University of Mississippi

eGrove

Individual and Corporate Publications Accounting Archive

1921

Advanced Accounting Problems

John T. Madden

Arthur H. Rosenkampff

William W. Douglas

New York University. School of Commerce, Accounts and Finance

Follow this and additional works at: https://egrove.olemiss.edu/acct_corp

Part of the Accounting Commons

 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND

ACCOUNTING SERIES

ADVANCED ACCOUNTING PROBLEMS

Prepared, Selected and Arranged

by

John T. Madden, M.A., B.C.S., C.P.A.,

Assistant Dean, and Professor of Accounting in the School of Commerce, Accounts and
Finance, New York University.

Arthur H. Rosenkampff, B.C.S., C.P.A.,

Professor of Accounting and Chairman of the Department of Accounting Instruction in

New York University.

William W. Douglas, B.C.S.,

Professor of Accounting in the School of Commerce, Accounts and Finance, New York
University.

NEW YORK UNIVERSITY BOOK STORE

32 Waverly Place, New York City

Copyright by the New York University Press, 1921

 STUDENTS PLEASE NOTE

This set of Advanced Problems consists of Problem 1 to 29 inclusive, 2a to 13a,

16a to 28a, and solutions to the A problems.

The set which you receive from the Book Store consists of Problems 1 to 14 and 2a to
13a inclusive covering the first term’s work. The remaining Problems are given out
in class during the second term.

The correct solutions to the A Problems are given out when the corresponding Home
Work Problem is returned.

John T. Madden
Arthur H. Rosenkampff
William W. Douglas
 PART I

NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 1

(From N. Y. C. P. A. Examinations)

A and B are engaged in business as traders. A offers to purchase B’s interest. It

is inexpedient to take an inventory or to examine the books. The following facts have
been compiled by the bookkeeper and are to be given full credence. The following data
is submitted to an accountant from which he is requested to prepare and to furnish a
Profit and Loss Account and a financial statement showing partnership interests.
Prepare the statements.

CASH TRANSACTIONS.

A’s investment $ 5,000 Cash payment for merchandise $98,400

B’s investment 2,500 Expenses 800
Cash received from charge sales 98,000 A’s drawings 14,000
Cash sales 9,200 B’s drawings 1,500

OTHER DATA.

Accounts receivable $10,000 Accounts payable $9,000

 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 2

Part I

(From N. Y. C. P. A. Examinations)

The following statement comprises the trial balances of a business at the beginning
and the end of a fiscal period, together with the volume of the transactions during
said period:
Trial Balance Interim Trial Balance
January 1. Transactions December 31.
1. Cash $ 1,115 $24,696 $24,696 $1,360
2. Merchandise 5,050 17,665 26,874 $ 4,159
3. Debtors 3,110 25,135 24,229 4,016
4. Fixtures 2,800 505 3,305
5. Creditors $1,575 18,922 19,410 2,063
6. Loan (Int. paid $6) 500 1,000 1,500
7. Capital 10,000 10,000
8. Int. and discount 693 360 333
9. Rent 900 900
10. Insurance 50 50
11. Salaries 1,820 1,820
12. Advertising 900 900
13. Carting 1,705 1,705
14. Expense 1,333 1,333
15. Drawing, proprietor 2,000 2,000
$12,075 $12,075 $96,569 $96,569 $17,722 $17,722

a. The sales book shows sales posted to debtors to the amount of $25,135.
b. The journal shows allowances to debtors for returns of mdse. sales $1,015 and claims
on creditors for returns of mdse. purchases $230, also application of debtor’s
balance to settle creditor’s account in the amount of $9,500, both accounts being
in the name of the same correspondent.
c. The ledger shows that the nominal accounts entitled Rent, Insurance and Office
salaries contain only cash charges, while the nominal accounts entitled Adver­
tising, Cartage, and Expense show cash charges in the total amounts of $100, $200,
and $773 respectively, all other charges therein being by invoice duly posted to
creditors’ accounts.
d. The Merchandise account shows cash charges of $610 and cash credits of $1,509 for
cash purchases and cash sales respectively.
e. The invoice books show invoices posted to creditors’ accounts to the amount of
$19,410.

From the foregoing statement of facts write the several accounts displayed in the
trial balance, showing the elements composing each account stated according to the
titles of the accounts complementary thereto.
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 2

Part II

(From American Institute of Accountants Examination)

From the balance sheet of the Lansdale Monotile Company dated December 31, 1918,
as below, together with the information following, show the trial balance before
closing.

THE LANSDALE MONOTILE COMPANY

Balance Sheet - Dec. 31, 1918.

ASSETS.

Land and buildings $500,000

Less reserve for depreciation 120,000 $380,000

Machinery and equipment $200,000

Less reserve for depreciation 80,000 120,000
U. S. Victory bonds 100,000
Merchandise inventory 125,000
Cash 58,000
Accounts receivable $250,000
Less reserve for doubtful accounts 12,500 237,500

Notes receivable 100,000

Accrued interest receivable _____ 4,500
Total $1,125,000

LIABILITIES & CAPITAL.

Capital Stock $300,000

Notes payable 350,000
Accounts payable 158,000
Interest accrued payable 3,000
Surplus 314,000
Total $1,125,000

The accruals at the time of closing were:

Interest on notes payable, $3,000; depreciation of buildings, $20,000; interest
on notes receivable, $2,000; depreciation of machinery and equipment, $30,000;
interest on Victory Bonds, $2,500; provision for doubtful accounts, $12,500.
The other nominal accounts closed out were: Sales, $325,000; administrative
expense, $50,000; cost of goods sold, $125,000; selling expense, $25,000.
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 3

(From Wisconsin C. P. A. Examinations)

The American Manufacturing Company began business on January 1, 1912, and its
balance sheet as of January 1, 1913, is stated as follows:
Liabilities
Assets and Capital
Cash in Bank $69,433.00
Office Fund 100.00
Customers’ Accounts 273,842.00
Inventory, Raw Materials 83,247.00
" Supplies 4,932.00
” Finished Goods 42,761.00
Office Equipment 8,746.00
Patents 125,000.00
Real Estate 320,000.00
Buildings 175,000.00
Machinery 265,000.00
Apartment House Property—
Site $10,000
Building 30,000 40,000.00
Bonds—dated and issued Dec. 31, 1912—maturing
and payable at the end of 50 years—interest
at 6% payable semi-annually $200,000.00
Premium on Bonds Issued 20,000.00
Sundry Merchandise Creditors 78,392.00
Reserve for Bad Debts 8,294.00
Reserve for Depreciation on Buildings 10,000.00
Reserve for Depreciation on Machinery 30,000.00
Capital Stock—Preferred—7% Cumulative from
January 1, 1913 500,000.00
Capital Stock—Common 500,000.00
Surplus 61,375.00
$1,408,061.00 $1,408,061.00

Among other items that appear on the books on December 31, 1913, are the following:

Debits Credits
Labor $468,932.00
Salaries and Superintendence at $10,000 90,360.00
Supplies—Cash Purchases 37,637.00
Sales Discounts 18,395.00
Customers’ Returns and Allowances 8,474.00
Sales $1,545,572.00
Raw Materials purchased—average cost (per ton $22) 639,034.00
Shop Expense 9,461.00
1
Advanced Accounting Problems: Demonstration Problem No. 3 (concluded)

Debits Credits
Selling and Delivery Expense $86,017.00
Rent from Apartment House $4,000.00
Taxes, Insurance, and Repairs—Apartment House 1,200.00
Repairs on Machinery and Building 30,955.00
Office Expense 2,478.00
Taxes 7,842.00
Insurance 6,000.00
Bad Debts 2,407.00
Interest on Bonds 12,000.00
Old Machine (cost $2,000) Sold 1,400.00

Collections from customers amount to $1,502,927.00

Payments to merchandise creditors amount to 664,626.00
Loaned out on call on December 31, 1913 50,000.00

On March 1, 1913, the company bought an adjoining site on which it began in No­
vember, 1913, to erect an addition to its plant, to be completed by March, 1914. The
price was $40,000—one-half cash—the company assuming a 6% $20,000 mortgage payable
on December 31, 1913. The surveying and legal expenses paid amount to $200. Taxes
accrued December 31, 1913, amount to $600.

