Note. The Contingency account is in no sense a debt or obligation of the firm; it is merely an offset against the nominal value of the assets, with a view of reducing them to their estimated cash valuation, The accounts may now be closed and the balances brought forward, when the Ledger will show the following balances :

ASSETS.

$ 1,643.89

8,000.00

The balance due A. M. Thomas is $5861.11, which is paid to him in cash, leaving the Assets and Liabilities of the new firm as follows:

Cash......

Mdse........

Baker and Pratt consolidate with Jones, Taylor & Co., to incorporate into a Joint Stock Company, with a Capital Stock of $50,000, consisting of 500 shares, par value $100 each:

The Assets and Liabilities of Jones, Taylor & Co. are as follows:

G. A. Baker subscribes for 100 shares, T. C. Pratt 65 shares, T. A. Jones 65 shares, D. R. Taylor 65 shares, Wm Britt 55 shares, I. R. McKay 50 shares, J. C. Trask 50 shares; the remaining 50 shares held as Treasury stock. Baker, Pratt, Jones, Taylor and Britt are to receive full paid stock for their subscriptions, which are paid out of the effects of the old firms. McKay and Trask pay their subscriptions with cash. What entry to consolidate, and open the books for the corporation?

The above entry combines the Assets and Liabilities of both firms, and opens the books for the new company with full authorized capital, Treasury Stock, etc. The books of the old firms should be closed as shown in the Eighth Lesson, page 63.

Branch Houses.

There are two methods of conducting the accounts with branch houses. The method to be adopted should depend largely upon the number of branches and the extent of the business.

First. If the branches are to buy their own goods, collect and pay their own accounts, then they must be debited for the Assets and credited for the Liabilities belonging to their respective plants.

We will suppose the corporate name of this company is the City Hardware Company, and that the old plant of Jones, Taylor & Co. shall be known as the East End branch. If this method is adopted, the East End branch would be debited and credited as follows:-

The entries made on the books of the branch would, of course, be just the opposite from these, crediting the parent house for the Assets received, and debiting the parent house for the Liabilities assumed.

The above are the only entries required on the books at the main office until the end of the year. Then, if the branch has made a profit, the entry on their books would be:

:

Loss and Gain To Parent House.

On the books of the parent house the entry would be:-
East End To Loss and Gain.

If the branch has been operated at a loss, the entry on their books would be:

Parent House To Loss and Gain.

On the books of the parent house the entry would be:

Loss and Gain To East End.

If the parent house furnishes merchandise, cash, etc., during the year, the branches would be debited, and if the branches furnish merchandise or turn over cash to the parent house, they are credited. Some houses charge these goods at cost price, and others charge them at a profit.

Second. If the parent house is to buy all goods, pay all accounts, etc., then the branches will be charged only for the amount of goods in their possession when the books were opened, and for all goods sent to them thereafter. The account with the parent house would be the only liability account kept, which would represent their capital.

The branches would keep the accounts with their own customers, make their own collections, and turn the money in to the parent house At the end of the year the proceedings for closing the books are the same as in any other business,-finally debiting the parent house for the net loss, or crediting the parent house for the net gain. The first method is the better one, and should be adopted.

The methods of conducting the accounts with branch houses are very simple, and it is thought that further explanation would be

useless.

A Manufacturing Company.

Ex. 305. Single Entry Stock Books changed to Double Entry and a Stock Dividend declared.

The Ohio Iron Company, Limited, was organized J n. 1st, 1893, with a Capital Stock of $150,000, 1500 shares, par value $100. The Capital Stock paid up is $140,000, and is held by the following named parties J. C. Keim, 300 shares; C. C. Harris, 400 shares; P. C. Jones, 400 shares; J. A. Springer, 200 shares; H. A. Burgess, 100 shares; and 100 shares held as Treasury Stock.

Jan. 1, 1894, the company took an inventory, and decided to open the books and have them kept by Double Entry.

The following is a statement of the company's Assets and Liabilities: Mill and Furnace, $75,000; Pig Iron, $20,000; Accounts Payable, $41,000; Bills Receivable, $17,450; Machinery and Patterns, $31,000; Bills Payable, $10,000; Capital Stock, $150,000; Accounts Receivable, $77,550.

Ex. 307. Ex. 308. Declare a Dividend equal to the amount of Treasury Stock, and issue the same to the shareholders in proportion to the amount of stock held by each, and pass the balance of the net gain to Reserve Fund.

What entry to open the new books by Double Entry?

CHAPTER TWENTY-TWO.

Corporation Law.

Illegal Incorporation.

Ex. 309. A corporation cannot be formed legally unless authorized by the Legislature. The Legi lature of a State has no power to constitute a person a member of a private corporation without his consent, nor can the Legislature compel a subscriber for shares in a proposed corporation to accept shares in a different corporation from that for which the subscription was made. It is also a settled fact that a State cannot alter the contract between the shareholders by legislative enactment.

Shareholders in a corporation cannot by their ratification render legal the illegality of forming a corporation without complying with the statutory prerequisites.

If a charter or general incorporation law prescribes certain formalities to be complied with by the persons wishing to form a corporation under it, the due performance of the formalities must be complied with. No authority to form a corporation from a charter or law of nature can be obtained until they have been complied with.

A subscription to the capital stock of a company about to be formed under a charter or general law does not constitute the subscriber a shareholder until all conditions p ecedent to the legal incorporation of the company have been fulfilled.

Construction of Charters.

The charter of a corporation serves a two-fold purpose: It operates as a law conferring upon the corporators the right of franchise to act in a corporate capacity; and, furthermore, it contains the te ms of the fundamental agreement between the corporators themselves. Corporations are usually formed by the adoption of articles of association and the subscription of capital, in pursuance of general incorporation laws. The articles of association of a company thus organized, taken in connection with the laws under which the organization takes place, form the constitution of the association and answer the same