General administrative expenses $27,480.

Draw up a balance sheet with the net worth section expanded to show the operations for the year.

2. On January 2, 19—, the value of the goods on A. R. Knight’s shelves amounted to $85,980, and he bought $275,600 worth during the year. On December 31 of the same year the inventory was $106,720. What was the amount of gross sales, if gross profits were $96,000 and returned sales $17,500?

3. Expenses for conducting Knight’s business for the year were as follows:

• Salesmen’s salaries $18,750.
• Advertising $2,750.
• Expenses of shipments $4,580.
• Office help $12,800.
• Rent $18,000.
• Insurance $2,500.
• Supplies $5,400.
• Depreciation on buildings $6,500.
• Interest $5,250.
• Taxes $3,920.

What was the net profit?

4. During the year 19—, the Morton Trading Company’s books showed:

• Net sales amounting to $265,000.
• Purchases were $148,000, of which $7,540 worth of goods
• were returned.
• The cost of goods sold was 60% of the net sales and the
• final inventory was $84,900.
• Sales salaries $29,760.
• Advertising $30,000.
• Shipping expenses $4,680.
• Office salaries $10,260.
• Rent $4,800.
• Insurance $1,500.
• Depreciation of plant $6,890.
• Supplies $1,230.
• Taxes $4,430.

Prepare a statement of profit and loss for the year.

VI

1. The books of Alfred Gristede show the following record at the close of business September 30, 19—:

• Inventory September 1, 19—, $500,000.
• Purchases $2,500,000.
• Purchases returns $50,000.
• Sales $3,250,000.
• Sales returns $100,000.

If the gross profit is $850,000, what is the final inventory?

2. The profit and loss records of A. C. Dye for the year 19— show the following figures:

• Merchandise January 1, 19—, $235,960.
• Sales $875,900.
• Sales returns $6,900.
• Purchases net $586,900.
• Advertising $16,000.
• Office salaries $22,500.
• Sales salaries $34,800.
• Insurance $6,300.
• Taxes $21,700.
• Depreciation on buildings $4,630; on motor fleet $1,875.
• Accounts written off as uncollectible $36,875.
• Interest on notes and accounts receivable $6,790.
• Interest on notes payable $3,275.

At the end of the year the merchandise amounted to $216,735. Draw up the statement of profit and loss for the year.

3. Prepare a formal profit and loss statement of the Lincoln Leather Company for the year ending December 31, 19—, from the data below taken from the company’s books:

• Sales $1,559,087.
• Sales returns $13,456.
• Merchandise on hand January 1, 19—, $487,693.

Leather bought during the year $876,019, of which there were returns because of defects amounting to $8,716.

Inventory on December 31, 19— disclosed $513,860 worth of goods on hand.

• Expenses of operation were:
• Advertising $247,920.
• Sales salaries $143,560.
• Sales commissions $88,723.
• Sales traveling expenses $6,423.
• Freight-out $1,976.
• Delivery expenses $38,976.
• Rent $38,500.
• Taxes $12,890.
• Insurance $7,680.
• Light $4,320.
• Heat $15,648.
• Interest paid $3,216.
• Interest received $4,872.
• Office salaries $27,875.
• Sundry expenses $9,213.

4. The Interurban Railway Company whose comparative balance sheet was the basis of work in Assignment IV, Problem 1, had the following particulars for its statement of profit and loss for the year ending December 31, 19—:

• Operating revenue, i.e., income received from sale
• of service to community, $152,228.11.
• Other income $1,191.83.
• Operating expenses $100,582.96.
• Deductions from income were:
• Interest on 5% first mortgage bonds $8,750.
• Interest on notes payable $4,727.41.
• Taxes $10,578.57.

What was the amount of the net profits for the year?

Compare this with the surplus change as developed by the comparative balance sheet in Assignment IV, Problem 1.

5. Draw up a comparative profit and loss statement of the Interurban Railway Company for the years ended December 31, 19— and December 31 of the previous year from the information submitted in Problem 4 and the following data for the year ended December 31 of the previous year:

• Operating revenues $181,016.11.
• Other income $526.52.
• Operating expenses $122,143.23.
• Deductions from income:
• Interest on the first mortgage bonds $8,750.
• Interest on notes payable $6,030.
• Taxes $13,634.59.

VII

1. The financial condition of the Subway Seller at the beginning of the year is shown by the following balance sheet:

The Subway Seller
Balance Sheet
January 1, 19—

At the end of the year the following facts are taken from the books of account:

• The profit and loss records show:
• Sales $2,125,000.
• Sales returns and allowances $15,000.
• Purchases for the year $1,200,000.
• In-freight $15,000.
• Purchase returns and allowances $8,000.
• Advertising $125,000.
• Sales salaries $190,000.
• Delivery expense $50,000.
• Depreciation on furniture and fixtures $3,000,
• and on delivery equipment $2,250.
• Superintendence $50,000.
• Clerical salaries $75,000.
• Repairs and maintenance $20,000.
• Supplies $30,000.
• Insurance $60,000.
• Telephone and telegraph $10,000.
• Bad debts $10,625.
• Depreciation on building $14,000.
• Taxes $30,000.
• Interest on notes payable $15,000.
• Interest on the mortgage $21,000.
• Sales discounts $15,000.
• Interest received on Liberty bonds $2,000.
• Purchase discounts $24,000.
•  
• The balance sheet records show:
• Cash $141,000.
• Notes receivable $15,000.
• Accounts receivable $335,000.
• A reserve for doubtful accounts of $10,625.
• Merchandise inventory $350,000.
• Prepaid insurance $15,000.
• Supplies inventory $30,000.
• Furniture and fixtures $27,000.
• Delivery equipment $15,750.
• Building $336,000.
• Notes payable $300,000.
• Accounts payable $25,000.
• Accrued sales salaries $15,000.
• Accrued taxes $30,000.
• Accrued interest on mortgage $10,500.
• Mortgage on land and building $250,000.