Inventories at December 31, 1913:

Supplies $ 8,129.00
Finished Goods 20,495.00
Raw materials—2,163 tons—the market price of which at Dec. 31, 1913,
is $24 per ton
Real estate owned Jan. 1, 1913, is estimated to be worth 350,000.00
Dividends have been declared payable in April, 1914, of on preferred
capital stock and 2½% on common capital stock.
Prepaid insurance premiums 1,000.00
Depreciation reserves to be credited, covering:
Buildings 4,950.00
Machinery 17,625.00
Office equipment 875.00
Bad debts 7,716.00

From the foregoing facts prepare statement of income and expense for the year and
balance sheet at December 31, 1913. In a brief report submit any criticisms which
suggest themselves to you.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 4

(From N. Y. C. P. A. Examinations)

A. Smith conducts a manufacturing business as sole owner. He holds 90% of the

common capital stock and all of the preferred capital stock of the Jones Manufacturing
Company.
Mr. Smith has entered into an agreement with the Jones Manufacturing Co. to sell
and transfer to it all of the assets of his own business and to deliver for cancella­
tion all of the capital stock of the Jones Manufacturing Company, both common and pre­
ferred, in consideration of the issuance to him by the Jones Manufacturing Company of
10,000 shares of a new stock issue of no par value and the payment to him of $105,000 in
cash.
The trial balance of A. Smith, before closing, as of December 31, 1921, was as
follows:
A. Smith

Trial Balance—December 31, 1921—Before Closing.

Debit Credit
Real Estate $50,000
Equipment 20,000
Inventories 110,000
Purchases—raw material 275,000
Purchases—factory supplies 25,000
Direct labor 225,000
Indirect factory expenses 65,000
Depreciation of buildings $ 8,000
Depreciation of equipment 6,000
Cash 35,000
Accounts receivable 75,000
Accounts payable 72,500
General expenses 26,000
Insurance 1,250
Interest on notes payable 650
Notes payable 28,000
Interest on notes receivable 850
Notes receivable 37,500
Accrued pay rolls 4,500
Unexpired insurance premiums 250
Sales 750,000
Allowance on sales 3,000
Cash discount on sales 6,000
Cash discount on purchases 4,500
Selling expenses 12,000
Investments 410,000
A. Smith account 502,300
$1,376,650 $1,376,650

1
Advanced Accounting Problems: Demonstration Problem No. 4 (continued)

His inventories at December 31, 1921, amounted to $130,000, unexpired insurance

premiums to $300, prepaid interest on notes payable to $200, accrued interest on notes
receivable to $750. Depreciation should be calculated at the rate of 2% per annum on
buildings and at the rate of 10% per annum on equipment. The real estate account
represents land at $10,000 and buildings at $40,000. During the year Mr. Smith drew
$60,000 for living expenses. Mr. Smith holds an option on the stock of the Jones Mfg.
Co., not owned by him, at $210 per share. The investment account represents capital
stock of the Jones Mfg. Co. at book values of $185,000 for the preferred and $225,000
for the common.
The trial balance of the Jones Mfg. Co. before closing, as of December 31, 1921,
was as follows:

JONES MANUFACTURING COMPANY

Debit Credit
Cash $10,000
Accounts receivable 105,000
Notes receivable 32,500
Notes payable $ 15,000
Accounts payable 40,000
Unpaid pay rolls 3,250
Sales 650,000
Insurance 3,500
General expenses 42,500
Selling expenses 52,000
Inventories 180,000
Allowances on sales 2,500
Cash discounts—net 350
Land 60,000
Buildings 240,000
Equipment 200,000
Raw material purchases 300,000
Direct labor 150,000
Indirect factory expenses 85,000
Depreciation of buildings 9,600
Depreciation of equipment 40,000
Capital stock—preferred 200,000
Capital stock—common 250,000
Real estate mortgage 100,000
Accrued interest on real estate mortgage 2,000
Liberty bonds 5,000
Interest on real estate mortgage 2,000
Surplus 159,800

Total $1,470,000 $1,470,000

The inventories at December 31, 1921, amounted to $225,000, unexpired insurance

premiums to $500. The rates of depreciation used were 10% per annum on equipment and
2% per annum on buildings.

2
Advanced Accounting Problems: Demonstration Problem No. 4 (concluded)

It is estimated that when the two businesses are operated as a single enterprise
there will be annual savings in the indirect factory expenses of $50,000, in the sell­
ing expenses of $24,000 and in the administration expenses of $26,000.

Prepare a balance sheet as at the close of business, December 31, 1921, on the basis
of the agreement of sale and a statement of the results of operation for the year ending
on that date, showing the results as they would have appeared if the consolidation had
been effective for that period on the basis of the agreement of sales by Mr. Smith to
the Jones Manufacturing Company, consideration being given to the estimated economies.

3
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 5

Part I

(From Illinois C. P. A. Examination 1913)

From the following three trial balances prepare a consolidated balance sheet
as at December 31, 1912, in the form you would draw it up for presentation to the
stockholders of the parent company (The Safety Razor Company), showing as separate
items therein (a) the total good-will of the combined companies; and (b) the net
profits accruing to the new corporation, viz., to the Safety Razor Company.

SAFETY RAZOR COMPANY

TRIAL BALANCE AT DECEMBER 31, 1912

Dr. Cr.
Preferred stock $1,500,000
Common stock 1,500,000
Investments in Subsidiary Companies:
4000 shares of stock of L. W. Co.
and 4000 shares of stock of Steel
Blade Co., both of $100 each at
cost $2,500,000
Accounts payable 20,000
Dividends from subsidiary companies 100,000
Administration expenses 25,000
L. W. Co. current account 100,000
Steel Blade Company advances 150,000
Cash 270,000
Organization expenses 75,000

$3,120,000 $3,120,000

1
Advanced Accounting Problems: Demonstration Problem No. 5 Part I (continued)

L. W. COMPANY

TRIAL BALANCE AT DECEMBER 31, 1912

Dr. Cr.
Properties and plant $325,000
Goodwill 250,000
Investment in Steel Blade Company:
2000 shares of a par value of $100
each, cost $300,000 400,000
Inventories 250,000
Receivables 195,000
Cash 90,000
Capital stock (4000 shares) $400,000
Accounts payable 125,000
Steel Blade Company 175,000
Surplus (includes $100,000 added to
Book Value of investment in Steel
Blade Co.) 710,000
Safety Razor Co. 100,000
$1,510,000 $1,510,000

STEEL BLADE COMPANY

TRIAL BALANCE AT DECEMBER 31, 1912

Dr. Cr.
Goodwill $50,000
Property and plant 325,000
Inventories 190,000
Receivables, general 105,000
L. W. Company 195,000
Cash 10,000
Capital stock (6000 shares) $600,000
Accounts payable 90,000
Safety Razor Company 150,000
Surplus or deficit 35,000

$875,000 $875,000

2
Advanced Accounting Problems: Demonstration Problem No. 5 Part I (concluded)

In the preparation of your consolidated balance sheet be guided by the following

assumed facts.

(1) That the Safety Razor Co. was formed on March 28, 1912, and acquired its
stock ownership in the two subsidiary companies, as shown in its trial
balance, on April 1, 1912.

(2) That at January 1, 1912, the L. W. Company had a surplus of $605,000 and the
Steel Blade Company a deficit of $50,000.

(3) That no inventory was taken of either of the L. W. Company or the Steel Blade
Company between January 1 and December 31, 1912, the business of the
companies being continued without interruption notwithstanding the
change in ownership of the capital stocks as indicated above.

