The partners thereupon incorporate a company with an authorized capital of $250,000. The company so formed purchase the partnership assets and goodwill, not including the cash, for $250,000, payable $200,000 in stock and $50,000 in cash, the last-mentioned cash being the proceeds of sale of stock to F. It is the intention to divide the purchase money stock among the vendors in proportion to their former capital and to adjust their accounts by the division of the cash shown in trial balance, which will then be placed to their credit as loans to the company at 6% interest and remain as working capital. The bills payable are to be settled by the partners. As the drawings of the partners are not in proportion to their respective shares in the profits, the partners are charged with the interest thereon in the following amounts, viz.: C $231, D $165 and E $132. Frame the necessary entries to close the partnership books and show the amount of cash received by each partner. Referring to question 1, frame the necessary entries to open the books of the company and prepare a balance sheet showing the condition of the company at the beginning of its operation. 5 December 1, 1905, a New York merchant ships goods of the value of $5,000 on consignment to a commission merchant at Rio de Janeiro, insuring them in the Atlantic Mutual against loss or damage in transit and prepaying freight and insurance amounting to $250. On arrival the goods are found to be in a partially damaged condition and the loss is adjusted at $1,000, the certificate for which the consignee transmits to the consignor together with an account sales for $3,000 dated March 1, 1906, and a final account sales for $2,000 dated April 1, 1906. A draft on New York for $4,300 accompanied this final account, being the balance due after deducting duty paid and commission earned. Give expression to these transactions on the books of the consignor. 6 Blackman & Co. of New York agree with Whittaker & Co. to ship on joint account a car load of goods on consignment to Seattle. The invoice price of the goods is $4,000 less 5%. Blackman & Co. pay the hauling, insurance and freight charges amounting to $200 and give to Whittaker & Co., March 1, 1905, a sight draft on the consignees for $2,000 as part payment for the goods. On May 1, 1905, Blackman & Co. receive an account sales from the consignees and their check for $6,000 as the net proceeds of the consignment. They then pay Whittaker & Co. the balance due them. Interest is calculated at 6%. Prepare joint consignment account and the account to be rendered by Blackman & Co. to Whittaker & Co. COMMERCIAL LAW. Answer 10 questions but no more. Answers in excess of the number required will not be considered. Do not repeat questions but write answers only, designating by number as in question paper. Check (V) the number of each one of the questions you have answered. Each complete answer will receive 10 credits. Papers entitled to 75 or more credits will be accepted. June 20, 1906-1.15 to 4.15 p. m. only. I What is an executory contract? What is an executed contract? May a contract be executed on one side and executory on the other? Explain. 2 Is a note or a check invalidated if (1) dated on a legal holiday, (2) dated on Sunday? Explain fully. 3 Define agency. What classes of agents are there? How should authority be conferred on an agent? Has an agent power to delegate his authority? 4 How may agency, duly created, terminate? 5 What redress has a principal in case his agent pledges (1) the goods of the principal, (2) negotiable paper of the principal? 6 What is a warranty? What is the rule as to damages for breach of warranty? 7 When does a deed conveying realty take effect? What is the legal presumption in the case? What is meant by placing a deed in escrow? 8 What are the elements that constitute a warranty deed? 9 What is a fixture, in the legal acceptation of the term, in each of the following cases: (1) as between buyer and seller, (2) as between landlord and tenant? ΙΟ What is an accommodation note and what are the rights and the obligations of parties thereto? What formalities attend the entering into a contract on the part of a corporation? How does a corporation execute a contract? 12 What is the rule for calculating interest on a note on which partial payments have been made from time to time? 13 What is the statute of limitations and on what policy is it founded? When would the statute begin to run against the holder of a demand note and why? How long would it run? What would be the effect of a partial payment on the note at any time during the running of the statute? 14 What is meant by stoppage in transit? Explain the proceedings necessary for such stoppage and the circumstances under which they may be exercised. 15 What is meant by arbitration and award? Give the general rules governing the proceedings. Under what circumstances is the remedy usually resorted to? AUDITING. Answer 10 questions but no more. Answers in excess of the number required will not be considered. Do not repeat questions but write answers only, designating by number as in question paper. Check (√) the number of each one of the questions you have answered. Each complete answer will receive 10 credits. Papers entitled to 75 or more credits will be accepted. June 20, 1906.-9.15 a. m. to 12.15 p. m., only. I In making an audit of the accounts of a corporation for the first year of its existence what method of procedure would you pursue and what records would you want to examine in addition to the books of account? 2 A mercantile concern carries among its assets a number of acceptances, some of which are past due. How should an auditor proceed to ascertain the correctness of the account? 3 An employee holding the dual position of cashier and bookkeeper is suspected of dishonesty. Some one has established the agreement between his cashbook and bank pass book. What should an auditor do if subsequently called in to ascertain the facts? 4 In going over the affairs of a banking institution with branches, state how the following items should be verified: (1) cash at home office and branches, (2) loans secured and unsecured, (3) securities owned. What, if anything, should be done concerning individual deposits accounts? 5 A construction company has at the close of its fiscal period a number of uncompleted contracts in various stages of progress. How should they be carried into the balance sheet? Mention two other ways in which they might appear in the balance sheet. 6 A company is organized with a capital of $50,000. The stock is issued for a "going concern whose accounts showed it to have a net worth of $45,000. Nothing was said about goodwill when the contracts were made between the owners and the new company. How would you treat the $5,000 difference? 7 Would you regard checks, drawn payable to order and cashed by the bank, as sufficient vouchers for the payments of a mercantile concern? Give a reason for your answer. 8 Is an auditor justified in certifying to a balance sheet in case the books of account are not in balance? Give reasons. 9 In the books of an insurance company are found numerous entries relating to the purchase and sale of stocks and bonds. What proof should the auditor require as to the correctness of these accounts? 10 What is a bank pass book? How far should one rely on the entries contained therein? II Give in substance the rules lately laid down by the State Banking Department regarding accrued interest as related to statements filed with the department by banks. 12 In auditing the accounts of a fiduciary, chargeable with income arising from rents, interest, securities and cash in bank, how should the auditor satisfy himself that a full return was shown by the books submitted? 13 The statement submitted by the treasurer of a corporation shows receipts of money greatly in excess of disbursements, leaving a balance in hand of more than enough to pay to stockholders a dividend of 6%. The directors declare such dividend pursuant to the statement submitted without asking for any other or further information. Was the act of the directors a prudent one under the circumstances? Give reasons for your answer. 14 Describe your mode of procedure in connection with some audit on which you have been engaged. Relate the nature of the business, answering in sufficient detail to enable the examiners to form an opinion regarding your knowledge. 15 How would you proceed to ascertain the net sales, purchases, expenses and net profits of a business for a given period when the ledgers, sales books, purchase books and supporting documents have been destroyed by fire, and the only records available are the cashbook, bank pass book and book of monthly balances, the latter containing all the ledger balances and annual balance sheets? [It is to be understood that no unusual transactions had taken place.] The origin of underwriting occurred about two hundred years ago in Lloyd's coffee house in London, where merchants and shippers congregated and discussed questions of business, chiefly maritime. It was there that the risks on vessels and cargoes were divided and underwritten among merchants. Thus the entire subject of underwriting, that is, the desire and effort to unload on other shoulders one's own responsibility and risk, had its beginning. It has now assumed enormous and wide-reaching proportions. When I was in London during King Edward's coronation in 1902, I recollect quite clearly that tradespeople along the line of procession took out insurance on the king's life for a period of two weeks, as indemnity against possible loss to them of renting their stores and offices. The subject of my address deals with another phase of underwriting which is less popular and perhaps more involved. An underwriter literally is an insurer. In order to understand the class of transactions in which a banker engages, which are currently known as underwritings, it is necessary to understand the function that a banker fills in the community. Walter Bagehot, for many years editor of the London Economist, who is regarded as an authority on financial matters, defined the function of the banker as being the care of other people's money. This is an excellent definition, but it is subject to the criticism of being so general that it conveys comparatively little information. A * From an address before the New York University School of Commerce, Accounts and Finance of New York University, April 25, 1906. banker cares for other people's money when he receives their deposits and puts them to profitable use. He cares for other people's money when he sells bills on distant points, thus practically caring for his customer's money in transit. He cares for his customer's money when he supplies the customer with investment securities and advises him in regard to the investment of his fortune. It is in connection with this last function of the banker that the necessity for underwriting arises. In the first place, it is necessary for you to realize why railroad companies or other corporations in need of money find it advisable, and indeed find it necessary, to deal with bankers for the purpose of disposing of their securities. In dealing with bankers they are enabled at once to sell the total amount of securities that they wish to place, and are assured at once of the money that they require for the prosecution of their business. If, instead of disposing of their securities at wholesale, as it were, they were to retail them to investors and brokers, they would run all the risk of changes in the money market and intervening panics, which might leave them to weather trying financial times only partly financed. There is the further consideration that investors would be slow to purchase securities on the strength only of the borrowing corporation's representation. The borrowing corporation, of course, is an interested party. When it sells to a banker, the banker investigates every phase of the situation, and, being an expert in the matter, bonds or shares, when placed before the public by him, come to the public with the recommendation of an expert and with the assurance that all questions affecting either the validity or the security of the investment have been thoroughly looked into and approved. In ordinary circumstances it might be unnecessary to say anything in explanation of the advisability or necessity of the corporation dealing with the banker as the wholesale dealer in securities. But there has been so much unbalanced talk on the question of the relations between corporations and bankers as to lead an uninformed person to imagine that honestly managed corporations should deal direct with the investing public, and that the presence of the banker is unnecessary and results from corrupt relations between the banker and the officers of the corporations. When a corporation wishes to dispose of bonds or stocks, it tells its banker the nature of the security it wishes to create and the price it hopes to obtain therefor. It then receives |