principal centres. The chief auditors are said to be paid at the rate of $125.00 to $150.00 per month. If this is the limit of the eastern capitalists' fee capacity, the professional accountant can entertain but a very faint hope that he will ever supplant the salaried travelling auditor. Another reason, says our correspondent, is that the owners of the smaller and independent systems are still with one exception in a condition of heathen darkness on the subject of accountants and their works. That Problem in Costs. The following query comes from Boston: "We have read with interest the article in the correspondence section of your April edition, entitled 'A Real Problem in Costs,' and will appreciate it very much if you will kindly advise us whether the replies which you receive are for publication in your magazine or whether they will be used in competition to secure the business which is mentioned." [The editors will publish any reply that in their opinion deserves it. In no other way can they aid in the competition referred to.-Eds.] Maryland Notes. The street railway companies of Baltimore City were consolidated a few years ago, and have since been operated and managed by the United Electric and Railways Company. It has not been the practice of this corporation, our correspondent writes, to have their accounts audited by other than their regular employees, though an audit of the same was made less than a year ago, when there existed some dissatisfaction among the income bond holders. Hence it cannot be said that the railway companies of Baltimore favor audit by public accountants. Firm Announcements. The partnership of G. W. Temple and E. G. Shorrock, as Certified Public Accountants, carried on under the firm name of Temple & Shorrock at 427-428 Pioneer Building, Seattle, has been dissolved. The business has been taken over by E. G. Shorrock at the above address in his own name. Judd, Schmidt, Palmer & Company, Public Accountants, announce the removal of their New York office to the Nassau-Beekman Building, 140 Nassau Street, New York. Mr. Frederick S. Tipson, C. P. A. has removed his offices from 150 Nassau Street to Temple Court, 5 Beekman Street, New York. C. P. A. Examination Questions. THE JOURNAL prints below answers to questions taken from each of the four papers set in the New York C. P. A. examinations of last January. The solution of the problem in Practical Accounting is by Mr. Walter A. Bayer. The answers of the other questions are by different men, all well qualified. Practical Accounting. Question 2.-Walter Hopkins, while perfectly solvent and doing a profitable manufacturing business, had so tied up his capital in plant and materials that he was unable to pay his debts and was on the point of suspending for want of funds to pay for labor, and his creditors were preparing to commence legal proceedings to enforce a settlement. The condition of his affairs at this time was as follows: At a meeting of creditors he said that while his plant was entirely efficient, it was all of special character and would realize on forced sale only the value of scrap, that the unfinished goods would require the employment of skill and processes known to him only, and that while forced suspension would yield to his creditors not over 50%, it would ruin him absolutely. The creditors decided to advance him a loan of $5,000 to continue operations and allow him additional credit for materials and expenses. A trustee was appointed to see that the proceeds were used solely for recuperation of the business. The subsequent operations under the supervision of the trustee were as follows: Purchases on book account, charged to materials $5,100, to expense, $12,100; sales on book account, $57,802; losses on bad debts, $300; cash receipts (loan from creditors), $5,000; settlement from debtors, $58,100; cash payments for labor, $12,500; for expense, $4,350; for plant, $600. Creditors, $42,030; Walter Hopkins personal drawings, $3,000. There remained raw materials $4,000, finished goods $22,388. Prepare (a) realization and liquidation account, (b) trustee's cash account, (c) balance sheet of the estate as restored to Walter Hopkins. 2. What is a sinking fund? How should the account be treated on the books of a corporation? 7. Describe the method of determining the number of shares of capital stock, both common and preferred, held by each of the several stockholders of a corporation, giving fully the titles of the books wherein the facts are registered and stating how the books are opened and operated. 10. A corporation is organized with an authorized capital stock of $50,000 of which only $40,000 is sold, and stock certificates issued therefor. The conflicting methods of recording the capital stock on the books are urged by rival accountants as follows: (a) treasury stock to capital stock $50,000, cash and properties to treasury stock $40,000; (b) cash and properties to capital stock $40,000. Which method is the better and why? ANSWER TO QUESTION NO. 2. When a government or a corporation undertakes to pay a debt due at a certain time, it is necessary to do this either by a series of appropriations, or by setting aside out of available cash periodically sums which invested, usually by purchasing its own debentures, or other form of indebtedness, so that at the end of this time, provision will be sufficient to pay the debt. Dr. Price was the originator of the idea, and he recommended it to the elder Pitt, as a means of paying off the national debt of England. His is the idea, which has been adopted by mathematicians, and it