(4) That prior to December 31, 1912, the L. W. Company declared a dividend of
$100,000 payable to the parent company, which was duly taken up on the
books of both companies, being passed through the current accounts and
charged against the surplus of the L. W. Company prior to December 31,
1912.

(5) That the difference in the current accounts between the Steel Blade
Company and L. W. Company represents, as to $10,000, merchandise in
transit, and as to the remaining $10,000, a charge for rental of ware­
house for the last six months of 1912, which has been credited to the Rent
account on the books of the Steel Blade Company,

(6) That it is estimated on reliable authority which may be accepted as final,

that from January 1 to March 31, 1912, the net profits of the L. W.
Company amounted to $30,000, while during the same period the Steel Blade
Company lost $15,000.

Attach your consolidating working papers to the consolidated balance sheet you
prepare.

Part II

(From N. Y. C. P. A. Examinations)

A and B buy merchandise to the amount of $4,000, A contributing $2,500 and B

$1,500. They sell to C a 1/3 interest in the business for $2,000. How much of the
$2,000 will A and B receive, respectively, in order to make A, B and C equally inter­
ested?

3
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 6

Part I

On Jan. 1, 1915, The Sand Bank, a savings institution, purchased 500 M. 1st
mortgage bonds of the Rapid R. R. Co., paying therefor $513,770.33. The bonds bear
interest at the rate of 6% per annum payable semi-annually—J. & J. and mature Jan. 1,
1918. The bonds were purchased to yield 5%.

Prepare:

(a) Schedule of amortization.

(b) Journal entries covering all transactions from purchase to redemption of bonds.
(c) Skeleton ledger accounts.

Part II

(Kansas and Missouri C. P. A. Examinations)

The present value of an annuity of $1 for four periods at 2% is $3.80772870.

What is the value on January 1, 1914, of a 5% per annum bond issue of $100,000, bought
on a 4% per annum basis (semi-annual coupons), due January 1, 1916?

Prepare amortization table.

Part III

(N. Y. C. P. A. Examination)

A and B are dealers in bonds and share profits in the proportion of

A seventy-five (75) per cent.

B twenty-five (25) per cent.

A and B engage C to sell bonds, agreeing to pay him a salary equal to twenty-five
(25) per cent, of the net profits to be divided between the partners.

During the continuance of C’s contract the firm purchases one hundred thousand
dollars ($100,000) Waterville Traction Company first mortgage 5% bonds on a 3% basis.
The bonds have eighteen (18) months to run, interest payable semi-annually (three
interest periods). The firm holds the Waterville bonds till maturity.

Prepare a statement of the Waterville bond account, showing cost, interest and
amortization. The total profit to be adjusted is ten thousand dollars ($10,000).
Show the division of this profit.
1
Advanced Accounting Problems: Demonstration Problem No. 6 (concluded)

Part IV

On February 1, 1917, The University Savings Institution purchased 500 M. 1st

mortgage bonds of the Massachusetts R. R. Co., paying therefor $486,229.67. The bonds
bear interest at the rate of 4% per annum payable semi-annually—F. and A. and mature
Feb. 1, 1920. The bonds were purchased to yield 5%

Prepare schedule of accumulation and make journal entries from date of purchase
to maturity.

Part V

The present worth of an annuity of $1 for four periods at 3% is $3.71709840.

What is the value on Jan. 1, 1916, of a 5% per annum bond issue of $100,000 bought on
a 6% per annum basis (semi-annual coupons) due Jan. 1, 1918?

Prepare schedule of accumulation

Part VI

What is the value on Jan. 1, 1916, of a 5% per annum bond issue of $100,000 bought on
a 6% per annum basis (semi-annual coupons) due Jan. 1, 1918?

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 7

Part I

(From N. Y. C. P. A. Examinations)

The American Mfg. Co. on January 1, 1909, placed in service a piece of ma­
chinery which would depreciate, according to its chief engineer, at the rate of 15%
per annum, with allowance for residual value of $2,000. The original cost of the
machinery was $86,000, and the board of directors agree to set aside annually a
sinking fund which, together with the interest thereon, will amount to $84,000 at
the end of the prospective life of the machine. This sinking fund is to be deposited
with a trust company on December 31 of each year and a corresponding amount at the
end of the last partial year of the life of the machine; interest is to be credited
by the trust company at each of these dates at the rate of 4% per annum.

1. Show how the amount of the annual sinking fund payment may be arrived at.
2. Prepare a detailed statement for the board of directors proving that the
amount of your sinking fund installments is correct.
3. Give journal entries from the purchase of the machine to the final closing
out of the account, assuming that a residual value of $2,000 is realized.

1
Advanced Accounting Problems: Demonstration Problem No. 7 (concluded)

Part II

(From N. Y. C. P. A. Examinations)

The A corporation to [prevent injurious competition purchases from the B cor­

poration, a competitor, the whole of its business as a going concern on January 1,
1910, subject, however, to certain conditions stated below.

The B corporation agrees to continue trading under its old management on behalf
of and at the expense of the A corporation until December 31, 1910, when if the
profits earned amount to less than $40,000 the A company reserves to itself the
right to cancel the agreement for purchase on payment of the difference between
the earnings for the year and $40,000.

At December 31, 1910, the profits for the year earned by the B Company amount to
$50,000, and the A Company actually takes over the B Company, paying $450,000 in
full settlement.

Criticize the following methods of treating the transaction, and state which
you consider correct, giving reasons for your opinion.

1. Debit investment account with $500,000 and credit profit and loss with
$50,000 earnings.

2. Debit investment account with $450,000.

3. Debit investment account with $500,000 and credit special reserve account
with $50,000.

It may be taken as an ascertained fact that the assets are fully worth $500,000
at the time of purchase by the A company.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 8

Part I

(From N. Y. C. P. A. Examinations June, 1912)

Trial Balance of the General Ledger of John Doe, Civil Engineer, December 31, 1911

Cash $10,572.44 Manhattan Construction $5,000.00

Furniture and Fixtures 1,054.68 Report No. 1-
Real estate (Rutherford home) 6,000.00 Swanee Creek R. R. 5,300.00
Investments in stocks 15,457.50 Report No. 2-
Investments in bonds 3,000.00 Englewood Reservoir 4,500.00
Missouri Pacific Margin Report No. 3—
Account 13,000.00 Long Acre Library 3,200.00
Accounts rec. 15,361.32 Connecticut Tramways Co. 1,950.00
General expense 9,800.00 Earnings-consulting 2,000.00
Interest 1,060.00 Report fees 16,000.00
Sharp & Co., Brokers 11,310.00
Stocks and bonds 4,300.00
Capital 21,745.94
$75,305.94 $75,305.94

Analyses:-
General Expense: Salaries: John Doe $6,000; other salary $1,800; rent $1,000;
advertising $600; cable and telegrams $90; stationery and printing $110; other
expenses $200.

Interest: Debited with $1,300 charged by Sharp & Co. on margin account; reduced
by dividends of $390, credited by Sharp & Co. on margin account. Balance on loans
since repaid.

Manhattan Construction Co.: Represents consulting fees received during the

year 1911, the contract running from month to month, with no expense to John Doe.

Reports 1-3: Are completed and delivered. Account contains fees less expenses.

Connecticut Tramways Co.: Represents $2,000 received November 1, 1911, and

expenses of $50; according to terms of contract, John Doe is to act as consulting
engineer for 10 months and receive altogether $5,000.

Report Fees: Fees received under contract for report. $9,000 received on
contracts on which no work has been done, balance is earned.

Stocks and Bonds: Are sold. Account represents balance.

1
Advanced Accounting Problems: Demonstration Problem No. 8 (concluded)

Additional Facts: Dividends on stocks received during the year amount to

$1,985, of which $1,000 was applied to the account Investment Stocks and $985 was
applied to Stocks and Bonds sold.

Prepare (a) a balance sheet at December 31, 1911, with your certificate at­
tached ; (b) an income statement showing John Doe’s true earning power as a civil
engineer; (c) the journal entries supporting your adjustments of the books, if any.