Other figures on the balance sheet of January 1, 19— have remained unchanged excepting surplus, the amount of which you are required to determine.

• From the above information:
• (a) Prepare a comparative balance sheet.
• (b) Prepare a statement of profit and loss.
• (c) Determine the following ratios:
• 1. Current assets to current liabilities
• 2. Working capital turnover
• 3. Merchandise turnover
• 4. Accounts receivable to sales
• (Assume a normal credit period of 60 days)
• 5. Net profit to net worth
• 6. Gross profit to net sales
• 7. Selling expenses to net sales
• 8. Net operating expenses to net sales
• 9. Net profit to net sales

2. From the following particulars taken from the books of the United Steel Company, prepare a pro forma balance sheet, and a statement of profit and loss:

• Stocks of goods on hand from preceding year $4,964,792.
• Purchases $12,945,983.
• Sales $14,987,653.
• Sales salaries $52,500.
• Sales traveling expenses $8,613.
• Sales commissions $1,780.
• Cash $1,420,909.
• Executive salaries $32,500.
• Interest on notes payable $18,604.
• Rentals $17,000.
• Capital stock outstanding $38,669,600.
• Interest income including the accrued, $29,911.
• Real estate, plant, and equipment $34,469,867.
• Trade debtors $7,082,026.
• Notes receivable $302,638.
• Customers’ acceptances unmatured $4,446,000.
• Trade creditors $1,609,101.
• Notes payable $250,000.
• Repairs to plant $8,790.
• Investments in subsidiary companies $3,358,933.
• Advertising cost to date $35,680, exclusive of
• the amount prepaid.
• Telegraph $2,514.
• Telephone $8,716.
• Freight-out $4,978.
• Demurrage $1,972.
• Taxes expense $39,447, of which $17,017 is unpaid.
• Surplus without taking account of the current year’s
• profit is $13,678,362.
• Goods now on hand $7,004,339.
• Interest accrued on notes receivable $5,510.
• Prepaid advertising $11,892.
•  
• Note: Show Interest Income Accrued as a current asset.

3. The warehouse of the Eastern Distributing Company is destroyed by fire. The records at the main offices showed that there were $785,960 worth of merchandise in the building on January 1, 19—.

The fire occurred on October 3, 19—, and to that date purchases had been made amounting to $2,486,475, of which $18,920 were not yet delivered. Included in the cost of purchases is $22,500 for freight paid.

Sales had amounted to $2,930,760. Statistical records for the ten years previous to the loss, showed a gross profit on sales of 51.42%.

The loss is complete except as to a small amount of goods salvaged, the realizable value of which is estimated at $125,000.

It is necessary, according to the terms of the fire insurance policy, to file an immediate claim for goods destroyed. Prepare such a claim, having due regard to a form suitable for showing the loss.

VIII

1. Draw up from your own data the balance sheet of a corporation, with at least twelve assets and at least five liabilities and a total asset figure of over $250,000.

2. Making your own assumptions set up a balance sheet for the succeeding year and a comparative balance sheet for the two years.

3. Determine the ratios of fixed assets to capital stock, of working capital to net worth, and of current assets to current liabilities.

4. Write a brief statement of about 150 words giving your opinion of the financial condition of the concern.

IX

1. Enter in ledger “T” accounts the information for the “end of the year” given in Assignment VII, Problem 1, page 525.

2. Using the account titles in the ledger of Problem 1, draw up a chart of accounts similar to Form 2, page 75.

3. Show and explain how the ledger of Problem 1 is the proprietorship equation.

4. Draw up a profit and loss statement to account for the change in proprietorship shown by Assignment VIII, Problem 2, making your own assumptions as to items in the various sections of the statement.

5. State the probable business transactions occurring to bring about these changes in proprietorship (Problem 4), i.e., show the interaction of the profit and loss elements with the asset and liability elements in causing the changes in financial condition.

Instructions

Problem 1. A ledger “T” account is a skeleton account ruled only with the horizontal “title” line and the vertical line separating the left section from the right, date and amount columns being left without formal ruling.

Problem 3. The illustration on page 41 gives the form to follow in solving this problem.

Problems 4 and 5. Make your assumptions reasonable as to the turnover and the ratios of expenses and profit to sales. Assume a merchandise turnover of 5, and a gross profit of 40% of sales. From these determine roughly the cost of goods sold, the purchases, and the sales figures. Make reasonable provision for bad debts, depreciation, interest, etc., in accordance with the balance sheet requirements. Make the other expense items whatever amounts are necessary to produce the same net profits as is shown by the comparative balance sheet.

Follow closely the illustration in Chapter VII for the form of solution to be used for Problem 5.

X

1. Using the schedule shown on page 82, write out three examples of each class and show their effects in each of the three opposite classes (27 examples).

2. Set up ledger “T” accounts for each of the illustrations on pages 82-84, entering therein the proper amounts, debit and credit.

XI

1. (a) Analyze the following transactions from the seller’s viewpoint and name the debit and credit elements of each to show: