The above entry would open the books by combining the Assets and Liabilities of the two companies. The following entry is recom mended, as it gives the Assets and Liabilities separately : Treasury Stock..... To First Mortgage Bonds, E. C. Ry. Co......... "Accounts Payable, E. C. Ry. Co.... S. S. St. Ry............. "Second Mortgage Bonds, E. C. Ry. Co..... 700,000.00 $310,000.00 17,500.00 12,500.00 175,000.00 S. S. St. Ry......... 250,000.00 Surplus, E. C. Ry. Co....... 100,000.00 41 "" S. S. St. Ry........ 50,000.00 Interest on First Mort. Bonds, E. C. Ry. Co...... 8,000.00 If desired, the Franchise account can be omitted and the amount therein added to Construction, Motors, etc. In many cities street railroads are required to pay for the privilege of the streets; then an account must be kept with Franchise for what it has cost. If the Franchise is granted say for 25 years, at a certain amount, then before S. S. St. Ry...... 7,500.00 35,000.00 1,800,000.00 700,000.00 declaring the annual Dividend of this cost should be written off, to arrive at accurate results. Suppose the company desires to extend its lines and add other improvements which will cost $500,000. To raise this amount the stockholders decide to issue Bonds; also, to take up the bonds of the old companies. To do this it will be necessary to issue $1,500,000 in First Mortgage Bonds. The old First and Second Mortgage Bonds are redeemed and new ones issued, the balance to be placed on the market and sold, as follows: Cash. To First Mortgage Bonds........ $200,000.00 $200,000 Bonds sold at 10% discount. What entry? Cash......... Loss and Gain. $180,000.00 20,000.00 To First Mortgage Bonds....... $200,000.00 The balance, $100,000, sold at a premium of 10%. What entry? Cash........ $110,000.00 To First Mortgage Bonds......... $100,000.00 What entry when the old Bonds are redeemed? 10,000.00 First Mort. Bonds E. C. Ry. Co.... $310,000.00 $935,000.00 When the Interest is paid on the Bonds, Debit Interest and Credit When a corporation issues Bonds, they are secured by mortgages. No entry is made of such Mortgage, as it is already covered in the Bond account, and is also shown in the Minute Book. When entering the first sale of Bonds, copy in the entry the Mortgage given. Bonds are not a Liability until they are sold; hence they should have no account upon the books until they are sold. Bonds are not a Liability while in the hands of brokers or agents. Should they report sales, then the Bonds must be accounted for. CHAPTER SIXTEEN. An Ice Company. Ex. 273. The Buckeye Ice Company of Cleveland, O,, wishing to cover losses amounting to $40,000, and to produce an Operating Capital of $35,000, calls an Assessment of 25 per cent. on its Capital Stock of $300,000. Assessment $75,000, payable in cash. Assume the assessment to be paid. What entry? Suppose that at the end of the year $30,000 of the $35,000 Working Capital had been lost, and a second assessment of 10% was levied to procure more Working Capital. What entries? Working Capital............... $30,000.00 To Loss and Gain...... (For loss of past year, etc.) $30,000.00 (Entry when the assessment is paid.) Cash....... ... $30,000.00 $30,000.00 To Working Capital........... Suppose the company pays $25,000 for an Ice Machine for manufacturing ice; what entry? Working Capital. To Cash.... ..... $25,000.00 $25,000.00 For amount withdrawn from Working Cap- Since the company gave no value for the cash received from the assessments, and the Working Capital has been used for other purposes, Loss and Gain must receive credit; therefore, when the books are closed we make the following entry : Machinery .... To Loss and Gain..... $25,000.00 $25,000.00 Some bookkeepers would credit Loss and Gain when cash was received. It really is a gain, as nothing was given for it; but it must be remembered that this cash was for Working Capital, as the Capital account was thereby increased. In the end, however, it must go to Loss and Gain. A Manufacturing Company. Ex. 274. The Reed Fly Screen Manufacturing Company was incorporated January 1st, 1893, with a Capital Stock of $100,000, 1000 shares, par value $100. Eight hundred shares were issued to Reed in part payment for his Patent Right for the State of Ohio; 200 shares were subscribed and paid in cash. All stock was fully paid. The Patent Right was paid for as follow: 800 Shares fully paid Stock, $100 Cash........ $80,000.00 The books were opened by the following entry :— January 1st, 1894, it was deemed advisable that the Capital Stock be reduced to $50,000, making a reduction of $50,000. What entry? Capital Stock.................. For 50 per cent. of Capital Stock, To Patent Right........ $50,000.00 For 50 per cent. reduction of its cost, etc. For 50 per cent. reduction cf 150 shares $42,500.00 7,500.00 After reducing the Capital Stock as above, the stockholders will surrender their stock certificates and be Debited for same in Stock Ledger. Then issue to them new certificates for the remaining shares. held by each. If you Debit them in the Stock Ledger for entire amount of certificates, then you must Credit them again for the new certificates. To Increase or Reduce the Value of Assets Before Declaring a Dividend. Ex. 275. The Plant and Quarry of the Berkshire Marble Co. of Boston, have fairly increased in value $20,000, owing to the discovery of limestone on another part of their land. What entry is necessary on the books? The correct way would be to make a new Inventory of the Plant, for the new valuation. When closing the books credit the account by Inventory, and close it into Loss and Gain, bringing the Inventory down for new account. If it is desired, however, the entry could be made thus: Plant........ $20,000.00 To Loss and Gain........ $20,000.00 If this entry is used, then the Inventory must include the increased value. Suppose the Plant has decreased in value since the last dividend was declared, say $10,000, owing to heavy operating and reduced prices; what entry would you make? Inventory the Plant for $10,000 less than the last, and close into Loss and Gain; or Loss and Gain...... To Plant $10,000,00 $10,000.00 The company owns 300 shares of The N. Y. & N. E. Ry. Co. stock, par value $100, which has decreased from 125 to 115, a decrease of 10 points per share. What entry should be made in the books before declaring a Dividend, to show the actual condition of the company? Loss and Gain (old acct.)........ $3000.00 To Loss and Gain (new acct.)...... $3000.00 Note. Post the debit entry; then close the books. After the books have been closed, post the credit entry. This entry first shows a Loss on this stock, which has been declared as a Loss, for this Dividend. Now, if this stock had been sold at the time it would have been an actual Loss; but the credit to Loss and Gain new account holds it as a Gain until the next Dividend, or until the stock is sold. Many corporations inflate the value of their assets instead of writing off the depreciation. National Banks are compelled by law to correctly value their assets, and we trust that all corporations will be required to do likewise at an early date. |