Part II

(From N. Y. C. P. A. Examinations June, 1898)

A partnership on equal terms between A and B is dissolved July 1, 1897, the books
on that date showing the following:

A’s capital paid in was $16,000, and his drawings were $3,500; B’s capital paid
in was $2,000, and his drawings were $1,500. Goods purchased, $50,000; sales
$40,000; business expenses $1,800. A loss of $1,600 was made on a $5,000 consign­
ment of goods to Liverpool. In the settlement A agrees to pay B an old debt of
$3,500.

Prepare requisite accounts, and show final balance payable by one partner to
the other.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 9

Part I

(From Michigan C. P. A. Examinations, Dec., 1913)

The Star Dept. Store, organized January 1, 1911, suffers a fire loss just before
inventory Dec. 31, 1913. The books disclose the following facts:

Dec. 31, 1911 Dec. 31, 1912 Dec. 31, 1913

Inventory, beginning 44,244.04 51,894.68 50,396.40

Purchase during year 171,133.33 173,478.81 157,188.09
Allowances on purchases 11,900.12 15,182.62 8,293.54
Sales 197,474.49 209,397.00 195,937.98
Allowances on sales 4,294.37 4,594.50 5,179.19
Advertising 3,487.39 3,334.45 2,987.56
Salaries 8,295.92 9,196.72 9,196.72
Wages 16,684.30 16,628.75 17,531.22
Delivery 567.34 567.38 1,053.34
Depreciation of furniture 169.31 372.92 112.94
Stationery and printing 282.40 309.30 300.00
Gas 75.09 45.55 62.02
Rent 5,350.00 5,400.00 5,400.00
Insurance 927.15 856.42 770.40
Interest 1,571.02 1,506.89 1,695.80
Light 612.53 567.40 525.06
Water 29.21 28.51 27.63
Taxes 438.80 597.00 891.07
Telephone 33.75 52.27 54.00
General 2,041.30 3,343.37 2,581.32
Traveling 352.94 351.93 278.28
Furniture and fixtures-depreciated 9,000.00 9,500.00 10,500.00

You are asked by the appraisers:

(a) To determine the value of the assets destroyed.

(b) To arrive at correct amounts to effect a complete adjustment under the

following concurrent policies containing the 80% co-insurance clause.

1
Advanced Accounting Problems: Demonstration Problem No. 9 (Concluded)

Stock Furniture

Home Insurance Co. $10,000 $2,000

Glen Falls Insurance Co. 15,000 3,000
Globe Insurance Co. 5,000 1,000
Equitable Insurance Co. 10,000 2,000

(c) If the property loss had been 50%, what amounts would have been the proper
adjustments?

Part II

(From N. Y. C. P. A. Examinations, June, 1914)

John Adams lost his stock of merchandise May 1, 1914, through a flood on the
Mississippi River.

Adams applied to the local Mutual Flood Insurance Society for reimbursement,
claiming a loss of $5,886.35 on merchandise stock. From the following data ascertain
his merchandise inventory:

Net profits, May 1, 1914 $4,452.91

Drawings 1,598.00
Legal expenses 17.50
Interest debit 313.00
Advertising 14.00
Commissions, debit 961.01
Insurance 196.23
Sales 81,688.04
Inventory, December 31, 1911 1,568.62
Purchases 55,415.82
Labor, productive 19,499.58
Telephone 416.06
Sundry factory expenses 3,201.92
Repairs 16.00
Surplus, May 1, 1914 2,854.91

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 10

Part I

(From N. Y. C. P. A. Examination, June 29, 1910)

1. The Patent Specialty Company was organized July 1, 1907, with a capital of
$100,000, to manufacture novelties. The following transactions occurred:

July 1, 1907, one half of capital stock was subscribed and issued, 10 per cent
being called and paid on that date in cash. Legal and other incorporation expenses
amounting to $500 were paid.

August 20, 1907, patent, covering novelty, was purchased for $50,000 payable
one half in stock and one half in cash; the stock was issued and delivered, $2,000
paid in cash and note given for balance, due in one month, 6 per cent interest. The
patent was subject to royalty granted to the Novelty Company, which terminated at
date of purchase. All accrued royalties were to pass with patent and no royalty
rights were granted by the Patent Specialty Company.

August 27, 1907, the Village Board of Trade donated a lot, valued at $5,000 in
consideration of agreement to erect and equip a plant at cost of not less than
$25,000.

September 13, 1907, a further call of 70 per cent was paid. The note was paid
at maturity.

December 31, 1907, the following facts existed:

Payments on account of salaries, interest, insurance, etc., amounted to $2,250,

with $250 accrued; contracts for construction and equipment amounting to $35,000
had been given which were 75 per cent completed and 40 per cent paid ; royalties
amounting to $2,725 had been received and $190 was accrued.

Prepare journal entries to cover foregoing and statement to display financial

condition at December 31, 1907.

1
Advanced Accounting Problems: Demonstration Problem No. 10 (Concluded)

Part II

(From Wisconsin C. P. A. Examinations, 1915)

In your examination of the Auto Delivery Truck account of a company you find the
following entries

Debits
Jan. 1, 1914, Trucks 1, 2, 3, 4, at $1,200 $4,800
July 1, Truck No. 5 1,500
Aug. 1, Truck No. 6 1,500

Credits
Aug. 1, 1914, Truck No. 2 $ 900
Sept. 1, Truck No. 4 750
Balance, Sept. 1, 1914 $6,150

The Reserve for Depreciation of Auto Trucks account stood credited on January
1, 1914, with $1,800.

Upon analyzing the transactions represented by these items you find the follow­
ing facts:

(a) Truck 5, purchased July 1, replaced Truck 1. The portion of the reserve
for depreciation accumulated on January 1 for Truck 1 amounted to $900. Truck 5
was purchased on open account.

(b) Truck 2 was traded in for $850 on the purchase of Truck 6, costing $1,500.
The difference was paid in cash. The reserve which had been accumulated for
depreciation on Truck 2 on January 1 amounted to $300.

(c) Truck 4 was totally destroyed in an accident Sept. 1. The reserve for
depreciation on this truck amounted on January 1, 1914, to $300 and it was insured
for $750.

Assume the rate of depreciation to be 25% per year.

Give journal entries which would properly record the above facts, and show the
balances of all accounts affected as of September 1, 1914.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 11

Part I

(From N. Y. C. P. A. Examination of June 28, 1910)

1. The Homes Realty Company was organized January 1, 1906, to own and sell
suburban lots, and is operated by a manager under an agreement of which the follow­
ing is a digest

"The company is to furnish and maintain offices at New York and at the site of
the company’s property in the suburbs of Philadelphia, and also to pay salaries of
clerks and salesmen. The manager is to receive 3% commission on the sales.

"The property is to be reappraised at the beginning of each year by adding to

the account 4% on the book figure of the property unsold at the beginning of the
preceding year, and by adding the amount of any losses which may have occurred in
the preceding year, such additions for losses to be canceled in subsequent years if
they are made up by profits. The figures so added shall be pro-rated over the
remaining lots for sale, and the manager is bound not to sell any property at less
than the book figure.”

The books have been kept for two years without adjusting and closing entries
and the accounts show the following figures at December 31, 1907:

Property account (original purchases of1,000 lots of equal value) $400,000.00

Capital stock 400,000.00
New York office expense 3,085.00
Philadelphia office expense 5,178.32
Salesmen’s salaries 17,500.00
Sales, 220 lots, for 111,425.00
Deposits on account of sales not yet closed 215.00
Mortgages held on property sold 38,000.00
Cash 49,096.43
Creditors’ accounts (for office supplies) 643.75
Interest on mortgages received 576.00

There is also an amount of $125 interest due and not received, and $235 accrued
interest on mortgages at December 31, 1907.