may be stated thus: Find such a sum, which is to be set aside periodically, and instantly made to bear a fixed rate per cent per period, the amount of these investments at the maturity of the indebtedness will exactly equal that indebtedness. The term sinking fund is applied to a sum periodically set aside, and not to the amount of the investments. The interest on the debentures is paid to the persons holding the debentures, whether outsiders, or representatives of the corporation. The term Sinking Fund began to be used after a time in a looser manner, to the amount of irregular sums set aside to meet an obligation, the sums set aside being invested. In this latter sense it is a reserve. As given above, it is created to redeem a fixed liability, and is a debt account. Later on, the term began to signify a fixed charge taken out of revenue, duly invested periodically at a fixed rate per cent, to provide for the inevitable fixed shrinkage of certain assets, as in the case of a bond purchased above par to meet the shrinkage of the premium. The account in which the sinking fund with interest enters is a credit account. The creation of sinking funds requires such a knowledge of annuities as may be found in Prof. Sprague's recent work on investments. ANSWER TO QUESTION 7. The books of such a corporation are kept by a secretary, and are: 1. Stock Certificate Book for common stock, and Stock Certificate Book for preferred stock. 2. Transfer Book. 3. Stock Book. 4. Stock Ledger. I. The Stock Certificate Book is made up of blank certificates of stock bound together and numbered consecutively, attached to stubs from which each one is easily separated by perforations. The one for common stock and the one for preferred are similar, but the numbering is distinct. On the issuing of stock to the shareholder, these certificates are filled in by the secretary or other authorized person, and signed as directed by the By-laws. On the back of the certificates is a blank assignment, ready to be filled in when the assignment is made. On the stub of "original stock," under the heading, "Issued against surrendered certificate No. should be entered Original Issue." The owner of stock will sometimes sell a portion of his stock, represented by the certificate, and in that case the assignment will be filled out only by the number of shares transferred. The secretary would then cancel the old certificate and issue two new certificates, and deliver both to the original owner, unless he receives instructions to deliver them otherwise. When a transfer has thus been made, the surrendered certificate should be canceled, so as to render it incapable of being again used. 2. The Transfer Book is made up of a number of blank assignments. They are intended to be filled out and signed by the transferrer, and are the authority of the secretary to issue new Stock Certificates. 3 and 4. The Stock Book and Stock Ledger are practically one and the same in contents. The Laws of the State of New York call for the keeping of a Stock Book, which shall contain the following elements: I. Names of stockholders arranged alphabetically. 2. Residence of stockholder. 3. Number of shares held by each. 4. Time stock was acquired. 5. Amount paid thereon. 6. From whom received and to whom transferred. If we combine the Stock Book and Stock Ledger, it will contain the following columns: I. Taken out. 2. Surrendered. 6. Number of shares. 1. Disposed of. 2. Acquired. 7. Balance. The Stock Certificate Book and Transfer Book contain all the information required for entry into the Stock Ledger. ANSWER TO QUESTION IO. I do not regard the two methods as conflicting, but rather that the first method presents a fuller statement than the second. It surely cannot be a fault to give extra information, provided that this information is of value. However, in the Balance Sheet the elements contained in the question should appear thus: Authorized issue of Stock Stock issued 50,000 10,000 40,000 Auditing. Question 4. How would you determine the profits for a given period from a set of books kept on the single entry system, the capital at the beginning of the period being known? ANSWER. In Single Entry Bookkeeping the transactions of a business are recorded only in so far as they effect changes in assets and liabilities, so that profits or losses must be determined by a comparison of the financial condition at the beginning and ending of a period. The capital being known at the beginning of a period it would be necessary to appraise values and take stocks at the end. The difference would be profit in case of an increased showing and loss in case of a decreased. There is no proof upon the work, as the scheme of revenue accounts peculiar to the double entry system, which in itself shows the results from a period of operations, is lacking. Commercial Law. 7. What is a corporation? Describe the procedure necessary for the formation of a business corporation and show what is required as to (a) number of incorporators, (b) number of directors, (c) capital to be paid in. ANSWER. A corporation is an artificial person created by law. It exists only by virtue of the permission of the State, and has only such power, rights and liabilities as the State accords to it. The corporation is a legal entity entirely distinct from the natural persons who may be its members. A corporation is formed generally as follows: A certificate of incorporation must be executed and acknowledged in duplicate by the incorporators; one duplicate must be filed in the office of the Secretary of State and the other in |