These figures for expenses and sales appear up to December 31, 1906:

New York Office expense 1,435.00

Philadelphia office expense 2,647.82
Salaries of salesmen 8,500.00
Sales 60 lots for 29,000,00

1
Advanced Accounting Problems: Demonstration Problem No. 11 (Concluded)

Prepare a detailed exhibit of operations, also balance sheet as at the beginning

of the third year, with exhibit of the Property Account.

Part II

(From N. Y. C. P. A. Examinations)

Henry White has been engaged at a salary of $40 per month to take charge of the
branch store of J. Hawkins in Lynbrook. The following are the assets and liabilities
of the branch store on the day White assumed charge; cash, $275; mdse. on hand,
$2,990; notes receivable, $180; accounts payable, $340; notes payable, $210.

At the end of 15 months White offers to purchase a one-half interest in the

branch store and to pay therefor a sum equal to 50% of Hawkins’ net capital as shown
by the books. From the following facts make up a profit and loss account and a
statement showing (a) Hawkins’ net profit; (b) Hawkins’ net capital; (c) amount to
be paid by White to Hawkins.

Merchandise bought, $3,450; insurance paid, $162.50; expenses paid, $135; rent
paid, $300; merchandise sold, $5,905; value of furniture on hand, $90; inventory
on hand, $3,245; salary paid to White, $500; accounts receivable due, $475; notes
receivable, $325; due creditors on open accounts, $375; due on notes, $290; in­
terest paid, $12.50; interest received, $10; value of unexpired insurance premium,
$55; withdrawals by Hawkins during period, $200.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 12

Part I

(From N. Y. C. P. A. Examinations)

The trial balance of Jones & Smith, Chicago branch, shows Dec. 31, 1904, the fol­
lowing:

Home office $2,000.00

Due from customers $2,500.00
Cash on hand 1,000.00
Expenses 1,900.00
Merchandise 3,400.00
$5,400.00 $5,400.00
Inventory, $1,000.00.

Draft the necessary journal entries to close the accounts on the branch books, and
the entries to be made in the home office to make the books agree.

1
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 12

Part II

(From N. Y. C. P. A. Examinations)

A New York company doing business in London received the following trial balance
from its London office at the end of the fiscal year:

Plant £100,000
Accounts receivable 75,000
Accounts payable 35,000
Expenses 10,000
Income 100,000
Merchandise 20,000
New York Office account 135,000
Remittance account 60,000
Cash 5,000

270,000 270,000

The New York books showed as follows:

Capital stock $1,000,000.00

Patents $ 600,000.00
London Office account 656,100.00
Remittance account 291,712.50
Expenses 10,000.00
Cash 25,612.50

1,291,712.50 1,291,712.50

The remittance account consisted of four 60-day drafts on London for £15,000
each which were sold in New York at 4.85 1/2, 4.86, 4.86 1/2, and 4.86 3/4,
respectively.

Make such journal entries as are necessary to incorporate with the New York
accounts the results of the year’s business in London (conversion to be made at the
average rate of exchange of the four remittances) and establish the new balance of
London office account so that it will agree with the London books when converted
into sterling at 4.87 1/4, the rate of exchange ruling on the last day of the year.

Show also trial balance of the New York books after closing.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 12

Part III

(From N. Y. C. P. A. Examinations)

The capital of three partners. A, B and C, in a manufacturing business January 1,

1896, was $26,000, of which A owned 1/5, B 2/5 and C 2/5. On December 31, 1896, one
year thereafter, the condition of the business was found to be as follows:

ASSETS.
Real estate and buildings $15,000
Plant and machinery 7,000
Stock on hand 2,000
Book debts 6,000
Cash in bank 2,500

LIABILITIES.
Creditors, bills payable 8,000
Partners’ withdrawals:
A (including interest) $1,500
B ( " " ) 1,200
C ( " " ) 2,000 4,700

After crediting up interest on capital at the rate of 6%, show the net result for
the year, and distribute the same, in the proper proportions, to the partners’ ac­
counts. Prepare the individual partners’ accounts, showing the condition of each at
the end of the year.

3
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 13

(From Mass. C. P. A. Examinations, 1914)

The balance sheet of the A. B. C. Company is as follows:

ASSETS
Current:
Cash $25,000
Accounts Receivable 350,000
Notes Receivable 1,000 $376,000

Work in Progress, at cost $500,000

Less Advanced Payments 400,000

$100,000
Merchandise, Materials, and Supplies 250,000 350,000

Investments:
Acme Co. Bond $1,000
Stock in Other Companies 200,000 201,000 $927,000

Plant:
Real Estate, Main Plant $1,000,000
Less Reserve for Depreciation 50,000 $950,000

Real Estate, Branch $400,000

Less Mortgage 50,000 350,000

Machinery and Equipment $1,000,000

Less Reserve for Depreciation 75,000 925,000 2,225,000

Good-Will: $3,152,000
Good-Will Account $1,000,000
Patent Rights 600,000
Organization Expense 100,000 $1,700,000

Deferred Charges:
Unexpired Insurance $20,000
Prepaid Interest 5,000
Personal Advances 2,000 27,000

Accounts Receivable in Suspense 300,000 2,027,000

Deficit 3,016,000

$8,195,000

1
Advanced Accounting Problems: Demonstration Problem No. 13 (Continued)

LIABILITIES

Current:
Accounts Payable $300,000
Accrued Wages 10,000
" Taxes 5,000
" Commissions 10,000 $325,000

Notes Payable 800,000

$1,125,000

Capital Stock:
Preferred $2,000,000
Common 5,000,000 7,000,000

Reserves:
For Completion of Contracts 70,000

$8,195,000

A reorganization is effected by a new company, the X. Y. Z. Company, taking over

the business. The new company starts with the following bonded debt and capitali­
zation:

First Mortgage 6% 20-year Bonds $1,000,000

7% Preferred Stock 2,000,000
Common Stock 1,250,000

$4,250,000

2
Advanced Accounting Problems: Demonstration Problem No. 13 (Concluded)

The stockholders of the old company agree to participate in the reorganization

upon the following terms:

Ninety (90) per cent of the preferred stockholders pay $15 per share on their
holdings, $100 par value, and surrender their stock, and receive in exchange $15
first mortgage 6% bonds, and equal shares preferred stock of the new company, $100
par value, and also receive $7 per share in lieu of accrued dividends.

Ten (10) per cent of the preferred stockholders do not pay the $15 per share, but
surrender their stock in exchange for preferred stock of the new company to an
amount equal to 80% of their holdings and $7 per share in lieu of accrued dividends,
computed upon 80% of their holdings.

Common stockholders surrender their stock and pay $5 per share on the whole
outstanding common stock of the old company, par value, $100, and receive in ex­
change $20 in first mortgage bonds of the new company and one (1) share common stock
of the new company, par value $100, for each 4 shares so surrendered.

The balance of the bonds were used at par to pay debts of the old company, one-
half each on notes payable and accounts payable, and $300,000 of notes payable is
paid in cash. Accrued profit on work in progress is estimated at $100,000.

Draft balance sheet of the Z. Y. Z. Company after conclusion of reorganization.

3
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Demonstration Problem No. 14

(From N. Y. C. P. A. Examination of January 29, 1907)

On June 30th Ward & Parker, merchants, announce their inability to meet their
obligations and make an assignment for the benefit of creditors.

From an examination of their books, supplemented by other information, their

condition appears to be as follows:

LIABILITIES
Creditors, unsecured $31,250
” partly secured 29,875
" fully secured 21,250
Taxes and wages of employees (preferential) 875

ASSETS
Cash on hand 6,875
Chattels 17,500
Bills receivable 5,312
Warehouse receipts and other securities 35,000
Sundry debtors 3,250

LOSSES
Profit and loss account, sundry losses 16,875
Trade expenses, current period 9,250

PERSONAL
Ward, capital account, Cr. 12,500
" personal drawings, Dr. 11,250
Parker, capital account, Cr. 20,062
" personal drawings, Dr. 10,500
Accounts receivable show 3,250
Bad accounts 1,250
Doubtful accounts 750
Expected to produce 250

The securities are in the hands of creditors pledged to secure payment of their
accounts, viz.:
In hands of partly secured creditors $ 3,750
In hands of fully secured creditors 31,250
The chattels are expected to realize 11,250

Prepare a statement of affairs and a deficiency account.

 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 2A

The books of G. O . West, real estate agent, for the year 1906, disclose the following opening and
closing balances and intervening volume of transactions.

Titles of accounts Balances Dec. 30, 1905 Transactions in 1906 Balances Dec. 31, 1906

Cash $9,760.08 $137,797.62 $135,893.70 $11,664.00

Tenants 1,060.00 34,656.00 34,788.00 928.00
Rents accrued $1,060.00 34,788.00 34,656.00 $ 928.00
Owners 2,500.00 34,610.00 34,788.00 2,678.00
Clients 260.00 5,929.00 100,934.00 102,070.00 104.00 6,909.00
Trade creditors 444.00 4,841.40 5,007.40 610.00
Fees 125.00 125.00
PART I

Commissions 3,118.92 3,118.92

Discounts 180.00 180.00
Expenses 1,000.00 1,000.00
Personal drawings 2,000.00 2,000.00
Office furniture 500.00 500.00
Capital 1,647.08 1,647.08

$11,580.08 $11,580.08 $350,627.02 $350,627.02 $16,196.00 $16,196.00

An analysis of the books afforded further information as follows:

Tenants were allowed $71 for repairs made by them, which sum was applied on account of rent and
charged to owners.
Owners were charged for commissions on collections $869.70, trade creditors bills for repairs $3,566
and insurance $52.
Clients were charged, insurance $668, coal $906, fees $120, commissions on sales $1,004.

1
Advanced Accounting Problems: Practice Problem No. 2A (concluded)

Trade creditors presented bills for office supplies $50, insurance written $576,
coal $815.40; they were allowed $180 for discount on settlements made.

Commissions on sales, collections, insurance written, and coal orders were closed
into the general commission account, and Supplies account was transferred to Expense.

The cash transactions were as follows: Receipts - tenants, $34,717; clients,

$102,070; commission on sales, $1,010.62; Payments - owners, $30,051.30; clients,
$98,231; trade creditors, $4,661.40; personal drawings, $2,000; Expense, $950.

Prepare an ARTICULATION STATEMENT, showing in each account the several elements

of debit and credit and giving each element the title of the Articulating account where­
in the contra credit or charge appears.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 3A

(From C. P. A. Examinations)

The trial balance of the Interstate Manufacturing Company, on June 30, 1907,
after closing entries have been made, is given below:

Patents and goodwill $250,000

Office furniture 8,746
Inventory, June 30, 1907:
Raw material 83,247
Supplies 4,932
Finished goods 42,761
Petty cash 200
Land 270,000
Buildings 165,000
Machinery 235,000
Cash 69,433
Accounts receivable 273,742
Common capital stock $500,000
Preferred capital stock 500,000
Bonds (6 per cent 50 year 1st mtge., issued June 30, 1907) 200,000
Premium on bonds 20,000
Preferred stock dividends payable Aug., 1907 17,500
Common stock dividends payable Aug., 1907 12,500
Reserve for bad and doubtful accounts 8,294
Undivided surplus 66,375
Accounts payable 78,392

$1,403,061 $1,403,061

During the year ending June 30, 1908, the company purchased 29,047 tons of raw
material at $22 per ton, which was delivered before the books were closed. Of the
amount purchased, payment has been made for 26,647 tons. They have also made
payments for the following accounts: Accounts payable, $78,392; salaries,
$80,360; selling expense, $86,017; labor, $468,932; shop expense, $9,461; taxes,
$7,842; shop repairs and maintenance, $30,955; office expense, $2,478; and
supplies, $37,637.
Customers have paid $1,502,927 in cash, and have been given cash discounts
amounting to $18,395. Returns and allowances amount to $8,474. Bad debts
written off, $2,407. Rent, (income) $500, and sales, $1,515,572.
Fifty thousand dollars was loaned on call on June 30, 1908, the market value of
the collateral security being $72,100.
The inventory on June 30, 1908, is made up of finished goods, $20,495;

1
Advanced Accounting Problems: Practice Problem No. 3A (Concluded)

supplies, $8,129, and 2,163 tons of raw material, the market price of which is $24
per ton. The land is estimated to be worth $300,000.
Semi-annual dividends of 3 1/2% on the preferred stock and 2 1/2% on the
common stock have been paid from the earnings of the half year ended December 31,
1907. Dividends at the same rate have been declared on the preferred and common
stock for the last half of the fiscal year, payable in August, 1908.
The following annual rates of depreciation are to be assumed and reserves
created: Buildings, 6%; machinery, 15%; office furniture, 20%. It is intended
that the reserve for bad and doubtful accounts shall equal 3% of the balance of
accounts receivable.

Required: 1. Balance sheet—June 30, 1908.

2. Statement of income and profit and loss for the year ended June 30,
1908.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 4A

(From C. P. A. Examinations)

The Oswell Mfg. Co., the Barrett Mfg. Co., and the Padden Mfg. Co. amalgamated
their interest on January 1, 1909, and organized the Consolidated Mfg. Co., with an
authorized capital stock of $2,000,000 divided into 20,000 shares, par value, $100.
The individual balance sheets of each respective firm taken to represent the true and
exact condition of affairs at that date are as follows and the agreement among the
subscribers to the stock is also stated.

Oswell Mfg. Co.

Plant and machinery $50,000 Mortgage on plant (5% int.) $25,000

Real estate and bldgs. 40,000 Notes payable 14,000
Furniture and equipment 20,000 Accounts payable 24,000
Horses and trucks 10,000 Capital stock 125,000
Raw materials $19,000 Surplus 15,000
Finished goods 32,000
Supplies 4,000 55,000

Notes receivable 9,000

Accounts receivable 12,000
Cash 7,000

$203,000 $203,000

Barrett Mfg. Co.

Plant, equip. and mach. $100,000 Mortgage on bldgs. $100,000

Real estate and bldgs. 250,000 Int. acc. mortgage on bldgs. 1,125
Horses and wagons 18,000 Bank loans 14,500
Office equipment 2,000 Notes payable 67,275
Inventory, finished goods, Accounts payable 47,100
etc. 118,000 Dividends payable 30,000
Notes receivable 22,000 Capital stock 300,000
Accounts receivable 119,000 Surplus 87,000
Loans receivable 16,000 Reserve for depreciation 22,500
Cash 30,000 Reserve for bad debts 5,500

$675,000 $675,000

The Padden Mfg. Co.

Plant and machinery $75,000 Accounts payable $111,000
Inventories 76,500 Capital stock 150,000
Accounts receivable 82,500 Surplus 39,000
Cash 66,000
$300,000 $300,000

1
Advanced Accounting Problems: Practice Problem No. 4A (Concluded)

The average yearly net profits of each respective firm for a period of five
years have been as follows:

Oswell Mfg. Co. $19,020

Barrett Mfg. Co. 47,400
Padden Mfg. Co. 15,120

$81,540

Of the total capitalisation, $1,600,000 to be issued to the incorporators for the

properties and goodwill to be sold to the new company after the assumption of all
liabilities of each respective firm, $400,000 to be offered for sale to the public.

Vendor firms to donate 1,000 shares treasury stock to be available as a bonus if

necessary to the sale of the 4,000 shares as yet unissued.

The 15,000 shares issued and outstanding with vendors to be allocated among
them as follows:
(a) Each vendor firm to receive an amount of stock equal to the net assets, in­
cluding cash, of his firm.
(b) Each vendor firm to receive also additional stock equal to the capitalized net
earnings of his respective firm, at 6%, after deducting from the amount to be
capitalized 6% of original investment (capitalization).
(c) Such stock as is then unallotted to be divided between the vendor firms share
and share alike.

The Consolidated Mfg. Co. continued operations for one year, at the end of which
it showed profits of $190,000 before allowing for depreciation and before providing
a reserve for possible bad debts.

It sold during the year the 4,000 shares of stock at par, giving as a bonus 400
shares of the treasury stock.

It also sold 500 additional shares of the treasury stock at $85 per share.

It is reported that the profits of $190,000 mentioned above were represented by

an increase in cash $42,000, additional merchandise to the amount of $12,000, in­
crease in accounts receivable $48,000, decrease in accounts payable, $88,000.

You are asked to submit the following:

1. Opening journal entries for the books of the Consolidated Mfg. Co.
2. Journal entries to create from the profit of $190,000 a reserve for deprecia­
tion, and a reasonable reserve for bad debts, the amount in each case being your own
estimate with reason.
3. Journal entries showing declaration and payment of a 6% dividend.
4. Final balance sheet of the Consolidated Mfg. Co.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 5A

(Wisconsin Examination, May, 1916)

On January 1, 1916, the C Co. was formed with a capital stock of $6,000,000, of
which $5,000,000 was common and $1,000,000 preferred. The C Co. as of January 1,
1916, purchased the capital stocks of the A and B companies, balance sheets of which
at December 31, 1915, are shown below. The preferred stock of the C Co. was sold to
the public for cash at par, the stockholders of the A Co. received the entire
$5,000,000 of the common stock of the C Co. for their holdings in the A Co., while
the stockholders of the B Co. were paid $500,000 in cash for their holdings in the
B Co.

Prepare a consolidated balance sheet showing the financial position of the C Co.
as of January 1, 1916, after giving effect to the foregoing transactions. Your
working papers should show the process by which you arrive at the final balance sheet
figures.

It should also be understood that the A Co. had in its inventory at Dec. 31, 1915,
materials valued at $250,000, purchased from the B Co. on which the B Co. had made a
gross profit of 20%.

A Co. Balance Sheet, December 31, 1915

Real estate, bldgs., equip­ C/S, 15,000 shares, $100
ment and machinery $1,000,000 each $1,500,000
Inventories 1,500,000 Notes payable, B Co. 100,000
Accounts receivable 500,000 Others 400,000
Cash 50,000 Accounts payable, B Co. 100,000
Prepaid insurance and taxes 10,000 Others 700,000
Surplus 260,000

$3,060,000 $3,060,000

B Co. Balance Sheet, December 31, 1915

Real Estate, bldgs., mach. C/S, 1,000 shares, $100 each $100,000
and equip. $250,000 Accounts payable 140,000
Inventories 75,000 Surplus 262,000
Accounts receivable: Contingent liability in
A Company 100,000 respect of notes of A
Others 50,000 Co. discounted at banks,
Cash 25,000 $100,000
Prepaid insurance and taxes 2,000

$502,000 $502,000
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 6A

Part I

On May 1, 1917, The Roosevelt Savings Institute purchased 100 M. first mortgage 5%
gold bonds of the Clinton R. R. Co. interest payable May 1, and November 1 for
$103,662.74 at which figure they yielded 4%. On May 1, 1920, having received the
interest due on that date the company sold the bonds for $101,265.

Prepare:
Journal entries covering above.
Bond account, showing profit or loss on sale.

Part II

On May 1, 1917, the executor of an estate purchased 100 M. 3% gold bonds of the Quebec
Railroad Co. for $98,096.14 interest payable May 1 and November 1. The bonds which
were purchased at a price to yield 4% mature May 1, 1919.

Prepare schedule of accumulation, journal entries covering transactions to and

including May 1, 1919, and ledger accounts.
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 7A

(From Massachusetts C. P. A. Examinations, 1916)

A corporation authorized a total issue of $500,000 of 25-year 5% bonds in

denominations of $1,000 and $500, with interest payable January 1 each year. The
whole issue was sold to underwriters on January 1, 1914, at 90.

The trust deed provides that “there shall be established a fund to be called
’the bond sinking fund, ’ to the account of which there shall on the 31st of December
of each year be carried a sum equal to 7% of the total par value of the bonds issued,
and that, out of the moneys so carried to the account of the said fund, the company
shall pay the interest on the bonds as the same becomes due, and the balance of said
moneys shall be expended each year in purchasing the bonds of the company in the open,
market."

In January, 1915, the company purchased $10,000 of its bonds at 97 and retired
and cancelled them. In January, 1916, the market price of the bonds was 98.

(a) How many bonds may be purchased from the bond sinking fund in January, 1916?

(b) Make journal entries for all the transactions from the date of the sale of
the bonds to and including the purchase for the sinking fund in January, 1916.

(c) Show trial balance after posting above entries.

 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 8A

(From C. P. A. Examinations)

The Farmers Co-oparative Telephone Company is organized to furnish telephone

service to its community and has obtained subscribers for 5,000 telephones.

To finance the venture it arranged to issue $500,000 of 7% cumulative preferred

stock and $500,000 of first mortgage 6% gold bonds. The mortgage indenture provided
that a sinking fund equal to 4% of the total issue should be set aside annually out of
the profits of the company to provide for the redemption of the bonds. It is esti­
mated that the average annual cost of maintaining and operating a telephone will be
$25, exclusive of overhead expenses, estimated to be $50,000 per annum.

On January 1, 1916, 2,000 telephones were installed. The balance of the instal­
lation was to be completed at the rate of 750 telephones every three months. What is
the amount of the minimum annual rental which the company would have to secure for
each telephone in order to pay the dividends on the stock and interest on its bonds
exclusive of interest earned on the sinking fund?
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 9A

(From C. P. A. Examinations)

The Bayonne Mfg. Co., which was burned out in the night of Sept. 16th, filed with
the insurance companies a claim for $95,436.70, which you are called in to verify or
disprove. You find the following balance sheet as of August 1, 1912:

Assets Liabilities and Capital

Cash $ 9,224.67 Capital stock $50,000.00

Accounts receivable 88,669.43 Accounts payable 59,611.46
Notes receivable 2,473.62 Notes payable 42,183.24
Mdse. inventory 42,618.97 Surplus 14,203.16
Machinery 20,419.04
Furniture and fixtures 2,000.00 •
Prepaid taxes and insurance 592.13

Total assets $165,997.86 Total liabs. & cap. $165,997.86

At the close of business September 16th their ledger showed the following
balances:

Capital stock $ 50,000.00

Surplus 14,203.16
Cash $ 5,418.22
Accounts receivable • 118,871.14
Notes receivable 6,217.24
Accounts payable 72,898.66
Notes payable 63,114.02
Machinery 21,619.34
Furniture and fixtures 2,147.30
Inventory August 1, 1912 42,618.97
Dividends 6,000.00
Sales 162,917.31
Mdse purchases 103,430.22
Labor 37,619.14
Power, light and heat 3,716.47
Factory expense 7,119.11
Office salaries 2,250.00
Office expenses 319.54
Selling expenses 4,716.92
Insurance 318.16
Taxes 751.38
$363,133.15 $363,133.15

X
Advanced Accounting Problems: Practice Problem No. 9A (Concluded)

The company’s gross profits on sales has been very uniform, averaging 20 per
cent. ever since the business started. Ten per cent. for depreciation has been
written off every year from machinery and furniture and fixtures.

Insurance policies aggregating $100,000 cover the merchandise, machinery, and

furniture and fixtures, and all contain the 80% co-insurance clause.

The merchandise and furniture and fixtures were a total loss. The salvage in
machinery is valued at $2,500, at which the insured decided to retain it.

Prepare statement showing value of property destroyed by fire.

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 10A

(From C. P. A. Examinations)

The balance sheet of H. Parks showed the following on December 31, 1917: Cash
in bank, $815; real estate, appraised value, $20,000; machinery, $40,000; accounts
receivable, $7,227.50; accounts payable, $28,000; notes payable, $22,000; inven­
tories: finished stock, $11,000; goods in process, $850, and materials and supplies,
$107.50.

On January 1, 1918, he agrees with S. Burns to sell him a one-half interest in the
business for $20,000 to be contributed to new firm, the new firm to take the assets of
Parks with the exception of the real estate, and assume all the liabilities ; and that
the goodwill of the business of Parks should be rated at $20,000 in the new firm
books. It was discovered shortly after the commencement of business of the new firm
that the inventory of finished goods was incorrect, and that the value should have
been stated at $8,500 instead of $11,000, and that of the accounts receivable only
$6,227.50 were collectible, one of the debtors, owing $1,000, having failed and
absconded, leaving no assets, previous to the formation of the co-partnership, which
fact was known to Parks, and his bookkeeper had been instructed to charge off the
account but failed to do so. No correction was made of these discrepancies.

On December 31, 1918, the books showed that Parks had drawn out $3,000, and Burns
an equal amount; the merchandise account showed a credit balance of $78,000, while
the balances of other accounts were: accounts receivable, $15,400; expense, $1,500;
machinery, $40,000; manufacturing expense, $22,000; wages, $44,000; rent, $1,500;
prof it and loss (debit), $600; accounts payable, $45,000; cash, $22,000; goodwill,
$20,000. The inventories at the close of the year were: finished goods, $28,000;
goods in process, $1,500, and materials and supplies, $1,500. No amount has been
charged off for depreciation of machinery, which should be ten per cent.

Make proper entries to correct the books.

Give balance sheet after corrections.

 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 11A

(From N. Y. C. P. A. Examinations)

Two concerns engaged in the same line of business agree to consolidate for the
purpose of maintaining prices, but will continue to operate each plant separately.
They organize the Empire State Mfg. Co. with a capital stock of $200,000 consisting
of 2,000 shares of $100 each, the members of the X Company agreeing to subscribe for
1,000 shares and to pay for them in cash, while the members of the Y Company for 1,000
shares, also payable in cash. The stock is issued to the following:

Comprising the X Company: C, Cert. No. 1 for 250 shares; D, Cert. No. 2 for 250
shares; E, Cert. No. 3 for 250 shares, and F, Cert. No. 4 for 250 shares.

Comprising the Y Company: G, Cert. No. 5 for 250 shares ; H, Cert. No. 6 for 250
shares; I, Cert. No. 7 for 250 shares, and J, Cert. No. 8 for 250 shares.

The cash is paid into the treasury of the Empire State Mfg. Co. on the issuance
of certificates to the respective subscribers.

The X Company’s balance sheet as of May 31, 1909, was as follows: Cash,
$125,000; materials and supplies, $25,000; accounts receivable, $300,000; plant and
buildings, $400,000; accounts payable, $20,000; capital (1,000 shares $100 each),
$100,000; surplus, $730,000. Their annual sales have been $800,000.

The Y Company’s balance sheet as of the same date is as follows: Cash, $50,000;
materials and supplies, $25,000; accounts receivable, $200,000; plant, $500,000;
goodwill, $700,000; accounts payable, $150,000; capital (10,000 shares $100 each)
$1,000,000; surplus, $325,000. Their annual sales have been $600,000.

The Empire State Manufacturing Co. purchases and pays cash for the stock of ma­
terials and supplies for both mills. It rents from the X Company its plant and agrees
to pay an annual rental of $90,000 and in addition thereto will pay the officers
managing the X plant an annual salary of $90,000 for their services. The rent for
the Y Company plant is agreed on at $60,000 and the officers are to receive an annual
salary of $60,000. It is agreed that all additions to the plants and all repairs
and maintenance are to be paid for by the Empire State Manufacturing Co,

Operations of both plants are continued and at the end of the fiscal year, May
31, 1910, the balances appearing on the books of the Empire State Manufacturing
Co. are as follows;

1
Advanced Accounting Problems: Practice Problem No. 11A (Concluded)

(From N. Y. C. P. A. Examinations)

Cash $200,000
Accounts receivable 200,000
Additions to plant 60,000
Accounts payable 160,000
Capital stock 200,000

The trading transactions of the respective mills are as follows:

X COMPANY’S MILL
Purchases-raw materials and supplies $160,000
Labor 300,000
Factory expense 100,000
Repair and maintenance of plant 80,000
Office expense 60,000
Rent of plant 90,000
Officers’ salaries 90,000
Sales 907,000

Y COMPANY’S MILL
Purchases—raw materials and supplies $140,000
Labor 250,000
Factory expense 75,000
Repair and maintenance of plant 70,000
Office expense 50,000
Rent of plant 60,000
Officers' salaries 60,000
Sales 778,000

The stock as of May 31, 1910, consisted of:

Materials and supplies—X Company's mill $10,000
Materials and supplies—Y Company's mill 15,000
Labor due, not paid—X Company's mill 5,000
Labor due, not paid—Y Company’s mill 10,000

(a) Open the books of the Empire State Manufacturing Company; (b) prepare
balance sheet as of May 31, 1910, and (c) consolidated statement of income and profit
and loss showing profits for each mill. As the mills have been kept in perfect
repair no depreciation is to be considered; outstanding accounts are considered
good. Provide for a dividend of 10%.

(d) Prepare percentage table of each mill, showing to four (4) decimals the
percentage of each of the following items against the total cost of production:
Materials and supplies
Labor
Factory expense
Repairs and maintenance
Rent of plant

2
 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 12A

N. Y. C. P. A. Examination - June 30, 1921.

A San Francisco corporation builds a plant and established a branch in Glasgow,

Scotland. At the expiration of its fiscal period a trial balance is forwarded to the
San Francisco office, as follows:

Plant £250,000
Accounts receivable 187,500
Expenses 25,000
Inventory (end of fiscal period) 50,000
Remittance account 150,000
Cash 12,500
Accounts payable £ 87,500
Income from sales 250,000
San Francisco office 337,500
£675,000 £675,000

A trial balance of the San Francisco books at the same date was as follows:

Capital stock $2,500,000.00

Patents $1,500,000.00
Glasgow account 1,640,250.00
Remittance account 729,281.25
Expenses at San Francisco 25,000.00
Cash 64,031.25
$3,229,281.25 $3,229,281.25

The Remittance Account is composed of four sixty (60) day drafts on Glasgow for
£37,500 each, which were sold in San Francisco at $4.85-1/2, $4.86, $4.86-1/2 and
$4.86-3/4 respectively.

Prepare a balance sheet of the San Francisco books after closing and a statement
of assets and liabilities of the Glasgow branch reconciled with the San Francisco
books. Close the books at rate of exchange on last day of fiscal period $4.87-1/4
(conversion of remittance to be made at the average rate of the four bills).

Note: Return this question paper with your answers.

 NEW YORK UNIVERSITY

SCHOOL OF COMMERCE, ACCOUNTS AND FINANCE

ADVANCED ACCOUNTING PROBLEMS

Practice Problem No. 13A

(From N. Y. C. P. A. Examinations)

Johnson, Kaplan and Lambert had been in partnership for two years, having begun
business with investments of $5,000, $7,000, and 8,000 respectively. Their agree­
ment provided that profits and losses should be divided in proportion to original
capital investments, and that no interest was to be allowed on capital. The books
were badly kept, and on December 31, 1917, showed the following balances, which were
not disputed by any of the partners: Johnson net credit, $3,000; Kaplan net debit,
$3,370; Lambert net credit, $4,650; cash in banks and on hand, $804.20; expense
debit, $4,550; interest credit, $250; accounts receivable, $2,240; investment
account, $12,000.

The business in which the firm Was engaged was that of factory selling agents.
It holds a number of one year sales contracts under which the minimum guaranteed
will net $15,000 in commissions, although it is believed that the amount may run to
$20,000. The factories make shipments to customers direct and send monthly state­
ments to the firm of shipments and commissions. The investment account represents
holdings at par of 75% of the capital stock of a company on whose books there appears
a deficit of $2,700.

Johnson and Kaplan have agreed to sell their interest in the business, including
the firm name, to Lambert for 200 cents on the dollar, taking notes covering 18
months.

Prepare a statement showing the settlement between partners, and a balance

sheet after the settlement.